episode 168 – transcript

Dave Cain: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory Podcast that challenges your old school business practices and their traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie while offering you meaningful modern solutions to help enhance your company’s growth. I’m your host, Dave Cain.

Dave: It’s a new year, which means a lot of us are looking at our current financial situation, our investment portfolio, and how we can strengthen our longterm prospects. We have Matt Andreas, a financial advisor with Investment Partners located in Columbus, Ohio on this week’s episode to give us some tips to help us make the most out of the year ahead of us. He will be tackling the importance of asset allocation, why planning is critical, and how you can overcome market volatility. Welcome to unsuitable Matt.

Matt Andreas: Thank you, Dave. Thanks for having me.

Dave: Great, we always like to have a financial advisor on the show that can give us some insights, and practical insight. You ready to go?

Matt: I’m ready to go. I got a lot of facts for you today.

Dave: Okay, we’ll fact finding … Let’s talk a little bit about your company Investment Partners. I mentioned that you are from the office in Columbus, Ohio, actually Dublin, Ohio, but tell us a little bit about Investment Partners and the other locations around the state of Ohio.

Matt: Investment Partners is a wealth management organization. We are classified as a registered investment advisor. What that means, everybody may have heard the term RIA, but really it’s independence is what stands out there. Independent meaning when a client comes to us, we actually have the ability to search across the marketplace to find solutions that best fit their needs. We do not have to follow any proprietary products that are pushed top down. Independence for us is extremely important to be able to go out and find those solutions.

Matt: The other thing about Investment Partners is, we do have strategic partnerships, one of those being with Rea & Associates, another one being with Commonwealth Financial. They are a broker-dealer that we use for trading and back office support that really allow us to leverage our resources. The latest numbers from Investment Partners are, we have 11 advisors. We do have four offices across the state as you had mentioned, one here in Dublin. We also have one in Mentor, one in Millersburg and the home office in New Philadelphia.

Dave: And, you travel throughout the state of Ohio regardless of where your desk is. In fact, you’re very seldom seen in the office. You’re out taking care of business.

Matt: I enjoy travel. Get to Lima every now and then. I’ve got a lot of great folks in Lima that I see on a regular basis now and New Philly. I bounce around where needed.

Dave: We’re in the first quarter of 2019, as your team looks at market insights and strategy and the economy going forward, again, what are you guys seeing going forward?

Matt: I think more than ever, and we go through different phases, but more than ever asset allocation is so important, diversification is so important. The biggest thing that I always talk to my clients about is having a plan and sticking to that plan. A lot of times in this environment that we’ve been in recently, you see a lot of people reacting on emotions, emotions driving behavior and that is most likely going to lead you to the exact wrong thing when it comes to investing. To summarize again Dave, asset allocation, diversification, having a plan and sticking to it are really something that we talk about a lot right now.

Dave: Good, let’s dig into each one of those if you have some time. You want to stick around for a little bit?

Matt: Yeah, I’m doing great.

Dave: Great. Investment asset allocation, where do you start? Where would I start looking to see whether I have diversity in my portfolio?

Matt: The one thing that I’ll say in that regard is everybody is different. There’s a lot of factors that play into what is the appropriate asset allocation for you. It could be your age, it could be your risk tolerance, the goal that you have for the specific amount of money that we’re managing for you. It could be earmarked for something, it could be college, what not, but we have to first start with this fact gathering stage and figure out exactly what you’re trying to do with these investments.

Matt: After that, it basically comes down to how your diversified between stocks, bonds, and cash. There’s a lot of different ways that you can diversify yourself out there. Large cap, small cap, mid cap size, equities, stocks in the US, international, emerging markets. Fixed income, we’ve got high yield, we’ve got emerging markets, we’ve got your traditional aggregate bond index. How are you diversified amongst all of those different asset classes given the facts that you’ve given me?

Dave: So, it’s the mix that you’re looking for and actually you’re trying to match up maybe my lifestyle, my needs and wants.

Matt: You bet. You know what I want most for you Dave, is to be able to sleep at night and not worry about your investments no matter what the volatility is right now. We’ve seen, and I’ve got some stats. One of the charts I use the most goes goes back about-

Dave: Fire away. We like stats on this show. Anything you have that can help us out.

Matt: One of my favorite charts, some people refer to it as the quilt chart, but it basically it goes back 15 years and looks at every different asset class that’s out there. You cannot predict on an annual basis or any given year what the top performing asset class is going to be out in the marketplace. If someone tells you that they can, I would love to challenge them in that regard. But what we try to do is, we try to take a look across these different asset classes. Again, all of them having different risk-reward associated with them, different volatility measures. We try to find that balance called asset allocation that is appropriate for you.

Matt: An example of that would be, let’s say you have some time for your money to grow, but you have a low risk tolerance, you don’t want to take as much risk. We might put you in a 60/40 mix called a balanced allocation with a tilt toward equity or growth. That would be 60/40 equity to fixed income. Finding that right balance among all those different asset classes, guiding you through the markets for a more, a level approach to the return that we need to get you to.

Dave: The only way you’re going to be able to accomplish my goals is we have to sit down numerous times throughout the year. It’s just not one size fits all and it is going to take some work, some time to get there.

Matt: It’s absolutely ongoing. We do have … Everybody’s busy these days, but we do meet at least annually with all of our clients, ideally twice a year. But, we do have some that we meet with on a quarterly basis just given their lifestyle, maybe how they’re compensated. It just depends on what you want.

Dave: If I came to you and said, “Look Matt, I don’t want any sin stocks in my portfolio, is that something that you guys could accommodate?

Matt: A lot of our investing has done through mutual funds that are managed through different asset managers. Most of those funds don’t have that ability, but there are new funds out there that do have more of that socially responsible aspect to them. We’re starting to see those pop up more and more, so we can focus in on companies that are delivering those more socially responsible type of investments. And of course, we can always up a brokerage account for you and if you have a specific stock that you’re interested in, we can talk about why that’s important to you and-

Dave: Socially responsible. Is that a new term in your industry?

Matt: It’s grown over the years as we’ve all evolved and some of these things have become more important to individual investors. But, we get that question a fair amount and when necessary we dig in deeper to find some of those companies that are really focused in on those things.

Dave: Then there’s the case, and I’m sure you run into it that people want to just invest in US companies, the foreign markets cause some concern. Again, I think that’s where talking to you guys on a regular basis, you can help ease or help with that decision.

Matt: Our world is global now. There’s no question. Most of the companies that we’re investing with here in the US have exposure overseas. Having international in your portfolio absolutely helps your asset allocation, diversification that we talked about earlier. Over time, international equities have been almost a reciprocal of what’s going on in the US, or an opposite, excuse me. When we go up in the US, a lot of times international is down and when we’re down they’re up, so it balances out over time. We absolutely want you to have some international.

Dave: Some exposure … Is that the right term to use exposure?

Matt: Absolutely, exposure is a perfect term to use for that. There’s a lot of different ways you could describe it, but I don’t know too many asset allocation portfolios that don’t have some exposure to international.

Dave: As you wrapped up the 2018 and by the time the podcast is out, I think most of the listeners will have their year-end statements or just about have their year-end statements in hand. What do you anticipate the, I don’t know if I’m going to ask this correctly but, what’s the average growth in a portfolio that maybe you’ve seen in ’18 or expecting to see for the entire year.

Matt: Let me go back a little further if you don’t mind. I love this stat. This plays in-

Dave: See, I teed that up for you didn’t I?

Matt: You did.

Dave: I didn’t even know you wanted that.

Matt: I’m going to take you down a little different path first, but we love to look at average returns over time. I’ve got a chart that I read a lot of times and it kind of falls into that emotional investing in decision making as well. If you go back over the last 20 years, the average 60/40 portfolio, 60% equity, 40% fixed income has returned roughly 6.4%. That is from 1998 through 2017.

Dave: 6:4?

Matt: 6.4%. During that same timeframe, the average investor has had a return of 2.6%. So, what is the difference between the 6.4% that the average portfolios returned over that 20 year period versus the average return for an individual investor of 2.6%?

Dave: Roughly four points here right? A little, yeah.

Matt: What do you think the reason for that is Dave?

Dave: Retirement savings?

Matt: The biggest issue here is that the market-

Dave: I’m asking the questions by the way.

Matt: … is volatility.

Dave: Let’s get this straight here.

Matt: Volatility in the markets make us do things that we normally wouldn’t do, and that is sell when we shouldn’t. That’s why the average return for an individual investor over the last 20 years roughly is 2.6% when it’s 60/40 portfolio has done 6.4%. We get emotional about the volatility that we’ve seen lately, we end up wanting to sell when we get nervous and the market is down. Again, it just hits home on the importance of having a plan and sticking to that plan over time because if you do that and you trust what you’ve built and why you built it, then you won’t make mistakes and sell out of equities in a down market. Understand that there is volatility.

Matt: The other staff that I like to throw out there, this one goes back out over 38 years. I’m going to look at the S&P 500 again on this is the S&P 500, the average intra-year volatility for the S&P 500 peak to trough the last 38 years is actually 13.8%. Intra-year volatility in the S&P 500 peak to trough, 13.8% peak to trough decline. We’re roughly right around there for 2018 as far as volatility goes. The final piece of that though is the market has ended positive in 29 of those 38 years. Volatility is normal, where average investment can make that mistake is selling at the wrong time, not understanding that these things can come back.

Dave: I wanted to share with you that unsuitable on Rea Radio, we take advantage of technology. We do have a text question from the audience. Are you ready to take that on?

Matt: This is high tech. Okay, let’s do it.

Dave: All right, here’s the question. I’m not sure who this came in from but the question is, how is investing during the time of Trump in tariffs and all the legal issues impacting investing decisions? Fair question?

Matt: Yeah. The tax cuts and Jobs Act has really put a tailwind behind a lot of US companies. Earnings that we’ve been seeing as they’ve come out have been relatively strong, very strong truthfully and there’s been a great tailwind behind companies. We’ve seen that tailwind start to slow a little bit here recently. We think we’ll continue to see earnings be positive here into at least the middle part of 2019, but the tax cut and Jobs Act has really helped a lot of the companies that are out here right now.

Matt: Now the day to day, you asked me about China, things like that, the tariffs and the discussions with China can create a lot of volatility in the short run. I don’t know what’s going to happen day to day and I would challenge anybody else that knows what’s going to happen day to day. That’s why you factor in the longterm mostly with your investing approach. If you have short term money in short term needs, they shouldn’t be invested into asset classes or investments that could swing too much in the short term. That’s why you do things in buckets. Anything less than three years probably, we would talk about different investments that don’t have an impact or aren’t impacted by the volatility of the tariffs in China.

Dave: Right, but as we discuss that, I would think that the issue of the tariffs and the like, and we hear things like that going on, that that would maybe have you guys study the makeup of the portfolio or the allocation in international stuff.

Matt: Oh, absolutely.

Dave: Is that scary at all? The tariff thing?

Matt: It doesn’t scare me. I think these are all normal things. I mean, you can go back through time and look at all the volatility that’s been out there and all … We look back to 1900s some of the charts we look at. I believe from 1900 till now, we’ve been through what we would call 18 major recessions, multiple world wars, the global financial crisis of 2008. There’s a lot of history to look at as we go back and a lot of times we like to say because we’re in the moment, that this time it’s different but there clearly is a pattern with investing and asset allocation and sticking to a plan if I haven’t made that clear yet.

Dave: Sure, sure yes you have. Keep on making that clear, that’s very helpful. But in accounting, it’s full of metrics and analytics, and now we’re seeing metrics and analytics in the sports world. But the investing world, you guys have tons of metrics and analytics that tell a pretty good story.

Matt: Absolutely. There’s too many to mention on our podcast here today, but you can go into the individual investments and look at risk characteristics and measurements of R squared and Alpha and standard deviation. You can also get into things like returns and valuations by style. Let’s talk about PE ratios as we look at the different asset classes that Morningstar provides. You can go large, mid and small, growth blend and value and figure out, are we priced appropriately? Are we overvalued? Are we undervalued? But I think on a regular basis, we’re constantly looking at … PE ratios are a big one that we look at to see how we’re priced. We’ve made a couple of different movements in our portfolios as you’re based on PE ratios evaluations.

Dave: Are you one of these guys when I go out to dinner and look over and see somebody looking on their cell phone instead of talking to their spouse or their dinner party and say … Are you one of those guys who’s looking at what the market did for the day? Is that you?

Matt: No.

Dave: You don’t look after you go home? You don’t?

Matt: I’m kidding, yes I do. It’s constant. I love it, that’s why I’m in this job.

Dave: You study.

Matt: I study and it’s just innate in me to look at this stuff on a regular basis and read. It’s a lot of just keeping up with current trends and events as well. I’ve got the articles and publications that I follow and read every day. You have to, there’s no question, you have to.

Dave: We tackled the investment asset allocation and we talked a little bit about market volatility, actually talked a lot about market volatility. I think again to kind of paraphrase the things you said, some of this stuff and you just kind of chill out and rely on the advice of your investment advisor and meet with them on a regular basis.

Matt: I think that falls into … First of all, yes, I agree with all that and I think that falls into having a plan. I’ve heard this stat before too, it’s not even a stat, it’s just to comment that most people spend more time planning their vacation than they do their retirement. If that is true, you need to spend a little bit more time talking to an advisor and trying to get a plan in place or you just won’t get to where you want to go.

Dave: Are you a CFP as well?

Matt: I am, yes.

Dave: Okay, I thought you were. I wanted to make sure.

Matt: That is correct.

Dave: One of your colleagues, Doug Feller is a regular guest on the podcast and I think we’re going to have to fire him and have you come in. You’re way better than he is. Would you share that with him?

Matt: I’m actually not surprised. I know Doug.

Dave: We do too and like to have a little fun with that, but let’s talk about the importance of having a plan. Now, if I come to you and we sit down and talk, and I do meet with Doug on a regular basis, full disclosure. When you talk about a plan, is it a written plan?

Matt: Oh, absolutely. There’s a process to all of this and … Actually through the CFP process, you really want to establish a relationship with your potential client first and foremost. You want to understand who they are, what they’re trying to do. Then you gather some data, you analyze it, you develop the plan, you implement it and you monitor going forward. It’s a really structured process. You have to put it down on paper, then that gives you something to follow and monitor going forward.

Dave: Do you get a great deal of satisfaction as a certified financial planner when you see a plan come together?

Matt: Absolutely. It’s one of the reasons why I’m in this job, I just love helping people. When you can see them not only develop and identify what their goals are, but then put a plan in place to get there and then once they reach it, it’s very satisfying. The one that jumps out is some of the college planning that we do, if someone really wants to help out in that aspect.

Dave: Talk to me about that. What would be some foundational things that we’d want to discuss on or plan about college planning?

Matt: The one thing I will tell you about college planning is that time matters. Everybody listening to this probably understands the simplicity of compounding interest. That is all developed over time and just putting a little bit of a way immediately can have a huge impact not only on your own retirements, but college planning. A lot of time times you will have somebody with a newborn and instead of getting them baby shoes or whatever you want to buy, gifting through college funding, through … Ohio has CollegeAdvantage 529. I’d encourage everybody that’s listening in Ohio to go out to that website. You can open an account for really anybody and start to nickel and dime at that and it’ll make a huge difference over time.

Dave: You know, as I’m sitting here and knowing you a little bit, you’re certainly into sports, you’re a sports fanatic. We’ve talked before in sports you have a game plan, you study film and you execute. I think you would say developing a financial plan pretty much follows the same path.

Matt: Absolutely and if you want to use sports analogies …

Dave: Do you have another one?

Matt: They may change their defense at times or the game may not be going about the way you thought it would be, but stick to your plan. Trust all the practice that you put in and just continue to work at it, and you’ll end up in a great spot.

Dave: As an investment advisor and certified financial planner, how are fees typically calculated or determined?

Matt: There’s a couple different ways we can do that. I talked about the independence at Investment Partners. We have some clients that we just do individual planning for. We really don’t manage any of their assets with them, so it’s just a planning fee. We decide what that is on that front end of the relationship where we establish the relationship. Some of the times we do manage assets for clients and we can charge a basis point of the assets that are under management that we have with them. Those are all different ways that we can charge fees.

Dave: Let’s tie it all together. Investment asset allocation, volatility, importance of having a plan. Next few minutes, pull it all together for us. Give us a conclusion, bring us on home.

Matt: I’m going to state many of the things that I’ve already stated before, is have a plan, have the appropriate asset allocation that fits your goals, needs, risk tolerance, time horizon. Then ultimately, finding that right mix, sticking to that plan through all the ups and downs of the marketplace will put you in a great spot as you get closer to need that money.

Dave: And, develop a close relationship with your financial advisor because you’ve got stat, after stat, after stat and honesty that makes you feel a little bit better that that number’s there. It just helps you understand the plan a little bit.

Matt: Yep.

Dave: Our guest today has been Matt Andreas from Investment Partners. Thanks again for joining us Matt.

Matt: Thanks Dave, appreciate it.

Dave: You shared a great amount of insight with our listeners and listeners, if you haven’t met with your investment advisor in this first quarter of 2019, go ahead and make that appointment. Make the call, set some time aside and take a look at your current plan and whether it still makes sense. If you enjoyed today’s episode, let us know. Give us a thumbs up, like it, comment on it, or share it and don’t forget to check out videos of her podcast on YouTube. Until next time, I’m Dave Cain encouraging you to loosen up your tie and think outside the box.

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