The Wiser Financial Advisor Podcast

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The Power of Being an Owner VS. The Pain of Being a Consumer

In this episode, Josh Nelson, CFP®, confronts a sobering reality: while Americans excel at consumption, our proficiency as investors often falls short. In this episode, we delve into the disparity between the pain of being a consumer and the power of being an owner. Join me as we dissect the nuances of wealth generation and explore how to bridge the gap between consumerism and investment prowess. Let’s embark on this journey together towards financial enlightenment.


Wiser Financial Advisor – Pain of Being a Consumer vs Power of Being an Owner

Hi Everyone, and welcome to the Wiser Financial Advisor podcast. I’m your host, Josh Nelson. I’m also a Certified Financial Planner, which is the gold standard in the financial planning industry, and I’m the founder and CEO of Keystone Financial Services, a wealth management firm. Let the financial fun begin!

Today’s topic is about how you accumulate wealth and how sometimes consumers are not very good at that. We Americans are really good at being consumers, which often does not translate into being good investors or generating wealth.

To illustrate this point, I was at a seminar recently for financial people and one slide really stood out to me. You might remember that the first iPhone came out in 2007. Back then, it cost $640, which at the time probably seemed expensive, but a lot of people bought it. Obviously, smartphones ended up changing the world and over the years they got more and more expensive. The most recent iPhone costs about $1700.

If you had bought a new iPhone every year for the last 25 years or so, you would have spent $20,653.00. That’s a lot of money. Of course, we’re pretty dependent on these devices now, not just for playing and social media, but also to function in society. For example, at Disney World, you use your smartphone to access ride lines and order food.

Back to that $20,653.00—we haven’t bought a new iPhone every year, but we have bought a bunch of them, so we have definitely contributed to Apple’s profits over time. Now, what if instead of buying that iPhone, you had bought Apple stock? If you had taken $640 that first year and then every year instead of investing in that new iPhone you invested in Apple stock along the way? Well, just for the sake of argument, you might say, “We couldn’t have gone without smartphones,” but what if you had bought $640 worth of Apple stock, then how much would you have ended up with? If you did it just once back in 2007, how much would that be worth today? $33,900. And if you had invested $20,653 in Apple stock (cost of a new iphone every year since then), it would have become more than $204,000.00 by the end of 2023.

The point here is that it can be very expensive and quite painful to be a consumer if you’re not also investing money. And in America, we’re very good at spending. We have lots of statistics showing that about 70% of the economy is from consumer spending. That’s you and me traveling and going out and buying stuff. I’m not suggesting we should just stop spending money, but we shouldn’t spend all of our money. Financial planners recommend between 15 to 20% of your income should go away someplace before you get a chance to spend it. If the money hits the checking account, it tends to become fair game, right? I’m just as guilty as anybody else. We start to think of things that we could buy, unless that money has gone into a 401K or another investment that gets it out of sight before we ever get a chance to spend it. So 15 to 20% is our rule of thumb for how much money you should have going away.

Should it all go into one stock? No, of course not. Apple is an extreme example. But I would wager that if you had done the same thing with your Starbuck’s purchases over the years, it would be a lot more than the example of iPhones and Apple stock.

The point of being an investor is that you’re taking money consistently and putting it into some type of an investment that can outpace inflation. The only two things that have consistently done that historically over the last few centuries have been stocks and real estate. The stock market also could be private equity; there are other iterations of the stock market, but I’m talking about things that you own, whether it’s pieces of companies or pieces of real estate. That has been the most reliable way to outpace inflation, given large chunks of time. The other way of putting your money away would be putting it into debt securities or into cash instruments which have a much lower rate of return. They don’t outpace inflation, but there are more safety factors there. It’s really for each individual to balance out how to allocate your money between being a good investor and being a good consumer.

If you can manage your budget to have money going away consistently, you will not have to feel bad about your iPhone purchases or your travel or your Starbuck’s because you’ll be paying yourself first. Paying yourself first is a fundamental principle of being a successful investor. Creating wealth over time is about not spending everything, taking some of that money and putting it away for the future.

There are a lot of examples of people that are wealthy due to consistency of investment, not luck. They were not professional athletes; they did not win the lottery. All of our clients that have accumulated wealth did it over time and they did it consistently not because of one lucky break.

So with that in mind, think about the Apple example and think about your own life and how much money you’re putting away. If you’re still in that accumulation phase, we certainly would love to talk with you to make sure that the money is going into the most effective place possible to outpace inflation, to build wealth and over time make sure that you’re not just being a consumer.

Hopefully that was a fun example, but also a convincing example. If you’re not up to that 15 to 20% mark, even if you’re starting at 0, move it up to 1%. If you’re at 5%, move it up to 6 in little increments. You will not even notice, you will not miss that money. Put the money away someplace even reasonably smart and you will know that you’re being a long term investor.

Have a great week. If there’s anything we can do to support you, your family, your coworkers, please let us know. Take care and God Bless.

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The opinions voiced in the Wiser Financial Advisor show with host Josh Nelson are for general information only, and are not intended to provide specific information or recommendations for any individual. To determine what may be appropriate for you, consult your attorney, accountant, financial or tax advisor prior to investing. Investment Advisory services offered through Keystone Financial Services, an SEC registered investment advisor.