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Investment Basics · Cash Confident with Brie Sodano

• 0:01
  Speaker 1: Welcome to the Cash Confident podcast.
• 0:03
  Speaker 1: I'm Brie Sedano, your fearless host, personal finance expert and the visionary behind the revolutionary Cash Confident community.
• 0:10
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• 0:22
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• 0:32
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• 0:43
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• 0:55
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• 1:02
  Speaker 1: So buckle up, my fierce and ambitious friends, as we embark on this transformative journey to becoming Cash Confident together.
• 1:10
  Speaker 1: Oh hello, hello everyone.
• 1:20
  Speaker 1: Today on Cash Confident podcast.
• 1:22
  Speaker 1: Today, what we're going to be talking about is some investment basics, and I think this is stuff that's I'm going to just lay out super, super clearly.
• 1:32
  Speaker 1: Well, some of you may know, but a lot of you will probably learn something.
• 1:35
  Speaker 1: So, when I was an investment advisor, I would find that people had a ton of confusion around the difference between me as their advisor, their investments, their accounts, what the investment firm did, who got paid.
• 1:50
  Speaker 1: And so I'm just going to go through, like, the systems of how these things work with you today so that way you can have a big overview and understand all of the things that kind of go into being a knowledgeable investor, right, and the places you know.
• 2:08
  Speaker 1: Just that you need to know, that you need to like, consider, to think of, all right, so where we're just going to go ahead and get right into it, all right.
• 2:19
  Speaker 1: So when you want to invest, there are a few things to know.
• 2:25
  Speaker 1: So the first is your holding company.
• 2:30
  Speaker 1: Now, a holding company is the bank that's got the accounts.
• 2:34
  Speaker 1: Now, some investment firms are their own holding company and some are not, right, so, like and when I was an independent advisor, our holding company was Pershing, which is like Bank of New York, right, it's a Pershing bank, and so if you were writing the checks, you would make your checks for your investments out to Pershing Bank, not the investment firm that I worked for, right, because that's where the money was actually held right.
• 3:03
  Speaker 1: That's where the money actually was.
• 3:06
  Speaker 1: Even though I was in charge of placing the trades through the investment firm, the actual money itself was held at that bank.
• 3:12
  Speaker 1: So that's something that you just want to know.
• 3:14
  Speaker 1: This is something that's going to be important.
• 3:16
  Speaker 1: So that's the holding company, right, and so that would be the bank that actually holds the money.
• 3:22
  Speaker 1: It's not where your customer service is.
• 3:25
  Speaker 1: If you're working with an investment advisor, you would talk to your investment advisor and, again, some investment firms also hold their own money, right, but not all of them.
• 3:33
  Speaker 1: So you may that may or may not be relevant to you.
• 3:35
  Speaker 1: Then we have our investment firm.
• 3:38
  Speaker 1: Now this is the place where you're going to call your advisor.
• 3:41
  Speaker 1: This is going to be the place that you log into on the computer.
• 3:44
  Speaker 1: This is the place that your statements are going to be from right.
• 3:48
  Speaker 1: So it's the investment firm, and so the investment firm.
• 3:51
  Speaker 1: This is where your customer service is, but this is where the trades are placed.
• 3:57
  Speaker 1: So the investment firm typically has the seat on the trading floor to be able to buy and sell securities.
• 4:01
  Speaker 1: This is the place that's generally going to have an office with your advisor that you're going to meet and they're regulated by FINRA and the SEC, and that's to make sure that the person that's working for you sells you good investments, right?
• 4:18
  Speaker 1: And so some firms have their own products.
• 4:21
  Speaker 1: So that's important thing to know.
• 4:23
  Speaker 1: So some firms don't have their own products, they just sell securities that are available on the open market.
• 4:29
  Speaker 1: And then some investment firms even have their own products where you could buy their proprietary mutual funds or you could buy their proprietary and their own products, proprietary insurances or their whatever they're any of their proprietary products.
• 4:46
  Speaker 1: So that's something also just good to know.
• 4:50
  Speaker 1: All right.
• 4:52
  Speaker 1: So inside of your investment firm, you're going to have your advisor.
• 4:57
  Speaker 1: Now, this is a person who's going to meet with you, going to probably help you run your numbers, probably understand what's going on for your life, for your goals, right.
• 5:08
  Speaker 1: They're going to listen to your goals, your objectives, your fears.
• 5:10
  Speaker 1: It depends on what kind of service you're having.
• 5:14
  Speaker 1: Sometimes brokers are full service and they're going to do a lot of planning, and sometimes you just have somebody who call customer service and they place a trade for you.
• 5:22
  Speaker 1: So your relationship with your investment advisor is you know, it's up to you for how much you pay, right, because you have to pay this person, and so some people like to not have an advisor and just place their own trades and do their own research and do their own homework.
• 5:38
  Speaker 1: And some people, like that investment advisor and some advisors, will only work with people who have a certain amount of money, like they might say, oh, I have a, you know, a half a million dollar minimum or things like that, and other advisors won't.
• 5:50
  Speaker 1: So you're going to want to pick an advisor that works for you.
• 5:54
  Speaker 1: When you're looking for an investment advisor, the things that I suggest looking for are you want to ask them about their credentials, so each set of credentials that an investment advisor could have allows them to sell different things.
• 6:07
  Speaker 1: This is important to you because let's just say, for example, if your investment advisor only sells insurance products, you're going to end up buying a lot of insurance products, which is not necessarily good or bad or right or wrong, but you do want to make sure that they have the credentials to sell you everything that you need, right?
• 6:24
  Speaker 1: So there's the series seven.
• 6:25
  Speaker 1: So you want to ask your investment advisor if they have a series seven.
• 6:29
  Speaker 1: This allows somebody to sell stocks and bonds and mutual funds, so they can sell you anything that's basically available in the market.
• 6:37
  Speaker 1: Then there is a 63, which allows somebody just to sell mutual funds, and so a lot of advisors that work at banks will have a 63.
• 6:48
  Speaker 1: And then there's a 66, which allows you to sell mutual funds and allows you to sell what's called managed money or a RAP account, or it's an option that's available.
• 7:02
  Speaker 1: Your advisor just manages your money for a set fee and they don't not.
• 7:07
  Speaker 1: Each trade is like they'll have discretion over your account.
• 7:13
  Speaker 1: They'll have it.
• 7:14
  Speaker 1: I guess it's the best way to put it All right.
• 7:17
  Speaker 1: So then there's insurance licenses.
• 7:19
  Speaker 1: You know there's life insurance, right, and variable BUL.
• 7:26
  Speaker 1: It's variable what's the word?
• 7:30
  Speaker 1: It's variable universal life products.
• 7:33
  Speaker 1: So there's life insurance and BUL, all right.
• 7:37
  Speaker 1: So you're going to want to ask your investment advisor, when you're picking one, what are their?
• 7:41
  Speaker 1: You know what licenses do they hold, what credentials do they have, because that's going to tell you what that person can sell or what they cannot sell, and you can even just ask them that like as a point blank question, so you don't have to remember.
• 7:55
  Speaker 1: You know what licenses do what you just want to be like what can you sell and what can you not sell, right?
• 8:01
  Speaker 1: That's an important question, because when we're taking care of all of your money, you're probably going to want somebody with credentials to do a lot of it.
• 8:11
  Speaker 1: Or if you really love the person but let's just say they don't have, you know, an insurance license, then you know that you're going to have to talk to somebody else for insurance.
• 8:21
  Speaker 1: Let's say they only have an insurance license, then you may need to talk to somebody else for your investments and that's okay.
• 8:28
  Speaker 1: There's nothing, like, like I said, good or bad or right or wrong about it, but you definitely want to know, because that's the sort of thing where, if you're not aware that your advisor only sells insurance, you may not have all, you may not consider all of the things, so they may be doing the best that they can with the products that they have to sell you and that still may not actually meet your needs.
• 8:50
  Speaker 1: So that's just the thing to just to be aware of.
• 8:56
  Speaker 1: All right.
• 8:57
  Speaker 1: So then we have your accounts.
• 8:59
  Speaker 1: Now accounts, there are regular brokerage accounts which have no really affiliation with the government other than they get taxed, right.
• 9:08
  Speaker 1: But then we have our accounts that generally are gonna have a set of letters or numbers with them, like your IRA or your 401K or your simple IRA or your set IRA or your 457 or your 403B.
• 9:22
  Speaker 1: These accounts with letters and numbers in front of them generally are accounts that have a set of advantages and rules with the government right?
• 9:34
  Speaker 1: So, like an IRA, for example, is a retirement account.
• 9:38
  Speaker 1: It's an individual retirement account that allows you to put money aside.
• 9:41
  Speaker 1: You get a tax deduction, the money grows tax-affirmed and then it gets taxed when you retire.
• 9:46
  Speaker 1: There are rules that say you cannot take this money out until you're 59 and a half and if you do, there are penalties, right, and so you pay those penalties to the government, not to your advisor, not to your brokerage firm.
• 9:59
  Speaker 1: Those fees go to the government.
• 10:02
  Speaker 1: So every set of accounts or an account that has a set of numbers and letters is generally gonna have some tax advantages and some rules, and you're gonna wanna understand how those things work, right?
• 10:16
  Speaker 1: Like different accounts are made for different situations or different kind of things, right?
• 10:24
  Speaker 1: So like you would not wanna use a retirement account to save money for a home upgrade unless you were already 59 and a half.
• 10:32
  Speaker 1: Like it wouldn't be the best vehicle, right, and so it wouldn't be the best way to get there.
• 10:39
  Speaker 1: So these are the things that most of the time, if you're gonna work with an advisor, they're gonna give you some suggestions on.
• 10:45
  Speaker 1: They're gonna listen to what's going on and they're gonna make some suggestions on what kind of accounts you need to meet certain objectives, and so a lot of this is gonna play into like tax diversification, which is just like a way to make sure that, when you retire, your accounts are diversified enough that you have yeah, some, I guess, just tax diversification that some of your accounts will be taxed at ordinary income.
• 11:12
  Speaker 1: Some of your accounts may not be taxed at the Roth, and you're gonna work that out with your investment advisor.
• 11:19
  Speaker 1: Now, inside of the accounts go the investments, right.
• 11:24
  Speaker 1: So this is the place where people get the most confused, where they think, oh, I have a 401K, so I'm investing for retirement, and that's not true.
• 11:32
  Speaker 1: You have a 401K and you may be investing for retirement or you may just have cash in that account, right.
• 11:38
  Speaker 1: So your investments go inside of the account, right, and so those are gonna be your stocks, your bonds, your mutual funds.
• 11:45
  Speaker 1: If you're a sophisticated investor, you may be able to put things like real estate into your retirement accounts or things like that, but that's a little bit more complicated and so, yeah, so stocks, bonds, mutual funds, those are your investments.
• 12:01
  Speaker 1: So when you can open up, let's say, you can go to meet with an advisor who works for an investment firm where your money is gonna be held at a holding company or it could just be held with the investment firm, so investment firm could be the holding company and when you meet with that advisor, they're gonna help you to open up and pick out the right kind of accounts for what you're looking for, and inside of those accounts go your investments.
• 12:28
  Speaker 1: And so that may be discussions about your risk tolerance and how much money you're looking to make.
• 12:32
  Speaker 1: And if growth and income, or growth or aggressive investments or safe investments or income-based investments, those investments that you buy will go inside of the account and that's how you make the money.
• 12:46
  Speaker 1: And also, you could also pick to leave your money in cash, which is not a great investment strategy and I would highly avoid it, other than if you're saving the cash for a reason like if you're gonna buy a bigger investment or if you're waiting.
• 13:01
  Speaker 1: If there's a reason to have cash in your investment accounts, then okay, by all means.
• 13:07
  Speaker 1: But sometimes when I would talk to people.
• 13:09
  Speaker 1: They'd be like oh, I'm investing, I'm investing, I'm watching my account go up and it's.
• 13:12
  Speaker 1: But they never bought stocks or bonds.
• 13:15
  Speaker 1: All of their money was sitting in cash inside of their retirement accounts.
• 13:18
  Speaker 1: So they were using a retirement account, thinking that it was an investment.
• 13:23
  Speaker 1: But it wasn't.
• 13:24
  Speaker 1: It was just, they just had cash in a retirement account.
• 13:27
  Speaker 1: And that's the thing that happens.
• 13:28
  Speaker 1: So when you open up your statements, you wanna see that your money is in a stock or a bond or a mutual fund, or, if you're holding on to cash for a reason, that you know what the reason is and you know when it's time to take action.
• 13:40
  Speaker 1: All right, so I just wanted to do this topic because this is a thing where people get super confused.
• 13:47
  Speaker 1: People will be like, oh, I thought I was working with, like Brie Sedano, when they get the statement that also says Pershing LLC.
• 13:56
  Speaker 1: And then they're like confused.
• 13:58
  Speaker 1: They're like, well, she doesn't work at Bank of New York or Pershing.
• 14:01
  Speaker 1: I go to this place, why would I get a statement there?
• 14:06
  Speaker 1: And it's like, yeah, because that's where the money is held.
• 14:09
  Speaker 1: And then we have the investment firm, and then you have your advisor, and then you have your accounts and then you have your investments and so also you can change your investments inside of your accounts.
• 14:19
  Speaker 1: You know you could choose different strategies or different ways of looking at things, and that's all fine and good.
• 14:25
  Speaker 1: But a lot of times, you know, people are just unclear about these different things and then they get really confused and I think it's yeah.
• 14:36
  Speaker 1: So anyways, I hope you learned something new.
• 14:39
  Speaker 1: This was not the I don't know maybe the juiciest of topics, but I feel like this is really important stuff to know and understand, to go and be like a good client for an investment advisor, or to know the things that you need to look for if you were going to open your own accounts.
• 14:53
  Speaker 1: And I guess I will just wrap up by saying so, some investment firms are full service, where you're going to work with an advisor and they're going to help you and you're going to pay them.
• 15:02
  Speaker 1: We usually pay them out of your account.
• 15:04
  Speaker 1: You don't generally write a check, although you could Some advisors do charge fee for service rather than commission.
• 15:10
  Speaker 1: And you could also get a discount firm where you're going to like a discount brokerage, where you're going to do your own research and you're going to place your own trades and then you're going to pay much less than fees because you're not going to be paying for that service, but you'll be responsible and so you know you'll be doing your own research.
• 15:30
  Speaker 1: You'll be doing, you'll be picking out your own things.
• 15:32
  Speaker 1: So that's really, if you want it, if you were thinking about working with an advisor, really the value that they bring is they stay on top of the market, they do the research, they listen to you, they shop out the products that are best going to serve you and then they generally will get paid a fee for planning or they'll get paid a commission on the product.
• 15:54
  Speaker 1: You know the financial service products that you buy.
• 15:56
  Speaker 1: Or some will charge a wrap fee, and that's when they have discretion over your account and they can trade inside your account and then they just make a fee on it.
• 16:06
  Speaker 1: And then mutual funds are sort of investment that also charges a fee.
• 16:12
  Speaker 1: I think that's probably worth mentioning.
• 16:14
  Speaker 1: And sometimes your investment firms or your holding firm will also charge a fee for, like you know, the paper for the statements and any tax reporting that's done All right.
• 16:26
  Speaker 1: So that is, you know, some investment basics for you.
• 16:30
  Speaker 1: So things that you want to just know and understand is where your money is held, your holding company, with what firm you're working with, who your investment advisor is, what types of accounts you have and what types of investments are in those accounts.
• 16:44
  Speaker 1: So that's kind of the layers of things to know for your investments.
• 16:50
  Speaker 1: All right, I hope this was helpful and feel free to share it with a friend who you love.
• 16:56
  Speaker 1: It was my pleasure and joy to talk with you today.
• 17:03
  Speaker 1: Thank you for listening.
• 17:04
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• 17:11
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• 17:16
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• 17:21
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• 17:27
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• 17:31
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• 17:41
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• 17:50
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• 17:59
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