The Importance of Building Strong Savings Habits for Young Investors with Nick Nelson – Ep 093

For many young adults and new parents, getting their savings or investment plans started can feel intimidating. Despite all the information available online, most don’t realize that setting aside small amounts early—$25 a week or $100 a month—can grow into a lifetime of financial security through the power of compound interest.​

In today’s episode, SHP’s VP of Advisory Solutions, Nick Nelson, is back to explain why building strong saving habits early makes a huge difference later in life. He details simple steps for young savers, how low-cost index funds help, and why consistency beats market timing for long-term success.​

In this conversation, you’ll also learn the best vehicles for helping children build long-term wealth—from 529 plans and UTMAs to custodial Roth IRAs—and how families can begin meaningful, healthy conversations around money. They also discussed other important topics, such as when a young investor may need an advisor, how to create financial goals effectively, and why a simple, consistent plan can make early savers dramatically more successful over a lifetime.

In this podcast interview, you’ll learn:

• Why starting your savings plans early—even with small amounts—creates extraordinary long-term advantages.
• How compound interest can turn $100 or $250 per month into millions over a lifetime.
• The best accounts for young savers, including 401(k)s, Roth IRAs, brokerage accounts.
• How parents and grandparents can use 529 plans, UTMAs, and custodial Roth IRAs to help with their children’s education costs.
• Why timing the market is a losing game and what young investors should do instead.
• How to keep investing simple by using low-cost index funds and long-term discipline.
• When a young investor may need a financial advisor and when they might not.

Inspiring Quotes

• “It’s never too early to start saving. It’s never too early to start investing. It’s never too early to start to have conversations with your young adults, with your kids, nieces, nephews, and family members about why it’s so critical to start at the earliest age possible, whether they’re already working or whether they’re actually kids.” – Matthew Peck

• “You don’t need to win the lottery in order to set yourself up for success. You just have to consistently invest and do things that’s going to put you in a good position down the road.” – Nick Nelson
  

• “The main reason we wanted to do this is that we just want young investors to feel empowered and understand that it’s not that hard to get going, and that if you do start saving and investing the right way, you’re going to be successful in the future.” – Nick Nelson

Interview Resources

• S&P
• Russell
• Dow Jones
• Nasdaq
• Vanguard
• Fidelity
• Robinhood
• Charles Schwab

[INTERVIEW]

Matthew Peck: Welcome, everyone, to another episode of SHP Financial’s Retirement Roadmap Podcast. I’m your host today, Matthew Peck, and we’ll be welcoming back Nick Nelson, our VP of Advisory Solutions, here to discuss about how it’s never too early. It’s never too early to start saving. It’s never too early to start investing. It’s never too early to start to have conversations with your young adults, with your kids, nieces, nephews, and family members about why it’s so critical to start at the earliest age possible, whether they’re already working or whether they’re actually kids. And we’ll talk a little bit about how you can help seed and get even young kids started on the right path.

And that’s where we’re kind of discovering today and again why it’s so important, and then what you can do. What are the actual logical steps, or logistically speaking, how can you actually implement the idea of never too early? And let’s get going. So, Nick, welcome back to the show.

Nick Nelson: Thanks, Matt. Good to be back here.

Matthew Peck: So, we’re talking a little bit offline, like the idea of like never too early and just the power of compounding interest and whatnot. What kind of inspired you to really talk about the topic today?

Nick Nelson: Yeah, I think it’s an important topic. What inspired me I guess I would say is I have a growing family, Matt. So, I have a 2-year-old, and hopefully we’ll have another one on the way soon. And I think it’s exciting to get them that jumpstart, get them going, and put them off on the right foot. So, that’s one thing I really started to think about, “Okay, what accounts make sense to open for my kids? Why am I doing that? And what’s the reason behind that?” So, that got me thinking about it, but even more importantly, I would say I have a lot of friends and just through like general conversations of people that really haven’t started saving and I’m talking about peoples in their thirties and they don’t really know where to even begin, where to start, and they haven’t taken this serious yet.

And when I talk to them about this, it’s always a little bit surprising to me. So, that’s really what inspired me to do the podcast. I want to get that information out there. I’m hoping that our clients or whoever’s listening can share this information with somebody who might find it valuable and help them get going because I do think it’s critical for long-term success.

Matthew Peck: And so, Nick, I know it’s a little awkward to ask you, but how old are you right now? What’s your exact age?

Nick Nelson: I’m going to be 34 in December.

Matthew Peck: Thirty-four in December. Okay. So, you mentioned friends that haven’t necessarily started investing, but you must be in Babyville right now, where I’m assuming all of your friends are also having kids right now or…

Nick Nelson: Yeah, a lot of babies. More Lexi’s friends, my wife, than my friends. My friends are kind of a little out there, trying to figure it out still.

Matthew Peck: Hey, all who wander are not lost, Nick.

Nick Nelson: That’s true.

Matthew Peck: Okay. I saw that on a Jeep one.

Nick Nelson: That’s a good one. There you go.

Matthew Peck: But no, the reason why I bring it up, though, is because I’m assuming, so if we say on Lexi’s friends, all mid-thirties.

Nick Nelson: Yep.

Matthew Peck: So, people in their mid-thirties, obviously, they’re starting out their, well, not say they’re starting out their careers. They should be pretty well on their career in some way, shape, or form. But now here comes a bouncing baby boy or a bouncing baby girl, and that changes the whole… Obviously, it’s a whole game-changer to say the least in so many ways. But now the importance of it just really starts to get going. And so, yeah, for really anyone that’s listening in there, say 25 to 35, or if you have kids that are in that range, 25 to 35, 25 to 40, or whatever that may be, absolutely share this with them because we’ll be talking about again why it’s so important, and just some of the steps that you can take.

So, let’s start there. Why is it so important? Why is it so powerful? Why is it never too early, and just the saving itself?

Nick Nelson: Yeah. So, first thing I want to hit on, Matt, is just some numbers. So, I’m going to look down at my sheet here. And this really shows the power of investing early, compound interest, and the benefit that it provides. So, as an example, I’ll give you two basic examples. The first is if you started saving $100 a month, in this case, at age 18 through age 60, we’re going to use age 60 as your retirement age and averaging a 10% annual return. So, that’s basically what the S&P 500 has averaged historically. It doesn’t necessarily factor in inflation, but just for the sake of the example, right, 10% return, start at age 18, you’re looking at just under $800,000 saved if you’re consistent with your saving from 18 to 60. Now, if we increase that just another $150 to $250, that goes up to $1.9 million.

Matthew Peck: Geez.

Nick Nelson: So, that’s just another, like I just said, $150 a month, but you can see the difference. It’s over a million-dollar difference over that long time horizon.

Matthew Peck: Yeah. And so, let me just pause to kind of like break it down to specific numbers or kind of what it means on a day-to-day basis. So, that first number, $100 a month from 18 to 60, gets you close to $800,000 based on all of Nick’s assumptions. So, if I take $100 a month, divide that by four, that’s $25 a week. So, I really hope that all of the people that are listening can find $25 a week to save. I mean, maybe don’t get that latte or Chipotle. Sorry, Chipotle. I mean, it gives you an example of the fact that you can… I like to think that most folks can find $25 a month in savings. That only adds up to $1,000 or $1,200 a year.

Nick Nelson: Yep.

Matthew Peck: If you can find that savings, literally, and you start putting it away by the age of 60, again, based on a 10% rate of return, you’re at $787,000. I mean, buy the lattes later. Buy the coffee because I’m guilty of it too, and don’t get me wrong, but like, if you’re able to sort of delay gratification like that, it makes such a difference for you, for your kids, for your family. It just goes on and on. So, yeah, keep on showing those numbers though.

Nick Nelson: Yeah. So, that’s someone who’s 18 or just started working, but what’s even more powerful, I think, is if you just have a child, you just had grandkids, whatever it may be, if you start investing 18 years earlier when they’re born, that same $100 a month, any guesses, Matt, on that number?

Matthew Peck: I have the number in front of me, so I couldn’t really lie, right? It’d be awkward because the listeners trust me, Nick.

Nick Nelson: I thought I blocked that out for you.

Matthew Peck: Yeah. Okay. Alright. So, what’s the answer?

Nick Nelson: 4.7 is the answer.

Matthew Peck: It was 4.7 million, please.

Nick Nelson: That’s correct, 4.7 million. And if you increase that to the 250 in that same example, that one is just under $12 million. So, if you start saving $250 a month when you’re born for 60 years, and you’re able to average a 10% rate of return, which is not guaranteed by any means, but the potential is there, if you invest correctly, you’re going to set yourself up for success in retirement and more. So, it’s just about making that effort and starting to get a plan in place, and that’s what excites me. It’s like you don’t need to be making a ton of money. You don’t need to win the lottery in order to set yourself up for success. You just have to consistently invest and do things that’s going to put you in a good position down the road.

Matthew Peck: And I couldn’t agree more. I’m really amazed or always very encouraged when clients will walk in, whether it’s in Plymouth or Woburn or wherever it may be, and they have a good amount saved and they can do a very good retirement. They can have a very successful, comfortable retirement with numbers like these, meaning it’s not an impossible ask. I think a lot of people sometimes get overwhelmed, like, “Oh, I’m going to need X amount of dollars in retirement.” And it’s almost like paralysis and analysis. It’s like they don’t take any action, and they say, “Oh, I’ll never get there.” And it just takes time. I mean, I think that’s the other frustrating part, too, that I have is that I was thinking about delayed gratification.

And we live in this world of instant gratification, and sometimes I do feel for people that are in their mid-twenties, because they’ll see some of these tech bro billionaires at 30. And they’re like, “Oh gosh, I’m never going to be that guy, whatever, growing up in Dorchester or upstate New Hampshire, or Keene, wherever.” But it’s like, it’s doable.

Nick Nelson: It is.

Matthew Peck: I mean, look at these numbers. These numbers are not too hard. I mean, obviously, again, assumptions of 10%, so nothing guaranteed here, but just putting that money away over time, that’s how you do it.

Nick Nelson: Yep, exactly. And you can argue too, you could factor in inflation there. So, that money in whatever many years down the road is not worth the same. But at the end of the day, that’s still a good figure, and it’s still going to put you in a good position. Absolutely. So, I think that’s really important. I’m not saying too, you shouldn’t maybe go and look to invest in real estate or start that business or look for other ways to make money, but you can be doing all that stuff and be saving for the long term as well, and setting yourself up, like I said before. So, there’s not one answer to it. But why would you not put in an effort to try to save numbers like this to make sure that you’re going to have a good retirement?

Matthew Peck: Absolutely. And again, I think you can find that savings. You can scour your credit card bill and be like, “Did I really need that? Do I really need that subscription service?” And if you put that away, again, it makes a huge difference. But let me ask, I think people will sometimes, they worry because, “Oh, well, the market’s high.” It’s like it is, and it’s had a great run. And sometimes people will also not act because they think that the, “Oh, I shouldn’t buy now. The market’s too high.” How do you respond to that?

Nick Nelson: Our response to that is you can’t time the market, in my opinion. And the fact also, if you’re a younger investor, your time horizon is so huge that whether you get in at the market high, you wait for that next dip, it’s really not going to have as big of an impact as you might think. So, I know, Matt, you like to talk about that a little bit on the quarterly market updates, and just in terms of, I believe you said it was three years, right?

Matthew Peck: Yeah. So, for anyone that is familiar with our quarterly market update, Matt’s Markets on the Move.

Nick Nelson: That’s right. My apologies.

Matthew Peck: But JP Morgan does this great slide about how investing at a new high, and, okay, what difference does it make over three months, six months, nine months, a year, three year, five years. And it just says that after six months, it literally doesn’t matter that investing at a new high, you’re actually above where you would be if you did not invest in a new high. So, it’s just, as you said, it’s all about time horizon. If you have a long time horizon, if you have three, five plus years, which is exactly what we’re talking about, guys and gals in their 25-year-old, 30-year-old, or even younger, if we can get some family support, don’t be afraid of the highs, is basically what history has told us.

Nick Nelson: Yeah, and I’d say also don’t be afraid of the lows. Like, also, again, going back to just conversations I have every day with friends and such is they’ll say, “Hey, Nick, I’m worried about the market right now. Should I take my money out? Should I go into bonds?” And these people are late twenties, mid-thirties, and I’m like, personally, this is my opinion, obviously, but absolutely not because you have to time it twice. You have to time it getting out and timing it getting it back in. And if you miss just the best couple market days, year returns are actually going to be dramatically impacted, sometimes up to half, depending on, obviously, the amount of money in your investments and things of that nature.

So, that’s why it’s like get a plan in place, stay consistent. The one thing I would say, though, if the market does drop, that is an opportunity to build exposure in your portfolio, maybe make some additional contributions that month because you’re buying at a lower point. But I wouldn’t say worry too much about changing your investments and pulling out of the market.

Matthew Peck: But you bring up an interesting point, though, in regards to, “Oh, make this adjustment to your portfolio.” For someone that doesn’t work in our world like, where do they begin? Like, how do they invest? I’m 25, I’m 30 years old. What am I investing in?

Nick Nelson: Yeah. So, the first place, if you’re working, look at your 401(k). That’s always a good place to start, and specifically the match on your 401(k). So, this is pretty common out there, but it’s important to take advantage of it because if you’re making a 3% contribution, you put in 3%, let’s say your employer matches three, now, you’re basically putting in 6% into your 401(k). A lot of people will say that’s basically like free money. Take advantage of that. That helps you get going. So, that’s always where I recommend starting to look. The other thing that I think is really important, too, is if you are saving, make sure you are invested correctly, and most likely in equities if you’re a young investor.

Matthew Peck: Well, that’s actually because we’ll definitely go back to the 401(k) and just some of the differences between 401(k)s and IRAs. So, just generally speaking, because that’s a whole sort of topic to itself.

Nick Nelson: Sure.

Matthew Peck: But the funds themselves, I mean, if you’re not in our universe and you don’t understand, okay, index fund and S&P versus the Russell, versus the Dow Jones versus the NASDAQ. I mean, even for someone that’s new to it, even an index kind of sometimes can be confusing because there are different indexes. So, what am I doing here? Is there a simple guide? Or how do you even begin that conversation of, “Hey, you should invest in this fund or this stock or this bond”?

Nick Nelson: Yeah. So, I mean, I think the S&P 500 is generally a good place to start for long-term growth, just because that’s basically the 500 largest companies in the US, and over time, as we were using in our projections before, it’s been able to average about 10% historically. And actually, if you look at the last 10 years, obviously, the market has been very solid. But it’s actually been able to average about 15% over the last 10 years. So, there’s a lot of S&P 500 funds out there, of course, but there’s also some very basic ones that are easy to understand. So, Vanguard has a good one, Fidelity has a good one. And the costs are relatively low as well. Because I think that’s another area when you’re trying to figure out how do I start investing, pay attention to the fees and things because those can actually impact pretty significantly over the long term. Can I give you one example, Matt?

Matthew Peck: Yes.

Nick Nelson: I gotcha. So, in that same example we were talking about before, if you started saving at age 18, the $250 a month. So, let’s say you were paying a fee that you weren’t really sure why, and you weren’t really getting the value out of it. And instead of getting 10%, you average 9%, you’d be looking at about 1.4 versus the 1.9. So, that’s $500,000 over those, what, 42 years, which is a pretty big number. And then if that went back down to 8, obviously, it would be even larger. So, I don’t know if I answered your question specifically, but I think just understand what you’re investing in and try to keep it as simple as possible.

Matthew Peck: Yeah, and personally speaking, I’m definitely a big fan of index funds, especially as they start out because sometimes I think that, and it goes back to this whole get-rich-quick thing because I’m curious your opinion on companies like Robinhood who have made the ability to buy and sell stocks very easy and there’s little kind of explosions and little fireworks and gamification of it. But on one hand, it’s a good thing because the fact that people now are more engaged in the market, and they have more access to it. On the other hand, it kind of sometimes will drive up what are called meme stocks, and people might think that, “Oh, investing is for fun,” and try to make these bets on it rather than having a plan and doing it over the long term.

So, I guess I kind of have two questions. I mean, I guess when you look at the Robinhoods of the world, curious about your thoughts on pros and cons, and what you’ve seen out there for other mid-30-year-olds out there. But then also the general question of like, at what age do you need an advisor, and who needs an advisor? Because if you are paying a fee, it’s obviously worth it in many ways, but sometimes it’s not. So, how do you respond to the idea of when to have an advisor and when not to?

Nick Nelson: Well, that’s an interesting question, your first part of your question, Matt, because kind of same thing. I’ve talked to people. I’ve had friends who aren’t as familiar with the stock market, and they put in their first investment in an individual stock, one of those meme stocks, and they lose everything, and they’re like, “This isn’t for me. This is not worth it. This is like gambling.” And it’s like, well, if you approach it that way, it kind of is in a way. But if you take a more historical route where you have concrete fundamentals behind it, like the S&P 500 or other indexes, as long as you stick with it, history says you’re going to be okay. You’re going to make money in the long term. So, again, no one knows exactly what the future holds, but your chances of compound interest over time and making gains is going to be pretty high.

Matthew Peck: And just to go back to that, and not to get too far into the index funds and the importance of index funds, especially for younger groups, I mean, you’re buying the best 500, like you were saying, Nick, and the companies that we hear about every single day, like NVIDIA and Microsoft and Amazon, they’re in there. So, you might not see it, you might have a VOO ticker for the Vanguard one or SPY for the State Street one, or what have you. But they’re in there. All the top high-moving, high, exciting stocks or companies are in that group. And it’s a great way of getting involved without trying to pick winners. Let the market pick the winner, basically.

But we’ll go back to the advisors thing, but I do also want to jump into or go back to the whole 401(k). So, do you see like a lot of people, when they’re starting this $100 a month, their $250 a month, is it with 401(k)s? Is it with IRAs? I mean, what do you think is the best vehicle for people to then look into if you are just starting out?

Nick Nelson: I think if you’re working as a young professional, I think the 401(k) is a great place to start, mainly because it’s so easy. You don’t really have to think about it, right? You set a percentage on your paycheck, it’s automatically going to go into the account every single year, and it’s kind of out of sight, out of mind. And you’re going to be just continuously, basically, organically dollar cost averaging into the market as a result of that. So, I think that’s the easiest way to get going. And then when you check your account in six months, you’re like, “Oh my goodness, like this isn’t so bad. I’m actually making some money and building up some wealth.”

So, I think that’s the easiest place to start, but obviously, you can look outside of that. If you don’t have a 401(k), maybe you’re eligible for a Roth IRA. That’s a great place to save as well. That’s another retirement vehicle that actually is tax-deferred and eventually tax-free, but you’re paying the taxes upfront. So, there are these little nuances that are different in these retirement vehicles, but at the same time, it’s basically going to, let me pause for a second there. So, another one’s like just a brokerage account, too. So, I hit the Roth IRA real quick. Another one’s just a brokerage account. So, a brokerage account might work for somebody who doesn’t want to necessarily save for retirement yet, right? They’re a little uncomfortable with locking up money, but they do want to start investing.

A brokerage account allows you to access that money penalty-free before you could a retirement account. Typically, with a 401(k) or a Roth, you have to be 59.5 but there are ways to access money for like first-time buying a home or a disability, and things of that nature.

Matthew Peck: Yeah. And I think a good way of looking at all of that, whether it’s 401(k)s, Roth, traditional IRAs versus the brokerage accounts is all of the tax deferred retirement vehicles, 401(k)s, TSPs, yada, yada, yada, IRAs, Roth IRAs, without getting into the weeds of all those. More importantly, they all have limits where you can only put in so much into that account. You can only put so much into those retirement accounts. And by the way, $100 a month, $250 a month is nothing. I mean, that’s barely half of some of these limits.

So, if you can get that $100 to $250 a month set aside, you’re still below the limits. So, you can do more if you can do it. Eventually, you do hit the limit though. And I share that only because that’s when I tell people, especially at that young age, to now time to explore brokerage. If you have more money to save and you’ve already maxed out all of your retirement type of accounts, then let’s take a look at this brokerage account because it’s not as retirement focused as some of the Roth and 401(k)s.

That being said, there are vehicles– so I’m going to pivot a little bit here. There are vehicles to get kids and grandkids start it out. So, now, let me speak to the adult or the grandparents or the parents of these young adults that are just starting out because we get asked that a lot, where, if our clients are in good financial shape that they realize, especially with the planning that we do for them, that, oh, my gosh, based on my spending, I’m not going to outlive my assets. And when people feel comfortable with that, when they feel comfortable that the assets that they have that they’re not going to outlive, then we start talking about legacy and lifetime gifting. And yes, it’s transfer wealth, but it’s how do I get my kids to get traction and to really get started? Because some of the gifts that they talk about, especially when someone’s in their 20s and 30s, I mean, it’s so much more impactful for them to get funds at those ages, rather than getting it when they’re 65 years old, right?

So, a couple things, let’s talk about some of the vehicles that we can set up for kids and grandkids, but also, we want to make sure that people are having these conversations with their family members. And we want to encourage everyone because sometimes, it’s like politics, religion, and money, it’s like the third rail of conversations that no one really ever wants to talk about, but we certainly want to make sure people are having those conversations. Bring your kids to a meeting with an advisor, if that’s a good way of encouraging it. Maybe not Thanksgiving dinner, that’s a little…

Nick Nelson: Yeah, it’s a little much.

Matthew Peck: A little much, yeah. So, sometimes, I mean, so two things, Nick, I guess, any thoughts there? Like, how would you advise anyone to encourage having those conversations? And then second question would be, let’s talk about some of those vehicles that if you are in that position, what you can take advantage of.

Nick Nelson: Yeah. I think you have to try to normalize it and just work it into your lives. Those conversations about money, it doesn’t have to be, I don’t think, a fearful conversation. I think having your children understand the value of a dollar and the fact that you’re working hard to bring in these dollars and help them get going and help saving and just help them understand like, wow, it’s not easy to put this money aside. And for them to understand that, that can just help them get going and understand, okay, thank you for doing this for me. Be thankful for it and help them set them up for success. So, I think that’s a big piece of it, honestly. But then just bring them into the meetings, like you said, right? If you’re a client of SHP and you have grandkids, we’re more than happy to talk to them and help empower them, right? If you’re not comfortable with those conversations because they can be a little bit awkward at times, not going to lie. So, that’s something that we especially try to do.

But then to answer the second part of your question, just on the vehicles themself, one that comes to mind, there’s a number of vehicles out there, Matt, but one that comes to mind is just like a 529. Most people have heard of that. That’s a focus on qualified education expenses, the 529. So, a lot of people sometimes are a little bit hesitant to go into the 529s because they have to be used for education, but I think it’s important to note that they’re a lot more flexible than they used to be. It used to really just be for college. But now, it’s expanded a lot and you can actually use it for even elementary school and high school on certain qualified expenses.

And one of my favorite parts personally about the 529 now is the Roth IRA component where you can move $35,000 to a Roth IRA, as long as the beneficiary has been in place for at least 15 years. Now, it is subject to the IRA contribution limits on an annual basis of $7,000. But at the same time, you can kind of talk to your kids or whoever it may be and start to figure out, okay, how can I kind of set this up, help them for education and work them towards that, at least that $35,000 number, because a Roth IRA is a great long-term investment vehicle. So, that’s the first one I wanted to hit on. I don’t know if you have anything to add to that.

Matthew Peck: No, the only thing, just quickly about the flexibility is it also goes towards private high school, as well. And for someone that lives in Boston, if your kids don’t get into some of the better exam schools, you got to bust out that checkbook. So, it helps to pay for private school as well, private high schools.

Nick Nelson: Absolutely.

Matthew Peck: So, after 529s, and I should say too, 529 is their whole topic to themselves, as to how you do it. But 529 is an option, and then what’s next?

Nick Nelson: That’s an option. Another option that comes to mind would be an UTMA, a Uniform Transfers to Minors Act is what that stands for. Think of that as like a brokerage account for somebody that is in fact a minor. So, it allows a parent to open an account. It is in the name of the child and starts saving on their behalf. A couple key things though with that is when the child is of age, it’s usually between 18 and 25, I believe in Massachusetts it’s 21, they do gain full control of that account. So, if you’re going to go that route, it’s even that much more critical, I think, to talk to your kids so they understand what’s coming down the road. And again, like I was saying before, understand that value of a dollar. So, that’s an important point, I think, on the UTMA, but still a great vehicle to get saving and get going. That of course has no full flexibility. So, you don’t have to use it for anything specific. You can use it for anything that you want.

Another quick point though on the UTMA is the taxation. So, if your interest in capital gains and everything gets over, I believe it’s $2,700, then that will start to be taxed at the parent’s tax rate. So, you do have to be careful of that because that’s one of those features where there can be some unexpected taxation as a result.

Matthew Peck: Okay. And I’d also say too, make sure, again, just to back to the point of they’re 21 years old and now, they can do it forever they want. Sometimes that’s good and that’s bad, but know-know your family. And then before, because there’s one more option on the kids or the Roth IRA, which we want to get into, but I just want to quickly kind of tie two points together. I mean, one is the fact that these types of options, 529s, UTMAs, and whatnot can help inspire conversations between parents and young adults to say, hey, I do want to help out. I want to help out. And I know now about these 529s, these UTMAs, and hey, let’s have a conversation about money and gifting and whatnot.

So, even knowing some of these vehicles can help spark our conversation, right? And again, it’s never too early. I mean, because the 529s and UTMAs are meant for the kids and we know that it’s close to almost like a $3 million difference if people start saving at 0 or age 1 versus age 18, based on the numbers that Nick shared earlier. So,it’s never too early to look into this. It’s never too early to have these conversations. And really, I mean, and that’s what I love about this, just quick aside, is that, I mean, this is that wealth transfer, generational wealth. This is the Roosevelts and the Kennedys and whatnot. And I love what we’re doing here because now, we’re trying to use these same strategies to make sure that all of our clients and anyone that listens to the podcast, all the hard work, we’re going to honor that and we’re going to make sure that it continues on and perpetuates itself through generation after generation. So, that’s why I love the topic, so I just want to quickly get on my soapbox for there.

Nick Nelson: Yeah, that’s a good one.

Matthew Peck: All right. And so, okay, so we have 529s. We have UTMAs. And then what other option do we have for sort of gifting or savings vehicles for minors?

Nick Nelson: Yeah. I think another one worth noting is the custodial or kids Roth IRA. So, this one is more retirement focused versus the other two, but one of the important key features there is that your child will need earned income in order to contribute to that if they’re under 18. So, the maximum is still the $7,000 or up to the amount of earned income that they have, that they can put towards that Roth IRA. But you can actually start investing in a Roth technically for your child before they’re age 18. So, that’s a way to kind of get a jumpstart on their retirement aspect. However, there is some flexibility. We touched on this very briefly before with the Roth IRA, right? They can use that, for example, as the purchase of a first home, so they can actually access that penalty free for certain things.

There’s other things like disability. And you can actually use it too for qualified education expenses to avoid the penalty, but the gains would be taxed. So, the main point there is there’s more flexibility with that Roth than it kind of seems at first. but it is kind of earmarked for that long-term retirement aspect versus the other two.

Matthew Peck: So, they have to have earned income and then the parent can match what their earned income was. So, let’s say they earned $2,000 at a coffee shop or a pizza shop. The parent can do $2,000 or they can do more than the $2,000?

Nick Nelson: No. Whatever they make, so the $2,000.

Matthew Peck: Okay. So, any parent can seed it with whatever summer job or if they’re, again, in their 20s and they’re doing some type of work and maybe don’t have enough to save yet, as long as they’re earning more than the $7,000 limit, they can put that– they can make that contribution on behalf of their kid.

Nick Nelson: Exactly, too. And you actually don’t need a W2 either to do that, but if you don’t have a W2, it’s very important to track that income if you ever did get questioned by the IRS. So, as long as it’s tracked, you should be good.

Matthew Peck: All right, excellent. Yeah, so whether it’s a custodial or a kid’s Roth, UTMAs, 529s, there are different ways of sort of maximizing or properly gifting it down, right? And as I said, really making sure that that generational wealth and that the momentum from all the hard work that you’ve done, really again, continues on and starts to grow and build on itself and snowball. Now, we mentioned at the very beginning, you said about sometimes the impact of fees and having an advisor and whether it’s good and it’s bad, depending on age and whatnot. But I do know with an advisor that you do have a plan or you should have a plan at least, right? So, tell me about why it’s important to have a plan for all of this, whether you’re the parent or whether you’re the kid just starting out.

Nick Nelson: Yeah. Well, I think just to start, if you’re a young investor, I wouldn’t say you necessarily need to work with a financial advisor, right? As long as you kind of do your research and you start to develop a plan for yourself in terms of, okay, why am I saving in these certain vehicles? What is my time horizon, right? How am I going to invest this? If you feel confident about those things, you probably don’t need to work with an advisor because you’re really just in that accumulation phase, as we like to say, just growing money. You don’t necessarily need advice always around the tax planning or the estate planning and the healthcare that we would obviously do for an SHP client. So, I think that’s the main point. But if you’re somebody that’s having trouble getting your foot in the door, getting started, and you really have no idea where to begin, it’s just all over your head, that’s where an advisor can actually be extremely helpful. He can help you develop that plan and stick to that plan, right, keep yourself accountable and hopefully lead you to success in terms of some of these numbers we were talking about before.

Matthew Peck: Yeah, because part of it, I mean, is whether it’s the $100 or the $250 a month, just getting yourself started, right? Whether it’s automatic, whether it’s payroll deductions through the 401(k), or whether it is just a monthly payment from your bank to an investment house, like Fidelity, Schwab, doesn’t really matter which one, but making sure that you set that up and stick to it. And an advisor can push that person to make sure that gets done. I mean, we all know the procrast– I mean, everyone’s a procrastinator, I mean, we’re all human. but if you need, if you’re sort of a self-starter and it’s like, okay, hey, I could do this myself, especially at that age, because you were saying, Nick, I mean it’s not overly complicated during the accumulation phase. You just need to start accumulating. You need to start saving, making sure obviously you have an emergency fund in case you lose your job. So, there’s other elements to it.

So, again, if you’re self-motivated, self-starter, and then it probably is not worth it to have an advisor if you are on these savings plans. But if you kind of need a swift kick in the butt, for lack of a better word, for lack of a better term, then an advisor really, really would make a huge difference because we all know that, as I said, never too early, and it’s just that much harder to make up the time. I mean, I love talking about how, I mean, really, and for all of us, no matter, regardless of how old you are, time is the most valuable resource, right? And so, if you’re young, you have all that in front of you, right? So, making sure that you, an advisor or not, as long as you’re starting early, that’s the most important part. And if you need an advisor, make sure you start early, then it’s worth any payment you make.

Nick Nelson: Absolutely. And just to hit on your point before, too, of just having a plan, right? Like, even though it’s not maybe a comprehensive complex plan, as we mentioned before, right, knowing why you’re saving, where you’re saving, again, back to that time horizon and how you’re going to utilize those dollars to better your financial future, that’s still a plan, right? Writing that down. I think there’s some stats around that where if you write down your goals, it’s up to 40% chance of being successful versus not. And if you write down your goals with action steps, that can increase up to almost 70% in terms of success. So, if you’re going to do it yourself, be serious about it. Or say, okay, I’m going to put my money in my 401(k), that’s my long-term money, but I’m also saving for a first home. So, maybe you’re doing some to a Roth or a brokerage, right, where you maybe would want to access that a little bit sooner. Like, have a plan for your dollars and I think you will be successful.

Matthew Peck: Well, I love that, that percentage, so 40% more likely to achieve a goal if you write it down and over 70% more likely if you write it down with action steps.

Nick Nelson: It’s something like that.

Matthew Peck: Okay. Well, it’s, hey, I mean, I’m sure it makes a difference. I guarantee that much. Now, you make a little note here. I’d be curious to ask you about fiduciaries and what’s the importance of fiduciary? Or how, I mean, obviously, we’re fiduciaries, so we think it’s important, but for our listeners, why is working with a fiduciary, if you go with the advisor route, whether you need that kick in the butt as a young guy or gal or whether you’re approaching retirement or already retired, why is working with a fiduciary so important?

Nick Nelson: Yeah, it’s important at any age because fiduciaries are legally obligated to act in your best interest and in the financial industry as a whole. There’s a lot of different kind of roles out there that consider themselves to be advisors or financial advisors. And some of them, there’s more product based versus more investment and long-term based, and you just want to make sure that however you’re investing your money, it’s the right position for you. It’s the right thing for you. It’s associated with your goals. And I think, personally, by working with a fiduciary, it really ensures that versus not. I mean, you might not get the perfect investment for your situation. It might be fine, but you could be missing out on something that you don’t even know about.

Matthew Peck: No, absolutely. And I think, I mean, every industry will have high, sometimes commissionable products and other strategies that are a little bit higher fees than you need to pay, right? And so, having a fiduciary, making sure that you’re doing everything in your best interests, and understanding all the pros and cons of every recommendation, I think, is also crucial, no matter what your age is, no matter where you go. So, Nick, this has been fantastic, because, I mean, and this is just so, again, just top-level stuff. I mean, each one of these things we can talk about whether it is, funny you mentioned earlier, about people that start investing and if they buy the wrong stock, they’re like, oh, forget about– the markets aren’t for me. It’s like, ahh. That’s something called confidence bias. And it works both ways because then you have guys that will buy a stock, it goes up, they’re like, oh, I’m the smartest guy ever. I don’t need an advisor. Look at me, right? So, it’s called confidence bias and it’s called behavioral finance, and that’s a whole topic.

529s is a whole topic, the retirement landscape, 401(k)s and simple IRAs. And I mean, there’s so much there, but I think, we certainly do not want to lose the wheat through the chaff as they say, of the importance of just making sure you’re saving, starting out, things along those lines. So, is there one sort of takeaway that you would really emphasize for all of our listeners?

Nick Nelson: I think the main reason we wanted to do this, just going back to that point, is that we just want young investors to feel empowered and understand that it’s not that hard to get going, and that if you do start saving and investing the right way, you’re going to be successful in the future. Like, that’s such a powerful point that it does sometimes seem so far in the distance that you can’t even think about it or don’t really comprehend what you’re doing, but when you really look at those long-term numbers and you think about it and how you get there, you can simplify it and really set yourself up to be in a good position later in life. So, I think, if anything, if you’re a young investor listening to this, get excited about that, take those next steps, and work towards just starting to save, starting to invest, and go with the flow from there, because we all know life’s going to throw you curve balls, but that is pretty simple and straightforward, so get going.

Matthew Peck: All right. No, I love it. A wise man once said that a journey of a thousand miles starts with one step. And we certainly hope everyone takes advantage of that, takes advantage of some of the work that we do, listening to this podcast, sharing this podcast, picking up the phone or email or whatever, to get started certainly, whether it’s for yourself, family member, or whatever that may be. So, Nick, thanks again for coming on and dealing with my dad jokes. Can’t turn that off no matter what happens. Even when the camera turns off and the recording turns off, I’m still making dad jokes, but…

Nick Nelson: They were pretty good today. I’ll give you that. Give you a little confidence boost.

Matthew Peck: Given my age, I appreciate that.

Nick Nelson: I don’t think Jamie agrees, but…

Matthew Peck: But on behalf of everyone here at SHP Financial, thanks so much for listening, and be well.

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