On this week’s episode, we’re diving into private and public markets. If you’re curious about whether the flexibility of public equities or the strategic depth of private investments better aligns with your goals, you’re not alone. The world of investing offers so many avenues to build wealth, yet the right choice depends on your unique circumstances and appetite for risk. Plus, check out this week’s interview with Chief Market Strategist Charlie Bilello for last-minute market insights you might want before heading to the polls.
Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!
Episode Notes
John Hagensen: Welcome to the Rethink Your Money Podcast presented by Creative Planning. I’m your host, John Hagensen, and on this week’s show, I’ll be talking with Chief Market Strategist Charlie Bilello to get his take on the upcoming election and its potential impact on your finances. I’ll also be answering listener questions about franchise opportunities, family offices, and what you should consider as you navigate the open enrollment period. Now join me as I help you rethink your money.
Private investments, a term that tends to mystify people. What are private investments? They include things like private equity, which is ownership in companies, just as if you owned the stock, but again, they’re not traded, they’re not listed companies, real estate, hedge funds, art, other collectibles. They’re simply investments that aren’t available on a typical public exchange like the New York Stock Exchange. So why would you consider adding private investments to your portfolio mix? And another question is, why have you probably heard a lot more about private investments the last 5 or 10 years than previously?
I’ll put a pin in the first one, but the answer to the second is that they’re far more accessible to the masses today than they ever have been previously. And as we evaluate whether they make sense for you, let me start with the pros of private investing. The first is that there is a low correlation to market trends. Because private investments are not traded daily, they don’t usually react to market news as publicly traded stocks do. If you own a building, you’re not getting it reappraised every single day, but if you can just click a button, you don’t have to hire a realtor. You don’t have to go through the selling process. You just click a button and the house sells. You can see where, when you extrapolate that out over millions of people, the price would fluctuate a lot faster based on so much liquidity.
Secondly, there’s the potential for higher returns. This does not mean that you are guaranteed to get higher returns in private investments. Of course not. Past performance is no guarantee of future results. But theoretically, if everything was equal, you should receive an illiquidity premium in a private investment as compared to a public investment that’s basically the same but fully liquid, and the reason for this, I think, makes a lot of sense. If you were not expecting a higher return, no one would subject themselves to the negatives, that I’m going to share in a moment, of private investments. There’d be no point to do it if you didn’t think there were going to be some of these benefits. I mean, take private equity. Imagine having a chance to invest in Starbucks when it was a tiny coffee chain. There are a lot of really good companies out there right now that are privately owned, and the only way you’re going to actually share in the ownership and profits of those companies is through a private investment.
So you’ve got low correlation, the potential for higher returns, and the final pro I’ll highlight, diversification. It’s the buzzword we all know. We need to be diversified. Don’t put all of your eggs in one basket. Have dissimilar price movement amongst your various asset categories. Private investments open up ways to diversify beyond the usual stock and bond portfolio. Think 2022, stocks down, bonds down. Well, not everything was down, but publicly traded stocks and bonds, yeah, they were. And that was the year that a lot of investors questioned, “Am I actually diversified enough?” Simply put, private investments help you spread out your risk, adding stability in times of high market volatility.
Now, of course, there is no pot of gold at the end of the rainbow. There is no unicorn that’s magical and reduces your risk and gets you better returns and is perfect. Although sometimes you’ll hear salespeople refer to private investments in that manner, no, if that were true, 100% of the world’s capital would all go to that investment. So with all investing, you want to say, “What are the pros? What are the cons? And how do those align with my specific situation and what I’m trying to do with my money?” So yes, you get low correlation, and the potential for higher returns or higher income and broaden your diversification. But here are the negatives, and there are plenty of them.
Number one, illiquidity. When you invest in private markets, your money can be tied up, in some cases, for years. To get out of it, either you have a cost or you just simply can’t get out of it at all. Imagine giving money to a couple of your buddies who are out buying a bunch of commercial real estate in your town. If, six months later, you ask them for all of your money, they may tell you, “We’re not going to sell off buildings we bought a month ago so that you can get your money back. It will submarine the portfolio. You can’t get out of this right now.” Some private investments even lock up your money for a decade or more. So be prepared for a long-term commitment. One of the innovations of private investments is that there are many now that have a lot more flexibility on liquidity than the old school private investments. We have access here at Creative Planning to some of those. But still, illiquidity is a consideration and should be.
Number two, higher fees. Private investments often come with a range of fees, management fees, performance fees, as well as others. But at Creative Planning, one of the things that’s important for you to understand is that because of our scale, as we manage or advise on a combined $330 billion, we are able to negotiate on our client’s behalf lower fees than what you would likely have to pay through other firms or certainly on your own. In fact, in most cases, you would have no access to some of these investments, whether it be through another firm or certainly on your own. You’ve also got complexity and risk as a negative. Private investments often have complex structures that require specialized knowledge. And without someone who has experience in this area, it can be difficult to manage these investments and really understand fully the risks that you’re taking on that you may or may not be prepared for.
So you’ve got illiquidity concerns, higher fees, complexity and risk, and lastly, high minimums. Many private investments come with high minimum requirements, making a smaller portfolio not viable. If the minimum investment’s $250,000 and your total portfolio’s 500 grand, well, you’re not going to put 50% of your portfolio into one private investment. So in many cases, it only really makes sense to even consider if you’ve got a little bit larger portfolio. Let me give you a perfect example of someone who should not have had private investments. Had this prospective client, they had went to a commission-driven broker who made massive commissions to sell these private investments. Already, big conflict of interest. Made way more money if this client went into private investments versus public.
And it’s important that I pause here for a moment and add a very important distinction. If you end up allocating to private investments, you want to do so with a fee-based fiduciary. Like us here at Creative Planning, we don’t make one penny more if you have it in an index fund, an ETF, an individual stock or a private investment. We are not making commissions or receiving third-party kickbacks or revenue sharing from these private investment companies. It’s really important to understand the incentives.
This client had been sold a lot of private investments. They were long-term, they were illiquid, and while the growth potential was high, they were in really speculative venture funds, very, very growth oriented investments, but they didn’t provide any immediate income. This person was in retirement, and the reason they came to us was for a second opinion because they were in a bind, unable to access funds when they needed them, not creating enough income, paying really high fees, didn’t really understand what they were in. In their case, they were in really risky stuff that wasn’t suitable for their objectives and for their goals. So you ask that person, “What do you think of private investments?” They’re going to say, “Avoid them like the plague. Those things stink.” And for them, they did. Private investments can be powerful, but only when they are tailored to your unique situation and your financial plan.
Here are three tips, general rules of thumb when you are evaluating private investments. You can run your financial situation through this matrix right now, as I say this, if you’re thinking about private investments. Number one, know your timeline. Be realistic about when you might need the money. Number two, choose the right access points. Not every private investment is worth the hype or created equal. Private investments are a fat head, long tail scenario, meaning most private investment managers will give you all the cons I just shared and not be able to outperform. But the very top quintile who are getting first look at potential deals, who often have the most experience and track record being successful within their fields, actually have a decent likelihood of outperforming again. So it really matters if you’re going to invest in private real estate, who’s the manager? What have they done in the past? It’s not just a concept. Their experience and history is a decent proxy. Of course, past performance is no guarantee, but there’s a higher correlation, certainly than the public markets.
So when evaluating private investments, know your timeline, choose the right access points, and then match your objectives. Private equity is very different from a hedge fund, which is very different than an art fund, which is very different than private real estate, which is very different than angel investing, which is very different than collecting baseball cards. All of these things are private investments, and they serve vastly different purposes, so understanding why you’re choosing each option is essential. So there you have it, the pros and cons of private investments and whether they could be a good fit for you.
Today, I’ve got a special guest joining me, Charlie Bilello, chief market strategist here at Creative Planning. Charlie’s been analyzing markets for years and is one of the sharpest minds when it comes to making sense of the economy, especially during volatile times. With an election impending just a few days away, we’re going to talk about what history tells you and what you might be able to expect in terms of market reactions. And most importantly, what does all of this mean for long-term investors? Charlie, thank you for coming on the show again here and joining me on Rethink Your Money.
Charlie Bilello: Thank you, John. Exciting times.
John: Let’s start with those exciting times. Do elections tend to lead to more chaos in the markets?
Charlie: onSo it’s interesting. Going into the election, you do tend to see a little bit of a rise in volatility.
John: Sure.
Charlie: That shouldn’t surprise anyone because why are things volatile? They’re volatile when there’s uncertainty, and nothing’s more uncertain than who’s going to win a big election. And so the expectation is that’s going to lead to stock market volatility once the election hits. More often than not, that’s not the case. You actually see volatility come down, and if the stock market is down going into an election, you actually tend to see a rally. But no question, volatility picks up in the weeks ahead of an election, and we’ve seen that this year as well.
John: Do you think the outcome of the election will have a significant immediate impact on the stock market? We know that over the long haul, it doesn’t. But is there an immediate impact or is that overblown?
Charlie: So there could be. Stocks are going to move. They’re going to go up or they’re going to go down. Regardless of an election, one thing you could say about the stock market, it’s going to fluctuate. Now, are they going to fluctuate because of the election? That’s a much harder question. And what I would tell investors is try not to focus on what happens the night of the election, the day after the election. But just going back to 2016, John, if you remember, on election night, Trump was elected. S&P futures. I’m up late, I’m tweeting on X, it was Twitter back then, tweeting out what’s going on. The markets were crashing. S&P 500 goes limit down. And literally, by the open the next morning, it recovered all of its losses.
So anybody who panicked and reacted that night because they said, “Oh, my gosh, Trump is president. What’s going to happen the stock market?” Would’ve been a bad move. And if we look at the returns during Trump’s presidency, they’re actually pretty good, which isn’t unusual, regardless of the party. If you go back, in the long run, the returns are very similar between Republicans and Democrats. Almost no differential between the two. Historically, the stock market cares about earnings, and earnings tend to go up during most presidencies. And when they don’t, then you have a problem. So we’ve had only a few presidencies in the past 100 years or so where the stock market’s been down. One was during George W. Bush’s presidency and because we had the dot-com bubble, that burst. We had 9/11, we had a recession there, and we also had the financial crisis, and then he leaves. So the timing of that, very bad for W. Bush.
And then before that, you got to go back to the Great Depression. You got to go back to FDR had a negative term during one of his terms as president, and then before that, obviously, Herbert Hoover at the start of the Great Depression. Not very good timing there. The worst return of any president. But other than that, S&P 500 total return, positive during every single presidency. And look at the last few. Obama’s first term, 102% gain for the S&P 500. Obama’s second term, 66%. Trump, 83%. And Biden, so far, over 60% return since the start of his presidency. So been very bad move to be reactive based on that volatility, regardless of what happens in the market in the days following the election.
John: Even just anecdotally with clients, when Trump won in 2016, you reminded me of that. My clients that were Democrats are just like, “This is terrible. Cannot believe this. This is the shock victory.” If you remember, his chance of winning was really low and people freaked out. And then, as you mentioned, the market went up. And then it-
Charlie: It did the same thing during Obama, right? “I’m leaving the country.” You hear all-
John: Yes.
Charlie: That’s fine. You can leave the country, but don’t leave the stock market. That’s been a much worse bet.
John: Yeah, no, exactly. And then the exact opposite happened, obviously, in 2020. Biden wins, Republicans are like, “Oh, no,” like as you just mentioned in the numbers, the market went up. The people that lost were those that got out. We talk a lot about long-term investing and staying disciplined, but let’s be honest, how hard is it to keep your cool when everything feels really uncertain around you? There’s a level of control of saying, “I need to do something,” and people mistake activity for control, especially during election seasons. What advice do you have for investors who are feeling anxious right now?
Charlie: First of all, it’s okay to feel anxious. That’s normal. Let’s say you’re a Republican. You’re being told these bad things are going to happen if a Democrat wins. If you’re a Democrat, you’re told bad things are going to happen if a Republican wins. And if you’re independent, both sides is going to be bad. So there’s a lot of bad news. You’re not hearing all about these great things that are going to happen if either party wins. Fear sells, negativity sells. That’s perfectly normal. You just have to think about how this is going to impact you in the long run if you make a decision based on that.
And John, I have some interesting stats on that. I went back to January, 1953, and I said… Let’s say back then you put $10,000 into the S&P 500 and you only invested during a Republican presidency. What would you have today? 289,000. Let’s say at the time, you said, “I’m only going to invest during a Democrat president.” 675,000. Now, what would you have if you stayed invested regardless of who was in power? Take a guess.
John: This is going to be ridiculous. What is it?
Charlie: Over $19 million.
John: Yep.
Charlie: So there’s no comparison, because in the long run, stocks tend to go up. So if you take out a major portion of that, whether it’s Republicans in power or Democrats in power, you’re going to be missing out on that compounding. You might get it right. The stock market could go down the next four years. It’s certainly possible, but is it going to go down in eight years, 12 years? Think about that long run return that you’re likely to miss out on if you’re letting politics influence your portfolio.
John: I remember having Creative Planning president Peter Mallouk on. I said, “Well, you wrote this book on the five mistakes. What do you think is the biggest one you could summarize?” And he said, “People not zooming out, being too much a creature of the moment, and it feels so important, and not being able to take a longer term perspective with their money.”
Charlie: A hundred percent. And speaking of Peter, he has this great chart in his book, Money Simplified, showing you the breakdown. Republican president, Democrat president, Congress has split all different directions. It’s a hilarious chart because all of it is up into the right. Every different combination, if you look at over four years, tends to be positive. And the variation, on average, is very, very small.
John: I know.
Charlie: And so people are saying, “Well, how could that be the case? This is the most important person in the free world. This is the person making all these important decisions.” And what I like to say is, “Thank goodness that’s the case.” Thank goodness this person doesn’t have the power to influence the entire economy and the entire stock market, because yeah, that perhaps could be very good, but it also could be very bad. So we, thankfully, John, have a system of checks and balances where it’s not just the president making unilateral decisions for the economy and for companies. Thankfully, if that president does something bad in the next four years, well, guess what? They’re going to get voted out or their party is not going to win reelection and there will be change.
So I’m confident that will be the case once again, and the only counter argument is if you could make the case that this person is unilaterally going to do something that will impair earnings over the next 20 years, their policies are going to be so bad, they’re going to stay in power long enough to enact these terrible decisions. Yes, that could impact the stock market. What are the odds that actually gets through in today’s environment where you’re likely to have… Even if you have one government controlling three, it’s going to be a close margin, but more likely, you’ll probably have a split government. And if it’s not split, after two years, it will be split.
So you have a very short window of either party making these big decisions that can have an impact on the stock market and the economy. Thank goodness that’s the case. So very different than a country like China, who the leader there matters very, very much. They could make huge changes for good or for bad in America. What I like to say is, “Thankfully that’s not the case.”
John: Charlie, you’ve studied the market history for years. Are there trends that you’ve noticed, whether it be with market performance or sectors leading up to or after elections that might surprise people?
Charlie: Great question, because there are so many narratives you’re hearing right now. If you just Google five stocks to buy now for a Trump win or five stocks to buy right now for a Harris win-
John: They’re everywhere.
Charlie: … you’ll find all of these articles. And the assumption is this president is good for this sector, this area of the market, and you could safely bet on that. That’s, of course, assuming that you’re going to get it right in terms of who will win. But what I would tell you is if you had a crystal ball, John, you knew exactly who’s going to win the election in a few days, you would have a very hard time figuring out what sectors are going to do well under that president. And let me just give you a few examples from the last few elections. If you talk about Obama, Trump, and Biden and what the narrative is associated with those presidents, very different, right? So Obama, at least this is the perception, not the reality-
John: I’m very interested to hear this. I know you’re going to tell me something that’s totally counterintuitive.
Charlie: Yeah, so you would think Obama, just based on the narrative, again, he’s good for things like clean energy, not very good for traditional energy, oil and gas companies.
John: Sure.
Charlie: Right? And that Trump, the opposite. Trump is good for oil and gas. Drill, baby, drill. And he’s bad for things like clean energy. And then what we see in terms of the performance, the exact opposite. If we look at the clean energy ETF, down 54% during Obama’s first term, up 306% during Trump’s term.
John: Wow.
Charlie: So far, during Biden, down 55%.
John: What?
Charlie: Then we look at traditional energy, right? Again, it’s supposed to be bad under Obama. It was actually up 84% under Obama’s first term, down 29% during Trump’s presidency and up 139% so far during Biden’s presidency.
John: What’s your explanation for that?
Charlie: So much going on there.
John: Is it that it’s already priced in, it’s not good or bad, it’s better or worse, and everyone else is expecting what you just mentioned?
Charlie: I think that’s a factor. But the much bigger factor is they don’t have as much control as people think-
John: Gotcha.
Charlie: … to enact policies that are actually going to change the earnings of these companies. That’s just one example, but if you look over time, the last 50 years, every single S&P 500 sector, things like healthcare, things like technology, things like materials, energy, consumer staples, and then I just split down the middle and said, “Does this sector outperform under Republican? Democrat?” What you’ll find is it’s almost completely random. There’s no pattern whatsoever to say, “This sector is going to do very well during this presidency.”
Coming back to 2016, once again, if you just Google headlines around when Trump was elected, you’ll see, “Trump is going to be bad for technology,” is what they said over and over again, all of these different headlines, because he was being a little bit combative with some of the big tech companies. How did the tech ETF XLK do during his presidency? 179%. Now, it’s done very well so far under Biden, up 80%, but it just goes to show you the narrative is almost always wrong in terms of this stuff. So just keep that out of your investing, keep that out of your portfolio, trying to predict what sectors, what stocks are going to do well if Trump wins or if Harris wins. It’s been a terrible strategy in the past. I don’t expect it to be any different in the future.
John: I think your point is so well taken, that the president themselves just doesn’t individually have enough power to control an entire sector, even though I think our perception is that it can. It reminds me of, one, we don’t have a crystal ball. So there’s no way to actually forecast, in this case, who’s going to win the election, but if it were 2019, that there would be a global pandemic in the following year. So we can’t predict that. But I think the broader point that’s more powerful is that even if somehow you could, you just had this crystal ball, you would’ve moved to cash or shorted the market. The market was up 20% for the year. So even if you knew it was going to happen, you wouldn’t be able to figure out because of all the variables and all the reactions to the action what the market would, in fact, actually do.
Charlie, this has been incredible. Thanks for sharing your insights with us today. I hope it helps people have maybe a little lower anxiety and, more importantly, do a good job with their money. Thanks again for coming on the show.
Charlie: Absolutely. Awesome, John. Always fun.
John: Let’s jump into our first common wisdom, which is that the US dollar’s status as the dominant currency in the world is coming to an end. You might have heard this, especially as news about inflation or competing currencies has really gained momentum. There’s certainly no shortage of experts on social media claiming that the dollar’s collapse is imminent. But here’s the thing, the US dollar’s supposed downfall, it’s been talked about for decades. And you know what? We’re still here, and so is the dollar. We are the cleanest shirt in the dirty laundry.
Yes, other countries have introduced digital currencies and other alternatives, but even a recent JP Morgan report found that the dollar’s dominance is likely to continue well into the future. The dollar is the primary reserve currency for a reason. It’s trusted. You’re like, “John, we have $35 trillion of national debt. How?” Look around. What other currency would we use? It’s reliable. And when crisis hits, people globally still turn to it. So claims that the US dollar will vanish or they’re going to be dethroned are often more about stirring up your fear. Oh, and by the way, usually like a, “Hey, call this number to buy gold bars or invest all your money in silver, because here’s what’s coming.” It’s usually for clicks and ratings, not about real substantial risks. Always consider the source that is telling you why to be terrified.
How do you protect against these sorts of risks? You broadly and strategically diversify. You ensure that you don’t have all of your money in US companies only. Yeah, they’ve done way better than international stocks, for example, over the last 15 years. Sometimes it seems like, “Why would I want anything else?” Because even if it’s a very minute tail risk, you want to guard and protect against those unknown risks. And remember, risk is what’s left over after you think you’ve thought of everything. I’m not minimizing that risks exist, but in light of those potential risks, the more important question always is, “Well, how do I actually invest my money in a way that takes these into account in a prudent and disciplined manner?” As Buffett wisely put it, “Be fearful when others are greedy and greedy when others are fearful.” A lot of those doomsday articles are designed to make you fearful, but rarely do they give you any actionable, realistic advice other than, “Buy my product that will solve this.”
All right, on to the second bit of financial wisdom to rethink. Lowering taxes always stimulates economic growth. Now, on the surface, this does sound logical. If you pay less in taxes, you have more money to spend, which is good for the economy and there is a trickle-down effect. But the reality is it’s not really that simple, regardless of which side of the political aisle you’re on. It always seems so easy, doesn’t it? One of the candidates gets up… And by the way, I’m not making a comment one way or another. I’m saying this is bipartisan. “We got to help this group of people, and here’s what we’ll do, and it’s so simple.” No, it’s not. It’s multi-layered with all sorts of unintended consequences, and there is no perfect solution. And that’s why countries all over the world are continually adjusting and tweaking and evaluating and trying to arrive at what works best for their citizens, for their society.
So sometimes lower taxes, they can stimulate growth, especially if those cuts are targeted toward business investment or consumer spending, which is the largest engine of our economy. But if it’s just across the board and without a balanced plan, you could end up increasing the national deficit or cutting essential services. And so those are the challenges, and that’s the bipartisan part of all of this. Other than a couple years during the Clinton administration, it doesn’t matter whether the White House is occupied red or blue, Congress is red or blue. We continue to spend way more money than we bring in. We don’t have an income problem, we have a spending problem.
The United States government is your neighbor who makes $3 million a year and just can’t figure out how to not spend $4 million a year. Imagine if they came complaining to you about their problem. You would look at them and say, “Get off my lawn. You’re crazy. Just spend a little less.” Easier said than done, as evidenced by what we see. When you look at successful economies, there’s often a balanced approach, even here in America when it works. So you’ve got targeted tax cuts combined with smart investments in public infrastructure, healthcare, education, and then you have to see how it all plays out and where some of those negative unintended consequences occurred and how you solve for those. There is no perfect solution. But the common wisdom that lowering taxes always stimulates growth, or the flip side, that raising taxes will immediately help balance the budget, no, because that may slow growth to a broader extent than the increased tax rates. And this is the great challenge.
Now for the final wisdom to rethink. Cutting back on lattes will change your financial life. The idea here, I’m sure you’ve heard it, is that if you just cut out your daily $5 coffee… And by the way, $5 is… If you’re getting a latte or something, that’s a lot more than five bucks these days. That’s somehow going to add up into big savings over time. But really, is that going to move the needle on your overall financial picture? For most people, not so much. Now, if you just run the compound math on investing $5 every single day and it earns 8 to 12% for 40 years, it does amount to a massive amount of money. I’m not denying that. And don’t get me wrong, spending consciously is important. But focusing on small purchases like coffee is a bit like trying to save money for a family vacation by giving up on buying bubble gum. It’s not going to get you where you need to go.
I remember a couple that I worked with who spent a lot of time stressing over small purchases. I mean, these people, granted, engineer and accountant, very detailed, they were meticulous on every single receipt. And in a vacuum, I’m not suggesting that was bad, but they were looking at coffee runs, how much Netflix had increased their costs, minor incremental changes to what their landscaper was going to charge them next year. And we looked at the bigger picture and found that they were spending, on average throughout the year, for their three kids’ travel sports, and private school, $5,000 a month. It was right around five when we averaged it out for the year.
Now, I’m not suggesting that their kids shouldn’t be playing travel sports. I mean, one of them was in hockey. It’s super expensive for all the gear, and every tournament’s all over the West Coast, traveling all over the place, staying in hotels. Another was in gymnastics, which is really expensive. Not bad things, and if they want to send their kids to a private school and they feel strongly about that, that’s great, too. But they’re looking at all these little tiny expenses, like their Netflix subscription, and not considering, “Here’s where we’re spending a massive amount of money. Are there ways to decrease that a little bit?”
And here’s the takeaway. Not to demean them. We all do these things. It’s called mental accounting. We’ll focus on one thing, we won’t focus on something else, and then usually confirmation bias pops in and we kind of justify it and do all the mental gymnastics. I do this all the time, why I want to buy that new driver, but yet, we shouldn’t have another throw pillow. My wife’s like, “The throw pillow costs nothing compared to that driver, and you just bought one last year. Hey, John, this driver isn’t going to magically make you hit it 40 yards further and actually stay in the fairway.” Okay, I get it, but kind of still want the driver. But let me fixate on something else we’re spending money on. Focus on the big ticket items first.
So that’s why it’s actually really important, like one of the biggest ways that could be saved for American families is how much they spend on vehicles, a depreciating asset that, in some cases, is costing 50, 60, 100 thousand dollars. You’re making payments on these. Or you’re coming out of pocket, even if you’re not paying interest, you’re coming out of pocket with, let’s say, 80 grand. You could buy something for 30 and have that 50,000 compounding now for the next 20 or 30 years. I mean, that’s going to end up being seven figures if you give it long enough. And again, personal finance is way more personal than finance. If you want to drive a souped up Escalade and that’s important to you, more power to you. Truly, zero judgment from me. Those are generally the line items that make way more of a difference than, “I probably shouldn’t pay extra for oat milk instead of whole milk this morning in my latte. If I aggregate that, man, that could really make a difference.” No, it generally doesn’t make that big a difference. Other big discretionary expenses, eating out, travel, entertainment in general.
Well, it’s time for this week’s one simple task, and I really cannot make this any simpler. Today’s task, it’s already what’s on your mind, the election. Get out and vote. I know you might think, “Voting doesn’t directly impact my finances,” but think about it. Decisions that come out of elections, whether local, state or federal, can impact tax laws, education, funding, health insurance policies, and even your 401k returns in ways you wouldn’t expect. And by the way, as Charlie and I talked about earlier on the show, you can’t predict, but voting in a democracy as we have here in America is a beautiful blessing and one that was fought for and we should not take lightly. This is one small way that you can take an active role in your financial future.
Now we’re moving on to listener questions, one of my favorite parts of the show. And today I have one of my producers, Britt, here helping me out. All right, Britt, let’s go to the first question. We’ve got one on franchises. I’m looking forward to answering.
Britt Von Roden: Yep, we sure do. Alan is from San Diego, and he wrote in that he was recently approached with a franchise opportunity. He says that this one in particular is pretty well known and that their business model seems to be working. Everything seems turnkey, like a business in a box. But he is having a hard time deciding if this is something he should consider, so he wants to get your take, John, on if franchising is a good investment idea.
John: This is such a good question. We have countless clients who are owners within franchises. And they can be, in some cases, just fantastic businesses. Franchises, one of the appeals is that they’re very turnkey in nature. They often come with built-in branding, marketing support and operational systems that make the business easy to run. But like most things, there are both pros and cons. Some of the negatives is that a franchise isn’t just a business in a box. It’s more like renting someone else’s brand. Yes, you get a lot of support, but you’re often subject to strict guidelines, like you aren’t able to have a lot of the entrepreneurial freedom you would have with your own sole unaffiliated business. That means, for example, you can’t change the menu if it’s a food franchise.
My in-laws owned a few Cold Stone Creameries back in the day. You had to use legit Oreos and Snickers, and even if you could get something that tastes basically the same, it was going to get chopped up in ice cream, that was significantly less expensive, you could not do it. That’s a good thing for Cold Stone customers, that the quality of the ingredients was very much a priority, but it’s not like each owner of a franchise had the ability to change the flavors of the ice cream. Or my wife, when she was working there in high school, and her friends would come in and give her a tip and she had to sing the little song that they make you sing when you get a tip, no, she had to sing it. She couldn’t not sing it just because her parents owned that franchise. Sorry. Let me tell you, that would be one of the first places I would warp back in time to. It’d be to see my wife as a 16-year-old in that little Cold Stone visor, singing the Cold Stone tip songs.
But for some, franchises can be incredibly successful, wildly successful. Take Subway. I mean, it’s grown because franchisees embrace that business model in the system. McDonald’s, Domino’s, Papa John’s, Taco Bells. One of my buddies who’s in the restaurant business was telling me that those who own Taco Bell franchises are just absolutely crushing it. I’m like, “How? They’ve got burritos for 79 cents. How are they making money?” I mean, I don’t know, but they’re doing it. But I also know a client who invested in a popular franchise and found out that, while it seemed great initially, the profit margins were not as high after factoring in franchise fees and royalties. It’s not like you get all those benefits without having to pay for them. You do. So you’re trying to weigh whether they’re actually worth it.
Another key consideration is the time commitment. Many people assume, “Well, if it’s a franchise, it’ll kind of be hands-off.” But if you don’t plan to manage it yourself, and again, my in-laws saw this with Cold Stone, you’ll need to find the right people, namely, a great full-time manager. They’re not inexpensive, especially if you want a really good one, so that is going to immediately take a bite out of your profit. So you want to weigh the value of your time and how that converges with your desire for higher profits. And sometimes franchise success depends on factors beyond your control, like local market demand and brand reputation. So do your homework, review the franchise disclosure statement. Before jumping in, I would seek professional counsel, something that we can review here at Creative Planning in our Legal Department, to ensure that it aligns with your personal and your financial goals. But they are certainly one of many good options worth looking into.
All right, Britt, let’s go to the next question.
Britt: Absolutely. Our next question is from Sarah in Kansas City, and she wants to know what family office is and if you can explain what qualifies an individual for this type of service. She shares that she has heard you reference it on the show many times, and from her understanding, it’s more for high-net-worth families.
John: To give you an example, if you’re a family with a $250 million net worth, you generally aren’t just going to walk into a financial advisor’s office, say, “Invest my money,” then go down to an attorney and say, “Well, we need some estate planning,” and then you go to a CPA who’s unrelated, like, “Hey, can you do our taxes for us?” They don’t operate that way because they generally have assets all over the place, multiple properties, complex tax consideration. Sometimes there’s even a family business. You’ve got charitable giving goals. It’s going to span multi generations. And so coordinating all of those moving parts can be challenging. In a family office, you hire all these people in-house, and so they work together in a coordinated fashion on your behalf.
And so when you hear me say that Creative Planning has been called a family office for all by Barron’s, that truly is what we offer, and it’s pretty neat. Okay, I’m biased. Yes, I’m a partner, I’m a managing director. But what we have brought, and frankly, we’ve got a lot of the rest of the industry chasing us, trying to build out the same thing because there’s a lot of value in it. For the millionaire next door who says, “Well, that’s great for the person with $250 million, but man, they could probably be a bit inefficient, maybe not do everything right,” I’m going to go out on a limb and say they’re probably going to be okay still. But what about the person with $2 million that wants to drive a lot of income and still pass something on to their kids and not worry about running out of money, and invest properly and minimize their taxes and have a good estate plan? Well, that’s what we’re offering here at Creative Planning.
We’re an enormous law firm, 60 attorneys doing thousands and thousands of trusts and wills and powers of attorney. We’ve got an entire business services team. We can value businesses, we can help you exit your business. We can review the contracts. We have a tax department doing tens of thousands of tax returns and tens of thousands of tax plans each and every year, nearly 500 certified financial planners just like myself. And what makes Creative Planning unique and why we are a family office for all is that we can coordinate all of those services on your behalf. That’s why you’ll hear me ask the question, “When’s the last time your financial advisor reviewed your tax return?” Because most people’s answer is, “Never.” Not like, “Oh, it’s been a little bit.” It’s like, “No, never.” That’s a huge, huge problem. And at Creative Planning, because we offer that family office dynamic but you don’t need a quarter of a billion dollars to access it, you’re able to benefit from the same thing that ultra-high-net-worth families have for decades.
Thank you for that question, Sarah. All right, Britt, let’s go to our final question of the day.
Britt: Our final question today, John, is from Rob in Ohio. And he mentioned that he just received the yearly open enrollment email from HR, and so he’s wondering if you had anything he should take into consideration this year when enrolling. Rob also shared that he’s married with three kids and a single income household.
John: For a single income household with a family, here are some things that I would consider. Number one, health insurance. Look at your options very carefully. A PPO plan might be more beneficial because it provides more flexibility with providers and specialists. Maybe use a high deductible plan that you can pair with an HSA, that health savings account, for excellent tax benefits. Speaking of an HSA, number two is HSA versus FSA. If your plan allows for it, an HSA is a great long-term savings vehicle. You get a deduction on the way in, it grows tax deferred, you use it for qualified medical expenses, it comes out tax-exempt. That’s why you’ll hear it referred to as triple tax treated. You also don’t have to spend it, and I advocate for that. Invest it and let it grow over time so that you really take advantage of that potential tax-free growth.
Life and disability insurance. Review your coverage levels. Being the sole breadwinner, you want to make sure that your family is protected if something happens. So employer-provided life insurance is often affordable, but keep in mind that it may not be enough. And if you ever leave your job, you may have to let it go, or your premiums, in many cases, ratchet through the roof to the point where it’s not really even worth keeping. And then lastly, and this is by no means a comprehensive list, but I’m just rattling off a few here top of mind, look at your retirement savings options. If your employer offers a 401k match, take advantage of that. Where else are you getting a 100% return day one on your investment? It’s essentially free money that helps build up your retirement savings more quickly. If you’re unsure of your choices, you can always contact us here at Creative Planning. We review this for our clients, and we have 75,000 of them. Get the guidance that you need so that you can feel confident in those decisions.
All great questions today. If you have questions, you can submit those by emailing [email protected].
You’re never too old or too young to make a significant impact, financially or otherwise. You don’t need a specific age or a specific milestone to start doing meaningful things with your life and with your money. I love the saying, “Life is what’s happening while you’re busy making plans.” How often are we focused so intently, either on the future, where we’re headed, how great it’s going to be when we get there, or conversely, on our past, either romanticizing it, “Man, that was so great. Remember that state championship back in high school?” or lamenting past mistakes, beating ourselves up over decisions that we wish we hadn’t made. But never being too old or too young means living in the present.
Some of the most inspiring people didn’t find financial success until later in life. Colonel Sanders, 74 years old when he founded KFC, Ray Kroc, who turned McDonald’s into a household name at 52, or Laura Ingalls Wilder, who published her first little house book at 65 years old. These folks didn’t let age define when they could achieve something big. So if you are in retirement, you wonder, “Where am I going to find my purpose? I have a lot more time, but man, I don’t know. It feels like the world’s moving fast and my best days are behind me.” No, they are not. Make every single day count. Use the wisdom that you’ve accumulated over the years of your life. Pass that on to your kids and your grandkids and your friends. Find time to volunteer in ways that maybe you couldn’t at other seasons of life.
And on the flip side, let me tell you about Katie Davis Majors. I read her book, Kisses from Katie, many years ago, and I was awestruck with inspiration. Katie was a teenager from Tennessee when she went on a short-term trip to Uganda. That experience completely changed her life. At 19, she moved to Uganda permanently, where she eventually adopted 13 girls who had no families. She was in her early 20s with 13 kids, and she wasn’t married. She was doing this on her own. She now has an organization that feeds hundreds and hundreds of children every single day who wouldn’t otherwise have nutritious meals to eat in rural Africa. You know what I love about Katie? She didn’t wait until the right time or until she had enough money. She just acted on her calling. She took steps of faith.
And her story is a reminder that you don’t have to wait until you’re older or you’re more established to start making a difference. Whether you’re 20, you’re 40, you’re 60, you’re 80, you’re 100, think about what steps you can take today to create positive change in your life and, more importantly, in the lives of others. Because money is just a tool, and it’s what you do with it that really counts. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.
Announcer: Thank you for listening to Rethink Your Money, presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on the show, go to creativeplanning.com/radio. And to make sure you never miss an episode, you can subscribe to Rethink Your Money wherever you get your podcasts.
Disclaimer:
The preceding program is furnished by Creative Planning, an SEC-registered investment advisory firm. Creative Planning, along with its affiliate, United Capital Financial Advisors, currently manages or advises on a combined $300 billion in assets as of December 31st, 2023. John Hagensen works for Creative Planning, and all opinions expressed by John or his guests are solely their own and do not necessarily represent the opinion of Creative Planning.
This show is designed to be informational in nature and does not constitute investment, tax, or legal advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on this show, will be profitable or equal any historical performance levels. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning Tax and Legal are separate entities that must be engaged independently.
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