Mark: Welcome to Unsuitable on Rea Radio, the unique financial services and business advisory show that challenges your old-school business practices and the traditional business and culture. You’ll hear from industry professionals who think beyond the suit and tie to offer meaningful, modern solutions to help you enhance your company’s growth. I’m your host Mark Van Benschoten.
Today’s episode, Investments: Are You Doing It Wrong?, promises to be a great one for those who are looking for ways to make your money work harder than it is right now. Today we are excited to be talking to someone who happens to know a lot about investments and wealth management. Our guest is Doug Feller. Doug is a principal and financial advisor at Investment Partners, and comes to us with an impressive track record of helping business owners manage and grow their wealth. We’re going to ask Doug to share some of his tips and favorite investment tactics. Thanks for joining us today on Unsuitable, Doug.
Doug : It’s great to be here, Mark.
Mark: Really appreciate you taking the time and coming over and talking to us. Before we get started, just looking at your business card, you have a lot of letters after your … CFP and all that stuff. How did you get into that? How did you decide that you wanted to be an investment advisor and a CFP?
Doug : Well, I went to school for economics. Actually it dates all the way back to high school. I had a great Russian history professor, of all things.
Mark: I see the connection.
Doug : Of course, right. He would read the Kiplinger letter every Friday. There was a lot of very interesting things about currencies and economies and stock markets. That was originally my interest. Then I got out and I decided …
Mark: Couldn’t get a job?
Doug : Couldn’t get a job. Actually it’s funny that you mentioned that. I graduated in 2002. We were at the bottom of a bear market, recession at that point. Wall Street was not hiring. In fact, they were firing. I had a great opportunity at Investment Partners to come on board then.
Mark: Well that’s kind of exciting. I find it fortunate for myself. I’m in a job that I love. I love accounting and I feel fortunate that I get paid to do that. Sounds similar to yourself.
Doug : Yeah, I love my job. I’m in one of those rare positions where people trust me with something that’s very, very important to them that they don’t trust oftentimes their own spouse, their family, their children. That is on their money. They’ve hired me to be a financial steward for them. I really enjoy getting out of bed and giving them the best of my ability.
Mark: I don’t know if you subscribe to Unsuitable, and I hope you will now, Doug.
Doug : I will.
Mark: Our previous episode was with Dave McCarthy talking about estate planning. He talked about managing the estate and who do you trust. It’s interesting that you bring it up. You would think you would trust family members to help with that. He had some situations that was opposite of that. You say that these people trust you. I find that interesting.
Doug : Oftentimes you find that clients don’t want to have this conversation I find, with their children. Sometimes it’s a generational thing. The breakdown between the greatest generation of the 30s-
Mark: -And us.
Doug : And us and their kids. They don’t want to have these conversations, or they haven’t been equipped to have them, and they keep it very private. Oftentimes in estate planning, as Dave might have mentioned, some of the things that a client wants to talk about they don’t want to discuss in front of their kid. Maybe they trust one child, but they don’t trust another as well. Or, they want to address that situation privately and they’ll meet with an attorney and sometimes a financial planner separately on those issues.
Mark: That’s interesting how all this ties together. I find that to be intriguing. How should somebody use your services? What would you say, this is a good client but regardless of their investible assets, their account balance, how should somebody use your services?
Doug : I want somebody that has a problem to be solved, knows they have it, knows that they don’t have the answer, and they’re willing to turn to us for that solution. Oftentimes it has very little to do with an account balance. They simply just don’t have the answers and they need to turn to a financial professional.
Mark: That’s a great point. That’s very interesting. With the fluctuations of the markets that we’ve been experiencing recently, are people calling you in a panic?
Doug : No, because a big portion of my job is education. My clients have been clients for the past decade. We’ve seen quite a bit in the capital markets. Oftentimes you see the financial news headlines are taking about, whether it’s CNBC or the Washington Journal or whatever, how the markets are under all this selling pressure. What I always try to remind my clients is, the capital market is in fact a market.
For every trade, there is not only a seller, but there’s a buyer. When the capital markets get volatile like we’ve seen, I always remind myself that there’s somebody right at the bottom that was the buyer. I’ve tried to educate my clients that when the markets get emotional … In investing, emotion is the enemy of investing. When investors get emotional-
Mark: Hey, can you say that again about the emotion? What was that again?
Doug : Emotion is the enemy of investing, in my opinion. I think Warren Buffet has a great way of paraphrasing where he says, “I’m greedy when others are fearful, and I’m fearful when others are greedy.” Oftentimes I’ve educated my clients, or maybe I’m doing an educational seminar for a 401K participant. I’ll tell them that whatever your gut is telling you, that’s a great time to step back, press pause, and consider whether or not you should be doing the opposite of what you gut’s saying.
Mark: That’s interesting. Just thinking about that to my own scenario. I bought AOL as the NASDAQ was going up to the … It was purely an emotional, everybody … I’m like, “Oh, I’m going to get on that.” It did not do well for me, let’s say.
Doug : I’m sorry to hear that. You probably needed a good financial advisor.
Mark: I probably did.
Doug : You know, there’s a company out there that’s done a study. It’s called the Dowbar study and it’s really fascinating. They say over whatever period of time it is, that stocks have returned X. If you had just bought the stock market and held it for that period of time, you would have earned X. The average investor has earned half of X.
Mark: Why is that?
Doug : You would think maybe I understand. The stock market’s volatile. People get scared out of it. The same is true of bonds. Bonds have earned Y. Over time, investors have earned roughly half of Y. The only explanation is behavioral. People respond on emotion when they should not. Frankly, that’s the role of a financial planner and a financial advisor.
Mark: To take that out.
Doug : To take that out and remain disciplined and have an emotionally detached point of view. I think it’s an important question for clients to ask financial planners and advisors. How do you handle that? How do you maintain that? How do you work around it and maintain investment discipline through difficult markets like we’ve seen this summer?
Mark: All right. Changing the subject. Have you though of a situation? I have one. You want me to go ahead?
Doug : Go for it.
Mark: It came to you with a client that needed some help on structuring Social Security benefits. You were able to walk them through what they should and should not be doing. I was really, really impressed with that because one, I think it’s very confusing. I like to think I’m an intelligent guy and I don’t understand it.
You were right away able to get to them a great solution without a lot of heartache. It wasn’t a 6-month project. You were able to sit down with them and go through them and help them structure their Social Security. I thought that was great and that was something that I didn’t know you had the talent for.
Doug : Sure, well I have the talent for a lot of things that you don’t know about, Mark. Let’s back it that way. Social Security is-
Mark: -I’ve heard some horror stories before-
Doug : -Is one of those but that fits into a bigger question that financial planners are being asked to handle these days. That is how to plan for retirement income. How do we turn an investment bucket that we have saved and accumulated for years and years and years and years and turn that into an income stream? That’s going to provide income in retirement, as is Social Security. Frankly, Social Security is one of those areas where people are pretty emotional about. The fact remains that a little over 50% of people in this country, that’s their only source of retirement income.
Mark: That’s a scary statistic.
Doug : That’s a scary statistic. I see a lot of 401K balances. I can tell you the general population is vastly under-saved. Social Security I would tell you, I don’t believe it’s going away. There are a number of fixes to it. It’s one of those questions clients come to me with. It’s a big area. It’s a vague and murky area, and they’re not sure how to answer that question.
They might walk into the Social Security office and they will tell them how to do something, but oftentimes they won’t give them the advice on what they should do. With that client in particular, we walk them through what all of their options are. Social Security is one of those areas where people forget about, I’ll call it a guaranteed return on their investment. Forgive me if my compliance department disagrees with that.
For every year that you delay taking Social Security, you increase your benefit by 8%. You can start taking it at 62, and you would get roughly 75% of the benefit promised to you. Every year you delay and then pass your full retirement age, you actually increase that benefit by 8%.
Mark: That could be significant. It was interesting, off-mike we were talking with Dave. His attitude was, “I’d rather spend at 62 when I’m able to do something, then at 82 when I just want to sit and,” his terminology is, “eat applesauce.”
Doug : I find it very interesting that Dave believes he’s going to live to 82.
Mark: So were we.
Doug : It’s one of the challenges in retirement planning. I joke with clients. I say, “Retirement planning is a whole lot easier if you can tell me the day you’re going to die.” If you’re going to live 5 years, it’s pretty simple math. Take what you’ve saved, divide it by 5-
Mark: Have at it.
Doug : Leave whatever legacy you’re going to leave, and it’s pretty easy. The retirement picture in this country has changed. 100 years ago, people didn’t live to be 90 years old. People were … The mortality tables were a lot shorter. You retired from your farm and you kids took care of you. This idea that we’ve come up with about retirement and producing an income, if you retire at 60, for 30 years, which in effect is a working career. Producing income from assets, equivalent to a working career, is something that’s never been asked of, not only financial planners, but never been asked of the average American.
Mark: My dad is currently 91 and he’s fast approaching that he’ll be receiving his pension longer than he actually worked. I find that to be intriguing. How does a company afford that? We’re going to pay you this wage, you’re going to provide services. Oh, but we’re going to continue to pay you for a length of time greater than what you were providing services.
Doug : The answer is that companies are having an immense amount of difficulty doing that. Not only are they having difficulty, they’re trying to shift that responsibility. We’ve really seen a shift in the retirement landscape over the last 20 years. Back in the early 90s, there were something like 125,000 pensions in this country. I believe the number today is something under 20,000.
Every year, you’re finding companies trying to cope with the fact that people are living 3,4,5 years longer and they’ve promised a benefit. I think it presents an incredible challenge for people. It’s one of those reasons again why I think financial planning and financial planners are so important. The earlier that we can begin educating our clients and the public, the more chance they have to begin accumulating assets for retirement. Outside of Social Security, that’s the only retirement they’re going to have.
Mark: You mentioned about getting started early. I’m a firm believer. Young individuals come and start at the firm. Get them into the 401K plan. Get them deferring. Making sure they’re maximizing those benefits. “Oh, you know I’ll start that next year when I’m out of college.” We really encourage them to get involved right away in that.
Doug : Well, sure. Investing is, I find it fascinating, but investing is all about compounded return. You want as much compound, you want as much growth on your growth as you can get. The earlier you start, the more that’s going to happen. You can put all this into a financial or a future value calculation. For those that start at age 20, I think a rough estimation if they’re going to retire at 60, is something like their money’s going to double something like 4 times.
Mark: Wow.
Doug : 4 doubles is an awful lot of compounding. For the person that starts at 30, so just 10 years later, you get about 3 doubles. For every decade, you get 1 less double. The money that you save at 20 years old is the most valuable dollar you will ever have for retirement. The money you’re saving at 50, 55, and 60 are simply just not going to get the compounding that you would have gotten otherwise. The earlier you can start, the better. The trouble of course is that we have competing financial priorities. Somebody trying to start out is also trying to figure out how to save for a house, and-
Mark: Pay for college.
Doug : Pay for college. I have a 2-year old daughter and it’s going to cost-
Mark: Good luck on that.
Doug : Yeah, I figure it’s going to cost me about a quarter of a million dollars a year by the time she goes to school.
Mark: I have no sympathy because I’m currently paying, as we heard in the last broadcast, I’m paying 2 tuition bills. If my daughters hear this I hope they feel guilty.
Doug : I have no sympathy for you, Mark.
Mark: I didn’t think you would. I didn’t think that you would. You probably wish that the Yankees don’t make the play-offs this year also.
Doug : I also have … I wanted to wish you, I don’t know when this podcast is actually going to be broadcast, but I wanted to wish you a Happy Birthday today. I actually have an anti-birthday wish, and that’s that the Yankees not only do not win the AL east, but they don’t even make the play-offs. I hear the Steinbrenners have a habit of boycotting the wild card when they win it.
Mark: I haven’t heard that. I have not heard that. I shudder to think that that would even be a consideration, because I’m sure they would win the wild card, and they’d go on and dominate through the play-offs and bring home another championship.
Doug : I grew up in east Ohio, and I’m a big Pittsburgh Pirates fan. I’m actually going to have the chance to catch the second-to-last game of the season at Wrigley Field.
Mark: That will be exciting.
Doug : Here in a couple of weeks and the Pirates and the Cubs are …
Mark: In a battle there.
Doug : Battling it out for the 2 wild card positions.
Mark: That’s very exciting. Getting back to young people investing. Do you think that there’s any way we can increase these young individuals to partake early on?
Doug : I certainly hope so. I certainly hope that we can do that through education. I also sympathize with the generation that’s in their 20s right now. That’s because they entered into a very difficult labor market. They went and they spent their time and their hard-earned money on getting an education. The fact right now is that the under-employment rate, not the unemployment, the under-employment rate in this country is still significantly high. They don’t have jobs in their field.
I understand that they’re trying to cope with, at least in current day, certainly a lot with what’s going on in the economy .I would like to think through education, through working with financial planners and advisors, that they would be able to get on the right path.
Mark: In Ohio currently, there’s a requirement that you have to graduate high school with taking a financial planning class. I don’t think it’s a full semester or anything, but there’s a certain number of hours you need to sit down. They talk about interest rates and loan values and things like that to give them some basic. I hope that takes hold, that these kids retain that and remember that.
Doug : I think that was passed around 2010. I believe that was House bill 511, I want to say. There was a committee that I spent a limited amount of time with that made recommendations to the House to do that. It’s very important. Kids today are graduating without a basic understanding of how a checking account works. That’s financial planning 101. I certainly hope, and I know schools are wrestling with, or have been wrestling with how to implement that. There’s a lot of kids that would go to college campuses and sign up for credit cards and do all these things that they shouldn’t do. Not only is it difficult to get started, but they were putting themselves 2 steps behind as they were exiting college.
Mark: Another challenging group for investing are, I’ll call serial entrepreneurs. They always want to keep funding the next greatest invention that’s going to come along. Any advice for those individuals?
Doug : I think Mark Cuban famously said, “Why would you diversify?” That’s … He would be a serial entrepreneur. I can understand that perspective. I’ve worked with business owners and they have built their net worth through 1 concentrated position. It’s a position in their privately held company in which they had exclusive control or majority interest and be able to control that company. They’re entrepreneurs. They have a growth spirit to them and they can control that rate of return pretty well.
The idea of investing in a public market, which is liquid, it’s public. All of these premiums that an entrepreneur has of illiquidity in a small company, all these different things. I think they have a difficult time accepting the fact that the public markets would give them a fraction of what they would earn in a private company that they built. Also, I think they wrestle with the control issue. They’re one of millions of shareholders around the country and so they can’t quite execute the decisions that maybe they would want. I do find them challenging. I also think that they’re extremely engaged and very interested in the investment process, and not everybody is.
Mark: Before we wrap up, there’s a question we ask all of our guests. Please think hard, it’s important. If you could have 1 superpower, what would it be?
Doug : Oh I think that’s pretty easy. I would love to fly. Not only that, but fly somewhere around supersonic speeds, because I hate driving my car to the airport. I hate standing in line at the TSA. The idea of walking out in this parking lot right now, lifting off, and coming down in New York City in Yankee Stadium in about an hour, would be really appealing to watch the Blue Jays knock the Yankees out of the play-offs. Boo, boo.
Mark: That’s all we have time for today. We definitely look forward to having you back on the show, Doug. Thank-you again for sharing a little bit about your expertise with us. As always, I want to thank our listeners for tuning in. Now that I have a little more insight into this subject, I have a few phone calls that I think I need to go out and make here.
If you’d like to get some great advice and wealth management tips, check out our website, www.reacpa.com/podcast. You can also subscribe to this podcast on iTunes, or invite others to listen as well. We’d also like to know what you think about this show. If you like what you hear, let us know. If you don’t like what you hear, I guess you can tell that also. Please leave us some feedback on the iTunes page. Until next time, I’m Mark Van Benschoten for Unsuitable on Rea Radio, encouraging you to loosen up your tie and think outside the box.