It’s no secret that we’re not big fans of the stock market. But is there a stock investment through your employer that can actually work with the strategies we teach? What are the risks?
Anti-Financial Advisor, Chris Miles, shares one stock strategy that some of his clients take advantage of to boost the amount of money they eventually use to buy real estate. And there’s even a bonus tip for using a 401k too!
Tune in to find out what our clients are doing!
No stock or investment recommendations are given and you are encouraged to speak with a financial professional.
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One Stock Strategy That I Actually Like
Welcome to our show that’s for you that works hard for your money, and you’re now ready for your money to start working harder for you today. You want that freedom and cashflow. You want it right now, not 30 or 40 years from now, but today, so that you can live that life that you love with those that you love. It’s not just about getting rich. It’s about living a rich life because as you are blessed financially, you have a greater capacity to bless the lives of those around you. That is what we call here, being a Rippler, is that you want to bless the world, you want to make your mark on this planet, make it a better place for you and me and the entire human race.
Thank you for joining us today. Thank you for binging, sharing, and all the other stuff that comes with that. You guys are the greatest. I appreciate you guys reaching out with feedback as well as with topics and conversations, including this one that we’re going to talk about today. Is there a stock strategy that I like? Yes, I’m going to talk about that now. As a reminder, if you haven’t done so already, you can go to our website, MoneyRipples.com, and take the Passive Income Calculator to figure out how much passive income you could create in the next twelve months. Go and check that out now.
Is there a stock strategy I like? First and foremost, I’m going to start with a disclaimer. I am not giving stock recommendations and advice about what to invest in the stock market, and I’m not being your investment advisor. This is not to be construed as investment advice at all. However, every once in a while, when we have clients come to us, there are certain situations where they say, “Guys,” whether they’re talking to me or Craig, they’ll say, “I know you hate the stock market, but this is what I have.”
The thing is that you have money in the stock market. That’s not a big deal to us in the sense that you have the money there. None of us knew any differently before, either. Included myself, I didn’t know there was anything better, and I was a financial advisor. That being said, there are some occasions where you can use not just the stock market to your advantage, but more importantly, how can you use company benefits to your advantage, especially when it deals with stocks?
I want to share a story with you. When I was a financial advisor, fresh and green, hot off the press, 24 years old, and much fuller hair than I have today, I was sitting down with a couple. These became my first clients, Chad and Marcy. I’m sitting down with them and teaching them about why you should put away $50 or $100 a month into your Roth IRAs. They thought the education was great. They were a young, newlywed couple and the same phase of life that I was in myself. They are getting ready to take on the world and start a family.
After we got done, I asked them. I said, “Are there other people you should talk to?” They said, “Yes, here’s a few people.” Chad said, “Here’s my brother. You should talk to him. He’s got a lot of money, especially with his company stock.” I went and got up the courage to call Chad. None of the people in our company ever reach out to people called like I did back in the old financial advisor days. All of you guys always keep coming to us. We always field your calls and emails.
I reached out to his brother. I called him up. I said, “Chad is your brother. He told me to reach out to you. I’m a financial advisor. I thought we could chat on the phone or sit down face to face at some point.” His brother gave me a response I did not expect. He said, “I don’t want to talk about anything about stocks or financial planning now at all. I got done finding out that I had over $1 million in company stock, and it’s all gone.” I said, “That’s horrible. What happened?”
He said, “Have you ever heard of a company named Enron?” I was like, “Yes.” He said, “Enron announced that their stock is worthless. I had $1 million saved up there. That was my retirement.” This guy was only in his 30s by this point. He said, “It’s now completely gone and wiped out. Chris, I don’t want to talk to you or anybody about money right now.” That was the end of our conversation.
What I want to talk to you about is that thing because there is a big risk with this. If you have company stock offered through your company, it can be a good and bad thing. It is good because there’s a strategy I want to teach you that you can use to create freedom faster, but bad because there’s still risk with this. Let’s be honest. A mutual fund is bad enough, but when you’re dealing with an individual company that you have no control over, you don’t know what’s going to happen. Something could go wrong. The stock price could tank in a minute and it might even prevent you from getting out. You have to be careful of that.
Granted, they try not to prevent you from doing that, but when there are things like being invested in company stock. They might have certain dates where they allow you to cash out and certain dates you can’t. This is what happened with this guy. Many of you, especially if you’re in the tech industry, or some of you, even if you’re not. You might be working for a company that’s maybe a Fortune 500 company. They offer you company stock.
Here’s the cool thing that’s great about it. Even though it is high risk, you have all your exposure in one stock. The lesson you can learn from this is don’t put all your eggs in one basket. When it comes to the long-term, keeping money in that stock could be a dangerous thing. We’ve heard the stories about the janitor that Bill Gates could only pay him in Microsoft stock. He became a multi-deck of millionaires because he had those stock options that were paid to him in Microsoft. I don’t know if that’s true or not. It’s a common story you hear about.
You always hear that. You always think, “I’m holding onto it and sitting on it.” We’ve had clients that work for Google. They’re like, “We believe in Google. We’re going to sit on it.” Still, there’s that risk of not only what happens to that company but also what happens to markets and what they think about the industry that company’s in. That’s another risk as well. You can make a lot of money, and you could lose a lot of money.
If you are going to do that, here’s something you can do to capitalize on the benefits they give you in that company, still get that money away and get it to be directed. This is not to be taught as financial advice or invest in a stock recommendation or investment recommendation. I’m merely teaching this as an option. This is an option that many of our clients have chosen to do themselves because most of them already knew they could do it, but they didn’t know where to go.
If you have these stock company stock options, the great news is that, yes, you can cash out the stock. You usually have to wait about twelve months to get it out. Sometimes, it’ll let you access it earlier, but you can reduce the capital gains tax that you have on that money. I want to pause here for a second because some of you’ll say, “I don’t have company stock. I don’t have the option. I have a 401(k).” I will teach something about the 1% of time I will recommend a 401(k) working, but hold on with me to the end. I’ll tell you about that one in a minute. That’s going to be a bonus tip for you guys who can’t relate to this completely.
For those of you who do have stock options, many of our clients will look at it and say, “I could buy this company.” What happens is you buy the stock 15% under cost. If the company’s trading for $20 a share, you might be able to get it for $17 a share. You get it at a discount. From there, what you’re allowed to do is you can hold onto it for those twelve months. Hopefully, cross your fingers that the stock price is up higher than what you bought it for when you bought it at a discount. If it is, and if it makes money, great. That could be wonderful.
Let’s say, for example, that you put in your own money, $15,000. You bought stock options. That money’s going to be locked up for that full year. You can’t do anything with it. You are at the mercy of the stock in the market, and we hope that it all works out. After those twelve months, you have an option. You can let it sit there and add more money to it, or you could take that money out. Yes, you’ll have taxes on the gains of that money, but after that, it’s yours to do whatever you want with.
Many of our clients will choose that option or the latter one. They might still put in money that next year, but often, they’ll pull out the money first, put the new money in, buy it again at a discount at whatever that price is at that point, and let it set there for a year. It is a little bit of a longer strategy. It’s not like it is immediate. You put the money in and pull it out. You can’t get that 15% discount. If you could overnight, that would be great, but most won’t do that. They’re going to leave it in there for twelve months, take advantage of it, and pull that money out in hopes that there’s more.
Let’s say you put $15,000 in. After a year, you pull it out. You have $25,000. That $25,000 could be used to put a down payment on a real estate property. Maybe that starts paying you $200 a month. You’ve taken something that was put away, set it, forget out of your possession, and now it’s starting to pay you some good tax advantage returns. Some returns might even have you pay little to no tax on it because of depreciation. You can get that $200 a month. Maybe you’re making $250 a month because you wouldn’t and lent that money out to somebody else. You made money off of that. There are a lot of ways to get that money to start paying you.
The great thing is, if you had put $15,000 and you were doing that into that 1% a month fund, that $15,000 would pay you $150 a month, but by awaiting that extra year, get this big bump up, now you have $25,000, now you’re getting paid $250 a month. You might think that’s not amazing. You’re right. That by itself is not incredible, but if you’re to do that year after year, or you did that ten years in a row, even if you didn’t grow your money, you took all the money and consumed it, you can do the math. Let’s say that $200 or 250 now becomes $2,000 to $2,500 a month. That’s significant.
If you’re taking some of the extra cashflow out that now is paying you $2,000 to $2,500 a month, and you are still building up that money, you’re also able to add, reinvest, and make more. You probably would have more than doubled after that period of time. That money could turn into maybe $5,000 a month of income coming in by the end of those ten years.
I’m not talking about guarantees or anything like that. I’m helping you see the theory and the concept behind this because that’s what many of our clients have decided to do. They know they might have some taxes on this, but the money is now away from the stock. They can rest easy. It’s not just the money. It’s the peace of mind knowing, “I’m not relying upon this company, which I have little influence over anyways, relying on this company to always be succeeding.”
On the flip side, I have another client whose company stock has been dropping. They’re a little bit nervous about it. They’re even saying, “Maybe I should wait a little bit. Maybe it’ll bounce back up.” It reminds me of the trading rules I had when I was teaching people how to trade stocks and options, as well as when I was doing it myself. If you’re like, “I don’t want to sell it off now. I don’t want to lose money,” you don’t want to be left holding the bag until you have nothing left. You don’t want to have an Enron example where that one happened fast. Sometimes, it can happen slowly.
What you might do is you put in what they call a stop-loss. A stop-loss means if it goes down to this price, I don’t care what I’m thinking or feeling at that moment, and I sell. That’s what you do. You set a price. You discipline yourself to say, “This is the price. I will not lose any more money than this.” On the flip side, if you start making money, you might even pick a price where you say, “This is the time I’m going to take my money and run. I’m going to take some of my profits.” Whether you sell it all or take a portion of it, you might say, “I’m going to take that money.”
The concept behind it is you want to make sure that money is in your possession and you have control over it. You can sleep peacefully at night because there’s nothing worse than being left like my friend Chad’s brother had, where he’s now in a place where he thought he had his life figured out. He thought he had his retirement and future before him. All of a sudden, he watched it crash in a moment. You never want that to happen.
You want to make sure that the money is in your possession, and that you have control over it so you can sleep peacefully at night. Click To TweetThat’s why many of our clients will say, “Let’s start to take this money and use it.” They do. They might stop funding their 401(k) because they can’t get the money from there, but they will contribute to their stock plan. A lot of times, we say, “If you’re going to do your employee stock option purchase plan, it is great. Do that.” If you choose to do that, fine. If you want to pull the money out and keep it in there, pull it out. If you’re going to pull it out, here are some options you’d be doing in the real estate space that could get you making cashflow with that money. You get yourself closer to being work optional, which is the goal.
You want to get to the place where you don’t even have to worry about that stock and rely on it. You want to get to the place where you don’t worry about the 401(k), what the government does, and how social security is going to be there or not be there in the future. You want control of your own destiny of your own life. That’s the key.
As promised, I’m going to teach you something else too. For those that have 401(k)s, there’s only about 1% of the time that a 401(k) might make sense. Here’s the deal. You don’t get a tax benefit from 401(k). You get tax delayed. They delay your income to a future date, hoping that you’re going to be in a lower tax bracket in the future, which our government is not doing a good job of being physically responsible and wise with their money. Why would we think their taxes would get any cheaper? They suck at money.
It’s a bad theory to think that down the road, you’re going to be in a better tax bracket. For those of you who are generally over the age of 59 and a half, you can always ask your employer or your 401(k) provider because your HR department may not know, but if you can ask them, ask them if there are what’s included called in-service distributions. Meaning, can you pull out money, not as a loan, but can you withdraw the money while you’re employed? This is only usually reserved for those who might be in retirement age already. Some 401(k) providers won’t allow it at all, but there are some that will.
I had one client who had $400,000 sitting as 401(k). He was mad because he had spent the last 25 years stuffing the money in, and all he had to show for it was $400,000 because markets kept going up and down. He never got ahead, but he was a good saver. That $400,000 was in there. This guy was over the age of 60. He went and asked his company and provider. He said, “Can I get in-service distributions?” They said, “Yes, you can access all of it, but you got to leave $3,000 in here. Everything else, you can pull out.”
He pulled out almost the full $400,000. He went and bought over $1 million of real estate property. From that one move, his money went from worth from $400,000 to $1 million of actual equity net worth. When I say he bought a $1 million property, I don’t mean he bought $1 million because he bought a bunch with mortgages. He bought these without mortgages. He bought them at a discount. This was after the last recession. He was able to buy a lot of things at a discount. He bought about $1 million of properties, and his 401(k) money was being used to generate income. That’s a big difference right there.
Here’s the cool thing he did. He would take that money that he would have. Most people won’t keep contributing to 401(k), but he knew he could contribute to his 401(k), get the match, turn around, and pull it out the next month. He would put the money in, get the match, and pull the money out. There, to me, is a no-brainer because you get the match, and immediately, you’re pulling the money.
Let’s say that’s a 50% match. That’s still, in that case, a true 50% simple return. That’s a 50% return on your money. You could turn around, control that money, and invest it however you want. You are earning potentially double-digit returns somewhere else. That’s a good move. That is a no-brainer. I would do that if 1) Money Ripples offered a 401(k), which we don’t, and 2) I would do that because that would be easy money.
If I were the owner, I wouldn’t do it because I’m not going to pay my own match. It is not worth it to me. I don’t get any tax advantage for that. I still have to pay tax on it. If you work for an employer willing to give you that money, take it. That makes sense. That is where you talk about free money, a no-brainer type of money. In that situation, it is. If you have an employer like the normal 401(k), lock it up, set it, and forget it for years, it is not worth it.
If you’re going to put money into an employer plan, whether it’s stock into a 401(k), make sure that if you do that, you have the ability and the freedom to decide what to do with that money. If you pull it out, you can keep it in, but if you have the option to pull it out, that gives you better control of your money. If you’re putting your money in somewhere and you lock it up, and you cannot get to it for years, that’s a risky and dangerous move, especially when we move into the next recession. Yes, I’m still calling for a recession.
Some of you might be critical of me and say, “Chris, a broken clock is right twice in a day.” That’s true. I’m telling you. The recession is still here. The signs are all there for a recession to happen despite what the media and the politicians are trying to tell you. I’m saying this ahead of time because if you have your money locked away and things where you can’t control it, you might watch more of your money disappear.
Those of us who won’t watch your money disappear are those of us who have control over money. We can put it into real assets and get returns. Those are the people who are going to win right now. The rest of the people who are locking their money away into their stock funds or 401(k)s are going to have some bad serious stress. They’re going to experience some things and uncertainties in their life. Potentially, they have to make new decisions and change the way their dreams look to fit their reality. The reality is going to be brutal. I don’t want that to happen to you guys.
I’m not giving investment advice, but I want you to be educated to know that there are options that you can still take advantage of in your company plans, but make sure it’s come in your favor. Turn the tables around where it’s in your control, not the other way around. Take back control of your money. If we can always help you, reach out to us at MoneyRipples.com. Make it a wonderful and prosperous day.