S2E25 Paul Adams Creating a clear path to financial independence

S2E25 – Paul Adams – Creating a clear path to financial independence

Paul Adams

Paul Adams – Creating a clear path to financial independence. The big question most people can’t answer is, how much money do I need to live financially free? My next guest is a financial advisor and coach who helps his clients understand the timeline and dollar amount to achieve financial independence. In this episode, he shares what strategy he helps his clients with, his biggest investment success, and his biggest investment mistake. Please welcome, Paul Adams.

Payback Time Podcast

Payback Time is a podcast for investors. The goal of this podcast is to help make investing approachable and easy to understand. We will interview beginner and experienced investors and ask them to share stories on how they got started, what challenges they faced, what mistakes they made, and what strategy works for them today. The overall objective is to provide you with a roadmap that helps you become a better investor.

key timecodes

  • (01:01) – His background history
  • (02:58) – Employment history
  • (04:46) – Thoughts on formal education
  • (07:55) – His investing background as a young investor
  • (13:14) – Type of funds he holds
  • (14:24) – Fees to Avoid
  • (16:16) –  His strategy and mutual funds fees
  • (17:49) – What is his personal investing strategy?
  • (25:49) – How his strategy meets the 4Ms vision
  • (29:36) – What type of funds does he invest in?
  • (31:07) – How many different funds does he hold?
  • (33:03) – The beer market investment strategy.
  • (33:37) – Percentage of his income he invests
  • (25:08) – Real estate gains strategy
  • (35:49) – His biggest investing success and mistake
  • (39:36) – How to manage emotions when investing
  • (48:40) – The best investment advice he ever received
  • (48:52 ) – The worst investment advice he ever received
  • (49:56) – Guest contacts


[00:00:03.430] – Intro
Payback Time is a podcast about building businesses wealth and financial freedom. We try to uncover the challenges our guests faced, the mistakes they made, and the steps they took to achieve their goals. The overall objective is to provide you with a roadmap that leads to your own success. Sean Tepper is your host. Are you ready? It’s payback time.
[00:00:32.790] – Sean
The big question most people can’t answer is, how much money do I need to live financially free? My next guest is a financial advisor and coach who helps his clients understand the timeline and dollar amount to achieve financial independence. In this episode, he shares what strategy helps his clients with his biggest investment success and his biggest investment mistake. Please welcome Paul Adams. Paul, welcome to the show.
[00:00:59.530] – Paul
Hey, it’s great to be here. Thanks so much for having me, Sean.
[00:01:02.030] – Sean
Glad to have you here. So why don’t you kick us off and tell us about your background?
[00:01:05.910] – Paul
So my background starts maybe most people wouldn’t tell it this way, but my background as a business owner and entrepreneur really started when I would ride around all summer with my dad for his business. And my dad had an opportunity to buy a business from a buddy of his. It was a gravel pit before he met my mom. And if you’re not familiar with the business model of gravel pit, people pay you to take money out of your hole for decades, and then they pay you to put dirt back in your hole for decades. So it’s like a money printing machine. And he said no because he was very comfortable with the role he had as one of the top construction managers in the state of Colorado at the time. And that company sold, and they didn’t need my dad as an executive anymore to let him go. So we followed my mom’s career as I was growing up. And while driving around in whatever entrepreneurial endeavor my dad was in, he would find a reason at least twice a week to say, this is why you need to work for yourself. And so I kind of brought up on this idea that I needed to be financially independent and work for myself.
[00:02:09.450] – Paul
And that started me on a path where, frankly, I thought I was going to be in the military and what I was going to do is just save a lot of money. So I read at the age of 14 investing for Dummies. And then when I started earning cash while I was busing tables, I began to take all the paychecks. I would live off my cash, deposit the paychecks, and gave them to a financial advisor my parents had introduced me to, which I’m sure I’ll have reason to talk about more in a minute. And that kind of started me down the path of understanding finance. And then when I couldn’t go into the military because of a pre existing asthma condition, then the only thing I had studied up until then was money. And so I just kind of naturally ended up in an internship that turned into a full time career. But I started when I was 18.
[00:02:58.010] – Sean
Nice. And how long did you work at a company before starting your own practice?
[00:03:03.630] – Paul
So I was an intern with the first company, which I won’t name, but it rhymes with Northwestern Mutual. And then I transitioned and really started building my own brand on a more independent platform from there.
[00:03:20.360] – Sean
Got you. Okay. Northwestern Mutual headquarters here in Milwaukee, where indeed, yes. It shows you the footprint. Now, you were working for them. Were you in Washington where you’re based, or another state?
[00:03:33.700] – Paul
Yeah, I started in Las Vegas, actually. It was part of an intern program, and it was after a year and a half in that intern program at UNLV, when I had professors teaching that clients, because this is late 90s, so the professors would teach that you could get an 18% year over year return on your money, conservatively, in a good growth mutual fund. And I would raise my hand and ask questions. Like, if I tell people more than twelve, I’m already licensed, I’ll lose all my licenses, I might go to jail. I’ll definitely be fine. Why do you teach 18? And I’ll never forget this guy. He says the regulators haven’t caught up with the new economy. And that’s when I said I can’t use college as my educational source anymore.
[00:04:18.970] – Paul
And so that I ended up dropping out of college and spending about for ten years, I spent an average about $40,000 a year on different coaching and educational programs because I wanted to go to the programs, the financial institutions weren’t teaching for free. I needed to go to independent thinkers who would help me understand how to better advise my clients on the whole of their money. And so I just did that for a decade, and I still don’t have a degree.
[00:04:44.190] – Sean
There you go. Yes. This could be another subject, and I talked about this with other people in the podcast, but I’m the believer that nowadays a college degree is a bit overrated. There are certain degrees you’re going for. Like, it is a necessity. Like, right away, I think of doctors. Right. Engineer. Right. But there’s a lot, like, if you want to get out there and start making some money and get on the fast track to financial independence, most cases, college is not your path forward.
[00:05:12.860] – Paul
Indeed, yes. And we’ve talked with my wife and I about this idea that if we don’t do college, what we might end up doing is, because I have all these connections through the Entrepreneurs Organization, all my clients that are business owners, I could literally tell our clients, hey, pay our kid minimum wage to work for you. And the one promise we make is you give them a job, a new job every six months, and we’ll hire the best coach in the world to make them amazing at that job for you.
[00:05:40.800] – Sean
[00:05:41.240] – Paul
And do that. And then they would leave with four years of accomplishments instead of four years showing a piece of paper that they were able to listen to a bunch of people for hours at a time, remember the material, and take a test, which is very different than working with entrepreneurs and business owners and other business executives and producing accomplishments.
[00:06:02.050] – Sean
Right. The one thing that I really struggle with even when I was in school, as I was not a great student and I don’t want to make this podcast about me, but you might relate in this regard because it sounds like a similar path. School wasn’t stimulating, and I was very bored, and I wasn’t the best student. I literally would show up, take my test, and get BS and CS.
[00:06:23.180] – Paul
[00:06:24.550] – Sean
What do I have to do? The minimum amount of effort to get out of here.
[00:06:28.820] – Paul
That’s it. I had one whole course where he said at the beginning of the course, he said, the whole thing is going to be judged on one test that will be at the end of the semester. Here’s the syllabus. I looked at the syllabus. I liked physics a lot in high school. I was in AP physics. I looked at it was not astrology. Astrophysics. And I looked at the syllabus. I said, I think I could pass this without coming to another class. And then he said, he’s grading on a curve. So I just looked around, and I was like, none of these chuckleheads. I’m definitely going to be in this class. And I did something very similar. What’s the minimum amount of effort? Not because I couldn’t have gotten the A’s, but it was boring to be in class. And unfortunately, now taking that into a passion for learning over decades where I think a lot of kids come out of school also, I thought I had to prove I was the smartest guy in the room, which is why I’ve had many years of study after dropping out. I think a lot of kids finish school and they go, oh, my gosh, I do not want to pick up another book again.
[00:07:31.010] – Paul
They might go a decade without any serious study. And so if what we can do is produce our children, the idea of they want to be a lifelong learner, always bring in new information, I think they’ll be better served.
[00:07:41.810] – Sean
Yeah. Find something you’re interested in. And I’m willing to bet that the experience with your father was far more educational than what you ever learned in a classroom. Same way with my parents. But what I’d like to do now is dive into your investment background. You guys started pretty early at 14. Let’s talk about those early years. Start with what kind of dollar amount did you start with?
[00:08:10.770] – Paul
I was trying to think about that ahead of our conversation. And I got to think my paychecks are only like $400 every couple of weeks.
[00:08:18.860] – Sean
[00:08:19.320] – Paul
And so I just deposited those and dropped them in. And where I dropped them into was we had a family friend who tried to sell my parents life insurance and the time it was principal and their variable universal something or other.
[00:08:34.530] – Sean
[00:08:34.960] – Paul
And my parents said, no, but our son might be interested in investing. And so God bless this woman. Now, she was relatively new to the business and been around our family a long time. She spent the time and walked me through all the life insurance illustrations and all that. And what I ended up doing is I just don’t see any need to have life insurance. So I just got some mutual funds. They were the regular old. I mean, I’ve been doing this almost 25 years. So this was 29 years ago, give or take, and it was still the 5% front end loads. All the things that we now are familiar with that were normal then that we wouldn’t dare, like I wouldn’t be caught dead putting that in front of a client nowadays. And I just started deploying the money and didn’t think much about allocations or any of that for years. And then what I ended up doing is actually cashing that out. I think this is one of the important things about investing is I was able to cash that out to parlay my early career. Because while that Northwestern Mutual does an amazing job of training, it is commission only.
[00:09:33.800] – Paul
And when you are an 18 year old, chubby 18 year old who doesn’t have a network of people with careers and you’re cold calling and doing whatever you can to create relationships, my mom couldn’t refer me to anybody because she’s too high in the federal government. Everything was a conflict of interest. So I literally had to create my entire own market and ended up tapping those funds just for survival. And I think that a lot of entrepreneurs forget about the fact that we need to set money aside and we need to invest in other things because A, our financial independence is only ever going to live on our personal balance sheet, never on the business balance sheet. And then second is you never know when you might need to tap what you set aside outside to save the thing that’s paying for everything. In this case, the business. And so for me, probably the best invested dollars that I’ve ever had because now I work with clients two days a week. I’m 43 years old, and my wife jokes, she’s like, why would you ever retire? You’re basically semi retired now. So that was probably the best investment I ever made, was building up that early what ended up having to be used as a cushion because it saved me and allowed me to stay in this industry.
[00:10:44.580] – Sean
Right on. So you sold out of the mutual funds, did you keep them in cash, or did you start to deploy them back into another asset?
[00:10:52.190] – Paul
No, they all got spent. It just got spent to keep.
[00:10:55.060] – Sean
Oh, really?
[00:10:55.710] – Paul
No, because you think about you’re starting a business, it’s commission only at the age of 18, while still paying for college expenses, et cetera. There just wasn’t a bunch of cash flow. So all those got completely drained, never even got rolled over to something else. But I had saved up, like, I think by the time I started the industry, I saved up $25,000, which is pretty good for back then.
[00:11:17.050] – Sean
Yeah, absolutely. And when did you start getting back into the market?
[00:11:23.030] – Paul
I would say so I went through an interesting change. I’m talking about it from a different perspective, both as an investor and an investment advisor. So around 2005, I read a book called Unconventional Success, and it’s written by David Swenson, who managed the Yale Endowment. He originally was contracted to write the book to show individual investors how they could do what he had done managing the Yale Endowment. But because he’d always been in institutional stuff, he had to wade into the individual financial products available to people, and he just excoriated the entire industry. Mutual funds don’t actively manage. Mutual funds do not beat their indexes. The fees are too high. All that, and I found myself in an absolute moral crisis because I had been helping clients selling actively managed mutual funds recommended by the company I was primarily affiliated with at the time. Morningstar ratings, like five star funds, are a good idea, which we now know, based upon the Chicago study in 2014, that there’s no correlation between Morningstar ratings and future better performance. But that’s what we did. And I literally stopped managing money other than a few clients I still had with me.
[00:12:37.320] – Paul
I started referring them all to my buddy with Bokovia, now Wells Fargo, all that, because I was like, I don’t know what I’m doing. I hope you do. And it wasn’t until 2007 really began the initial of the Deep study. But by 2009, we had found a firm called Dimensional Fund Advisors, which owns the market is how we put it, like 14,000 different securities in each of our portfolios, academically allocated, globally, diversified, with really low cost funds. And that’s what we’ve been doing ever since. The return has been about 10.7%.
[00:13:11.860] – Sean
That’s pretty good. Since 20 09.
[00:13:13.630] – Paul
20 09, yeah.
[00:13:14.790] – Sean
Yeah. That’s great. Now, Dimensional, they are lower cost mutual funds. Is that correct? Or they invest funds and ETFs.
[00:13:22.320] – Paul
They also have ETFs.
[00:13:24.080] – Sean
[00:13:24.780] – Paul
So if think about. I think. The easiest way to understand what Dimensional does in a very back of the matchbook. And their senior executives probably get a little disturbing me and making it this simple. But being in a position where you owned in the market. Taking out those securities that have attributes that are not correlated with positive outcomes. So those get taken out. Like company bouts. Claim. Bankruptcy. Things. IPO is not in the portfolio, but you own everything else. But then what they’re able to do is hold inside of a specific market, say, versus a small cap ETF that’s based on an index that some of those small companies are no longer small companies in six months, but they’re still in the portfolio until they reconstitute a year from now. And Dimensional Funds is able to keep those in this case example, the small cap all in small cap, but when it’s time to sell something, you don’t sell it immediately because the index got reconstituted. They’re able to be patient. They’re buying impatient. They’re selling to fill up those components of a client’s portfolio.
[00:14:24.530] – Sean
Earlier in the podcast, you mentioned the higher fees that can be associated with mutual funds, and you would never put those in front of your customer. What kind of fees are we looking at with Dimensional?
[00:14:34.850] – Paul
26 basis points for our fully deployed portfolio.
[00:14:38.900] – Sean
Got you.
[00:14:40.010] – Paul
So not quite as cheap as the cheapest indexes like Vanguard S Amp P 500, but super reasonable. Primarily the reason we use them is by tilting to small cap, tilting to value for the people that want to have an adviser that’s managing their money and helping guide them on outside financial decisions than just the portfolio. Their aim is to get an extra point to a point and a half per year over time.
[00:15:06.750] – Sean
Got it. Okay.
[00:15:07.690] – Paul
Because they tilt the small cap to value into more profitable companies. And we tell our clients that the aim is you got to pay us and to be in your life. But what Dimensional does is, through the tilt, produces enough additional return over time that effectively handles our cost of being in there, helping them make better decisions on everything on the margin outside of the specific portfolio, like what kind of account should it be in. How do you begin to put your chosen real estate? We have a client we’re helping guide by a business right now, but we’re just comfortable from those. Other than our initial upfront fee, we’re just the asset management fees.
[00:15:42.450] – Sean
Yeah, I assume an AUM fee.
[00:15:44.930] – Paul
Yeah, we do an AUM fee if they choose to work with us. But initially, clients go through an application process, and then if we make them an offer after reviewing their application, then we charge a fee upfront, which ranges between for most people, it’s between $5,000. And that has us walk them through a four month coaching process, after which, if they want to keep managing their own money and then they want to retain us, they can pay monthly. Or if we’re managing their money, we just continue to renew the coaching agreement over time.
[00:16:14.020] – Sean
Nice. Okay, that’s pretty straightforward to jump back to the basis points for the audience. 26 basis points. 26% is really good for a mutual fund because especially one person that’s been a mentor to me and my audience is still town. And he’s talked about when you start getting to that 2% right there’s mutual funds that charge you that or more that can really eat into, for example, and you know this, but let’s say you’re returning 7%, but then you’re paying 2% to the mutual fund company. There you go. You take that seven down to five and compounding that, over time, over a lifetime, it can be millions of dollars you’ve lost.
[00:16:57.250] – Paul
Well, and another interesting thing your listeners can do is if you check out, you and I were talking before we started recording about the website personalfund.com and people dr. Sharkinsky designed that. It’s not the most beautiful website, but his analytics behind it are amazing. And what they do is actually give you a sense of not only what are the costs that you got disclosed? Well, you hope got disclosed to you by your adviser or whatever commercial soldier that fund and the internal trading costs because those advisors are the managers. The mutual funds are trading so much, trying to outperform the index that they voluntarily said, I want to be compared to. But all that trading creates additional costs. It’s like somebody running with a parachute trying to run faster, but it’s only going to increase the resistance.
[00:17:47.090] – Sean
Yes, great metaphor. Love that. What do you personally invest in?
[00:17:53.080] – Paul
What’s your strategy? I’ve invested in everything from other businesses to pre IPO stocks to piece of intellectual property, real estate, commercial and residential, all of that. And what my wife and I have chosen to do in our lives is we want really simple lives. A great example would be driving through Oregon. We spend a lot of time in our RV other than this year, since 2017, we’ve averaged over 80 nights a year in our RV. So we travel the country for a month or more at a time, things like that. And is it a part of that simplicity, like not having anybody called me saying that there’s a problem with an employee or that there’s a problem with this particular commercial property? We lost a tenant report, whatever it is that I would have to deal with. And we dealt with all that in the past, and now we’ll look at a really amazing piece of real estate and we go, well, that’s going to take some amount of time, but we don’t know what it is. And I have gotten almost militant in doing as little maintenance of my adventures as possible, right. Even in my own business, if I invent whatever it is, we’re going to build this big, long fence.
[00:19:05.820] – Paul
Part of that invention is who are the people that are going to build the fence after? I’m willing to build the first segment and show you what it should look like after that. I don’t want to do it. So that’s why now we don’t go anywhere near real estate. Not that I’m against it. We advise our clients on how to get in that market all the time. I just don’t want to have to think about it. So a investments now are either in whole life insurance, cash values, so we have a higher return on our liquid funds over time. Coupled with the DFA 8020 portfolio, they’re the exact same ones our clients have.
[00:19:37.510] – Sean
Okay. No, that’s really good to know. And we do bring on a lot of real estate investors on this podcast. And when talking to that audience, you’re right, there are risks there. There can be a lot more maintenance. And if you want to be a landlord, like, sign up for fixing pipes and changing light bulbs. Right?
[00:19:56.560] – Paul
Yeah. And you can mitigate a lot of that, but it requires some complexity. Just like having a gardener, it can be more complex to manage somebody else, especially initially, than to just go trim, pull a couple of weeds yourself. I’ve still had gardeners for many years, but when it came to my money, it just seemed like that’s the one that’s going to distract me. I’m most likely to get myself. If I was a real estate investing, I’d be looking at 20 properties a day online, looking for the next one. And I love how focused I could be when I’m with a client or with my family, because I’m not thinking about all that other stuff.
[00:20:34.140] – Sean
Right. You mentioned that you invested in businesses, I assume private businesses, not stocks. Is that correct? Do you still own?
[00:20:42.840] – Paul
I do have one great stock store.
[00:20:45.410] – Sean
Okay, please share.
[00:20:48.110] – Paul
Stock, as I remember, I think it was called Mankind, and Alfred Ban, dr. Alfred Band, who created, I think it was the insulin pump, the artificial heart. Like, huge accomplishments, lots of money backing this deal, no debt, and all they had to do is get through the trials for FDA and secure a good co marketing agreement with one of the biggest pharmaceutical companies. And this thing should have gone 100 X.
[00:21:14.900] – Sean
Sounds like theranos story to me.
[00:21:17.020] – Paul
Oh, it’s actually better than theranos because everything they did work. This was an inhalable insulin. Never again would a diabetic have to penetrate their epidermis with a needle and be able to inject insulin. They could just do a puff on an inhaler. And it all worked. They stayed relatively debt free through the trials. They got all the approvals they needed. They co marketed with, I think, Snofi, which was a huge win, and doctors and patients wouldn’t change the habit of being used for cooking themselves, that’s it killed the whole thing. And it was all about betting on this individual company and an idea, and maybe if I bet on ten of them, it would have worked. But this one it didn’t. And it didn’t work. Even though the plan came to fruition. And what I left that with that was in my early twenty S. I left that opportunity realizing that the amount of information that’s priced into the market is far more than we as individuals can hold. And that some people probably can do some investing on their own and get a higher rate of return. By investing the time and energy. Things like Tykr.
[00:22:24.320] – Paul
Being able to use that. You might be able to get a higher rate of return. But you’re going to have to do it because anybody else that can achieve a higher rate of return if they can produce 20% a year. They’re not going to tell you how. Because too many people do that will compete away the gains they have. And so ever since then, I’ve been a no to individual stock acquisition, no matter how attractive it looks.
[00:22:44.390] – Sean
Really? So individual stocks you see away from, and I’m categorizing well, I’m going to put this in a different category. Like, I’ve invested in private businesses, not public. And that is highly, highly risky, as you know, because you lack the financial transparency. There are even younger businesses, they could go under. Whereas with Tykr, we are all about investing in individual stocks. But our screener is looking it’s highly rigorous. So it’s looking at the best of the best, the most financially stable and kind, of course, steers people away from the risky ones out there. I’m going to mention, yeah, your software.
[00:23:21.320] – Paul
Would have never had me buy.
[00:23:23.240] – Sean
Oh, gosh, no. That would be for those that know the Tykr rating. Yes, exactly. Definitely overpriced a scoring system of zero to 100. Probably would have landed at like seven. Yeah.
[00:23:37.550] – Paul
But I think one of the things that can happen to all of us, we get seduced by a good deal, by a good story, we take action, and it’s the ability to back away. So just by backing away, which one? Slight correction. My apologies for this. I do have another private investment right now where we bought me and a group of other Christian business owners with the idea that what we could do as an investor group is also mentor and grow the employees for their next generation of growth. And so we bought a kind of a funny company, one of the only FDA certified launderers to launder, surgical gowns, etc, for, I think, one of the only ones, period, in the Pacific Northwest.
[00:24:20.990] – Sean
I like it. It’s a boring business. Warren Buffett principal the boring business. But a necessity. You have to and I’m sure the laundry facilities, the chemicals, I mean, we’re talking best of the best here because of course, you can be dealing with blood and I’m thinking of DNA and stuff like that. Yeah, that’s really interesting. I love hearing people invest in really niche and really boring businesses. It blows my mind. Gets me thinking sometimes, like, why didn’t I think of that investment? Yeah, like, for example, in my area, you’ll hear people about investing in boxes. Well, how exciting is that? Not at all. But companies like Amazon, all the shipping they’re doing. They need boxes, they can’t get them fast enough. So boring. But necessity, yes, we say the same.
[00:25:12.390] – Paul
Thing about the profitability tilt. There’s a lot of very profitable companies out there that aren’t making any waves, are not in the news, and they’re just year after year delivering results for their stockholders and customers. And those won’t get in your portfolio unless you have a screener like Tykr or you have a portfolio that’s already been set up that’s ready for you to plug and play into. Because you’ll never see those on the news. You’ll never see Jim Cramer yelling about them because there’s nothing to yell about. They just do their thing.
[00:25:41.740] – Sean
That’s it. They keep their head down for buy value to the customer. That’s it. No prideful, bragosis behavior.
[00:25:48.480] – Paul
[00:25:49.090] – Sean
I love it. I want to circle back to a comment you made about the behavior of humans, especially with not adapting to this Aerosol product, as opposed to they would still take a shot. It shows you that in some cases you can’t change human behavior. And I would like to touch on here a little bit is 20 17, 20 18. There was the marijuana stock craze, and I never got behind it because in our world, in Tykr, we not only look at strong financials, we look at the forums. You get the margin of safety, which is that first m the math, but we also look at the meaning, mode and management that you can’t really measure with numbers. You got to understand the business model. Will it be around? Understand the competition and then understand the management. The issue is always two things. One, I always touch on in the podcast, which is the competition. It’s a fairly easy business to start. I only know this because a friend of mine’s father as a dehumidifier manufacturing company, and he’s like, yeah, a lot of my customers are starting a marijuana business. All they need is a $500 dehumidifier and they’re off and running.
[00:27:00.450] – Sean
Sure, you need some regulations, but there’s no mother. The other thing is, I’d love to hear your feedback on this is I’ll talk to people about that are pro marijuana stocks, and I’ll be like, for example, we’ve got the Milwaukee Brewers huge stadium here in Milwaukee, American Family Stadium. And are you going to walk into that stadium to see people waiting in line for gummies, or are they going for the beer and the broth? In my opinion, 99.9% of the time, it’s always a cool beverage coupled with a nice burger or a broth. It’s never going to be the gummies. And people push back on me on that. But I’m like, you can’t change human behavior. That’s my thoughts. So I’d love to hear your thoughts on that.
[00:27:39.480] – Paul
I think you’re right. I think that the existing habits and practices people have end up as one of the stickiest things to undo, like take Covet and zoom. We made our. Entire business location. Independent. January 2017, we made a decision. We would not meet any of our clients in person, not even the ones that are five minute drive from our office. And as a result, it made it very easy for us to adapt to COVID. But prior to COVID, a forcing structure that modified behavior, we would have conversations about, why would I meet with you? I’m in Arkansas. Why would I work with an advisor who’s in? Our employees are all over the country, too. So why would I work with you where you are? And now we haven’t had that question in two and a half years, and Zoom adaptation has gone through the roof. Innovation is always slowed by adaptation. If people don’t adapt to it quickly enough, the next level of innovation won’t happen. And I think Zoom is a great example. All these people got comfortable with online meetings, and now Zoom or some competitor we don’t even know the name of yet is going to come up with the holographic Star Wars puck we talk to yes.
[00:28:50.040] – Paul
Rather than FaceTime or zoom meeting. So I think you’re exactly right that the human behavior doesn’t change, no matter how good the product is. And probably you could make some comparison from beer. It’s got gluten, and we have gluten free gummies, and it’s more calories, and it’s this, and there’s no hangover or whatever you do, but that deals with the intellect. It doesn’t deal with the underlying you’d have to make the stadium stop selling beer before people would get a dummy line.
[00:29:19.190] – Sean
That’s it. And I think even if you did that, that line wouldn’t fill up as fast as you’d expect. People to still get a Coke?
[00:29:27.830] – Paul
You bet. Yeah.
[00:29:29.370] – Sean
Before they get a gummy. No. I’m glad to hear your feedback there, and you’re absolutely right on the way people behave. I’d like to keep going here and some of your investments. So you invest mostly in dimensional funds. Can you give us an idea? Because our customers like to know, what type of funds are you aiming for? More like diversified, like the market or maybe tech focused or maybe financial business focused.
[00:29:53.050] – Paul
It’s a good question. So each portfolio has 14,000 ish different securities worldwide, 42 different countries doing business in 190 plus countries. That portfolio is intended to be 65% US with a tilt across the entire portfolio us. And not toward small cap companies, because we know small cap tends to produce more returns over time value companies, because we know over time value tends to outperform growth. And we’re in a time right now where growth significantly outperformed its historical average for about six years. Very similar to what happened in the late 90s. What happened after the late ninety? S two thousand through 2010. You held the S. Amp p 500 the whole time. You lost double digits over ten years.
[00:30:40.680] – Paul
Whereas an academically allocated, globally diversified portfolio over the same ten years did about 76%. So in the portfolio, we have just have a tilt to the small cap, to the value, and to more profitable companies. We’re not excluding the alternative. Like we’re not buying small cap in lieu of large cap. We’re just taking the market’s presence of small cap and owning a little bit more tilt to it, the market’s presence of value, a little bit more of it, and same with profitability. So it’s very simple, it’s not super complicated. It’s about 65% us, though. So we look at it as 55% of the world’s market cap is us, but our clients are going to be buying things in US dollars, so we just build in that domestic bias.
[00:31:22.160] – Sean
Sure, no, thanks for providing that transparency there. With our platform, it primarily focus on the value stocks and the businesses with strong financials, but it does find growth stocks that also have your strong financials. So you think of the Meta and Google Apple for example, are very much behaving when you look at the numbers like a value stock, but they’re performing really well. Your small cap strategy would probably find individual stocks in many cases, if you like, a little risky there. But you do have a lot of diversification within your portfolio, so it does make sense you’re protected a little bit.
[00:32:03.240] – Paul
Yeah. Top 25 holdings, I don’t think they ever exceed up above 13%.
[00:32:08.030] – Sean
I’m curious, since you don’t own or hold individual stocks, how many different funds do you hold?
[00:32:14.440] – Paul
  1. We’re going through a process in coordination with Dimensional where it looks like we can get it down to eight ETFs.
[00:32:23.490] – Sean
[00:32:24.130] – Paul
And we do almost all of our asset management on Betterment, so we actually use Betterment, but as an advisor on the institutional side. And it makes it so easy for clients to onboard all that because Betterman solved all that back in 2010 to make it easy for somebody to open an account, to sign documents, et cetera. Whereas many of your investors may even notice you do like a Fidelity application or something else. They basically just taken legacy system after legacy system and layered a piece of technology on it. And so the one thing we do love is by using Betterment. Betterment start as a technology company that happens to have portfolios.
[00:33:01.890] – Sean
Nice, okay, good to know. And are you investing right now as the markets down? Oh, yeah, big time.
[00:33:08.640] – Paul
Yeah, well, as much as we can. I mean, I’ve had a philosophy that I would highly encourage anybody else to take, which is when you have the money to invest it, meaning people, there’s a psychological reasons to drip money in overtime, but there’s no academic reasons, too. No mathematical reasons. In fact, if compared people dollar cost averaging for decades versus the person that put in all their money in January, the person who puts all their money in January wins every time.
[00:33:35.050] – Sean
[00:33:35.480] – Paul
Yeah. So we just keep doing it always.
[00:33:37.880] – Sean
And what percentage of your income do you invest?
[00:33:41.230] – Paul
Last year was really big because I had a couple of extra income events that occurred. So last year was like, 70%. This year probably just be 20% of gross.
[00:33:52.590] – Sean
Got you. Okay. And what were these income events? Did you sell, like a business or a property?
[00:33:57.940] – Paul
Yeah, a little bit of both. Took a distribution from the business that I’d let build up and sold 24% of the business to two new partners.
[00:34:06.870] – Sean
Nice. Good for you. And what business was that? Can you share?
[00:34:09.840] – Paul
Financial Group? Yeah.
[00:34:10.810] – Sean
Oh, it was okay.
[00:34:11.720] – Paul
Yeah. Main entity. So I’m still 51, but now I’ve got great partners that are super invested in the future, and they wrote a check. So it actually did something to my balance sheet. Didn’t just change the corporate balance sheet, which is one of my pet peeves, is to tell people, yeah, you just earned the business and buy it from me. Over time. It’s like, no, you want in this. It’s making a lot of money. You got to write a check.
[00:34:32.250] – Sean
Yeah, you got to get in. Yes, you can’t just vest over a period. Let’s take a quick commercial break. Do you wish you would have bought some stocks earlier? Imagine you had $5,000 to invest. Let’s say you bought Amazon stock in 2010. That $5,000 would now be worth over $95,000 today. Let’s say you bought Tesla stock in 2013. That $5,000 would now be worth over $220,000 today. And let’s say you bought Netflix stock back in 2012. That $5,000 would now be worth over $245,000 today. Do you feel like you find out about opportunities like this? Way too late. What if you could find great stocks before they become mainstream news? And what if the software found those stocks for you? With Tykr, you can find great stocks before what feels like the rest of the world finds out. No matter if you’re a beginner or experienced investor, Tykr will help you find great buying opportunities and get a head start on your wealth building journey. Get started today with a free trial. Visit Tykr.com. That’s tykr.com again. Tykr.com, I’m making a list here of some of your biggest investment success and biggest investment mistake. I’m going to go through an elimination and say, hey, investing in your own business, knowing the lifestyle is created today feels like it’s your biggest investment success.
[00:36:05.110] – Sean
Would that be a wise assumption?
[00:36:07.430] – Paul
Yes, totally. But my biggest mistake?
[00:36:10.830] – Sean
Yes. Please share.
[00:36:12.200] – Paul
Also, it kind of evolved the business, which was I had the opportunity to buy and move into a building as one of the tenants with a CPA firm and a construction firm in Las Vegas. And that was in 2007. When we went in, everything was good. We did all of our T eyes and build out on basically a line of credit on the building. But it was after the crash of 2008 when all that was supposed to be refined in a 130 year note, and it was going to be totally reasonable. They wouldn’t refi us into that note despite the prior promises because of how liquidity has dried up for banks. So then I let the partners handle it. I’d relocated to Southern California at that time, and I was just letting my partners run it. But the two big problems is, one, I got into a deal with partners because it’s too big to handle on my own without thinking something that could change for the partners, that would make it too big for them too. And all of us collectively together, they did a five year note on that, like this huge additional lending.
[00:37:10.130] – Paul
To do all the tis, we had to amortize that over five years, made the payments for a year only, meaning the CPA had money. The construction company went from 32 million to 500,000 of gross revenue. The next year in Vegas, one of the partners went totally missing. I’m letting them try to deal with the bank while I am in my new role as SVP for this large company. Before I started selling Financial Group and lo and behold, they’re getting ready to foreclose on us, it took me cold calling the bank, which is why never say quit. I cold called the bank, got a hold of some executive that was Cc’d on an email from six months ago I found and said, hey, we can help you sell this building better. We’re happy to write a check. There’s no reason for you guys to foreclose, and we can help you get a better deal. He said, I agree. I think the only thing we’re doing is making we’re sending a bunch of attorneys, kids to college right now. With attorneys being involved, I was able to negotiate directly with the bank. Me and the CPA had to write no hit to our credit, but we each had to write $125,000 check to close out the loan and we’re able to sell the building.
[00:38:11.520] – Paul
But I lost so much in that deal, hundreds upon hundreds of thousands of dollars. And I consider myself blessed that that’s it, because it happened a lot worse to a lot of smarter people than me.
[00:38:24.300] – Sean
If you could summarize the big lesson there for the time.
[00:38:28.230] – Paul
So it speaks to the safest rule when investing in real estate about the only not the only way, but just about the only way to lose money in real estate is to have to sell it when you don’t want to. And it’s always the leverage, which is also what makes real estate so great as a tool and amplifies returns. But it’s that leverage that is also the danger. And as a result of that. We now coach our clients. Especially ones who already have some real estate built up. Is if what you want to do is make your real estate as bulletproof as you can. Half of your investment real estate mortgages should be in a brokerage account. A non qualified account. Because if you do that. You can pay a mortgage for about 20 years with very nominal returns with no renter. And it gives you all the flexibility to pivot in a weird market. But what happens so often is people either love investing in a portfolio or love investing in real estate. And most of their advisors in the real estate space, you shouldn’t touch anything else. Stock market is rigged, except we still need that other asset.
[00:39:25.010] – Paul
So we’re kind of a lone wolf as an advisor and coach out there saying, actually you need to own all the things.
[00:39:30.420] – Sean
[00:39:31.390] – Paul
And some of our clients hold individual security. We just don’t recommend them.
[00:39:34.420] – Sean
Got you. Well, thanks for sharing that. Here’s one how do you manage emotions? I know you’re in a position where you’re investing personally in the market, but you’ve got a lot of clients that are reaching out to you, especially during times like this. How do you manage the turmoil?
[00:39:50.170] – Paul
So twofold, how I manage mine comes right out of the Bible. Matthew 634 do not worry about tomorrow, for tomorrow has enough worries of its own. And a quote I took from another book years ago that I really liked was not only is worry irrelevant because it does nothing, but it’s irreverent because we’re not trusting God. That’s how I manage any of my emotions around the market, business stuff, et cetera, is just realizing that tomorrow has enough worries of its own, it doesn’t need me worrying about it and my worry will change nothing. Never has anybody prayed to worry, got their friends together and all concerned about something. Maybe they cried and it solved the problem. Never.
[00:40:31.250] – Sean
No, never.
[00:40:32.660] – Paul
Not once. But hey, here on the podcast, like put in the comments, if you know a time that worrying your tail off and lots of tears and maybe vomiting a little bit really helped you, we want to know because we currently think zero times. But that’s it. That’s how I manage me. When I’m working with clients, what I find is the warrior concern is often a mood and a mood is an automatic assessment that’s made that may be true, but is often untrue. And it’s always about some vague story of what’s going to happen in the future or what’s happened in the past. So as a result, what we find is giving our clients good information, doing our best to pass along education to them that we’re not worried about the market right now. So instead of telling them they shouldn’t worry, that’s them having to trust our truth, instead we will just teach them enough, it becomes their truth. So like an easy for instance, I was at a financial advisor event and somebody said, well, the person that had the S and P 500 back in 2008 lost 80%. Like, no, that did not happen.
[00:41:37.110] – Paul
People that aren’t just the nasdaq that happened to, but it’s that people get wrapped up or they see the markets weigh down, it’s like, yes, but let’s look at your portfolio. That’s different. The market’s down and it’s going to be a recession, I think. Well, I don’t know. The White House isn’t saying whether or not it’s a recession, but every economist that knows what GDP is is saying it’s a recession. And that doesn’t change it either. It’s what does the economy tend to do after a recession? And that’s the information that matters. So we start to teach our clients that stuff and it settles them down. And so that’s the biggest reason why we do our podcast, is because there are things that people need to hear more than once. And I think a lot of people need to hear that thing while they’re alone in their car out on a run, so that the only person they’re confronting is themselves. They’re not disagreeing with another human being on it. So education, because once you understand something, whether that’s doctors in a hospital with terrible contagion, they understand and they’re comfortable being in that environment.
[00:42:39.450] – Paul
I’m very comfortable with firearms because I’m familiar with that. I’m also super comfortable with the market because I understand what it has done and what it’s likely to do based on economic principles rather than based upon sales literature from some mutual company.
[00:42:53.560] – Sean
Right. Or emotions out there on social media is what comes to mind first. A lot of noise out there, and I see a lot of YouTubers creating these emotionally charged videos, and I just shake my head. I’m like, you are not part of the solution.
[00:43:08.110] – Paul
Financial entertainers, a lot of them.
[00:43:10.590] – Sean
Yes, exactly. Good call. All right, Paul, so before we jump into the rapid fire round, is there a question I should have asked you but did not ask?
[00:43:21.730] – Paul
Yes, the question that you didn’t ask that will have an interesting answer would be, paul, what is one thing when people meet with you that they don’t know and then probably my audience doesn’t know? And what I would have said if you would have asked that, is that we do this application. So our typical person applying makes somewhere between 200,002 and a half million a year of income. We don’t worry about AUM, at least when we make our offer. So when you look at somebody with that income range, you would think they know something about money. Generally speaking, almost everybody who applies to become a client, there’s a question of how much capital work is required for you to be financially independent. And we define financially independent as having enough passive income that you can live a work optional lifestyle. No one has an answer to that. In fact, everybody who does answer it correctly, which is about one in 20 who has an answer, it’s almost always a formula that we use on one of our podcasts, meaning they did a little research before they applied.
[00:44:21.430] – Sean
That’s it.
[00:44:22.200] – Paul
And here’s the thing. We all wake up and from the time we started our first job and participated in a 401K or attended a personal finance class in college, at some point we said, one day, I’m not going to do this anymore. I’m going to need a chunk of money to not have to do this anymore. And yet almost no one knows how much money it will take to actually be financially independent. That leaves many people on the road driving as if they’re heading to a destination, but there’s nothing. Inputting the GPS. It’s like they’re trying to go to New York, but the only thing they figured out is they need to head eastish from Washington State. And that’s just not going to do it or it’s going to take you so much longer. So if anybody listening that might be super valuable, then would be do the math and understand the amount of money it’s going to take at a 4% distribution rate for you to feel like you will be financially independent, because that gives you a target to work toward. And too many people are not even working toward that target because they don’t know the answer to that question when asked.
[00:45:16.960] – Sean
Yeah, love it. Great question that I should ask you.
[00:45:21.550] – Paul
You had it written down. You just skipped it accidentally.
[00:45:24.190] – Sean
Exactly. All right, so let’s jump into the rapid fire round. This is the part of the episode where we get to find out who Paul really is.
[00:45:31.660] – Paul
Good Lord, I can’t wait to find out.
[00:45:33.180] – Sean
Yeah. Right. Here we go. If you can, try to answer each question in 15 seconds or less.
[00:45:38.680] – Paul
Ready? Yeah. All right.
[00:45:40.230] – Sean
What is the recent book you read and would recommend?
[00:45:42.850] – Paul
The Extended Mind. Bye. Hang on. I’ve got it. There are two I’ve read recently. I would recommend both. One is an older book called The Purpose Driven Life by Rick Warren. Great book on finding God’s purpose in your life. And the other, I was going to look for the author here really quick. It is by Annie M Paul. And it’s this idea that how our brain functions is not just skull and skin bound, it actually functions out in the world. And there are things you can do to modify your relationships and environments that your brain will be that much sharper both at retaining information and even moving your body while you’re learning something. They noticed kids learning hand motions to go with a foreign language. Their uptake on the language is like 20% faster.
[00:46:27.920] – Sean
Impressive. This one has caught my attention. Thank you for this recommendation. Next question. Here’s a fun one. What is your favorite movie?
[00:46:35.710] – Paul
I’m going to go with actually a new thing that they’ve been doing to us where they release a movie that’s like 10 hours long. They just split it into ten different episodes, and we’ll watch a ten hour movie. The Terminal List on Amazon Prime right now, I think, is my new favorite. If you watch it once, you have to watch it again because the ending changes. Now, looking back so much of your interpretation of the characters interaction. So if your audience has seen it once, you go watch it again.
[00:47:03.550] – Sean
It is definitely on my list. I’m thinking of another show that you probably saw, which is on Amazon that came out earlier this year, is Reacher. Oh, yes, outstanding. My favorites. I know. I’m going to love Terminal List as well. And I like, of course it’s Chris Pratt. But the director has got a really high batting average. Antoine Foucault, who did Shooter, he did Training Day, numerous other films that have done very well. But those two together, one, two punch, in my opinion.
[00:47:34.900] – Paul
Yeah, reacher is great. I just started watching those with our kids. I realized the galored galaxy are PG 13 and they don’t show at least kind of a real actor. It’s like cartoony and all that. It’s like, here’s a real human being fighting real evil in this imaginary world. And it looks a lot more like a guy facing a lot of the problems that you face. If you hold a certain set of standards in your life, you’re going to find people who push back on that and want to destroy you over your standards. And I think the Reacher movies do a great job of that one, too.
[00:48:06.460] – Sean
Yeah, the show, did you see that?
[00:48:09.740] – Paul
No, I think it was my business partner told me I should watch it.
[00:48:13.110] – Sean
Yeah, if you like Terminal List, it sounds like it’s in the same vein now. I was just listening to a podcast, smart list I like, which is Jason Bateman, will Arnett, Sean Hayes. They were interviewing Chris Pratt. He’s talking about a lot of the things you just said. But again, it seems like a one off series. It could be. It’s not going to be like, hey, we’re going to go four seasons of this. Yes. Limited release, indeed. Good recommendation. I will check it out. All right, we got a few more here. Best investment advice you ever received?
[00:48:46.330] – Paul
Best investment advice you ever received? Was my dad telling me that what I needed to do is work for myself?
[00:48:52.990] – Sean
Yes. That’s good. Let’s flip that equation. Worst investment advice.
[00:48:59.830] – Paul
Real estate will never go down in value. Only everybody was saying that in 20 05 20 06 20 07 in the beginning of 2008.
[00:49:10.210] – Sean
Good point. And the last question here’s a time machine questions. So if you could go back in time to give your younger self advice, what age would you visit and what would you say?
[00:49:19.450] – Paul
Have a strategy for profit before you invest any new money in your business or a new piece of technology? I got to do a lot of really cool stuff for the first ten years of my businesses success and realizing that everything needs to be attached to a profitable decision changed a ton inside of the business. Now I run it every day. It wasn’t so much a specific investment advice, but one other piece of investment advice that’s been helpful. You play good defense, you make sure your insurance is covered, all that. You don’t need to score that many points to win the game, right? As long as nobody scores any against you, right?
[00:49:55.310] – Sean
Great advice, Paul. Well, last question here. Where can the audience reach you?
[00:49:59.630] – Paul
Oh, yeah. So you can find me on LinkedIn. Paul Adams. You can find me on some of the other socials at Ask Paul Adams. You can listen to our podcast, Your Business, Your Wealth, which you can find on all the major platforms. Again. Your business, your wealth. And anybody who enjoys the podcast gives us a good, honest review and wants to shoot that to us at info at sfgwa, like Sound Financial Group. Then we’ll send them a free copy of the book. We’re still running that promotion, so anybody who wants a free copy of either our latest book, Your Business, Your Wealth, or our prior book, Sound Financial Advice, can get a free copy just by giving us an honest review on one of the podcast apps.
[00:50:37.160] – Sean
Nice. Well, thank you so much for your time, Paul. Really enjoyed the conversation.
[00:50:40.590] – Paul
Yeah, I did, too, Sean. Thank you so much.
[00:50:42.800] – Sean
All right, see you. Hey, I just want to say thanks for checking out this podcast. I know your time is valuable, and there’s a lot of other podcasts out there you could be listening to. So thanks for taking the time to listen to my guest story. If you did enjoy this podcast episode, could you head over to itunes and leave a five star review? That would be much appreciated. Thank you. And last but not least on this podcast, some episodes we do talk about stocks. And please keep in mind, this podcast is for entertainment purposes only. So if you’d hear any buy or sell recommendations, please don’t make those decisions based solely on what you hear. Right. Thanks a lot. See you.