Chris Hogan talks about his book, Everyday Millionaires. Joe and Big Al answer your money questions: do the stretch IRA rules apply to 401(k)s? Do you need to get an annual property appraisal if you own real estate in a self-directed IRA? And what is the best strategy for saving into retirement accounts and making Roth IRA conversions? Plus, a tribute to Jack Bogle of Vanguard, and a look at states’ efforts to develop financially literate high school students.
- (00:50) Chris Hogan, Everyday Millionaires
- (13:56) Do Stretch IRA Rules Apply to 401(k)s Too?
- (21:02) Do You Need to Get an Annual Property Appraisal if You Own Real Estate in a Self-Directed IRA?
- (22:10) Retirement Saving and Roth IRA Conversion Strategy
- (30:01) Jack Bogle tribute and the history of index funds
- (33:14) Teaching financial literacy to high school students
Today on Your Money, Your Wealth®, Joe and Big Al answer your individual retirement account questions, also known as the IRA: do the stretch IRA rules apply to 401(k)s? Do you need to get an annual property appraisal if you own real estate in a self-directed IRA? And what is the best strategy for saving into retirement accounts and making Roth IRA conversions? Plus, a tribute to Jack Bogle of Vanguard, and a look at states’ efforts to develop financially literate high school students. But first, national best-selling author Chris Hogan, of the Chris Hogan Show, tells us about his brand new book, Everyday Millionaires: How Ordinary People Built Extraordinary Wealth – and How You Can Too. I’m producer Andi Last, and here bringing the excitement with Chris Hogan are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.
00:50 – Chris Hogan, Everyday Millionaires
Joe: I am so stoked today!
Al: You and me both!
Joe: We got Chris Hogan. National bestselling author, Everyday Millionaires. You’ve read that book, right?
Joe: And you were referencing…
Al: The Millionaire Next Door. There are some parallels.
Joe: Similar. Yeah very much so. This is going to just jack this show right up.
Al: It is because Chris is a good speaker. You and I are hacks. (laughs)
Joe: (laughs) Total hacks. I want to introduce Chris Hogan, Chris, welcome to the show, my friend.
Chris: Well thank you, gentlemen, it’s a pleasure to be with you.
Joe: Hey well let’s dive right into your book. Tell me about your new book, Everyday Millionaires.
Chris: Well, you all were just referencing Thomas Stanley’s Millionaire Next Door, and that was a book that came out some 25 years ago and gave an incredible peek into the life of millionaires. What do they look like, where are they? And it was a foundational book for me reading it back in the 90s, really starting to begin to understand a topic that I didn’t know about. Being from rural Kentucky, I didn’t hear anybody talk about millionaires or if I heard about it it was from poor athletes and entertainers on TV, which didn’t seem like a reality to me. And so, using that book as a foundation, what I wanted to find out is, Is it possible for regular, everyday people, these days in America, to be able to build wealth? And so Millionaire Next Door gave a peek, and so I really wanted to do a deep dive. And so we started to have some conversations and it started to grow. And what we did was reach out to a research firm and commissioned a study so we could talk to over 10,000 millionaires. So it’s the largest study that’s ever been done on millionaires in America. And I wanted to know the reality and what’s going on. Are these trust fund babies or are these regular, everyday people that work hard?
Joe: I would guess that the assumption is, if you’re a millionaire you either inherited the money, you’re born into it, but what your study found is that there was a lot of myths.
Chris: Oh, there were a lot. There were six big ones that we were able to chop down, but I can focus on a couple of these with you all here. Looking at it, you’re right. The whole inherited thing – a lot of people thought that, and I want to be honest and transparent with you, I thought that too. I thought, “well I mean, that’s how they got their money, it was just handed to them.” And in reality, the reality is is that you have 79% of the millionaires didn’t inherit a dime. 79%. And so the reality is that it’s not about that it was handed off, it’s that these are first generation wealth builders. People that built wealth over time. And I think it’s important for us to chop these myths down, because if you think the only way you can build wealth is to inherit it and your family doesn’t have any money, then psychologically, you start to believe that it’s not possible for you.
Joe: Yeah, without question – or you need a silver spoon in your hand, or you need to hang out with the right people to get the right connections.
Al: Yeah, or you need to have this really high paying job and that’s not necessarily the case either.
Chris: No, you’re absolutely right. That was another one that got chopped down. People think, “in order to build wealth I have to have this massive paying job.” Well, the reality is, we have a third of the millionaires that we studied never had a six-figure income in a single working year. Never had it. And so the reality is that these aren’t trust fund babies. These are people that got lucky or inherited it. These are individuals that have worked hard, working a regular job as well. The top three professions that we found in our study were this: number one was engineer because they’re good at planning stuff, that didn’t surprise me. Number two was accountants. Well, they’re good at counting stuff.
Al: Yeah that’s right. I was happy to see that Chris because that’s what I am.
Chris: That’s right. But number three shocked me, and that was teachers. We’re talking about teachers in high school or college, and people get confused with that they go, “Well wait a minute. Teachers, this is an undervalued profession. They’re not paid near enough to put up with all them kids,” and I would agree with that. So how did they get there? Well, we’ve got to go back to what you guys know, and what you teach about as well, and that is what is net worth? And so I’ve really been trying to help people process this, that net worth is the personal financial statement, looking at your assets and your liabilities. But to really boil it down, it’s about what you own minus what you owe. So looking at your 401(k)s the 403(b)s, the IRAs, the Roth IRAs, your home if you have it paid off, even the money in your bank account – adding that up, subtracting out anything you owe on. And if that net worth is a million dollars, then you’re an everyday millionaire.
Joe: I think some people get a little intimidated by money. And for them just to take those first steps, just to say, hey just write down what you have and write down maybe what you owe, I think that absolutely is the first step to get people motivated to at least become financially successful. What other key attributes, they have to take the first steps. But there are other attributes that these individuals have to achieve this financial independence or financial success.
Chris: No, you’re absolutely right. And that was the thing that I’d wanted to do in the book was not only shared some stats. I also give them real information, some commonalities, also share some incredible stories. But the attributes are something that are important for people because these are things we can start to do in our lives. These are things we can start to do, the things that these millionaires are doing. So there were five key characteristics that jumped out at me. The first one was is that they take personal responsibility. These are people that are looking at where they are and they’re owning it. They’re not looking to blame anybody. They’re not looking to shift the focus to a reason why they haven’t achieved anything. They own it themselves. The second characteristic was they’re intentional with their finances. That means they’re doing the habits of budgeting. They’re getting themselves out of debt. They’re saving and they’re investing. It’s not an accident each and every month. They’re also hard working people. They’re people that when they’re doing their job, they’re on their job. They’re not distracted, they’re not watching cat videos. (laughs) And they’re also goal oriented. That means they can set a target, lay out a plan, and then they work to get there. They don’t get distracted. They’re not worried about what other people are doing. They’re focused on themselves. And I think looking at those: personal responsibility, practicing intentionality with their finances, being goal-oriented, being hard-working, leads to this fifth and final one, and I know you all will or wholeheartedly agree with this, that these millionaires understood this that building wealth requires being consistent over time. It’s not about a flash in the pan or one thing that you do. It’s really a focus of how you live your life.
Al: It’s a lot of lifelong decisions, making good, small, decisions all the way through.
Joe: And watching a couple of cat videos. (laughs)
Al: Yeah. Well I mean, I was thinking, “I’ve seen a couple, I don’t watch ’em every night…” (laughs)
Joe: I guarantee you, Alan, you love the cat videos. (laughs)
Alan: I’ve seen a couple, I mean, who doesn’t love cat videos? (laughs) But Chris, let me ask you, so with these attributes, how do you get started?
Chris: Well realistically, I think the key, guys, in all of this is, number one, you need to believe that it’s possible for you. I think if you doubt or you don’t think you can do something, well, I think you can be right. We can have this self-fulfilling prophecy where we undermine ourselves or don’t give a full force effort. And so looking at it and believing that you can, then understanding it’s really important to gain the knowledge – that is reading, that’s meeting with quality professionals to help you along the way. And then third is, it boils down to our habits and our behaviors – controlling those allows us to be able to move forward.
Al: One of the things I really liked about your book was you weaved in a lot of stories about different people that really didn’t grow up with money but yet they became millionaires and maybe why don’t you tell us about a story or two?
Chris: Sure. Well, this book is full of everyday millionaire stories all throughout the book, because I wanted people to be able to not just hear the information. I wanted them to be able to hear from the people. There are all kinds of stories that jump out at me but one, in particular, is Thomas. Thomas was a young man that grew up in a household that was tough. It was a dysfunctional home. His dad was an alcoholic. His mom struggled with some mental health issues. And because of that, he ended up having to be in and out of some foster homes. His parents couldn’t take care of him. Nobody else in his family wanted him or was willing to take care of him. And so he was put into the foster system and had to end up kind of feeling his way around trying to figure out what to do. And so he ended up going to serve in the military, went to be able to serve his country, got out, came back, pursued, got his degree, and then he went into a field of education to be able to help other people, to be able to kind of pave the way for them. And when he retired, he finished with a net worth of over $2.7 million. And so I liked this story because, despite where we can start, despite kind of where you were born or how you were raised or the parents you had or whatever your situation, I think it boils down to us, as adults making a decision about what are we going to pursue for us? You know, we all have different start points and different issues going on, but ultimately we as adults get to sign our own permission slip on this journey.
Joe: Hey Chris, I’m curious about your story. How did you become Chris Hogan? I’m sure you’ve got a unique story. I know I’m throwing a little curveball here.
Chris: Oh it’s not a problem. I can tell you right now, I am where I am because of a few things. It’s the result some teachers seeing more in this little country boy than I saw in myself. The result of family members, of mentors, of coaches, of treating people the right way in relationships, and obviously having some opportunities come my way because of the way I treat people. And so I think it’s one of those journeys where I’m so grateful to people that poured into me. I’m grateful for people that took the time to explain things to me when I was 21 years old, coming out of college, going into grad school, and taught me some things about money that I’d never had access to before.
Andi: Chris I wanted to ask you a question. You were just talking about the people who have helped you through your life and you’re talking about how Thomas got into a career where he had the ability to help other people. In the book several times you mention giving before saving. What are your guidelines for people around that when they’re just getting started on this path?
Chris: Well for me, I mean, I was raised in a home that did a lot of giving. And so I understand the value of it. I understand the importance. Anytime you’re able to have that spirit about you, I think it really boils down to us understanding our goal with money, anything we have, we’re stewards. Which means we’re managers of that. And I think we have an obligation, as well as an opportunity, to be able to help others. And so I think that’s part of the heart of this. And even in our study, we found that 70% of these millionaires set aside money each and every month to be able to give.
Joe: That’s awesome. Why are you not singing? I just want him to sing me a song, you know?
Chris: Listen to me. People all the time hear me talk and they think, “oh, I know he can sing,” but the reality is, it’s really important for us to know our limitations. (laughs) I’m good with the money, I’m not good with the singing. (laughs)
Joe: Hey, where can people find your book? Speaking of giving.
Chris: Well (laughs) you can find out about the book and myself, as well as the Chris Hogan Show, by going to ChrisHogan360.com. That’s my website. On there you’ll find some free tools as well that can help guide people in this journey.
Joe: ChrisHogan360.com and we’ll put that in our show notes. Chris, it’s been a real pleasure I was really excited to talk to you. This has been a real treat.
Chris: Well thank you so much, and speaking of giving, I’m going to have McKenzie, my publicist, send you guys three books that are signed that you can use to give out to your listeners if you want or keep them for yourself.
Joe: I’m sure Big Al will take two of them. (laughs)
Al: (laughs) I’m keeping ’em!
Joe: You know he is an accountant, that’s why he’s so wealthy. That’s why we call him Big Al because he’s got a big wallet.
Chris: Hey, the accountants were number two on the list so it’s not an accident.
Al: There you go. And then I noticed financial planners are not on the list.
Joe: Yeah. Okay. Thank you. I appreciate that, Big Al. That was Chris Hogan folks. Thank you so much, Chris.
Al: Good stuff Chris.
Chris: That was a lot of fun. I look forward to talking to you guys again.
Joe: All right, you too.
Note to self, watching cat videos will not make me rich… okay, I’m on my way! We’ll let you know when those books come in and whether Big Al decides to keep them! In the meantime, to read the transcript of this interview, or to hear or read any of our previous interviews with guests like Liz Ann Sonders from Schwab, Jean Chatzky from HerMoney and NBC’s Today Show, David Kelly from JP Morgan and many others, visit the brand new YourMoneyYourWealth.com. Scroll down that page and you’ll find the Ask Joe and Al On Air button, where you can email us your money question or send it as a voice message, right there on the website! We’ll get to some of those emails now – this one is from Tim in San Diego:
Joe: “I watched your video on advanced strategies on IRAs. In it, you mentioned both IRA’s and 401s. However, it is not clear to me as you presented, especially on stretch IRA rules, if those IRA’s rules apply to 401s. When you talk about IRAs and 401s, are the rules interchangeable? In particular, do 401s have RMD requirements and stretch IRA process for the 401(k)?” All right. Tim, I apologize, because I have a very bad habit of doing this. I will say IRA when I’m describing a tax-deferred account, and I don’t preface enough to say, “when I say IRA, it means IRA, 401(k), 403(b), TSP, 457, SEP, Simple and everything else in between.”
Al: Right. Except when they’re different, and you do preface that.
Joe: Except for when they’re different, but I would say most the time, they work interchangeably. And there’s been multiple times where I’ve been teaching a class for six hours. And I will talk about the tax-deferred accounts and I just keep on referencing them as IRAs. And then someone would come to me and they’ll be like, “Joe, the class is OK, but I don’t have an IRA, I have a 401(k). So actually this class sucked.”
Al: Yeah, so I didn’t pay attention. (laughs)
Joe: (laughs) And I was like, “Well no, The IRA…” So Tim, I understand but I don’t like to say IRA, 401(k), 403(b), TSP, 457, 403(b), blah blah blah blah blah every time, it’s just a pain in the ass. So let me answer your question here on air. When it comes to stretch IRA rules, IRAs always stretch in the tax law. So what a stretch IRA is, Alan?
Al: It means that when you receive an IRA as a beneficiary, non-spousal, so like you’re a kid or grandkid, then you have the ability to stretch the required minimum distributions over your lifetime, instead of having to take it all at once.
Joe: So if you’re 30 years old, you have a life expectancy of another 60 years, hypothetically. Then you would have to take 1/60th out of the account. So what is confusing for a lot of you is that if you inherit an IRA, you have to take a required distribution from that account.
Al: Even though you’re not 59 and a half – or 70 and a half is actually what I meant. Thank you.
Joe: So even if you’re not at RMD age of 70 and a half, and if you inherit a retirement account, you have to take a required distribution, as long as it’s set up as a stretch. And so what the stretch provision allows is you to stretch out that tax liability over your life expectancy. If it is not set up correctly, you’ll either have to take a full distribution that year, or you have to take it out within five years, or you’re going to have to follow the deceased’s RMD schedule if they died past they’re required beginning date. So I know, see Tim? We’re on a TV show, and it’s like I’ve got five minutes to explain all this crap.
Al: Right. And each question you really only have about 30 seconds.
Joe: Right. So, 401(k)s, they do not always stretch, Ok? It’s under the plan document because a 401(k) is established through an organization. IRAs, that’s an individual retirement account that is established under a totally separate code. 401(k) is under Section 401(k). So an employer sets up a 401(k) plan. They create their own plan document of how they want their plan to work. So there are different iterations of a 401(k) plan depending on how that company wants to establish it. So that it could be safe harbor 401(k) plans, there is top heavy, there are all sorts of different types of things that this 401(k) plan document has. So some 401(k) plans may not stretch. It might follow the old rules. Depends on the plan document. They might say, “you know what Tim? You inherited a 401(k). Guess what? You have to take the distributions out within five years.” So that’s why we always suggest, if you ever have a 401(k) plan, to roll it into an IRA just to secure the stretch.
Al: S0 you inherit a 401(k) from your father, let’s just say, and you’re about to have a sneeze. Anyway, and so you’re thinkin’, “well gosh, the plan doesn’t allow me to stretch it. But I’m just going to roll that inherited 401(k) to an inherited IRA.” What say you?
Joe: So I die with a 401(k). you’re asking me if I can roll that into an inherited IRA?
Al: Yes I can do the stretch that way.
Joe: Sure. Yeah, you could do that. No problem. You probably wouldn’t want to, to some degree.
Al: Okay. And why’s that?
Joe: Well, you would have to be the named beneficiary of the 401(k) plan. And then the titling has to change on the 401(k) plan to say, you know, let’s say you inherited mine, Joseph Anderson, deceased, for the benefit of Big Al. So now you’re the beneficial owner of that, then yeah, you could. I mean, it’s your account.
Al: Now it’s my account titled that way. And then I could roll it to an IRA titled the same way.
Joe: Yes. You would just do a rollover titled the same way.
Al: And then I could do the stretch out of the IRA, even though the 401(k) plan didn’t have that provision.
Joe: Correct. But here’s the big caveat of this stuff, is that 401(k)s, inherited 401(k)s, you could convert to Roths. Inherited IRAs you cannot convert to Roth.
Al: That’s very true.
Joe: I don’t know who makes this stuff up. So it’s like OK well now then you got to take a look at, “Well maybe I keep it in the inherited 401(k) and I do some Roth conversions with this stuff.”
Al: Yeah I get it done in five years so I don’t have to worry about it.
Joe: Yeah. So it all really depends on what your goals are. So RMD requirements are going to be the same in a 401(k), in an IRA. The RMD requirement is on a Roth 401(k) vs. a Roth IRA, so that’s the only difference in an RMD requirement. So if you have a Roth 401(k), just know when you turn 70 and a half, you will have to take a required minimum distribution from that Roth 401(k). If you have a Roth IRA, you will not have to take a required distribution. So again, you will just roll that Roth 401(k) into a Roth IRA.
Al: Yeah. Easy answer there.
21:02 – Do You Need to Get an Annual Property Appraisal if You Own Real Estate in a Self-Directed IRA?
Joe: Steve from San Diego, he says, “in a recent episode of YMYW,” I love it, Steve. When you call it by YMYW. Makes my heart just pitter-pat. “Big Al talked about issues withholding real estate an IRA. If you are 70 and a half and you need to take a required minimum distribution, how is the amount determined if you’re holding property in the IRA? Would you need to get an annual appraisal on the property?”
Al: Steve, that’s a great question, and the answer is no. You can get an appraisal, but that could be pretty costly year after year. Here’s the actual requirement to keep yourself safe, is you have to have an independent third party come up with a value. So it could be an appraiser, it could be your accountant, it could be your financial planner if they’re knowledgeable about real estate. It could be a real estate agent, but you just have to have a third party come up with a valuation. If you want to be 100% safe in the clear, you would actually get an appraisal and pay for an appraisal. But most people don’t go that far. They just get an independent third party.
22:10 – Retirement Savings and Roth IRA Conversion Strategy
Joe: I have another email that we need to answer from Tina from Philadelphia and she goes, “Hi Joe.” Hello Tina. “I just started listening to you and Al recently, I have some questions. Let me give you a little background.” All right Tina what have you got? She got married in September 2017. “Prior to getting married I was on the path to debt freedom and looking to transition to a different career. Also work with a financial planner since 2008 and learned recently by listening to you,” Thank you. “Dave Ramsey, His and Her Money and other podcasts that some of the advice I’ve been getting wasn’t necessarily the best. Anyway fast forward to now. My husband and I both have IRAs that have within-plan Roth conversions.” Not sure what that means.
Al: That means you can do a conversion inside the plan. I’ll translate for you.
Joe: Okay. So it’s a 401(k) plan. “I came into our marriage with a Roth outside of work where I put 500 bucks a month. My work IRA or 401(k) is matching 8% and a rollover IRA where no money is being added. My husband came in with his work IRA or 401(k) with a 6% match. My financial planner recommends my husband start an outside Roth. Our gross income is about $160,000 with bonus. I make approximately two thirds more than my husband.” Good for you, Tina. “We are 53 and 58. My husband wants to leave his job around 6.5 years when he’s 65.” Got that background, Big Al?
Al: Got it. Now to the question.
Joe: “Here’s my question. I think instead of starting an outside Roth, my husband should increase his 401(k) contribution to 10% and he and I should do conversions from now up to the year he turns 65. I will be 60 at the time and we should be totally debt free, house and all. I think I should then increase my IRA contribution to the max and continue the conversions until I leave or retire. I’m expecting to stay for an additional 10 years or longer. What do you think?”
Al: OK. Well, the first question is “should my husband start an outside Roth and increase his 401(k) contribution to 10%.” I agree with both of those because right now you’re getting close to retirement – of course, we don’t know how much you have saved. So I’m assuming you still need to save, but that’s a good idea. And “should I do conversions starting now up to the year he turns 65, that year I’ll be 60.” I think, even with both the year salaries, Roth conversions are even better now than they used to be because the tax rates are lower and the brackets stretch pretty far. So I do agree with Roth conversions as a general statement. I don’t know enough about your situation to say that definitively, but as a general rule, I would agree. Now, stopping at age 65? No, actually that’s probably the best time to continue it because now you’re even in a lower tax bracket, so you probably would even want to continue after that.
Joe: The main question is, I think “instead of starting an outside Roth.” So instead of making contributions, she’s thinking put more into the401(k) and convert. What do you think?
Al: OK. It’s same-same. There’s no difference anymore. It used to be that when you did that, you can do two conversions and invest them differently, pick the better the two and re-characterize the other one. Now you can’t do that so it doesn’t really matter which you pick.
Joe: So Tina, I guess here’s our point – it depends on how much that you want to convert. You might want to do both. So if you are doing a Roth, or increasing your 401(k) contributions and then doing a conversion, well you pay the tax on the conversion. If you’re only going to convert $6,500, well then just make a $6,500 Roth contribution.
Al: Yeah. You end up in the same spot.
Joe: You end up in the same spot because it’s an after-tax contribution that goes in the Roth, versus converting a pre-tax account and paying the tax to go into the Roth. So I like her thinking of saying, “hey, maybe we get some tax diversification here,” but we would need a lot more information in regards to what are the balances in the 401(k) plans? What’s the tax bracket they’re in? What fixed income sources are you going to have in retirement? What’s your Social Security statement look like? Are you going to receive pensions? Is there any real estate income? I think there’s a lot more to this.
Al: There is and I think it just goes to show that it’s hard to give blanket advice when we know so little to really get the best advice, and that’s where you could potentially do a lot of research yourself or you could go to a financial planner that’s able to look at this kind of planning. But once you know all the particulars, then it becomes a little bit clearer what you should do. But yeah, in the case of that one question, should you do a Roth contribution or should you do a deductible and then a conversion, it’s now same-same. There’s no advantage or disadvantage either way. It’s simpler not to do the conversion. So if you can avoid it you get the same amount.
Joe: Yeah, but if you’re looking to convert, I don’t know, $30,000, well then you make the contribution to the Roth of $6,000 and then you convert $24,000 to get the $30,000 in the Roth. So you might want to do both. So hopefully that answers your question, Tina.
She does have a financial planner. So I don’t know, did she say he’s not giving her the best advice? I was thinking as I was reading this it was like, “Well he’s telling me to put $700 into a variable universal life policy…”
Al: Doesn’t seem like it.
Joe: Roth IRA, that seems pretty cool.
So to recap, the fellas just answered your questions about inherited IRAs, stretch IRAs, self-directed IRAs and Roth IRAs, which just goes to show that individual retirement accounts are very complicated, and their uses are very specific. In fact, there are at least 8 different types of IRAs, and we have a free guide that will walk you through each them. Learn who is eligible to contribute, the differences between deductible and non-deductible IRAs, and which type of IRA suits your needs. Download our free guide, 8 Types of IRAs – find it in the show notes at YourMoneyYourWealth.com.
30:01 – Tribute to Jack Bogle & the History of Index Funds
Joe: We got Jason Thomas, he’s here.
Jason: Hey how’s it going?
Joe: Why are you here? (laughS)
Jason: I don’t know I was asking that myself, that’s a very existential you guys wanna take things. (Laughs)
Joe: Jason why don’t you introduce yourself to our audience, here.
Jason: I am one of the financial educators at the firm, up in the Los Angeles area and I have the pleasure of being in San Diego for the week rain having followed me, but I always enjoy being down here. I teach some of the classes and write some of the stuff for the site.
Joe: Oh. What’s your background? Besides a stand up comic?
Jason: Ooh, that’s part of it, I’ve had many tomatoes thrown at me, but I’ve taken all of that stuff down (laughs) and the bodies are buried and no proof of that previous past is here anymore.
Al: We can’t see your old stuff, huh?
Jason: No, and that’s by design. (laughs)
Joe: Want to give a tribute to Jack Bogle, founder of Vanguard. Passed away this week at age 89.
Al: Yes he did. I think it was Wednesday.
Joe: Yes, it was Wednesday. Pioneer in the mutual fund industry. 1974 I believe is when he established the Vanguard Group out of Wellington. And maybe ’75 was the first S&P 500 index fund is what they came out with?
Al” Yeah. So he’s the father of the index fund, the whole concept of having an index fund.
Joe: I think the index fund was developed before him, but not to the retail investor.
Al: Yeah that could be true, but he’s kind of known as the father.
Joe: Of course. Because I think he did a heck of a job getting out there and trying to help educate the public on investing.
Al: Yeah. And his thought was long term investing is the way to go, and you just invest and don’t worry about buying and selling all these positions, just have the index and have it be low cost. So that was his story and it didn’t really catch on at the beginning.
Joe: Well they thought it was un-American. Right? Because it’s like that’s laziness. Or like you’re just buying the entire market and you’re just going to just wrap it up and don’t do anything.
Al: And no one’s managing it.
Joe: You have to do research, you have to find… you have to pick the right stocks, you have to sell the bad ones, you’ve got to buy the good ones, you’ve got to make sure that you’re understanding what’s going on, the markets move fast. That’s how the industry worked and that’s how it still works for the most part.
Al: Yeah, for a big chunk of it, and it took a while for it to catch on. But it did catch on. And what’s interesting now is all these actively managed funds are compared against indexes, and more often than not, they don’t beat the indexes. The indexes usually – not always – but usually come out on top.
Joe: But Vanguard does have actively managed funds.
Al: They do. But that’s where it started was the index fund. And they did that just because certain customers demand that. And so they had to do that.
Joe: Any comments on Jack?
Jason: That’s a loss it’s kind of like, even though that wasn’t his development, it’s kind of like we associate Henry Ford with the assembly line – even though he didn’t necessarily invent it, but certainly made something out of it to the masses, and I think you could say the same thing about Bogle, that he’s basically changed the way that people engage in activity and made a pretty substantial contribution.
Joe: Henry Ford didn’t create the assembly line?
Al: That’s what I heard. (laughs)
Jason: See, that’s proving my point! (laughs) He didn’t have to, he’s associated with having done it based on…
Al: So he probably perfected it though. There’s probably some brothers in South Carolina that came up with the idea.
Jason: Yeah exactly. Got their name on a car.
Al: What other tidbits do you have?
33:14 – Teaching Financial Literacy in High School
Joe: We got teaching high school students, we got financial literacy month coming up here. Right. But a lot of different states now are trying to get involved in helping our children out with getting a little bit smarter around the checkbook.
Al: I like that.
Joe: I did a class once to high school kids, and I teach a lot of adult education here in Southern California. That’s Jason’s full-time job is to teach education courses. And I taught a class for high school kids, this is, I don’t know, maybe 15 years ago and a girlfriend of mine was a teacher and she’s like, “hey, that would be great.” I think they were like in eighth grade, no in sixth grade. It was elementary school. And so I went in with the Wall Street Journal and my HP12C and we talked about, “what is a stock,” “what is a bond, “just real elementary stuff. And then it’s like, “OK, let’s say if you saved $100 a month for the next 30 years, you would have a million dollars,” whatever it was. If you get a 7% rate of return. I was just trying to teach them compound interest as well. And I thought I killed it. I’m like, “oh my god, I’m like the mentor of the year. All of these kids are going to be…”
Al: Gazillionaires. (laughs)
Joe: Yeah. And I guess one of the parents complained! I was giving false expectations or something like that. Because the kids were like, “hey I’m gonna be a Millionaire! I talked to this guy, he was in our class. All we got to do is save $100…”
Al: Of course, their allowance is six bucks a week, so…
Joe: Yeah now the kids are asking for 100 bucks a month so they could put it in a mutual fund.
Al: (laughs) That was the real problem. But now Kentucky, they announced a new bill that would translate into books, materials and training for teachers that they could educate their students on money management with the goal of teaching Kentucky teens how to balance a checkbook – how cool is that? I mean, there are people that are our clients that do not know how to balance a checkbook.
Al: I’d say it’s 50/50.
Joe: Also making smart house buying decisions. Spending less than what they make. You know, some of the most successful people that I’ve ever met were like, “You know what Joe, here’s the secret. Spend less than what you make.”
Al: It’s not that hard really.
Joe: Well it’s very hard for most.
Al: The concept is simple.
Joe: Yes it’s simple but not easy.
Al: If you start your career and save 20% of what you make all the way through, you’re going to have more money than you can possibly imagine in retirement.
Joe: A couple bills are going through in Florida and South Carolina that would make it mandatory for high school students to take a half-credit financial literacy or personal finance class before they graduate. Did you take anything like that in college or high school?
Joe: Jay did you?
Jason: I had one economics class and that was an elective.
Joe: In high school?
Joe: Yeah we had a little bit of personal finance, I’m trying to remember – I do remember having like a fake checkbook and things like that, but I think it was like an after-school thought.
Al: Yeah I had geometry and trigonometry and a little bit of pre-calculus. No checkbook.
Joe: Ooh, big brain on Big Al. (laughs) “A little calculus.” California got an F in their grade. There is no personal finance education requirement to graduate, some financial literacy content has been included in other curriculum but are not required. Other F states are Alaska, Hawaii, South Dakota, Wisconsin, Pennsylvania, Connecticut, Rhode Island, and Massachusetts. Why are you laughing because I can’t?
Al: Well you’re trying to put out states on the fly. So we should explain this comes from, in 2017, Chaplain College Center for Financial Literacy rated all 50 states. So that’s what we’re talking about in terms of financial literacy for their kids in high school.
Joe: All right, well hey, I wanna thank Alan Clopine. Also the wonderful, beautiful Andi Last, and big bad Jason Thomas. All right, that’s it for us, we’ll be back next week. The show is called Your Money, Your Wealth®.
Special thanks as well to Chris Hogan, learn more about his book Everyday Millionaires at ChrisHogan360.com. Next week, our always outspoken friend Larry Swedroe from Buckingham Strategic Wealth joins us on Your Money, Your Wealth – subscribe to the podcast at YourMoneyYourWealth.com. If you’ve got money questions, click the “Ask Joe and Al On Air” button at YourMoneyYourWealth.com to send an email or a voice message directly!
Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.