Paul Winkler: And welcome to The Investor Coaching Show, Paul Winkler talking about the world of money and investing. That’s what we talk about. And here with me is Jim Wood, up in the Goodlettsville office, he’s a certified financial planner.
The Purpose of Money
Now I just woke up this morning and I had this thing going through my mind about purpose money and those, those types of things. And this really has a lot to do with investing. And I guess it’s because I’ve had so many people lately—and you’re like, Oh, it must be rough for the people that I’m talking about, where, you know, they’ve come into money that they didn’t necessarily think was coming their way didn’t realize was coming their way.
I think there are a lot of people that are going to be faced with that situation as years go on, simply because they’re going to have loved ones that pass away and they inherit money and they end up with money that they didn’t expect that they would have. And you know, as I’m mulling this over this morning, are there a lot of people that are going to be faced with this? Some people are going to do okay with it. And some people are not going to do. Okay. You know, it’s kind of like when I worked for a company that serviced the New York state lottery, there were people that came in and it was everywhere.
Jim Wood: The first thing I thought of, yeah, it’s probably real similar, just fell. All of a sudden you have this money and you see a story after story of lottery winners that are broke and a couple of years are missing.
Paul Winkler: Yeah. They just didn’t know what to do with what they were given. And I think that is so much the case because we see the studies on how much money is going to inherit it from one generation to another. And it’s, you know, like billions and billions. I mean, I don’t even know what the number is, but it’s a huge amount of money. But if you think about it, no matter what that number is, if you’re a person that has basically been hand to mouth for many, many years, and all of a sudden you come into a lot of money, it can be earth-shattering it’s and, you know, it’s something that you have to think a lot about and maybe thinking about it before it comes your way is a really good way of going about.
So let’s just talk a little bit about what some of the mental processes are that you should be going through, you know, before you actually end up in this position where you end up with a bunch of money.
So, number one, the first thing that we tend to do with people is this, whether you got money or not is, think about the purpose. What is it that I am here on this planet for? And this is getting a little bit deep, but how do you go about that?
And there’s a whole exercise that I bring people through called the enigmatic circle of wealth. It goes like this: I need money to survive. I need food, air, water, clothing, shelter, I need certain things to survive. And then typically what happens is, you know, a lot, you know, not only want these things, but I want the best of these things. And you know, when I get, when I obtain these things, I feel good and I feel okay. And then I start to get a comparative analysis. You know, it’s not just good enough to have water, tap water. I need to have bottled water. It’s not just good now, you know, I guess we want to have filtered air. You know, we don’t want just air. We want filtered air. We don’t want just transportation. I want a really nice car. You know, you don’t see people driving around in Nashville roads, in the absolute cheapest vehicles that they can afford.
Right. I mean, you know, so what do we typically want?
Jim Wood: Well, I was just thinking that in terms of, like, if you were somebody in the 1970s and somebody gave you an iPhone and just the original, like iPhone, iPhone, or iPhone 1, or iPhone 2, you’d have thought that was the coolest thing ever in the 1970s. And that’s the whole thing, but then you, you showed them that and they, this was amazing, but then you showed them an iPhone 10 and how much better that was. And it would be like, Oh, that thing’s a piece of garbage. I want this iPhone 10.
Paul Winkler: You’re right. I didn’t even think about that. Yeah. It’s so true. You just look at it and we take it for granted and, and then, you know, and then vehicles, I mean, you think back to the seventies, Oh my goodness. I remember getting up in the morning and having to go out to the car and it was cold outside. And you know, the carburetor would flood when I started it, and then you have like, Aw, man, I have to go and stick a screwdriver in the carburetor, you know, the flap to keep it open so that it, you know, that it’ll start off. You don’t even think about that kind of stuff anymore, but it’s so true. We, we go through this cycle and, you know, we get into comparative analysis and we’re never happy.
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What Is Really Important to Us?
You know, so what we’ve got to do is get ourselves outside of what’s really purpose-driven. You know, how do we figure out what’s really, really important to us. And typically the way I like to do it is to tell people, get out a piece of paper and get out a piece of paper and write down what are things that you feel that you need to do to feel that you lived a life without regret, you know, are places that you need to go. You know, people that you need to spend more time with things that, you know, there may be things that you want to have. There may be things that are, you know, maybe they’re toys or things like that that allow you to do things that are within your purpose. But I think it’s deeper than that. You know, if you said, what are the things that I, Paul, what would you want to have?
And I think I want to be able to have an electric plane. I think that would be cool to be able to go well, why? Because I appreciate beauty. You know, that’s something that’s super important to me.
Jim Wood: If we start thinking about what’s my purpose, what’s my purpose for money? That type of thing. Yeah.
Paul Winkler: That’s really good. Yeah.
Jim Wood: And, and so, you know, so many people come up with their true purpose for money is love, but, but also, so the other one, she mentioned boldness, I wish I had been more adventurous and that one I really have taken to heart lately. I mean, just in terms of, well, I can just sit and watch this TV show or I can get up and do something. And I’m trying to get my kids to think about that. It’ll get it off your bed and put the phone away and do something it’s a beautiful day. Right?
Paul Winkler: And, and I think the thickness is another part of boldness though, that I thought was really good. And it’s just speaking your mind and not letting people walk over you is the other thing. And not speaking your mind in an ugly way, because that would go against love right now. You’re, you’re you look at everybody as having value and you include it, you know, you know what I mean? Yeah. It’s not just everybody else has value. And a lot of people suffer from that thinking everybody else is better than me and I don’t really have a voice and I’m not important and no, no, you know, everybody has a voice and everybody has an opinion and you know what? We can all agree. We can agree to disagree on things.
You know, if we all agree on everything and we’re all on the same page, then some of us aren’t needed, you know, and that’s the big debate right now is you’ve got the left and the right and the left, isn’t talking to the right and the is not talking to the left and they’re not hearing each other’s side. And the reality of it from both sides can be really miserable because they’re not appreciating what the other side has to bring to the table. And, and there’s, there’s truth in so much of what both sides have to bring to them.
Jim Wood: And I think that’s actually related to the third one on this list was authenticity is, is exactly what you’re saying. I should have been more authentic rather than just going that’s right. It wasn’t a separate category. I want to be more genuine in terms of my interactions and stuff like that. And I’ve actually been learning that through some information on communication and stuff like that in terms of really focusing on listening to people, as opposed to thinking about what I’m going to say next. Oh yeah. Trying to hear what they’re saying. Evan was actually talking to me about this a little bit with some training that he did. And it got me thinking about it and really trying to get me to be more in the moment when I’m speaking with people, whether it’s family, clients, or whomever.
Paul Winkler: Yeah. And not necessarily judging. And you’re wanting to give them advice every second, you know, is really something I had to work at. It is, it is really a learning experience to realize that not everybody wants to. And you know, what the interesting thing is is that when we give advice, rarely is it ever taken. And the reason is because people don’t, they want to have ideas and the value they want to value themselves. And they value ideas that they came up with. So, you know, that’s part of the key of, of dealing with people is helping them formulate their own ideas because then when they own it, they’re more likely to do it.
Jim Wood: Why we come from a teaching aspect rather than just saying waiving our pan or our fingers saying, you need to do this, this and this and this it’s true. Okay. This is how this works. This is why this makes sense. And let them come to the conclusion for themselves.
Paul Winkler: Yeah. That’s so good. And you know, I that’s, I guess that has been my motto from the very, very beginning that that’s how you, how you’re going. Cause I was still told people, I, you know, I’m a terrible salesperson. I can’t sell my way out of a paper bag. And, and I remember a good friend of mine saying, Paul, you’re a great teacher teach, you know? So that is really where that all came from. So that’s, that’s a good reminder to do that. Now, what does that have to do with money and coming into a bunch of money, it has everything to do with it. So typically what happens is you heard this list of regrets and this list of regrets. I don’t think you’ve gone through all of them, but none of them said, get more money, get more money, get raised rich as you can and he who dies with the most toys wins.
None of it was about toys. None of it was about possessions. None of it was about having more money. It was all about stuff. I can love for free. I can be bold for free. I can stand up for myself, and I can express my ideas for free. You know, all of this stuff. Now, many times what happens is I find that when people come into a large sum of money, they will do this. I want to, well, that’s, what’s in the back of the mind. I want to get more. I want to get more, more and more and more, how do I get more? And what they will do is they’ll look around and go, Hey, what seems to be the best investment vehicle that I can get into that I can make even more money now, as sometimes it’s been gold and that’s, you know, been hot and in the news in Oh eight to 2008, certainly it was that in the 1970s, it was oil and, and, and anything, energy-related type things were, you know, that that would be something that would have come to people’s mind at that point in time, you know, and in the 1990s, it would have been technology companies and, and real estate right now is a hot area people talking about.
And you think about a lot of these things that are going to be really important to you. What is important to you many times is surrounded by this, this particular thing, which is time, because one of the things that all of these things that are important to you require is your time. It takes time to show love to people. It takes time to spend good quality in, in good quality conversations with your friends and your loved ones. It takes time. Now, if let’s say that my investment vehicle of choice is going and buying a piece of property and real estate.
Now that may be your passion. You absolutely love owning properties, fixing them up, spending time beautifying a piece of property and redoing the kitchens or the bathrooms of a piece of property that you bought. Maybe you just love owning these things. And that’s part of your thing is to provide shelter for people and own that and, and collect rents and do all of those things involved with real estate. And that’s what you love doing by all means if that’s what you love doing, do it. But I see a lot of people looking around and right now you’ve got the, you know, in Nashville anyway, the real estate market is just like really, really hot and expensive and people are, and there are only so many properties go around and people are buying them up and they’re buying them up because they think that it’s a great investment.
And the reality of it is it might be okay, but it might be something that could tie you down in the future where now you’re stuck with this.
Minimize Risk and Maximize Return
Jim Wood: Competition out there for real estate is just amazing. I talk to clients that, you know, their, their clients that, Oh, I’d love to get into this, but I looked around, I don’t really see much. And there are people that have been doing it for years that are just like, we can’t find anything. You know, we, I have clients within the last week that was saying, yeah, well, we always did this. We flipped several houses, stuff like that, but we can’t get into the market anymore at the price that works for us. Right. And so, because it’s something that some people have been successfully doing. And when that happens, then lots of other people want to do the same thing and be successful too, to where precisely…
Paul Winkler: A lot of the return gets priced out of it. Yeah. And that’s the same thing with, and we’re not just picking on real estate that happens in all different market segments. You know, that’s the same thing. The exact thing that happened with technology companies, technology companies were a great thing in the early days when technology was first coming out and 2000 or in 1990, 1991, 1992, you know, the technology, I got my first laptop in 1989 and it was brand new. And then that was an area that was hot. Some people became successful at it. And towards the late nineties, they started talking about how great their success had been. Well, that’s what attracted other investors by then.
It was way too late, you know, and then take from 2000 through 2002, the drop in value of 80% was devastating to investors. Now, when I’m looking, can you get this type of thing and say, well, you know, if free time is really, really important to me then managing real estate as an investment may not be the greatest idea may, may or may not be something that I should be spending my time on. And you know, the other thing is, is that yes, going back to, you know, I want to try to get the highest returns. How do I find the highest returns? Well, typically what I do as an investor, I think is I should look at funds that had the best performance over three, five, ten-year track records.
And then what I ended up doing is buying high shoes, shooting myself in the foot. And then I ended up with really bad returns going forward. But here, what led me to make that decision to look at the track record in the first place, it was the desire for more, more, more, and that is how the investment industry takes advantage of you. And that’s here. Really what the point I want to make with this segment is a mark for the investment industry. If the way you approach investing is driven by a greed approach, or I want more, more, more, because it is really easy to sell you on historic performance.
It’s really easy to sell you on, you know, low-income expenses is another thing that, that the investment industry tends to do get people focused on. Then they hide the expenses, but the easiest thing, and it’s, it’s why I did a workshop called the perfect storm because well, not now anymore by a long shot. But when I did that workshop, the first time the hottest asset cap category was large US stocks. And it was also the cheapest area of the market to manage. It was a perfect storm. Two things that people wanted the most high past performance, five, ten-year track records with low costs was a perfect storm.
And it did end up sinking lots of boats because it, by far is not the highest performing asset category in recent history. In the past four months, it’s not even close, but it was enough to suck a lot of people in. Now, if you focused more on purpose then, and you, and you, weren’t driven by that, then it wasn’t a problem. So that’s why I always start with purpose. What is really, really important to you. And then if I can get somebody away from that greed or the desire for more, more, more, and then, then I’ve got them at a point where I can educate them on, “okay, what’s the right way?”
What’s the best way to maximize the expected return for a given level of risk? And there are Nobel prizes awarded for this data, but I got to get you out of that. You know, just emotion-based state of just trying to get more and more and more, then I can work with you.
Jim Wood: And the great thing about not chasing performance, not always trying to find the hottest fund, the hottest stock, whatever like that is typically by not doing that. You tend to outperform all the other people that are doing that.
Paul Winkler: So true. Good, good way to end that segment, Jim. Thank you. So you’re listening to The Investor Coaching Show right here. Paul Winkler, along with Jim wood.
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