Direct Indexing Vs. Index Funds: Which Is Better? -Money Q&A

Transcript:

On this episode of the personal finance podcast, direct indexing verse index funds. Which one is better? Welcome to money. Q and a welcome

to the personal finance podcast. I'm your host, Andrew founder of master money. co and today on the personal finance podcast, we're going to be talking through a money Q and a that is action pack. So we've got four questions today. On this money Q and a, so I am pumped to go through these first. We're going to be talking about direct indexing verse, just buying index funds and ETFs.

We're going to talk about what is direct indexing. And then we're going to talk through the differences between the two and which one you should likely choose. Then we're going to talk about how do you actually hand down a brokerage account to your kids? What is the best way to do that? How should you think through that process?

Then we're going to talk through, Hey, how can I research the funds in my TSP? So if you're a federal servant, how can I research funds in a TSP? And then lastly, how do you feel about target date retirement funds? So this is an action packed invest. Money Q and a, if you guys have a question for money Q and a, make sure you shoot me over an email or shoot me a DM and you'll be able to get your question on the show.

So without further ado, we're going to dive right into the first question. All right. So the first question is long time listener of the podcast. Thank you so much. Really love your content and the advice you give on all things, personal finance. I have a question that I thought you might be the perfect person to answer.

Little background for context. I'm 47 married with four kids. I am a Colonel in the army and soon to retire. First of all, congratulations that you are soon to retire and thank you so much for your service. That is absolutely amazing that you've been a Colonel for that long. Now, my wife and I have both have Roth IRAs and I have my TSP where I funded my entire career.

I have approximately 200, 000 in non qualified mutual funds that I bought around 20 years ago in Legro. There are a total of 5 mutual funds that make up this 200, 000. I am considering moving that 200, 000 into an index fund like VOO. To reduce my expenses over time, but I was recently introduced the idea of direct indexing by my financial advisor.

And after looking at what it is, I am not sure. What do you think is direct indexing the way to go, or do you think an ETF like VOO is better? So this is a fantastic question and I am starting to see direct indexing popping up more and more, uh, from different listeners asking this question. So this is a fantastic question.

I think this is a really, really important one to talk through because a lot of people can get themselves into sticky situations just based on what advisor is telling them. So overall. I'm going to talk through and explain first what direct indexing is. A lot of people probably have not heard of it yet.

And if you have heard of it or you have utilized direct indexing, and if you enjoyed it, let me know, cause I'm very interested to see from folks who have utilized it and I'm going to give you my opinion on direct indexing. And then I'm also going to talk through an ETF and an index fund and how those work too, and then we'll kind of wrap this whole thing up.

So. What is direct indexing? Direct indexing essentially is instead of just going out and buying something like an index fund, you're actually creating an index with the individual stocks that you can go out and buy. Now, this used to be a very complicated process, meaning that if you wanted to mimic the S and P 500, you were going out and buying 500 different stocks and trying to wait those different stocks based on what the S and P is.

And what you're trying to do is replicate the performance of a specific index. Now, why do people want to do this? Why would people ever want to do all that work? Well, number one, one of the arguments is for customization, meaning that you can customize your own index. Maybe you think there are things in the index that you would rather not have.

And so you can go in there and you can customize your portfolio based on that index. A lot of work just for customization to tax efficiency. So really high net worth individuals like the tax efficiency that comes along with some something like direct indexing, and there's things that you can do like tax loss harvesting with individual stocks, and you can offset gains and losses based on that.

So that is number two and why people may consider that. And if you really need that tax efficiency, maybe that would be something you can consider. And then lastly, you have a little more control over, you know, when you realize capital gains or when you have losses. So that's kind of the third reason why you would be considering direct indexing.

Now. I think direct indexing is way too complicated for most people. You can just listen to what I just said. You were buying 500 individual stocks. If you're trying to replicate the S and P 500, what if you're trying to replicate larger indexes, which are, there's a ton of them out there, then it becomes really, really overly complicated.

So I think the downsides and the work. Are way too high. Okay. Number two, it is probably over complicated for most what I want you to do with your money. And the biggest thing that we talk about here is I want you to simplify, simplify, simplify. And the more you simplify your money, the easier your financial life becomes.

This is why we talk about automating our investments. This is why we talk about automating our entire life. I want you to think less about your money, but build more wealth. And overall, this does not allow you to do so unless you have somebody else do this, which is a whole nother story. Number three is this requires a minimum investment.

Typically, typically you have to have a certain amount invested in these. Now there are automated ways to do this now, but an index fund is also an automated way to do this, but usually they require a minimum investment. And it just increases the complexity of your portfolio management, because now you got to really think through each of these investments.

If one of these companies goes belly up, or if the S and P 500, for example, changes, then you have to switch in the company that it changes. It just increases complexity on all different levels. It makes it so much more difficult to manage your investments. And here's where it really comes into play.

There is potentially higher transaction costs overall due to this frequent trading. Now there are zero fee commissions. Now I understand that, but a lot of times people are going to try to bake in transaction costs when you do this. And it typically requires more active management, which. A lot of times means costs are going to rise, especially if it's managed through an advisor.

So an advisor may be recommending this, and I am not sure exactly why your advisor is specifically recommending this. I'm just saying in general, an advisor may recommend something like this so that they can still say, Hey, you're getting into an index fund or you're indexing, but at the same time, there's higher transaction costs.

So I'm not a big fan of that overall. Now, if you've never heard me talk about index funds and ETS, long time listeners are all going to know what those are, but. Index funds and ETFs are so much more simple. That is one of the reasons why we love investing in those, because you can buy a basket of stocks, a basket of some of the largest indexes in the world, something like an S and P 500, for example.

And if you buy an S and P 500 index, which is what VOO is, which is what is referenced in this question, then you are buying 500 of the largest companies in the U S economy, which is the most powerful economy in the entire world. So the next thing to consider is liquidity, because ETFs index funds are very liquid ETFs are even more liquid than index funds are.

But when it comes to direct indexing, if you have some of these small companies inside of an index, they can be much less liquid than something that is larger. So if you have something like a small cap index that you were trying to put together with direct indexing, then overall, you can have some small companies in there that are difficult to end up selling.

And then these also think through index funds. ETFs and make sure that you understand those tax considerations because index funds and ETFs are very tax efficient. And so this is another consideration that you should have. So if you're trying to get even more tax efficient, it's going to be a small percentage overall.

If you can even do it with direct indexing, it's a difficult thing to do, especially when you have all these additional fees and the taxes and fees may not outweigh what the return on hassle is. And that's kind of one thing I want you to think about here. And I'm going to talk about this a lot more as we go through things in our finances is think through the return on hassle.

How much more difficult is this thing and is the return worth the hassle that it takes to actually complete this process? And so if it's not, then you just move on to index funds and you automate into index funds because this is a very time consuming process. You have to deal with market movements for each individual stock.

You have to deal with liquidity issues where it's going to be overall just difficult to sell those things. Now, if you want to do something like this, if you've listened to me and you're like, nah, I still want to do that. I want to have direct indexing. There's a bunch of funds out there that do that.

Vanguard does it. Blackrock does it. Morgan Stanley does it. But there could be much higher fees. And so you really got to think through the fees and look through the differences between the index funds fees and the fees for something like direct indexing. And so for me specifically, I would never be interested in direct indexing because of these reasons.

I want my finances simplified. I want them as simple as I possibly can have them. And so most people want the same exact thing. The more you overcomplicate your finances, the harder they are to manage. The harder they are to manage, the harder they are to stay on top of them. And so when you're trying to stay on top of your finances, you're trying to be a good steward of your money.

It becomes much more difficult when you overcomplicate it with some of this stuff. So for me. I would not be interested in direct indexing unless you can find a really automated way to do this. The fees are less than index funds and ETFs and the tax benefits will outweigh the index funds and ETFs in a massive way.

If you're saving a couple hundred bucks per year, but you have to direct index, somebody else is going to manage it for you. You know, you're gonna have to think about maybe even possibly losing sleep at night. Uh, because you have to rely on somebody else managing this stuff, then overall, just stick with an index fund and ETF.

They are so simple. They are so easy. That's why I love them so much. And that's the beautiful thing about them. So listen, if you guys have any more questions about direct indexing, make sure to hit me up, let me know. Uh, but outside of that, that's my thoughts on direct indexing. I would just much rather own an index fund or an ETF.

Let's jump to the next question. All right. So the next question is hi, Andrew, love your podcast and listen to it. Every week on the way to work. Well, thank you so much for listening. When starting a brokerage account in your own name for your kids, how do you go about giving them the account when they're older, do you give it to them slowly each year to stay under the annual gift tax limits?

All right. So this is a great question because this is one thing that before I dive into this, I want. Every single person here listening to this podcast to double check. One thing, make sure that in your taxable brokerage account or any brokerage account that you have out there that you have designated your beneficiaries, because this is one of the most important things that you can do when it comes to.

Estate planning overall. So if you don't know what that is, you just log into your brokerage account and you go in and find who your beneficiaries are, meaning who you want this money or this account to go to. If anything were to ever happen to you, because too many people do not designate their beneficiaries and it becomes a very complicated process for their heirs to access their accounts.

So this is a very, very important thing. It's going to take you literally one to two minutes. So if you have never done this before, and anything like a taxable brokerage account, or even with your retirement accounts. Pause this episode and go in and do it. Take the 15 minutes, do it across all of your accounts so that you can easily give this to the exact person that you want this to go to, or the exact folks that you want this to go to.

Now, there's a couple of ways that you can think about, uh, handing money down to your heirs, specifically when it comes to stuff that is invested overall. One of which, uh, which is what the question is asking here is, do you want to utilize the annual gift tax exclusion? So for 2024, which is the time I'm recording this, the gift tax exclusion is 18, 000 per recipient.

But if you are married and you want to hand, say. Money down to your kids, then one spouse can give 18, 000 to that kid with a gift tax exclusion. And the other spouse can also give 18, 000. So it is on an individual basis. Now, this 18, 000 number is up 1, 000 from last year, and it typically goes up each and every year, especially over the course of the last couple of years.

Now I'm going to go through, if you utilize this, what actually happens overall. So when you gift assets under the annual gift tax exclusion, it's important to understand how the cost basis and potential taxes are handled. This is a really, really important part because the taxes are everything in this situation.

So when you gift an asset, the recipient generally inherits your cost basis in the asset. So this is the original amount that you paid for the asset. Plus any adjustments like reinvested dividends or capital improvements. So this is a great thing, especially if you've been holding assets for a long period of time, is that they are going to inherit your cost basis, which is fantastic.

So for example, if you bought something for a thousand dollars, say you bought a bunch of shares of Apple. For 1, 000 and then over the course of 30 years, those shares of apples went from 1, 000 to 30, 000. Well, your dependents are actually going to inherent that money at that 1, 000 cost basis, which is going to save them a ton of money in taxes over that timeframe.

Now here's how the capital gains tax comes into play. Because if the recipient later sells an asset, capital gains tax is calculated based on this original cost basis, not the asset's value at the time of the gift. Now, this is another beautiful thing because then they have to pay capital gains tax on your original cost basis and not on the future value.

So if it's worth $30,000, but you paid a thousand dollars, they're gonna pay tax on that a thousand dollars on capital gains, not that $30,000. Now, another thing to note is there is no immediate taxes due at the time of the gift. So if the gift is under the annual gift tax exclusion limit, which, like I said, is 18, 000 per recipient per year, there is no immediate tax to pay for either the giver Or the recipient and the giver doesn't pay any tax for making the gift.

And the recipient doesn't pay any tax upon receiving that gift. Now, what happens if that stock went down, say for example, instead of it going from 1000 to 30, 000, it went from 1000 to 800. So if the market value of that asset actually went down. And it is less than your cost basis at the time of the gift.

Then the calculations for gains or losses depend on the future selling price. So whatever the future selling price is going to be, that's what the gains or losses are going to be. So that's how it works under that situation. Another way that you can do this is you can put it through a trust and you can talk to your specific CPA and you can also talk to an attorney.

If you're going to put it into a trust and see what the most optimized tax situation for this is going to be for you. Because sometimes this is a very specific question based on your finances. So one big thing to note is Is that you can use that gift tax exclusion, but at the same time, it is also best to consult a CPA in your situation.

And this is one thing that I did, and it's going to be something where we're just going to put it under a trust and it's going to be controlled on how it is handed down to our children. So that is one big thing overall that you really need to think through as well. Now. Anytime you're going to hand money to your children, the best gift of all that you can give them is that financial education first.

So they understand how to spend money. They understand how to invest their dollars. And you are planting those seeds, you know, weekend week out month in month out. So they have an understanding of how money works because if they have an understanding of how money works, how compound interest is actually going to grow their money over time, they are going to be good stewards of this amazing gift that you are giving them.

Now, some people do not want to hand money down to their kids and I hate. I get it. If that's you, Hey, more power to you. There's nothing wrong with that whatsoever. But for folks who do want to hand this money down to their kids, then this are a couple of options that you do have available to you. So putting it under a trust kind of gives you control and gives you some power to be able to hand down this brokerage and make it a simple process for everybody involved.

It doesn't have as many probate issues as it would if it was outside of that trust. So just making sure that you do that, uh, is going to be really, really important. But everybody, every single person listening to this podcast. Go get your beneficiaries, stick them on that brokerage account overall. So really, this is an individual question based on your finances.

So I would just double check some of that stuff, uh, and really, really think through that to see exactly what might be best for you. All right. The next one is on TSP. So question for the show. I am a federal civil servant in our TSP doesn't allow for us to purchase index funds, but we can purchase from big bucket stock funds like small cap or international government securities, or even lifecycle funds.

How can I research the best asset allocation within these funds for my risk tolerance? All right. So number one, when it comes to TSP is you guys have a different availability and we haven't talked about TSP as much on this podcast, but you guys have different funds that are available to you then.

Everybody else that we don't have the same exact funds that are available to us. And so a lot of times these are funds that are kind of compiled together and they are things that have actually unique characteristics overall. So there are things like the G fund, which is for government securities, and this is kind of the low risk.

And offer stable returns, but over time, this is going to be something that's not going to have very high returns. You hear me talking about, you know, seven to 10 percent rate of return. When I run a lot of my numbers, that G fund is not going to have it over time. Everybody kind of knows and expects that unless bonds have some crazy shift.

But overall, that is just the low risk, low volatility way to invest your dollars. Then there's the F fund, which is the fixed income index. And this invests in us government in corporate bonds. So similar thing, it's going to be bonds. Bonds have lower volatility, but they have a lower upside as well. And so you want to make sure that you are thinking through that.

Then they have the C fund. So the C fund is one that I think is pretty interesting and it tracks the S and P 500 and large us company. So that is one that I think a lot of people, if you're going to compare something to like, uh, VOO, for example, VOO is the S and P 500 ETF that everybody always talks about.

You can think of the C fund in the same, similar way it is going to be. Tracking the S and P 500. And so if you want that S and P 500 exposure, that is what the C fund does. And they have the S fund, which is the small cap index. Now, if you've never heard our episode, as of recent that we had a couple of months ago with Paul Merriman, he talks about small cap funds and we go through and deep dive why small cap may be something that you want to add to your portfolio.

And so that S fund actually covers small and midsize U S companies, not in the S and P 500. So there's a keynote there. And then there's the I fund, which is international fund. So if you want something like a three fund portfolio, for example, the I fund is going to give you that international exposure.

And then you have L funds, which is the life cycle funds, which is a mix of all the above funds automatically adjusted over. And it's like your target date retirement fund. So thinking through all of this, this is a quick explanation of kind of what they have available there. Now you need to assess your risk tolerance and you need to think through, Hey, how comfortable am I with risk?

The more stock exposure that you have, things that are going to be like the C fund or the S fund, those are going to be higher exposure to stocks, meaning higher volatility, higher risk. And if you're watching on YouTube, you see I'm putting quotations up with my fingers, higher risk overall, meaning that those stocks are going to go up and down quicker.

They're going to go up and down significantly faster, but at the same time, you have to assess, am I willing to invest in this thing for the long run? If I am, then this is something that could be very interesting for me overall. And so assessing your risk tolerance and seeing how do you feel about some of this stuff?

How do you feel about higher volatility? How do you feel about having more stock exposure? Because that leads to more growth historically. Historically, stock exposure leads to more growth. So for me, for example, I am going to be holding my investments for a very, very long period of time. I am a long term investor.

Long time listeners know that I am an investor who is going to hold as long as I possibly can. And a lot of these stocks and a lot of these index funds that I buy, I will be holding for my entire life. And then they will be handed down generation to generation. And overall, the reason for that is I get more stock exposure because of that, because I have a long time horizon.

Meaning I am willing. To hold onto these for a very long time, historically proven. I am going to get higher growth because of that. And overall, because of my long term time horizon, I don't see it as a risky asset whatsoever. Now it is riskier than having bonds because bonds have lower volatility.

They're not going to go up and down as much. If that raises your blood pressure to have volatility, then maybe having more bond exposure will. Fit better for your personality. Now you're going to have lower returns over time. So you're going to have to be more conservative with your numbers. If you do something like that, but you just got to make sure that you understand that.

So if you're thinking through this and you're trying to run those numbers to say to yourself, well, how long do I need to wait until I retire? Then you can look at the funds that you choose, use those average rates of returns within your portfolio. You can use something like portfolio visualizer, which is a great.

Tool overall that can help you put together your portfolio and kind of see what it's going to do over time. Really, really cool tool, um, to be able to do that. And that's going to help you overall as well, but you got to think through your risk tolerance. And we need to do an entire episode on risk tolerance because it's one that we've talked through a ton, but I'm just going to do one giant deep dive.

I'm going to get you guys a guide to go with it so that you can assess your own risk tolerance. Cause I think it's so incredibly important and most people just don't know how to do it. So that is one that we are definitely going to be doing coming up and index fund pro members. Also, we are going to do a whole entire lesson on this stuff.

That is one I definitely want to bring in. We talk about risk tolerance in index fund pro, but want to make sure that you also have accessibility to how exactly you need to be doing this and the questions to ask yourself. So we'll go through that as well. And then. Also, you want to research funds performance and composition, because when you research funds performance over time, that'll give you at least a decent indicator as to what's going to happen.

If you need to have six to 7 percent rate of return over time, and you're looking at something like the G fund, for example, which probably has like three or 4 percent rate of return, depending on what's in there, then you may not. Be interested in having your entire portfolio and something like a G fund.

So you got to make sure that you have that asset allocation that works for you and then diversify that portfolio. So there's a bunch of different portfolios out there traditionally that you can look at, and you can also, if you just want this done for you, those lifecycle funds will do that for you. Now you got to watch out for expense ratios and make sure that the cost of some of these funds is lower because your expense ratio can absolutely destroy your returns if you're not careful about that.

So just making sure you double check that expense ratio is going to be really, really important, but life cycle funds. Are really the most simplistic way to do this. Now you do not have to choose the date that you're going to retire. You have to choose which fund actually represents your risk tolerance.

So I know that can be slightly confusing if you're a new investor, but say, for example, you're going to retire in 2040. Okay. You're 15 years away from retiring. Or 16 years, whatever it is, and you plan on retiring in 16 years. And so you see the 2040 life cycle fund in there. Well, the 2040 life cycle fund may not fit your risk tolerance.

Cause that's going to have more bond exposure over time than something like a 2070 life cycle fund, which would have more stock exposure. So if you want that higher stock asset allocation, you are 2070 fund. A lot of people are like, well, am I allowed to do this? I'm not retiring. They know you're absolutely allowed to invest in it.

It's just a risk tolerance thing where they have more stock exposure for folks who may. Maybe considering retiring longer. And so that glide path changes over that timeframe. And so what you really want to do is just make sure that you are choosing the life cycle fund that fits your asset allocation.

If that's the route you go. So life cycle funds are similar to target date retirement funds. And we're going to talk about target date retirement funds, actually in the next question, but that is another great option if you want to think through that and then making sure you just kind of stay informed on what's going on, but understanding, you know, the biggest questions to yourself are what asset allocation do you want to have?

Number one, Number two is what are the fees for each of these funds? Really, really important stuff to look into. And then number three, what is my risk tolerance? Those are the three questions you really upfront want to ask yourself and make sure that you understand. Then from there, just building out that portfolio.

For example, if I was going to pick this right now, I'll just give you what I was going to pick right now. If I was, Someone who had a TSP. And these are my options. The ones I just talked about were my only options. I would probably go something personally like a C fund and I would probably go 90 percent C fund and I would go 10 percent either F fund or G fund.

And that is the Warren Buffett portfolio for the TSP. And that's personally what I would do because my risk tolerances. Significantly higher. Now for somebody else, they may want to do the life cycle fund and just allow that to shift over time. So they don't have to think about it. Another great option for most people, target date, retirement funds and life cycle funds are absolutely fantastic.

And we're going to talk more about target date, retirement funds in the next question. All right. So the next question, the last one is I have recently started an escort for myself and a solo 401k plan at Vanguard. Congratulations. And because I know little to nothing about investing, I have been putting 90 percent of my contributions into a target fund and 10 percent into small cap value fund.

How do you feel about target date funds? Well, well, well, I love this question. We actually did an entire episode on target date funds. Uh, we're going to be doing another one because as of recent, I just went up to New York city to the New York stock exchange. We were invited by black rock to go up there and actually stand on the floor while they rang the bell for their new target date ETFs, which are a very cool product overall for I share.

So there's I shares target date ETFs now. So you can actually buy an ETF that is a target date ETF. And so I thought it was a really cool product. One to go up there and just witness that, uh, was a dream of mine to be able to go up there to the stock exchange was cool to be up there and see a lot of people, folks like Rob Berger, who was just on this show, was there with us and, uh, we got to do some cool stuff.

So overall, I think that target date retirement funds are amazing for most people. If you are the type of person who is not interested in figuring out all these different things, like which index fund should I invest in and how should I actually go about this, which index fund investing is actually a very passive way to invest.

But if you don't even feel like doing that, you can go with something like a target date retirement fund and just choose one that fits your investing style. And that's it. That thing is going to do all the work for you and you don't even have to think twice. And the cool thing about a target date retirement fund, especially with a solo 401k plan, for example, that thing is fully automated, meaning that you contribute from your paycheck directly automatically to your solo 401k.

Then your solo 401k is actually going to automatically invest those dollars into that target date retirement fund for you. You don't have to lift another finger except for when you set it up the first time. It is an amazing process. It is by far, if you want to simplify your finances, target date, retirement funds, specifically target date, retirement index funds are what's your boy loves.

Why does your boy love target date retirement with the word index in their costs and fees are lower. And a lot of times, if you can find a Vanguard one in your portfolio or a Fidelity one, they're going to have the same asset allocations as things like their standard index funds. And they're going to put together a portfolio for you.

So really, really great stuff. I absolutely love Targeted Retirement Funds. And I think they are amazing for most people. If you don't have any desire to learn how to invest and you have zero desire to really go. Any further than, you know, I got to get my dollars in here and I want to retire one day. If that's your two steps you want to take target date, retirement funds are going to be your best friend.

So I absolutely love them. I think that is an amazing portfolio that you put together there. I think the 10 percent small cap value is very interesting also. And if it fits your asset allocation, I think it's a very interesting portfolio. So congrats to you for opening that solo 401k and keep listening because we will continue to do investing education here.

That is the biggest thing that we love to talk about. Why? Because if you don't invest your dollars, you will never, ever, ever be able to retire. So it's really important to be able to do this. Now, if you don't know what a target date retirement fund is, before we wrap this up, I'll explain it quickly so that you kind of have an understanding of this as well.

And if you haven't heard that our episode and you're interested in more, we have an entire episode on that. We will link it up down the show notes below. But what a target date retirement fund is, is that it's a predetermined fund put together for you and it's based on your year of retirement. So say, for example, you want to.

Retire in the year 2070. Well, if you want to retire in the year 2070, usually the target date retirement fund is going to be something like 95 percent stocks and maybe 5 percent bonds. But let's say you want to retire within the next five years and you want to retire in 2030. Well, that asset allocation is going to change dramatically in that target date retirement fund, and it's going to put a portfolio together for you.

That's going to have a higher weight. Typically in bonds, then it will in stocks, because that is how you preserve your capital over time. And so it kind of does all the hard work for you. And it's already in that portfolio. The key though, is to make sure you understand in these target date retirement funds.

And I want everybody listening to understand this. You need to go look at the expense ratio in your target date, retirement fund, and make sure that that expense ratio is not really, really high. If you have a really high expense ratio and some 401ks. There's nothing you can do. They give you high expense ratios and at least get your 401k match and then move on to your Roths and all those other things.

But if this expense ratio is way too high, this is anything like anything above a half a percent is just going to be astronomically high. And so you want to make sure that it is much lower than that. Uh, 0. 30 percent is the number that we talk about here a lot. Sometimes in 401ks, that's not. Always, always available.

And so if it's not available, at least get that 401k match, make sure you get that free money. And then you can kind of move on to some of these other options. And then you go back to your 401k if you have extra money left over. If those fees are really high, if your options are absolutely terrible. But for a lot of wealth builders out there, a lot of you listening here, if you have options like Vanguard in there, if you have fidelity options, those are always going to be some great options because they usually have lower costs.

But make sure you double check. They might have some high fee ones in there. So just make sure you double check on those expense ratios. So basically what this target date retirement fund does is it just creates the portfolio for you and then adjusts over time based on your age. Now, if you are 55, do you have to buy the target date retirement fund?

That is the year that you're going to retire. No, you can buy the 2070 target date retirement fund if it fits your asset allocation and if it fits your risk tolerance. So if that's the two things that you look at and you say, Hey, I'd rather have more stock exposure, you can. Absolutely invest in a different one.

That is not for your retirement age. That's not a problem whatsoever. A lot of people have that misconception that they cannot invest in something like that, but you absolutely can't. So that is just another thing to note overall. Listen, thank you guys so much for listening to this episode. I truly appreciate.

Each and every single one of you, and you just invest it in yourself. And that's one of the most powerful things that you can do is investing in yourself. So I cannot thank you guys enough for listening. Make sure you subscribe to this show and we're going to have so much more content coming out for you.

More Q and a's like this. We did a poll on Instagram and money Q and a was the number one thing that you guys wanted more of. So we will do more money. You Q and a, uh, here in the coming months overall, and really, really excited to see what we can do. Because all we want to do is we want to bring you as much value as possible.

Our entire goal is to bring you value. So if there's a show that you want us to create, or if there's a topic you want us to talk about, please send me an email. This show is for you. This show is completely for you. I want to bring you as much value so that you as wealth builders can build as much wealth as you possibly can.

That is our entire goal is to teach you how to create financial independence so you can spend more time with your family. How amazing is that going to be? So thank you again so much for listening, and we will see you on the next episode.