On today’s special Stacking Benjamins Rewind episode, we jump into the way back machine to listen to an episode from our friend Doc G’s Earn & Invest Podcast.
If you think personal finance is personal, you’re mistaken!
We hear it all the time: “personal finance is personal”. In today’s episode, JL Collins and Scott Trench join Doc G and they question this popular saying. While tactics and personal needs may vary, there are better and worse ways to invest and build wealth. Join us as we dive into the weeds.
This episode of Earn & Invest Podcast originally aired on June 19, 2023, so please ignore any mention of current events. For the original episode’s show notes, you can see them at If You Think Personal Finance is Personal-You’re Mistaken! — Earn & Invest (earnandinvest.com).
Deeper dives with curated links, topics, and discussions are in our newsletter, The 201, available at https://www.stackingbenjamins.com/201
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Join Us Friday!
Tune in on Friday as we wrap up this edition of Rewind Week for a special roundtable discussion
Written by: Kevin Bailey
I’m Scott Trench, and this is the earn and invest podcast. I’m Scott Trench, and this is the earn and invest podcast. I knew one of you smart asses was going to pull that on me. Let’s try that again with your name. Smart Alec. Oh, my name, I tried to keep it similar.
I’m JL Collins, and this is the earn and invest podcast. I’m JL Collins, and this is the earn and invest podcast. Awesome. All right. You did that better than I did.
When EF Hutton talks, people listen. If you are of a certain age, as I am, you remember this catchy phrase from one of the most successful ad campaigns in the 1980s. E. F. Hutton is a brokerage firm, and the ploy was to get you to think that if you hired this brokerage, they would reveal the investing secrets and would make you rich and powerful.
Of course, we now know that brokerage firms in general, and especially in the 1980s, were after one thing and one thing only. Your money. The commercials were a farce. In contrast, when my guests for this episode talk about investing, real estate, and financial independence, you better believe that people actually do listen.
Today we return to the basics and question whether personal finance is truly personal with two investing greats. Are you listening?
JL Collins is the famous, or shall I say infamous, creator of the blog JL Collins NH. His first book, The Simple Path to Wealth, has sold hundreds of thousands of copies and is often the go to resource when it comes to financial independence. His new project, Pathfinders, extraordinary stories of people like you on the quest for financial independence and how to join them.
will be released by Harriman Press in late October. Scott Trench is the author of Set for Life and co author of First Time Homebuyer. He started his career as a wee employee of real estate megalith Bigger Pockets. He is now not only the CEO, but also co host of the Bigger Pockets Money podcast. Jail and Scott, welcome to Earn and Invest.
Jail, I want to spin the dial of time back on our time machine. Looking at your path. How could you have made the path to wealth simpler for yourself as a young adult? Well, that’s, that’s a pretty easy question, actually. Uh, if I had it to do over, I would have embraced index investing much, much earlier. In fact, I could have embraced it the same year I began investing, which was 1975, because that was the year that Jack Bogle brought out the first commercial index or first retail index fund.
So the big mistake was there was that you just didn’t read the simple path to wealth yourself. As a young person, you know, you joke about that. And I, I hear people tell me all the time. I wish I’d read that book when I was 10 years younger, 30 years younger or whatever. And, and my response is I wish I’d read it when I was, when I was, uh, uh, coming out of college too.
Scott, let’s also look at your humble beginnings. I associate you with two things, right? One of those things is as a real estate investor, but the other is as a young person who got in early to corporate America and has really made his mark. If you’re looking at your path, Would you say that your path is that of a young CEO or of as a real estate investor?
What do you identify more with? I think that my path is similar to folks that, many folks that are looking to achieve financial freedom. Like that’s like, that’s to the point of, I don’t want to say obsession, but to the point of where, Hey, I’m willing to change everything about where I live, where I work and all those types of things.
And my path, I don’t know how to say if it’s similar or not. I got lucky. I joined a. Uh, yeah, I took a risk and I had the low let cost lifestyle that enabled me to feel comfortable with that. But I mean, bigger pockets could easily have not become a large, you know, well known real estate investing platform, um, and, and, and that could not have not have turned out.
So I don’t know. That’s a great question. And I, I often, you You know, think about that. What’s the, what, what is it, right? Uh, is it real estate? Is it becoming, getting, joining a startup as an early employee and riding a, uh, an incredible wave or what, what’s repeatable? What’s not in that? I don’t know. It’s notable that you got into bigger pockets because of your love of real estate, but also at that time, you were looking like that.
The hustle was important to you, right? Like getting to financial independence, finding ways to build more income. It’s an interesting question of kind of what came first, the chicken or the egg. JL, we were talking about your past a little bit. We were talking about Scott’s past a little bit. How do you think wealth building looks different today than maybe it did 10 or 15 years ago?
I don’t think it looks different at all, actually. Um, in, in fact, one of the, the, uh, The class of questions that I get on a fairly regular basis come from people who say, you know, I, I read your book or I read your blog and, and you have these ideas on this, but do you still feel that way given the pandemic or given and I do, I mean, the, the principles are, are timeless and they will be timeless as long as the United States is a capitalist country.
Scott, talk about that timelessness. I had mentioned to you before we went live with this episode that I’ve been reading lately in the press. You’ve been talking about what seems like a standard for real estate investors, which is the Burr Method. And you were saying that Maybe things are a little bit different now that maybe the real estate investor of today has to be more cautious.
We might not be able to use, for instance, that tried and true method that people were using post 2008. Does the world look different today to your average real estate investor than it did 10 years ago? I think that from a fundamental perspective, you know, if you zoom out and think about the long term, 30, 40, 50 years, you know, the way JL teaches to do, I think, no, fundamentally you buy property, you hold on in good areas and, and you, uh.
You finance it and continue with your path. But if you’re looking to make, you know, run a business in the short term, or you’re looking to make more, you know, midterm investments, right? Saving up for college education or something that’s 3 or 5 years away. I do think that folks have to think about things differently in today’s environment.
And I also wonder, no one knows the answer to this, but I wonder if, you know, we’re, we’re in an environment of rising interest rates that may continue for many years, which is fundamentally different from the market for the last 40 or 50 years of steadily falling interest rates, um, you know, with puts and takes, there’s no such thing as a smooth movement, but if you zoom out 50 years, it is a pretty continuous ride down from the 80s, um, to today, Of lower of falling interest rates, and that has a whole bunch of ramifications and inflating asset values and driving them up and making bond values go up.
Right? Bond investing has been safe for decades. Right? Why is it safe? Well, because. Interest rates tended to come down that inflates your bond equity and allows the returns you’re getting in the previous state to look really good. So, I think there are some questions to be thinking about. In various parts of the market and in various and various, uh, investing strategies, especially in asset classes that are very heavily influenced by interest rates, like real estate, which typically tends to be more levered than other asset classes.
Joe, it’s an interesting question, right? Because I find myself struggling with the dichotomy of. Long term investing in good habits versus short term reactions, right? So, as you were saying, long term, as we go into decades, the fundamental principles of investing are the fundamental principles of investing and will serve.
Is there ever any argument that short term micro environments should change our behavior? Well, now when it comes to investing, uh, the way I look at investing, it’s inherently a longterm thing. If you are, uh, if you’re thinking of investing in terms of the short term, uh, then you’re not investing, you’re speculating and that’s a, that’s a different world.
That’s, that’s the world of the commentary that you find on CNBC, you know, what stock is going to go up in the immediate future. Uh, what stock should I be selling now? Because it’s going to be going down in the immediate future. In my mind, that’s not investing, that’s speculating, and if you want to do that, that’s fine, and then you have to pay attention to all of these short term trends that you’re referencing, but if you’re looking at the long term, then the principles remain remarkably consistent and have done so for 100, 150 years.
So I can look at it and see it and as it’s unfolded in my own investing life, which is, as I say, began in 1975, which is an appallingly long time ago at this point. And, you know, but I also have the benefit of the historical record to look at even. Even before that, Scott, I sometimes feel like when we’re talking about investing, I 100 percent agree with JL, right?
Investing principles in that sense don’t really change. And part of that to me, and I don’t know if JL agree with this or not, is the fact is that the market is efficient and will always be efficient. And therefore anything that even smacks of speculation is going to get you in trouble. On the other hand, real estate, I feel like is different because I feel like real estate by nature is a lot less efficient.
And so does the same principle kind of ring true? Whereas when we’re talking about stock market investing, I really think there’s very little that’s new, that’s created in the world that’s going to change the way we do it. And yet. When I look at real estate investing, I feel like there is room for maybe these environments to change and for you to pivot for in a much more short term manner.
Yeah, look, I think, I think from an investor, again, the long term zoomed out principles perspective, if you’re buying a property in an excellent location, you know, like, I wish there was an index fund for this, right? Like, you know, that’s the difference, right? There’s no, there’s no index on real estate, but if you buy a property, leverage it responsibly with a reasonable, Transcribed 30 year fixed rate mortgage at maintain it and operate it well and take care of it.
And you were to do that across the average across the country. I think you could do pretty well over a 30, 40 year period, probably comparable in some ways to the stock market. You’d have to use leverage and you might be reasonable to do so in a way there. I mean, the stock market is obviously leveraged as well.
Um, uh, you know, we talk about the companies, us that are underlying an index fund on their use of leverage. But, you know, that, that would be a reasonable interpretation of that, right? In the short term, you know, I think that’s where, yes, you have to change strategies, right? So I talked about how the BRRRR method has declined in popularity in the last year.
I think it will actually come back towards the end of this year when the Fed stops raising rates because the BRRRR method is essentially you buy a property, you fix it, you know, with a short term interest. loan, either like a HELOC or a hard money loan, you fix it up, you refinance it with a 30 year mortgage.
Well, if rates are rising in between your buy period and your sell period a year later, that hurts your projections, right? That changes how that, how that deal is going to work out with you, work out for you in the first 2 years after that hold period. But if rates are flat and you underwrite to that at the beginning, you can still use this strategy and make it work just fine.
So just hard in the actual, uh, period of rising rates in a near term perspective that makes that strategy hard. But once you, once the project’s completed, now you’re, you’ve ended the business activity of improving a property and you’re making an investment decision about holding it presumably for years or decades.
And at that point, I think, again, I think it comes back down to the principles of is it going to cash flow and is the reason to believe it’s going to appreciate in a reasonable sense, long term, you know, one of the things that occurs to me when I, when I look at, at Scott’s real estate approach and, and my stock approach is I have the entire country is my playground.
And that is when I buy the total stock market index fund, I’m buying. Companies throughout the United States, in fact, every publicly traded company in the United States. I could take it a step further and buy a world fund and buy an index fund that represented companies from all over the globe. But it occurs to me that real estate is inherently local.
You know, you’re buying property. I’m sure you could put together a portfolio of properties scattered all around the country and, and, uh, provide diversity that way, but it’s inherently local. And I was struck on this last trip that we just returned, returned from one of our last stops was visiting some friends in Detroit.
And my buddy Tom took me for he’s a long, long, long time Detroit area resident and very proud of the area. And he took me on a little tour to show me. How Detroit was resurging and, you know, I had the mental image that I think most people have that Detroit, Detroit was kind of a disaster area. And I think at one point, not too long ago, that was true, but I was genuinely stunned at some of the really cool development that’s, that’s going on in the city of Detroit.
And at the same time, I came across an article that was titled something like is San Francisco, the new Detroit. And of course, everything I’m reading about San Francisco is that that’s a city that has been riding high for almost my entire life and yet seems to be falling on hard times. So it occurs to me that, that I can feel a lot more comfortable going into my total stock market index fund and saying, I’m going to be there for the next 50 years because unless the entire country swirls down the tubes, it’s going to work out.
But even if you were investing in the best possible area that I think a lot of people would have said was San Francisco, not terribly long ago and avoiding the worst possible area. Which a lot of people would have said was Detroit not too long ago. It might be that that, that wheel’s turned. I would, I would completely agree with that, right?
You like real estate is not a, Oh, I’m just going to set it and forget it and not, not, not deal with it for a very long period of time. You almost like when I invest in Denver, I’m almost making an implicit bet that Denver is going to have, you know, an influx of people over the next several decades, which it did for the last decade.
But guess what? There’s now net migration out of Colorado in the current times, right? And folks are thinking about, hey, you know, did all of these millennials move to Denver and, you know, have a good time and now they’re getting married and having kids and moving back home, wherever that was, right?
Midwest, East Coast, wherever, right? South. And so there’s actually a small amount of net migration out. of Colorado at this point, right? So you’re making a bet over a series of decades that you’re that the the market is going to blossom to a certain degree and you have to, you know, you have to be comfortable with with those things and you have to watch your eggs very carefully.
I want to caveat a couple things here though because, you know, this is not a like a, uh, JL thing. Most of my cash that I accumulate goes into index funds like that are S& P 500 US Index funds, right? And VTI, right? Like specific, uh, ETFs that I know you are aligned with and, and invest in personally, JL.
Absolutely. Less cash than that has been invested into real estate. Now, my asset values of my real estate are higher. Then my, my, my portfolio of stocks because I’m levered right in, in, in my real estate. And so I put less in, but I’ve actually invested more cash into index funds over my lifetime and probably will continue to do that than I have into, into real estate at that, at this point, because I largely agree and align with your philosophy, but I also think that I can, with a portion of my portfolio outperform the long term averages of the stock market by buying well, by managing well.
And fundamentally by making a bet on a market that I think is, has good long term prospects despite the, uh, uh, the pressure from the last year or two. Yeah, see, again, I think Scott and I are on exactly the same page and, and I would agree with him that you can do better in real estate than you can in, in index funds, precisely because you’re putting some of your personal effort into it and you have control over it.
So. In a way, it’s a little bit of an unfair comparison. You’re comparing a pure investment with the index funds with an investment that’s also kind of a part time job, and I’ve said on many interviews, and I think I even say in my book that if you’re, if you’re willing to spend your time doing that, and you’re willing to learn How to do real estate well, which Bigger Pockets and Scott’s books are wonderful resources for, then it’s a very powerful wealth building tool.
At the same time, when I talk to my real estate investing friends, I think it’s a great strategy because as you get older, you may not want to spend your time doing that. To take your profits from that and transition into index funds that are, are a lot less, uh, require a lot less of your, uh, of your time and energy.
So I think we’re exactly on the same page. Jeez, I was trying to pitch you against each other and you end up on the same page. That’s not fair. That’s not going to make an interesting podcast. Well, you don’t, don’t put me with somebody smart and well versed. JL, I want to maybe confabulate two ideas to, to make a point.
And maybe this is an unfair confabulation, but I want to do it anyway. When we look at things like. Investing as we’re talking about, we actually see the principles don’t change and they’re not reactionary and they’re long term. All those things you just said. On the other hand, we love in this community to say personal finance is personal.
And so there’s this idea that different people do it in a different way, and yet there are some tried and true principles. I want to bring this to your upcoming book, Pathfinders, Extraordinary Stories of People Like You on the Quest for Financial Independence and How to Join Them. I guess as an intro, let’s talk to, about all the different paths there are.
I mean, you’ve interviewed, you have case studies, your new book is going to be telling the stories of a lot of people in our community, in various communities, and their path to financial independence. Are there many paths or are there one or two main paths? So it’s a great question and it’s, it’s one that, that, uh, Uh, that I’ve sort of wrestled with over the years long, but long before I started putting Pathfinders together, because I don’t entirely buy this idea that personal finance is personal with the implication that it’s different for everybody, because I happen to believe there are better ways to do things than others.
Some ways are simply better than others. And I, I spent my investing life going, trying all kinds of different things. And it’s not a matter of good or bad. I mean, I, I said on interviews before that I actually achieved financial independence as a stock picker, as a picker of actively managed funds that were run by stock pickers.
So it’s not like that doesn’t work. It’s just that indexing is more powerful and it’s a lot easier. So there are, there are better ways to do things, and I think that what I put together in the Simple Path to Wealth is the best way. Now, what’s interesting to me, and has been since 2016 when that book came out, and I started hearing the stories of people who read it, Is the amazing ways that they applied it to their own unique situations.
Same basic principles that are universal, but I wrote that book for my daughter who was in college. So it’s written from the perspective of here’s what you do if you are just starting out. You’re, you’ve got a, a blank slate in front of you. But of course, not everybody. In fact, probably most of the people who read The Simple Path to Wealth aren’t coming to it from at that point in their life.
They’re coming to it as we talked about earlier saying, wow, I wish I’d found this book 20 years ago. So they have to figure out ways to unwind what they’ve done so far and in terms of their lifestyle and their investments and adapt this new approach. The approach doesn’t change. But the creativity with the way people adapted to their stage in life, to what they’ve accomplished so far with their investments or not, to what country they’re living in.
It’s another remarkable thing to me. These stories come from all over the world, and it’s a very U. S. centric book, and it’s amazing to me that people outside of the U. S. have found so much value in it and have been able to figure out how to adapt this U. S. centric book to their own, uh, investment world, their own, their own countries.
So I think it’s two things. I think the principles. are basic and I, and I would continue to say there are better ways to invest than others. Uh, but the way to apply those principles depending on your unique situation is infinitely varied. Scott, I tend to agree actually very much with JL on this point.
But I’m wondering your take, because it’s always rubbed me along a little strangely, this whole personal finances, personal statement, and I, and I get where it comes from, but in some ways I feel like it erases some of the universality that belongs in these endeavors, right? Because we can use a scientific approach on investing, whether it be real estate or stocks, and there are some universal truths, right?
Yeah, I think that’s right. I think they’re, you know, the rules of the game are the same for everyone. You can earn more, spend less. Invest, better or worse, or create assets. Right? And that’s not assuming you pursue one of the bonus options of winning money or marrying rich or inheriting money, which are all additional options here, which various folks have have successfully pursued in the past.
Um, so, like, if you take those four, those four principles, like, you have to apply yourself to various of those levers, and that’s where personal finance is personal, right? Um, you can invest poorly, right? So, so yes, index fund investing. I’m aligned is perhaps the best way for someone to passively invest for the long term, right?
Probably just to invest for the long term. I’m going to use the word passively in there, but you can still achieve financial independence investing in a. Lower probability approach or more expensive approach, right? Uh, and we, we have friends, uh, you know, Mindy Jensen, right? We all know Mindy and Carl. They purchased a bunch of tech stocks and became financially that that greatly speeded their path to financial independence.
Right. I don’t, I think they now invest in, in index funds, um, uh, for the most part. Um, and it prescribed to that theory, but these, all these, that’s where I think people get into personal finance is personal. Everyone takes a different path to arrive at the outcomes, but I think there is increasing alignment on what optimal looks like for the vast majority of folks, uh, in certain categories, uh, or certain parts of that path.
to building wealth.
We are talking to JL Collins, author of The Simple Path to Wealth, and Scott Trench, author of Set for Life, and we are talking about whether personal finance is personal. And getting back to the basics, we’re going to take a short break. I’m Doc G, and this is the Earn Invest podcast.
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Ladies, cheers to my new job. Create your Indeed account today. We are back with JL Collins. His new book is titled Pathfinders, Extraordinary Stories of People Like You on the Quest for Financial Independence and How to Join Them and it will be released by Harriman Press in late October. And Scott Trench was the author of Set for Life and co author of First Time Homebuyer.
He started his career as a wee employee of real estate megalith BiggerPockets. He is now not only the CEO but also co host of the BiggerPockets Money Podcast. And we’re talking personal finance basics, Scott, let’s come back to your story. You lovingly showed us a picture of your daughter at the beginning of our conversation here.
How has your changing family situation changed the way you look at your personal finances? I mean, when you started working for BiggerPockets, you were not married and had no children. The world has changed. Yeah, you know, it’s funny because I would have said. Oh, you know, once you’re married and have children tactics that I pursued very aggressively, like house hacking, for example, um, really are a lot harder to pull off or maybe are less attractive.
And so, ironically, my wife, we were, we were living in a very nice. Uh, apartment that we were renting, um, at that point in time from another landlord, uh, uh, near a big city here in Denver, or a big park near here, here in Denver called, uh, Wash Park, which is a nice place, right? It’s a place where a lot of folks would like to live.
And, um, we, you know, she wanted more space. And so she suggested to me. Why don’t we move into that duplex you have 15 minutes outside of the city in Lakewood, Colorado. So, you know, all these, all these kind of things that I thought, Oh, you know, Oh, it’s going to be a lot harder to save money or whatever.
Well, actually we’re house hacking in a, in a duplex, 15 miles outside of the city center of Denver. And I think that, you know, going back to what we’re talking about before about. Is personal finance personal? Well, the principles apply to everyone the same way in every circumstance. Just because I now have a baby does not change the rules of money in, money out, and how you invest it, right?
It’s the same stuff and the same approach. And to give you a little bit of the numbers on this one, the property, um, I purchased it in 2019 with a partner. So I’m actually paying rent to a business that I co own. Um, and the rent is 2, 700 for each side and the mortgage is 3, 200, um, for the property. So it ends up being a very nice, a nice opportunity there.
So I think that’s a little fun story about what’s changed since I’ve become a dad. Um, well, I love spending time with my little girl. She’s a bundle of joy, very smiley, very happy. but more importantly, from a personal finance perspective, not more importantly for me, but more importantly, perhaps the listeners of this podcast, uh, uh, you know, nothing’s changed fundamentally about the way that I run my, my personal finances.
We continue to have a budgeting meeting with my wife. We continue to review our finances. We continue to apply our capital in three categories, real estate, stock market, uh, index funds, and now debt, which I’d love to touch on at a certain point in the future. And we continue to live pretty frugally. I drive my.
Paid off Toyota Corolla, and nothing has changed, right? I show up to work every day. So, how’s that for a long winded answer to your question about what’s changed? I love, I love long winded answers. So, JL, you started JLCollinsNH, your blog, as a repository of information for your daughter. You see Scott here with his eight month old daughter, and you want to make sure that he has all the information he needs to bring his daughter up right.
So, of course, you’re going to give him a copy of The Simple Path to Wealth to give his daughter the minute she can, can read, right? Um, what would you, is there anything you’d add? To the simple path to wealth? Yeah. You know, there, there really isn’t. I, I, um, uh, I’ve, I’ve, I’ve wrestled with that question before.
If I were to, to do an updated version of it or to rewrite it, was there anything I would change? Fundamentally, there isn’t. There are a lot of things in it. Um, the detail kinds of things where. I talk about what the regulations are as to how much you can put in an IRA or 401k, and of course those have changed over the years, but all the, the principles are, are exactly the same.
Scott, how old will your daughter be when you hand her Seth for life and say, Here you go, kid. And here’s, here’s the simple path to wealth on top of it. Here you go, kid. Like me, she’ll be about four. Four. Here you go, kid. It’s time to learn about personal finance. How do you think you’re going to educate your daughter?
I think we’re going to just start with, but you know, I don’t think. From a personal point of view, we’ll involve her. She’s already there. She put at the table and we have our money date me and my wife. Right? So, you know, um, so, so she’ll, she’ll never remember a time where it’s not an open discussion about finances.
I’d hope in a general sense, but, you know, we, I haven’t come up with like a formal. Educational plan yet, because she’s 7 months. We’re hoping, you know, we’re working on Dada at this point, but I hope that that’s it’ll just be kind of osmosis at 1st and I’ll probably put together more of a kind of educational program or plan, which is, you know, entering school age and can read and do numbers and those kinds of things.
JL, your message originally was to create that information for your daughter when she needs it. Let’s look at the other side, right? As opposed to young people, let’s look at older people. Is it ever too late to start? And when you see people who are in their 50s and 60s and they say, Hey, you know, I’ve read The Simple Path to Wealth, but I’m afraid that I’m, I’ve missed the boat.
What do you tell them? Well, I tell them a couple of things. First of all, you know, depending on how serious you are about achieving financial independence and assuming you’re starting at ground zero, which is zero net worth, you know, depending on your savings rate, you’re looking at a 10 to maybe 15 year journey.
If you’re aggressive about it, I recommend 50%, and I, if I remember the numbers correctly, it’ll take you about 12 years in that regard. So, if you’re telling me you’re 92, is it too late? Yeah, impossibly, sure. But if you’re 50, and you’re 50s or 60s, no, it’s not too late at all. The second… thing that I would say to those people is this is not an on off switch.
This is not where you’re not there today. And someday in the future, you are there. It is a journey. And the moment you start saving and investing. Even the smallest amount that you just begin with, you are that much fiscally stronger than you were the day before, so it’s a progression, so you may never, you may start at 68 and never achieve financial, quote unquote, financial independence, but you can still make your, your financial situations stronger in a steady.
Relentless kind of way. So I encourage people to think about it as being a journey. It’s like, it’s like working out. If you go to the gym, you’re not going to bench press 300 pounds the first time out, but the first time you start bench pressing, you’ll be a little stronger. The next time, and then the next time, Scott, JL just said, when it comes to investing, it’s not an on off switch.
Is it when it comes to real estate investing? Do you find that people after a certain age, they probably shouldn’t jump in headfirst into real estate investing? Or is it a good thing for people to start if if they’re a late starter to the financial independence community? So, this is, we actually had the pleasure of, I met Bill Yount and Becky Heptig from Catching Up to Phi, and we actually asked them, hey, you know, because these are 2 individuals who started the journey to financial independence after age 50, basically broke, right, or negative net worth.
And we’re able to achieve financial independence with 7 figure networks over the next few years. 1 of them was a doctor and 1 of them was earning 70, 000 in household income at that time. But I, so I actually think that the path for someone in that situation to financial independence in a lot of ways mirrors the path.
Of an aggressive 20, you know, 22 year old, uh, in a lot of ways, because you have a lot of similar advantages, right? You should be have empty Nestor and empty nest. You should have, you know, perhaps the opportunity for 1 or 2 incomes with few dependents at that point in time. And obviously everyone’s story differs, but I think that’s where it allows you to be very aggressive in that approach.
Real estate, look, is a tool for a certain percentage of the population. And to JL’s great point earlier, there’s a price to entering real estate in the form of hours of your life, right? Both up front in the form of self education, and then an ongoing basis in actually managing the assets, which are not passive, but will be semi passive at best, even if you’re higher outsourcing things like property management and maintenance.
So you have to believe that the investment in real estate will be significant enough. In volume, and that there will be enough of an opportunity to make more than the 10 to 11 percent average annual return that the stock market, an index fund that is totally passive will make over the next 10 years to justify that investment.
And I think for many people who are trying to catch up and getting started, that is a worthwhile bet. Um, and, and I think that there is a, uh, you know, and I haven’t been there and I have the good fortune of. Having, you know, I had really great opportunities in my 20s and early 30s here, but I imagine that there is perhaps a jolt or a catalyst or a moment that might make that that investment of time and resources and energy into real estate worthwhile for folks in that 50 to 55 range to use real estate as a vehicle to.
have a chance to catch up. So, J. L., break it down for us. Your new book, Pathfinders, has case studies of many, many people who have pursued or are pursuing financial independence. For those people who feel lost or at the beginning of their journey, is there a good first step? And, and let’s take it for granted that they should buy The Simple Path to Wealth.
Buy Pathfinders, buy Set for Life. But above those things, is there a good first step that you kind of saw over and over again? The first step is, is education as Scott was alluding to, and you just alluded to. I, I, uh, frequently I’ll, I’ll hear from beginners who have come across these ideas, at least at a surface level, and they’re filled with great enthusiasm and, and they want to know what to buy.
And of course, it would be easy for me to say, we’ll buy VTSAX or VTI, which is the VTF version. But I don’t like to do that because I, I think that if people don’t understand why they’re buying it, if they’re just bought it, because I said to buy it or somebody else said to buy it, then when the stock market plunges, which it will do periodically, and which is a perfectly normal part of the process, they’re not going to understand that.
And they’re going to be more likely to, to, to sell in the drop. And I’ve frequently said, if you’re not prepared to stay the course, no matter what the market does, if you’re going to panic and, and, and sell when the market turns down, you don’t want to follow my advice. My advice will leave you bleeding by the side of the road.
So step one is to Educate yourself. And if the way, if my approach seems reasonable, then read what I’ve written about it and make sure that you understand what the ride is going to look like. If Scott’s approach feels reasonable to you or sounds reasonable, read what he’s written about it, listen to the podcast and make you make sure you understand what that road really looks like before you, before you commit your money.
So I would say that that’s the very first step. And then if you take that step, you won’t have to be asking what the second step is. You’ll already know. Scott, first step, if you’re interested in real estate. I completely agree with what JL said. It’s education, right? And the education, I think is perhaps an order of magnitude more than what you need for maybe maybe double that, maybe two orders of magnitude more than what you’d need to really understand fundamentally what an index fund is and why you should be investing in it and what the approach is.
I think you can, you can really get the gist of that by reading the simple path to wealth, which I encourage everyone to do. Um, and, and that, that will help you internalize most of what you need for an index plan approach for real estate investing. I think you’re looking at 250 to 500 hours. That’s very consistent with what you’ll find from folks on, on, on bigger pockets.
You need to hear failures. You need to hear success stories. You need to hear mental models. You know, when a tenant comes in with a list of things to repair. A friend of mine just texted me this the other day. Hey, a tenant’s asking me for five things, right? They want smoke alarms in their property. They want, uh, in various of these bedrooms.
They want a new fridge that has an ice maker. They want ceiling fans in some of the rooms. There’s a fog in one of these windows. And I forget the last one was, and I was like, well, you got to do smoke detectors and be in compliance with the law. No, I would not replace the fridge with 1 that has a nice maker.
The ice maker is the bane of the landlord’s existence, right? No, I would not install ceiling fans. They got a chance to look at the property beforehand, and I would have to go and investigate the fog. Like I said, how are you going to come to that conclusion? If you don’t have a network, you don’t have if you haven’t thought about, you know, read or listen to or otherwise expose yourself.
To knowledge and understanding the framework behind those decisions, right? And so that, that’s the, that’s a cost in time that the investor in real estate has to put in that they don’t have to in an index fund environment. Yeah, I’d like to just jump in and 2nd, that I mean, because I think it’s such an important point.
2 things. 1, I’m going to back up a little bit to something Scott said a little bit earlier, where he said, you know, if you can’t see your real estate investments returning more than say. 15 percent a year, then stay with index funds because you can get that with no, well, you can’t get 15 percent maybe, but you’re looking at 10, 12 percent with little or no effort over the decades.
So, first of all, make sure that you’re going to make enough money doing it because you have to be compensated for your time and effort. And your time and effort is going to be significant as Scott just pointed out, particularly in the beginning. You know, people think that I’m anti real estate. And I’m really not.
It’s a wonderful way to build wealth. What I’m against is the drumbeat that is out there all too often, that it’s easy, that it’s a, that it, it, it is, uh, doesn’t require effort. If you’re going to, if you’re going to invest in real estate, you’re starting a business, as Scott has said so well, and like any business, you better understand.
How that business is run. And that’s why, you know, what Scott’s written and, and the material that you find on BiggerPockets is, is so important. And if you do that, if you put in that, that time and effort that Scott described, then real estate can be very, very powerful. But if you don’t do that, well, you’re going to have an experience like I wrote about in my second book, which is titled, How I Lost Money in Real Estate Before It Was Fashionable.
So Scott and JL, thank you for coming on the show today. The reason why I wanted to have this conversation to get back to some of the basics. Is because I think sometimes we do talk about personal finance being personal and some people use that as an excuse to not actually do the hard work and learn the basics or give themselves the okay to go speculate wildly on things they think are going to give them these huge payoffs without investing wisely.
And I think that’s the whole point of getting back to basics is you have to learn the fundamentals and then apply them. If you truly want to reach financial independence, I want to end this episode the way and every episode by asking you what is going on in your life. First and foremost, Jail, tell us about Pathfinders.
What’s the book about and where can we get it? When will it be available? Well, you’ve kind of covered that already, which I, which I appreciate doc, but, uh, to reiterate real quickly, it is a collection of about a hundred stories from people all over the world at all different stages of their lives. And it’s a discussion of how they took the principles from the simple path to wealth and applied it successfully to their own life.
And the stories are amazingly inspirational. I mean, people who start with, with almost nothing or sometimes less than nothing, um, which is frequently you will hear, well, FI is, you know, doesn’t apply to certain people, you know, well, you read this book and you realize, no, it, it applies to anybody and everybody anywhere in the world, if they’re willing to.
Put the time and the effort into it, um, it’s just incredibly inspirational stories and to give you an idea, I mean, we have one from, um, uh, a fellow in the Ukraine talking about working on the, on building financial independence while his country’s being invaded. We have another from a guy in Russia.
Who’s writing about working on financial independence while his country’s become a pariah around the world. Um, so just some incredibly wide ranging stories, uh, comes out, as you already said, very kindly at the end of October and, uh, you can preorder it now, which you’d be doing a me a solid if you think you’re going to read it to preorder it because.
That helps bookstores decide whether or not to put it on their shelves, and I’m sure Doc will put the link in the show notes. That I will. And Scott, tell us what’s going on with you and BiggerPockets. Yeah, first, I just want to second everyone going and checking out Pathfinders. I had a chance to preview the book, and I think it’s a perfect way to kind of like put a nice bow on what we’ve been talking about today, where Everyone has a little different twist in different circumstances that they’re, that they have when they’re pursuing financial independence, but there are also no new fundamentals.
And I think the book does a really good job of kind of making that theme really become clear, uh, over, over those stories. And it’s really inspirational. Um, and so, yeah, what’s going on with me? Um, like I told you, we just moved into a, uh, a nice new house hack, duplex, uh, with our. Uh, 7 month old daughter, who is wonderful.
She’s right here for those who are watching them in the video. Um, and then, uh, bigger pockets is what are we up to lately? We just launched. We’ve moved into the world of helping investors connect with investor friendly professionals. Investors don’t want to work with a marketing. Uh, a regular agent who buys and sells a lot of personal residences.
They want someone who will help them make an investment decision. So we’ve created a network of investor friendly real estate agents, and we just introduced a network of investor friendly lenders. So, over the next couple of years, we want to keep adding to that with property managers, insurance brokers, and all that, all those sorts of folks.
And, uh, you know, you still got to self educate. You still got to learn what questions to ask and do your due diligence and asking, and, uh, asking those folks. So it’s about teaching folks how to do those interviews and then providing them with a network. So that’s, that’s what’s going on with BiggerPockets, uh, lately.
So I began this episode by talking about the commercial for EF Hutton. They used to say when EF Hutton talks, you should listen. And if you ever saw the commercials, someone would say the word EF Hutton and everyone would be quiet and move their ears close so they could hear. I feel pretty confident that you do not need to listen to EF Hutton, but you should listen to the two people who are guests on this show today, Scott Trench and JL Collins.
Thank you for being on the Earn and Invest podcast. It’s been an honor and a pleasure. Thank you for having us.
That’s a wrap.
Earn and Invest is now part of the Airwave Media Podcast Network. Visit airwavemedia. com to listen and subscribe to this show as well as other fine podcasts.
This is going to be a strong opinion here. People say that personal finance is personal. I call bullshit. I don’t think personal finance is personal at all. In fact, I’d say that personal finance is prescribed. The way we build and accumulate wealth. has been delineated over and over again. Yes, there are different ways to do it, right?
You can use the stock market, you can use real estate, you can work in corporate America, or you can be an entrepreneur. I mean, there are a million different ways to do this, but it isn’t personal at all. There are ways. to build wealth. They are codified. We believe in them. There are right ways and there are wrong ways.
Why else would we buy courses? Why would we read books? We do all of this because we know that there is a specific way to build wealth correctly. Personal finance isn’t personal at all. It’s prescribed. It’s codified. It’s been laid out. And we all have a good idea, a good inclination of where we find that information.
Yes, there are lots of different ways to do it. So why, oh why, do we say personal finance is personal? I think the reason is that we confuse personal finance, a tool with the goal, which is living a good life. You see, living a good life or the goals for your money, what you’re going to use your money to actually do in life.
That is all personal. Whether that’s to be to change the world, to pursue a hobby, to do a job which you love to do, to be the best artist, or singer, or actuary, I don’t care what it is. All of those things are personal, but how you get there isn’t. Money is just a tool, not a goal. And how we accumulate that tool is very similar for everyone.
What isn’t similar, I guess, is some of the tactics, right? Whether you decide to go with real estate or invest in equities, whether you own your own business or work in corporate America, those tactics can be somewhat personal, although There are codified ways in order to build wealth using each of those tactics, but what really is personal are our goals.
So why does this matter? Why am I making a big deal about this? Well, I think in a sense when we say personal finance is personal, we let people off the hook. We give them permission to speculate and not invest. When we say personal finance is personal, we say, well… It might work for you, but it didn’t work for me.
And the problem with this is it makes speculation rampant, right? So as opposed to saying there is a right way to invest in real estate, there is a right way to invest in equities, there is a right way to build a business, we say, Oh, you know, it didn’t work for me. It might work for you. May not work for him, but it might work for her.
We leave the realm of science and we enter the realm of art and even magic, and while that is wonderful with creating things, it’s probably not the best in personal finance. It’s probably not the best with wealth creation. There is a right way and a wrong way to invest. There is a right way and a wrong way to do real estate.
There is a right way and a wrong way. to build a business. And I don’t want to confabulate the idea that personal finance is personal with actually spending the time, putting yourself on the hook, learning the information and doing it right. So to repeat, I don’t believe personal finance is personal. I believe some of the tactics are, and certainly the goals of your financial journey.
definitely are personal. If that wasn’t the case, you wouldn’t be reading about personal finance. You wouldn’t be consuming podcasts and blogs. You wouldn’t even bother listening to the earn and invest podcast.
What, what a shame that would be.
Awesome. As you guys know, I leave things going just to catch a little of our chat, uh, chatter afterwards. Uh, thank you for doing that. Um, I know It was like we, if I can interrupt you, Scott, it was, it was like we rehearsed that ending. It’s been an honor and a pleasure, and then you followed up with thank you for having us.
We couldn’t have been better if we’d rehearsed that. It was all my great choreography. Let’s give the credit where it belongs. I think so. It was under your tutelage. Great hosting and moderately good guesting, I hope. No, wonderful guesting. And I admit, I came to this conversation knowing that it wouldn’t be as My questions were not going to form as tight of a conversation, but part of the reason was because I wanted to let things kind of go the way they were going to go and see kind of what direction it would lead in.
And, um, yeah, like, I think people do need to hear over and over and over and over again. That the fundamentals are the fundamentals, right? The basics are the basics. And it’s good to come back to that. I’m sorry. No, go ahead. It leads into, did you want to let Scott ask his question from the… Yeah, you should, Scott.
We’ll keep that as part of the after show. Okay, yeah, so one question I wanted to pose on the No New Fundamentals piece is, I think that investing in bonds in the 2010’s was probably fairly silly for most people, right? You’re getting almost essentially no interest, uh, on that debt. It’s not really a safe diversification engine when interest rates are zero, approaching zero, and close to zero.
On that front, but now with rates rising and the federal funds rate at over 5%, there are opportunities to get 7 or 8%, 10%, 12 percent interest, simple interest on a lot of lending opportunities, um, uh, around the world. And for example, right, let’s say that, uh, uh, JL, you. who I think probably have a fairly strong financial position, right, and practice what you preach.
Let’s say you were to get a mortgage on your primary or second home, that would be at today’s rates, that’d be seven and a half, eight percent. Right. I could lend to you and have a personal guarantee and, you know, uh, uh, 30%, 40 percent equity buffer on that property, depending on, you know, how things go and, um, just buy that mortgage from a bank if I had, you know, uh, a couple hundred thousand and wanted to put it into that.
I can’t think of a much safer investment than something like that. And I would wonder if based on that change, the fact that interest rates have skyrocketed so much, if that changes any part of the allocation decision from index funds to debt in some cases, or if there was an interest rate where you would say, you know, yeah, now I’ve got to kind of change things.
The stock market is going to produce 10 to 12 percent with a lot of volatility. Maybe I want to earn interest in a simple way instead. So I wanted to pose that question for you and get your reaction to it. Well, before I answer that question, just be clear, are you offering to give me hundreds of thousands of dollars?
Uh, at a seven or eight percent, uh, interest rate loan mortgaged against your primary residence and with a personal guarantee on the rest of your collective assets? Potentially. Let’s talk after this. Okay. So I, I, I think it’s an interesting question, Scott, and actually my answer is, is, would probably be no.
And here’s the reason, you know, I, I, one of the few advantages of being an old guy is that I’ve been through a lot of market cycles. And when I first started investing, um, inflation and interest rates were high and rising, uh, the, you know, the period of the 70s stagflation and, and what have you. And I, I think when I bought my first piece of real estate, my, I paid my mortgage was like 15%.
And, uh, you know, you could buy 30 year treasuries in those days for around 15%. And, and of course, had you done that, you would have done very, very well, because as you pointed out earlier, uh, beginning in the early eighties, interest rates began to fall and they continue to fall right up until the beginning of last year.
Uh, pretty incredible record. And, and if you own bonds and interest rates are falling, you’re going to do very, very well. Because you’ve locked in a rate of return that’s no longer available and that appreciates the value of your bonds and what have you. But the thing that you need to remember is that when you were buying that bond in, say, 1980, you didn’t know that interest rates were going to decline for the next several decades.
In fact, What the world looked like at that point was that inflation was going to continue to rise and continue out of control as it had been. And if you’d bought that 30 year bond and that had happened, you’d have gotten screwed. It would have been terrible. That’s why, in fact, lenders had to offer those incredible, what look like now, incredible Rates of inflation.
And so when you’re, when you’re getting, buying a bond at a 15 percent inflate, uh, return, uh, interest return, but inflation is running at 15 percent and looks poised to go higher, that’s a very risky investment. So to bring it back around, you 8%? Well, can you tell me what interest rates are going to do over the next 30 years?
And then I can answer that question. Because if I buy that bond at 8 percent and interest rates, in fact, Continue to go down as they appear to be doing at the moment with the Fed’s tightening, um, then yeah, that’s going to work out well, but if the Fed yields to some political pressure and lets up too soon, and inflation begins to skyrocket again, Suddenly bonds have to pay 10, 12, 15 percent to get investors.
My 8 percent bond is, is, is going to be an albatross around my neck. So, um, yeah, I would not, I would not be comfortable. There’s, there’s a fairly. Famous book that came out in the eighties, I think it was that talked about an investment strategy that was just built around treasuries and treasuries were, I think at the time paying eight or 9 percent and locking them in for 30 years.
Well, as it turned out, that worked out really well, but that’s sheer luck because if you follow the advice in that book, one of three things could have happened as. As it turned out, the one thing that would work out for you is, in fact, what happened, but the other thing that could have happened is interest rates could have risen, and you would have, you would have lost enormously, or they could have just stayed flat, in which case, you know, other things like stocks would have, would have done better.
So it’s trying to, trying to play the interest rate game with bonds is a. Pretty dangerous way to invest. It seems to me it always looks like a great in hindsight. It always looks, looks great or looks terrible depending on what happened. But, but, uh, when you have to make the decision in real time, you have to understand that that bonds paying 8%.
It’s because of where inflation is and then you say, well, is a bond paying 2 percent better than a bond paying 8%. Thank you. Well, if inflation is zero and that 2 percent bond is giving you a real 2 percent return, that is better than an 8 percent bond in an 8 percent inflation, uh, environment. Does that makes any sense at all?
That makes perfect sense. I have kind of gone through the same line of thinking and where I’ve arrived in my personal portfolio is I’m a real estate guy. There are properties around town that are being fixed up and rehabbed by flippers. I feel like I could, in fact. Purchase those properties and fix them up.
Um, if, if push came to shove, and so I’m lending to these folks in a capacity as a hard money lender, basically, which is a six to 12 month loan to 12 to 15 percent interest. Um, and I am, you know, at 85 percent of the cost of the project and 60, 65 percent of the. After a pair value, and so I guess that brings us back to real estate investing, right?
I have to believe there’s an arbitrage between that and the and the other things, but that’s how I’ve justified. Not exposing myself to long term interest rate risks that you’ve put out there and shifts have to move a lot in a short period of time. Um, am I known with income to maturity? Well, and, and under those circumstances, I think what you’re doing makes perfect sense.
First of all, you have a knowledge base to make it work, not only in knowing what looks like a good deal and, and, and what looks like a good project to back or not. Um, and you’re not in it for the long term. You know, you’re so you’re not subject to what inflation or not nearly to the degree what inflation and or future interest rates do.
So what you’re doing with the expertise that you bring to the table, I would say that’s, you know, that’s, I wish I could take advantage of it myself. We all know how important it is to keep your eye on the money, and not just your own. Stay on top of the latest financial and market news with Yahoo Finance, a podcast that releases new episodes almost every day.
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