The 5 Essentials for Smart Investing

Robert Roby of WEALTH SIMPLIFIED: The 5 Essentials for Smart Investing

An Interview With Jason Hartman

I would inform my child that lower fees do NOT necessarily equate to having more money at retirement. In other words, to figure out what your real return is, you must look at the returns, minus fees and minus inflation. There are firms out there pontificating about fees while ignoring returns. I have researched many funds over the years and some with the highest management expense ratios have consistently outperformed so called lower fee funds.

Aa part of my series about The 5 Essentials of Smart Investing, I had the pleasure of interviewing Robert F. Roby, author of WEALTH SIMPLIFIED: The Secrets of Everyday People Who Retire Richer, Happier, Earlier, is the Founder and Senior Wealth Advisor of Family Tree Wealth Management which is based in Ottawa. His firm provides investment services, including estate and tax planning for its clients. Roby, who has been fully securities licensed for more than thirty years, has received numerous industry accolades, including being selected as an Industry Icon by Wealth Professional.

Thank you for doing this with us! Our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

The very last thing I thought I would do with my life was to get into the world of investing and personal finance. Numbers and math were not my favorite subjects when I was young. However I was initially attracted to the life insurance industry where I spent a number of years helping people with their estate planning. Over time I realized that most of my insurance clients were woefully lacking in proper investment advice and planning which led me to get into the securities industry nearly some thirty-six years ago.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

A few years ago, Rick, a long-time client of mine, stopped by to show me a letter he had received from his local engineering society offering him up to $1 million of group life insurance for just under $100 a month, without a medical exam. Given that Rick was 68 years old; financially stable; had a policy to take care of his funeral and associated costs; and no longer had to care for children, he really did not need additional insurance. However, I recommended that — given the low cost — he should take it. He left the office, and I didn’t hear anything until about three months later when his spouse called to say that Rick had a heart attack and died.

At that point, I did not know whether or not he had taken the insurance. About a month later, I met with his widow. After guiding her through the finer points of settling Rick’s estate matters, I asked about the life insurance policy. She said that she and Rick had decided against it. I was then going through the numerous letters and communications she had received, and discovered a letter from the engineering society. I asked her to open and read it. Lo and behold, Rick had taken the million-dollar policy! His widow was shocked, so I explained that Rick had come to see me several months earlier — unbeknownst to her — and I had recommended that he take the policy.

The lesson here is for investors to realize that utilizing the skills of an experienced wealth advisor can pay off tremendously, not only on the insurance side of things but also in creating meaningful wealth through sound investing and effective estate and tax planning.

Are you working on any exciting new projects now? How do you think that will help people?

Yes. My investment book, Wealth Simplified: The Secrets of Everyday People Who Retire Richer, Happier, Earlier, is about to be published and is currently available for pre-sale on Amazon. Based on my thirty-six years of experience, the book not only provides stories about how to invest effectively, but it unravels many investment myths and misconceptions. It also provides case studies and sound research, all of which is simplified to help everyday investors.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. According to this report in Fortune, nearly two-thirds of Americans can’t pass a basic test of financial literacy. In your opinion or experience what is the cause of these unfortunate numbers?

One major cause is investor indifference. For years I have heard the same refrain, “If only I had done this earlier.” Investing is often placed on the backburner due to investor lack of interest and fear of the markets. In part, this can be traced back to what is referred to as “generational trauma.” That is, our parents or grandparents who went through the Great Depression passed on an investment philosophy which basically meant staying away from the capital markets due to the losses they had experienced. This mentality has been passed on much like DNA to their kids.

Second, the financial media often create fear with their sensationalized headlines. While much of the media is focused on whatever is the newest flavor of the day, effective investing requires looking at the long-term, with a portfolio customized to the investor’s specific needs.

Third, the education system has failed to educate children about investing and money. Therefore, many people grow up with little more than information from friends and family, much of which is bad advice. Now, couple this with sensationalized media coverage and investor indifference and you get a perfect storm. At the same time, and on the other end of the spectrum, academia churns out financial and wealth advisors who believe that complexity is the ticket to success within the industry. Therefore, the true key to success lies in the simplification of complex matters. Fear is reduced or negated when you understand the fundamentals of investing.

If you had the power to make a change, what 3 things would you recommend to improve these numbers?

The first thing would be to make personal finance and investing core subjects in schools beginning with simple concepts commencing in grade 5 and increasing in complexity up to the end of grade 12.

The second thing I would do is to have regulators become more aggressive in curbing some of the exaggerations and misleading information on the air waves.

The third thing would be educating potential investors about the different styles of advisors ranging from the banking retail sector to the independents. All too often investors believe that all advisors are basically the same. This is a myth, exacerbated by the fact that many of the titles given to advisors do not differentiate between newbies with no experience and experienced wealth advisors with decades of experience.

Ok, thank you! Now to the main question of our interview: You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing, what would you say? Can you please give a story or an example for each?

First, I would inform my child that lower fees do NOT necessarily equate to having more money at retirement. In other words, to figure out what your real return is, you must look at the returns, minus fees and minus inflation. There are firms out there pontificating about fees while ignoring returns. I have researched many funds over the years and some with the highest management expense ratios have consistently outperformed so called lower fee funds.

Second, be careful to avoid over-diversification — or what I refer to as “di-worsification.” More diversification does not necessarily equal less risk. In fact, research confirms that having too many holdings — such as by investing in multiple mutual funds — causes dilution, resulting in poor returns. Many wealthy investors such as Buffett and Gates hold only 40 or so stocks diversified among the key sectors.

Third, smart investing means understanding risk. In my opinion, our industry misstates risk by rating CDs and Treasuries as “low risk.” Because returns are slow, there actually is risk entailed for long-term investors. Because their principal is guaranteed, investors believe they’re safe. However, because of inflation and taxation, the value of that principal is destroyed. For example, back in the 1980s when interest rates reached double digits. you could get a CD or Treasuries with interest rates north of 14%. But here’s the catch: interest rates went up due to high inflation of 12% plus. Therefore, after year one the real return after inflation was only 2%. Furthermore, income tax has to be paid. So given a 30% marginal tax bracket, the real return after inflation and taxation is MINUS 2.20 %.

Fourth, successful investing requires the services of an experienced wealth advisor. Today, many younger investors are being told to reduce costs by staying away from advisors, and instead invest with “robo”s . As a result, they are often railroaded into cookie cutter portfolios that may or may not suit their situation and needs. In addition, peer pressure on social media and its accompanying inaccurate information will at some point result in poor investment choices. Several studies conclude that using the services of an experienced and fully-licensed securities advisor creates substantially more wealth over time than going with cheaper options. You get what you pay for.

Finally, beating the indexes is not that difficult, despite what you may hear. Those selling exchange traded funds (designed to match the indexes) assert that you should stay away from expensive mutual funds that have a low chance of providing returns better than the index. While it is true that studies show that many fund managers fail to match the indexes, there are, in fact, many funds that have consistently succeeded in doing so. Therefore, when you incorporate multiple silos of exponential growth — in other words, compounding, combined with individual dividend paying stocks, exchange traded funds and select mutual funds, beating the indexes is not difficult over the longer term.

For example a client of mine who died had put away a number of Bell Canada shares in a safe deposit box twenty-four years prior to her passing. Those shares grew in value from $10,000 to more than $350,000 with annual dividends exceeding $15,000.

The key was the fact that, exponentially, the number of shares compounded with the re-investment of dividend creating an annual return of 19%. Interestingly the BELL shares returned about 7% during that period of time — below the market index. However, the re-investment of the dividends created an additional 11% annual average rate of return, thus out-performing the index by a substantial amount.

This is not to say you should own BELL shares nor should you invest in only one stock. However, in my three decades of experience, a portfolio that maximizes compounding by increasing dividends and yields coupled with capital gains easily outperforms the indexes with much less volatility and risk.

What are your thoughts about investing in cryptocurrency? Can you explain what you mean?

First of all cryptocurrency, is not an investment in the traditional sense, but rather a highly speculative venture. In addition, history clearly demonstrates that crypto is rife with fraud and criminal activity.

Third, I don’t believe that the powers that be will allow a crypto currency to undermine the central banks and the retail banks, but rather they may very well come out with their own crypto.

Fourth, a rule of thumb is to never invest in something you don’t understand, and the average person has very little education on the complexities involved in the crypto world. The best bet is to put together a professional customized portfolio that is matched to your needs as the foundation for your future financial well-being.

If you want to buy crypto only do so understanding that you could lose a lot of money. Stay away from hype! Perhaps you recall Nortel, Worldcom; the dot com frenzy ; Y2k; the so-called new economy ,and many other investments that were hyped in the media and became losers. Stay away from emotional investing by having a strategic investment plan.

What are your thoughts about daytrading, using apps like Robinhood? Can you explain what you mean?

For most investors, day trading is a losing proposition. In essence it involves the timing of investments and the timing of the markets, and as Warren Buffett once expressed, ‘if anyone can prove this can be done consistently then he/she can manage Berkshires multi-billion dollar portfolio.’ No one has ever taken him up on it.

The reality remains that investing effectively means having a customized portfolio created especially for individual investors, taking into account their time line and ability to bear risk, coupled with a suite of services that provides communications about estate planning, insurance, and investing that consistently educates the investor.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

I started my adult life by being homeless at age 16. Although I did not have any mentors, I did have an experience that changed the way I looked at success. By the time I was twenty, I worked for Combined Insurance (Clement Stone). They taught advisors to believe that success is created by the way you think. The old saying “you are what you think” resonates with me still today. I have seen many well-educated advisors totally fail while others with far less education succeed immensely. Therefore, the key to success lies in having a positive mental attitude, coupled with enough knowledge and know-how to create the necessary actions to succeed. I have used this lesson in all facets of my life.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Every great man, every successful man, no matter what the field of endeavor, has known the magic that lies in these words: every adversity has the seed of an equivalent or greater benefit.” — Clement Stone

Everyone will experience challenging times, and many will simply wilt under the pressure and give up. They often make excuses for their failures and look for similar people to share their sorrows with. In my case, despite having experienced several severe setbacks, I remained internally motivated knowing that, in every setback, there is an equivalent or greater benefit that will eventually emerge as long as I keep the faith.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

The world is awash in negativity; political turmoil; identity politics; and a degradation of morals and values. If this continues unchecked, it will cause significant issues in every walk of life. Therefore what we need is a movement to counteract the negativity and replace it with a foundation that goes back to the best things society has created over time, coupled with new ideas and concepts that are inclusive of everyone regardless of political affiliations, race; backgrounds, etc.


investing, money

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