Intro: Royal Standley of Oregon Pacific Financial Advisors offering securities through United Planners Financial Services, member FINRA SIPC, guides clients with empathy in discovering and reaching their financial goals and creates financial plans for clients so they can live their life by design. In these episodes, he relates his expert financial insights and discusses timely topics. Royal strives for excellence and has a passion for sharing his knowledge and supporting his community. Now, onto the show.
Aric Johnson: Hello and welcome to Life by Design with Royal Standley of Oregon Pacific Financial Advisors. Royal, how are you doing?
Royal Standley: I'm doing fantastic. Aric, how are you doing?
Aric: Outstanding. Those are two big words. Fantastic and outstanding. I love this. This is great.
Royal: Yes. Yes. Those are our 5 cent words for the day.
Aric: All right.
Royal: From this point, we're going to use, you know, single syllable words and, uh, just try to get through here and have an intelligible conversation.
Aric: Okie dokie. Oh, wait. That was like a four-syllable word.
Royal: Ugh I've ruined it. Sorry.
Aric: No, no, that was me. Okie-dokie is just way too deep for today. Uh, we're talking investments today. So, I mean, this is a pretty weighty topic, uh, on its own. What are you bringing up as far as investments? What are we, what are we talking about.
Royal: Yeah. So on our last podcast, we really went through our financial planning process and we really, I think briefly mentioned investments. But I think it's good to circle back on investments and kind of dedicate a show, uh, to investments to discuss how do we implement, uh, the investment side of things. Going back to our last podcast, we really focused on that financial planning piece. And honestly, that is where we're adding tremendous value to our client's lives and helping them understand where they're at as well as building a plan to help them get to where they want to go. And one of the tools that we use in helping clients get to where they want to go is their assets. And more importantly, how those assets are invested. So today we'll be talking primarily about those liquid assets, you know, after-tax accounts, IRAs, Roth IRAs. But we also, especially in our financial planning process, are also talking about other investments, like for instance, real estate. Businesses. We look at the entire picture there. So, we get a good handle of the assets that they have and the tools they have to help them live the life that they want to live. But today we're going to be focusing on those liquid assets and how we implement strategies behind those to really help our clients build wealth without using the sweat of their brow,
Aric: Yeah.
Royal: And, you know, being a landlord or running a business, or, you know, working a nine-to-five. Having assets that can grow while you're asleep. You know, that's really the, the whole idea behind passive income and passive wealth is something that you don't have to manage on a day-to-day basis. And that's what we help a lot of our clients with. So thought we'd spend some time on that and kind of give, give you our take on, uh, when we're looking at investing for clients, what we're trying to accomplish there.
Aric: Got it. Okay. And then that that's a lot to dive into. I just want to use a quote from you. I think a new title for the podcast that would be great if it was “Grow While You Are Asleep.”
Royal: [Laughter]
Aric: Because it will be completely misleading and people will click on it just to know what in the world?
[Laughter]
Aric: But I think that, no, I think it's a great idea, right? I mean, um, I've been a landlord and it's, it's not always fun. Right? I mean, it's really, really not always fun. And, uh, it would be nice to have a way to grow my portfolio without having to clean out drainage and deal with those things that we just don't want to deal with. Right Um, so I love it. Okay. So where do we start?
Royal: Absolutely. So, so the, the number one place we're going to start is just with a little disclaimer, we're talking in generalities today. So, none of this is specific advice to any one individual, but this is simply the process that we take people through. So, so don't say, oh, Royal said to invest in mutual funds or ETFs. That's not what we're doing today. We're just talking through some of those concepts. So, really when we sit down with a client, we've done our financial planning. We know what they're trying to accomplish. We know what assets they have available to them to invest and how best to implement those things. So, the first thing we start to do here is focus on what's that big overarching objective for the client. And we break those down into three different categories, really. Uh, number one, the one I think we think of most when we think about investments is growth. I have some money I want to put into my 401k or Roth IRA or an after-tax account, and I want it to grow. That's all I want it to do. I just wanted to get as big as possible as quickly as possible. So objective number one is growth. Objective number two is stability. This is really one where I I've already built some wealth. I want to see it grow some, but most importantly, I don't want to see it lose value or lose value dramatically.
Aric: Mm-hmm, mm-hmm.
Royal: So I really want to try to get a solid rate of return without a lot of risk. And then finally, um, tha- this next category kind of fits between the, the, the growth and stability is, hey, I want my portfolio to produce income for me. I'm more focused on income. And once we know what a client's goals are, they could have some investments that are just exclusively focused on growth. They could have assets that are focused on stability for things that are coming up in the next three to five years, where they want to have the money invested. They don't want it sitting in the bank losing out to inflation, but they also don't want to have it a hundred percent in the stock market where it, there is a lot of principal risk. And then we have other clients in retirement who really do need to turn a majority of their portfolio into, uh, an income producing revenue stream. So, we know that as we sit down with a client for the financial plan and we can start looking at those accounts to saying, okay, you're not going to need this account for income, so we're going to shift it over into an growth. Or you're going to need this account for income, so how do we structure that accordingly. From there, our next, um, approach here is, are we looking for something that's um, more dynamic. Meaning it's going to move with market conditions. Um, it's going to, uh, be a little bit more tactical, a little bit more reactive to what's going on in the markets, or are we looking for more of an institutional, low-cost, uh, uh, objective here where, um, we're not worried about what's happening in the markets. We're really just focused on maximizing that long-term growth and, and that's where, uh, especially in the growth category, we can set up a portfolio that's really just designed to rebalance itself, but not make any major changes or tweaks along the way. So that's really a question of preference there of what strategies do you want us to use when we implement. Uh, the next, the next style is more of a philosophy that we discuss with our clients. Um, we're a little bit of a mix of both of these. So, you really have, um, passive management,
Aric: Mm-hmm
Royal: uh, which has really been popular, pop- popularized by companies like Vanguard, where the thinking is you're never going to be able to beat the market. So just try to look as much like the market as possible and keep your costs as low as possible. You know, they're indexing strategies that are basically, you know, S&P 500 or they’re total stock market portfolios. All of those are really designed to, um, not have any active management. There's no all-seeing eye looking over that portfolio saying this is a better allocation than, than this security over here. On the other side of that divide, you have active management and that's really where you have active managers that are really creating portfolios that have a manager that and those managers on a daily basis are looking at that portfolio and deciding which the security should be in there, which securities do we leave out to try and ultimately beat the market that we're using as the benchmark there. And then in between those, you might have a hybrid strategy there. Uh, that's a, that's a, that's a bit of a mix of both. Maybe you have some active managers in a certain sections of the market, maybe use passive and others in other parts of the market. So, those are the, the, the things that we're answering in our heads, as we're sitting down and evaluating where our client's at and what's going to help get them to where they want to be. And then once we have those questions answered, we know what the objectives are. We know what approach we want to take on this and, and what styles best gonna fit with that client, and most importantly, that client's risk tolerance. Then we start looking at well, what vehicles, what investment types are we going to use to implement there. So, we'll, we'll talk about those in generalities, but primarily what we use because we are asset allocators, we don't necessarily want to be selecting individual securities for our clients.
Aric: Mm-hmm.
Royal: You know, choosing between baskets of stock. We really want to try to get as much diversification as efficiently as possible is primarily we look at mutual funds and exchange traded funds. Uh, mutual fund, if, if you've heard this term, I'm sure everyone's heard the term mutual fund a mutual fund is simply an investment company whose sole purpose is to buy stocks, bonds, cash with the objective of being an investment. And as a publicly-traded ETF or mutual fund investors are able to buy shares in that company and experience the growth or decline of those underlying assets. So those funds are how we implement most investments for clients. And then in the stability column, uh, we'll also look at something like an annuity. If that's a real need where a client will feel much more secure with a guarantee of principle, uh, somewhere in there.
Aric: Mm-hmm.
Royal: So, those are really the, the three things that we're probably looking for primarily. Mutual funds, ETFs, and occasionally an annuity to sometimes solve a specific issue like guaranting lifetime income or guaranting, uh, principle preservation.
Aric: Can you take a step back just for a minute and helped clarify the difference between a mutual fund and ETF. You said mutual funds are more actively managed where ETFs are more passively managed. Again, can you break that down? Because from my understanding, I thought ETFs were, uh, a collection of different companies and the stocks within their mutual fund are very similar.
Royal: Correct. Correct. The, the underlying objective often is, is the same. We're creating a fund,
Aric: Mm-hmm.
Royal: That is going to buy assets. We're going to buy a stock in particular companies or particular types of bonds and build an allocation here. Most actively-managed mutual funds, which is, is the majority of mutual funds there, have a manager who is doing that security selection. So, they're choosing between, for instance, Coke versus Pepsi, not to say that you have to make a choice there, but they're, they're evaluating the markets and deciding,
Aric: Gotcha.
Royal: Hey, what should fit in there?
Aric: Okay.
Royal: An ETF oftentimes is simply tied to an index. So, you might have an S&P 500 ETF portfolio.
Aric: Mm-hmm.
Royal: And, you know, technically it does have a manager, uh, of the fund, but all that manager is doing is making sure that their ETF looks exactly like the S&P 500. They're not making any, any independent decisions of should this be in here or should that be out of there?
Aric: Gotcha.
Royal: It's really does this look like the S&P 500? It does? Great, my job’s done. So, because of that, because there really is no research component there, it it's, it's a much cheaper way of implementing investments. It might not be right for what you're trying to accomplish, however
Aric: Mm-hmm.
Royal: But it's really just two different ways of getting to a similar space there, which is how do I effectively grow my assets over time in the market.
Aric: Yeah. And I actually want to go back to one other thing that you said earlier about the different accounts that you help your clients create. Um, you may have one for growth and then you may have one for, for income. From, from what I would think in our discussions before, obviously you want the one that you are getting income out of. You want that to grow as well. So what's the difference between a growth account and an income producing.
Royal: Absolutely. So oftentimes it's going to be, what is the underlying asset allocation of an account? So yes, you absolutely want, uh, the account that you're using for income to have the potential for growth in most cases, but you could also be looking for more dividend-paying type stocks,
Aric: Okay.
Royal: Higher yielding bond allocations that are actually producing income that you can take out of the portfolio versus, um, having to sell shares to,
Aric: Got it.
Royal: To produce that income.
Aric: Yeah.
Royal: So that's kind of the, the change there that we're, we're always looking at. So, and it really comes down to how much income needs to come off of a portfolio.
Aric: Mm-hmm.
Royal: So for instance, if, if we, if you have a portfolio and you're just taking off a percent or two, maybe 3%, you can use a growth portfolio and do that relatively safely, just from the standpoint of over time that a more aggressive portfolio will we'll be able to recover that. But if you're taking out a larger percentage, let's say a 7 or 8% distribution from a certain. That's something where you want to kind of build in more of that income focus, instability focus.
Aric: Got it. And I know Royal I'm diving into a bunch of different cans of worms here, but I know you've done shows already on annuities,
Royal: Mm-hmm.
Aric: And we've spoken about that before. But as a reminder, can you kind of give us a, maybe a timeframe age-wise when someone should be looking at annuity, if that's something that they're interested in. I mean, from what I understand, a 35-year-old, probably shouldn't be looking at annuities. I could be wrong, but?
Royal: I'm, I'm sure there, there was that one time where it made sense for a 35-year-old to buy an annuity.
Aric: Mm-hmm.
Royal: Generally, I just don't see that. Oftentimes we’re, we're using annuities for uh, more of our either very close to retirement age or retired-age clients.
Aric: Got it.
Royal: And you know, there there's advisors out there that believe everybody should have an annuity. There's advisors out there who say I'd never use an annuity. They're all bad. We really fall in the middle. We believe there are certain clients who need the security that an annuity can offer.
Aric: Mm-hmm.
Royal: An annuity is simply an account offered by an insurance company that has some sort of guarantee. Often, usually that guarantee is wrapped around lifetime income or a fixed interest rate or something like that. Some sort of principle of protection often as well. So. There can be good uses for annuities. We, you know, I have people ask me all the time, you know, should I buy an annuity? And it's, it's really the answer is it really depends on the individual annuity and what you're trying to accomplish. Um, we, we don't do a ton of annuities, but, um, I will say they are always kind of factored into the financial plan because we're trying to accomplish something very specific when we recommended an annuity.
Aric: Yeah, and I think it's just safe in, and this is only my opinion, but when you have people that are standing on a soap box saying that something is a must or something, you just can never do, I find both of those people very hard to believe because I just don't, I don't think they've weighed all the things like you said, you're kind of in the middle and, and that's what I honestly, that's, what I appreciate about you Royal is that you're willing to look at, I mean, there's not just one annuity. There's tons of 'em out there and I'm sure that there are some that are really bad. And salespeople are trying to shill those because you know, they're going to make a, a commission on it or whatever, but like you said, there are some that fit certain situations. And I appreciate the fact that you're willing to take the time to research and dive into these things, uh, to make sure it's a proper fit for, you know, the specific situation for your client.
Royal: Yeah. And that's the most important thing is if it's not the right annuity, you, you shouldn't buy it. If it's not solving something very specific that you're looking for, probably there's an, a cheaper way of doing it outside of an annuity.
Aric: Yeah.
Royal: And that's something that we're always looking at and evaluating, but oftentimes we do have clients who. Just say, hey, I want a guarantee. I want to know that, um, I'm not going to lose money in the market. I want to have a guarantee that I won't run out of income. And it really it's at those times that we'll, we'll reach for a guaranteed product like that, because that's the only way we can really talk about a guarantee that you don't have to worry about.
Aric: Mm-hmm. Absolutely. All right. I derailed us enough. What, what else do we need to know about investing?
Royal: Well, I think the, the other thing, um, well, I I'd say two other things. Number one, one thing that I didn't really touch on, although, um, uh, maybe just briefly we talked about mutual funds versus ETFs is we are always looking at how can we best tax-efficiently set up accounts.
Aric: Mm-hmm.
Royal: We love talking about taxes and saving our clients money in taxes by making sure that. Implementing the investments as efficiently as possible. I can't tell you how many times I've just seen poor, poorly thought out investment plans where assets are just kind of thrown into different accounts and they're not being used efficiently by making sure that we're placing the right assets in the right account. So that's something that we really stress with our clients. Something that we're always looking for is how can we save you on your tax bill?
Aric: Yeah, nobody likes talking about taxes. We like talking about saving on taxes. I like the way you phrase that because that's true.
[Laughter]
Royal: Yes. Yeah. Yeah. And not, not that, not that we're CPAs or anything like that, but I will tell you once someone retires their financial advisor is really on the hook for most of their tax liability. Um, so you really need to work with a financial advisor who is taking that into account and taking into account how efficiently the accounts are set up, because if you have an advisor who is tax agnostic, who's not looking at that. Who isn't worried about capital gains. Isn't worried about taxable interest. Isn't worried about asset placement. You can rack up some very large tax bills there,
Aric: Mm-hmm.
Royal: And it doesn't, it doesn't take a lot of time to really do a tax evaluation of a portfolio to say, hey, this, this is something you can probably do a little bit better. And, uh, especially once you turn 72 and start taking out required minimum distributions from your IRA,
Aric: Mm-hmm.
Royal: How are, how are we structuring those as well? So there's, there's a ton of tax planning that goes into our investment management, because we just know that, you know, come this time of year, February, March, uh, April, tax time, as clients are getting their 1099s from last year, we don't want there to be any nasty surprises on that. So we want that to be as tax efficient and, and planned for as possible.
Aric: Sounds good.
Royal: Now the last thing I just wanted to touch on here is everyone is unique. Everyone's kind of bringing in. Um, the things that they've done in the past. So sometimes what we really need to do is when a client brings in, especially money that's been invested for a while or money that they've inherited. Um, and they have, uh, existing investments, especially in the after-tax accounts, what we really want to do then, is systematically look at those portfolios and make sure that we are transitioning things from their existing holdings as tax efficiently as possible over into, um, the new recommendations. So, we have a lot of clients who say, well, I can't do anything. I've I've, I've had this, this stock or had this mutual fund for so long to sell it. I just paid too much in capital gains. So, I just feel like I'm stuck. I'm stuck with the advisor I have, I, I just don't know what to do.
Aric: Mm-hmm.
Royal: Um, all those things, um, are things that we address on a regular basis with our clients of how can we structure the tax hit? How can we, uh, gradually change things? So, we get you out of a position that's not comfortable for you. Oftentimes, what I've seen is clients who are really focused on growth early on, uh, might've built up, uh, quite a bit of gain in a certain, uh, portfolio or a certain stock. And now they feel like they're trapped in it because they can't sell it without paying a whole bunch in taxes. And there's just so many different strategies that we can, uh, uh, evaulate for a client and then coordinate with their CPA to make sure they sign off on this as well. Uh, that we can really, uh, build a plan to help people move forward and not feel like they're trapped with an asset that they own. Uh, same thing goes for real estate. Sometimes folks will come in and say, well, I've, I've had this for so long. I can't sell it. Even though I, it bugs me every day. I don't want to own a rental anymore. Um, how can I, you know, get rid of it because, but I don't want to pay the taxes. And that's something that we can do an evaluation on as well, as financial planners, is looking at the different tax strategies that we can implement work with the CPA to make sure that they agree with our analysis there and help clients move into a better position. And that's probably the most exciting work that we do is taking that financial plan and then helping clients implement their investments and really move them into a place where hopefully they have a lot less worry and fear because we're, we're taking over that management and really steering them in the direction they want to go.
Aric: Yeah, absolutely. Well, that's the perfect segue for me to ask you for the contact information again, how can people get a hold of you?
Royal: Absolutely a go to our website opfa.com. You can schedule an appointment right there on the website with myself or a member of my team. Uh, you can also just call the office if you need to and schedule that way. (541)772-1116.
Aric: Royal. Always a pleasure. Thank you, sir, for your time today.
Royal: My pleasure. Good to talk.
Aric: And our last thank you of course, goes to you, our listening audience. Thank you so much for tuning in and listening to the Life by Design podcast with Royal Standley. If you have not subscribed to the podcast yet, please click the subscribe now button below this way, when Royal comes out with a new podcast, it'll show up directly on your listening device. This makes it really easy to share these podcasts with your friends. Again, thanks for listening today. For everyone at Oregon Pacific Financial Advisors, this is Aric Johnson, reminding you to live your best day every day. And we'll see you next time.
Outro: Thank you for listening to the Life by Design podcast. Click the subscribe button below to be notified when new episodes become available. The views expressed are those of the presenter and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and is not meant to be construed as specific investment tax or legal advice. Individual needs vary and require consideration of your unique objectives and financial situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment. Planning and advisory services offered through Oregon Pacific Financial Advisors, Inc. Securities offered through United Planners Financial Services of America, member of FINRA and SIPC. Oregon Pacific Financial Advisors, Inc. and United Planners Financial Services are independent companies.
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