The Psychology of Investing

Sunday, June 3, 2017 – Wealth Strategy with Bryan Rigg, Your Wealth Professor
Listen In Every Week: Saturday on WRR from 7:00-8:00 am / Sundays on 570 KLIF

We’re here today for an hour to talk about wealth, and wealth planning, and financial planning, and your retirement, and saving in general. It’s not something we do automatically or organically. Having the knowledge to do it and do it right is very empowering. We want you to know because knowledge is power.

The topics we’ll be covering today are common client roadblocks. We’re going to talk about that for a little while, about how clients can get in their own way. Bryan has experience with that. Speaking of experience, we’ve got a few client stories from Bryan about some of the people he works with, and some goods and bads, and some watch outs.

Also, what do we need to know about investing? You want to counsel someone and help them, but you need to be helped as well. What is it about investing that you need to understand and you may be overlooking?

Finally, how do brokers and agents get paid? Your investments, you’re putting money with these people. How is it that they get paid, and the different rate structures, and things?

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DISCLOSURE:

RIGG Wealth Management offers securities to Broker Dealer Financial Services, Member SIPC and advisory services through Investment Advisors Corp and SCC registered investment advisor. RIGG Wealth Management is not a subsidy area of Broker Dealer Financial Services. Neither RIGG Wealth Management nor Broker Dealer Financial Services offer legal advice. Client should consult their attorney of choice on all legal matters.

Opinions expressed on this program do not necessarily reflect those of Broker Dealer Financial Services. The topics discussed and opinions given are not intended to address the specific needs of any listener. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Examples mentioned are for illustrative purposes only, individual results may vary. Past performance is no guarantee of future results. Investing involves risk including loss of principle. Rebalancing can entail transaction costs and tax consequences that should be considered when determining a rebalancing strategy.

“A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty. Not associated with or endorsed by the Social Security Administration or any other government agency.

Rob Dalton:  Welcome, welcome. I am Rob Dalton. With me today, as always…

Bryan Rigg:  Is Bryan Rigg.

Rob:  We are Rigg Wealth Management. The show today, “Wealth Strategy with Bryan Rigg.” Our wealth professor is here today. We’re going to discuss what we always discuss, financial planning, financial understanding, and what it’s like to work with an independent advisor. That’s you, right?

Bryan:  Yeah, absolutely. We are not beholden to any wirehouse. We can go out and look at what the other firms are doing and pit them against each other. That independence breeds a lot of confidence. Also, it prevents fewer and fewer conflicts of interest.

Rob:  We’re going to talk about that and what Bryan can do for you and what you can do for yourself. You don’t have to work with us all the time. You can do a lot yourself.

We’re here today for an hour to talk about wealth, and wealth planning, and financial planning, and your retirement, and saving in general. It’s not something we do automatically or organically. Having the knowledge to do it and do it right is very empowering. We want you to know because knowledge is power.

The topics we’ll be covering today are common client roadblocks. We’re going to talk about that for a little while, about how clients can get in their own way. Bryan has experience with that. Speaking of experience, we’ve got a few client stories from Bryan about some of the people he works with, and some goods and bads, and some watch outs.

Also, what do we need to know about investing? You want to counsel someone and help them, but you need to be helped as well. What is it about investing that you need to understand and you may be overlooking?

Finally, how do brokers and agents get paid? Your investments, you’re putting money with these people. How is it that they get paid, and the different rate structures, and things?

Bryan’s happy to talk about what he does, but also, in comparison, we’re going to talk about what some of the other wire companies do. That will be later in the show.

Again, Bryan, welcome again. How is your weekend?

Bryan:  Good. I’m continuing working on my next book on Iwo Jima. I just read a book by Lee Mandel about one of the most famous rabbis and chaplains you see in the military, who’s a rabbi. He wrote a phenomenal obituary, dedication speech for the Fifth Marine Corps Division Cemetery on Iwo Jima. I encourage people to look at what’s called the Gettysburg Address of World War II.

It’s profound. it sums up why we were fighting in World War II, the pursuit of democracy, the pursuit of religious freedom, the pursuit of racial equality. It’s phenomenal.

I’ve been working on that and incorporating him into my book about Iwo Jima. His name was Rabbi Gittelsohn.

Rob:  You don’t just live and breath financial management.

Bryan:  No. [laughs]

Rob:  [laughs] You have passions outside of the office. That’s great.

Bryan:  Yeah. On the weekend I take a hall pass every now and then. I read about World War II and the Holocaust and so on.

Rob:  That’s nice. That’s good to know. I’m anxious for the book to come out. Please keep us updated on your progress on that.

The first segment today we’re going to talk about is client road blocks. We’re going to discuss what Bryan’s experience has been with clients, the good and the bad, but we’re going to start off with…I know that, like many investors, Bryan, they like to stay heavily involved in their investment with you. There’s always that honeymoon period, but then, over time, several years, things turn into a normal.

What is it like working with people that are really, really heavily involved in their own investment portfolio?

Bryan:  The few people that I have had that are very involved, a lot of times they’re a good teammate. We work on things and then eventually, hopefully, I show them, from all the experience that I’ve had, that they can start deferring to me about doing things.

If somebody comes to me and they want to tell me how to do things, a lot of times I’m irrelevant because they have their own opinions. A lot of times those people don’t go to financial advisors. Quite often, the type of mindset you are talking about when somebody gets involved, their idea of getting involved is looking at the statements on a daily basis.

Rob:  That’s fair.

Bryan:  They’re expecting quick returns. They’re watching the market every day in relationship to their portfolio. If the market does really well and the portfolio we have them in is not doing as well they’re asking why.

But if the market does horribly and you are in tandem with that, they’re like, “Why are we like the market?” Here are some of the roadblocks, psychology wise. A lot of times people, especially in America, have instant gratification desires and expectations. They are unrealistic when it comes to investing.

One of the biggest roadblocks to investing, whether a person’s involved, in my experience, involved means watching their account every day, not actually learning about the market. They’re just expecting, “When is it going to go up? When is it going to go up? Is it going to go up more? Is it going to go up more?”

The biggest roadblock is expectations in the short term.

Rob:  Sure, because we’ve talked before about how when you grow something like your investment portfolio it’s not much different than watching corn grow. You have to give it time to grow on its own accord. You can’t sit there and rush and say, “Grow faster. Grow faster.”

Bryan:  Especially if you want to practice rebalancing and buy low, sell high because next year I cannot tell you today what, in 12 months, is going to be really up. The geopolitical landscape is changing all the time. North Korea just put up that missile and landed 500 miles away from its launching site, right near Russia. Who knows what that’s going to do in Asia?

We’ve got the Middle East mess. That can affect a lot of things. But I know this, there is going to be three or four, five, segments of the market that are going to be up. When they are, we sell those areas that are profitable. Then we look at areas that are depressed.

Rob:  Rebalancing.

Bryan:  And rebalancing. You can’t benefit from that strategy on a daily basis. The biggest roadblock here, again, is people do not have the patience.

Rob:  And money has to grow.

Bryan:  It has to grow. I like your farming example. Literally, I had this one client, very sophisticated, good old boy here in Texas. Built up his own company. He got up and running with me. After a year, we were a contrarian play. Energy. Energy had been fairly static, good dividends, but it hadn’t had a lot of growth.

All of a sudden, all the stuff in the market’s doing well. We’re getting historical returns in the S&P 500. He’s wondering, “Why are we not having those returns?”

Rob:  Because he’s in energies.

Bryan:  Yeah, “Because you’re in energy. You bought in the low. We didn’t chase performance.” He couldn’t handle it. He was looking at it in one year. It’s like somebody planting corn and then, the next day, just yelling and getting very upset at the store that sold him the grain that the plant’s not growing.

Rob:  “I can’t see it yet.”

Bryan:  A lot of times it’s interesting psychology. People understand this when you sit down with them and you show them the historical track record. From 1926 to now, the S&P 500’s return on average, 9.62 percent.

If you let it grow, it will do that, but you cannot expect that to happen in one year, or two years, or three years. It could happen in five years. It could happen in 15 years. You need to wait until it does happen. Then, when it does happen, that’s when you pull out if you’re getting close to retirement.

Rob:  We talked about people being heavily involved. Do you work well with investors that are simply hands off?

Bryan:  The best investor I have is one that comes to me, and this is quite often the case. I had a lovely lady last night that I sat down with and she has four or five different accounts all over the place. She has two 401ks that haven’t been consolidated. She hasn’t done any estate planning.

Sitting down with her and going, “OK, hey. We’ve got several buckets. Estate planning. Make sure we get insurance taken care of.” Long term care insurance because she’s a single woman, has no children. Make sure we get all these accounts consolidated so we have a focused direction.

That’s what they want. They want to feel like, “We’ve got a strategy. We’ve got a vision. It’s what we’re going for.” Then, once that happens, a lot of times people, they’re so busy with their lives, dating, or with their kids, or with their spouse, with family, and with building up their career the last thing they want to do when they sit down at night and have a glass of wine is to go over their Sortino ratio, or their Sharpe ratio, or look at rebalancing their portfolio, or looking at really cool ETFs, exchange traded funds.

That’s not going to be jazzing them at all. A lot of times once you get that direction and people feel like you’ve got coordination and organization in the portfolio then they back off. Most people do.

Granted, as a professor, I would love to have clients come to me. “Hey, what book can I read next? I want to understand more of what we just did. That sounds really interesting. Rebalancing and looking at 20 different ETFs and how they’ve worked historically? I love that.”

Rob:  That’s what you do after a glass of red wine.

Bryan:  I know. Very few people have the bandwidth. Like I’ve said many times throughout the years, two things that are most important in life are the two things we study the least. How to be a good partner or be a good spouse, how to develop relationships. We didn’t study that in high school.

And how to take care of your nest egg. How to take care of your finances. We don’t study that, either.

Rob:  No, we don’t.

Bryan:  Ultimately, a lot of the truisms that are out there people understand but they need to implement those truisms. Put away for tomorrow. Save for retirement. Rebalance. Buy low, sell high.

My job, as a financial advisor, is to take those truisms that they have heard throughout the years and implement it in their portfolio.

Rob:  We’ve been talking to listeners. You’re going to stick around here for the next 45 minutes, at least, but if someone wants to ask questions about you, about what you can do for them, what’s the best phone number to reach you at?

Bryan:  Call me at (972) 383‑1210. Also, feel free to visit us at our website, RiggWealthManagement, that’s Rigg with two Gs, R‑I‑G‑G WealthManagement.com.

Rob:  Thanks. We’ve talked about roadblocks, but I want to get into the next segment, client stories. You tapped on a couple but I like where this is going.

When we come back from the break, we’re going to talk about some client stories from Bryan Rigg himself. Stand by.

Rob Dalton:  Welcome back from the break, we appreciate you sticking round. I’m Rob Dalton.

Bryan Rigg:  And I’m Bryan Rigg.

Rob:  We’re here for the rest of the hour, we’re going to talk about finance and financial wealth management and how to make your money work for you. With me today is our Wealth Professor Bryan Rigg. Coming out of the last segment we got into client stories.

We talked about some road blocks, Bryan, but this time I wanted to ask you examples of what you’ve gone through with some of your clients. The pros and the cons, the good and the bad. Let me start with this one for this particular segment, do you have an example of what to do as an investor? Maybe a success story.

Bryan:  Yes. A lot of my clients that I’ve had a lot of success with the last 10 years are good listeners, they’re good teammates, and they have stepped over the rubicon, realizing I amt a trusted part of the family to some degree. I’m helping them with their children, I’m helping them with their legacy, I’m helping them with their retirement.

When you sit down with people and you start explaining things and they’re like, “You know what, I get it and I put my collective head in your hands.” Luckily I’ve had referrals so people can go and get feedback, but one person, in particular, he said, “Here’s the money, I’m doing this for a trust for my mother, and it’s going to benefit three of my nieces.”

I said, “OK. If you do a diversified portfolio that indexes and we rebalance it on a regular basis we should do fairly well.” We started this back in 2008. His mother passed away, and then we continued to manage his trust for several more years and to make a long story short, from 2008 until we just distributed it recently it had tripled.

That doesn’t normally always happen in a timeframe of 10 years, but you realize the Dow Jones went down to 6,700. What he did, when he listened to me, we got it up and running right before the crash.

Rob:  Right, I was going to say, this is 2008, that’s a significant time.

Bryan:  Yeah. In 2007 we got it up and running, we had it in a fairly moderate strategy, it tanked, and he listened to me, I said, “Let’s take all the fixed income and let’s dump it into equities. I just got you back to like 1985,” with the stock market being at 6,700. One thing a lot of times people don’t have is time.

We had just turned back the clock. Let’s throw everything into equities, [inaudible 2:31] trust me, we did that, it’s continually rebalanced, and by the time we spread it out to his three nieces it was three times what it was. The nieces appreciate that and I have them as my clients right now.

He listened to the strategy of buy low, sell high, he listened to the Burton Malkiel story that I gave him. He actually looked up articles on the Internet to verify Burton Malkiel the Princeton economist.

Rob:  [laughs] OK.

Bryan:  He was an example of, “Bryan, I’m going to listen to what you’re saying, I’m going to do a little bit of my own homework, verify what you’re saying. OK, this makes sense, you’re listening to what my strategy is, let’s do it.”

Rob:  That’s a good story. That’s excellent, you’re right, those returns are not typical, but catching it at 2008 when it was really low, it’s grown. What about an example of what not to do? Maybe quick turn expectations or something, what’s something people need to be aware of that is a downside?

Bryan:  I had one guy come, he was brilliant, a chemical engineer, very alpha, very high strung. At first, he’s like, “I’ve always done stuff myself and it’s never worked. I need to have help.” I was like, “OK. I think I can help you.” We set up a strategy and we devised the plan, we implemented the plan, and within the first couple of months one of the investments we had had some volatility in it.

It was yielding very nicely it was yielding eight percent, but it had some volatilities at like four percent. He got very upset, he thought he had lost money. I was like, “Unless you book it you haven’t lost money. Let it ride. You told me we have a 20‑year timeframe. We’re not looking at this on a two‑week or a four‑week time or a 2‑month timeframe.”

He didn’t listen, he got very upset and he pulled his account. A few months later he called me up and he apologized because he had watched the account and the very holding that I got him into was now up four percent and it was still cash flow, he never missed a dividend payment.

We talked about maybe re‑engaging, but after that happens it’s kind of like once you have a break‑up…

Rob:  It’s a trust thing.

Bryan:  A trust thing. This person had a kneejerk reaction, he was very volatile, so that was a case that not every person who comes to you as a financial advisor is actually a good mix. I’m sure there were somebody else that would’ve been able to track with him more, psychologically, but his expectations, and this is where I probably failed as a financial advisor, of managing his expectations.

I’m sure I told him because I do this with everybody, long time horizon. That’s an example of a bad case study when somebody has unrealistic expectations. That’s the problem…

Rob:  That’s not your fault it’s just…

Bryan:  It’s humankind.

Rob:  It is.

Bryan:  False expectations with marriage, false expectations with kids, false expectations with jobs.

Rob:  With jobs, anything.

Bryan:  Humans have false expectations all the time. Financially that happens an awful lot, I think as a financial advisor if you’re good 9 times out of 10 you’re going to be able to hopefully pull people back on the safety ship and say, “This is how you need to be looking at things,” and then hopefully they are good listeners.

There’s some people out there who simply are not good listeners.

Rob:  You can communicate but it doesn’t mean they heard you because their own perceptions are often roadblocks to what they here. You mentioned being compatible with your clients, being transparent, do you have any examples of being transparent?

Bryan:  Yeah. That’s one thing I encourage everybody out there, be very transparent with your financial advisor because he or she can not help you if they do not know about things.

Rob:  Give me an example.

Bryan:  There’s this one client that I had and he had really racked up a lot of credit card debt. He didn’t tell me, so all of a sudden he comes to me one day and he says, “I need $100,000.” I’m like, “Why?” He’s like, “I just got to take care of some bills and things of that sort.’ In the end, your philosophy as a financial advisor is, in the end, the client always rules.

If they don’t explain things to you but they need something done it’s their money. After trying to feel him out and ask what was going on he was very evasive and he was embarrassed.

Rob:  He was embarrassed, sure.

Bryan:  He was embarrassed. I gave him the money, then a few months later we were sitting down and he needed some more money, and I’m like, “Wait a second, what is exactly going on? This was not the original plan. The original plan was we leave this alone, we grow it, and we got 20 years until you retire. Right now you’ve just put yourself way behind the 8‑ball according to our original plan.”

Rob:  Pulling out assets, right.

Bryan:  Yeah. He said, “Well Bryan, I got a little greedy with some vacations, I got a new car and before I knew it I racked up all this credit card debt.” A lot of Americans just think money’s growing on trees.

Rob:  Yeah, he got upside down with some things.

Bryan:  Yeah. I said, “What was the interest rate?” He said, “It was something like 14 percent,” and I was like, “That’s wise to pay off, but did you not know that we could’ve margined your account, we could’ve paid off that debt, and instead of paying 14 percent we’d have 4 or 5 percent.”

He kept that debt for about a year, I said, “For one year at least we would’ve saved you several thousand dollars.” He didn’t know that, I said, “You have several hundred thousand dollars with me, four or five thousand dollars doesn’t make a huge difference, but every penny really counts.”

My grandmother used to always say if you watch the pennies the dollars take care of themselves. You need to watch this. I’m very nerdish, if you will, in this way. Even if somebody has a million dollars with me, if I can find a way to get them five or six thousand dollars more per year, I’m going to do it.

Rob:  Absolutely.

Bryan:  That client, has he been more transparent with me at the very beginning.

Rob:  Right. It’s hard to overcome the embarrassment and I understand the situation, as I know you do, but you’re teaching him a lesson and we’re using the example to teach others that are listening now.

Bryan:  Yeah, and on this example, what people need to do is whenever they feel like they’re doing something and they don’t feel it’s right, or that it’s good, from a financial point of view. Call up your advisor, talk to him or her, just bounce off ideas, we’re not here to judge, we’re here to find solutions.

Rob:  Right, and if you don’t know there’s a problem you can’t find the solutions.

Bryan:  Exactly.

Rob:  One last thing I want to tap into is that you do work with your clients, there is a partnership and we were talking about transparency and that you do provide high service and that you listen, but people sometimes act as a contrarian to you. How do you deal with that? Do you have an example?

Bryan:  A lot of people quite simply don’t want to feel stupid, nobody does, so a lot of of times when you start talking about strategies and financial wealth portfolio mixes they can use, their eyes start glazing over. Many people feel inadequate, they feel like I should have so much more now in this stage of life, and I don’t.

Rob:  Not the case.

Bryan:  Yeah. As a result, they kind of shut down, avoidance behavior. That’s not the right way and quite often when you sit down with people you go over their social security, maybe what is in inheritance, how much they can grow if they start practicing discipline with saving. They start to realize, I can do this. There is a way to do this.

Rob:  [laughs] Yes, there’s a solution.

Bryan:  That’s something that I love doing with clients, it’s OK to be vulnerable. I guess to make a long story short, it’s OK to feel vulnerable and as a result of feeling vulnerable that’s where you’re going to find some good solutions.

Rob:  It’s true because you have to be cognizant of what your shortcomings are, and going to someone like yourself, I know when I came to you, I learned a lot. I sleep better now that I know more. I just didn’t know what I didn’t know. If people want to talk to you and get a consultation, what’s your number?

Bryan:  Just call me at (972) 383‑1210 or visit me at my website riggwealthmanagement.com, that’s Rigg with two Gs, R‑I‑G‑G wealthmanagement.com.

Rob:  Thank you, Bryan. Good segment, client stories, always good. What do we need to know about the process of investing? That’s coming up after the break. Stick around.

Rob Dalton:  Welcome back from the break. I am Rob Dalton.

Bryan Rigg:  And I’m Bryan Rigg.

Rob:  We are here every weekend at this same time on this station, to talk to you about wealth management, and helping you understand the financial complexities of the world out there.

It’s not something that when we inherently are grown to know about how to save and how to prepare for our future. It’s not something that’s genetically ingrained in us, but in today’s society, we have the capability and the possibilities, and the probabilities, but we’ve got to know what to do.

A lot of people don’t understand what financing and financial management means. It’s OK to not know. You just don’t know what you don’t know until someone tells you, and that’s kind of what we hope to do every weekend right here on “Wealth Strategy with Bryan Rigg.”

Bryan:  I want to mention one thing, Rob, with what you’re saying. Excuse me for cutting in here.

Rob:  Go.

Bryan:  It’s fascinating, the process of investing, and it’s something that is very new to the fabric of mankind. We come from a Judeo‑Christian environment, and according to some scholars that I have read, if you go back to the time of Jesus, 2,000 years ago, the average age of a male was 25 years of age.

A lot of people were dying in childbirth. A lot of people were dying in early adulthood, because of abscessed teeth. You didn’t live very long, so you didn’t really plan for the morrow, because life was so fragile. Now the average male in America is 76.4 years.

Rob:  Triple.

Bryan:  That’s adult life. Think about it. If you die at 25, you don’t really have a lot of memory of when you were 11, 12, and 13. You start, maybe, when you were 15 or 16, and you have eight years of…

Rob:  Adult life.

Bryan:  Yeah, adult life, and then you’re gone. Now that we’re living longer ‑‑ even 100 years ago, during the time of the Civil War, average age was around 40‑45. Now that we have 30‑40 more years that we’re living and having to plan, we do not have a tradition.

We do not have a fabric of society that basically says universally, “We’ve got to plan for this,” because we’re the first or second generation that has the luxury of planning for old age.

Rob:  It’s true, and that’s why people don’t know. We were talking in the last segment about client stories. I’m sorry if you missed it, but we had some stories from clients. People are just afraid to ask a stupid question, but there aren’t any. It’s true, especially in this industry today. The stupid question is the one you don’t ask.

Bryan:  Yeah, and I, as a professor, when I was at SMU and American Military University, I would always tell my students, “There are no stupid questions. There’s only stupid answers.”

Rob:  They might be hard to ask, difficult to ask, because of our pride and embarrassment, but you need to ask so you know. It’s your money.

Bryan:  Yeah, and I cannot tell you, from unsophisticated to very sophisticated clients, I sit down. I’m trained as a teacher. I’m trained to pull questions out of people. I sit down with them, and I start talking, and then I immediately realize on both sides of the equation that these people don’t know what I’m talking about.

Rob:  There’s a disconnect. You can feel it.

Bryan:  I sit down, “Let me write this out. Let me describe what’s going on. Let me bring out a chart,” and then they feel more comfortable.

Rob:  You really ‑‑ we’ve talked before, on‑air and off‑air that you don’t mind people interrupting you with a, “OK, what does that word mean?” like a vocabulary test, because your verbiage in your industry is not something most people are accustomed to.

Bryan:  No, and most of the verbiage in my industry are for simple concepts. I really do believe there’s this psychology on Wall Street of making things sound very complicated so people do feel confused.

Rob:  And intimidated.

Bryan:  Intimidated, and then they don’t ask questions. That’s the whole collaterized mortgage debt obligation mess, Madoff, Stanford. All these people were hiding behind fancy language, and a lot of fraud, lying, and cheating.

Rob:  When it’s that smoky, it’s easy to do.

Bryan:  Exactly.

Rob:  We’re going to break some things down. We talked about this segment. What do we need to know about the process of investing? We’re going to start with it’s a complicated process, but it can be simple to understand. In a seventh‑grade vocabulary, what is stock, when you get into stocks?

Bryan:  Before I go into that question, I always like to quote Carl von Clausewitz. He was a military philosopher, Prussian‑German, and he said, “In war, everything is simple, just hard to do.”

Rob:  [laughs]

Bryan:  I think that’s in life, too.

Rob:  In life, yeah.

Bryan:  Everything is simple. How do you have a good marriage? You adore your wife, you love your wife. Easy to say, hard to do.

Rob:  It’s hard to do for a long term, yeah.

Bryan:  How do you plan for retirement? You start saving now. Easy to say, hard to do. The first part of learning how to save and build out a portfolio is to understand the instruments. You brought up a question about, “What is a stock?”

Rob:  What is a stock?

Bryan:  Quite often when I talk to people, very sophisticated people, they don’t understand that is ownership.

Rob:  Ownership of what?

Bryan:  Of the entity that you’re buying.

Rob:  OK, good.

Bryan:  If you buy a stock of Exxon, you’re an owner of Exxon.

Rob:  A shareholder.

Bryan:  A shareholder, yeah.

Rob:  A different word, same type of ownership.

Bryan:  Yeah. You can’t go into their board meetings and say, “Hey, I have five shares here. I want you to listen to me.”

Rob:  [laughs] “Where’s my seat?”

Bryan:  Yeah, but you have ownership in that entity, and so you participate in the growth and the profit of that company, and the desirability to have a piece of the action of that company.

Rob:  If it grows, you’re interest in that company grows.

Bryan:  If it’s stable, the board will be having pressure put on it to share in the wealth, share in the profits. Those are dividends.

Rob:  Thank you. That was going to be my follow‑up question. Now that we’ve talked about stock and ownership, what’s a dividend?

Bryan:  Dividend, so if a company’s done very well, it’s kind of like a little bonus at the end. “For believing in us, here is a little bit of a bonus. We’ll pay you.”

Rob:  A financial bonus.

Bryan:  That’s one thing with investing. I always encourage my clients, and quite often, they don’t understand this. You want to look at cash flow, and you want to look at growth. If you always have good cash flow, that’s going to be something that will pay huge dividends ‑‑ no pun intended ‑‑ in the long run.

By way of illustration, let’s say we have $100,000, and it’s yielding eight percent, $8,000 per year. That $100,000, let’s say, has a lot of volatility in it. It may go down to $90 or $85 thousand.

It may go up to $110,000 or whatnot, but if it continually gives me $8,000 per year, then that is something that I will not be touching the principal if I ever need to use it.

Although in one year, let’s say it goes down to $85,000, $8,000’s come in, and then the person says, “Hey, I’m at $93,000. I’m down $7,000,” I’d say, “Well, yes, from the beginning to now, that’s true, but if you look at it, we’re not touching that principal. We’re looking at the cash flow, and even if it stays at, let’s say, $85,000, and we get $8,000 per year, it is generating good cash flow.”

Ultimately, that’s what you want to be at later on when you retire. You want to have…

Rob:  You’re seeing the positive investment. You’re seeing the positive return.

Bryan:  Exactly, so when you get to stocks, one thing that I’ve been trained at, at Credit Suisse and in studying a lot of the writers I have, is you want to look at good dividend paying stocks, or good dividend paying ETFs, index funds that are a collection of a whole bunch of stocks within a certain market sector.

That is something that as far as instruments that are out there, a lot of people don’t understand that. They don’t understand that when we look at five or six different companies, sometimes we’re looking at not only are they good companies, but also do they pay good dividends? Are they sharing in the wealth?

Rob:  The little financial bonus, is it worth it? Understanding, again, the process of investing, understanding the word grow, that’s important.

Bryan:  Yes. A lot of people, the growth, you have long‑term and short‑term growth. If you hold the stock for longer than 12 months, you’re taxed at a different level, around 20 percent. If you don’t hold it for longer than 12 months, it’s short‑term growth, and it’s going to be taxed like at 35 percent.

You’ve got to be careful with when you’re holding it, and when you’re seeing growth, not pulling the trigger too soon. A lot of times, a lot of people like to play the market, and every couple of months, they like to sell things.

If that’s the type of strategy you like, that’s something that is for another shop. I don’t believe in that, because you don’t want to try to time the market. You want to look at long‑term growth. That’s where you see the greatest benefit on portfolios, is when you build out a good strategy, a diversified strategy, using a lot of stocks or a lot of ETFs.

You let it grow, and then you rebalance on a continual basis, meaning if you have several holdings, four or five are going to be up next year, four or five are going to be down. The ones that are up, you sell off some of the profits, and then you buy the sectors that are down.

Rob:  Giving it time to grown, that’s it. We’ve talked about the agriculture analogy with corn, or any crop. You’ve got to give it the whole season to grow before you see the fruit.

Bryan:  To get back to a Judeo‑Christian example, when Joseph was growing the crops for Egypt to prevent later famine, during times of famine, he said, “I had seven years of plenty, during seven years of famine.”

In many respects, when you look historically at the market, diversification and time‑wise, if you take any kind of tranche of the market of about seven years, the eight years, that’s when you see growth.

If you try to play it before that time, a lot of times, you’re going to lose. On average, if you get a very diversified portfolio, and you rebalance, then in seven to eight years, you’re going to see some really good performance.

Rob:  But you’ve got to give it time, if you have the time.

Bryan:  You’ve got to give it time, and you’ve got to rebalance. Let me tell of the importance, and this is something, I want, ladies and gentlemen, for you to listen to. According to Burton Malkiel, “A Random Walk Down Wall Street,” Princeton economist, the rebalance gives you an alpha to the market. Alpha is above‑market returns.

He has some examples showing you that if you had a portfolio that would, if you just let it ride, and let’s say in a year, it was going to be five percent, if you continually rebalance, on average, that portfolio’s going to return 6.3 percent. It gives you an alpha of like 1.3 above that five.

Rob:  Above.

Bryan:  The only way that you are ever going to, according to Burton Malkiel, beat the market ‑‑ and here again, I’ve been telling you, the S&P 500 has returned, on average, a little over nine percent since 1926.

Rob:  Over 90 years, right.

Bryan:  The only way you’re going to beat the market is by practicing rebalancing. If you have the stocks and the ETFs, and you practice that rebalancing, that’s what people need to realize that on the long‑term, seven, eight years, you don’t want to be thinking about, “This is going to happen in two months,” that you’re going to see some really good rewards.

Rob:  You are, yes.

Bryan:  This is while you’re sleeping, while you’re playing with your kids, while you’re on that vacation. Your money’s working for you.

Rob:  Just let it grow.

Bryan:  Let it grow, and if it’s every seven or eight years that you’re money’s going to double, that compounding interest, compounding growth, is something that is wonderful in our market, that it affords us to have.

Rob:  We’re talking about the process of investing. Say I’m in my late 20s, and I started a job, and HR talks about a retirement plan at work. Do employers offer financial plans? What do some do?

Bryan:  They offer the ability to get into 401(k)s, and I’ve encouraged, if you’re in your 20s and there’s a match, get that match, and get your money working for you. The earlier you start, the happier you’re going to be as you get older, because you’re going to get what I call your sacred cow, a lot faster.

You’re going to get that nest egg that you need to take care of yourself. Get invested now. A lot of 20‑year‑olds don’t do it. If you have a 401(k) at your place of work, definitely get involved. Get into it now.

Rob:  Get into it, because you’re paying yourself.

Bryan:  Exactly.

Rob:  You’re never too early to pay yourself…

[crosstalk]

Bryan:  Pay yourself. I had one client that was so concerned about tithing to her church, and I said, “That’s fine, but you know, like Benjamin Franklin, ‘God helps those who helps themselves.’ First take care of yourself so that later on you can give to a church.”

Rob:  Maybe even more than tithing if it works out.

Bryan:  Yeah, take care of yourself.

Rob:  Bryan, you are an independent financial consultant. What is your phone number if people can reach out to you?

Bryan:  972‑383‑1210, and if you want to send me an email, or look up information on myself and my partners, please, visit us at riggwealthmanagement.com. That’s Rigg with two Gs, riggwealthmanagement.com.

Rob:  The next segment, we’re going to talk about actual Bryan, Rigg Wealth Management’s system, what he does at work, what you can expect if you come pay him a visit, because you’ve gotten some phone calls. We’re going to talk about what it’s like to be working with you as a client.

We’ll be right back after this break.

Rob Dalton:  Welcome back. It is Rob Dalton and…

Bryan Rigg:  Bryan Rigg.

Rob:  Right here on WRR, for “Wealth Strategy with Bryan Rigg.” Bryan is our wealth professor, and being a professor, you had been a professor of history, correct?

Bryan:  Yeah, that’s correct. I taught military history, holocaust studies, religious history, at American Military University, and at SMU, Southern Methodist University.

Rob:  Wow, so speaking of being a professor, we’re going to talk about something surreal, and it’s psychology. We’re going to get into the psychology of investing. There’s a certain mindset you have to get into, from the conversations we’ve had, both on‑air and off‑air, about understanding what you’re doing, and being OK with it.

You’re going to go through ups and downs, but the psychology of investing is kind of a larger, bigger picture, kind of a global thing. Bryan, tell me, I have a nest egg, and everything I’ve ever saved, I’ve got it all together, a couple of different accounts, maybe a savings, a 401(k), and a Roth, and such. What can I expect to go through once I give it to you?

Bryan:  Hopefully, we have an ongoing dialogue about what we’re doing. We’re going to be rebalancing. We’re going to be looking at contrarian play, see what is down. We’re not going to be chasing performance.

In psychology, the worst thing that you see with most people who are investors, as well as financial advisors, is that they are chasing the next best thing, and by that time, it’s usually too late. You don’t want to get at the peak of things. You want to get them on the rise.

Rob:  Right, because the peak, there’s no time for return.

Bryan:  Yeah, and so you don’t want to also try to time the market. That’s also psychology. Nobody. If anybody comes forward and says, “I saw it right,” he got lucky, or she got lucky.

If you diversify ‑‑ because you never know what happened. Who saw the incredible rise in the market since Trump got elected? Many people didn’t even see that Trump was going to get elected.

There’s a lot of unknowns, and had you not been diversified, you would have missed out on some of that growth. You have to diversify. You do not want to put all your eggs in one basket.

A lot of these things are truisms, but actually people implementing them is something they don’t do, and that’s what is bizarre to me, from a psychological point of view, is a lot of times, you sit down with people, and you tell them exactly how they should do things.

Then when you try to implement it, a lot of times they’re wondering, “Why am I not at the market? Why am I not doing that?” Then when the market goes way down, they’re not asking you the same thing. “Why am I not at the market?” They’re always expecting you to outwit the time, outwit geopolitical factors and so on.

The psychology of investing is literally…Markwitz did this at Yale. He got a Nobel prize, basically, for writing about the following. “Don’t put all your eggs in one basket.”

Rob:  That’s a clichÈ you’ve heard all your life.

Bryan:  Yeah.

Rob:  And it’s still true.

Bryan:  It is so true. There’s 20‑25 different market sectors. You’ve got emerging markets. You’ve got large cap, companies that are earning over $35 billion. You’ve got mid cap, $5‑$35 billion. You’ve got small cap, $500 million to $5 billion. You’ve got utilities, you’ve got energy, you’ve got all these different market sectors that you can go into, bonds and so on.

If you diversify, and then the mix, you can make it more aggressive or less aggressive, depending on your age, but if you diversify, and you understand your risk appetite, then you’re going to do well. I like to give the following story to a lot of clients.

  1. P. Morgan was doing very well in his investments, and Vanderbilt came along. Vanderbilt was primarily just in real estate, and he went to J. P. Morgan, and he says, “Hey, I want to get involved with all these other sectors that you’re doing, buildings, telegraph, and railroads, not just my real estate business.”

Rob:  Diversity.

Bryan:  Diversify, yeah. J. P. Morgan’s like, “OK, great. I’ll get you invested in these different sectors,” and he took millions of dollars from Vanderbilt. A few months later, his investments were worth like half of what they were.

Rob:  [laughs] Oh, no.

Bryan:  He’s all upset. He’s like, “Oh my god, I gave you $50 million.” I don’t know exact numbers, but, “I gave you $50 million. It’s now worth $25 million. I can’t sleep at night.”

  1. P. Morgan said, “You know, it takes time to build these things out. It takes time for it to grow. It takes time for the cash flow to come back and me to give you the rewards of what we’ve built.”

“Maybe I asked the wrong questions. Instead of asking, ‘What type of returns do you want?’ maybe I should have asked you, ‘What do you need to see to be able to sleep well at night?'”

Rob:  That’s an entirely different question. [laughs

Bryan:  You’ve got to sit down with…This is where the psychology comes in. We are emotional creatures. Bad thing, unfortunately. Our adrenal glands are too big, and our frontal lobes are too small. We are not ruled by logic and reason. If so, we wouldn’t have wars, we wouldn’t have discrimination, and so on.

Unfortunately, being emotional creatures, especially when you touch a person’s pocketbook, you quite often touch their soul.

Rob:  Touch their soul, you do.

Bryan:  You’ve got to realize that as a financial advisor, and I think I do a pretty good job of sitting down with people and saying, “OK, why are you fearful of the market going south?”

I had this one client that he was just so worried that the market was going to implode, and go to zero. After about two or three months of this, I kept on talking to him.

I said, “Tom, this is not realistic. If the market really does go to zero, nobody, nobody’s going to care about their stock portfolio, because what has had to have happened to create that mess is going to be so catastrophic.”

Rob:  Overwhelming, yep.

Bryan:  I say, “Hey, we’ve gone through 23 major pullbacks and depressions in this nation’s history. The good news is we’ve recovered.”

Rob:  We’ve survived every time, and gotten better.

Bryan:  Yeah, so psychology, what I try to just hammer through, and I can show this with historical studies, is if you diversify and you rebalance, you’re going to do well, and you don’t chase performance.

When we look at the psychology of investing and saving, one of the stats that I always give, 50 percent of all people who retire today have 50 percent less than what they need, not than what they want. Here at Rigg Wealth Management, we can help you get to what you want, not than what you need.

Rob:  That’s key.

Bryan:  That is key, and so the main road to get there and to get the nest egg that you need is to understand how investments work over time. Getting back to J. P. Morgan and Vanderbilt, over time, we see that J. P. Morgan is a name that everybody knows, the House of Morgan.

He built out incredible infrastructure in America. He was very profitable, and people who invested with him were very happy, but it took time.

Rob:  It does.

Bryan:  It takes time, and so the psychology of investing also is you’ve got to give it time. If a guy comes to me, and he’s 100 years old, we’re not going to put him all into equities, and say, “Hey, in the next 20 years…”

Rob:  “You’re going to be really wealthy.” [laughs]

Bryan:  Yeah, “You’re going to be great.” You’ve got to balance a person’s age, expectations, goals, and what they have right now.

Rob:  Something else that has to be built is trust, and trust is huge in this financial industry. What do you do in establishing trust as far as psychology?

Bryan:  You hopefully don’t have surprises. People do not like surprises. If you do a good job of educating people ‑‑ and this is where my professor background comes in, hopefully ‑‑ then they understand, “OK, I know this is what’s going on.”

Even when it starts to happen, if there’s volatility, sometimes they have a hard time, and then I think people just want to hear from you. A lot of times, people are scared to call you up. They don’t want to bother you, and that’s something else psychology. It’s your money. Call up your financial advisor.

Rob:  Call them, and ask questions.

Bryan:  Be a teammate with me. If any of this stuff has spoken to you today, I encourage you to give me a call at 972‑383‑1210, or visit our website at riggwealthmanagement.com. That’s Rigg with two Gs, riggwealthmanagement.com. Send us an email, and we’ll explore these topics.

Rob:  Speaking of email, I would encourage you, our WRR listeners, send Bryan an email. Go to the website, send him an email, ask your questions, and see if you don’t like the reply.

Stick around. We’ll be right after this break. We appreciate you tuning in.

Rob Dalton:  Welcome back from the break. We appreciate you sticking around. I’m Rob Dalton, and with me…

Bryan Rigg:  Bryan Rigg.

Rob:  We are. He is the wealth professor. We are “Wealth Strategy with Bryan Rigg.” We appreciate you being here. It’s been an hour. We’re going to close out the hour with a segment called “How Affordable Are You?” but we wanted to take a moment and just say thank you for listening.

Thank you for putting us on your dial today and listening as a podcast. You’ve made us part of your day, and we appreciate you taking the time to give us your time. That’s powerful stuff.

Bryan, we’re going to close out this hour with a question. We go to lawyers, and we know that as a lawyer, they charge $400 an hour. That’s what they charge. If you hire an accountant, they’re going to charge you to go over your taxes, and then they’ll decide how much time they spend, and they’re going to charge you.

How affordable are you, and how is it that you, as an independent financial consultant, how is it that you get paid?

Bryan:  Usually the way we get paid is assets under management, and that’s how it’s always been. There’s been a few times I did some private equity that there was a built‑in fee to it, many years ago, but primarily now, I stick to ETF portfolios, index portfolios, and so it’s usually one percent of assets under management.

If somebody came to me, and they did a muni bond portfolio, it might be less. It might be 0.35 percent of assets under management, so how does that look? Let’s say you brought over $100,000.

We would get that up and running, and if it’s one percent of assets under management, you’re looking at anywhere between $55 to $70 per month being pulled out, and I always do it in arrears.

Quite often, a lot of people who are in my industry, they pay themselves forward. They’ll do quarterly billing, and they’ll pay themselves from January to March in January.

Rob:  Oh, wow. They charge you up front for the next quarter.

Bryan:  I don’t like that. I like to get the money up and running, and then next month, I pay you for what I did this month. Hopefully, cash flow comes in, and we don’t touch the principal. That’s what I do.

Usually, I would say to people, “You need to be focused on fees, no question about it. You need to be aware of what is being charged, but in general, if you are just focused on fees and not performance, a lot of times, you’re going to miss the boat.”

Rob:  Yeah, you are.

Bryan:  You do get what you pay for.

Rob:  You do.

Bryan:  Yeah. I don’t want to be flippant with this, but there is a difference between a Nissan four‑door sedan and a Ferrari, but a Ferrari’s much more high maintenance and so on, so a lot of times, you’re paying heavy fees, like in hedge funds and so on. Sometimes you will not get long‑term benefit from…

A Ferrari, you can’t have your kids in it, you can’t go on cross‑country trips. You’re not going to go to the grocery store.

Rob:  [laughs] It has its limitations.

Bryan:  Yeah. You can’t put the grocery bags in it. You want to look at functionality and realistic expectations. If you’re getting 9, 10 percent on a portfolio, and you’re paying 1 percent, and somebody says, “Hey, I can come and give you less fees,” but they only get 4 or 5 percent on the portfolio…

Rob:  Yeah, that’s not a good decision.

Bryan:  Is it worth it? A lot of times, when people are obsessed with fees, they’re missing the boat of looking at long‑term growth. Saying that, I want to also say if you are at Merrill Lynch or Edward Jones, Ameriprise, even Morgan Stanley, a lot of times they do a lot of mutual funds.

Mutual funds have front‑load fees. They have trailing fees. They are usually horrible with fee structures, and they do it so they can support the office, and…

[crosstalk]

Rob:  It’s a corporate environment, too.

Bryan:  It’s a corporate environment, and a lot of times, they’re pushed into it. As an independent advisor, which I am, I don’t have to go into certain funds, because I’m not supporting a chain of command that doesn’t care about me or my clients.

Quite often, a lot of times, at those wire houses, they’re being pushed into these assets, because it generates more fees for the office. The reason why I am, by and large, against mutual funds, is that a mutual fund is trying to beat a certain market sector, like the S&P 500, let’s pull out.

Burton Malkiel found, with his “Random Walk Down Wall Street,” 80 percent of the time, mutual funds don’t hit their benchmark that they’re trying to beat.

Rob:  True. We’ve talked about that.

Bryan:  Why not just be the benchmark? When you’re looking at a fee structure, why pay more fees for a mutual fund to 80 percent underperform the market, when you don’t have to pay those fees, and you can just be the index?

I feel like we are more efficient with our investment. We have much more economically viable investments from a fee structure, and that’s how we get paid. When you win, we win. If that $100,000 portfolio goes down, our fees go down. If that $100,000 portfolio goes up, our fees go up.

Rob:  I want to take that thought and stretch it out, because that’s where I was going next, was you get a one percent of the asset under management. I came from a generation where we don’t talk about each other’s money. It’s just kind of quiet. It’s difficult to say, “How is it you make your money?” but I want to know.

Basically, the way your structure’s set up is the more money the client makes, the more money you make.

Bryan:  Yeah. Also, you want to look at…

Rob:  But not radically. It’s just a portion of, so all boats rise with high tide?

Bryan:  High tide, yeah. Our interests are aligned much more than with other assets. I would encourage all of you out there, if you have A‑share mutual funds, I would say, in general, your financial advisor does not have your best interests at heart, because there’s two things going on.

One, he doesn’t know the difference between an A‑Share mutual fund and an ETF, so he’s uneducated, or b, he knows about them, and he’s putting you in a more inefficient investment. Quite often, a lot of times, when people do A‑Share mutual funds, they’re getting a five percent fee up front, before they do anything.

It’s very cannibalistic. They’re thinking, “OK, I’ll bring this client on, and if he leaves in a year or two, at least I got five years of fees out of him.”

Rob:  That’s not fair.

Bryan:  You can’t get that back. That’s one thing that when you look at the fee structure, there is trailing fees, 12B‑1 fees in mutual funds, there’s front‑load fees in mutual funds, and a lot of times, those fees really eat into performance.

If you do assets under management, that is very efficient, and usually, one percent of assets under management is a very reasonable fee when you look at what the market’s doing in general.

Rob:  Let me ask you this, people listen every weekend. They dial us in. They’re getting to know you, and they’re getting to know me, but more importantly, it’s not just you at Rigg Wealth Management. You’ve got a team, right?

Bryan:  Yeah.

Rob:  Tell me a little bit about your team.

Bryan:  We have a…

Rob:  You’re not a one‑man operation.

Bryan:  No.

Rob:  You’ve got a small team, which is good.

Bryan:  At Rigg Wealth Management, there are four of us, including myself. All four of us have proven that we believe in selfless service. Myself, my brother, David Rigg, and Gary Bilyeu, we’re all three Marine Corps officers. We did not go into the Marine Corps to get rich.

Rob:  [laughs] No.

Bryan:  We went into the Marine Corps to serve this nation, defend the Constitution, support democracy, and be a part of an elite group of warriors.

Rob:  Thank you for that.

Bryan:  My pleasure. If we don’t serve this country, it will die.

The fourth gentleman I have, Brent Collier, he is a trained EMT and fireman.

Rob:  Also, service industry, first responder.

Bryan:  All four of us, we believe in this country. We believe in giving others and serving others, and so that’s just the group that is the quarterback for people’s financial management. That is a group that is out there helping interpret what people want to accomplish with their finances and put into a strategy.

Then I have all these other groups. Fidelity is my custodian, their platform, and that’s where the assets are held. There’s a huge group at Westlake that help me with account paperwork, over 40 people.

One of the strategies I use, an ETF strategy, there’s a group of over 40 people in San Francisco that manage those ETFs. They’re managing billions of dollars. While I’m talking to you, during the week, they’re taking care of it. I have a broker‑dealer out of Des Moines, Iowa that’s making sure, compliance‑wise, we’re doing well.

There’s an army, literally, of hundreds of people that I’m able to bring to the table that are actually working for us.

Rob:  Which end up working for the client.

Bryan:  I can fire them. If we don’t like what Fidelity is doing with our platform, we can move to Schwab. We can more to TD Ameritrade. We have that flexibility, versus a lot of the people who are working at the wire house.

They can’t go to their boss and say, “I don’t like what our muni bond portfolio people are doing. I want to pull my money from that.” It’s like, “No, you’ve got to keep it in‑house.” We have total flexibility with that independence of bringing people on board who are beholden to us, and not the other way around.

Rob:  I have met your team, and they really are men of character, I have to give you that, and that they are born and bred to be servants, just adds strength to your company.

People listen to us every weekend right here on Wealth Strategy with Bryan Rigg, and you are our wealth professor, but it’s nice getting to know you and your company a little bit beyond what we often talk about, so thank you for that.

Ladies and gentlemen, we will be back next weekend. We’ll be right here at the same time, same station. We’re hoping you come back with us. Bryan, thanks for a great show. I learned a lot today.

Bryan:  Thank you. It was good being here.

Rob:  I want everyone out there to enjoy your weekend. It is here. It is upon us. Go make the best of it. Thanks for listening, and we really hope we hear you and see you next weekend.