Transcript

Intro

Stephan Shipe: Welcome back to the Scholar Wealth Podcast. Today we’re answering two listener questions. First, whether keeping all of your accounts at one bank is a smart move or a hidden risk. And second, how to choose the right distribution schedule for a deferred compensation plan when the future is full of unknowns.

We’ll wrap up with our Money Masters segment featuring a special guest, Ric. He shares his remarkable journey, beginning with his arrival in the US with only $20 in his pocket. From those humble beginnings, Ric went on to build financial confidence and is now passing along strong money values to his family.

Let’s jump in with question one.

Question 1 – All in One Bank

Listener: We’ve kept all of our cash and investment accounts at one major bank for years. It makes life easier. But now that our balances are larger, I’ve started to wonder about whether we should diversify across institutions. Is there any risk there?

Stephan Shipe: When you’re looking at protection of accounts, really you’re looking at two different things.

You’re looking at FDIC and SIPC insurance. There’s no question that including everything at one bank is super, super simple. It makes it really convenient, especially when you’re transferring money around or just having one statement that has everything. The problem that you run into is there is some risk there, which we’ll be able to talk about.

But in general, the banks are also banking on that convenience, right? They want you to be able to pull everything together because they don’t want you to have to separate out. So they make it easy to transfer money within a bank. I would say banks make it really easy to transfer money in. They make it really difficult to transfer money out.

And when you look at the reasons why we would be worried about this, because that all sounds great, we look at convenience and say there’s no question having it all in one place is super convenient, and you get extra perks and all these things. So what are the risks of doing that? After a certain amount of wealth held in a bank, we do have to start worrying about solvency issues, and that’s where FDIC insurance comes in. Now, it’s really important when we get into this — when we’re talking about cash and investment accounts, those are two very different things in the government’s mind. And when we look at something like FDIC, you go to the bank, they tell you $250,000 insured by FDIC and all of this. But what that’s protecting you against is if the bank goes bankrupt.

The bank disappears, and then you’re going to get money back. And that limit is per account type. If you have a trust account, you have an individual account, or a joint account — all of those. What we have to be careful about with FDIC limits is what it’s actually protecting you on and what it doesn’t protect you on. What FDIC insurance is going to cover is the old-school bank runs.

Mary Poppins has a bank run, where you have people start pulling money out of the bank and then everyone gets worried. And banks, as we all know, don’t keep the money there. This is a common conversation I have with my own kids — them not understanding that when they place money into the savings account, it is not sitting there in the bank. The bank takes that money and is going to give it to somebody else, which very much worries them, but that concept is why FDIC insurance exists. Because now you put your money in the bank, the bank goes and loans it out — if they’re loaning it out for mortgages and all these things.

If I go in and pull all my money out and then I yell to all my friends that this bank’s not giving me my money, then everyone tries to go pull their money out and I have a run on the bank. So FDIC, or deposit insurance, comes in and their idea was: Hey, don’t run in there and try to pull all your money out. We’ll federally insure $250,000 of that. So that way if the bank has issues, you’re getting your $250,000 back. Now that’s on bank deposits, so that’s your checking accounts, savings accounts. Once you start getting into the securities aspect of this, it’s a completely different ballgame. So FDIC will cover you if the bank goes bankrupt. They made some bad loans. They invested the money inappropriately, so now they’ve lost all the money that was, in fact, your money. Now it’s gone. You’re going to get a check for the $250,000, or insurance is going to pay out in that scenario. Your investment accounts are very different.

Investment accounts have a different type of insurance — SIPC insurance — that comes in and covers the actual investment accounts up generally around $500,000 or so, which I know does not seem like a lot. The issue is what it protects is very different than what FDIC protects. FDIC is going to protect bank going under. Let’s use an example.

If you have your money at Vanguard and you own some ETFs, iShares ETFs, or you own individual stocks — you have a hundred shares of Apple — and Vanguard goes bankrupt. Vanguard doesn’t actually own the Apple shares or the shares of iShares or anything like these different ETFs. You own them personally. Those are yours.

So really, as soon as Vanguard were to go bankrupt in that scenario and they disappear, the new custodian of all of those accounts would have all of your assets. So you would still have your hundred shares. Now, is it going to be a pain? Absolutely. There’s no question that’s going to be a pain to get all the accounts transferred over and all of this.

Everyone’s gone through scenarios where their bank gets bought, especially through the financial crisis. It seems like every regional bank was bought by another regional bank, and it just started to have this big combination of accounts. So we run through this SIPC insurance scenario to cover you if there’s fraud.

So if Vanguard doesn’t go under, but there’s fraudulent activity at a brokerage house, or they lose all your records to your account — they don’t have any record that you own those hundred shares — then that’s when SIPC insurance would kick in. So very different things that are being insured. That being said, you’re protected on some of those things.

Then now we get into the big factor, which is: Stephan, that’s all great. Do I keep all my money in one brokerage house or do I need to split my money between Fidelity, Vanguard, and Schwab? In those cases, as accounts get larger and you start having large amounts of money, then I would split up some of the money into different accounts.

I know it’s going to add some complexity there. It’s not going to be as simple as having it all in one place. So what I recommend is holding different types of accounts at different places. Hold a brokerage account over at Fidelity and hold all your IRAs over at Vanguard, for example. And what that’s going to allow you to do is get rid of the risk that we have brought up, which is not that your accounts disappear, it’s that there’s some sort of disruption in service that doesn’t allow you to access liquidity easily.

So if Vanguard’s site goes down, if Fidelity has some issue where you can’t get access to your account, at least you have another source of liquidity during that time, and you could access funds that way. So that’s the real risk that I see. There’s, of course, risks out there — fraudulent risk and all of these different things that exist.

You have bankruptcy risk for different companies, but the big risk that I think is probably more likely than any of these others — not saying that any of them are particularly likely — but the one that I would deal with is just overconcentration related to the convenience. We started this whole discussion talking about that was the benefit of having it all in one place.

The only thing less convenient than having everything in one place is some sort of security breach or data issue where you can’t log into Wells Fargo or you can’t log into your Bank of America Merrill accounts, and now you can’t access capital, your credit card doesn’t work — whatever it’s going to be.

So I would split up at least some liquidity in different banks so that way you have access in those rare, rare events that there is some disruption. And now on to our next question.

Question 2 – Deferred Comp

Listener: My company offers a deferred compensation plan where I can choose distribution at retirement or spread payments out over five, 10, or even 15 years. I’m worried about locking myself into the wrong choice, especially with unknowns around tax law changes or retirement timing. How do I decide the right distribution schedule?

Stephan Shipe: What we’re balancing here is a few factors. One is company solvency — we have to make sure that your company is still able to pay you the deferred compensation 15 years from now.

The other is going to be tax impact, and the third is really going to be liquidity needs. So I think those are the three factors we need to get into for this type of decision. So in this scenario, you’re leaving your job. We have distribution payouts, so you’ve saved into this deferred comp plan. Now it’s all sitting there.

You get the letter in the mail that says you must choose one of these options. Check this box if you want it all today. We’ll send you a check. Check this box if you want it five years, 10 years, 15 years, etc. The biggest thing you need to take into account is to look at what your expected income is going to look like over the next five, 10, 15 years.

And on top of that, I would look at the probability of that income in five, 10, 15 years. What I mean by that is if you’re 60 and you’re saying, I may work for another five years, I wouldn’t be as concerned that that 15-year deferred comp pay is going to really push you up into a bunch of tax brackets, especially since you’re only going to have a year maybe of required minimum distributions in your seventies.

Now, if you are 45 and we have this scenario where you’re leaving your job, you have this deferred comp plan, and you’re trying to save five, 10, 15 years, you’re kind of stuck with this deferred comp plan paying you out over all of this time stacking on top of your current income. So now you’re stuck with you leaving a job — hopefully for a job that’s paying you more —

with deferred comp from your prior job pushing you up into a higher tax bracket. In that scenario, if that’s the case, generally we want to try to spread out those distributions as long as possible. Go 10, 15 years on that, as long as — and this is the big factor — as long as the solvency of the company makes sense.

So if you think that there are risks that the company is not going to be there in 15 years to pay you your last deferred comp check, then that’s a concern. So then we may push that back to 10, five years. The other factor is the liquidity need. Do you need the cash now is a big concern. If not, that also gives credibility to the longer-term distribution — 10, 15 years.

If you’re concerned about solvency, that pushes us to five or lump sum if it’s a small account. Then we typically are going to be looking at something like a lump sum, or at least to five years, just to get rid of any of the solvency issues. And frankly, for simplicity. Instead of having to deal with this — if you’ve got 50 grand sitting in a deferred comp plan, or $50,000 to $100,000 — and you just take the distribution, it’s not going to push you up into a higher bracket, or it’s going to push you from like a 32 to a 35% bracket.

It’s not big enough for me to say we have to watch out on that extra $2,000 of tax, so go take this over 15 years now to avoid that. In those scenarios, take the lump sum, pay the tax, and go ahead and move on and not have to worry about any of the company solvency issues or any issues with the future. You mentioned this with the uncertainty of tax rates and capital gains concerns.

Fifteen years down the road, who knows what tax rates look like. Historically, we’re still at extremely low tax rates in the US. So if that’s the case, every year that you extend that deferred comp is opening you up to more exposure to higher tax rates, especially when we’re talking about a distribution that will absolutely push you up from an income perspective because it’s going to be taxed as ordinary income.

So when looking at your scenario and what you’re talking about, absolutely reasonable to be worried about it. I think all the things you’re mentioning — unknowns, tax law changes, retirement timing — are all legitimate. And I don’t think there’s anything wrong with thinking about that. I think the best thing you can do right now is to think about it, but just in a more detailed way. Instead of just checking a box, go at least attempt to estimate out what taxes and what your income look like for the next five, 10, 15 years, and use that to give you an answer.

With the mindset that, hey, you’re probably not going to be 100% accurate because who knows what your income is going to be 10, 15 years from now? No one’s going to be able to guess that. But you personally are going to be the best person to be able to provide that estimate of what you think is likely.

Rotating Segment: Money Masters

Stephan Shipe: Now it’s time for our Money Masters segment where we spotlight real stories of people conquering complexity and building financial confidence. Today we’re joined by Ric, whose journey started 40 years ago when he immigrated to the US with just $20 in his pocket. Through discipline, curiosity, and focus, he built both a successful career and strong financial habits, and he’s passionate about passing those lessons on to the next generation.

Let’s welcome Ric to the show.

Stephan Shipe: Welcome, Ric, to the Scholar Advising Podcast. Appreciate you being here. Tell us a little bit about yourself, a little bit about your background, your experiences, what has shaped your relationship with money, your approach to money and success.

Ric: Thank you so much for having me. It’s great to be here and I look forward to our discussion.

As I was thinking about this podcast this morning, I was thinking about — mine is a personal story — how I’ve got here, and even how our paths crossed. I was an immigrant. You know, I have the cliche story of somebody with $20 in their pocket with no guidance. Literally started 40 years ago with $20 that I came here, and mine was a matter of survival and having to figure out how I can make my finances work.

So I’m happy to share the rest of my philosophy, but it was basically around safety and security. That’s what really guided my philosophy towards money. Because when you don’t have anything, you don’t have that safety net, you’re always looking for that. But then I just became really curious, looking around — I didn’t have a lot of role models.

How did these people make money? How did they save it? How did they get to where they were? So I started looking at people and, you know, for some of the audience, they might be old enough to know Peter Lynch, a Fidelity legendary investor. I remember listening to the cassettes just about buying stuff that you know and what is a stock.

So just out of curiosity, I got into personal finance.

Stephan Shipe: That’s fantastic. So that background clearly shapes a lot of the ways that you think about finance and investing and everything. You’ve thought a lot about this for your kids as well. How do you think about instilling those same types of values when they are not going to have that same experience?

How do you do that? How do you pull those two things together?

Ric: That’s the million-dollar question, and that’s what I actually struggled with as I was coming up through my career and ran across a lot of successful people. I saw, you know, some of their kids that had a good relationship with money and some that didn’t.

And obviously, as people that are parents, you can’t really force your kids to do anything. You have to lead by example. So I tried not to be forceful to them, but just more lead by example and make sure they understand, number one, the value of money. So for me, the first thing that I did with my kids — and different people have different philosophies — but for me, since I’ve been working at 14 years of age, my kids, as early as they could work, whether it was in the house or outside, they started working and I started matching what they were making.

So they started earning their own money and they realized the value of what it was to have this paper money. And now with digital money, it becomes even harder because you don’t see money coming in and going, but I still do believe in instilling those values for the kids. So they learned about values of money, and I led by example, and I’m still figuring out how I go to the next phase of how I try to help them since I’m in a better position now in my life and kind of accelerate their financial journey.

I’m still working on it, but probably hard work, starting early, and leading by example. I know it’s very basic, but that’s what I instilled in them.

Stephan Shipe: Yeah. No, that’s fantastic. It’s difficult because they’re never going to have that same path as you, but there are key things that you took away from that path that you want to make sure you pass on to them and make sure they have those values when you look back.

So thinking back to the $20-in-your-pocket days, what were some of those key decisions that you look back on and say, those are the ones — those are the decisions that I made that really set me up for where you are today. And were there any that you wish you would’ve changed? What were those decision values, those big forks in the road?

Ric: I think, just going to the discussion of the kids, the situation is much different. I had desperation and didn’t have the safety net, so that was my drive and pushed me to actually start earning money, keeping it, investing it, and figuring it out. For my kids, I can give them a lot of things, but I’ve not been able to give them desperation.

They look around, they see the pantry, they know that we are okay financially, so I’ve tried to create other examples for them. And for me, going back, I think what led me to here and the lessons — you know, I’ve listened to your podcast and the topics that you cover, and your listeners are at probably a higher level and kind of do-it-yourself type of people that have been good at earning it.

But even stepping back, for me, coming in — imagine 40 years ago as a kid — I didn’t have any role models. I didn’t know anything about money. So I had my curiosity and the drive to figure out how this works led me to figure out some basics. And probably my biggest discovery was when I learned about compound interest.

Because if you ask somebody what is seven plus seven plus seven plus seven, they’ll be able to tell you that. But if you say to them, what’s seven times seven times seven? So that compound is — as basic as this is — when I learned that, and I think they teach kids in middle school, early high school now, compounding, but if you understood how that works for money, that was probably my number one discovery. When I learned my time was my greatest asset, even though I was a teenager, that if I just did some basic stuff and if I just put away just a little bit of money and was consistent about it, that I didn’t have to be some expert investor and had to let time work for me.

Probably compounding was my number one lesson. Number two was living below what I was earning. So I was always a person that, even before spreadsheets or Lotus 1-2-3 or Excel, I had a chart. I used to write down everything I made and everything I spent ever since I was a kid. And I still have those spreadsheets that I update.

So I knew budgeting and I always wanted to live below what I was earning so I could put my money to work for me instead of me working for my money. So that was my second. And then the other thing that I’m working with my family is as you earn more, your expectations increase. Like now it’s not good enough.

If you could manage expectations, that’s probably the hardest thing for me — to say, I can do it, but I don’t want to because I’d rather have my money grow. And if you do that early in life as kids — I mean, I tell some of the kids, do you want the $150 sneakers or do you want to have $15,000? And they’re like, what do you mean?

I said, I could show you this is $15,000. And when you actually show them, they’re like, oh, I’m going to do this. I did this actually with some young kids that their father asked me to talk to them. So those were my lessons. I know it’s very basic and, just like health — you know, we all know what we have to do to be healthier, lose weight, but it’s hard to do it.

It’s all about discipline and applying it. So compound interest, budgeting, understanding where the money was coming and going, and putting money to work on a steady basis were probably my three key lessons.

Stephan Shipe: And with those lessons, you’ve been very successful in the finance side, the personal finance, but you also have had a very successful business career as well.

Where are the correlations there? Where are the similarities there, or are there? From the way you think about personal finance, how do you apply that in the business world? When you’re talking to entrepreneurs and businesses, is it a different mindset?

Ric: There is some overlap. I’m fortunate enough, at this point in my career, I’m working with people that actually are business owners and have made money and during a different level. I’m helping them kind of take it to the next level.

But they don’t have a lot of time. If you think about — they’re in their sort of fifties and sixties — it’s now: what do you do with this cash engine you have, and how do you optimize it, and how do you make it work? But earlier on in my career, it was a lot of the same principles of discipline. Like every time I ran a business unit or profit and loss — a P&L group — or any sort of thing like that, I always applied the same things of: make sure we’re not spending as much as we’re bringing in, we’re in the black, and making sure that we’re making the right investments in people and processes.

So there is some correlation, but I’m not sure it’s one-to-one. For me, when you think about now your finances — because there’s this constant process of learning, this constant education — every time you hit a new level to your finances, it opens up a whole new world of different types of questions that come up and different types of things that you’re interested in. And there’s some things that’ll stay forever.

Stephan Shipe: Compound interest will stay there and managing expectations will stay there. But when you look at your finances now, what are the things you’re focused on for you and your family? What are the new goals?

Ric: Because initially my relationship with money was around security and safety. I’m fortunate right now that now I’m looking at independence. And at this stage, money for me now means independence.

You know, it’s not a scorecard. I run my own race. If I could give anybody advice about money, it’s like, don’t compare. Comparison is the worst thing you can do — running your own race. The other things that — earlier on in my career — I’ve seen now three cycles of ups and downs and major crashes. Even going all the way back to 1987, which I didn’t fully understand back then. I was a teenager.

But around the dot-com era, around the 2000 with technology — I was in technology lending — I heard a lot of people talking about, I need to buy this or I need to buy that, and I got into that myself and I got burned. Second time around, housing — when everybody didn’t even understand basics of real estate, but they were flipping contracts or buying and selling things they didn’t understand — and then they got burned.

So those lessons for me really have reinforced the: don’t have that fear of missing out, run your own race, and steady and consistent wins the race. You don’t have to hit a bunch of home runs if you have time. If you start early and apply the discipline, you can get there. And if you don’t have the time, you just have to have a different type of discipline and put away more.

But that’s kind of the lessons that I’ve taken away from my 30 or so years of investing.

Stephan Shipe: Gotcha. That is fantastic. How would you add to that, to somebody who looks at this and says, I want to be like Ric and I want to have that choice of thinking about independence as opposed to security. What advice do you have for—

Ric: I think for a lot of people, again, because your audience is at a different level, but for somebody that doesn’t know anything, it could be overwhelming. There’s all these terms and all this stuff that people run around, and I’ve been in financial services a bit and I think actually it’s almost like a game to make it more complicated so people have to pay somebody a lot of money or whatever, but a lot of times you need somebody like you that can guide you, but keeping it simple and running your own race.

Just learning the basics. You don’t have to get overwhelmed with everything. Just doing something is better than doing nothing, and starting at any moment in time — you can start whether market is up or down — at any point in time, if you are consistent, you can make it. The other thing I would say is a lot of times people chase because they’re feeling like, I need to chase this return. I need to go and do this because it’s hot — whatever that hot sector is — and I don’t want to be controversial. People jump on different waves. If you do that, just understand that those things have a very high risk and sometimes could be detrimental to your financial well-being. I would keep it simple. I would keep it consistent into stuff that is more safer for assets, and I would say at the right time, get the advice if you don’t know what you’re doing because it pays for itself.

Because if you don’t understand it, it could be overwhelming. But people such as yourself, Stephan — that’s not a plug for you — but I do think it’s appropriate. A fiduciary advisor that has your best interest at heart could be the best thing that you ever do for yourself, and that could be the best accelerant to your financial future. Because unfortunately, there are a lot of people that could call themselves advisors — whatever their titles are — but if they’re not working on your behalf and aligned with your interest, that could actually be detrimental to you.

So: keep it simple. Run your own race. Start early if possible. I didn’t come from money. I had to learn it and it was curiosity and finding the right role models for me. And I found Peter Lynch was actually the first one. I bought stock before I bought mutual funds — that’s the interesting thing — because I didn’t know what a mutual fund was, but when he described what a stock is, that’s when I bought McDonald’s because every day I would go and, with my money that I would earn, I would go buy a meal.

It’s like, well, I understand McDonald’s. Old-school discount brokers where you had to call somebody — a lot of people probably don’t even know what it is — and they charged you $85. When I had saved my first thousand, the first thing I did was buy McDonald’s stock, and that got me interested because I would watch this MCD ticker and that curiosity fueled me.

And then I listened to Peter Lynch, and then Peter Lynch mentioned Warren Buffett’s of the world. And one of the things that I was fortunate about is I was able to pick out the right role models. I was able to pick out the people who were not just hyping or talking their own book and trying to push stuff.

Somebody like a Warren Buffett gives very plain advice to young people to keep it simple. Put your money away steadily in an index fund and let it grow. Peter Lynch was the same thing: buy something you understand, watch it over time, and invest in equities for the long, long term. So I was fortunate. I found role models and that’s what pushed me to the next level.

And as I learned, I still listen — like I listen to all of your podcasts. I listened to, I mentioned a couple other people, and I try to educate myself — but, you know, the curiosity’s still there for me and the role models. The other thing that I wanted to say with my kids — probably if you ask my kids what lessons they’ve learned — and I actually, they did not respond to me because they’re both working.

Because I was going to ask them, instead of me telling you — it’s like, hey, tell me what are the top three lessons you learned from your father. Because when you tell them, they’re going to repeat back to you. But I want to see actually if something stuck.

You are educated yourself, Stephan, so you know — like what did you learn? I would hope that the things that they would tell me that they learned — just three things, and I’m always about simplicity, like very few things. I would think that they would say: use time as your asset. The other part was create a rainy-day fund, and by that I mean having some reserves because you never know when something goes wrong — as a kid, like your tires blow up in your car or something.

They have me, but they’re actually taking care of it themselves. That was always the driver for me — having some reserve — and then investing the rest of it in something that can grow over time through compounding. So those will be my three lessons that I would want them to say that they learned, but I’ll actually come back to you and tell you when they respond after work.

Stephan Shipe: I’m curious because — how you start off with individual stocks — that is controversial when you’re starting out, but what’s interesting is when we’re talking about helping people have their kids get interested in finance, one of the things I regularly will say is have them invest in individual stocks. And sometimes I have clients look at me — it’s like, that’s heresy, right? It’s like, this is the guy — you’re supposed to be saying that you should keep it simple and index funds. But I find the same thing that you’re saying is if they’re not going to relate to it, it’s easy to say you should go invest in the S&P 500 index fund.

They have no idea what that means. It goes over their head. It’s just something Dad’s telling them. But you go say, go pick three stocks you’re interested in, and it changes the entire scenario.

Ric: Yeah, I get excited when you just said that because I agree with you philosophically, and you actually coached me to get out of a lot of my individual stocks that I had accumulated, but that was more of a hobby and what got me in it.

What’s created the wealth has actually been that diversification and indexing and putting stuff in the right buckets. But I think kids relate better to an individual stock than — because even the whole concept of a mutual fund to a 13-year-old or a 12-year-old — it’s kind of foreign. So for example — I mean, this is a real-life example.

My son and I used to go to Costco when he was little because I was cheap and I wanted to feed him samples. I didn’t want to buy him lunch. So I would just walk him around and feed him samples. So he is a Costco fanatic like I am, and that’s not a plug for Costco. But when I was trying to explain to him what is investing and what’s a stock and how does it work, I kept it very basic.

I said stock is just an ownership in a piece of the company, and it’s sold to the public to raise money so they can grow. I think generally even a young kid can understand. And he said, well, how do I get in it? I said, okay, let’s open up an account for you. We literally got online, opened up — it was a custodial account because he was not of age.

We put a thousand dollars, and he bought some Costco shares. Now the Costco shares that he bought when he was in middle school, he just told me was like $7,000 — a thousand became $7,000 or something like that. But he is super excited. That, to him, shows him like, wow, I could invest in it. Then he got the bug and then he bought the S&P 500 fund, and then he realized that, oh wow, now I’m in 500 stocks, and now he has a 401(k) because he’s a big boy, has a real job, and he has a target date fund and he understands these things much better. And he says, Dad, I’m teaching my coworkers about — you know, they have to at least do the 401(k) up to the matching — because some of his friends don’t do it. So he is telling them, you have to do at least the minimum to the matching.

I agree with you that — and every kid may be different — but I found for my kids, and my daughter was the same because my daughter was actually Estée Lauder as a makeup, but unfortunately the stock didn’t do as well. But she got the concept and she has S&P 500, but my son’s Costco is a better investment, so—

Stephan Shipe: Well, that’s the beauty, especially when they’re younger. Starting off — if you’re going to fail, that’s the time, right? If you’re going to have an account go to zero or a stock go bad, that’s the time to do it. And no matter whether it goes up or down, the same lesson is there. I think you nailed it. It’s the ownership.

Going back to something you had said around this concept of things tend to be set up to be more complex than they are. We’re seeing it even in what we’re talking about — you have funds and you have mutual funds, you have ETFs and all this — and immediately that world just became really complex, where when you break it down and actually bring back the basic tenets of what a stock is, which is just ownership, now you link those two and say, you can own a piece of Disney, you can own a piece of Home Depot or wherever they see. So they resonate with it.

And my boys — they do the same thing. It’s like, oh, well they’re an owner of Home Depot, so whenever we’re over there they have this feeling of ownership, which is so odd because the amount that they own is ridiculously small. But it does — it brings that connection in that they are owners in the company, that this is where the stock is.

And then when you say, would you like to own 499 more of those stocks, the answer is yes. And then you have an index fund created. So they — it’s a great idea. That’s the one exception I typically make for the individual stock purchases on that.

Ric: Yeah. But it continues, and that’s not uncommon with a lot of people we work with because the interest in the concept of ownership. So you end up having these individual stocks because they see that connect. I concur with you 100%. That connection to the company. It’s funny you mentioned the ownership because he would walk in there as a kid to Costco and tell people, I’m an owner. I was like, buddy, stop. Like, you have a little piece, but you’re not an owner of Costco.

You know, people are like — adults are looking at him all strange. But he could relate to that, and I think other kids can relate to that too. Leading by example and watch him — because he would see me watch CNBC, and when the ticker would go by, I was like, did you see that? That was like COST is Costco. And he would recognize it and he would see. But I think getting him interested about money earlier is better than later.

Stephan Shipe: Totally agree. This has been fantastic. Thank you so much — the conversation — really appreciate you being here.

Ric: I have to tell you, I enjoy your podcast. You are talking to a different level of investors than some of the other stuff that I’ve listened to. Because when you talk about fractional jet ownership or buying — you’re at a different tier. So that’s what I was trying to, you know, struggle with this podcast because my stuff is so basic, and that’s the only lesson that I could leave people with: keep it simple, keep it basic, but do something.

Stephan Shipe: Exactly. Doing something. There’s not a point at which you hit a level of wealth that says, well, now I want everything to get complex. The values you had are the same for everyone.

And the thing, too, is that anyone who’s out there buying fractional jet ownership — they also have kids and they’re wanting those same values instilled. I don’t think there’s any problem with those basic investing principles staying and constantly being reiterated, because, as you mentioned — even Warren Buffett — the same principles.

Going back to the basics of this is the same no matter what type of wealth you have. For the amount that you have, these are the same values that you need to stick with.

Ric: If I could just add something else to this discussion — you know, talk about keeping it basic — but if there is a different level of investment, things that you want to do, if you don’t understand something, don’t do it. That will be my advice to any investor at any size. I mean, we run into this with people that are worth significant amounts of money and they’re getting into stuff they actually don’t understand. And you would think that if you’re at that level — if you don’t understand, ask people to get an advisor, have somebody explain it to you.

For me, for example — bringing from personal investment to the business side — if I’m speaking to someone and they can’t very basically explain to me how this business makes money or how do we win in the marketplace, and they’re going on and on and on and they can’t say it very simply, I get scared because why is this so complex?

You should be able to very simply explain to me how something makes money. The same thing is true for the personal investment side, that as more and more things are offered and more financial innovations, I call them, are offered — if you don’t fully understand it, it pays to get advice so you can understand it, and if the advisor is explaining it to you and you don’t understand, I would probably say it’s not a good investment for you.

That will be my advice. And I know there are things that, in my mind, that I’m thinking about today that are being, for example, even put into 401(k) plans and offered to people that probably are not the best products for the individuals, but people are signing up because financial institutions have an incentive to make money. It’s not like by malintentions, but they’re trying to make money, but it’s not the right stuff for you. So you have to pick and choose the right stuff from the menu that you understand for your individual case.

Stephan Shipe: Especially with all the changes in 401(k)s. Yeah. Private investments, private-type credits, you know, kind of leveraged funds where they’re using multiple levels of debt to achieve certain results. These things look good when things are going up, but — again, just quoting one of my role models, Warren Buffett — when the tide goes out, you find out who’s been swimming naked. So everything is great when things are going up, but you find out when people are really genius when things actually go down.

Ric: I really appreciated working with you just to go through the different scenarios and reducing that variation. Because like I said, right now at this stage of our lives, we’re looking for more of an independence, not security, and you’ve helped us do that. So thank you for that.

Stephan Shipe: Absolutely. Always been a pleasure.

Outro

Disclosures: The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice. The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor who can assess your individual financial situation, objectives, and risk tolerance.

The guest on this podcast was a client of Scholar Financial Advising as of the date of recording, and was not compensated for their time. Nothing conveyed by the guest should be construed as a testimonial or endorsement of Scholar Financial Advising, and their experience as an investor or a client may not be representative of all investor or client experiences.