Investing 101

Chris

Barron: Hey everybody, we're at the front end of a podcast, but I wanted to just make sure before we get into the podcast on, uh, Investing 101 or retirement, that we give a little introduction, uh, to Mike Finley, who this guy is and why we're having him on the podcast for the Aggie Pitch. And I've got Sloan Barron with me, uh, my son who's, um, back at our farm operation now. And introduced me originally to Mike. And so I want to let you two guys real quick just— Sloane, you can ask him some questions, and then Mike, give us a little background of yourself.

Sloan

Barron: Yep, so I'm Sloane Barron. What is that, Mike? Mike, I met Mike Finley about 4 years ago, 4 to 5 years ago. So Mike, I How do you start off teaching people? What age were you when you first thought, I can teach someone finances?

Mike

Finley: Yeah, pretty much about 3 months after I got started learning about finance. I was 25 years old, read my first financial book, realized I was doing pretty much everything wrong. I started reading more and it was like a world opened up and I wanted to share that world with other people. So even though I still had plenty to learn, I was able to help people understand the world of money so they can make better decisions with their money.

Sloan

Barron: Yep. So Mike, what do you do for your career, I guess, in your working career?

Mike

Finley: Yeah, I was a military policeman in the United States Army, and I did that for 26 years. And I'm proud of what I did, but at the end of the day, that was my day job. My real passion starting at 25 was not just personal finance, but how to take money and create a better life. And so as I continue to work on that issue, learn about it, teach it, I started to see how it can change one's life. It changed my life, and I've seen it change other people's lives. And through that process of, of learning and, and adding to what we know, uh, I've seen a real change in people's, uh, understanding of money as they start to put together a plan on their future.

Sloan

Barron: Yeah. So when did you become financially independent and decide, you know, I'm gonna go ahead and live my life on my own terms?

Mike

Finley: Yeah, at age 45 I retired. So that was 13 years ago, and boy, it's one of the best things I ever did. What I was able to do was stop chasing after money. I was able to redirect my time and my energy toward helping people. And through that process of helping people, I was really able to find my own voice and my willingness to help them change their lives. And so it was, it was a powerful thing for me to understand that I had enough, I had enough money. And by having enough, you can stop chasing after the almighty buck and start redirecting towards something more important, which is helping your fellow man, woman, and animal.

Sloan

Barron: Yeah, that's pretty awesome, Mike. So how long have you been full-time helping people with finances now?

Mike

Finley: Yep, about 13 years. So this is pretty much what I do on a daily basis. I help individuals, I provide presentations, I'll do a podcast here and there, and I really just try to help people hopefully start to see this world that I'm demonstrating.

Sloan

Barron: All right, well, thanks, Mike, for that. I think that's a pretty good introduction of you as a person. So back to my dad.

Chris

Barron: Yeah, and again, Mike, thank you. And if people want to get a hold of you, I know you'll say that in the podcast, but where's the best way for people to look your information up?

Mike

Finley: Yep, thecrazymaninthepinkwig.com. And yes, I am a little bit crazy. I'm crazy enough to believe in myself and how I can recreate my life And I'm here to tell you, you can do it too.

Chris

Barron: That's awesome. Thanks a lot, Mike. You bet. Welcome everybody to another episode of the Ag View Pitch. Hopefully, uh, as we record this, we are in the middle of early part of spring and not a lot of planters rolling in a lot of areas. And so we wanted to get another podcast out here on financial wisdom, and we're going to call this one Investing 101. We are lucky enough to have with us Mike Finley. Mike, how's it going?

Mike

Finley: It's going well, thank you for having me, Chris.

Chris

Barron: I'm glad to have you here. And, and again, for the listeners, we're calling this Investing 101, and we just want to have a conversation today as farmers are out and about in their trucks, tractors, doing things out busy, to think a little bit about investing. As farmers, Mike, we own land. We look at land as an investment. We don't probably spend that much time thinking about the stock market, thinking about investing, thinking about things other than the farm operation. But let's have a little conversation about the importance of that, especially not maybe always just the older people, but the, the younger people in the operations and employees and that kind of things too.

Mike

Finley: You bet. It's important to know this information so you have an understanding of how your portfolio is constructed. Mm-hmm. When I say constructed, I'm talking about how it's allocated. What do you own? And of course, what is it costing you? Those are two of the most important questions to answer when it comes to investing. If an individual owns investments beyond their land, uh, is it stocks? Is it bonds? Is it real estate? Is it cash? And if so, what are those investments costing them on a yearly basis? Because what we know is based on how you're allocated with our portfolio and how much that portfolio is costing you on a yearly basis, that's going to tell us the future returns of that portfolio.

Chris

Barron: So I kind of want to back up for a second here too. You know, we're talking about investing again. Like I said, you know, farmers like, well, I'm invested in land, but there's a lot of spouses out there that have, you jobs off the farm. There's a lot of kids that may or may not stay on the farm, and they're younger, and there's some advantages we'll get to in a bit there. And then there's the off-farm kids that maybe are not actively engaged in the business that someday may be looking to generate some revenue either off the farm and the land that gets passed on to them or whatever, and maybe being a little proactive and, and making sure that we all understand some of the opportunities investing can help make the business of the farm operation stronger, couldn't it?

Mike

Finley: Yes, indeed. A mistake that I, I see often that is easily fixable is taking responsibility for that 401. For example, many people, they may be putting money in a 401, but they don't know where that money's going. They just kind of let their business, their company, take care of it. And my reminder to them is, whose retirement plan is this? Well, it's the individuals. So the individual needs to take responsibility on how it's invested and what it's costing them.

Chris

Barron: Interesting. And you talk about 401, there's— and we're going to do a podcast on retirement too, but there's ways for the farm to set that type of stuff up for the operator or for the employees too, right?

Mike

Finley: Very much so. So setting up the right kind of 401 for the corporation can play a huge difference in the returns over time, as well as your own personal account. So again, taking responsibility on identifying the best plans that's going to serve you and your family best over many years, and that would include your workers.

Chris

Barron: Okay, so let's go back to— I talked about spouses, kids, and off-farm. So let's start with spouses. And this is probably a podcast that if you're listening to this and you do have a spouse that works in town or has an off-farm job and is either a 401k or a SEP or any kind of a retirement program, take a listen to this for sure. So let me ask you this, Mike. So who are the helpers? You know, who do they not go to and who do they go to? So start with the don't go here, but go here. So who do you find to help make sure you're doing the right things?

Mike

Finley: Yep. So let's start with who not to go to, and that is the, the individuals out there who cost a lot of money. They're fee-based advisors, and this is normally your local insurance agent as well as your local fee-based financial advisor. And the reason why you should avoid them is because the high fees you end up paying them, fees that are not transparent, fees that they're getting paid behind the scenes, and you feel like you might not be paying, but you're paying a great deal of money. So avoiding those helpers is important as you squeeze out the fees. And then if you feel you need to receive some help, some support, then you would go to a fee-only financial advisor who has a fiduciary responsibility to serve your needs first over theirs. And through that fee-only advice, you still have to be careful to make sure they know what they're doing.

That they're providing good advice that's research-based and not opinion-based.

Chris

Barron: So what questions do you ask them to find out, or how do you differentiate, right? So what questions do you ask them?

Mike

Finley: I'd start with, how do you get paid, period? How do you get paid? And if they hem and haw, I'm walking out the door. I'm not going to stand there and listen to somebody trying to convince me that they're not getting paid. I want a direct answer. And if you cannot give me a direct answer, I'll go to someone else. So that's step 1. Give me a direct answer. How do you get paid? I want to know how you get paid because I want to know if you're working for me or someone else.

Sloan

Barron: Mm-hmm.

Mike

Finley: And once you figure that out, then you start deciding, okay, what kind of value can I get based on what I'm going to pay you? Because your fees are transparent. They need to be transparent. I don't want the guy or the woman helping me with my finances who's getting paid by someone else. They're working for them, not me. I want them working for me. So if I'm going to pay you, I want my money's worth.

Chris

Barron: So give us some specific examples on what you just said. I mean, what—

Mike

Finley: yeah, sure. So let's say I go to a local life insurance agent and he wants to sell me an annuity, and it sure sounds good. It's going to protect me on the downside, it's going to make me some money, and it sounds really good. And he's not charging you any money up front. So you think, well, my goodness, this is a hell of a deal. Well, he's not telling you that the average commission comes in around 8%. So if I give that guy, let's say, $100,000, $8,000 is going in his pocket, and I can't get that money for many years, generally 8. There's going to be a surrender penalty on that to make sure he gets his big fat commission. So that's an example of Non-transparent fees. I want to avoid that kind of way of investing.

Chris

Barron: And you have to die to get that, right?

Mike

Finley: Yeah, there's just so many ways. And he could be, he could be selling me a whole life policy. So a whole life policy is supposed to be part insurance, part investment. I call it part insurance, part crap, because what it does is the first years of premiums goes all to the salesman. So for example, if I was paying $500 a month for the whole first year comes to $6,000. All of that $6,000 went to the commission. If I try to get my money out after a year and I put in $6,000 and there's nothing in there, that is not the kind of investment I want.

Chris

Barron: So talk about the stock market a little bit too. So that's the insurance side of it. Talk a little bit about, um, what that—

Mike

Finley: well, we have to try to find individuals who if they're gonna help us, they don't have the large ego. They don't think that somehow they know the direction of the stock market, that they know what is gonna be going up versus what's gonna be going down. So we, we don't want anybody like that. We don't want people picking stocks. We don't want people trying to time the market. We want people that are good with owning the market and then owning it at the lowest possible cost. And when I say owning the market, you could own the total stock market. In the— in, say, Vanguard, a total stock market index fund, symbol is VTSAX. VTSAX. That fund owns the entire US economy at 4 basis points, 0.04. So it's a great way to invest at a very low cost, and you get to own the US economy as it goes. And sometimes it goes well and sometimes it doesn't.

In the meantime, you just keep feeding that fund over time.

Chris

Barron: And that's something I'd bring up right now. So as we record this in 2022, in May of 2022, so if you're listening to this in 2 years down the road, you'll be smarter than we are at this point in time right now. But, you know, so you have people watching the stock market. It's been under a lot of pressure here as of late. There's a lot of economic things going on. Your advice is to not pay attention to that, just keep um, keep the course, right?

Mike

Finley: That's correct. You keep buying. The truth is stock market's on sale. You want to buy shares at a cheaper price. So now they're cheaper than they were at the beginning of the year. That's not a bad thing. You want to keep buying through the down periods and enjoy the up periods. But the truth is you have to pay the price of down periods to get nice returns over time. And the goal here is to simply feed those funds and allocate appropriately at a low fee so you can see the returns over time grow and grow and grow.

Chris

Barron: So talk about the difference between an index fund and, and just a fund market.

Mike

Finley: Sure. First, I'd highlight the fact that the advice that I'm providing today is the same advice a guy by the name of Warren Buffett recommends, which is owning an index fund that owns a market. So for example, the Vanguard Total Stock Market Index Fund, it owns all of the US companies that are publicly traded, over 4,000 businesses. And some of those companies are doing great. And some of them, not so much. They're gonna go bankrupt. We just don't know who, we don't know when. So we own the entire market. And when some of those companies go bankrupt, they fall out of the index and they're replaced with an amazing company doing amazing things. So by owning the market, owning an index fund, you simply own all the companies, the good, the bad, the ugly. To own a managed fund is to hire someone to try to pick the winners and avoid the losers.

And they might be trying to time the market, getting in, getting out, causing you to have more fees, more taxes, and lower returns over time. So the research has been in for decades. Managed funds where somebody is trying to time the market or pick the right security or right sector, they consistently fail to beat the market returns, which is an index fund. So again, we see, we simply focus on historical research showing us the smart way to invest. An easy way to think about this. You can be the gambler. Or you can be the casino. We know where the odds lie. Owning an index fund is the individual becoming the casino.

Chris

Barron: Interesting. So I want to go back to the helper thing for a minute then. So, um, when you look at who's, who's helping you, do you recommend just going online and, and signing up for a Vanguard or, or a similar, you know, company that you can get a no-load fee and all that. Talk a little bit about, about, you know, maybe some of the process there.

Mike

Finley: Well, one, it's not easy. The majority of advisors out there are fee-based. You do not want a fee-based advisor. They're getting paid again in all kinds of ways that are not transparent.

Chris

Barron: And how do you, how do you find somebody? Because you just said that it's hard to find that somebody, right? Because everybody's got the conflict of interest in, in this industry.

Mike

Finley: That's right. So a couple ways you could look at it. So napfa.org. Say that again. N-A-P-F-A, napfa.org. That is a way to identify fee-only financial advisors in your area. So that's a good step. You could consider some of the low-fee financial advisors out there that don't charge too much, but they will help you with a portfolio. So Vanguard, for example, provides fee-only financial advisors at 30 basis points, 0.3%. And so that would be a place you could also consider some help at a low fee. It's transparent, and you know that's what you're paying. So The individual has to understand if they choose to have an advisor, you're going to have an advisor fee as well as the underlying fees that go with the investments. So you want to account for all the fees when looking at investing your money, just like a person would when owning a farm. You don't just look at what's coming in.

You've got to see what's going out.

Chris

Barron: Mm-hmm. And that's, that's great advice because there, there is a cost of production to produce wealth, right?

Mike

Finley: That's correct. And if you have too much going out, that's going to hurt, right?

Chris

Barron: And so talk a little bit about that. Give us an example of, um, kind of what you see when you, you know, um, meet with somebody for the first time and you look at what, what they're spending and how is that impacting them.

Mike

Finley: Generally speaking, they just don't know. When I ask someone, how are your portfolio— how is your portfolio allocated? They give me a look like, well, I'm not so sure. And then I ask them, what are their fees? They either say they're not sure, or they say something like, I'm not paying anything. Well, now that's a mistake. The financial services industry does not work for free. So you are paying. The question is how much? And that means we have to dig deep to find all those fees that we're paying and then find ways to minimize those fees, because ultimately It is the return after fees that matters.

Chris

Barron: So give an example of that though, on in terms of dollars and cents. If there's a— I mean, we've, we've been talking offline and you can— it's pretty easy to find some that are 5.75%. What's that mean?

Mike

Finley: Yep. So many people are playing Class A load at 5.75% commission. That means every dollar that, that they're giving to the investment 5.75% is going to the salesman before it hits the investment. Well, that means you have to make 6.11% to get back to zero. Now, I think we can all do the math. That does not work well for you as an investor. It does work well for the salesman. So you want to get rid of all loads. There is no reason whatsoever anybody should be paying a load. And then, so that means you're investing directly with the, let's say, mutual fund company like Vanguard is one example where you've gotten rid of the commission, no-load, and then you invest in the low-fee index funds to keep a portfolio under 0.1%. That's my recommendation. Get the portfolio cost below 0.1%, and by doing that, you will see much higher returns over time.

The average investor tends to have a portfolio cost roughly between 2% and 3% a year, and that difference can be astronomical over time.

Chris

Barron: Yeah, it gets to be a big amount. And so we're probably going to frustrate some, some people then if, if people, uh, start looking at, okay, what's this actually costing me? And they actually go ask the question, right, of, okay, how are you paid? Now explain this to me. How do you get I mean, what's the motivation for somebody in this industry that's, that's taking advantage of us being confused? I was one of them, I'll admit that right out of the chute. I don't care, you know, that thought, you know, I was getting good advice, didn't realize how much I was paying. That's why I want to do these podcasts, because I know for a fact that we have a lot of clients and there's a lot of listeners out here with spouses, kids, off-farm kids, people that are investing and think they're doing the right thing because they trust somebody, and it's a confusing deal, so you just trust them.

Um, you know, it's, it's probably a situation where we're gonna put some people in some uncomfortable conversations as well too. How do you get around that?

Mike

Finley: Let's go with trust but verify. Let's go with that, right? That's okay. They can— you can trust people up to a point, but start asking the questions and start holding people responsible that are they providing value for the amount of money that they're taking from you? And in many cases, I would tell you the answer is no. The financial services industry has created a multi-billion dollar product that ends up making a lot of money for them at the expense of the average investor. So the, the issue is not that people shouldn't get paid for the advice they provide you, as long as it's good advice. The question is how much, and the individual should take responsibility for that issue. Don't rely on the industry to police themselves. Don't rely on the government to police it. Rely on you.

It is your money, your retirement, and it is your responsibility to take full responsibility for that issue of cost and how your portfolio is returning over time. Simply no different than running a farm. You keep running a farm at a loss, well, problems are coming.

Chris

Barron: It's just a matter of time, right?

Mike

Finley: It is, it is a matter of time because again, it's the return after cost that matters. I mean, every farmer knows that. Every investor needs to know that.

Chris

Barron: So as far as, um, kind of wrapping this up, um, what do you, what other advice do you have? You know, what other things in your, when you're teaching Investment 101, is there any other key things that you would like to leave people with that, you know, pay attention to this? 2 or 3 things.

Mike

Finley: So one, start finding the right teachers, finding the right people to educate you on the world of investing. And so you can go to my website, thecrazymaninthepinkwig.com, and learn more on this issue. You can find the right teachers, people like John Bogle, Burton Maciel, Larry Swedroe, Rick Ferri, many, many others. And the point here is finding the right teachers will help you understand it without being sold. So that's, that's a good start. Start educating yourself so you understand how this game is played and you can play it better. My second book, What Color Is the Sky, is a book on investing, and it can help the individual better understand how this all works and how they can do it better.

Chris

Barron: And I'll echo, that's a pretty good book. I just got started reading that one too, honestly. So I'll— we'll have to hook back up again after I get done reading that, and I'll have a bunch more questions for you.

Mike

Finley: Happy to take them on, Chris.

Chris

Barron: Sounds good. Well, again, this was Investing 101 with Mike Finley. Mike, we sincerely appreciate you helping us. You, you are helping a lot of people in the financial industry. That is a very confusing industry in an area that people, I think, need a lot of help. We just don't know it.

Mike

Finley: And my message is we can do this ourselves. We can take responsibility of our financial life as we take responsibility for our life in general. This is something on us and we can do it.

Sloan

Barron: Yep.

Chris

Barron: Awesome. Well, thanks a lot. Really appreciate you being here again, Mike.

Mike

Finley: Thank you, Chris.

Chris

Barron: Yep. And thanks everybody for listening to this Investing 101. If you've got other questions or other thoughts, ideas, or things that you would like Mike or us to hit, um, we just thought we would spend a little time and do a brief series on some of the financial aspects that we all deal with and maybe aren't as familiar with or as comfortable with as we are messing with the commodity market and some of the other things that we all have to deal with. So again, thanks everybody for listening. We'll catch you again next time on the Ag Newscast.