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How to Make Work Optional · Views from 6,230

• 0:11
  Let's go.
• 0:18
  Ryan Nauman Market Strategist Zephyr: Hello everyone and welcome to zephyr's adjusted for Risk Podcast from the shores of Lake Tahoe.
• 0:24
  Ryan Nauman Market Strategist Zephyr: I am Ryan Amman, the market strategist here at Zephyr.
• 0:28
  Ryan Nauman Market Strategist Zephyr: As most know, more and more people are turning 65.
• 0:31
  Ryan Nauman Market Strategist Zephyr: In fact, research shows that more than 11,200 Americans, we'll be turning 65 per day through 2027.
• 0:42
  Ryan Nauman Market Strategist Zephyr: These demographics are putting a renewed emphasis on financial planning or specifically retirement planning.
• 0:50
  Ryan Nauman Market Strategist Zephyr: Well, I have on the perfect guest to talk about the aging demographics and what it means for financial advisors.
• 0:58
  Ryan Nauman Market Strategist Zephyr: But first, today's episode is sponsored by the award-winning Zephyr, which helps investment professionals make more informed investment decisions on behalf of their clients.
• 1:08
  Ryan Nauman Market Strategist Zephyr: Alright, let's move on to the star of the show.
• 1:12
  Ryan Nauman Market Strategist Zephyr: It's enough from me.
• 1:13
  Ryan Nauman Market Strategist Zephyr: I'd like to give a very warm welcome.
• 1:16
  Ryan Nauman Market Strategist Zephyr: To Phil Palumbo.
• 1:18
  Ryan Nauman Market Strategist Zephyr: Phil is a CEO and Chief Investment Officer at Palumbo Wealth Management, and also host of the very popular Palumbo Podcast.
• 1:29
  Ryan Nauman Market Strategist Zephyr: Phil, thank you so much for coming on the show.
• 1:32
  Ryan Nauman Market Strategist Zephyr: It's an honor to have you on really excited about this conversation as it's a very timely and important one.
• 1:39
  Ryan Nauman Market Strategist Zephyr: Can you please tell us a little bit more about yourself and Palumbo Wealth Management?
• 1:44
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: Ryan, thank you for having me on as well.
• 1:46
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: Yes, so my firm, Palumbo Wealth Management is now on its seventh year.
• 1:51
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: I launched out of UBS, which is a, obviously a major financial firm.
• 1:56
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: at the major financial firms for 20 years of my career and then decided to go independent, mainly to get away from the conflicts of the major firms.
• 2:03
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: And also to have that fiduciary hat for my clients going forward.
• 2:07
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: And, and, and also you have more unlimited resources in my world.
• 2:12
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: Everything on, on the alternative investment side, direct access to privates as an example.
• 2:15
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: So really been an, an, a great experience.
• 2:19
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: The, the primary focus of my firm is working with founders and helping them exit.
• 2:23
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: So we work with founders pre-ex exit to increase multiple, to get maximum value and get 'em to best in class.
• 2:29
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: And we help them post exit in minimizing the overall taxes of the actual exit event to 90%.
• 2:38
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: then after that, we assist them with all the advanced planning in terms of financial planning and helping 'em, making sure that they, they can live comfortably maintaining their lifestyle and what I call U2 0.0.
• 2:48
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: We helped them on the investment management front as well.
• 2:52
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: Everything as it relates to the transfer of their wealth.
• 2:54
  Philip Palumbo CEO & Chief Investment Officer Palumbo Wealth Management: So it's pretty comprehensive in how we assist our clients all through the process of helping founders exit.
• 2:59
  Ryan: Yeah, Phil real quickly, let's go back to when you transitioned from UBS to being independent.
• 3:05
  Ryan: Seven years ago, that was probably a little bit before it got really popular and the trend.
• 3:10
  Ryan: Now it's like every time I read wealth management.com or something, I never read somebody on the Independence.
• 3:17
  Ryan: I go on.
• 3:18
  Ryan: Captive or going to a wirehouse, it's always the other way.
• 3:21
  Ryan: Do you think that's gonna continue that shift from being, going from wirehouse or large broker dealers to independent?
• 3:28
  Ryan: You think that trend is going to continue?
• 3:31
  Phil Palumbo: I absolutely do.
• 3:32
  Phil Palumbo: It's because this, this world that you are in, first of all the, the assets on the, on the management in the RIA space is, is getting larger if not larger now than the wirehouse space.
• 3:41
  Phil Palumbo: So to your point, I mean the trend has been parabolic and I think that'll continue.
• 3:44
  Phil Palumbo: And the reason why is because you recognize that you don't need these big banks behind you.
• 3:48
  Phil Palumbo: To bring in new clients.
• 3:50
  Phil Palumbo: In fact, I've grown the most I've ever grown since I launched up four x in just a short period of time, and, and that's only growing from there.
• 3:57
  Phil Palumbo: So I think advisors are nervous that they need some big name behind them.
• 4:01
  Phil Palumbo: The reality is my clients are custody with Pershing BNY Right?
• 4:04
  Phil Palumbo: Which is the largest custodian in the world.
• 4:05
  Phil Palumbo: And they all the, all the protections you get these majors, you know, with strong custodial ship and safeguarding, you know, and you do have some access to resources of these major, you know, custodian firms as well.
• 4:17
  Phil Palumbo: So, so for me, it's, you get.
• 4:20
  Phil Palumbo: The best of both worlds where you still get the strong custodial ship safeguarding, you get better economics, you get to wear the, the fiduciary hat.
• 4:28
  Phil Palumbo: And by the way, with the better economics, you could reinvest back into the business to put together and continue to put together a strong platform for clients And resources are are like, are unlimited, unlimited.
• 4:39
  Phil Palumbo: So you're no longer limited to just whatever a single firm has.
• 4:42
  Phil Palumbo: So for me, I think it continues going forward.
• 4:46
  Ryan: Phil, that's a great point.
• 4:47
  Ryan: And just gives you more options also, especially like you said, on, on the investment side as well.
• 4:54
  Ryan: You know, one of the primary philosophies at Palumbo Wealth Management is, is make work optional.
• 5:01
  Ryan: Found that very interesting.
• 5:02
  Ryan: I love it.
• 5:03
  Ryan: But what does it mean though, really?
• 5:06
  Ryan: And how does it differ from just retiring?
• 5:10
  Phil Palumbo: Yes, it differs from the standpoint that I, the,
• 5:13
  Phil Palumbo Palumbo Wealth Management: my problem I have with the word retirement, I just feel like it's very archaic, right?
• 5:17
  Phil Palumbo Palumbo Wealth Management: It's overused in marketing and sales, these retirement type seminars and so on and so forth.
• 5:23
  Phil Palumbo Palumbo Wealth Management: When, and everybody's walking around saying, I'm gonna retire at 60, 65 because my aunt or sister, my brother did.
• 5:31
  Phil Palumbo Palumbo Wealth Management: When the main goal that everybody should have, and they should say to themselves, how quickly can it get to the point where work can be optional, where you are working because you want to, not because you have to,
• 5:42
  Phil Palumbo Palumbo Wealth Management: you know where you're at the point where you have enough money saved that will generate enough cash flow to maintain your lifestyle and what I call again, you 2.0.
• 5:50
  Phil Palumbo Palumbo Wealth Management: for me that's the, it's the race to financial independence, which could happen at 50, could happen 45, it could happen at 53.
• 5:56
  Phil Palumbo Palumbo Wealth Management: It doesn't necessarily have to wait till you're 65 or 67 or 68.
• 5:59
  Phil Palumbo Palumbo Wealth Management: When you receive social security.
• 6:01
  Phil Palumbo Palumbo Wealth Management: So it's that mindset that's much different.
• 6:03
  Phil Palumbo: And that's the first thing.
• 6:04
  Phil Palumbo: And the second thing is in, you know, today's world, it's like my father, he retired at the age of 53 as a local three electrician.
• 6:09
  Phil Palumbo: 'cause he climbed ladders and it was hard work.
• 6:12
  Phil Palumbo: So in today's day and age, people aren't just fully retiring, So it's like, I feel like I have to retire the word retirement.
• 6:18
  Phil Palumbo: So the idea behind to make work optional is you working because you want to now.
• 6:21
  Phil Palumbo: 'cause you have to.
• 6:22
  Phil Palumbo: So maybe you.
• 6:23
  Phil Palumbo: You are financially independent.
• 6:25
  Phil Palumbo: So now you could get involved with that industry or maybe do do that consulting job you always wanted to do.
• 6:30
  Phil Palumbo: 'cause now you have the flexibility.
• 6:31
  Phil Palumbo: So it's a totally different mindset.
• 6:33
  Phil Palumbo: But the idea is that from the day you start working to think about financial independence and getting there as quickly as possible.
• 6:42
  Phil Palumbo: And what you need to do to get there is the mindset.
• 6:45
  Phil Palumbo: So my book make work optional.
• 6:46
  Phil Palumbo: It walks people through exactly how to do that.
• 6:50
  Ryan: I love that Phil, and nobody wants to be forced to really do anything.
• 6:54
  Ryan: Thing.
• 6:54
  Ryan: Right.
• 6:55
  Ryan: Especially, you know, like when you get older, it'd be great to have the option to work in.
• 7:00
  Ryan: And like I said, I, for me, I don't think I'll ever like really retire.
• 7:05
  Ryan: I'll drive myself nuts and everybody in my household nuts.
• 7:08
  Ryan: But like, you know, having the option to work, maybe shoot, I'm being a lift at, at having least ski resort or something, right?
• 7:16
  Ryan: Where it's optional.
• 7:18
  Ryan: I'm just doing it for fun to keep myself mind my mind.
• 7:21
  Ryan: Occupied and and busy.
• 7:23
  Ryan: So I'm just not sitting around watching TV all day
• 7:26
  Phil Palumbo: Yeah, there are many
• 7:27
  Ryan: or the news.
• 7:28
  Phil Palumbo: There are many times I'd be in the mountains of Vermont and taking, and getting lessons from various ski instructors.
• 7:32
  Phil Palumbo: Those ski instructors were like 55, 60, 65 years old, and they were, they, they were financially independent.
• 7:39
  Phil Palumbo: They loved to ski.
• 7:40
  Phil Palumbo: It's something they always wanted to do, and, and that was there, quote unquote part-time or full-time jobs.
• 7:45
  Phil Palumbo: So that's the beauty behind it.
• 7:47
  Ryan: Yeah, that's fantastic.
• 7:48
  Ryan: So.
• 7:50
  Ryan: People love, probably love that idea, you know, making work optional, but they might be a little bit concerned, right?
• 7:58
  Ryan: Like, are we ready to make it optional?
• 8:01
  Ryan: What are some of the biggest obstacles to making work optional, and, and how can your clients or just individuals overcome those obstacles?
• 8:11
  Phil Palumbo: Yeah.
• 8:11
  Phil Palumbo: First of all, it's not an obstacle.
• 8:12
  Phil Palumbo: The the the what you need to, what you need.
• 8:14
  Phil Palumbo: People need to understand first, right?
• 8:17
  Phil Palumbo: Is Franklin Templeton, the way he always thought about life is every dollar he made, he saved 50 cents and then he.
• 8:24
  Phil Palumbo: Used the other 50 cents for his lifestyle, his regular expenses, and obviously became super successful, but always had this sort of mindset, right?
• 8:33
  Phil Palumbo: So he always saved 50%, invested 50% that 50%.
• 8:37
  Phil Palumbo: And when you do that in compounds over long periods of time, the power of compounding, which you always hear about and, and we've always talked about.
• 8:44
  Phil Palumbo: But Einstein said the most powerful thing in the world, you know, if you start doing it at twenties and you really learn how to manage your money properly by saving properly, not going to a restaurant every single week,
• 8:55
  Phil Palumbo: twice, three times a week, not not going out to lunch every single day.
• 8:59
  Phil Palumbo: If you are working in Manhattan spending 25 to $30, all of that compounds over a 20 year career.
• 9:04
  Phil Palumbo: If you invested that money, it makes a big difference.
• 9:06
  Phil Palumbo: So people really have to really grasp their arms around.
• 9:09
  Phil Palumbo: I mean, I got clients who have 10, 20, 30, 40 million, 50 million, a hundred million, me that.
• 9:14
  Phil Palumbo: have like a, a, a lifestyle spending problem, which sounds crazy 'cause they have all this money, but it's all relative at the end of the day.
• 9:23
  Phil Palumbo: So it's learning this mindset like any type of other habit that you have, and then getting into that groove is number one.
• 9:30
  Phil Palumbo: It's saving.
• 9:31
  Phil Palumbo: Saving is the hardest thing because people love to spend money and it's so hard to save money.
• 9:35
  Phil Palumbo: So saving is absolutely number one.
• 9:37
  Phil Palumbo: If you have that habit built in, then you have to put your money exposed to risk assets.
• 9:43
  Phil Palumbo: have to aim for 10 to 15% average returns over a long period of time, and the only way to do that is to investing in stocks, real estate and private equity.
• 9:52
  Phil Palumbo: Those are the three main ways you can compound growth of 10 to 15% over long periods of time.
• 9:58
  Phil Palumbo: So those, those are the two main focuses that people have to think about.
• 10:04
  Ryan: I love that you brought that up, Phil.
• 10:05
  Ryan: Being April April's Financial Literacy Month, we're doing some good things in Zephyr just about educating, you know, creating a budget.
• 10:13
  Ryan: But part of that, one of the biggest pieces is saving and compounding interest, which.
• 10:19
  Ryan: You know, people I think often forget about just how powerful it can be, but how important it is.
• 10:26
  Ryan: But also you talk about saving, but I also have a lot of conversations with people about the risk of their clients just not spending enough come retirement too.
• 10:36
  Ryan: They, they're so used to saving, they're worried about, you know, running outta money so they're not spending enough.
• 10:46
  Phil Palumbo: Yeah, so this is another point that I bring to the table all the time.
• 10:48
  Phil Palumbo: So when people come in to visit with me, I mean, focusing on retirement has been my entire career for the past 25 years, right?
• 10:53
  Phil Palumbo: So I've met with hundreds of people and going through this scenario and, and the first thing people are concerned about, there's two main things that people are concerned about, right?
• 11:00
  Phil Palumbo: Number one is being able to maintain their lifestyle.
• 11:03
  Phil Palumbo: Everybody loves their lifestyle.
• 11:05
  Phil Palumbo: They just want to be able to maintain that lifestyle.
• 11:07
  Phil Palumbo: And the second thing is the fear of running out of money.
• 11:10
  Phil Palumbo: And being depending on their children.
• 11:11
  Phil Palumbo: So those are two main, main, main goals that people have.
• 11:17
  Phil Palumbo: what I tell people all the time, by the time you're getting ready to stop working or retire or make work optional, right?
• 11:23
  Phil Palumbo: By the time you're ready for that, whatever your habits have been for the past 30 years, or greater or less, that's not gonna change.
• 11:32
  Phil Palumbo: So if you were spending 200,000 a year, now that you're retired, you're not gonna go and spend 500,000 a year.
• 11:40
  Phil Palumbo: because you're just used to a certain lifestyle and that's, it's habitual, and that will continue.
• 11:44
  Phil Palumbo: You're not gonna go out and buy three Ferraris, two Lamborghinis, and then and two additional vacation homes, one in the one in Aspen, and then one in the Hamptons, right?
• 11:52
  Phil Palumbo: You're just not gonna do that.
• 11:54
  Phil Palumbo: You may have desires above and beyond whatever that may be, but most likely you'll stay at the spending level that you're going to stay at.
• 12:00
  Phil Palumbo: Now, that may increase 10% to 15%.
• 12:03
  Phil Palumbo: For various reasons, right?
• 12:05
  Phil Palumbo: So that's where, that's why you have to have a little bit of a buffer.
• 12:07
  Phil Palumbo: So if you think you're spending $200,000, think like 2 20, 2 30, just to give yourself a little bit of a buffer.
• 12:15
  Ryan: And you also talked about just investment returns.
• 12:19
  Ryan: Now you've gotta, you know, trying to achieve 10, 12, 15% over an extended period of time, and there's a.
• 12:26
  Ryan: Only really a few options out there.
• 12:28
  Ryan: And you mentioned them, you know, people are living longer than ever and that probably is putting a bigger emphasis on the 10, 12, 15% return for an extended period of time.
• 12:40
  Ryan: Does that also, you know, that mindset for your clients too, because I'm gonna age myself here, Phil, when I started in the industry 20 years ago, it was like.
• 12:51
  Ryan: And very simply, your allocation to equity should be what?
• 12:54
  Ryan: A hundred minus your age, and that should be your rough estimate of what your allocation equities.
• 13:01
  Ryan: That can't work anymore because people are living longer.
• 13:04
  Ryan: They need, is that hard to get over to is like you're 60.
• 13:09
  Ryan: You can't just be in 60% bonds.
• 13:12
  Phil Palumbo: Yeah, so that formula stuff is so ridiculous to me, by the way, I always thought it was even before I became, and to really understand the industry.
• 13:18
  Phil Palumbo: And the reason why I say that right is a couple of reasons.
• 13:21
  Phil Palumbo: Fir, first of all, the two major risks that people are exposed to, which relates to what you just said, obviously, is number one I always thought was inflation risk, right?
• 13:28
  Phil Palumbo: Inflation risk is the risk of your purchase of power eroding over time, and that is a major risk that people are exposed to.
• 13:34
  Phil Palumbo: That's why, that's why whatever assets you have right now, you can't just grow it and put it all in CDs and fixed income and get four or 5% because you factor in taxes.
• 13:43
  Phil Palumbo: Inflation, your return on that money is zero to negative.
• 13:46
  Phil Palumbo: So that's the problem with putting a good party of money in fixed income and bonds, fixed income and CDs, and a lot of advisors out there half a client's money or more in doing that.
• 13:57
  Phil Palumbo: That's a tremendous risk to the disruption of a client's lifestyle, and that's what we're trying to prevent.
• 14:03
  Phil Palumbo: So that's number one.
• 14:04
  Phil Palumbo: And then number two, this is incredible, Ryan.
• 14:06
  Phil Palumbo: This is something I'm talking more and more about.
• 14:08
  Phil Palumbo: Is longevity risk is now a bigger risk, I think, than inflation risk, is the risk of you living long and your money not keeping up with that.
• 14:20
  Phil Palumbo: And the only way for your money to keep up with that is to invest in what's called risk assets, which are stocks, real estate, and private equity with at least 60% or greater of your money.
• 14:32
  Phil Palumbo: Now let's roll it real quick.
• 14:34
  Phil Palumbo: As it relates to this, I get it.
• 14:36
  Phil Palumbo: Well, like I don't wanna take that risk.
• 14:37
  Phil Palumbo: The volatility.
• 14:39
  Phil Palumbo: You gotta ask yourself two things.
• 14:40
  Phil Palumbo: Here's volatility and here's inflation and longevity risk.
• 14:43
  Phil Palumbo: If you wanna run a, if you run a one, if you want to run away from volatility risk, that means you're running into inflation and longevity risk, which is the real problem.
• 14:53
  Phil Palumbo: 'cause volatility is just short term in nature.
• 14:57
  Phil Palumbo: Right.
• 14:57
  Phil Palumbo: Meaning that when stocks go down, if you don't sell, it will go back up over long periods of time.
• 15:03
  Phil Palumbo: And don't get me wrong, you could have long periods of time where markets are, you know, three 4% that can happen.
• 15:07
  Phil Palumbo: And I get that argument.
• 15:11
  Phil Palumbo: volatility risk is not the risk, it's the inflation.
• 15:13
  Phil Palumbo: And longevity risk is the true risk to the main concern that our clients have, which is maintaining their lifestyle and the fear of running outta money.
• 15:22
  Ryan: Yeah, I think that's fantastic, Phil, and feels as if too many people they focus on.
• 15:27
  Ryan: Like you said, volatility or just losing their money and they forget about, you know, they've still got 20, 30 more years yet to make this money last, so.
• 15:37
  Ryan: Great point there.
• 15:39
  Ryan: Let's talk a little bit about the financial plan.
• 15:42
  Ryan: You know, I'm, as I'm assuming, and I'm sure having a comprehensive financial plan in place is the most important piece to making work optional.
• 15:50
  Ryan: We gotta have that plan work, that plan to making work optional.
• 15:55
  Ryan: Is there part of that holistic financial plan that might be underutilized?
• 15:59
  Ryan: We've just talked a lot about investment management piece, but is there something else that may be.
• 16:06
  Ryan: Isn't considered enough for retirees or, or folks that are thinking about retiring or, or I should say, making work optional.
• 16:15
  Phil Palumbo: So regards to financial planning, about 70% of people out there do not have a formal written financial plan.
• 16:21
  Phil Palumbo: It's back in the envelope writing things down saying, Hey, I need 10 million.
• 16:26
  Phil Palumbo: I need 20 million, because I, I think that's my number without any type of formal written financial plan.
• 16:31
  Phil Palumbo: That's a tremendous mistake, and I understand why people don't take financial planning as serious as they should, because in their mind it's all about the investments and their return.
• 16:38
  Phil Palumbo: And I get that.
• 16:39
  Phil Palumbo: Yeah, that's a important part.
• 16:41
  Phil Palumbo: But the foundational element of everything is your financial plan, because it's a roadmap for you to follow along with year after year after year to see if you're making progress towards your goal, number one.
• 16:51
  Phil Palumbo: Number two, it keeps you accountable to your goals, right?
• 16:54
  Phil Palumbo: So if you're saying you're spending 200,000, the year is up, well, did you spend 200,000, number one, number two.
• 17:00
  Phil Palumbo: The goal objective in terms of return performance is six to 8%.
• 17:03
  Phil Palumbo: If it is, how did we do right?
• 17:07
  Phil Palumbo: If we're we, if we're in a bear market, is that factored into the plan?
• 17:11
  Phil Palumbo: Right?
• 17:11
  Phil Palumbo: So, so the, the planning aspect is, is really important to help people to, to help people first understand do they have enough money and can they achieve their financial goals?
• 17:22
  Phil Palumbo: Number two, it's a game plan to be able to follow on a playbook, to follow on a consistent basis.
• 17:27
  Phil Palumbo: You know, that's really important to the accountability of the professional that you're working with.
• 17:33
  Phil Palumbo: And then you as the client.
• 17:36
  Ryan: Yeah, very, very good point.
• 17:38
  Ryan: So, when we're recording this, it's tax season, what, how does taxes play a role in the whole overall plan?
• 17:45
  Ryan: Do you, you know, it feel as if tax management, tax planning is becoming a hotter topic than it was maybe five, 10 years ago.
• 17:54
  Ryan: Is it still underutilized right now?
• 17:57
  Phil Palumbo: Yeah, so Ryan, one of the most important thing too, I talk to clients about all the time is, you know, I'll give you an example.
• 18:02
  Phil Palumbo: Even besides talking to a client, I have many money managers that knock on my door, hedge fund managers, private equity, and they say, Hey, my average return is 14% a year since inception.
• 18:10
  Phil Palumbo: I said, great.
• 18:11
  Phil Palumbo: I said, what's the after-tax return of that?
• 18:12
  Phil Palumbo: Well, it's seven because it's all short term ordinary income.
• 18:16
  Phil Palumbo: The s and p has done 15 over that same period of time.
• 18:19
  Phil Palumbo: With no extra fees and less risk, et cetera.
• 18:23
  Phil Palumbo: after tax returns is the most important function is the most important part of of performance, right?
• 18:31
  Phil Palumbo: again, if you have 10% returns, but it's all extraordinary income there at five, that's, then you put inflation in there at three, you only grow any money by two.
• 18:37
  Phil Palumbo: That's a problem.
• 18:39
  Phil Palumbo: So when it comes to construction of a, of a portfolio, it's really important to put in play ways that you're gonna harvest losses over time.
• 18:48
  Phil Palumbo: Number one.
• 18:49
  Phil Palumbo: Number two, being a long-term investor, besides the benefit of not touching your portfolio, making stupid mistakes, and just owning great investments in great companies over long periods of time, there's tremendous benefits in understanding that philosophy.
• 19:04
  Phil Palumbo: By you doing that.
• 19:06
  Phil Palumbo: You're not turning the portfolio over by you not turning the portfolio over, you're not creating taxable events for yourself.
• 19:11
  Phil Palumbo: So it's, it's, so, it's having a strategy for harvesting losses is really great strategies out, out there today that can really help you create these losses to offset against gains and in being a long-term investor and that helped
• 19:25
  Phil Palumbo: defer your taxes over long periods of time.
• 19:29
  Ryan: Yeah, so like you mentioned at the opening part of Palumbo Wealth Management, you help your clients and individuals, business owners exit.
• 19:38
  Ryan: Doing a successful exit of their businesses.
• 19:42
  Ryan: You know, like we said, America's aging and business owners now are more than ever looking for upcoming liquidity event.
• 19:50
  Ryan: Liquidity events like selling their business.
• 19:53
  Ryan: What should these owners consider to set themselves up for a successful exit?
• 19:58
  Phil Palumbo: A couple of things.
• 19:59
  Phil Palumbo: Really, the, the first most important part is if you're looking into exit, right?
• 20:04
  Phil Palumbo: You have to give yourself time.
• 20:05
  Phil Palumbo: You can't say, I want to exit, and you look to sell tomorrow.
• 20:08
  Phil Palumbo: Or you get that phone call from a private equity company or a strategic buyer and they say, Hey, let's sit down, have a conversation, and then you do, and they give you a certain number and you're like, wow,
• 20:19
  Phil Palumbo: that number sounds great.
• 20:20
  Phil Palumbo: When the reality is, if you gave yourself two or three years to clean up the, clean up the business, professionalize the business, right?
• 20:26
  Phil Palumbo: Build in strategic thinking as an example, right?
• 20:30
  Phil Palumbo: Take away the owner dependence of the business.
• 20:31
  Phil Palumbo: So just a few examples of what I'm talking about.
• 20:34
  Phil Palumbo: If you do those types of things, you may turn the multiple by 2, 3, 4 times.
• 20:39
  Phil Palumbo: So the number of somebody comes to you, 20 million, right off the gate, right out right out of the gate.
• 20:43
  Phil Palumbo: That number may be 30 or 40 million.
• 20:45
  Phil Palumbo: If you didn't, if you went through a few steps pre-ex exit, that could help tremendously.
• 20:49
  Phil Palumbo: So that's number one as it relates to the after ta, the before tax dollars that you would receive after selling your business.
• 20:55
  Phil Palumbo: And number two though, is the, the estate planning part.
• 20:59
  Phil Palumbo: So the estate planning part is going through a planning process and saying to yourself of this sale, how much did I put into some type of trust?
• 21:08
  Phil Palumbo: At a discounted price that now if I sell my business, that asset is now outside of my estate, which grows outside of my estate.
• 21:15
  Phil Palumbo: So when you die, there's no federal estate taxes or state estate taxes depending on what you state you live in.
• 21:22
  Phil Palumbo: So that alone can save millions of dollars.
• 21:26
  Phil Palumbo: And then post exit, you say to yourself, well not post, but pre-ex exit.
• 21:30
  Phil Palumbo: You say to yourself, okay, well if I sell my business for 20 million, what am I gonna net in taxes?
• 21:35
  Phil Palumbo: is that number, the number that I need to live financially independent?
• 21:39
  Phil Palumbo: And which strategies can I implement to reduce my capital gains from selling my business?
• 21:44
  Phil Palumbo: And there are strategies today, which I talked about before of what we do is, is we could help save up to 90% in capital gains.
• 21:52
  Phil Palumbo: Would, that would give the client more after tax dollars that they, that they could actually live on comfortably and maintain their lifestyles.
• 22:01
  Phil Palumbo: So these are just a couple of things to think about that could make tremendous difference.
• 22:05
  Phil Palumbo: But the number one question, Brian, real quick one, one thing.
• 22:07
  Phil Palumbo: The one number one thing that you gotta ask yourself is if you think about exiting.
• 22:10
  Phil Palumbo: Do you think your company's operating at best in class?
• 22:13
  Phil Palumbo: Do you really think your company's operating at best in class?
• 22:16
  Phil Palumbo: And if you're, and if versus your competitors, and if you feel like you're not, then you gotta ask yourself is what can I be doing to get to that level?
• 22:24
  Ryan: That's a great, great point.
• 22:26
  Ryan: Great advice there.
• 22:28
  Ryan: And do you think, like you said right at the beginning, their PE firm walks on into your door, offers you $20 million.
• 22:36
  Ryan: Do you think one of the biggest mistakes business owners make is they just jump at it right away and be like, $20 million?
• 22:42
  Ryan: Give it to me.
• 22:44
  Phil Palumbo: Oh my gosh.
• 22:44
  Phil Palumbo: I get so excited about what we do here at my firm, not to sell myself right now, but it's just a, it's, it's math.
• 22:50
  Phil Palumbo: It's the reality of things.
• 22:51
  Phil Palumbo: You're a hundred percent right?
• 22:52
  Phil Palumbo: Yes.
• 22:52
  Phil Palumbo: That's like the biggest mistake because are you le how much money are you leaving on the table If you waited a year or two and be, and if you're a little bit patient and clean things up, may be
• 23:02
  Phil Palumbo: able to get five, $10 million more, which is
• 23:06
  Ryan: Mm-hmm.
• 23:06
  Phil Palumbo: real money.
• 23:08
  Phil Palumbo: So that's what a lot of business owners are leaving on the table.
• 23:10
  Phil Palumbo: Now, listen, there are situations, Ryan, where business owners may be completely exhausted.
• 23:15
  Phil Palumbo: They could be health issues, a divorce, which by the way are reasons, this is the most important thing I can tell you about exit planning, right?
• 23:22
  Phil Palumbo: Right now, of the reason why people exit is because of what I just said, death, health issues, and divorce.
• 23:30
  Phil Palumbo: What does that mean?
• 23:31
  Phil Palumbo: So that means that your business should always be operating at best in class in the event one of these situations happen, which happens 50% of the time.
• 23:42
  Phil Palumbo: That is so important.
• 23:44
  Phil Palumbo: So if you're a business owner, listen, just a founder and you're walking around and you company's not tightened up, that be a potential issue where you're leaving millions of dollars on the table.
• 23:55
  Ryan: I, I, if I had you asked me that question, I would've never thought that, you know, again, it goes back to, you lose, it's not an option.
• 24:04
  Ryan: In those cases, you're forced to look to sell it.
• 24:06
  Ryan: So you always have to be prepared, right?
• 24:08
  Ryan: And, and probably have a plan in place.
• 24:14
  Ryan: Continuing along with the aging demographics theme here.
• 24:18
  Ryan: How does, and you mentioned earlier too, we talked about earlier on the investment management side, you're.
• 24:25
  Ryan: Employ more risk, more volatility probably.
• 24:28
  Ryan: And you shouldn't be afraid of volatility because of long longevity, but how does investment or portfolio strategy need to shift as clients move from the accumulation stage to spending phases?
• 24:41
  Ryan: Is there, and what are the biggest risks there in that that shift from accumulating to spending?
• 24:49
  Phil Palumbo: So it's, it's the obvious shift where clients say, well, I'm no longer working.
• 24:53
  Phil Palumbo: I don't wanna take risk anymore.
• 24:54
  Phil Palumbo: And I completely, completely understand that.
• 24:57
  Phil Palumbo: Listen, I'm not a robot, I'm human.
• 24:59
  Phil Palumbo: And so I understand that, and I'm sure I would feel the same way, but the, the client just has to educate themselves, themselves and really understand.
• 25:09
  Phil Palumbo: Where they stand financially and how much risk they do need to take so they can continue to maintain their lifestyle.
• 25:15
  Phil Palumbo: They really need to understand the math behind that.
• 25:18
  Phil Palumbo: Ryan, I say all the time that if, you know, if you retire with 10 million as an example, and your spending habits are only a hundred thousand a year, then you could afford to be conservative.
• 25:31
  Phil Palumbo: 'cause you're pulling 1% of the 10 million to live on, All math says 4% or less, you're okay even five, right?
• 25:41
  Phil Palumbo: But if you're pulling one, and then obviously you know, every year if you factor inflation, you could put the $10 million in fixed income and most likely be okay.
• 25:50
  Phil Palumbo: So it really depends on what your asset level is, what your spending level is, and that dictates how much risk.
• 25:57
  Phil Palumbo: You should be taking.
• 25:59
  Phil Palumbo: Now you may say that client who has 10 million and spending a hundred, they may still want to take risks because they want to provide legacy to family members, et cetera.
• 26:06
  Phil Palumbo: So everybody's different obviously.
• 26:09
  Phil Palumbo: risk is predicated on how much risk you should take is predicated on you as an individual, number one.
• 26:18
  Phil Palumbo: number two, what the plan dictates and how they converge.
• 26:24
  Phil Palumbo: really the advice of the professional to help guide the client along.
• 26:30
  Ryan: That's a great point, Phil.
• 26:31
  Ryan: It just goes back to planning too and, and really understanding what you want as an individual and goes back to making work optional too.
• 26:40
  Ryan: What do you want, not what you're forced.
• 26:44
  Ryan: But what do you want when you know maybe you're working part-time or not working and, and what type of lifestyle do you want?
• 26:52
  Ryan: I know what my lifestyle is and I'm gonna have to probably save a lot more Phil than what I am now, but.
• 27:00
  Ryan: It.
• 27:00
  Ryan: It's one of those things that's really comes down to what you want and expressing that, and like you said, having a professional help you address those needs to align.
• 27:10
  Ryan: I talk a lot about alignment, making sure your investments are aligned with your objectives, so
• 27:17
  Phil Palumbo: add one other point if I can.
• 27:19
  Phil Palumbo: So the, the, the part that people get confused about is how am I gonna receive my income from my portfolio, let's say 10 million, right?
• 27:27
  Phil Palumbo: And what I try to explain to people is that if you take 10 million and you put it in a CD like people did 30, 40 years ago, and you get 4%, 5%, right?
• 27:35
  Phil Palumbo: And so that gives you, let's say it's 5% that gives you 500 grand.
• 27:38
  Phil Palumbo: But let's say you need, let's say you need 500 grand.
• 27:41
  Phil Palumbo: If you do that over 10 and 20 years, what does that mean?
• 27:43
  Phil Palumbo: That over 10 and 20 years, you're getting your 10 million back every year.
• 27:47
  Phil Palumbo: So if you go out five years, so every five or 10 years you're buying a CD you're getting the same cash flow that you've been getting from the beginning.
• 27:54
  Phil Palumbo: not a practical way to think about it.
• 27:56
  Phil Palumbo: So when people, clients say to me often, well, how am I gonna receive my income?
• 28:00
  Phil Palumbo: your income is gonna come from a what we do, a bucket approach, a bucket approach, where you have liquidity bucket, core bucket, and we have what's called plus bucket.
• 28:07
  Phil Palumbo: I won't get into details of that, but, but the bottom line is, is your income's gonna come from your interest, your dividends.
• 28:14
  Phil Palumbo: Plus principle appreciation or sometimes principle depreciation.
• 28:19
  Phil Palumbo: But over time, as long as I'm pulling out something less than 4% to give you a distribution.
• 28:26
  Phil Palumbo: Right.
• 28:26
  Phil Palumbo: You, the, the chances of running outta money over 30 years are extremely low.
• 28:31
  Phil Palumbo: And that's been very well researched and tested over long periods of time, and that's how people should think about their income distribution, which is a big concern on people that people think about a lot.
• 28:41
  Phil Palumbo: Well, how am I gonna actually receive this income from this money I have.
• 28:46
  Ryan: Yeah, that 4% rule, it's amazing how it's withstood the, the test of time, right.
• 28:52
  Ryan: And
• 28:52
  Phil Palumbo: It has, it has, but when interest rates were lower, you know, that number
• 28:55
  Ryan: yeah.
• 28:56
  Phil Palumbo: Now that rates have normalized.
• 28:57
  Phil Palumbo: It's, it's, it's been up to, it's been, you know, in line to where it should be.
• 29:01
  Ryan: Yeah.
• 29:02
  Ryan: Yeah.
• 29:02
  Ryan: It's nice that finally the savers are getting benefited from, from decent, somewhat higher interest rates, right?
• 29:11
  Phil Palumbo: right.
• 29:11
  Phil Palumbo: I agree.
• 29:13
  Ryan: awesome.
• 29:14
  Ryan: Phil, you know.
• 29:15
  Ryan: There's a lot of noise out there in markets.
• 29:18
  Ryan: Headline risk.
• 29:19
  Ryan: You would think based on the headlines, market should be in a correction.
• 29:24
  Ryan: In a bo, in a bear market, they're not.
• 29:27
  Ryan: What is your framework to helping clients ignore the noise and focus on the long term win?
• 29:34
  Ryan: One of the biggest risks to long-term success is that panic selling, selling.
• 29:39
  Ryan: During times of distress, how do you help your clients ignore that noise and, you know, focus on 20, 30 years down the road?
• 29:47
  Phil Palumbo: Yeah, so with repetitive communication and helping 'em understand that we gotta control what we can control, so we can control is the diversification within your portfolio to mitigate the risk when markets go down.
• 29:57
  Phil Palumbo: Meaning that if s and P goes down 20, you're not gonna go down 20, you're gonna go down.
• 30:02
  Phil Palumbo: Something less than that, depending on how we structure the portfolio and what we're gonna actually do when volatility strikes is we'll take, we're gonna take advantage of that.
• 30:11
  Phil Palumbo: By selling the winners at that time, which is cash and fixed income.
• 30:14
  Phil Palumbo: For example, gold, which we have in a portfolio, and we have commodities too, you know, in this environment that's doing well.
• 30:20
  Phil Palumbo: And you take that and you buy more of the stocks that we own in a portfolio that are down because of the volatility.
• 30:26
  Phil Palumbo: And so that's the second thing and really most important thing.
• 30:30
  Phil Palumbo: So those two key things, Ryan, over time, you're gonna have tremendous success.
• 30:34
  Phil Palumbo: were times a perfect example of a client during COVID that called me up and said, Hey, Phil, they wanted to sell completely out of their stocks.
• 30:41
  Phil Palumbo: And I said to them, I said, well, if you sell outta your three and a half million dollars retirement account and we go to cash, like, and, and things really greater, what do you think you're gonna be able
• 30:48
  Phil Palumbo: to do?
• 30:48
  Phil Palumbo: If I give you the check of three and half million dollars of your IRA account, do you think anybody to go to bank and they can give you three and a half million dollars of cash?
• 30:54
  Phil Palumbo: Right.
• 30:55
  Phil Palumbo: They're not, you know, that's that, that we can't even get 10.
• 30:57
  Phil Palumbo: We can only get, like, we can only get $10,000, you know, per day.
• 31:02
  Phil Palumbo: So I just, people should just, you know, you just gotta continue to educate them, understand and make, make sure they understand they're long-term investors who we're not traders, and what do we do when volatility strikes?
• 31:11
  Phil Palumbo: We know we're gonna do, we're gonna buy things cheaper and then sell things that made money.
• 31:16
  Phil Palumbo: So it's buy low and sell high, which is like the old Dodge that, you know, we've talked about for so long.
• 31:21
  Ryan: Yeah.
• 31:22
  Ryan: I love that you brought up education.
• 31:24
  Ryan: I think it's so important, just educate your clients, investors out there, the importance of staying invested during times and, and it make it.
• 31:33
  Ryan: It's an opportunity too.
• 31:35
  Ryan: Valuations come down, opportunity to buy, like you said, and also glad you brought up diversification.
• 31:41
  Ryan: It's crazy this year based on headlines, you would think, like I said, everything is down, but that's not the case.
• 31:48
  Ryan: There's a lot of, you know, sectors, areas of the market right now that are up year to date, despite everything that's going on.
• 31:56
  Ryan: So diversification is so important despite people always just, you know what I want Nvidia.
• 32:03
  Ryan: Right.
• 32:04
  Ryan: So
• 32:04
  Phil Palumbo: That's right.
• 32:06
  Ryan: Bill, last thing, let's stay on this Emotions be, you know, we know investing is very behavioral emotions.
• 32:15
  Ryan: It's hard to control those emotions, like you said earlier.
• 32:19
  Ryan: Why is controlling emotions when it comes to investing, you know, so important and being emotionally prepared, so important when investing.
• 32:29
  Phil Palumbo: Because it's gonna, it's gonna allow you to stay on track to achieving your main goal.
• 32:33
  Phil Palumbo: So you gotta ask yourself, why are you investing?
• 32:37
  Phil Palumbo: I'm investing because I need my money to keep up with inflation.
• 32:41
  Phil Palumbo: I need my money to last if I live a long life.
• 32:45
  Phil Palumbo: So that's why I'm dealing with this headaches of volatility.
• 32:48
  Phil Palumbo: And it is a headache.
• 32:49
  Phil Palumbo: I mean, it, it is.
• 32:50
  Phil Palumbo: I wish clients didn't have to deal with stocks and you know, the up and down movements of stocks and all this political nonsense that's going on, that's driving people crazy, that's making people ask themselves, should I be in
• 33:00
  Phil Palumbo: stocks?
• 33:02
  Phil Palumbo: So it's almost like, it's like anything else in life.
• 33:04
  Phil Palumbo: It's a marathon, right?
• 33:05
  Phil Palumbo: I dunno if you ever ran a marathon, but when you run a marathon, you know, in the beginning of the marathon it's okay, you're feeling decent, all of a sudden you start to kind of go through hell, right?
• 33:14
  Phil Palumbo: Because it's like mile 13 and mile 17, then 20.
• 33:18
  Phil Palumbo: And then, but you, but you push through it, cross the finish line and, and that's the best example.
• 33:24
  Phil Palumbo: What I can give with people is that investing is a marathon.
• 33:27
  Phil Palumbo: Unfortunately, you're gonna go through pain at time.
• 33:30
  Phil Palumbo: But the reason why we're going through that pain is so we can cross that finish line for you and your family, and that's why we do what we do.
• 33:38
  Phil Palumbo: It's like anything else in life, Ryan, and you know, nothing.
• 33:39
  Phil Palumbo: It's, you can never get a cake and eat it too,
• 33:41
  Ryan: phil, that's a great point.
• 33:43
  Ryan: I'm really glad you brought that up.
• 33:45
  Ryan: And diversification, focusing on the long to term investing, like you said, it's not, it's not a marathon.
• 33:53
  Ryan: One thing I talk, especially like my mom.
• 33:56
  Ryan: Who has retired.
• 33:57
  Ryan: It's like, put the phone down, turn the TV off for a while, stop following the news for a little while, because all the headlines, doomsday headlines, it just adds to, like you said, that volatility, that angst a lot
• 34:12
  Ryan: of times.
• 34:13
  Ryan: So, Phil.
• 34:15
  Ryan: Thank you so much for coming on this show.
• 34:18
  Ryan: Great insight, very fun conversation.
• 34:21
  Ryan: I loved all the information you shared and tips to, you know, achieving, I would say retirement, but, or making work optional.
• 34:30
  Ryan: I love it.
• 34:31
  Ryan: Where can our audience get more information about Palumbo Wealth Management, as well as your podcast, the Palumbo podcast.
• 34:40
  Phil Palumbo: Yes, so my website is www dot palumbo, P as in Peter, a LUM as in Mary, BOW like William, M like mary.com.
• 34:49
  Phil Palumbo: You could find all information about my firm.
• 34:51
  Phil Palumbo: My podcast is Palumbo Pulse.
• 34:53
  Phil Palumbo: The Palumbo Pulse.
• 34:54
  Phil Palumbo: A you'll see that there as well, which has some great information and insights and that's, that's where you could just Google me and you could see various interviews I've had on major networks and and whatnot.
• 35:05
  Phil Palumbo: So it'd be easy to find me if you put in my name, Philip Palumbo.
• 35:10
  Ryan: Perfect.
• 35:10
  Ryan: Perfect.
• 35:11
  Ryan: Awesome.
• 35:12
  Ryan: Phil.
• 35:12
  Ryan: Thank you so much and thank you everyone for listening to this episode of zephyr's Adjusted for Risk podcast.
• 35:19
  Ryan: You can watch all of our other episodes on the Zephyr YouTube channel and all your other channels that you watch your favorite podcasts on.
• 35:26
  Ryan: Please be sure to like and subscribe to those channels and give us follow on LinkedIn.
• 35:31
  Ryan: Thank you very much and have a great rest of your week.