Building Your Money Machine

7 BIG Investing Regrets (as a Certified Public Accountant)

• Mel H Abraham, CPA, CVA, ASA • Episode 223

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Do you ever wonder what the biggest investing regrets might be from someone who's a Certified Public Accountant? Well, you're in luck!

In today’s episode, I get real and candid about my own investment journey, sharing the seven biggest investing regrets I've had over the years. From not being curious about wealth early on to blindly following advisors, I lay it all out to help you avoid making the same costly mistakes.

We dive deep into the importance of getting curious about wealth, understanding the real meaning of retirement, and the massive impact of starting to invest early. I also discuss the perils of getting too complicated too soon and the dangers of letting emotions drive your decisions. Plus, why it's crucial to stay in the market despite your fears and the importance of talking about and teaching financial literacy more openly.

Want to learn from my mistakes and secure your financial future more confidently? Tune in to the full episode now!

IN TODAY’S EPISODE, I DISCUSS: 

- Being curious about wealth and living fully early on

- The misconception that retirement is far off

- The pitfalls of getting too complicated too soon in investing

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PRE-ORDER MY NEW BOOK:

Building Your Money Machine: How to Get Your Money to Work Harder For You Than You Did For It! 

The key to building the life you desire and deserve is to build your Money Machine—a powerful system designed to generate income that’s no longer tied to your work or efforts. This step-by-step guide goes beyond the general idea of personal finance and wealth creation and reveals the holistic approach to transforming your relationship with money to allow you to enjoy financial freedom and peace of mind.

Part money philosophy, part money mindset, part strategy, and part tactical action, these powerful frameworks will show you how to build your money machine.


Well, everyone's telling you, invest in index funds, invest in ETF's. You're sitting back saying, what the heck is an ETF? Where do I even start? You start to look at these things and there's so many choices, you're not sure what to look at. You're not even sure what you're looking at. Well, in this episode of the affluent entrepreneur show, I'm going to break it down for you. I'll give you the ABCs of ETF investing. Look forward to seeing you in the episode. Everyone's talking about it. It's all the rage. If you're looking to invest, if you're looking to build a portfolio, just focus on index funds and ETF's. But at first, you sit back and say, I don't even know what they are. What is an ETF? What is an index fund? And then when you start to understand it and you look at them and you see that there's so many, you go, where do I even start? All right, so in this episode, I'm gonna break it down for you. I'm gonna walk you through what do you need to do when you're starting out with ETF's or index funds or what it is to look at. So before we get there, though, I wanna talk about just the foundations that we need to think about, because we hear this all the time, at least I do. Is now a good time to invest? Here's the thing. What we do know when it comes to building wealth, what we do know when it comes to building a rich life is you cannot do it from the sidelines and you cannot do it from the stands. The only way to win the wealth game is to get yourself on the field. Get in the game. Okay. So what we need to do is figure out how we want to play the game, find the rules to play the game. If you're not sure, I'll give them to you. It's part of my, my book, building your money machine and some of the things that we teach in the wealth priority ladder. But here's the idea to understand time is your most powerful lever when it comes to wealth building. That means that the sooner we get in the game, the more possibility and probability we have of winning the game. But we tend to wait too long. Here's how we look at this. I think that the answer to the first question that you're ever going to ask about investing is always going to be now getting in the game. Now, here's why. There's something that I call the wealth creation curve. And it looks something like this. And what happens is at the very beginning, right here, you are making investments, and it's something that I call the, well, flat line. So you're putting money in, put money in, putting money in, putting money in, putting money in. And you don't feel like you're seeing a whole lot of progress. In fact, you go through it for years and years, and you're sitting back and saying, forget it. You're listening to this guy, Mel Abraham, and he's telling me to do this. And after years of this, I have $67 more, and this doesn't work. This is stupid. I get it. I felt the same way. I did the same thing. This is what we call the, well, flat line. It's going to challenge your beliefs. It's going to challenge your staying power, your discipline. It's going to challenge your thoughts. But what's happening here is this is during this time, what you're doing is you're compressing a spring. You're compressing it, you're compressing it, you're compressing it. So all of that energy is tightly wound. And on the other side of this, this is the flat line. On the other side of it is what I call the acceleration zone. And when you release. When you release the spring here, that's when all of a sudden it expands and it grows and it goes. And so what ends up happening is this is where your money machine is built, because this is where money momentum is found. And the challenge is, too often we don't have the patience and the staying power to get in the game, get on the field and stay in the game. And here's what ends up happening when you do this, is that if you don't stay in the game and you get out, or you cash out like I did, okay, I cashed out my 401 ks one year and said, I'm going to Japan. What ends up happening is you have to go back to the starting line. You have to start all over again. Because there's only one thing that crushes the flatline four letter word time. That means that now is the time to invest. Now is the time to get now. It doesn't mean you just recklessly go in. It means you go in with a. With a plan, a strategy and tactics, tactics that fit it. Okay, so. So that's the first. The first element before we get into investing is to understand that now is the time, if we try to. There's no such thing as time in the market. There's this euphoric utopia, this dream world, where you sit back and say, I can pick the absolute bottom where to buy, and I can pick the absolute top where to sell. And you're kidding yourself. No one does. No one can. Okay? There are statistics that have shown where they've studied. Even the top, top hedge fund traders. They've got the best equipment, the best computers, the best algorithms, the best information. They have the best of the best, and they can't do it long term. Over a 15 year period, 84% of them couldn't outperform the market. Let's just buy the market then. So what we do is we get in the game and stay in the game in the proper way. Now, the other thing that I do, number two on this, is that I always try to invest for overall return. I'm not making. I do have some specific investments that are only for dividends or only for growth. But when we evaluate investments, there's two ways, two primary ways to make money from your investments. One, they go up in value. That's growth. Or someone, you might hear someone call it capital appreciation. Or two, they give you cash flow in the form of dividends, rents, or things like that, distributions. So you've got two ways to get an ROI on your investment, return on your investment. What you, you want to look at is what is the combination of those two? What is the total ROI? Some investments just pay a cash flow yield, a rent or a dividend or a distribution. Others just don't pay any of that. And you have to wait till it grows and they sell it and you get a piece of it. Others do a combination of both. The key is this. If you want to really understand the ability to grow your wealth, you want to look at it through the eyes of what's the overall return on the investment? Okay? So that's number two. Number three, I want you to play the long game. I already told you that hedge fund traders and some of the top people cannot predict the market long term. They can do it in short term. So you'll get someone that can beat the market in, in a year, two years, maybe three years. But long term, they don't do, they don't do well. Here's the other reason that I want you to play the long term game. The stock market itself. And the economy works in cycles and does things. So we could see the market doing this, okay, it's going up, it's going down, it's going up, it's going down. And so we see this. And the problem is that we start to zoom in on one part of it, and we go, oh, no, that's not good. And then you zoom in on, on a different part and you go, yeah, we're going to the moon. See, at every peak and every valley, what's happening is our, our emotions are getting involved here, here and here. And the emotions are greed and fear. And when we allow our emotions to manipulate our decision making, especially the emotions of greed and fear, we're going to make bad decisions. And so by playing the long game, we don't get caught. We don't get caught in these little gyrations, because what we're doing is we're looking through the eyes of the whole thing, and if we see it, what is it doing in the long term? It's going up. And so I'm not going to get caught in all the ups and downs in doing that. So, so by paying, playing the long game, it's easier to leave your emotions at the door and keep them out of the game. Okay, that leads me to number four. I want us to keep our fees low. Okay. Now, full transparency. I have a wealth team. I pay them a good set of fees, and I'm okay with it, but I don't pay them the fees to pick the index funds and the ETF's. I pay them the fees to do all kinds of other things. So what I'm talking about, I'm not saying not to hire advisors. There is a time that you need to have advisors because the complexity and the nuances of what you're doing require you to have some additional advice. Me, I get a chance to have them test and stress test my portfolio, to test my assumptions. And we work together as a team to build the machine and keep the machine growing and going, you know, for my life and beyond. And so it's important for me to do that now, at the beginning, you don't need it. In all likelihood, you're going to see that. I'm going to break it down for you. I'm going to show you the portfolios that you can do and how to build them. It's pretty straightforward. You don't need it. But when you have more complexity in your life, you're getting close to retirement age. You're trying to figure out, do I? There's some nuances of paying for colleges and, and saving for retirement. And what about long term care and what about Social Security? All those things. Now, all of a sudden, you need someone that has a little better understanding so you can navigate it. The most cost effective and efficient way possible to keep as much money in, in your pocket. And so I want to, I want to keep, keep that at the forefront is that sometimes you do need an advisor. Doesn't mean that they're going to be ongoing. You can sit with them and pay a fee for a consult or a regular monthly retainer. You can do a percentage of assets under management. That's what I do. And I know a lot of people say, oh, you're losing a bunch of your portfolio. Maybe, maybe, but they're doing a lot of services for what I need. Okay. But when I'm talking about fees, I want to keep them low as possible. Putting the advisor aside, the fees on the investments, I want to keep them as low as possible. I want to make sure that if I'm paying a fee, that I'm getting something in return for the fee. So most of the index funds in the ETF's that I invested are really low fees. Zero, 4.08 point, you know, point one, very low fees. And we want to keep that because that puts more in your, in your pocket. And then number five, keep it simple. I mean, too often we get things too complicated and all of a sudden it's convoluted, it's complicated. And complications lead to friction, friction and resistance, and friction and resistance lead to risk. Risk leads to loss. I just want to avoid it. I had a very complex portfolio for a while. Part of that was because of the advisor that I was working with. And once I left that advisor, I was able to simplify the portfolio, get a more streamlined performance out of the portfolio without relinquishing my returns or taking on too much risk. So I want us to start to look at it through those as I'm going to break down the four different types of portfolios that you can look at from an ETF standpoint when you first start out. But let me just hit on why even think about an ETF? What is it? An ETF is what's called an exchange traded fund. You'll hear ETF's and index funds used interchangeably. They're very, very similar, but have a couple of slight differences. For instance, ETF's trade, like stocks, you can trade them throughout the day, whereas an index fund trades more like a mutual fund. You can only trade it at the end of the day. In other words, when you put the order in, it executes at the end, at the close of the day. So you're not 100% sure exactly what your execution price is, either on the buy or the sell until the end of the day, whereas the ETF, it executes immediately, just like any kind of stock. There are other little nuances as far as some, some costs and minimums involved, but by and large, they're this, there's very similar, and it's what a lot of people will use. That's why a lot of people will use it interchangeably. But why focus on those? Partly because what I want to do when we're working together is I want to start with safety first, growth second. Safety first, growth second. That's what, that's the foundation. Because if I have a safe foundation, a stable, unshakable foundation, now, I can build on it. But if I start to take risky investments and I lose, then I've got no foundation to fall back on. And so one of the things that I want to do from the get go is to minimize my risk. How do you minimize your risk? Diversification. You diversify your portfolio. So at the very beginning, I don't want people investing in a single stock. I invest, full disclosure, I invest in single stocks, but not very many. And I didn't start there. I have a very small sliver in my portfolio that I trade or that I invest in single stocks and everything. And here's why. There's a couple of reasons for it. First off, economics won't allow you to get a good enough diversification because when you invest in individual stocks, it's going to take a lot more money and it's going to take a lot more risk. Here's what I mean. If you just look at meta Facebook right now, it's trading, it dropped a lot, but it was trading as high as dollar 500 over dollar 500 a share. If you have $1,000 that you're going to put into an investment and you want to do it in individual stocks, and let's say you want to buy Facebook, okay, you're going to get at max, two shares, which is fine if at $500 a share, Facebook goes to $600, you did okay, you made 20%. Okay, but what happens if that you've got two shares of Facebook at dollar 500 and it drops to $200, you got hammered. So when you invest in a single stock, I believe that you're taking on way too much risk at the beginning of your journey because once you have a critical mass, if you want to do that, it doesn't have as material an impact on your wealth. Okay? So it's important for us to look at it that way because I want to diversify some of that risk away. And the best way to do it is to say, okay, let me get a basket of stocks. What would happen if I took the, with that thousand dollars I put, I bought a little slice of 500 companies. One of them happens to be Facebook. If Facebook goes up and down, it doesn't really move the needle too much because there's 499 other companies in the basket. That's the purpose of diversification. Plus, imagine this. If I'm buying Facebook directly at $500 a share and I have $1,000, I can get two shares. But with $1,000, when I buy into an ETF or an index fund that has 500 stocks in it, that thousand dollars gets me a little sliver of each of the 500 companies. So I get more diversification, less risk for the same amount of money. This is one of the biggest reasons that we do this. And the index funds and ETF's that you look at are low, low cost, low fees. So there isn't a lot of transaction costs or anything associated with it to do that. So keep it simple. You're going to focus on index funds and ETF's, and you're going to look at one of four portfolios. Okay. And I'm gonna break it down for you right now. We're gonna walk through it. The first is this. When you first start out, and I, and I do this with, with some of my clients and some of the folks, is to look at it from, from this perspective. I want you to do what's called a one fund portfolio. In fact, I just did this with one of my one on one clients who had a small amount that they wanted to invest. And we were rolling it over and I said, let's just do this. Now. What's a one fund portfolio? How's that diversified? Well, imagine this. What you can do is you could do a one fund and say, I'm just going to buy the S and P 500. You got one fund in there and it's the 500 top biggest companies in the Standard and Poor's. Or you can do a total stock market fund, which is thousands of companies, the whole stock market, you could do that. But what I suggest if you're doing a one fund portfolio is to do a very particular portfolio, and it's what I call a target date index fund. So you'll have this portfolio and it's just going to have a single fund in it. And the way this works is that the name kind of gives the indication it's a target date. So what it does is you choose the date in which you might need the money. So let's just say in 2055 is when I might decide that I'm going to retire and I'm probably going to need the money. So what you'll do, let's. And I'm in there. It doesn't matter. Fidelity, Schwab, Vanguard. I mean, there's plenty of them, but I'm just going to pick on Vanguard. And the reason I'm picking on Vanguard is because Jack Bogle, who started Vanguard, was really the godfather of the index fund and low cost and low fees and all of that type of stuff. And so you could pick a Vanguard target date 2055 fund. Okay? A Vanguard target day 2055 fund. And what they do is they design the portfolio for you. So it is more aggressive today, and as you get closer to 2055, it gets more and more conservative. It's something that they call glide path. I did a whole episode on this, but the point is this, someone else is, is designing the different portfolios for you. And if you look into the 2055 fund or a Vanguard fund like that, what it really is is they actually picked four different ETF's or index funds that they put in there for you, and they just change the percentage of what they hold. And so, but it makes it easy for you because the only thing you do is say, what's the date? What's the fund? And you invest, and then you let it ride. Remember, it's long term. It's long term. Okay? So that's a single fund. That's the first way you could do it. The second one is a two fund portfolio. You're going to see a pattern here. Okay? Two fund portfolio. You're going to end up doing two. You're going to buy two different types of funds. Most likely you're going to get a total stock market fund. Okay? This is going to have thousands of stocks in it. Thousands. Okay? You're investing in the whole stock market. These are equities. These are. So these are more, these are risky, just like any other stock investment. But then you're going to look at a total bond fund. So these are the two funds you're going to get. So you'll get a total bond fund that's going to hold a bunch of different mods. There's a lot of different ones out there. And these percentages, how much you put here and how much you put here will be different based on your facts and circumstances, your age or stage of your life. It could be that you're young and 20 and got no care in the world. And you're sitting back saying, I'm going to put 80% into the total stock market fund because that's the equities, that's where the growth is, 20% in total bond or 90% in 10%. Or you sit back and say, I've got kids and I'm getting ready to retire, so I'm going to be 60% and 40%. So there isn't a set percentage. The percentage should be designed based upon your specific facts and circumstances and your risk profile, what I call the risk triad, which is the combination of your risk tolerance, the psychology, the emotions, the risk capacity, the logic in mathematics, and the risk need, the returns and the vision. Okay? It's that intersection of them that comes into play. So that's a two fund portfolio. And all you're doing is picking two funds and letting it ride. Now, you're going to, when you do this, as you get closer to needing the money, you'll have to adjust the percentages because you want to go from more aggressive to more conservative as you get to that stage, because you don't want to take on as much risk because you're getting closer to needing the money. That leads me to the next one is a refund portfolio. Similarly, you're going to have the total stock, the total bond, okay? And then you're going to add, you're going to add a third thing in here. And this total stock index is usually us based, okay? So what you might do is a total international stock. So now you get investing in uk companies and german companies and french companies and spanish companies. I mean, so you can get a total international, so that, that gives you exposure to just domestic and now international. And it's a three fund portfolio. Again, the percentages are going to change depending on facts and circumstances and where you are, on the things that you're working on. Okay? And that leads us to the, the fourth and the last, and I'm sure you guessed it, it is a four fund portfolio. So you're going to have four funds, total stock, total bond, total international. And then this last piece, you could do an international bond, or you can do some other asset class like a real estate fund or something like that here. And so what ends up happening is, again, percentages will differ. You know, bond funds, bond funds are going to be, going to be less risky, more conservative because they don't have as much volatility then stock funds. So, so you understand how, how that, that plays out. And that's really, all I'm going to do, I'm just going, I'm going to buy a total stock index, total bond index. If I'm doing a two pump fund portfolio. If I want to expand to a 304 fund, I'm going to add a total international index or an international bond index, and that's it. I'm not going to complicate it any more than that. And if I'm first starting out, the easiest thing to do is just to do a one fund portfolio with a target date index fund. You can change it later and do it that way. Okay, so this is how I would start with ETF's. Now, there's two more things I want you to think about here as, as we, we close this out is the first is this, no matter what you do, as you do, this, no matter what you do, as you do, this is to make sure that number six, you keep your liquidity. I can't tell you how many times I hear people that I'm going to put all my cash into the market. And the problem is, is that if the market goes up, you're doing just fine. But if the market goes down, Murphy's law says that's when you're going to need it and you're going to have to take a loss. Remember, every single dollar that comes into your life needs to have a job description. And some of those dollars, the job description is your safety, your peace of mind. That's what liquidity is. It's what we call a peace of mind fund. In the wealth priority ladder, we want to have the liquidity there to sustain you if there's a downturn, we want to have the liquidity there to take care of an emergency. If there's something that happens that you didn't plan for. Definition of emergency. We also want to have that liquidity available. So I use a high yield savings account for my liquid funds. The things that I don't want to lose, that I need to stay safe. I'm getting five, five and a half percent on it, granted. Could I get more if I invested it? Yes. But the job of these dollars is not for growth. The job of these dollars is peace of mind and safety. So I let it do its job and that's it. So I put it in a high yield savings account. I can use that cash for emergencies, for unplanned things. I also have a portion of it that I'm putting there to pay taxes because I need that within the next year. I also have a portion of that that I put aside, that is, for new opportunities and other investments. So, for instance, let's say that I have $100,000 that I want to put in the stock market, okay? I'll put that $100,000 into a high yield savings account, and maybe I don't want to put it in the stock market all at the same time. So I put$10,000 in over ten months. I take 10,000 from the high yield, I invest it the next month, I do it again. I dollar cost average in. But in the meantime, I'm using this liquid fund, this high yield savings account, as a temporary stopping point and parking place for the funds that have yet to be invested to make sure that I'm still getting some return on the investment to do that. So number six, keep your liquidity, have it there for emergencies, have it there for your peace of mind, and have it there for opportunities, okay? And then number seven, the last thing is always be buying. We cannot predict what the market's gonna do. Get on the field, stay on the field, play the game all the way, and keep buying. It doesn't matter what the market's doing. My team and I are buying, okay? The market goes up, we buy. Market goes down, we buy. We might buy more, but we buy. Here's what I'm saying. If we're trying to, if we're trying to decide, I'm not going to buy now because it's too high, I'm not going to buy now, you know, because I think it's going to drop. Then what we're doing is we're crystal balling the market. We're trying to guess the peaks and valleys. We're trying to time the market. And that is proven that over and over again that you can't do it. So the best thing to do is to always be participating in the game, always be buying. So this is how I would play. If you're looking to get in the investing game, I would start with this. This is your checklist, okay? Start with ETF's and index funds. Get diversification on your side so you don't take on inordinate risk. Remember, safety first, growth second. Look at the overall returns and play the long game. Keep your fees low, get in the game, stay in the game, keep it simple. One, two, three or four funds, and that's it. Stay liquid and keep buying. That's the game. That's all it is. It doesn't need to be any more complicated than that. But what needs to happen is you got to get out of the stands, off the sidelines, on the field. Play the game, stay in the game. You'll win long term. All right. I hope this helps. I hope this clears it up. Kind of gives you a way to start and what to do next. And I look forward to seeing you soar. And if there's anything I can help you with, reach out. Let me know. All right. Remember, I'm on a crusade to light the path to financial freedom for a million families. And I want one of them be you. All right. Until I see you on the road. Another episode? Or maybe when I'm out speaking. Always strive to live a life that outlives you. Cheers.

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