Grow your business, with real advice
And how can you best utilize retirement plans and the stock market to DESTROY your taxes as an entrepreneur while building up your wealth like crazy?My name is Rob Satrom with Feedbackwrench.com - we do web design, SEO, marketing and consulting for small businesses. Our mission - is to help small businesses go from good to great, and the reason why is because we want to help maximize the efforts they put in their business while building something that could last for generations.The three major ways to reduce your taxes in your small business is - first, become an S-Corp to reduce self employment taxes, second, use benefits and retirement plans, and third, use real estate investments.In this video I’m going to be talking about the best retirement plans to reduce your taxes, but check out our channel to learn more ways to reduce taxes and grow your business…. Especially our coming content about reducing your taxes with real estate.All people should be invested into the markets, their business, and real estate eventually. When you invest in those three areas, you’ll get the advantage of all sorts of economic and tax benefits…When it comes to the markets - there’s a huge difference between people that make great returns, and people that make measly returns.THREE PART VIDEO SERIESSo I broke this video into two parts. The first part will remind you how to avoid stupid mistakes when investing that cause people to have really low returns and I’ll end that section talking about what could be the most important investing concept you could ever learn, this concept WILL probably cause you to have HUNDREDS of thousands more in your retirement account when you retire… I’m serious - I’m going to share with you the dirty little secrets of wall street, and then how to invest YOURSELF if you so choose.For the second part, I’ll dive into exactly which retirement plans are best for small business owners, particularly for single owner S-Corps and those with smaller teams. I’ll illustrate what kind of taxes could be saved, some of the basic rules, and I’ll explain precisely what I’ve found is the easiest way to implement as a small business.This video is for example only and shouldn’t replace legal advice or professional services….Alright - here’s the 5 basics that could be the difference in HUNDREDS of thousands in returns…
First off, let’s talk about some general investment advice really quick - I recommend using easy-to-use mutual funds and exchange traded funds called ETF’s from Vanguard.Basically these make buying a diversified portfolio easy….one mutual fund share is like a combination of dozens or hundreds of various stocks, bonds and cash.ETFS and Mutual funds make diversifying easy, but in exchange for the convenience, there are costs.I know most entrepreneurs shrug off some of these details - but I really want to help you pay ONLY your fair share in taxes AND… I want to help you maximize every investment you make…. And this is serious stuff here.If you pay attention here - this information could legitimately increase your returns by hundreds of thousands of dollars when you retire…. Even if you’re just a regular investor doing a couple hundred dollars a month…. So keep with me here…Another thing - I meet entrepreneurs all the time that claim they hate the stock market, and they’d much rather invest in their business or real estate. TO those people, I GET IT! You look at your business and see MASSIVE returns… but there’s a catch. ONLY investing in the stock markets lets you leverage what Albert Einstein called a wonder of the natural world - and that’s compound interest. Time and compounding interest can do AMAZING things! Don’t miss out on it’s real power.My argument is that everyone should be invested in all three - Their business, the markets, and real estate, because they provide diversified benefits, returns, and tax treatments.So yeah - you should be socking away 5-20% of your income into the stock market JUST so you can get the advantage of time and compounding interest.Alright - moving on…
Mutual funds and ETF’s have different combinations of stocks and bonds - meant to accomplish various levels of risks and objectives - some are meant to grow your money with extra risk, some are meant to get growth with minimal risk because the investor will shift to draw income in a couple of years, while others are meant to provide income for a retiree.. Stocks are riskier because they are companies pursuing growth, while bonds are debt instruments, and typically provide less risk for less reward and provide stability.Bonds are sold by governments and corporations as debt, and they pay an interest rate to the owner or the bond. The higher quality the company is - or the more trustworthy - the more likely they are to pay it back - which means they are less risky… riskier bonds need to attract people’s investment dollars by increasing the interest rate they promise to pay to the investor…. As long as they can keep their promises.. Ultra safe bonds don’t need to attract dollars their way, so their interest rates are much lower. Safe equals lower interest rates, risky equals higher interest rates.Here’s the most basic - Stocks are for growth and dividends, while bonds are for stability or predictable income through paying interest.So - mutual funds and etf’s have different make ups - some are like 100% stock for growth - and when they have startups, or small, medium, or international company stocks in them - they are hoping to find the next big thing and experience tremendous growth…. Higher Risk for Higher reward.Here’s what I want you to know - you need to take on the right amount of risk according to what’s called your “ investment horizon” - or how long it will be till you cash out your investment.. Stocks and certain bonds fluctuate quite a bit - they can go way up, but also crash and lose value. You don’t want to have a freak crash right before you’re about to withdraw money, for college or for retirement….This concept of appropriate risk is CRITICAL for investment returns for both young and old - pay attention here.When you’re young - you have a long investment horizon - meaning that you’re not going to take your money out for a long time. This means you should probably take on more risk - being more vested in stocks rather than bonds or cash, because it doesn’t really matter how the values of your mutual fund shares fluctuate while you’re in the season of life where you’re acquiring shares, which is really what this is about while you’re young - it’s about buying shares - not the dollar amount of your account.Quick example. Let’s imagine you’re a 25 year old that wants to start investing $500/month for retirement.Subject A takes on too little risk and has lots of bonds and cash, while subject B takes on good risk with a diversified stock portfolio..Subject A gets the average of 5%, while subject B get’s the S&P 500 average of 8%.Let’s imagine both of these investors are 25 years old when they start, and they invest $500/month.That means they would have invested $240,000 of their own money over 40 years.Investor A who’s earning 5% would have $763,000 in his retirement.But…..Investor B, who earned 8% would have invested $240,000 over those 40 years, but have a portfolio of $1,745,503!Taking the right risk can really pay off, so make sure you don’t take on too little risk when you’re young.And I’m not just pumping smoke here, i’ve legitimately seen people that have made these mistakes and those who have done the right thing - and they end up in VERY different situations.OK - this is boring - But TRUST ME - stay with me here…. Here’s what we’ve covered so far….1 - Mutual funds and ETF’s that you can buy are baskets of stocks and bonds - they make diversifying easier.2 - You want to balance the amount of stocks to bonds, according to your risk tolerance and investment horizon. It’s all about WHEN WILL YOU DRAW OUT MONEY - you need to take on appropriate risk for your time horizon…..The next quick piece of information you need to know is that your investment accounts aren’t like bank accounts - they are a number of shares, not a dollar amount.
This is important - when you look in your 401k or investment account - you need to realize that the dollar value you are seeing represents the number of shares you own, multiplied by their current value.It’s not that your account has $20,000 dollars in it, it’s that it has 1000 shares of a mutual fund that’s currently at 20 dollars per share.When markets are high - your dollars don't buy as many shares.When markets are low - your dollars buy more shares - but they’re less valuable.Young people freak out when the market goes down - but that just means you should buy shares at a discount.THe principle is to just buy consistently - and never shy away from investing when the markets are low - and don’t jump into investing because the markets are “good.”You should just pick an amount to save, into a certain fund, and then plug away at it not matter what happens.What happens is that your investments average out as you buy when it’s low and buy when it’s high - which is called “dollar cost averaging” Just pick an amount and a frequency and stick to it.The idea is to buy low and sell high….. Which brings us to the fourth quick principle you need to understand
Nobody can time the market. Nobody - NOT ANYONE - has a clue what’s going to happen. We can’t predict crashes, we can’t predict upswings, we can’t predict anything - because the markets are efficient.SO when you hear someone predicting - they are just speculating… no matter WHAT - otherwise they’d be trillionaires.This is called the efficient market theory, and it’s a big reason why i discourage buying individual stocks or trying to make bets.. instead I think people should just invest in only the highest quality companies that represent the best parts of the market… such as an S&P 500 index fund.Nobody can time it, no wall street firm has any better information than the next… so you should probably just try to buy the whole market in what’s called an index fund.Which brings us to the juiciest concept you need to understand….AND LISTEN CAREFULLY - this part could potentially save you HUNDREDS of thousands of dollars and it’s a subtle change in investment choice.
Choose low-fee index funds. There are two types of management for these mutual funds and ETFs, Active management and passive indexes.Each one of these mutual funds have hundreds of millions, and billions of dollars - all acting in unison, and you’re buying one share of that mutual fund account. There are teams of people that make decisions according to the prospectus and the plan of the fund.Actively managed funds have teams of people doing massive research to try and make money in the market. They are constantly buying and selling stocks - making bets, capturing gains, and cutting losses.Active managers are sometimes right - and sometimes wrong….. But research is implying that they get it WRONG more often than they get it right…..So active funds have lots of betting, capturing gains, releasing losses, and just lots of overall activity….. And then instead of an actively managed mutual fund, there’s what’s called a passive index fund….These funds simply manage their fund to a predetermined index - they don’t make bets, and they don’t mess around at all. They buy what’s on the index list - and that’s it. They are PASSIVE.So here’s the deal on active vs. passive funds.Wall Street and Mutual fund managers make WAY more money when they are making bets and doing active trading - like WAY MORE.Wall street makes more money on actively traded funds, but research is implying that the overall returns in actively traded funds are actually LOWER than those of the passive index funds…..So if wall street wants to attract people’s investment to their best paying product - what do you think they do?They pay salespeople larger commissions on the more profitable actively traded funds.So Wall Street jacks up the internal fees of the funds, and those fees go to pay everyone from your investment advisor down the street, to the actual team managing the fund.So actively traded funds are way more expensive for customers, and research is showing that in spite of what the salespeople claim - they get worse returns on average compared to the passive index funds.Since index funds don’t have that much going on inside them, and they’re not paying big old commissions to sales people to help them sell - they have far lower internal and up front fees.And these little differences in fees can drastically change your retirement picture.Here’s a basic example:You buy a mutual fund from a good company - but it’s actively managed or maybe it’s in an account with additional fees, and costs you about 1.3% vs. a .3% vanguard s&p 500 index fund.1.3% vs. .3%That means you’d lose 1% in earnings…..Let’s look at our previous example. A 25 year old invests 500/month till she’s 65…Investor A gets 7% and investor B gets 8%Investor A would have a $1,312,406 portfolioInvestor B would have a $1,745,503 portfolio.That’s a $430,000 difference! That 1% is a VERY big deal!But that’s just a generous example… here’s the dirty truth. When I was in the industry, investment advisors were pointing people towards products that would have much higher internal fees and showed even lower returns because the actively traded funds got it wrong far more often than the indexes.Trust me - ask a financial advisor and press them on it - and they’ll end up showing you historical results of their managed portfolios, that have a NET return, of about 5.5% when you consider all the fees and opportunity costs…. But what they show you is a gross 8%.And 5.5% vs. 8%, at $500/month from age 25 to 65 is HUGE.$1,745,503$870,519That’s an $874,000 difference! I’m not exaggerating here either - this is the dirty little secret behind the industry.I see regular old people rolling over their accounts into “wrap” accounts, or just lower caliber mutual funds where the fees are higher - and then they get convinced to save…The only advice that was given was what “asset allocated” fund they should go in - and because they’re not super aggressive, they choose “moderately aggressive” and that’s it! They’re never shown that the moderately aggressive account, net fees, has been earning like 5%, and even the “aggressive” accounts are only getting 6 or so on average.Good people are getting swindled all the time… and they NEVER know it!And then, since these new “fiduciary standard laws” have been threatening - the industry has been doing even nastier stuff…. Which regulators never really understand - KNOWLEDGE - not regulation - is usually the answer.What the industry is doing right now, is telling people that they need a “fiduciary,” and that to get that, they need to invest their money into a “wrap” account or “managed” account. The advisor will earn a 1% fee, the company takes a cut, and the underlying fund has fees, and when you look at the total fee structure, the investor is VERY often, going to net 5.5%, but they’re shown numbers like 8% fees…. It’s disgusting and it’s why I got out of the industry.What’s even worse, is that these fees are taken out when the market makes money AND when your account is losing money…I’m telling you folks - 90% of the advisors out there are trying to act like choosing investments is so hard that you need to pay a fee…. But they never tell you that over 40 years, those fees will cost you $875,000I can just hear advisors yelling and rolling their eyes, saying I’m exaggerating. - but the problem is that I've seen it in real life - and the Morningstar reports can show you too.The main problem is that people rarely see the fees taken out, and all they see is their portfolio reacting to the general market - just like the index. So it goes down 10% in one quarter - which might have been a shade worse than the index - but then the next quarter it rebounds to a 13% jump which might be exactly the same or a little better.All this to say - I HIGHLY recommend that all investors call vanguard - and work with them. They’re not paying me anything here, but they’re AMAZING.
1 - Mutual funds and ETF’s that you can buy are baskets of stocks and bonds - they make diversifying easier but you have fees to deal with.2 - You want to balance the amount of stocks to bonds, according to your risk tolerance and investment horizon. It’s all about WHEN WILL YOU DRAW OUT MONEY - you need to take on appropriate risk for your time horizon….. 3 - Use Dollar cost averaging - sticking to a frequency and not jumping in and out of the markets.4- Nobody can time the market.5 - Choose low-fee index fundsStay tuned for the second part of this video - where we’ll teach you about the tax efficiencies behind these plans and also walk you through a SEP IRA, SIMPLE IRA, 401k, and other retirement plans and how much you can save in taxes by utilizing them.