Ep. 83 Why Google Advice is Usually Wrong
THE FINANCIAL COMMUTE

Ep. 83 Why Google Advice is Usually Wrong

Ep. 83 Why Google Advice is Usually Wrong

THE FINANCIAL COMMUTE

On this week’s episode of THE FINANCIAL COMMUTE, host Chris Galeski invites Wealth Advisor Beau Wirick to discuss the potential dangers of following generic financial advice on the Internet.

Here are some key takeaways from their conversation:

• Beau stresses that financial advice online cannot be personalized the way a financial advisor can tailor their guidance to your individual situation and needs.

• Many social media wealth “gurus” make content about financial decisions that can significantly impact one’s life, like social security, real estate investing, and health savings accounts. Influencers or gurus may simplify complex topics or even exploit emotions linked to these decisions, which may lead to misunderstanding and misinformation. Chris and Beau dive into their opinions on these individual topics.

• Chris and Beau also critique the concept of infinite banking and indexed universal life insurance as being oversold on social media, explaining it’s usually more about wealth protection than creation; IUL policies can also be costly and complex with high fees and long-term commitment requirements.

• It is critical to sift through financial advice thoughtfully before making rash decisions solely based on Internet content that is not personalized to you and may be overpromising.

Watch previous episodes here:

Ep. 82 How to Manage Risk Amid Geopolitical Unrest & Inflation

Ep. 81 Pitfalls of Selling a Business Without a Plan

Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski, joined by Wealth Advisor Beau Wirick. Beau, thank you for joining us.

Hey, thanks for having me.

It's a special day. Happy birthday.

We're going to talk today a little bit about, you know, why Google advice is often wrong or just internet and social media advice can often be wrong. 

People should take it with a grain of salt or lift under the hood and dive a little deeper as to whether or not that makes the most sense for them, right?

Yeah. And as financial advisors, what we often say is it can't be personalized to you if it's on the Internet. 

I think the challenge is, is that there is so much great advice out there, and the internet is an extremely powerful tool. So if you ask, if you ask that question of how should I be saving for retirement or how should I be investing for this? Or what are your thoughts about that? You're just going to get flooded with information.

Exactly. And now it's your job to kind of sift through all that information and figure out, you know, hey, is this something that I should or should not do? That can feel very overwhelming. So oftentimes, I guess the struggle that I have is people react differently. They say that's too much work. And if they don't have a financial advisor, they go ask their friend and they say, hey, Beau.

Yeah, what should I do about Social Security? Social security is one where, you know, I think it's interesting. Health savings accounts. The internet talks a lot about indexed universal life insurance and then obviously investing in real estate. So we're going to dive deeper in a number of those.

Yeah, I think those are the four main categories that friends will send you Instagram Reels or an article and say you know, what do you think about this? So this is our answer to what do you think about this?

Yeah. Look, let's start with health savings accounts. I, I actually love health savings accounts. I think a health savings account, if you're a part of a high deductible health plan and you're eligible to participate in an HSA or health savings account, it is a beautiful thing because you get to put money in and get a tax deduction upfront.

You get to leave the money in the account and have it grow for many, many years tax free. And then you can take it out and use it for qualified medical expenses, tax free as well. There are no accounts that I can think of that have all of those benefits and hit that trigger word that so many people like to touch on, which is taxes.

Yeah. Minimize, reduce, eliminate taxes. Health savings accounts are extremely popular, but they're not right for everybody.

That's exactly right. And what you said is you have to have a high deductible health plan in order to qualify for an HSA. So what would be an instance when someone should choose or probably should choose a high deductible health plan in order to get in order to qualify for the HSA?

Look, I mean, when I was younger, I don't think I went to the doctor very often. I would take a couple of Advil and, you know, kind of go on my day. So knock on wood, I, you know, didn't have any broken bones, did not get very sick very often. did not have prescriptions, medications. I mean, literally, there were several years where I did not even spend a dollar out of pocket on medical costs.

That's a great time to have the health savings account, right? You know, you're not having to come out of pocket with these huge, you know, out-of-pocket deductibles each year. So, that's an instance where a health savings account might be more attractive. Now, the challenge is, if I'm not making very much money and I'm not in that high of a tax bracket, do I really benefit?

So I need to ask myself a couple questions. number one, am I or is my family going to need to come out of pocket regularly throughout the year and anticipated, medical costs to meet that annual deductible? And then do I need a tax deduction as well? The answer might be no to both of those.

And it might be different than one of your friends doing. And that's okay.

Right. If you're in the 22% tax bracket and, but you're spending $8,000 in medical costs that you wouldn't be spending if you had a lower deductible health plan, that the money that you're saving on taxes is probably not offsetting the money that you're spending on, on health costs. And so that's something that we run into a little bit.

But you're exactly right. Some have low health care costs. An HSA is probably more likely going to be a benefit to them. But then there's another situation with HSAs if people spend down the accounts, are they getting the full benefit out of it? They're not getting the triple tax benefit if they don't let it grow tax free, and then ultimately withdraw it tax free.

So speak to that a little bit.

Yeah, I mean correct. Look the benefit of investing is having time right on your side. And so if you can leave money in an account where it has time to grow, you're then spending earnings on medical costs that you might have later on in retirement as you get older. I think that's why, you know, a decision around should I contribute or is a health savings plan right for me?

You know, there are a lot of factors that you need to take into consideration to have young kids. Do I have medical needs? Am I able to set this money aside and let it grow long term? it's not as simple as, you know, just going to doctor Google.

Doctor Google doesn't know, you.

So Chris, I have a question for you. Should I take Social Security at 62 or 67 or 70?

God, I love that one. It really depends. I think that some people get emotional with Social Security, and Social Security is another one of those top Google advice things. I don't have a crystal ball. I actually am biased and don't think Social Security's just going to disappear one day. I just don't see anybody lasting through their political career by taking away grandma's paycheck, right?

But again, there's my bias. People oftentimes are like, do I take it right away because I'm worried about it going away? So, well, if you're 62 and you're still working, you might end up being paying more money back into Social Security because you've reached certain income limits to where you know you're not getting the benefit, you're still back to contributing.

So you have to ask yourself a few questions like, do I need this money to live on? Am I still working? how long am I going to live? Am I trying to maximize Social Security? Which is a completely different decision. and you know, what is the benefit look like between, you know, taking it 62 or 67 at full retirement age or even delaying till age 70?

Is my spouse involved? do they get a benefit? What's the age gap there? Like, what am I trying to protect? It is not that simple of just saying, you know, should I take Social Security at this age? I was talking with another advisor, the other day. Their clients are almost age 68, and they were wondering, do I take Social Security today or do I wait till 70?

This person actually doesn't need the money to live off of what they were. They're going to be able to save it and invest it. They're fortunate. The break-even between just taking it now versus delaying is around age 80 ish, almost age 81. So, you know, if they think that they're going to live beyond college age 80, they're better off waiting.

But if they're taking the money now and investing it and growing it, call it at a, you know, 6% rate of return, that break-even actually gets pushed out close to age 87. So it's not as simple of an answer. and I think that we've got ways to mathematically solve some questions. But, you know, philosophically, we should talk about, you know, what makes sense for you and not just go by what your friends are doing.

Great answer to that. We run into that question pretty often. Yeah. And there's just a lot of factors that go into making the right decision. And having an advisor personalize your answers and give you all the data so that you can make a, you know, well-educated decision. It's better than Google.

It can be. I mean, the biggest, the biggest change with, you know, the internet or information has now kind of switched from Google to social media platforms, right? I don't have any social media accounts, but I hear all the time on Instagram or Facebook or other stuff. people coming up with these, you know, magic bullets when it comes to saving and investing for retirement.

And it has to do with indexed universal life insurance.

This is a really popular theme on social media right now, and it's been rebranded in recent years to be called Infinite Banking which is very empowering as a phrase. And there's a lot of really solid points to be made about this. And so I don't want to, you know, I don't want to disregard it, but the way that it's presented, in my experience, is people saying, this is what the wealthy do.

The wealthy do this. And so you should do it, implying that this is how they got wealthy right? But I don't think I've ever talked to a wealthy person that's like, you know how I got wealthy indexed universal life insurance?

I've yet I've yet to come across one that built their wealth. Doing. Exactly. I've met wealthy people who own a policy for whatever reasons, but never met anybody who says, this is how I made money.

And that's the problem with the communication. It says, you know, wealthy people use this. Well, wealthy people use that to protect their wealth. They use it for estate planning purposes. They use it for tax deferral, and they use it for lowering volatility. And so all of those things are really good uses. But the people who they're pitching it to are in the lower and middle income, you know, brackets.

And it doesn't really work as well. So I'll see things like instead of contributing to your 401K, if you put $300 per paycheck into an annual policy, then this and this and this could happen. Right. And I think it's a little irresponsible. So just here's the four points of infinite banking. It's you take out an IUL and indexed universal life insurance policy.

Step number two is you build up a cash value. Step number three is you borrow against that cash value. And when you borrow against it, it's a tax free loan.

Loan that you don't need a credit check for that you don't need to go to a bank for you are the bank. That's why it's called infinite banking. And then step four is when you pass away all of the death benefit and the remaining cash value goes to your beneficiaries. Tax free. Income tax free. Sounds great. Well, step number two, building up cash value takes a very long time.

And that's the part that they kind of brush over in order to put enough money into an annual policy to the point where there is a cash value that you can borrow against, it's usually 5 or 10 years before it gets before it really accumulates that high. And that's the part that that doesn't get communicated very much and frustrates me.

Whereas if you just saved or invested that money, yes, it would be more tax-inefficient, but the amount of money that you would have saved over 5 or 10 years would be vastly higher. And so that's what's not being communicated, in that advice.

Right? I mean, oftentimes are just pulling on people's, you know, heart strings of like, hey, what do you what annoys you or frustrates you the most? And oftentimes it's around taxes right now, I want to I want to pay less and keep more. And so here I've got the magic trick for it. And I struggle with that sort of advice too.

And just those blanket statements, because oftentimes those policies just don't work out the way that they, they, they originally weren't.

Yeah. And it also communicates like you have the power your, your own bank. But when you borrow against these policies you do pay interest on it. You pay yourself back. But it is reducing the remaining cash value by the interest owed. And you don't get to set the interest rate. And so you're not really being your own bank.

And then also with a lot of these IUL policies, there's a cap on how much you can obtain in growth in a given year. And that's also not set by you. And that cap can decrease over time. Interest rates can increase over time. And so the math that gets presented to the customer might not end up being the math that they realized throughout the policy.

So there's a lot more to be said, which is why talking to a financial advisor about is usually a prudent idea.

We're going to touch on the last topic, which is investing in real estate. Right. So, I think that Google advice for Social Security health savings accounts and getting thrown, you know, Instagram advice on why you should own and indexed universal life policies, stuff that that everybody's seen or witnessed or know somebody that has.

But, you know, as a company, we like to invest outside of traditional stocks and bonds. We love real estate and think it's a great opportunity. but, you know, this is a new fad. It's everybody should be investing in real estate. Here's how I build my wealth. And here's how you should, too. Let's talk a little bit about why Google advice for investing in real estate might not make the most sense.

Yeah, it's it's a funny thing because I do think that when I see real estate gurus on social media, they're way more accurate than than other, I would say, more scammy posts that I see. You know, real estate is a it is a way to build wealth. It's a way that a lot of people have built wealth. The problem that I see is when real estate gurus say something like, here's how I did it, and you should do the same thing.

And the reason that frustrates me is because, we're not in the same environment in real estate that we were four years ago, ten years ago, 15 years ago, 30 years ago, from 1982 to 2021, interest rates were in a really linear decline. Yeah. And now interest rates are going up. But the prices of real estate have not come down commensurately.

And that creates a really big problem. So I'll use an example. I saw a guru say, well, this is what I did. I took out a 3% or I put down a 3% down payment on my first house. I lived there for two years, and after two years I took out a hillock and bought another house as a primary residence and rented out the first house.

And that's what you should do too. And I thought about it. I said, if someone did that today, let's say the average house in America is $500,000.

It's actually 750.

In California and in the US, the US is 500 and so, let's say it's $500,000. You put 3% down $15,000, $485,000 mortgage. But then you have to pay PMI insurance, you have to pay property.

Private mortgage insurance.

Private mortgage insurance, property taxes, maintenance. Let's call each one of those 1% of the value of the home just for easy math. So that's about $1,250 a month in in costs before you even get to principal and interest, you buy that house with 3% down, and you're paying about $4,500 a month. Can you then go rent out that house for more than $4,500 a month?

Two years from now? Maybe, but I average rent is more like 2000 right? In in America. And so I just think that the world that that real estate guru built wealth in is not the current world that new coming investors are entering into. And that's what frustrates me.

And look, would be real estate investing. It's a beautiful thing. I mean, let's say you buy $1 million home, you put down, you know, a 10% down payment. So $100,000. And now all of a sudden, the value that, that, that property grew by 10% in value. So it went from being worth $1 million to 1.1. You now went from $100,000 in equity to 200,000 in equity.

You've doubled your investment in terms of a rate of return. Exactly. Leverage is why real estate is extremely powerful for growth. But leverage can also be the reason for destruction or why things didn't work out. And people need to be careful when investing in real estate. On the leverage. How much do I borrow against it? What's the interest rate?

Is it fixed or is it floating? where's my protection? In the event that something were to go wrong with this house or I struggle to find a renter. And so a lot of Google advice has been around this short term rental phenomenon.

Yeah, it's been interesting making short term decisions and a lot of people say, oh, you know, in two years from now, interest rates are going to be down back into the four and five range. It's like we don't know that. Yeah. And so taking that advice you're taking on a lot of risk. Like you said the leverage is what makes real estate the winner.

But it can also be what kind of destroys the investment at the end of the day.

Well, Google's going to tell you that real estate investors care about tax, cap rates and all this different stuff. Trust me, if you're a value add real estate professional, somebody who buys a building to then fix it up and turn around and sell it. They care a lot less about cap rates than they do their vision on what they can turn that property into.

Cap rates are a part of the component, but it's not the sole one. So you've got to be careful. But we use Google a lot to help solve answers and identify information and kind of come back and go to clients. But, you know, thank you so much for talking with me today about a little bit about how Google advice can go wrong, especially as it relates to health savings accounts.

So Social Security, getting pitched in Iowa, indexed universal life insurance, and even the challenges with, investing in real estate, which is a very hot topic.

Yeah, super fun. Thanks for having me, Chris.

Disclosure: This information is presented for discussion andillustrative purposes only and is not intended to constitute investment orfinancial planning advice. The views and opinions expressed by the speaker areas of the date of the recording and are subject to change. It should not beassumed that Morton will make investment recommendations in the future that areconsistent with the views expressed herein. Morton Wealth makes norepresentation that the strategies described are suitable or appropriate forany person. You should consult with your financial advisor to thoroughly reviewall information and consider all ramifications before implementing anytransactions and/or strategies concerning your finances. Any investmentstrategy involves the risk of loss of capital. Past performance is no guaranteeof future results