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5 Costly Roth IRA Mistakes - YouTube
Channel: Wealth Hacker - Jeff Rose
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there's no question that the greatest
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investment tool that exists today is the
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Roth IRA especially if you're a younger
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investor and the reason that the Roth
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IRA is the greatest investment tool
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right now is for one and one reason only
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and that reason is tax free money but
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tax free money is awesome but not if
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you're putting your money in the wrong
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thing and believe it or not there are
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four investments that you should never
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and I mean never put inside the Roth IRA
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we're gonna find out what these four
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investments are I'm also going to share
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with you what is the biggest Roth IRA
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impostor that you'll want to avoid ahead
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all cost so today we're going to find
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out what these four investments that you
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need to avoid and this Roth IRA imposter
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right now what's going on y'all welcome
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to wealth hacker TV the channel
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dedicated to teaching you new ways to
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grow wealth that does not taught to you
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by your parents or in schools I am your
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host Jeff rose and we are talking about
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the Roth IRA otherwise known as tax-free
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money but still I see a lot of people
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that have a misconception about the Roth
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IRA they think the Roth IRA is an
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investment they think that if you open
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up a Roth IRA that it's going to pay you
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dividends it's gonna pay you interest
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the Roth IRA is not an investment if
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you're not quite sure how the Roth IRA
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works and you need to check out another
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video of mine where I talk about how to
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become a Roth IRA millionaire so once
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you understand the fundamentals and how
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the Roth IRA works now it's time to
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decide what am I going to place inside
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it you can buy stocks you can buy mutual
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funds you can buy ETF's you can buy a
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lot of different things but just because
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you can buy a lot of different things
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and place them inside a Roth IRA doesn't
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mean that you should and that's what
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we're talking about today so what are
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these four investments that you should
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never and I said before and never put
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inside the Roth IRA well let's find out
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what those are right now all right the
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first thing that you should never put
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inside a Roth IRA is a penny stock and
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for those that don't know what a penny
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stock is typically it's a stock that's
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trading below a certain price typically
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under five dollars per share and usually
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it's not available on the major Stock
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Exchange like the New York Stock
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Exchange or the Nasdaq you can usually
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find it being traded over-the-counter on
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the pink sheets and other places like
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that so that is what a penny stock is so
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the common attraction with penny stocks
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is that people believe that they can
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take a small amount of money and buy a
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lot of shares so if you're buying a
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thousand shares of a 20 cent stock and
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also that stock goes from 20 cents to
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three dollars or maybe ten dollars all
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sudden BAM I just made a lot of money
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overnight it's not now I'm not really
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sure what the stats say on what the
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chances of you losing money on a penny
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stock but I'm gonna safely bet that it
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is ninety five percent or higher that
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you're going to lose money now the
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reason why you would never want to buy
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penny stocks in a Roth IRA is because
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you can only put in a certain amount
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each year write down the most that you
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can put in is $6,500 so if you put in
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$6,500 and you put all that money all of
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your contribution into a penny stock and
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that penny stock goes kaput well you
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just lost your entire Roth IRA
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contribution for that year and the IRS
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doesn't allow for do-overs so you can't
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redeposit that $6,500 that you lost in
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the penny stock it doesn't work that way
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it takes a long time to be able to save
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enough to invest inside the Roth IRA so
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you don't want to put into something
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that's going to potentially lose
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everything that you have scrapped and
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saved for if you don't think that you
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can't lose all of your mind a penny
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stock then you can watch another video
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where I briefly mentioned how I lost
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$5,000 this right $5,000 in one penny
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stocks so yes it can't happen well it's
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the second investment you should never
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place inside a Roth IRA are short term
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bonds so bonds typically are thought of
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as being a safe investment which they
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are relatively speaking if you're gonna
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pair that to stocks or cryptocurrency
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but what I don't understand is why you'd
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want to place your retirement investment
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your potential tax-free money inside the
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Roth into a short-term bond Roth's are
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meant for the long-term you want to put
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that money in have it grow so that you
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have a huge tax free amount waiting for
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you later on so if you're gonna put that
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into a short-term bond that's paying you
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very nothing very next to nothing on
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interest it's just not worth it there
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are different types of short-term bonds
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that you can buy and place inside your
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Roth IRA there are individual bonds you
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can buy mutual funds that specialize in
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short term bonds or you can buy ETFs
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that specialize also in short term bonds
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one of those short-term bond ETF is the
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Vanguard corporate short-term fund right
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now the yield on that ETF is currently
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paying 2.9 8% so just under 3% interest
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and I don't understand why you want to
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make 3% especially when you have
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something that's going to capitalize on
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compounding interest so that you have a
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huge tax-free chunk of money waiting for
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you well it's not going to be huge if
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you're only making 3% another variation
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of this I've seen is with these Robo
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advisors and investment apps and their
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marketing the savings account
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alternatives and if you look at the
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marking material it's saying that oh
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their accounts are paying 20 times more
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the national savings account rate which
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is true but you have to realize we're
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not comparing apples to apples we're
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looking at basically our short-term
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bonds Treasury bills being compared to
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savings account but right now the
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betterment super saver account is paying
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two point one eight percent which that
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is great if you're looking at that as a
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savings account alternative but if
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you're opening up a Roth IRA and you're
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putting that into a betterment super
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saver account that's only paying you two
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point one eight percent we're not taking
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advantage of compound interest so just
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to show you the effect of putting your
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money into a super saver account which
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is really just short-term bonds over the
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long term if you are putting a hundred
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dollars a month over 30 years and you're
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making 6% interest at the end of that 30
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year period you'll have over a hundred
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thousand four hundred and fifty one
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dollars now let's say instead of making
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six percent on your money you decide to
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put it in a supersaver account that's
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only paying you to point one eight
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percent interest over that same time
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frame
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putting $100 a month in over 30 years
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the difference is you're only gonna have
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fifty thousand seven hundred and fifty
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six dollars so basically you just gave
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up forty nine thousand six hundred
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ninety five dollars because you put it
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into a supersaver account and this just
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emphasizes why you don't want to have
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short-term bonds inside your Roth IRA
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like the third thing you should never
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put inside the Roth IRA is an annuity I
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don't care what type of annuity it is it
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could be a fixed annuity it could be a
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variable annuity it could be a fixed
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indexed annuity if you don't really
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understand how annuities work the one
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thing you need to know first and
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foremost is that if you put money inside
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an annuity it already offers you tax
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deferral that's how these investment
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products are structured so you're
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already getting taxed up Earl you're not
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to pay tax until you pull the money out
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so why would you put money into an
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investment that already offers you tax
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deferral and then you take that and put
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it inside the Roth IRA like you don't
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get double tax freedom like that's not
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how that works
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but yet I see so many different advisors
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that are selling annuities inside a Roth
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IRA and it doesn't make sense and this
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is why I hate when I see a new ease
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inside a Roth IRA because typically the
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person that bought it has no idea what
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they have they don't realize that the
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annuity that they bought has high fees
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high surrender charges most investors
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have little to no clue how much fees are
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associated with the nudies so for
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example variable annuities like you can
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find this on the web the average
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internal expense with the variable
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annuity is three to five percent and
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that's not one time like that is per
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year that you're paying three to five
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percent on your money and the best part
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about it is you don't even see it the
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insurance company just takes it out they
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just kind of slide it out of there so
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you never even notice how much you're
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paying other than the fact you had the
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investment for ten years and you try and
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figure out why did I make any money on
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this investment and the reason is you've
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been paying 3 or 5% every single year so
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please please please avoid annuities
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especially variable annuities inside
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your Roth IRA all right
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number four the last thing you should
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never have inside your Roth IRA and I've
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already kind of mentioned this before is
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cash you don't want to have cash or at
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least too much cash inside your Roth IRA
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so if you're opening a Roth IRA at your
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local bank and the only thing that they
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can offer you is a savings account money
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market or CDs then that's the only rate
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of return you're going to get whatever
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the interest is on that savings account
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where that money market account or that
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CD so if the savings accounts only
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paying you point one percent then you're
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only going to make point one percent
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there's no way of making more money and
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that's just because the bank doesn't
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offer any other types of investments but
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if you go to an investment firm or if
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you open a Roth IRA online with any
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online brokerage at least there you can
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invest into mutual funds that ETS like I
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mentioned before but so many people
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think that the Roth IRA is an investment
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so when they open it at their bank and
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the bank only offers a savings account
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paying point one percent or a half
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percent interest they think well my Roth
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IRA only pays this no it's only because
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the bank can offer you a limited amount
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of offerings you've got to go somewhere
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else it allows you to put your money
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inside investments inside that Roth IRA
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all right so those are the four
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investments you should never place
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inside the Roth IRA but at the beginning
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of this video I also mentioned that
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there is a Roth IRA imposture that
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you'll want to avoid and if you ever
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hear a financial adviser marketing this
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imposter as a super Roth IRA or a rich
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person Roth IRA like that's when you'll
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want to put on your warning signs and
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just know that the chance so they're
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gonna try to sell you something that's
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just a bunch of crap let me go into that
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right now so basically all this is is an
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insurance policy and it could be a Index
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Universal Live it could even be a whole
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life policy and the whole concept is
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that you're putting money inside this
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insurance product it grows that quote
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tax-free over time at the end of it you
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can take out a loan against whatever the
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cash balance that has accumulated now
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this sounds all great in theory and if
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you are making so much that you've
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already maxed out your 401
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Cain you've maxed out your self-directed
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IRAs and 401ks and you can't do a Roth
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then maybe just maybe that will be an
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option that you should consider but if
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you are at this point where you can't
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even maxed out a Roth IRA yet because
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you're just starting your investment
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journey and this advisor is trying to
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sell you a super Roth IRA or a rich
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person Roth IRA you've got no business
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putting your money into that until
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you've maxed out the real Roth IRA or
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your real 401k and the only reason
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they're trying to sell it to you is
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because they get paid a big fat
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commission hardcore truth right there
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now the reason that you get burned on
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these type of investments is because
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these advisors will run these
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illustrations and those Phillies
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projections of how much money you're
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going to have 20 30 years from now that
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you can borrow against yourself
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tax-free and it sounds so so good
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but the one thing that they always skirt
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around or they just kind of gloss over
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is the fact of how much it costs to have
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the insurance to have this product they
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never really spend enough time looking
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at those costs that you never see so now
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you're paying on this thing for 10 20
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years not realizing that me I could have
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put my money somewhere else and made a
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lot more especially inside of Roth which
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would have been completely tax-free so
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that's where you have to be careful on
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if you have an advisor that's trying to
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sell you one of these super Roth IRAs
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and you haven't maxed out your 401k yet
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you don't have your own Roth IRA to
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start then you just need to get away
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from that person just say excuse me I'm
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out peace so please please please if
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you've not opened up a Roth IRA yet
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please do I actually have a link in the
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description below that share some of the
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best places that you can open up a Roth
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IRA today that's right you even have to
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leave your living room you know to leave
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your couch you can go online open up a
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Roth IRA and start investing for your
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future hope you enjoyed this video until
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next time this is Jeff rose reminding
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you that it's your money it's your life
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and all you can make it awesome peace
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[Music]
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