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Time in the market is more important than trying to time the market. And, you know, you don’t have to be a, a, a super stock picker in order to, to benefit from stock market investing.
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Black wealth is growing, but here’s the challenge. The racial wealth gap, it’s still massive. According to Brookings, the median gap between black and white households is about $172,000 and more than half of black families have less than $41,700 in total wealth. So the big question is, how do we close that gap? Well, that’s what we’re going to talk about today with Chris Wilson. He is the author of How to Make Your Nest Egg Last a Lifetime.Chris, welcome.
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Hey, Bob, thanks for having me.
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Pleasure. Um, so, let’s start here. I, I want to not only help people figure out how to build wealth, but how to create generational wealth that they can pass down. So, as you think about in your experience, what’s the biggest obstacles that people of color face when they’re trying to not only build wealth, but also build generational wealth?
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So, uh, let me first of all start by giving you a little about my background. I am a, uh, uh, tax professional. I work, uh, as I own a chain of uh H&R Block stores in North Carolina and Virginia.Uh, uh, 14 stores, we do roughly 12 to 13,000 tax returns annually. So we see a lot in terms of dealing with, uh, the America’s tax returns, and a lot of our clients are repeat clients.And so I have a front row seat to the good, the bad, and the ugly, if you will, um, and what I’m seeing in, in my community, the African American community, is, number one, we don’t have, we don’t start with the same numbers as, you know, other communities.Uh, 2, we’re not familiar with, and, and therefore not comfortable with investing.Uh, and we’re, we’re being led more and more toward, uh, the annuity product.And the annuity product is being sold as, hey, it’s guaranteed income for life.Uh, you don’t have to worry about volatility in the market. That’s a bad thing. That’s what we’re always told. Um, and I get it, you know, uh, the guaranteed income for life is kind of like comfort food, um.And so it’s a, it’s an easy sell for the African American community, particularly when you don’t really know a lot about investing and, and, uh, and, and the ins and outs of, of stock market investing. So we end up going down that annuity path.And when you do that, you turn over your income for a fixed monthly amount, you turn over your life savings for a fixed monthly amount.And that amount doesn’t change. And, you know, going forward, you’re OK for the 1st 1 year, maybe 3 years in retirement.But, you know, 5, 10 years into retirement, now you’ve got to figure out how to make ends meet. You gotta get creative, um, andYou know, all of that’s based on the fact that you made a decision at retirement to go with the annuity, and that is causing you not to be able to maintain your purchasing power as you live longer into retirement. You know, most of us will live 30+ years in retirement.And so what I see in our community is that that annuity trend. And, um, it’s not only in the, in the African American community that’s big on that, but is in particular, the African American community is really um navigating toward that annuity product.And so I want to bend the arc in the, in the opposite direction. Yeah,
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so it sounds like if you were to sort of categorize the obstacle, it might be that one is there’s a lack of financial education, a lack of financial literacy, uh, but also a fear that comes from that lack of financial education, the fear of the markets, a fear of volatility, um, a, a fear of, of losing money in the market, etc. I mean, how does, how does someone overcome, how, how do you become more financially literate, I guess. Where’s, where do you start?
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So, a good place to start is with an investment club. Um, those were pretty popular back in the 80s and the 90s, but I think they’re, I, I’d like to see them make a resurgent. Um, and, and I think they’re, they’re good tools for learning and earning as you go. Um, it’s easier to, to put an investment club together now with, you know, technology being such as it is.You can pull a group of folk together from anywhere in the country or even the world for that matter, and create a monthly meeting, uh, where you get together and, uh, learn about investing and pull your money and invest in stocks. And if you can do that over a good period of time, by the time you get to retirement, you’ve got a pretty good, um, understanding of how the market works.AndYou, you put that up against the fact that if you don’t do this, and you get to retirement, you’ve got this big bucket of money.That you gotta make decisions with at retirement time, um, that’s a pretty dangerous place to be.Um, without any, any knowledge around how to, how to deploy your nest egg in order to have it not only sustain you for a lifetime, but to be a legacy for the nextgeneration.
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Yeah, you, you’re right about investment clubs. They were very popular at one time and I’mDrawing a blank on the actual name of the book, but there was a, a women’s group, maybe a, a knitting circle or something to
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Bearstown, Bearstown, um, ladies, I think, pretty popular,
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and they had a popular book, and, uh, starting an investment club, I think is actually an interesting place to start in part because not only are you investing, but you also have to learn how to research what you’re investing in and to make presentations.So you’re learning about analyzing balance sheets and cash flow statements and income statements, etc. and, and then making the case to your fellow investors that what you’re proposing would be a good thing for the club to invest in. So, that does seem like a great place for people to start.
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It’s never been easier, particularly because of all of the tools that are available to you now. You know, if you want to do research, um, you’ve got a wonderful tool in AI that will help you not only research and compare.And do that almost effortlessly, um.And, and, you know, but you, you got, the, the nuts and bolts of starting an investment club around, you know, you gotta establish a partnership. Um, what I do, um, encourage folk to do.Um, is to determine what you’re going to invest in and, and the types of investments you’re going to be involved in before you and put any money into the pot.Um, figuring out your, your investment objectives early on can just really help you have a smooth running investment club to where everybody knows what you’re trying to do. You don’t have somebody who wants to do real estate and somebody else who wants to do stocks. Figure that out up front and uh work out all of those types of details.And uh that makes for a smooth running, a smoother running, uh, investment club operation. Yeah.
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So in addition to investment clubs, I had a chance to sort of peruse your LinkedIn profile before we uh talked today. One of the things that you noted that is that building wealth doesn’t have to be complicated. Talk more about what you mean by that.
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Yeah, so, time in the market is more important than trying to time the market.And, you know, you don’t have to be a a a super stock picker in order to to benefit from.Stock market investing.The thing I’d like to recommend for those who are, who don’t want to spend a lot of time trying to be in a stock picker, is to just go with the S&P 500. Um, it has a historical return rate of slightly more than 10%.Um, it beats 90% of the, um, investment advisors on an annual basis, so.Um, I think that’s a pretty good return, considering that you don’t have to invest a whole lot of time in trying to figure out which stocks to invest in. The S&P 500 get you the elite companies, the US companies, um, all of those decisions are made for you. It’s kind of like being in the NBA, you know, only the elite players get to play.And when you’re past your prime, you gotta go. Um, so all of that’s done for you, uh, in the form of the S&P 500, and all you gotta do is, um, just buy it, hold it, and, um, know when to allocate it differently.
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Yeah. So, uh, you mentioned the average annual return of being slightly north of 10%, but obviously, it’s the stock market, so it does go up 10% or up 20% or down 10 or down 20% in any given year.And you mentioned that uh that uh people of color have a, uh, maybe a behavioral finance issue with risk. So, uh, how do you help people understand that there’s a trade-off, that the greater the potential return, the greater the potential risk, and, and that that calculated risk is worth it, especially over the long term.
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Well, I, I first try to, try to help them to understand that doing nothing is, is risky as well, that it is just as risky as, you know, the volatility of the stock market. And you have to help people to understand that, you know, the, uh, the cost of eggs today.is gonna be different from the cost of eggs by 10 years from now. And if you’re, if you don’t have anyMoney working on your behalf, then your purchasing power is going to erode.Um,And so I try to make that point and bring that home, and I also work with just the life, life, uh, lifetime, the history of the S&P 500. If you can show the chart of the S&P 500, it does show that the, that there, yes, there is volatility, but it is volatility in a northeastern direction, if you will. And so, um, if you can, can be patient enough to buy it and hold it.Um, and as I said earlier, investing and being successful in the market is about time in the market, not necessarily timing themarket,
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right? So, uh, it seems to me that investing in a large capitalization index fund like an S&P 500 is a good place to start. Uh, obviously, the tenets of investment planning suggest that you might diversify your assets, maybe small cap, mid-cap, maybe value and growth, etc.Uh, any thoughts about how one would sort of broaden their horizons beyond the S&P 500?
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So, uh, to keep it simple, I just focus on the S&P 500, um, and as you’re, as you move through the life cycle, my recommendation is to just change the allocation.You know, when you’re younger, you would be weighted more heavily toward the S&P 500. And as you get older or you get to the retirement point, I would say pare back uh to fixed income type, um.Vehicles, uh, such as, you know, bonds or interests or something that will get you at least 4% on 70% of your money, and then keep the other 30% exposed to the S&P 500. I’ve got a model that um I follow that I’ve developed called the the North Star nest egg legacy model.And um you, you can go to my website and download that model, and I’ve I’ve time tested it back from 2010 up to 2024.Um, using that 70/30 evaluation, that model.And, um, you do have a couple of years in there where the S&P did not, you know, have a gain, it had a loss, uh, but you can see over the last 3 years or so that there’s been more than 20% growth, um, on the S&P 500 year over year.Um,And but that’s what keeps it simple, and, and I don’t wanna get it, I don’t wanna, you know, get too complicated.Um, with the model, and so that, that’s why I, I kind of, instead of diversifying into small cap, large cap, let’s just kind of work with the allocation and, and, uh, make that work for you.
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All right, Chris, we’re gonna take a short break and when we come back, I want to talk about a different kind of investment opportunity with you. So don’t go away.Welcome back to Decoding Retirement. I’m speaking with Chris Wilson. He’s the author of How to Make Your Nest Egg Last a Lifetime. Chris, uh, when I was reviewing your LinkedIn profile post, one of the things I noticed was that you’re a fan of something called Opportunity zones. A lot of people may not be familiar with what they are and how someone might invest in them. Uh, tell us, uh, why you’re such a fan.
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So,opportunity zones, uh, uh, is, is a fairly new, uh, tax opportunity, tax break opportunity, in that you can, there are opportunity zones around it that have been identified across the US map, and those are some of the low income areas or the uh um.Uh, poverty stricken areas that you can go into and identify those areas that are, are, um, opportunity zones that you can, that you need an incentive to go in and invest. Now, if you take capital gains.And uh if you have capital gains as a result of selling stocks or whatever, um, and you want to avoid paying the tax on it in the year that you sell it, you can invest in an opportunity zone, uh, maybe in real estate, identify opportunity zone, set up a company, invest in it.And, um, avoid the paying the the the capital gains tax on that for the first year, but also after 10 years of investment in that opportunity zone, you can cash out, uh, tax-free, you know, without having to, without having to pay the tax on any gain that you get as a result of the initial investment. Now, you still have to pay the, the, the tax on the, on the, uh, capital gains, but you get it delayed for a year.But any capital in you have to hold the investment for at least 10 years, but then after that you can sell it and you can, you, you can benefit by a tax-free sale.
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Yeah, so it sounds a little complicated on the face of it. Does, does it take a lot of money to get into one of these opportunities?
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Um, uh, well, you can take, let’s say, let’s say if you wanted to buy a rental home in, in an opportunity zone, you know, if you, let’s say you made maybe $100,000 in capital gains, you could take $100,000 put it into a, a rental property. Now, you could put other money with it as well, but you have to kind of self-report how much of that was capital gains, um, and on your taxes each year.Um, and, uh, go at it that way. So it, you know, you can, it doesn’t take a, a significant amount of money to get involved in it, but it does require that youHave a gain of some sort that, you know, that you want to avoid the tax on.
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The other LinkedIn post that I read was also interesting to me around what you call a magic mortgage strategy, which enables someone to fund their college tuition, which sounds kind of unique and, and uh walk us through that.
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OK, so this is a monologue I actually, I actually use myself, um.It’s when you’re starting a family, a young family, you, um,If you buy a home.Um, and, and you start to, to grow your family, my suggestion is to, to you is to, and I advise my tax clients of this as well, um, to take a 30-year mortgage.Pay it off in 15 years.And um use what would have been the second half of payments to fund college tuition.And so, the reason you take a 30-year mortgage is because there, you know, often there are bumps in the road, and if you have to revert back to the lower payment for a for a period of time, uh, you can do that, but as soon as you can get back on track with on the aggressive path of paying it off as quickly as you possibly can.And then you can use what would have been the last 15 years of mortgage payment.Um, to fund college tuition for your children. I, uh, like if you pay your mortgage off in 15 years, well, by that point you got a 15-year-old in the house.Um, college doesn’t start until 18, so you get a 3 year head start on, on saving, and then you can fund, you know, what what was the mortgage payment, the, um,The uh um the, the annual uh tuition payment.You can make the tuition payments out of what would have been the mortgage fee. And you, and, and by doing that, you’re redirecting what would have been $200,000 or so in, in my example, uh, from interest payments to actually mortgage or not mortgage, but college tuition, um.It worked well for us. Um, both of our kids went to out of state schools. We were able to use that model to, um, fund their college tuition, and there, there were noStudent loans and college debt or anything like that to deal with as a result of doing that,
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right? So you, you’ve also noted on LinkedIn too that, that you’ve called the mortgage interest deduction, uh, one of the most valuable tax breaks out there. So on the one hand, you’re accelerating your tax deductions in order to create this college funding strategy. Uh, talk more about why you think that this interest deduction is so valuable, especially in light of the fact that with the one big beautiful bill.We now have increased standard deduction and the ability for people uh to itemize, uh, is, is, well, depending on who you listen to, could be much improved if you have a large mortgage interest uh payment, uh, versus someone who might have a smaller one.
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Yeah, I, I, I, um.I think you should really focus on paying your mortgage off as as quickly as you possibly can, but when you, while you do have a mortgage, particularly in the northeast and, and, and areas like the Northeast of California, they just recently adjusted.The mortgage, uh, the salt levels from 10,000 to 40,000. So that gives you a lot of relief there. So you take your mortgage interest along with your other state and local taxes, and that gets you up over the, uh, threshold for, um, the itemized deduction. And then once you get there, you know, everything else that you could do, you could take advantage of from an itemization standpoint, uh, falls into the into play there as well.But I, I, I do, um.Encourage people to, you know, take advantage of if you’re paying your mortgage, you know, look to, to itemize.Um, if you canUm, but don’t, don’t use that as, as a, uh, a crutch to, to keep your mortgage and your mortgage payments around just because it’s a, a really good tax deduction,
20:40 spk_1
right? So speaking of taxes, Chris, um, I’m sure you’ve witnessed, uh, many more taxpayers increasingly filing for extensions. What do those folks need to know when they’re doing that?
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Uh, an extension to file is not an extension to pay.Uh, that’s the most important thing. Uh, so if you’re gonna file an extension, you wanna estimate about what you owe and make that, make that payment, um, as soon as you can.Um, because, you know,Uh, Uncle Sam’s comes calling, you know, and if you haven’t made any payments, you now you’re looking at penalty and interest and, and, and, in addition to the tax that you owe. So that’s the, that’s the main thing. That’s the main thing.
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Yeah, and, uh, and I’m sure that when folks file their extension, they need to know that they should, shouldn’t wait until the last deadline, right? October 15th, is it, give or take? October
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15th, uh, and in our area, due to, um, the hurricane, we had an extension in the North Carolina area, had an extension to September 25th for the individual.But if you file an extension, you still get until October 15th to file. So it’s a pretty busy time right now in the tax office as, uh, people who have just kind of procrastinated and procrastinated and procrastinated are now, um, having to face the, the music, so to speak.
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So, speaking of facing the Music, we have about 1 minute left. And uh if you could maybe just uh boil it down to one or two steps that folks, uh, brown and black households need to do in order to not only create wealth, but to create generational wealth.
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I would start with, you know, the Trump accounts are, are new this year, where if you’ve got a newborn, you get $1000 put into a brokerage account on your behalf.I would, I would start with that, even if, even if you don’t have a newborn, I would start, I would get a brokerage account for, for your children. As soon as they have a Social Security number, they can have a brokerage account.And I would recommend funding that brokerage account throughout the child’s life, um, you know, add to it for birthdays, for special occasions, or whatever the case might be. Help the child learn, pick a stock that the child is interested in, uh, get them acclimated to being, uh, uh.An investor, you know, early on in life, and so it won’t, it, it won’t be something that they have to learn later on. So, that would be my, my advice to families, uh, who wanted to kind of bend the arc in the, in the, in the opposite direction and hold on to your retirement nest egg. Don’t turn it over to anybody else.That that’s what I would leave you with.
23:30 spk_1
All right, Chris, that’s really great advice. I wanna thank you for sharing your knowledge and wisdom with us today. It’s, uh, it’s so greatly appreciated. Thank you.
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Thank you. I, my pleasure.
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So that wraps up this episode of Decoding Retirement. We hope we provided you with some actual advice to better plan for or live in retirement. And don’t forget you can listen to Decoding Retirement on all your favorite podcast platforms.
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This
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content was not intended to be financial advice and should not be used as a substitute for professional financial services.