Have you checked on the mutual funds in your 401k lately? Jesse interviews Jeff Rose, CFP

Hello YNABers. My name is Jesse Mecham and this is podcast number 95 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Click here to download a PDF of the full transcript.

Today I’m pleased to have with me Jeff Rose. He’s a CFP and the author of a new book called ‘Soldier of Finance’. Jeff Rose and I are pretty good friends. We participated in a pull-up challenge at last year’s Financial Blogger Conference. I won’t say who won the challenge, but I was extremely happy with the result and Jeff was not as happy with the result.

So, without further ado, here is my previously recorded interview with Jeff Rose.

JM: I am here with Jeff Rose from GoodFinancialCents.com. He is a CFP and the author of a new book called ‘Soldier of Finance’. Welcome, Jeff.

JR: Welcome, welcome. Thank you for having me.

JM: You bet. I’m excited to have you on and excited to have our pull-up challenge in about a month.

JR: Going down, buddy!

JM: That’s right. I’m pretty dialed in on it, so we’ll see what happens, if I hang on to my belt.

Okay, so the YNAB Podcast users are pretty savvy folks. They’re pretty aware of their finances, they like this stuff, so they’re probably, by default, they’re already interested in a personal finance book. But I wanted to have you first tell me a little bit about your background and how you got into the personal finance space, and then I guess I’ll ask some more about ‘Soldier of Finance’ specifically.

JR: So as far as a little bit about my background, I was a Finance major in college and was getting to that point where I was going to graduate and really had no idea what I was going to do. And I ended up doing an internship at a local investment firm, which consisted of shredding papers and filing – really utilizing my skills. And I guess I impressed them so much with my filing capabilities and shredding expertise that they offered me a part-time job while I was still a senior in college, and then that turned into an offer to be a junior stock broker. I initially turned it down because I thought I was way too young – I think I was 23 at the time – and just didn’t know… I literally knew nothing about investing, which is embarrassing nowadays, but to me that’s just… Well, we could talk about this forever, but I was a Finance major and I didn’t know anything about investing. I’m just trying to figure that out now.

Anyway, the job market was non-existent at the time, so I ended up taking the offer and bam, the rest is history. That was ten years ago, and I just really have had a passion… I wasn’t passionate really. Obviously I was a Finance major so I felt that’s where you needed to be to make money, but I really wasn’t passionate about personal finance per se. But it wasn’t until… It was at one of the first client meetings I had when I was meeting with a couple that were, at the time, almost two and a half times my age. I think they were in their early 60s. And these people really had nothing saved for retirement. I think maybe they had, total, $30,000 savings and no pension. Social Security was basically the only thing. I don’t know why they were meeting with me. I can’t remember how it all went down. But one thing that I do remember was all the times that my parents had told me to save had never really impacted me until that moment. It was that moment when I saw this couple that were just desperate and were depressed, I’m like, “You know what? I’m not going to become them, and I’m going to do everything in my power that I can to make sure other people don’t end up like them as well.”

JM: Yes, that would be… I mean, when you’re that young and you see someone that’s several chapters further along in life, realizing that that could be you if you don’t be proactive about it, that’s a good wake-up call.

JR: It was a huge wake-up call.

JM: So you’re married, you have kids, right?

JR: We do. We’ve got three boys and we’re in the process of adopting our fourth child.

JM: That’s very cool. Congrats. I know it’s a tough process.

JR: It’s 18 months in the making, and we don’t know what that means really. It could be the next year, it could be 2015.

JM: So how is the personal finance side as far as your relationship goes, and your skill in the personal finance area? How has that helped your marriage?

JR: I think it’s been huge in the sense that… You know, the funny thing is yes, I guess I’m skilled in personal finance, but my wife also, she wants to have a say in what goes on. I think that’s great, right?

JM: Right.

JR: So she actually handles more of the day-to-day finance. I’ve been the breadwinner of the household, but that was kind of her way of contributing. She lets me do the investing side of things, although she does not let me pick individual stocks at her account – I’m forbidden from doing so. But it still has been good, just from a… We got married shortly before I was deployed to Iraq in 2005, so we had a lot of money conversations while we were deployed just because we’d just started our future. So one of the things I talk about in the book is having a battle buddy, just having somebody as your support system. And she was that. We were that to each other. But it forced us to have these money talks. You know, what was important to us as far as what debts do we need to pay off, how much do we need to have in our savings account that made us both feel comfortable, and what would it be like if I wanted to BUY something that was of a large value. So we were forced to learn that. I think a lot of new couples, they don’t do that or they don’t do it enough, and it just causes a lot of strain and hardship. But we had nothing really else to talk about other than, “Hey, how was your day?” or, “How are things going?” and so we talked about money a lot just because we almost had to.

JM: Yes, when things are tight like that you’re kind of forced to a lot of times, which is a good thing in the end. But a lot of times I think couples just kind of bury it and just kind of go on their way. They get frustrated with the other person’s behaviors but they don’t necessarily express that openly, and so you end up with people carrying a lot of baggage around and then usually it explodes at some point. It can be a strain.
So, your book, ‘Soldier of Finance’. Now, you were a soldier. You aren’t anymore, but I guess you’re always a soldier, kind of, in a way.

JR: That’s what they say, right?

JM: So tell me about kind of just the gist of the book. What angle were you coming at it when you wrote it? I know it’s been a long time coming and you’ve been working on it for a while.

JR: Not really. It was only about four and a half years! I took the fast track getting my book done!

You know, I just had this idea of wanting to write a personal finance book, because everybody wants to slave through that whole debacle. I just didn’t really have… I guess I had good ideas, like how can I be different. And it really was just a chance encounter that I had with somebody that they gave me the idea. It was like, “Hey, you need to use your soldier’s discipline to investing. That’s your book – that’s what you need to do.” And I was just like, “Why didn’t I think of that?”

So I remember I immediately went to Barnes and Noble, looked at the bookshelves. I went to Amazon, looked online. And you know, I didn’t really see anything from this tack. So the kind of premise of the book was in basic training we were each issued, every Private is issued – I think they’ve changed the term now – but it was like our soldier’s handbook or our training guide. And this was the manual that we had to carry on us 24/7, and if you were caught without it… well, you just didn’t want to be because you’d be doing a lot of push-ups, sweating, the drill sergeant would have a lot of fun with you. But in that manual, it basically gave us all the basic principles and skills that we needed to be a soldier. And if we ever came across a situation, we were supposed to refer to our handbook – that’s what it was there for. Didn’t need it every single day, but there were some days that it would come in handy. And when I started the book, ‘Soldier of Finance’, that’s what I thought of this book as. Everybody’s at a different point in their financial life, whether they’re getting out of debt, trying to get their budget in order, investing, etc. You know, you don’t really need it all at one time, but I wanted it to be a handbook that people could refer to whenever they hit that point in their life that they needed that information, if that makes sense.

JM: Yes, definitely. Well, tell me more. You mentioned your wife being a battle buddy. Tell me more about that battle buddy concept.

JR: In basic training we were each assigned a battle buddy, and this person – in this case my guy was Private Romero from Florida – and we were required to know everything about each other. We had to know our deepest, darkest secrets, our family, our interests, our hobbies. Furthermore, we were accountable for our battle buddy – you know, making sure if my battle buddy didn’t have his uniform, if he wasn’t wearing his uniform right or if his boots weren’t shined or he didn’t have the right gear for that day, it was on me. We’d both get smoked – which means doing push-ups or whatever, some other type of activity that consists of a lot of sweating and breathing really hard!

So, the whole point of that concept was learning to not just look after yourself but look out for the soldier next to you. And you can apply that same concept – whether it be your spouse, a close friend, a relative… In the battle buddy, the whole concept is… Especially I think when people are trying to get out debt, it’s kind of like when you’re on a diet or lose weight – you have an accountability partner. It’s the same concept. The battle buddy is just having somebody that’s watching your back but also not afraid to call you out if you need it.

One of the examples I have with my wife. Even when I started being a financial advisor I still had some bad financial habits that I’d got from my parents. I didn’t budget, I was buying things I didn’t need to, I had credit card debt, I had student loan debt. I was working on it, but still… I think it was my first year of being a financial advisor and I had the entitlement syndrome where I felt like, “Okay, I’ve been working hard, I deserve this.” And I think we’ve all had that. In this case the thing I felt I was entitled to was a 42-inch TV, a flat-screen TV. Flat-screen TVs were just relatively new and I had convinced myself that I was going to go to Best Buy and buy a brand new TV because I deserved it. And I just remember telling my wife my masterful plan of doing such, and I just remember her telling me – and she did it very humbly – she said, “Do you really think you need that TV right now?” And I’m like, “How dare you! How dare you question me! I’ve already thought this out! I can afford the payment, I’ve got this old 32-inch, big, lugging thing. I need this!”

I remember initially I was upset. We didn’t really fight but I kind of held it in for a little bit. But I remember I thought about it for a few days and came to the realization, “You know what? She’s right. I don’t need this right now. I have debt, I can’t afford this. What am I thinking?” You know, in your first year as a financial advisor you don’t make much at all. I’d probably have made more if I was working in a mall. But that was something, you know, she didn’t have to say that. She could have let me buy it and I would have paid the consequences. But she did and it caused kind of a rift between us, but in the long run it was for the best. And that’s what a battle buddy has to do. You can’t be afraid to speak up when that person needs to hear.

JM: Yes, absolutely. It’s an accountability situation, and a spouse would be the best one probably, because they’re so integral to every other part of our lives. Or if you have a good friend, I guess that would work with anyone. That’s a good idea.

Sometimes in a situation when you’re not necessarily sharing your finances with someone else, I wish more people would be more open with at least one other person about REALLY what’s going on. Not pretending, not, “Oh yeah, things are going well,” or, “I got a raise,” but nitty-gritty numbers, being transparent. I think people would find a lot of validation if they’re doing well, but also they’d be able to see maybe another person’s finances and be spurred on, like, “Oh wait – why aren’t I doing that? Oh my gosh, I’m spending this much on going out with my friends, and my friend here spends half that. How are they doing that?” You know, that type of thing could really get people’s gears turning.

JR: Yes, and it’s funny because as a financial advisor I get more people nearing retirement that are obviously much more willing to share their financials. They’re like, “Hey, here’s my numbers, here’s what I’ve got. How much can I spend? Can you help me?” But I wish the younger generation would, “Hey, I’m thinking about buying this car,” or, “Hey, I’m thinking about buying this house or doing a rental property. Is this something that I should be doing right now?” And they don’t seek the counsel like I think they should, unfortunately. So if you’re listening to this, please find someone. If it’s a financial advisor or a [?? 0:14:12] advisor, you’re only paying for their time – it’s worth it. I had a guy that… I think he was mid-forties. He wanted to cash out his retirement to buy a house, and he emailed me – it was eight paragraphs of information. I’m like, “Dude, go pay someone $100 to sit down with your situation. I’m not comfortable answering this over an email.” Because he even mentioned that his wife wasn’t on board with some of the decisions, and I’m like, “Seriously – hire a professional, a CPA, a CFP, whatever and figure it out.” But I wish more people would.

JM: Yes, I think they’d find… I don’t know, there’s some satisfaction when you know you’ve vetted a decision thoroughly, and that’s what more people need to do with their finances – and they’re not.
You’ve mentioned investing, and I’ve talked a lot on the Podcast – well, not a lot, but some – about investing. I’m just curious to get your 30 second approach to investing for YNABers. What should they be thinking about?

JR: Yes. Well, most people in your community, are they just starting off or have they been investing for a little while? What would you say?

JM: I think most have been investing probably a bit on auto-pilot, like, “Oh, my work has a 401K so I’m doing that.” There’s definitely…

JR: Can I talk to that for a second?

JM: Yes, absolutely.

JR: Because that’s actually one of the things I really… One of the main points I bring up in the book is I think the 401K at some point in life will probably be the largest asset that you own, probably larger than your home – depending, obviously, on where you live and how big a house you live in. But it’s either going to be the largest or second largest asset that you have. I constantly see people that are having the argument… like deferment coming out of the pay check, it goes in their 401K, maybe they chose a fund, maybe they let their employer choose some Target A fund. I just want to warn people that I think that’s one of the most reckless strategies that you can do. For one, I’m not a big fan of Target A funds. I’m not saying they’re all bad, but I’ll say I’ve seen enough of them to say the majority of them are.

JM: What’s bad about them? Because I’ve talked to some people recently that kind of frowned when I was mentioning them.

JR: You know what? I think probably one of the best ones is Vanguard. It is low cost… If you actually break it down, though, I think there’s only like three different funds in there. Whereas some of the other bigger mutual fund companies that offer them, specifically here’s what I see. You’re going to have anywhere from, let’s say, eight to twelve, maybe fifteen different mutual funds inside a Target A fund. So if you get a chance to actually slice and dice, and look at them on an individual basis, for one you’re having to pay an overlapping fee for all those funds – that’s the one way [?? 0:17:05]. If they’re all really good funds, hey, that’s fine. I’ll pay that little extra to get better managers, better returns. But really, when you slice and dice and look at them, a lot of the individual funds that you’ll see are just crap. And that’s the part I don’t like about it the most. A lot of the returns that you’ll see from some of these Target A funds, like I’ve described, they’re not doing any better than just an index fund. Return-wise, but fee-wise/cost-wise, you’re going to pay 1.5%-3.5% when you could have just bought a Vanguard S&P 500. Just a quick disclaimer – I’m not a huge Vanguard fan. I love the low fee concept, but from a guy that does research and looks at other investment options, I think that there are actually managed funds that can do better, that do do better. The unfortunate thing for most investors is that they’re hard to find. It takes a lot of time and effort. So, for what they offer I think it’s great.

JM: I heard a stat recently that there were more mutual funds than there were stocks.

JR: I believe it.

JM: So when we say, “Man, it’s really tough to pick a stock,” it’s even tougher to pick a mutual fund these days.

JR: Yes. And not to pick on anyone, but it’s kind of like Fidelity – they’re a good fund company and they have a lot of good funds, but they have, I think – I don’t know the exact number – but let’s say it’s over 100 different mutual funds.

JM: Yes. And probably more than that.

JR: Exactly. And what happens is is that all these fund companies are like, “Oh, we have this one fund that’s really, really good, but we don’t have a small cap fund, we don’t have an international fund, we don’t have a precious metals fund. So let’s go ahead and create one to serve that need.” But the reality is that maybe the person they have managing that particular sector doesn’t really know what they’re doing, but they have a product to offer to fit that sleeve and that’s what you see in those Target As. So – sorry for that, 30 second…

JM: No, that’s fine. I think we’re still under 30 seconds! And you know, I looked… I set up our 401K for our company and had to pay a little extra to get out of what was the default through the agency that we worked with. I was looking at another fund family’s target date equivalents, and they were all actively managed funds. I had just assumed that they would be index funds because that was how… And Vanguard, I think, pioneered the idea of that reallocation as you approach that date, but they pioneered it on top of index funds. Where you see other ones are coming in and saying, “Hey, we have that too,” but they’re all actively managed with a little steeper fees. So again, it’s tough. It’s as tough to pick a mutual fund as it is a stock.

JR: My 30 second clip would be if you are putting money into a 401K and you haven’t reviewed it at least on an annual basis, do so. Do so, please. And find someone who’s willing to do some Morning Star reviews or look at it. [?? 0:20:03] you can use, but if you don’t trust yourself or you don’t want to spend time it’s worth spending 30 minutes a year reviewing what would potentially be one of the largest pieces of assets that you have.

JM: Yes. And people, I think, treat it a little bit too lightly. It’s good and bad. You know, one is that it’s good in that it’s kind of out of sight out of mind, they’re automatically saving. And then it’s bad because they’re not treating that with care a lot of times.

JR. Yes. Can I tell you another story I think that might be of interest to your community? I had this lady – she had kind of the 401K but I think she had an IRA, some advisor had sold her some mutual funds. And 15 years had passed – she just left it alone and I think when she came to me it was roughly $40-50,000. She was happy because she’d made money over the years, and when I actually did some research on that fund… I mean, this thing, we can look at it from the consumer reports angle, like how does it rank compared to every other mutual fund in this area. So it’s kind of like if you’re looking at mini-vans, what’s going to be the best performing mini-van type thing.

Her mutual fund was literally in the bottom 25% for the last 15 years, and I’m like… I couldn’t even… I couldn’t have picked a worse fund. But even still, I think she still averaged 4% or 5%, which over a 15 year period is not great – it was like a bond fund but it was all stocks. So I think she said she had put in – I can’t remember the exact numbers now – but $15,000, so it had more than doubled in the 15 year period. Something like that. But when I looked at what another average fund would have done in that same time period, she really should have had between $80-150,000, depending on what she would have picked. So that to me is just another testament of why you look at your 401K, because if you have your money sitting in a dead fund for too long, one day you might wake up and realize, “Oh my gosh. Had I actually spent a little time researching or having someone else research for me, that could have put tens of thousands of dollars in my pocket, potentially more.” And that’s one of the things I really advocate in the book – it’s not being complacent with what’s going on with your finances. Something with the YNABers, obviously they’ve got their budget down on one of the coolest budgeting software programs in the world. But you know, you can’t be complacent with what’s going on with your investments.

JM: Very cool. That’s good advice. I mean, I preach basically invest in the entire stock market and do so regularly and aggressively, and then allocate so you get more conservative as you get older and might need the money a little more. So, we’re pretty aligned. You mentioned index funds and that’s kind of where I hang my hat most of the time. I’ve been guilty of the sin of picking an occasional stock, but luckily it wasn’t with anything I didn’t care about keeping.

Is there anything else specifically about the book that you wanted to tell YNABers? Anything about budgeting where you make fun of it and say it’s useless, or anything like that?

JR: You know, I think we did an interview, I did an interview previously where I told you I hate budgeting. One of the things… For the people who just can’t get on the budgeting board – which everybody here has – I’m a firm believer at least in tactical budgeting where you come across a life situation – having a kid, buying a new house, major purchase, change of jobs, etc – if you had to budget minimally, you definitely have to do it in those situations. And that’s something with me and my wife. I see the importance of budgeting – it’s hard for me to do it. But obviously I know tools like YNAB make it super-easy and super-fun. You guys have pulled off an amazing feat.

JM: Yes, making budgeting at least not wanting to have… put needles in your eyes. That’s a feat in itself.

My admission is I just finished our September budget this morning and we’re – what is this, the 19th that we’re doing this recording – so 19 days late on the budget, setting it up for September. But luckily we’ve been living this way long enough that things aren’t too crazy, so I kind of get on auto-pilot.

Cool. Jeff, thanks a ton for coming on. I wanted to have you mention really quick about the giveaway for YNABers for the book so they maybe won’t run out right away and purchase it – they might wait and see what happens with the giveaway first. I don’t know. But give me the details on that, how YNABers can pick up a copy.

JR: Yes. I think I’m going to create a landing page on the blog – on GoodFinancialCents.com – where people can go. I actually hadn’t thought about the URL, but let’s go to it right now. Let’s say goodfinancialcents.com/ynabbook. I guess you’ll have a link in the show notes – and I’m going to write it down before I forget!

JM: Yes, I’d better write it down too!

JR: And yes, I’ll definitely give away some copies. I believe it’s going to help people, so the more hands I can get it into… For those that don’t win, if you want to buy it we’ve got awesome reviews on Amazon. I’ve got to tell this story because… Hopefully the YNABers know you’re big into CrossFit and so am I. There was a guy at my gym that bought it just to be nice, and I ran into his wife. He was a blue collar kind of guy and he’s probably in his late fifties, so I didn’t really think he’d be the demographic for the book – but he bought it anyway. And he just got it I think last weekend. His wife came up to me and she was like, “I’ve got to tell you, my husband has only read two books in his life and I can’t remember the last time he read a book, but he is almost three quarters of the way done with your book. He cannot stop reading about it.” And I’m like, “Are you kidding me?! Are you sure it’s the right book?!” I haven’t talked to him yet, but his wife said… I think it’s just awesome because he was just so excited to read it. He just thought, “Man, this is really good!” and I’m like, “I LOVE it.”

JM: Cool.

JR: So anyway, hopefully whenever some of the YNABers get their chance to get their eyeballs on it, they’ll have the same reaction.

JM: I’m sure they will. Well, very cool. Thanks, Jeff. So, goodfinancialcents.com/ynabbook – that’s where YNABers can potentially get hooked up with a free copy. Otherwise, Amazon, Barnes and Noble, all that jazz.

JR: You got it.

JM: Cool, Jeff. Thanks. Good luck with the rest of the book promotions and all that, and keep fighting the good fight.

JR: Will do.

JM: We’ll talk to you later.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.