35 Years of Investing Lessons in 21 Minutes (From a CPA)

Hey there. Real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, Grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Have you noticed everyone online is suddenly a financial expert? They're all screaming about crypto and AI stocks and some secret strategy that will make you rich overnight. But here's the thing. The data shows that most investors actually lose money chasing that kind of stuff, okay? The fact is that average investors underperform the market by several percent a year. Not because they don't know what they're doing, but it's just from bad behavior. Okay? So, no, wealth isn't built by picking the next hot sector or timing the market. It's built by the boring consistency of simple habits and knowing what not to do. All right? And this is building your money machine, where we help you master your money, eliminate financial stress so you can live a life of choice. Because earning more doesn't make you free, but building a money machine does. And that freedom, it doesn't come from the next paycheck, then the next client, or the next raise. It comes the moment we get your money to start working harder for you than you did for it. I'm your host, Mel Abraham, a CPA mentor and entrepreneur. And I'm going to break it all down for you. All my decades of journeys and mistakes. Let's do this.

Most people think investing success comes from finding the next Tesla or the next Amazon or timing the market perfectly well after 40 years as a CPA, an investor, an educator. Let me save you the trouble. It's a bunch of crap. I mean, sorry for the expression, but that's truly it. I've lived through four recessions, three bubbles, more late nights staring at spreadsheets than I can admit. I've lost more money than some people want make in a lifetime. Rebuilt it and built it by multiples and multiples. And it's not about getting rich quick. It's about making sure that you don't go broke slowly. So let's break it down for you, and let's talk about the lessons that I've learned over the decades of my financial journey. And lesson number one is this. Behavior beats math. Here's the thing. You know, I know coming from a cpa, that sounds kind of blasphemous, that the numbers are supposed to tell the story and that numbers are everything. And I actually thought that data was data and that's all that really mattered, but the data says otherwise. Dalbar studies that they show that the average investor underperforms the market by 3 to 6% every single year. Okay? In 2024, they lagged the S&P 500 by almost 9%. Why is that? Well, it's because they bought the high when everyone was euphoric, and then they sold the low when everyone was fear and the fear took over. Translation? Your emotions are the most expensive cost to your investing, even more so than your fees. Okay? And I've watched brilliant people with spreadsheets literally melt down in a downturn. Financial PhDs acting like little emotional toddlers throwing a tantrum. Okay? That's the thing. It's like ice cream melting in their hands. And that's why I hammer the emergency fund. That's why I talk about the peace of mind to have the cash to sustain you when the market cycles down. Because it is going to cycle down. But if I have the liquidity that takes care of me during those downturns, I don't become a panic seller. I don't start to freak out. I got the right cash in the right pockets for the right reasons to help me, one, sustain myself during a downturn, but also take advantage of the opportunities that exist during downturn. So you are not sitting there worried about collecting regret receipts. You're actually building wealth. So that's lesson one. Lesson two. You can't time the market. This is the close kin to lesson number one. Because here's another uncomfortable truth. You can't time the market. In 2008, people swore the bottom was in.

Nope. The market fell another 45%. Okay? In 2017, everyone said stocks were way too expensive and the market never dropped back to that level again. See, trying to time the market, it's like trying to guess when your teenager is going to slam the bedroom door. It just doesn't work. You know, it'll happen, but predicting that exact moment doesn't work. It's pointless and it's painful. Okay, listen, even Nobel prize winning economists, they call market timing a fool's errand. Okay? So here's a better way. Automate dollar cost average, put the money in monthly, no matter what is going on. Consistency beats clairvoyance. Because we don't have clairvoyance. Data shows, historically, that even the biggest hedge fund traders that have the big computers, the big algorithms, the Wharton grads, all of that cannot time the market long term. So why are we trying to do that? Leads me to lesson number three. Never, ever invest in something you don't understand. This is what got me in the Ponzi scheme. Okay? Not understanding it and the emotions, both of them got me in the Ponzi scheme. Listen, if you can't explain it, and if you can't explain how it makes money and you can't do it in plain English on the back of a napkin, don't invest. Simple as that. Okay? There are things that are out there that are beautiful, investments that seem beautiful. Private placements and hedge funds and esoteric alternatives and all this stuff, and they sound impressive at a cocktail party, but most are financial quicksand. There's high fees, there's poor liquidity, there's high risk. And it's the stuff that they don't tell you about. They tell you about the wins, they don't tell you about the losses and the problems. Okay? So your brain is literally your first investment account. Fund it before you fund anything else. In other words, invest in your learning. Make sure you understand it. Invest in your literacy, your clarity. Because here's what I know. Complexity doesn't build wealth. Clarity does. That leads me to lesson number four. Lesson number four is don't take advice from the wrong sources. See, when I first started, I did what most people do. I asked the bank. Okay, rookie mistake. Banks aren't in the business of making you wealthy. They're in the business of making themselves wealthy by selling you shiny products with fat fees. Okay? Morningstar did some research and it proves it. The best predictor of future returns isn't a manager's iq. It's the fun cost. So let me be blunt, okay? If your advisor makes more money when you stay confused, that's not advice. That's a sales pitch. Literally dressed up in a suit. So the bottom line is this. You need to be very critical about who you take advice from. You need to be very critical about the advisors you take into your camp. The fact of the matter is, they must earn the right to work for you, not the other way around. Not the other way around because you are giving them your future to play with. Now, I always believe that no matter who it is, the advisors are never having their hand on the wheel. They're to your right and left as your navigators and your consultants. But you're the one that makes the decision, which is why don't invest in things you don't understand is so important. But by the same token, we need to be critical and ask pointed questions to our advisors and if they don't like the pointed questions of the wrong advisor when it comes down to it. And be careful about non advisors kind of giving you coffee table advice and that kind of thing. So be careful about that. Now that leads me to lesson number five. Liquidity is a superpower. Now if you don't have cash, every bump in the road feels like a cliff. You freak out. You know, the Federal Reserve found that 37% of Americans couldn't cover a $400 emergency expense. Something unplanned. You know, imagine trying to invest when you have a flat tire that can derail the whole plan. That, that, that's all it takes. That's why I stand firm on both my the emergency fund of three to six months, but more importantly, my nine to 18 month peace of mind fund. See, nobody brags about their savings account at dinner parties. But you know what's sexy? Sleeping at night. Know what's sexy? Liquidity. Know what's sexy? You don't freak out. You know what's sexy? Freedom. Now, I'm not saying to over fund it. I'm doing a whole nother episode on how to how much cash is too much cash and how to calculate that. But the point is that when you build it based on the wealth priority ladder, you now have the right amount of cash to keep you safe, to protect you, to take care of the short term needs that you have in place, and to take care of the opportunities that might be coming your way. Okay, so here's the thing. A lot of folks don't understand where they are in this financial journey, this financial freedom journey. One of the things that I have for you that makes it really easy is a free quiz. It's called the Financial Freedom Zone quiz because a lot of people say, well, okay, where do I start? This will help you. So we'll hook up below, down below in the description, the Financial Freedom Zone quiz. Or you can go to yourfinancialfreedomquiz.com to take it. It literally will take 70 seconds to take the whole thing. But it'll give you an idea of where you are on the journey, plus you'll get a report of what the next steps are, what are the critical elements are on your journey, and what to do next. So go ahead and take that. That leads me to lesson number Six. Most individual stocks are bad bets. Now let's bust this whole stock picking fantasy, okay? There was a guy by the name of Hendrik Bessenbinder who studied, literally studied, 28,000 U.S. stocks since 1926, okay? In his finding, just 4% of them created all the net wealth in the stock market. The other 96% were basically background noise with more than half underperforming even the one month treasury bills. See, that means that unless your Warren Buffett with Blumberg terminals in your bathroom, betting on single stocks really isn't investing, it's gambling with a necktie. You see, I learned this lesson the hard way early on because I was chasing what I thought was the next best, biggest thing, the next one. Spoiler. It wasn't. Diversification isn't just advice. It's literally survival. Think about this. What's happening is that if you're trying to pick the stocks, you might hit it out of the park. You might get the next Amazon, you might get the next Tesla, you might get the next Google, okay? But you might not. The odds are against you that you, you will versus saying let me cast a wide net, let me take and diversify the portfolio and know that in that wide net there will be the Googles, there will be the Teslas, there will be that. Now there'll also be the ones that drop. But in the long term, when you do a broad based portfolio, 8 out of 10 years it goes up. That's the key. All right? Diversification, getting in the game and having a broad based portfolio. Lesson number seven, average is actually elite. Here's the paradox. When you start to look at this averages, elite, the S P500 has returned roughly 10 annually for decades. Okay? It's if you just match the market, you'd be ahead of most people. The problem is that most people are trying to beat the market. And I totally get that. But the averages show that you can't beat the market. When you start to look at that, even the big hedge fund traders, they don't beat the market repeatedly long term. So if they can't do it, we can't do it. So why not settle in and play the whole market? Here's the other kicker I think we need to think about. If you try to time the market like we talked about before, and you sit back and say, well, I know when to get in and when to get out. If you miss 10 of the best days in 20 years, they did this study 10 of the best ways days in 20 years, you literally cut your returns in Half. They did a study where you invested in 2002-20, 23 or something like that, 20 years into the S&P, $510,000 and just let it ride. And if you let it ride during that timeframe, mind you, you had the 2008 bubble, you had the 2020 drop, you had all the things that went on in between. Okay, if you just let that ride, your 10,000 turned into 65,000. But if you miss those 10 best days out of 20 years, one day every other year, that 65,000 was only 29,000, a little over 29,000. So the idea here is this, stop chasing unicorns. To look at it and say, in investing, being average isn't failure, it's freedom. It gives you the clarity and you allow the market to take care of the rest because of time. Right? That leads me to lesson number eight. Lesson number eight is complexity doesn't equal wealth. Wall street loves complexity. You know, whether it's in the terms, the acronyms and all the things they use, or it's private equity or hedge funds or alternative investments, they all sound so doggone sexy. And yet over the time, when you look at the idea of what are their returns, they often end up higher costs, more risk, less liquidity. And so the rule is, if I look at it is if it takes longer for me to explain the fee structure than it does to watch a sitcom run. Here's the thing. If they're spending so much time trying to explain how this.

Exotic kind of investment, alternative investment, works and how you're going to make money at it, it's too complex. I think simplicity, it didn't matter whether I was a six figure portfolio, seven figure portfolio, or a multiple eight figure portfolio. Simplicity wins the day. I went through complexity and we spent the time trying to simplify it. And simplicity wins the day. Wealth is built on boring consistency. Things like index funds, automated investing, automated contributions, disciplined habits, boring rich beats, exciting, broke every single time. So rather than getting caught up in the fancy stuff and the exotic stuff and the complexity, let's do the things that are effective long term. Simple give you your peace of mind and your time back. Lesson number nine, US isn't the only game in town. Now don't get me wrong, I love America, baseball, apple pie, index funds. But the US markets aren't the only show. You know, today US valuations are sky high. What's called the Shiller PE is over 30. Then you look at Europe or Canada or Australia or emerging markets. They're cheaper, with plenty of growth Potential. Now, there may be risks there also, but diversification isn't just about opportunity. It's something that smooths out the ride. And what you find is sometimes when one region zigs, another zags. And that's the power of, I think, creating a global portfolio. So I don't, I know that there's some out there that say, just put everything in the US stock market. Actually not, not in agreement with that. I think that, that you don't put all your eggs in Uncle Sam's basket, even if you're a believer in America. But I think that we live in a global economy now. And so a portion of that portfolio should be allocated to possibly international or other, other regions of the globe to give you that diversification. Because if a region starts to have challenges, the other one will pick up on it. Because remember, economy cycle, market cycle, lesson number 10, hot sectors, they burn the fastest. Everyone loves hot sector, okay, until it burns them. Think about this. The dot coms in the late, in the late 90s. Watch that oil in the 2000s. Crypto right now is on fire as of filming. But you know what? A couple years ago it wasn't. And AI today is kind of the big talk of the town. Now, I'm not saying not to follow some of these trends, but I don't think we should bet the farm on it. Diversification, again is the key because by the time something is hot enough to make headlines, the easy money's already gone. See, we want to invest for the long term. Investing because it's hot is like running into a burning building because everyone else is doing it. You don't come out richer, you come out scorched if you're not careful. Now that's why when you talk about building a portfolio, you have asset classes, you have diversification, and you start to create a portfolio that is built based on your risk profile, your risk triad, which is risk need, risk capacity and risk tolerance, where you can take it. Now, do I have speculative investments that are volatile? Certainly do, but it's a very narrow sliver. So I don't expose my whole wealth.

To that, that volatility. And the fact of the matter is, is that, that most of it is this diversified portfolio and we look at it regularly. That leads me to lesson 11, investing is only part of the machine. Here's what I mean, because a lot of people will come to me and say, just tell me what to invest in and then I'll go along my way. I get it. But investing is just part of the machine. Remember, the idea of building a money machine is to create the life you want. A life of choice, a life that you get to live by your own terms, by your own design. Well, that is more than investing. Remember, I say that when we start, we always start with the vision first to create the vision for your life. That vision will give us the plan to make the vision a reality. And from that plan, we can determine the right strategies to put into place to facilitate the plan. And then from the strategies, we determine the tactics. And the tactics will then give us the action steps to take. Now, here's the thing. When you talk about investing, it's a tactical decision. So if you start there, you forgot about the vision, your life. Is it getting you closer? You forgot about the plan. Do you have a plan? Is it fulfilling the plan? And is it based on a proper strategy, a thesis of investing, if you will? And so we need to understand that investing alone won't save you. It won't make you free. Wealth comes from building a money machine that works off of the three pillars of earn more, you know, more money and income. The bigger the shovel grow, the consistency of taking that income and converting it to assets that perform and guard how to protect it from the risks, from liquidity, from losses, from lawsuits and things like that. Because if your money stops when you do, then you're not free. You're rented. So here's the thing. Forgetting the timing tricks, the hot sectors, the Wall street jargon, wealth is built on consistency. It's built on systems, not luck. It's built on habits and clarity. Build the machine and you build your freedom. And if you're wondering where you stand right now, you can figure out where you're on that financial freedom journey by taking the free quiz. It's called the Financial Freedom Zone Quiz. And like I said, it's hooked up here. Go to yourfinancialfreedomquiz.com to take. It takes a couple minutes and you'll get it all dialed in. But the bottom line is this. These are some of the key lessons I've learned over decades. Playing in the market, doing the crazy things, losing, winning, winning big, Losing big, recovering and building more. All right, Learn from my lessons. You don't have to get. You don't have to skin your knees, stub your toes, or bloody your nose. I did it for you, all right? I hope you found this valuable, and I hope that this serves you and you start to look at your investing in a different way. Let me know what your thoughts are. Let me know what your comments. I love hearing from some of you and making sure that we have this dialogue to make happen. Because here's what I believe. Financial freedom is your birthright. We just got to go claim it and we got to do it the right way. That's why we have the show. That's why we do what we do. All right? And while you're here, do me a favor. Subscribe. Subscribe and give me a thumbs up, all right, Till I get a chance to see you on the road and on the path to your financial freedom. All right? Always, always strive to live a life that outlives you. See you.

Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of building your money machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.