The Most Important Personal Finance Message, Part 2: Investing

5 topics in this broad theme 

Ric Edelman: It's Thursday, December 26th. I hope you had a wonderful Christmas, for those of you celebrating. And, we are down to the last two podcasts. I've been trying to figure out, as I mentioned to you on Monday, what is it that I want to say to you, after 35 years of broadcasts, 1,500 radio shows, 500 podcasts.

What is the most important message? What are the most important things I can share with you? I talked with you a couple of days ago about aging and longevity, the incredible implication on our lives as a result of this. If you miss that podcast link to it's in the show notes. And I alluded in that conversation to the 60-40 glide path.

And the fact that because we're living longer than ever, we really need to be adjusting our thinking on our investment strategy. And that is in fact, the second of the three key subjects that I want to talk with you about this week in my closing commentary here on this podcast series. A couple of days ago, right before Christmas, it was all about aging and longevity today.

I think we can all agree. I'm sure we'll come to you as no surprise. It's investing without a doubt. Our financial future is more dependent on us than anyone else, to a greater degree than it ever was before. And so there are five subjects within this topic of investing I want to talk about with you today…college, real estate, exponential technologies, artificial intelligence, and scams.

So let's tackle each of these one by one, beginning with college. I have shared with you my consternation, my frustration, over the state of American higher education. It is bordering on scandalous. The cost of college is obscenely high. Colleges have really gone to such levels of abusive behavior in so many ways. We've seen scandals regarding admissions. We now have a current scandal going on about how the Ivy leagues are catering to the children of wealthy donors without regard to their academic merit, to get into that school.

We also now have a glut of colleges in the country, and I've been warning you that a great many colleges are going to be closing over the next decade. We now have a brand new report from the Federal Reserve Bank of Philadelphia saying over the next five years, between now and the end of the decade, 80 colleges and universities are expected to close nationwide. This has huge import for you if you have children headed to college or grandchildren.

The reason that colleges are closing is because, quite frankly, increasingly, they're selling a product nobody wants to buy, and a smaller population who might even be interested in buying. The population of college age students is shrinking because our population is aging, as we talked about the other day. We have fewer high school graduates and, among them fewer are choosing to enroll in college.

College enrollment is down 15% percent from 2010. That's a huge decline in less than two decades. Only two-thirds of high school seniors now go to college. A very, very low number compared to history and this is devastating. It's devastating for the students who don't go to college and have their future careers and economic opportunity reduced. It's devastating for the students who do go to college and who suddenly find themselves without a school because “hey my school closed”. What do you do if you suddenly discover you can't go back at the beginning of the next semester because the school went out of business with no advance notice, no warning?

And the money you had paid in tuition is gone. And now you've got to try to find another school, you've got to get accepted there, and then you've got to wait until the next fall to start your classes. So, you've now wasted a year of your life. And you're going to have to retake classes because the new school won't take all the credits you obtained from the old school.

This is a real crisis for students who get caught up in all this mess. It's a crisis for the faculty and staff who are now thrown out of work. And it's a crisis for small college towns where a lot of these colleges exist because the schools in these towns are typically the biggest employer in that town. Aside from the local government and maybe a local hospital, that college is the economic engine for that community.

According to the Federal Reserve, when a college closes, they lose an average of 265 jobs, $14 million dollars in labor income, meaning the amount of money people are earning in those 265 jobs. And that money gets re-spent in the local community. And all of a sudden, it all dries up literally overnight. This is a crisis.

And at the same time, costs for college are still rising. It's now $60,000 dollars. for the average private college in this country, $25,000 for the average public college. And this is why you need to change how you're approaching college. You need to recognize that although the costs of college are rising, more than ever college educations are free. States across the country are making college free. It's state institutions like SUNY in New York, the State University System in New York. In Texas, their higher education system is making college virtually free.

Employers are increasingly paying for their workers to go to college to get the knowledge and education they need. You can go join the Army and the Federal government will pay for your college degree. And so the key is to recognize that you don't need to be spending $60,000 a year to go get a college degree. Employers increasingly don't care where you got your degree. They want to know, can you do the job? And as long as you can demonstrate that, it's all that really matters. And that means you need to pay as little as possible to get the degree.

Getting a college degree is no longer about personal enrichment. It's now all about economic stepping stone to a career and income. So pay as little for that college degree as possible, the same way you would pay as little as possible for the car you're going to buy.

Second, choose the right school. Not only do you want to avoid a school that might go broke while you're an undergrad, you want to avoid having to change schools when you transfer, you add years to getting the degree and a radical increase, maybe a 50% increase in the total cost of college.

Avoid transferring and choose the right major. Try not to change because when you change majors, you have to retake a lot of classes. This is why the typical student doesn't get a degree in 4 years anymore. They get a degree in 6 years. That adds 2 more years and the cost of college in year 6 is typically 50% more than the freshman year was. So, when I tell you that a private college is $60,000 a year right now, that's today. By the time you get to your senior year or years five or six, it's not going to be $60,000. It's going to be a $100,000 per year. So we need to avoid all that by getting through college as fast as you possibly can.

If you can take college classes while in high school, do it, because they're free in high school. You need to go to school in the summer. You need to go during winter session. You need to get that four-year degree in three and a half years. That's what I did. You need to blow through it as quick as you can and get out of there because if you do take six years to get a degree, now you've just wasted two years of your career. You've delayed two years of income, two years of saving two years of 401(k) contributions, and you will have an astonishingly significant amount less when you reach age 65 by starting your career at age 24, as opposed to age 22.

So, pay little, go to the right school, get the right major. That is the most effective way for you to avoid having college ruin your life.

Number two…real estate. We need to recognize that real estate is part of a diversified portfolio, but let's not kid ourselves. There is your home and then there is real estate investing. Your home is not an investment. Now, if we're lucky, if things go well, and if things go as they have historically over very long periods, meaning decades, you can anticipate that your home is likely to rise in value over 20, 30 years, rather than fall in value.

We know that cars fall in value. We know that furniture falls in value. We know that jewelry and televisions fall in value. The house ought to maintain its value and even rise not by much, but it should rise and it won't keep pace with the stock market. Do not think that your home is going to grow at the same pace as the S&P 500, but it should rise. And the equity you build up in that home by making your payments over time and having the house rise in value over time becomes an additional resource for you to generate income and retirement.

So homeownership is a consequence. It is is a value. There's a benefit to being a homeowner, but you've got to make sure you do it right. You need to buy a home that you can live in for the next seven to ten years. The idea of people buying a starter home and they plan to flip it in two or three years into a bigger, better home. That's risky. That's speculation. No way of knowing whether or not that house will truly be valuable or as valuable in two or three years.

So, you need a house today that will meet your lifestyle needs for the next decade. You're young and single, no kids. I don't know if that's going to be how you would describe yourself eight years from now, by then you might be married with kids. Whatever house you buy today needs to accommodate that future lifestyle.

If you're not ready, you're not sure what that future lifestyle will be, you don't even know what city you're going to want to be living in. It just simply means you're not ready to buy a house yet. Not the end of the world. Better to not buy a house than to buy one sooner than you should.

In the world of investing, nothing wrong with adding real estate to the portfolio. There's nothing wrong with being a real estate investor. There are some people who do nothing but real estate. You can make your choice, but recognize that as an asset class, real estate has not been, it has never been the best performing asset class. It's good to own as part of a diversified portfolio, but recognize that owning real estate is pretty high on the risk premium.

You know, you start at the base of that pyramid with super safe investments like bank accounts and T-bills. As you climb the pyramid, you put in less and less money as you climb. By the time you get to the top of the pyramid, you're dealing with very risky assets, but also a very small amount of money.

Real estate is closer to the top of that pyramid than the bottom. Why? Because real estate's expensive. You can't put five bucks into a house. It takes hundreds of thousands, millions of dollars to buy real estate. And that expense means it's highly concentrated. It means you're not about to buy a dozen houses because you can't afford it. You're going to end up with concentration risk.

My cousin lives in a wonderful, nice community. And a couple of days ago, her neighbor's house, middle of the night, burned to the ground. Thank God nobody was hurt. But until her neighbor deals with that property, my cousin's property value has just fallen dramatically. I mean, are you going to want to buy a house that's right next to a pile of rubble that's still smoldering? I don't think so.

So, concentration risk is a big deal. Now, if you own 10 of these houses, what are the odds all 10 of them are going to be surrounded by a fire. Well sure, if you buy them all in one community, you've got wildfire risk. This is why diversification matters. So if you're going to proceed, you've got to do exactly that.

And last of all, is the hassle factor. Nobody ever calls me at 3:00a.m. because something went wrong with my ETF. But if you own a piece of real estate, and you're a landlord, on Thanksgiving, when the first time in months that the tenant has decided to cook a turkey in the oven, and the oven doesn't work, you're getting a phone call on Thanksgiving Day to come get it fixed. There's a hassle factor to owning real estate that you don't have with other investments. So if you're going to do real estate, which is perfectly fine to do, you need to be prepared for the hassle factor.

And in order to deal with the risks, you need to diversify. You can do this through real estate funds. This way you're not the manager of any property, but just like you put money into an ETF and let the fund buy stocks on your behalf, you can do the same thing with real estate ETFs or other kinds of real estate funds. And you want to diversify not just by type or land, office, retail, warehouse, data center, medical office, multifamily, single-family, residential.

You also want to diversify by geography, Buy properties all over the country, so no one hurricane will wipe you entirely out. You also want to look beyond the U.S. It's a big world out there, and you should be owning real estate globally, not just centered here in the U.S. So, if you approach real estate in that fashion, I think it's a better methodology than the alternative.

Our third topic is exponential technologies. And I'm going to add the fourth topic buried in there, among the exponential technologies, the biggest conversation today, AI artificial intelligence. That's not the only one, big data, nanotech, biotech, bioinformatics, neuroscience, 3D printing, fintech, agtech, edtech, all of these technologies are changing our planet, affecting every aspect of our world from the environment to our economy.

So we need to recognize that you need to own a portfolio of the future as opposed to a portfolio of the past. And my book, The Truth About Your Future, which was a New York Times business bestseller when I published it back in 2017, sets the stage for all of these technologies and why they need to be a key element of any diversified portfolio. If your portfolio isn't filled with technology focus, I think you're going to severely underperform over the next couple of decades.

And there's another element to exponential technologies, not just from an investment theme, but for you financial advisors who have been following me, from a practice management theme as well, particularly with artificial intelligence. The ability to radically improve your productivity, to streamline your back office procedures, to increase your quality and frequency of client communication. Artificial intelligence is going to be a key element of your tech stack and the companies that are developing these new applications are going to revolutionize the field of financial advice.

It's not going to put you out of work. It's going to enable you to become of even greater value to your client by being more responsive and anticipatory to your client's needs. You can no longer ignore exponential technologies particularly, AI.

And the final subject I want to mention, as exciting as all of that is and the importance all of it is in dealing with our investment strategy and doing it right with rebalancing, dollar cost averaging, tax loss harvesting, which I've harped on for years and years for you, a huge issue that you must equally pay attention to is scams. The negative of technology means it is easier than ever for people to get scammed. The advent of new investment opportunities creates enticements that invite people to fall victim to scams.

And, I want to share with you a conversation I had via e-mail with one of my listeners just this past week. This just came up. It is unfortunately not the first time I've had such a conversation, but this could be the worst, most horrific dialogue that I have ever had. I'm going to keep the gentleman's name, anonymous, out of desire to protect his privacy. He has given me permission to discuss this with you here in an effort, a hope on his part, to help you avoid his fate. I'm gonna share with you the conversation he and I had, in chronological order, so you can follow along pretty easily. Here's the first e-mail that he sent to me a little over a week ago.

Anonymous: “Good morning, Ric. I started following you a little bit late.  Back in June, I invested $1.7 million in bitcoin options with an overseas firm, and I just found out that this company is a scam. Who can I contact to try to recover at least some of the funds?”

Ric Edelman: Well, as you can imagine, this was a shocking e-mail to get. He says he lost $1.7 million to a crypto scam. I gave him the advice you would expect me to have given him.

I told him to immediately contact law enforcement, everybody from the FBI and the CFTC and to his state consumer affairs office and state securities regulators. I also told him to contact his bank. Since wires were involved out of his bank account, perhaps his bank may somehow be able to help him out. And when I told him that, here was his response.

Anonymous: “Unfortunately, on top of all that, they claimed on a few occasions that my account was not in good standing with them. So, I also borrowed money to send them more money to fulfill my good standing with them. I was sending money to different banks in Hong Kong. So I am afraid to go to the authorities because every time when I was wiring money internationally, my bank teller asked me who I was sending money to.

And I said, I was sending to a business acquaintance, which was not true. So, I am afraid to go to the authorities because I was not so truthful when I was wiring money to the Hong Kong banks. You are the first person to whom I got the courage to tell the whole truth. What will happen if I hire a lawyer from Hong Kong?”

Ric Edelman: This was  really scary to hear. And of course, it was piling on. This is a very common tactic by scam artists. Once they hook you, once they have ripped you off, they now know you're an easy sucker and they can go rip you off some more. So, they told him this ridiculous story of him not being in good standing and that he's got to send them more money to protect the money he's already sent them.

And this poor, unfortunate gentleman fell for it, went to the bank and borrowed money and sent them money that he didn't even have. Money he's going to have to repay his bank because he sent it to con artists. And because he's dealing with Hong Kong, and because he's fearful of how the U.S. authorities would respond to his coming forth, I told him to talk to a U.S. lawyer prior to talking to U.S. authorities. And I warned him that speed matters. And then I finally asked him two final questions. I asked him, “was this your life savings?” And here was his answer.

Anonymous: Unfortunately, that was all my money, and next year is going to be harder, because I took all the money from my 401(k) and sent it there.

Ric Edelman: And then I asked him my final question, I asked him his age and he said:

Anonymous: “I am 66 years old.”

Ric Edelman: You can see how horrific this is. He not only gave away his life savings of $1.7 million. He not only then borrowed money from the bank and sent that to the crooks, this money came out of his 401(k), which means he's going to have to pay taxes on that distribution.

He's going to owe the IRS and his state more than $500,000. Money he doesn't have because the $1.7 million has been lost to a scam. And by being 66 years old, and I'm presuming retired, his ability to recover that economic loss is uncertain at best. My ability to assist was limited. I was able to put him in touch with some folks who possibly could give him guidance, although everyone I spoke to, former regulators, bankers, lawyers, law enforcement have all told me the same thing. His money is almost certainly gone.

You need to make sure that you are diligent, you are careful, you are not acting emotionally, rashly, that you are not acting spontaneously, that you are not acting independently. You need to seek the advice and counsel of your financial advisor, your banker, your accountant, your attorney, before you engage in any transaction with anybody new.

These crooks are good. They are slick. They are talented in all the wrong ways. And they have been doing this hundreds, thousands of times. This is your first time, and they're going to be a lot better at this than you. They're going to know how to separate you from your money. They're going to make it look legit. They're going to make it sound genuine.

They're going to make it appear risk-free. None of the above is true. And your life’s effort of savings could disappear literally at the push of a button. You need to rely on independent third parties to validate the transaction you are contemplating. And if you're a financial advisor, your biggest, best, most vital, most important role is serving as that safety net for your clients.

You need to be engaging with your clients early and often. Have you been contemplating a new investment? Have you been in touch with someone offering an investment opportunity? If you haven't talked to your client in several months, that doesn't mean the scam artists haven't talked to your client in several months.

This is the single biggest threat to your financial future. It's all very exciting. I'm wonderfully enthused about what's coming in the future. If you manage your personal finances effectively with exponential technologies, artificial intelligence, stocks, bonds, real estate, oil and gas, commodities, foreign securities, you can achieve financial independence and financial security. And for everything that we've discussed, the fundamental pillars of proper investment management apply as they always have diversification, long-term focus, rebalancing, dollar cost averaging, and tax loss harvesting. If you'll apply these five fundamental concepts to your investment strategy, I think you'll do just fine.

But if you step on a landmine and fall victim to a get rich quick scheme that sounds too good to be true, you could thwart your lifelong effort toward your financial goals.

Tomorrow, December 27th, my final podcast and the most important, most impactful, best advice I can give you that's tomorrow. It's hard to believe that it's been 35 years on the air. I've done more than 1,500 radio broadcasts over the last three decades, more than 500 podcasts in the last three years alone. I'm so glad you've been with me all these years. If you want to stay connected with me, be sure to join my distribution list.

Just click on the link in the show notes. I'll make sure you continue to get the latest that I offer on exponential technologies, crypto, Alzheimer's, longevity, investing, all the topics that matter most to us all. Thank you for being with me all these years. I'm looking forward to many more with you.

Please subscribe today so we can stay connected.

I'll see you tomorrow for my final podcast.

-----

Stay Connected on Ric's Distribution List: https://bit.ly/ric_edelman

Ask Ric: https://www.thetayf.com/pages/ask-ric 

-----  

Links from today’s show:  

1/15 Webinar - Your Crypto Questions Answered: https://dacfp.com/events/your-crypto-questions-answered

12/10 Webinar Replay - The Retirement Revolution: ETF Solutions for Modern Retirement Planning: https://www.thetayf.com/pages/the-retirement-revolution-etf-solutions-for-modern-retirement-planning

12/9 Webinar Replay - What the Election Results Mean for Crypto:  https://dacfp.com/events/what-the-election-results-mean-for-crypto

2/24-2/26 Wealth Management Convergence-2025: https://www.thetayf.com/pages/convergence

11/13 Webinar Replay - An Innovative Way to Generate Income in a World of Declining Rates: https://www.thetayf.com/pages/november-13-2024-an-innovative-way-to-generate-income

10/9 Webinar Replay - Crypto for RIAs: Yield, Staking, Lending and Custody. What’s beyond the ETFs? https://dacfp.com/events/crypto-for-rias-yield-staking-lending-and-custody-whats-beyond-the-etfs/

-----  

Follow Ric on social media:  

Facebook: https://www.facebook.com/RicEdelman

Instagram: https://www.instagram.com/ric_edelman/

LinkedIn: https://www.linkedin.com/in/ricedelman/

X: https://twitter.com/ricedelman

YouTube: https://www.youtube.com/@RicEdelman

-----  

Brought to you by:  

Invesco QQQ: https://www.invesco.com/qqq-etf/en/home.html

State Street Global Advisors: https://www.ssga.com/us/en/intermediary/etfs/capabilities/spdr-core-equity-etfs/spy-sp-500/cornerstones

Schwab: https://www.schwab.com/

TAYF Disclosure page: https://www.thetayf.com/pages/sponsorship-disclosure-fee