A rough week in the markets

April: I’m not trying to date this episode, but this week has been a doozy in the markets. I don’t even want to check my portfolios right now.

Robert: Well, I did check mine… and I cried like a baby. I looked at it and said, “How can this be?”

But it’s a good time to talk about something we’ve mentioned before: risk tolerance — and what you can invest in if you don’t have the tolerance to look at your account and feel like it just crashed into a brick wall.

The good news is, today the market went up 1,200 points.

April: I saw that. I peeked, and I was doing a little better.

Robert: I peeked too. I saw some green, so I got happier… but I didn’t want to dwell on it.

Risk tolerance and the “roller coaster” reality

Robert: Jokes aside, you do have to have a certain risk tolerance for what you’re investing in.

I know a financial advisor with about 600 clients, and 550 of them do this: they call him and say, “The market is down! I want to sell! I’m tired of losing money!”

Here’s what you need to remember:
If you’re investing in the market — and if you participate in 401(k)s or certain funds — you’re in the stock market.

And you cannot lose that money until you sell the stock.
And you cannot make money until you sell the stock.

Until then, it’s basically a roller coaster ride… until the ride stops.

April: That’s a good perspective. When I invest — especially in something riskier — I mentally count that money as “gone,” meaning: it’s not money I’m using to live on. It makes me sad when it’s down, but it’s not my bill-paying money.

Robert: Exactly. And that’s the mindset people need.

Low-risk investing options (where to start)

April: Okay — if you have a very low risk tolerance, what’s the least risky investment you can make?

Robert: If you want to guarantee the return of your money and the return on your money, the simplest place to start is a high-yield savings account — either at a bank or online bank.

Right now, you can usually find high-yield savings accounts paying somewhere around 3.25% up to 4% or 4.25%.

As long as you keep $250,000 or less in that account, that money is protected — and you don’t have to worry about market swings.

Now, the downside is inflation. If inflation is 5% or 6%, and you’re earning 4%, you’re not really getting ahead. But still, there’s nothing wrong with keeping your emergency fund in a high-yield savings account — money you don’t want to touch unless you absolutely have to.

Certificates of Deposit (CDs)

Robert: Another safe option is a Certificate of Deposit, or CD.

A CD is similar to a savings account, but you agree to leave your money there for a set time period — like 3 months, 6 months, 9 months, 12 months, or even longer. If you withdraw early, you lose some of the interest, but you still get your principal back.

Because the money is tied up, you can often earn a little more in a CD than a savings account.

So, if you’ve got cash you truly don’t want to touch — and you’re building an emergency fund — high-yield savings accounts or CDs can make sense.

April: But there have been times where savings accounts paid the same as CDs, right?

Robert: Absolutely. If you can earn the same rate without tying your money up, then there’s no reason to use a CD. CDs only make sense when they pay more.

A story about high interest rates (and why planning matters)

Robert: I’ve always got stories, April. Here’s one people won’t believe.

When we built our first house in 1980 — Jimmy Carter had just lost the election, and Ronald Reagan had just been elected — inflation was high, and interest rates were high.

Guess what the mortgage rate was back then? Zach, take a guess.

Zach: 8%?

April: I’m going to guess 17% or 18%.

Robert: 21%.
Mortgage rates were 21%.

April: Wow.

Robert: Now here’s what was interesting: people who had money could put it into savings accounts earning big returns too. Guess what savings accounts were paying?

April: Five percent?

Robert: 15%.
That was four years before you were born.

April: I didn’t even know that was possible.

Robert: And gas was cheap, too. I remember being 15 years old and buying gas for 28 cents a gallon, and I got mad when it went up to 32 cents.

Now I’m like… if it stayed at $2.50, I’d be happy.

But here’s why I’m bringing it up: there was also a period with a gas shortage, where you couldn’t buy gas whenever you wanted. Certain tag numbers could buy gas on certain days. You had to plan so you didn’t get stranded.

That ties into what we’ve been talking about: in life, you need to plan.
You never know what’s coming — shortages, inflation, high rates, job changes — so you prepare the best you can.

Treasury bills and government-backed options

Robert: Another option is government bonds, but I won’t get too deep into bonds today.

What I do like are short-term securities — like Treasury bills.

I mentioned in a prior episode that one company I’m involved with has been buying short-term Treasury bills because the rate is better than many high-yield savings accounts.

There are a couple advantages:

1. Instead of the $250,000 FDIC insurance limit at a bank, Treasury bills are backed by the U.S. government.

2. You generally don’t pay state taxes on the earnings from Treasury bills, which can improve your effective yield.

What is a 401(k) and how does it work?

April: Let’s talk about 401(k)s — people know the word, but don’t always understand them.

Robert: And the nonprofit version is a 403(b).

April: Thank you for always reminding me of that.

Robert: A 401(k) allows you to take money out of your paycheck and deposit it into an investment account where you can choose from different funds — usually mutual funds.

A mutual fund is just a group of stocks bundled together. For example, a fund might hold top companies like Nvidia, Amazon, Alphabet, Microsoft, and others.

Now, there are two main tax treatments for retirement investing:

Traditional 401(k)

With a traditional 401(k), the money is pre-tax.

So if you make $500 a week and you contribute $25 a week to your 401(k), you pay income taxes on $475 instead of $500.

But when you retire and take the money out later, you pay taxes then — on what you contributed and what it grew into.

April: So the taxes come later.

Robert: Exactly.

Roth 401(k) / Roth IRA

With a Roth, you contribute money after taxes — like a normal savings deduction.

But later, when it grows and you withdraw it in retirement, you can withdraw it tax-free, as long as you follow the rules.

The one caveat: if your employer contributes money (matching, profit sharing, etc.), that employer portion is typically treated as pre-tax — and it’s taxed when withdrawn.

Robert: In my opinion, the Roth is powerful because if your money doubles, triples, grows… you’re not paying taxes on that growth later.

Roth IRA vs Roth 401(k)

April: So Roth 401(k) and Roth IRA — are they the same?

Robert: Same concept, different location.

• 401(k): through your employer

• IRA: personal account you set up yourself

April: That makes sense. My Roth IRA is something I manage on my own.

Robert: And you can do that. I’ve done that too. You can learn a lot about investing by managing a portion yourself — as long as it’s not money you need for bills.

You try things, you learn, you win some, you lose some — but the goal is to build knowledge and grow over time.

Real estate investing

Robert: Another option outside of 401(k)s, IRAs, CDs, and savings accounts is real estate.

Real estate can go down during a crisis — it happens.

I knew a guy in Myrtle Beach who owned property in Pawleys Island. In 2006, the house appraised at about $1.2 million. In 2008, it appraised around $800,000. He was sick over it. He thought he lost everything.

But he kept it. He rode it out. And later, he sold it for about $1.4 million.

So things happen. You need patience and perspective.

Investing in real estate without owning property

April: Is there a way to invest in real estate without buying the whole property and managing it?

Robert: Yes — through Real Estate Investment Trusts, or REITs. They trade like stocks.

April: And that’s not the same as exchange-traded funds, right?

Robert: Correct — REITs are a type of investment, but there are also ETFs (exchange-traded funds) that can hold many different kinds of investments, not just real estate.

We’re staying at a “100-foot view” today.

April: Thank you for keeping it at a 100-foot view.

Cryptocurrency (high-risk and divisive)

Robert: Another thing people invest in is cryptocurrency — and yes, it’s divisive.

Years ago, your brother told me about it. I went to a meeting, and I walked out saying, “Michael… what is Bitcoin? I can’t see it. I can’t touch it. I can’t feel it.”

And yet, that “dream” went way up — and at one point, Bitcoin was around $120,000 per coin.

Back then, I could’ve bought it for $500.

April: We all hate we didn’t.

Robert: That old saying: if “ifs and buts” were candy and nuts, we’d all have a Merry Christmas.

But if you don’t want to figure out how to buy crypto directly, you can often gain exposure through ETFs that track crypto.

April: But you’re not picking it up like gold.

Robert: Right. You’re not holding it like a coin. There’s risk in everything.

Money, mindset, and teaching your kids

Robert: This ties back to something we said in the first episodes: understand what money is.

Money is simply what we use to exchange for goods and services.

And that brings us back to mindset. We’ve talked about attitude — changing the way you think.

For parents listening: teach your children.

Try not to protect your kids from the world — teach your kids how to live in the world, because they’re going to live in it.

Don’t constantly say, “We can’t afford it. We don’t have money.” What happens when they grow up?

April: They become resentful.

Robert: Exactly. And they develop a defeated mindset — “I can’t overcome this.”

Instead, teach them habits and mechanisms — coping mechanisms — for life and money.

My dad used to take me to the bank and have me put $5 a week into a passbook savings account from cutting grass money. He was teaching me the habit of saving.

What scares me today is that many parents don’t teach kids to save — they just give them everything because the kid whines.

If you give them everything, what are you teaching them about coping and independence when you’re not around anymore?

A lesson from Robert’s first car

Robert: My first car was a 1964 Ford Falcon — four doors — for $325.

I earned $200 cutting grass. My dad loaned me $125.

But I had to pay him back.
And I had to pay taxes.
And I had to pay insurance.

That’s how he helped me develop real-life skills: if you want it, here’s what you have to do to get it.

Closing

April: I think we covered a good overview of investing basics.

If you have questions about risk tolerance, or how one of these investment methods works, let us know. Go to themoneydadpodcast.com — there’s a form where you can submit your question, and we’ll address it.

Thanks for listening to the Money Dad Podcast. Head on over to themoneydadpodcast.com for more resources and to send in any questions you might have. Do your homework, and we’ll see you next time.