How do successful investors and business owners build lasting wealth?

Patricia (00:00): Welcome to Real Conversations with Patricia Baranowski Schneider, the podcast that takes you on a journey around the world to meet some of the most inspiring and accomplished individuals, discover their stories, uncover invaluable business lessons from their paths to success, and gain exclusive insights on how to apply their strategies to elevate your life and business.

Patricia: Hello, and welcome to Real Conversations with Patricia. I'm your host, Patti Baranowski Schneider. Today, I'm joined by Doug Greenberg, a finance expert. So welcome, Doug. Tell us a little bit about yourself.

Doug: Hello, Patricia, and thanks for having me. I have been a wealth advisor for the past 30 years, working mostly with business owners and high net worth generational type families.

Patricia: Very, very nice. The people we all aspire to be, right? So now tell us what over 30 years in finance and business have been like for you. What are some of the most common financial mistakes individuals and business owners make, and how can they avoid them?

Doug: Well, that's a great question. Do we have four hours? You know, I think that the biggest mistake is not doing planning, and whether that's an individual or a business owner. And with an individual, you'd use a financial plan, because what you want to really understand is how much risk do I need to take in order to make my plan work? Because the only thing that we can control in our investment process is risk. And so many times clients will come to me or then they'll, I need a 10% return. I got to have 10%. And you do the math and they need about a 4% return. And so that question then becomes, would you prefer to have less risk and still, you know, get a 6% return and get a good solid return above your goal? Or do you want to have a 10% target and have volatility? And typically they take less risk. So it's understanding the risk budget that you need to accomplish your goals.

On the business side, I find many business owners are not, don't use planning in a way to forecast what their business will do in the next one year, two year, three year, four year, five year. And that's very critical because it gets the business owner to look up from what's going on day to day, look up into the future. And when they go to sell their business and they have this continuum of forecasts and performance going out, it allows the buyer to feel more comfortable about the projection of the business and that the buyer's been, excuse me, that the seller's been thinking about the future, not just today. So I, you know, I think, you know, that cashflow statement, you know, understanding valuation, understanding, um, how do we, you know, what does revenue look like in year three, four, and five, um, is important for business owners as well.

Patricia: That's awesome. Because I know, um, most people don't do that. Like I know someone who they sold a home and they had, you know, this cash and they wanted to invest it and they never once say, well, what's your risk? Right away, they just go for the gusto. They didn't forecast anything. They didn't say, okay, well, here's where we're at, we can, you know, like you said, do you need 6%?

Doug: That's right.

Patricia: And that's really actually, you know, pretty impressive because I could tell you everybody I know that's investing, nobody's ever gotten that luxury. Think, I mean, unfortunately.

Doug: Well, and what happens is, is then they gravitate towards the hot stocks, right, which, which are, you know, for the past year and a half, there's seven or eight hot stocks and, you know, and it's just a, it's, it's just a more dangerous volatile game.

Patricia: Right. Yeah. Now you specialize in helping business owners prepare their businesses for sale. So like, what are some of the key financial and strategy steps that they could take to maximize their business value before selling?

Doug: Right. And I have been doing an 18 part series on getting your business ready. And so it can be everything and anything from making sure that your key employees have contracts and what are called stay bonuses. So when the new owner comes on, they get a bonus for staying. It could be something as simple as making sure that you, um, um, you know, you have your financial controls built out and your systems built out. So when the buyer wants information, it's quick, it's easy and it's ready. So making sure the financials are in order, um, you go all the way through your website. Is the website correct? Is it accurate? Is it up to date? Um, I mean, there, there, you know, there's a, there's a big list and, and the key is, is that it's difficult for that business owner to, to be able to manage that process because one, they've got their head down, they're blind. These are my blinders. They got their head down, their blinders on, they're focused on running their business, which is what they should do. And so the value that I'll bring in is we'll do an audit, we'll look at where the holes are, we'll help, uh, point them in the right direction of fixing those holes and then hold them accountable. Mm -hmm.

So if we need, if they never had a partnership agreement, then we get them in front of a business attorney. I'll interview, uh, provide it to them and they'll be able to then get that partnership agreement together. Right. So I will, I will empower them to make the decisions themselves and then hold them accountable. And, um, and, you know, you should always be thinking as a business owner, you should always be thinking about what is my exit and how am I working towards that exit? It's no different than imagine jumping in your car without your phone and saying, I'm driving to St. Louis. And you'd be like, how do I get to St. Louis? I know I want to go to St. Louis. I just don't know how to get there. Right. Um, and so, um, you're, it's just constantly always working on that exit strategy.

Patricia: That's great that you're guiding people because most people, like you say, they, they know where they want to go, but they have no clue all the intricacies that, that, you know, it entail. I wouldn't know.

Doug: Well, and again, most business owners, right, um, um, this is the first business that they're selling. So they, they just don't know when or how, and, and adding a little bit of knowledge, um, helps them out tremendously.

Patricia: Yeah. It's amazing. Now, market volatility, it's a major concern for many investors. So what strategies do you recommend for navigating uncertain economic times while still growing wealth?

Doug: Um, you know, uh, so, so the focus of, of, of the investment policy statement for the investing that I do. So, because I've been in the financial markets for a while. So to, to manage that volatility, I think, um, there's a lot of, you know, there's a lot of, uh, you know, there's a lot of ways that, that people can, uh, to manage some of that risk based models. Um, and, um, to manage that volatility. First it's understanding what the client perceives as volatility and what their experience has been in investing. Um, and, and I hear some incredible stories, right. Both good and bad that affect how people think about investing. But, um, uh, if you use the economy as your base for deciding your asset allocation and investment models, the economy, not the stock market, then you're able to understand which of the sectors could perform better in the coming 6, 12, 18 months. So, for instance, we have a new president. He's made many, many promises around deregulation in the financial services industry. So, you know, that's going to allow banks to loan more money, to make more money. And so we just changed the portfolios and added an overweight to financials because that sector, again, it's already doing well, but should reap the benefits of the deregulation.

So, you know, understanding where the economy is headed, or at least where we think it's headed, provides that backdrop. And by thinking of it in that way, it naturally reduces volatility. But I'm also looking at in the model portfolios, having added bonds when bonds were at a peak. So that also is helping with some of that market volatility.

Patricia: So that's great that you're kind of you're on basically on the on the ball here and you're monitoring everything and you're offsetting because I remember way back in the day, I had like my kids put, you know, whatever their baptism money, their first birthdays, blah, blah, blah. And I was a single mom, didn't have much money. So I took their money and I went with our the president of the company back then with their, you know, investment advisor. I'm not a millionaire. They didn't care about my stuff. That money went to nothing. And when I called them up, I was like, what happened to them? I did like, well, you know, the stock market was doing bad. You know, what do you want me to do? You could have reshuffled it or took it out, put it in. Did something, you know, basically, you know, it took me years before I was in a position to replenish that. But I see that so many times. My mom, she's, you know, 70 something at this point. And she says whatever money she had invested, she's like, I have less in there now than when I started. And she's like almost 80 years old. And it's like, you can't get that money back. But unless you have somebody who's really, like you say, paying attention, finding out, you know, what's the best option, how to reshuffle it and offset it. You know, so I think that's amazing. Everything you're saying so far, I'm going to have my mom call you. I think this is this is really, really...

Doug: Now, here's another piece to that, to that equation. Because so as I mentioned, I use these risk based models. They're made up of ETFs. And currently there are 15 ETFs in the model portfolio with four of them being individual bond ETFs. So my analysis occurs on 15 stocks and excuse me, 15 ETFs. And each of the models has the same ETFs just in different weightings. All right. So we put that over here now. If, if you think about an average advisor and they might have 300 clients and let's say each client has 10 stocks or 10 positions. So that's 3000 positions. And there's some overlap, of course. So maybe there's 2000 positions and it is, it is, you know, I wasn't able to do it earlier in my career. I don't know anybody who runs a wealth advisory practice that could monitor much less a hundred different investments and then be able to make changes. And so, right. It's just a lot more attentive. Clients like it because they know that there's constant evaluation going on. Because again, I've got 15 that I'm having to monitor.

Patricia: Right. Yeah. I mean, I just think so many people, they're just like, give me more, give me more, give me more. But you're biting off more than you could chew. So, yeah.

Doug: Without a doubt. Without a doubt. Yes.

Patricia: So what are some of the biggest challenges individuals face when planning for retirement? And how do you keep them? How do you help them create a strategy that ensures long -term financial security?

Doug: Right. And that's a great question. I mean, I think a lot of it surrounds attitude. A lot of it surrounds education. And I was on a call earlier with an investment banker and we were talking about business owners and about how business owners, either they don't know the value of their business or they overvalue it. Right. And so they begin to make planning on this, they overvalue number and their planning doesn't work. So it's critical to to run that, to get into that situation and run that financial plan, because as you're doing it, the client's not just regurgitating information to you. We're having conversations about expenses, about plans for the future, about things they want to do. And many times they may put a number down, which is four X higher than it should be. Right. Maybe it's travel or car or whatever. And it's beginning to it's beginning to educate them and to get them to understand where the risks lie. Time, right, not putting enough money away, right. Do we need to take care of parents? Are they going to, you know, leave us an inheritance that will bolster us? I mean, there's a lot of things that come around that. But most importantly, it's finding those holes, it's finding where they can make a change in their thought process and understand early on that if the model says they got to work till 65, that they go, OK, well, I'm 20 years ahead of that, so I know that's what I got to do. And here are the four or five things I can do at a time and save more money. I can spend less. I mean, it's a it's a short calculation. So it's really it's really using this 30 years of experience to analyze the position they're in and then provide advice on how to improve that situation, not only for the short term, but for, you know, the long term as well.

Patricia: But that's why they need like an outside person, because it's hard for someone who's in that position to know. You've seen it from various other clients. So now you can pretty much say, OK, here's what you're looking at. I would, you know, most people just focus on I know a guy, I know 100 guys and this is what you're looking at, you know, right.

Doug: Well, and I and I think and I mentioned this before, I think holding clients accountable for for for whatever it is, if they say, hey, this is what I'm going to do, it's holding them accountable, right, because there's there's nobody else in their world, in their financial world or advice world that's going to say, hey, did you complete this? Right. So it's it's also a big part of it.

Patricia: Yeah. Nice. Now, you describe yourself as an empathetic storyteller. So can you share a particularly impactful story of a client who transformed their financial future with the right guidance?

Doug: Yes, I got a bunch, but so so I had this gentleman, he was a referral to me and he ran a machine shop and he would occasionally say to me, you know, I think I'm going to sell this. And then he'd say to me, I think I'm just going to toss the keys to the foreman. I think I'm just going to walk away. He's like, you know, he'd go in these waves of, you know, I want to keep it or I want to get rid of it or whatever. So this was early on in our conversations. And so we developed a financial plan. And one once we finished that financial plan, I brought him and his wife into the office because I wanted to share with them the results of the financial plan. And and what the results showed was that he could walk away from the business and they would have enough money to fund their life. Well, when I shared this story, the wife starts crying and looks to him and literally is in this accusatory tone was like, what did you do? Right. I mean, it's just a lot of emotion. And he looked at her and he goes, I don't know, like I'm in trouble. I don't know. And and I was like, here's the deal, right? You know, here's the result and here's how it works. And so what it allowed them to do is have open up their blinders and have more options with how they wanted to live their life. So what they decided to do was to keep the business. It was providing a nice income and they decided they were going to buy a lake. They're going to buy a lake house about two hours out of town. And they were and they bring their grandkids there. They'd have and he kept working. Right. And he realized that that he could keep working as long as he wanted or short as he wanted because of what he had done earlier in his career. So, you know, those kinds of stories are just are just are phenomenal because you're literally making a difference in their lives and showing them a path forward that they may not have been able to see before.

Patricia: Wow. He could have been working forever and not even having a clue that if he really wanted to leave, he could.

Doug: Right. And then and then and then, you know, you know, when you have that level of stress, you're enjoying life less. I mean, you know, there's a whole bunch of follow on things that that come from from knowing that I can walk away.

Patricia: Wow. That's amazing. Now, estate planning is often overlooked or delayed. So what are some of the most important estate planning strategies families should put in place to protect their wealth?

Doug: You know, I think that, you know, and I call this kind of the the the titling of your wealth. How is your wealth held? Who owns it? What structures own it? And so, you know, without a doubt, you should have the basics in place. And that means a will. Right. It means what I would call advanced directives, power of attorneys. And that's just at a basic level. Now, I'm not an attorney. So these are just, you know, suggestions as the wealth increases. You then can use a variety of different types of trusts, you know, revocable living trusts as a way to not so much protect the money, but make it easier to manage if you were in a coma or if you could incapacitate in any way. It's very easy for those below you to step up and act as trustees in your in your absence. I think past that, there is a variety of estate planning techniques that help pay that can help pay for or reduce your your capital gain taxes at the at the at the federal level. I'm sorry, not capital gain taxes, estate taxes at the federal level. You know, we all have a very large exemption currently. Trump says he's going to he's going to keep that in place, but we just don't know. But, you know, I think that the estate planning is overlooked. I think it's incredibly overlooked when it comes to business owners. And there's again, there's there's a plethora of things that you can do before that business owner receives an offer for the business or an LOI. And so, you know, imagine if I own a business and each share of the stock is worth two dollars today and I can distribute some of that to my kids, I can put some of that in a charitable organization. Right. And then I get an LOI and now the stock's worth ten dollars a share because someone wants to buy it. And that value of eight dollars, right, isn't created in my estate or in my name. It's created in the kid's name. So it's a very nice way to be able to pass on assets without using your federal exemption.

Patricia: And these are things, again, people obviously wouldn't really know about because I'm dealing with them or not me per se, but my mom is dealing with certain things like this. My dad had just passed. And, you know, you find out all of these things with the finances that what you can do, can't do, what's taxed, what. And now she's kind of like, if I would have known this 20, 25 years ago, I could have changed things. But now it's kind of like the damage is done. So these are things that people need to really talk to you or talk to someone who knows what they're doing and plan early.

Doug: So yeah. And I think that, you know, I think a lot of individuals or business owners, they think about how they they put themselves in the role of an attorney and they and they come with this knowledge that, oh, this is these are all the things I need. I need this trust. I need that kind of thing. And and what I really want business owners and individuals to think about is not don't do the attorney's job. Right. Think about what you want to accomplish. Right. Who should be in control if you hit your head and you can't make decisions? Who should receive, you know, the inheritance? How should it be passed out? Right. What control should be in place? You know, and and it's thinking about that and then letting the attorney, the wealth advisor, create a plan that satisfies all those goals, you know, as easily and tax efficient as possible.

Patricia: Yeah, 100 percent. Now, you break down complex financial topics into actionable steps. So can you share a simple but effective framework for someone looking to improve their financial situation today?

Doug: Yes. And this is the this is the thing that that people just don't like to do. The first thing that they want to do is build a budget, build a budget on your monthly expenses, know where the money is going, all right, and and know where you can, if you want to make a change, you can make a change. So building that budget. And that's the first step, because, you know, once you build that budget, then you've got that ability to say, OK, I've got this much left over for retirement or I've got this much left over, you know, for investment. And that's the building block right there. The other thing is, is that I would encourage everybody, everybody who's listening, at least, right, to look at their online credit card statements every month because, you know, things get charged, things don't get returned. And so, you know, I go through it, you know, now the the way to make life simpler is to make it simpler. So instead of having seven credit cards, we we want to over time narrow them down to, you know, one, two, maybe three whole host of reasons around that, you know, reducing fraud is important. It's much easier to manage from an accounting perspective. And, you know, if there's a bad charge, you don't have to go through seven. You can just go, you know, the one. Once they get past that budget, then they are able to do that financial plan. And whether they contact a professional, if it's complicated or they can do it online. Right. Again, it's it's that next step to get them to see what's what they can accomplish over long periods of time.

Patricia: It's funny, like I'm kind of a bad culprit of that, too, just kind of going through the motion. But when you do like every year at the end of the year, you have to go through your bank statements and one up for the account. And it's kind of like, wow, you don't realize like how much how much unnecessary spending you're doing or where money's going that could be eliminated or merged into something else. So that's actually definitely a good practice for sure.

Doug: I mean, even even I will find, you know, where where, you know, you you you try a software product or you try an app. Right. And you sign up and they go, you get 30 days free trial and you try it. You're like, I don't really like it. It doesn't work. And then you move on to something else. You forget to cancel the trial and then you get billed for three months. So if you're looking at that statement, you're able to go, wait a minute. You know, can I get a refund? I never used it. And then cancel. So, yeah.

Patricia: Or even nowadays with all the scammers and spammers and all that stuff. It's amazing because I've looked at my bank statement. I'm kind of like, what is that like? I you know, you get that a lot and it's tricky because if you don't catch the first one or two times, it starts escalating. So if you're not paying attention, next thing you know, your money's gone. It's like and then the bank's going to say, well, they've been doing this for two years. You never saw it before.

Doug: Well, I hope it doesn't go two years. That's a long...

Patricia: Yeah, it's true. Now, how is the financial advisory landscape evolved over the past three decades? And what do you see is the biggest trend shape in the future of finance?

Doug: You know, when I first started this, this concept of of of advisory work was just just beginning. I mean, we were still we were still brokers when I started and and you and you bought and sold securities as in the beginning. And then over time, you grew your business and you you you you adapted and then charged a fee. So you could, you know, reduce or eliminate. There's conflicts of interest. And so we've seen a huge growth in that advisory type business, charging a fee on assets under management. What we've also seen, which has been a phenomenal change, is this movement towards less expensive ways to manage money, more transparent ways to manage money, more tax efficient ways to manage money. And so in the beginning, you know, if I talk about a level of asset management, I'm going to feel like I'm gonna be working for this market about this, you know, the the best way to invest is to own individual stocks. All right. Well, but that's hard for the normal person, for the for the layperson, because there's a lot of research that goes in to that. And you got to have some 25 different securities to offer good enough diversification. So so then you moved into mutual funds and mutual funds are very valuable and an important consideration, but have, you know, negative tax effects. And you don't really always know what you own in that fund. It's opaque. And then you move to ETFs. And so you've got ETFs today, which are that tax efficient, low cost, you know, whether it mirrors an index or it's active management, you still know and can determine what you own every day. And I think that's very important. And so, you know, seeing that now, I don't know what comes next after ETFs. There's a lot of talk around individual indexing for people and whether or not that's worth the expense and the and the accounting difficulty. I'm not sure yet. So at the time being, I'm finding ETFs are the best are the best for the client.

Patricia: Nice. Now, what are the most crucial factors people should consider before making a major life transition such as inheritance, career change or selling a business?

Doug: You know, I like to I like to say that we want to know the outcome of that decision before we make the decision. So it's as you can tell, I'm very I'm very math oriented and very, you know. So so you want to model each of those situations. You just want to model them because where I think you're this goes back to one of the earlier questions where I think investors make a mistake is they don't recognize the amount of emotion involved in their decisions and their decision making. And they make typically decisions around investments or or or investing based on what the stock market's doing. And the stock market is an emotional barometer of what the economy is doing. And so they don't focus on the economy because, you know, there's less talk about the economy. There's more talk about the markets because that's sexier and exciting and volatile and, you know. So I think it's I think it's, you know, recognizing that we want to model this before we make a decision. We want to understand. Like I have I've had many clients come to me and say, hey, you know, next year is my last year. I'm I'm done working. I'm not going to work anymore. Right. And we do the math. And it's like, OK, no problem. I then ask them, so what are you going to do when you retire? And he goes, I don't know. Well, the wife's involved. And the wife's like, I don't want him under my feet. Right. And maybe he has no, you know, hobbies or maybe he doesn't want to play God, whatever it is. Well, many times those individuals are still have a ton of energy, a ton of spirit, a ton of drive. And so and so we look to set them up in a consulting business. Right. Where we will because why should you waste this 35 years of industry knowledge and just throw it away? And so I'll counsel them on setting up their business. I'll counsel them on pricing. I'll counsel them because they're in their their knowledge is valuable. And even if they and even if they do consulting for three or four or five years, that alone will extend their life because they're continuing to use their brain. They're continuing to stay active. Right. And they're just working less.

Patricia: Yeah, I love it. Right. Now, for aspiring entrepreneurs and small business owners, what financial habits or investment strategies would you recommend to build long -term wealth and financial independence?

Doug: Right. That's another big question. You know, I think that, you know, when I use the word diversification, it can be used across the board. So that business owner who's running a business, you know, they've got all their net worth tied up in that business. If they have the ability to either pull money out or contribute to a retirement plan as early as possible, get that set up on a regular rotation. That's that's perfect. But diversifying where their wealth is held. And so, you know, it's it's no different than an executive that that leaves a publicly traded company and they have accumulated a lot of stock over the years. It's a very risky venture if they have if you have all your money in one investment. Right. And so you develop a plan over time to reduce their holdings from a tax perspective and diversify. You may not get to zero, but you want to diversify away from that one risk. Same thing with the business. Right. And so you want to you want to diversify your your net worth holdings so that if we have fluctuations in the business, which we will, we also have wealth outside the business that we can lean on if necessary.

Patricia: I love it. I mean, that's where they need somebody from the outside who've seen it all to say, OK, let me help guide you. That's cool. Now, anything else you want to talk about that we didn't already touch on?

Doug: No, I think that, you know, not everybody needs an advisor full -time. Not everybody needs someone that they want to talk to once a month. But, you know, there are there are plenty of resources on the Internet, plenty of resources on the Internet, you know, in my industry that you definitely want to avail yourself of them. I think that's important. And number two, I think that you want to be very cognizant of who that you are wanting to work with, interviewing two or three so that you can get a good triangulation around who's good, who offers this, who do I get along with. Right. Maybe somebody is an insurance sales salesperson and I don't need insurance, so I'm not going there. Right. You really want to spend, you know, a little bit of time and most importantly, kind of talking to two or three people. Right. So you can get a good a good kind of a good bird's eye view of what people are doing today.

Patricia: Awesome advice. Now, how can people get a hold of you or learn more about you?

Doug: Well, I sent I emailed to you that graphic. OK. But, um, yeah, and just include that. And and quite frankly, you know, I tell people I, you know, I love helping people. And I know that if someone rings me up and says, hey, can I talk to you for a half an hour or 45 minutes, I know without a doubt that even if they're not clients, they're going to receive a lot of value from that conversation that they're going to be able to use and benefit themselves.

Patricia: That's good that you even offer that because everybody nowadays is like, you got three minutes.

Doug: Right. Right. No, I do understand that.

Patricia: Nice. Well, thank you again for being on the show. Again, that was Doug Greenberg. So thanks for listening to Real Conversations with Patricia. Never miss an episode by subscribing to the channel. So thank you again.

Doug: Thank you, Patricia. My pleasure. Thank.

Doug Greenberg, CIMA®

Pinnacle Wealth Advisory

President

503-880-1828

doug@pnwadvisory.com