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Four one K right, this this is the beginning of the year. The four one K is a lot of people's first way to start investing in the stock market. Right, most people actually the majority of their stock investment, or if they only they only have one stock investment, and that is the four one K. Right. A lot of people don't have outside stock investments outside of a retirement plan.
So what is your suggestion for people, young people or old people whatever that you know might have just signed up for the four one K or are in a four one K. What's your thoughts on allocation and things of that nature.
No, I think that that's a really good question. I did want to address what you all said about the tax deductions before we move forward, because I think that that's important and significant when you live your life like a business, the expenses that you incur as an individual, you can, like you said right off, as a business.
So like the Internet that you're using on a regular basis, you already know you was gonna be scrolling through Insagram, following uy L following, following for Shot, following, Troy following, like y'all said, black up. Sorry, but you also use your Internet to run your business. Your cell phone, you gonna call your girlfriend, You gonna gossip about that guy you swipe right on and he showed up at the day a whole catfish. But guess what else? You gonna
use your cell phone to call? Make business calls in order to generate business. Like when I started looking at the number of tax deductions that are available for your business, those number over four hundred deductions. If you're going on vacation but you're doing business for a certain percentage of time, that's no longer a business. I mean, that's no longer
a vacation. That's now business travel. So when I started to reorient my mind into thinking about what are the things that I'm going to do anyway, you know, just as an individual, how can I reclassify that as my business? I was able to see how I can reduce the taxable income because you all talked about taxes being expensive. Taxes are expensive the more income that you earn, because the percentage that they charge in taxes increases along with
your income. With deductions, you're able to reduce that tax liability. And that's what deductions really afford to you. So that was I really like how you all talked about that. In regard to the four oh one K, four O three B if you're working with a nonprofit organization four one K four or three B TSP. If you're self employed, it's the IRIS traditional and WROTH and we can talk
about that as well. The first thing that you want to do is you want to ask your employer, because the four to oh one K is an employer sponsor program, if they can your contribution and how much they match
per dollar. So one of my employers match up to six percent of the salary that I was earning, so every single year, just like you said, Rishot, they're going to ask for those individuals who want to contribute to the four all one K. They're gonna ask how much you want to contribute and how frequently, So you want
to make sure that you ask those critical questions. The second thing is the biggest mistake that I made, is I did listen to my mama because she told me, listen at twenty years old, you were going to be investing in your four o one K, and I will tell her at twenty years old, I'm not thinking about retirement. I'm not thinking about retirement. But we know the benefits of compound interest. The earlier you get started, the more your money can go to work with you or work
for you over the years. So my mom started investing in retirement at thirty one. She thought if I could start eleven years ahead of her, then perhaps I could retire early. But for four one ks, you want to look inside whatever you are our employer has set you up with Initially. For me, one of the biggest mistakes I made is I looked inside of my four one K late and I saw that nearly one hundred percent of my money was invested in money markets. So I
think I heard maybe Ian talking about it earlier. I came in maybe about ten minutes towards the end of the conversations. But money markets are not going to return as much as equities. So like my money is returning one or two percent a year, it took me like two years to check it. One or two percent a year. That's equivalent to your money be invested in a savings account.
Think about a four one K. If you are actively managing your funds, or you're critically thinking about what mutual funds you want to select, then you should be returning at least in my opinion, at least that what the S and P five hundred is returning. So one to
two percent was too low for me. So I had to go inside of my four one k, look at the mutual funds that my employer has selected for me, and then get smart, just like you all said informations on the other side of your fingertips, get smart about what mutual funds I thought we could perform better for me versus what my employer selected. What are some of the things that I look for. The first thing is
rule of thumb. You take one hundred and ten, you subtracted by however old you are right now, and whatever that resulting number is is the percentage of equities in which your mutual funds should be invested.
So you said it one more time because I know people missed it. But it's a good formula.
Yes, So you take one D and you subtract your age, and whatever that resulting number is is the percentage of equities in which you should be invested. Equities is synonymous to stocks. You can have US equities, which is US companies. You can have non US equities, which means that that's foreign investments as foreign businesses it are being traded on their stock markets. So whatever that number is, equity should be represented there.
Ho hold, I just want to just because that was that was actually a very very good, useful formula. So if you're thirty years old, that's roughly eighty percent. Eighty percent of your money should be in stocks. Yep, that's extremely I agree.
You guys are sleeping on it.
Write that down, crit it down, and they can play in three weeks.
Like, what was the formula? Write it down? Now, write it down, Come on down, think we should have one. Come on, let's go.
You should be at money markets until you're like seventy or eighty. I can't believe that.
So that is the thing about it is listen, y'all give away a lot of free games. So you want to look at the percentage of equities. You want to get familiar with the different asset classes that are available to you. So I heard Ian talking about bonds. You can do real estate, you can do a mixed fund. So like you want to take a look at what's inside of that fun Next, you want to take a look at your mutual fund. What is the expense ratio?
Because over time, the higher the expense ratio is, the more expensive it is to keep that particular mutual fund. I recommend that the expense ratio you'll be one percent or fewer. Okay. Expense ratio is what fund managers charge you to pay them to actively manage the investments within your mutual fund portfolio. Okay, so that's one percent. You take that one percent and you multiply it by the
money that you have invested in that account. It's important that you understand what type of equities are in there. So you may look at what is the type of fund and may say things like large cap, mid cap, small cap. I believe Ian was talking about this earlier too, so large cap those are the large companies that you definitely recognize their names. That's the Amazons, the Facebook's, the Microsoft's, the Googles. But then during the pandemic, some of the
high performers have been the MidCap companies. So one particular MidCap mutual fund that I owned, two companies that were on there that were turned in triple digits. Tesla was in there, Teledoc was in there. Those were two companies that you absolutely know their name, and they returned it significantly. Why, because, of course, we had a black swan event. No one could have predicted that we would be in the middle of a health pandemic, right, a health pandemic that nobody
could have anticipated. And those companies that were able to serve our needs while we stayed at home, which is why they call it stay at home stocks, were able to experience tremendous growth. Okay, so MidCap MidCap, and then you have small cap companies and so those are small capitalized that's what that cap stands capitalized companies. Okay, so you want to take a look at that. Now.
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Did I take a look at When I'm looking at mutual funds, I'm looking at the sectors, so we know there's eleven sectors in the stock market, Like, what are the top three to four sectors within that fund? Again, one of the things that I love about with Ian said, he said, Hey, these were the top three performing sectors for twenty twenty Technology? Was it communications? Consumer discretionary? Get
comfortable in figuring out what exactly does that mean? And guess what Google is your friend on the other side of your fingertips again, is information. Don't swim in the ocean of knowledge and drowning ignorance. When we talk about technology, that's an Apple, that's a Microsoft, that's a Google. When we talk about consumer discretionary. That's home depot. Y'all was in y'all house, fixing your closets, painting your walls, making your house look pretty. That's McDonald's. Were not going to
negotiate if you should be eating them chicken nuggets. But let me tell you, some people got tired of cooking. They went right on in, not drive through. That's a consumer discretionary category. Communications. Everybody was watching Netflix, Disney plus the introduction of five G's, So that's Sprint. I ain't gonna talk about y'all Sprint, folks, but the call always
drops rising communications sectors. Be smart about the sectors. What are the companies that you're patronizing that you're spending your hard earned dollars at during the pandemic after the pandemic pre pandemic. Be smart about the sectors. What are the sectors that underperform? Energy? Why? That's oil, right, that's oil.
You can't love Tesla and be pro energy too.
I mean that's clean energy, you know it, So that you're looking at energy. You know, you say the planes have been grounded, what do they require fuel? Right? When we're talking about cars, some of you aren't commuting to your nine to five. You're nine to five. You're not driving from your house to your job. You walking from your bedroom to your living room. Okay, so you're not putting as much fuel in your car. Energy sector underperform, right,
So like that's ranking low. So you want to take a look at those sectors and you want to see if that makes sense, what are some companies that are part of those sectors. And then I look at the top ten holdings within that mutual fund, because I think it's important you know, what are those top ten holdings, how are they performing? And then the last thing that I'll say is that, yes, I read the prospectives. That's important. You should always read the prospectus. Yes, for some of
you all that's loan. But if you can sit and you can watch Netflix and binge, watch it for three consecutive days and text your boot, you can read the prospectus. But I also look at the benchmark because the benchmark is what the fund manager said that they were going to this particular benchmark. I'm going to perform at or better than this benchmark. What is a benchmark? The guys talked about it on EYL. That's why y'all in here, right, So like that might be the SMP five hundred, five
hundred publicly traded companies. That might be the Wrestle two thousand. You know, is it a Wrestle two thousand growth? Is it a Wrestle two thousand value? It might be the Wressele twenty five hundred, It might be the Russell one thousand. This benchmark if you look at and this is a key that I do when I'm teaching my classes, I go to markets ft dot com, or if you have a trying to account with Fidelity or you know whatever, wherever your four oh one k exists, going there, maybe
they have some resource tool. But I go to marketsft dot com, I type in the stock symbol and I click performance, And when you click performance, it will show what was the benchmark for that particular mutual fund and at what percentage did it return five years ago, three years ago, one year ago, six months ago, three months ago today if the stock market was open that day, Okay, it might be fifteen percent, twenty percent. Right, Let's say five years ago was fifteen percent, three years ago was
ten percent. Then you're gonna look at your mutual fund and you want to see how well those fund managers put the expense ratio. Did they charge you that one percent that points zero five percent to work? If their benchmark was fifteen percent. If Russell one thousand return fifteen percent and your mutual fund returned six percent, they didn't even meet their benchmark. That means they set a goal
that they couldn't even meet. And if they couldn't meet their goal five years, three years, two years, one years, what makes you think they're gonna meet the goal today. So when I look at the mutual fund, I always look at that benchmark, and I'm always looking at the mutual fund and seeing if that percentage is higher than the goal that the fund set for itself. And that's important to look at performance long term because, like Eyl said, twenty twenty was an amazing year for those people who
got small and got active in the market. If you could afford to invest right those returns. Some of these mutual funds were returning twenty thirty, forty fifty. We probably cannot anticipate that that's gonna happen in twenty twenty one with the introduction of the vaccine. But if you look five years, three years, two years ago, pre pandemic. You can see how those fund managers were managing that account apps ince COVID, and that could be a future indicator for their performance moving forward.
Well, what's now to cut you off? What's up? Mutual fund or top two that you like, because I know they're gonna kill us if we don't ask.
I like the Fidelity blue Chip Growth, so I believe that that is write down to stick to stop tible for that. But that's Fidelity blue Chip Growth. And then I also like B and Y Melon small MiGCAP, so that's dB max, so dB m a x dB max. Okay, So those are the two that I have.
The Fidelity, I'm definitely familiar with the Fideliti make have growth one as that's a that's a very good one. That was a whole that like, and that the information is not just for a four one ks like, that's just broad range investment information. Like she just talked about make cap large, cab small, cave, pe ratio looking benchmarks, a lot of stuff that I don't think we even spoke about before. So yeah, man, that was that was great.
I just I just want people to fully appreciate the level of education because that was a lot, a lot of gyms. Sometimes that you give people so many gyms, it's just like they don't fully understand what's what's being given to them. That was like a full blueprint of actually how to break down fun.
Yeah, it's the crazy part is like to me when I was listening to it, I'm like, Yo, this is crazy. This sounds pretty similar to how we will research our ETFs.
Well, once you, like I said, learned about process, right, once you learned one, it's like learning the language. Like once you learn one thing, whether it's a mutual fund, whether it's an ETF, whether it's an individual stock, it's all it's also anonymous with each other, and that this
is what helps you. Like, once you start to learn about the investment language, they're all very similar, so you can use the same the same thing in individuals stocks, with your brokerage, investing for your kid, doing the I RA four one K. It's all very similar.
But then you know what the beautiful part is and I give you a whole lot of credit. It's like, think about all of what she just told you, Like that's the homework, you know what I'm saying. People like Yo, well, y'all y'all saying, like, do your homework for what she just gave you a whole lesson of how to do the homework when it comes to investment in mutual funds and shout everybody. I see people putting up that we went into death about expense ratios in the book club, but you just laid it out.
We got we got the keys. You gotta get you the teacher class, key, professor, professor key, you gotta get you, gotta get your teacher class.
And I would love to join. I do want to add that the one I just wanted to my Fidelity account. That's why I keep Traditional IRA and we were talking about four one ks. But like I said, this information is transferable and that's f b g r X. That's the stock tickers, so that's f b g r X and that's Fidelity blue Chip.
They give it. It's a whole lot of game. My graduates from my school being forced bad drop bag drop, Mike, dropadrop drop.
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