Podcast Episode 176: 3 Worlds of Money + Market Update

Today’s Wisdom:

Your financial portfolio is typically divided into three different worlds of money – banking, insurance, and Wall Street. Do you know the differences between the three and how to best utilize each to give you the best chance for long-term success? On this show, Joel will take you through the three worlds and explain each in detail. We’ll also find out what he thinks about the election results and the recent positive vaccine news.

Want to save time? Click the timestamps below to jump ahead to specific spots in the episode.

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What You’ll Learn:

When you break financial planning down, there are really three places where you can invest your money: banking, insurance, and Wall Street. These might seem pretty clear but it’s common for people to get confused about which world their money is actually going into.

On this episode of the Money Wisdom podcast, we’re going to break it down for you by explaining the uses for each of the worlds and the problems that people can run into when investing in the three.

Before we get started on that, however, we wanted to take some time to discuss the recent news as November has been a busy month across the country. With the election results taking shape, we’ve got questions about what this means.

What we’re hoping to see is a calming effect with the new administration on both sides of the aisle. Let’s put the finger-pointing and arguing to the side and move forward. Joel does have some concern on the legislative agenda that was put out during the Biden campaign but it remains to be seen how much of that will actually come to fruition. The big concern for most people will be taxes and that’s something we’ll be keeping a close eye on that for our clients. If taxes revert back to the way they were before 2017, we’ll be making moves to protect clients from higher taxes.

The vaccine news is the other significant headline in recent weeks and it’s definitely a welcome step in fighting the pandemic. With multiple companies making advancements every day, we seem to be pretty close to making significant progress towards returning to the old normal.

So let’s talk about the three worlds of money: banking, insurance, and Wall Street. As we mentioned, many people get mixed up on exactly which world their money is tied into. As you listen to this episode, think about where you have your money and whether you’re perceiving the outlook of your money accurately.

Let’s start with banking. This world is primarily a place to borrow money and put short-term cash needs. For individuals, you’ll commonly find a mortgage in this world or an emergency fund you’re building up. The way we misuse the banking world is by putting way too much money here. It’s easy to default to depositing money here as you think about other investment opportunities but you end up not earning much on these dollars.

The next world is insurance. This is a place where we shift risk away from ourselves and onto an insurance company. That might seem obvious but the most obvious example of this is car insurance. You buy it to protect yourself from liability and help pay for repairs. People have a negative perception of insurance companies in many cases, but this plays an important role in your finances. There is also a side to the insurance world where you can take your money and ensure it against running out of money in retirement or insure against losses in the market. These might look like investments but at the core, it’s still insurance.

The final world is Wall Street, which is where you’ll find investments. The pros to this world are that you can generate returns on your money and the tools in this world are liquid. That means you can change gears anytime you want. But as you know, the disadvantages come in losses and fees.

If you want to get organized and get a better understanding of how your money is being allocated, take advantage of our Money Map review.

[0:32] – Joel’s thoughts on the election and vaccine news

[5:12] – Overview of the 3 worlds of money

[6:45] – Breaking down the Banking world

[9:16] – Insurance world

[12:49] – Wall Street world

[15:59] – Reviewing your portfolio

[18:31] – Mailbag Question: My IRA has only made 7% this year while the market has made more than that. Should I fire my broker?

[22:04] – Mailbag Question: I have four different investment accounts. Which one should I withdraw from first when I need money in retirement?

Thanks for listening to this episode. We’ll be back again next week for another show.

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Final Thoughts:

“Generally speaking, if we think of our lives as a financial pyramid, the bottom – the foundation of that – should be banking and insurance.”

– Joel Johnson, Money Wisdom Podcast

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