“Everyone’s situation is different.” With Jason Hartman & Dr. Guy Baker

Everyone’s situation is different. Generally speaking, I would advise them to put that money into a globally diversified equity fund comprised of up to 15,000 stocks, that is tuned to the “efficient frontier.” To me, the efficient frontier is that sweet spot everyone has between risk and reward. How much risk are you willing to […]

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Everyone’s situation is different. Generally speaking, I would advise them to put that money into a globally diversified equity fund comprised of up to 15,000 stocks, that is tuned to the “efficient frontier.” To me, the efficient frontier is that sweet spot everyone has between risk and reward. How much risk are you willing to feel comfortable with based on how much of a reward you need for taking a risk? Everyone’s efficient frontier is different.

As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing Dr. Guy Baker.

Dr. Guy Baker, Ph.D. started in the financial services industry while in college. His long and successful career has garnered many honors and awards testifying to his dedication to both the industry and his clients. He has also demonstrated a commitment to excellence through education, service and results. Recognized as one of the nation’s top financial advisors, Guy has proven that values, virtue, and persistence can bring quality results and benefits to his many clients.

Thank you for doing this with us! Before we dig in, 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?

I got started in the insurance business while I was still in college. I walked into my dorm one day during my junior year while my roommate was talking to an insurance agent. I don’t remember whether or not my roommate actually purchased a life insurance policy at the time. But I was intrigued by the concept. I told the agent: “Tell me more about how this works.” I ended up buying a policy after a long conversation and I never looked back.

The agent must have like the questions I asked, because a few months later, the insurance company he worked for asked me if wanted to be its rep on my campus. I said “sure.” After an interview, I was selected into the training program the summer before my senior year. By that fall, I was selling insurance — a lot of it. By the time I graduated, I was the top salesman in my area out of a group of 25.

Next thing I knew, the insurance company offered me a full-time job that involved hiring, training and supervising agents while I went to graduate school. I never thought of going into insurance as a full-time career, but I found the work interesting and the money was good. In fact, it paid me two to three times more than I would have earned in a typical corporate job right out of grad school. So, I told myself: “Maybe I should take a closer look at the insurance business.” That’s how I got into it.

I enjoyed the money, no doubt, but I was more intrigued by the product. To me, insurance is less about the death benefit and more about a person’s “insurability.” When you’re selling to very young healthy people on a college campus, you start with a very small affordable policy on a structured basis. The advantage for young purchasers is that since they’re considered low-risk, they can obtain a large amount of coverage for a very low cost.

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?

Early in my career at Pacific Life I was introduced to a smart cabinet maker in our area. He was an “orphan” policy holder. Meaning he didn’t have an agent. So, I went out to see him and we had a nice conversation. Finally, he said: “Well show me that.” So, I brought back an illustration, showing how life insurance could provide additional security to his wife and young children. He said, “Show me how this works.” After I explained the process to him, he asked me to come back a week later, which I did. Then he asked me to come back again for further explanation — which I did. I ended up going back to him seven or eight times before he finally purchased the program I was recommending.

That was a valuable lesson for me about the importance of perseverance. He put me through the proverbial wringer to make the sale, but I liked him and since he was in my geographic area, it wasn’t hard to keep going back to see him. Finally, after he decided to purchase the policy, he put his arm around my shoulder as I was walking out of his shop and he told me something I’ll never forget: Guy.I knew I was going to buy from you the first time I met you. I just wanted to make you work for it!

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

Well, I made the shift from life insurance to money management 10 years ago because I knew retirement was going to be such an important part of my client’s lives. I knew I really wanted to make a difference in how people retired. I knew I wanted to help them protect their assets so that they could have a stable, consistent income throughout their golden years. So, I’ve put a lot of energy and effort into retirement planning, including getting a Ph.D. from American College at age 73 and investing in a business that specialized in retirement planning.

I’m also working on a project to help finance the transition of small businesses using life insurance. We’ve put a lot of energy into developing a program called: “The project to help finance small business through Capital Succession Split Dollar.

When the buyer and seller of a business agree to an exchange, the value of the sale is determined based on several factors. These factors are often subjective. Capital Succession Split Dollar offers the seller a way to “horse trade” taxable value for a large, overfunded insurance policy that’s paid for with tax- deductible dollars by the buyer. This reduces the cost to the buyer and enhances the value to the seller. This strategy makes the transaction much more tax efficient. Many people don’t realize that the sale of a business is the most heavily taxed transaction in the U.S. tax code. Using Capital Succession Split Dollar is a way to bring the tax cost more into alignment with a fair and equitable tax treatment.

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?

The late Ralph Brown was the gentlemen who first hired me at Pacific Life in Orange Country, CA many years ago. The thing that bonded us was that he really believed in me and was committed to my success. It’s very important to have a mentor like that in your corner — especially early in your career when you’re likely to have a lot of self-doubts. I knew I could trust Ralph. I knew everything he said to me or told to me was in my best interest. He had great confidence that I could become a superstar in the insurance industry–more than I ever did myself.

Ralph was impressed by my sales numbers at such a young age. But he was more interested in the fact that I seemed to have the intellectual capacity to understand complex insurance products early on. In this business there are three types of agents:

1. Technical experts are the ones who can dot every “I” and cross every “T.” They know everything there is to know about insurance. Unfortunately, they often lack the people skills needed to build business.

2. Highly charismatic agents. These are the ones whohave a wonderful social style. They can go up to anybody, start a conversation, build trust and cultivate relationships. However, they don’t always have a solid grasp of the technical side of the business. They may know a lot of people, but they don’t know what to talk about.

3. Technically competent AND socially able. This is the small cadre of people you tend to find at the top of the performance tables. They have the technical acumen AND the people skills.

Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?

I can’t say I saw the pandemic coming,but I have always reminded our clients that markets go up and markets go down all the time, for a wide variety of reasons. I have always maintained that you need to isolate two types of assets: (1) the assets that provide you income on a stable, consistent basis and (2) assets that protect you for longevity — i.e. the assets that counter inflation.

For income protection, we recommend TIPS (Treasury Inflation-Protected Securities) and first trust deed mortgages — i.e. mortgages in which the investors are in a “first” position, meaning they have a lien on the property. We also use annuities for income protection.

For longevity and inflation protection, we recommend broad-based stock funds from Dimensional Fund Advisors–these portfolios are built to grow and last.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?

First, I’d want to know how old they are. If they’re 35 or 40, then, no, they don’t need to be doing anything else with their money — except maybe put more into the index fund since share prices are cheap right now. However, if they’re 65 or 70, it depends on their total assets, what their time horizon is, and when are they going to start taking income?

Think of the market as a person climbing up the stairs with a yo-yo. Their long-term direction is upward….but there are going to be lots of ups and downs along the way.

Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?

There are two types of people who invest in the market: Speculators and Long-term investors. The speculators always seem to make the wrong decision going the wrong direction at the wrong time. So, we tell clients to be long-term investors, not speculators. In other words: “Be the market, don’t try to chase the market or outguess the market.” And if you choose to be the market, then you’re going to pick up all of the benefits of diversification. You’re going to have holdings in all of those different categories and what’s down now will be up later and what’s up now, will be down later. It’s just the way the market works.

Warren Buffet has two famous sayings that I like to share with people:

1. “Stocks are the only thing people never buy when they’re on sale,” and

2. “Be fearful when people are greedy. Be greedy when people are fearful.”

Both of those philosophies are very apropos today.

Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?

Trying to answer this question is a fool’s game; there’s no way for me to know for sure what’s going to happen in those sectors. So why go after them? Why don’t you just be the market and let the overall market carry you?

Are there alternative investments that you think more people should look more deeply at?

As I mentioned before, I think first trust deeds are a great supplement to a bond portfolio. They give you a higher return without the ‘mark-to-market’ problem. Bond values are marked to their daily value based on the fluctuation of interest rates. If interest rates go up, the liquidation of the bond value declines and vice versa. The only sure way you get the full face value of the bond is to hold it to maturity. The opposite happens if interest rates decline — the liquidation value of the bond increases. But you have to sell the bond to reap the increased value. As a result, the investor often sees swings in the liquidation value of their bonds on their statements.

First trust deeds are loans made by investors to borrowers. The loans are secured by the property. They are called “first trust deeds” because the investor is in first position, i.e. the deeds are not subordinate to any other debt. Think of first deeds the way you would think about a mortgage on a house. These first trust deeds are debt; they are not marked to market like a bond. The notes are not traded on the open market. The investor receives interest monthly during the term of the note. When the note matures, the investor receives the face value of the note and can reinvest. Of course, there are some risks involved, but first deeds are an excellent way to supplement a bond portfolio — especially in this climate — that many people overlook.

If a person in their 30s and 40s came to you today and said that they have $10,000 that they want to put away today for a long-term investment what would you advise them to do with it?

Everyone’s situation is different. Generally speaking, I would advise them to put that money into a globally diversified equity fund comprised of up to 15,000 stocks, that is tuned to the “efficient frontier.” To me, the efficient frontier is that sweet spot everyone has between risk and reward. How much risk are you willing to feel comfortable with based on how much of a reward you need for taking a risk? Everyone’s efficient frontier is different.

When you build a portfolio, you can test yourself for risk/reward along a spectrum. There’s only one spot on that spectrum that makes the most sense for a given amount of risk. We have an algorithm that helps clients determine their efficient frontier.

Ok, thank you! Here is a more general finance question. 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?

1. Find your number.
2. Find out how much you have to pay to reach your number.
3. Develop an investment strategy that has the highest probability of achieving your number.
4. Don’t spend future income on present value.
5. If you don’t know what to trust, you better find somebody to trust.

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

“People do what they want to do when they want to do it — and there’s nothing I can do to change it.”

Once I learned the lesson that I could not control the actions of others, I gained a great sense of peace. I no longer had to take responsibility for the actions of others. I no longer had to feel inferior because I was unable to close a sale or convince someone they needed to take action on my proposal. This lesson taught me to relax and to focus on what was truly important — finding out what the client really needed and wanted, and helping them attain their objective.

Before I learned this lesson, I wrongly believed I was the master of my destiny and that I was responsible for the actions of others when it came to planning and implementation. Adopting this life lesson took away all that pressure and allowed me to work within their timetable and to be comfortable that I was doing my absolute best for them.

You are a person of enormous 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. 🙂

I would help people see that money is temporal and that people are eternal. Unfortunately, too many people in our society value money over people.

When it comes to money, our government needs to do a lot more to improve America’s financial literacy. Most Americans have no idea how much money they need in retirement. A study I saw the other day said 75 percent of Americans have less than $5,000 in liquid cash. The majority of them could not handle an unexpected $500 car repair or unexpected medical expense without borrowing money. Most adults in our country people really don’t understand how compound interest works and they don’t know how to grow their wealth.

To that end,I’m still getting lots of interest in a book I wrote 15 years ago calledBaker’s Dozen: 13 Effective Principles for Financial SuccessIt’s basically 13 time-tested and philosophically sound principles for building wealth and gaining financial independence. Each of the 13 principles is based on my own life experiences.

Thank you for the interview. We wish you only continued success!

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