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May 26, 2022

The Four P's of Finance and Investing *Transcript*

You're listening to Operation veteran finance, where veterans receive unbiased and expert advice to help them achieve their money mission. Here's your host, Army Veteran and CERTIFIED FINANCIAL PLANNER professional. Garrett Sorensen


 Hello, and welcome to Operation veteran finance, where you get straightforward investing, saving and planning education to help you accomplish your financial mission and become a veteran of finance. I'm your host, Army Veteran, and certified financial planner, Garrett Sorensen.


Really appreciate you guys joining me today, our topic today, I wanted to do something a little bit different. And so these are, you know, this having this podcast, being able to come and talk to people, it is my opportunity, I feel like to put my thoughts, my views my voice, almost into the topic. And so that's what I'm going to be focusing on today. And there's a little bit of a story that comes along with why I thought about this. And so, you know, whenever being a financial advisor, financial planner, whatever it might be, I go out to these parties and I start talking to people and they say, What do you do? And I tell you right now, if you ever want people to just avoid you, you can tell them that you are a financial advisor, seem to not be too interested in that.


Or, on the other hand, I typically will get hit with a with a question. And the question might vary from this way or that way, whatever it might be. But typically, that question is somewhere along the lines of what do you think about and then whatever it might be the stock market? This particular fund crypto has been a big one and NFTs have been a big one. One that I got hit with this weekend, actually, while I was at drill was, what do you think about bonds? And that was not one I've heard in a while. But of course, given the state of the market today, a lot more people are hearing about bonds.


So, you know, these questions are difficult, I think, because a lot of people don't really understand what it is that I guess for me in particular, and I can't speak for every other financial advisor in the world with every other firm out there, whatever might be the way that they operate their business, but the way that I operate, and the way that we operate a mark on wealth, I think is a little bit more unique to how we would go about answering that question. And I always struggle with the question because I want to give everybody a really straightforward answer. Without giving the answer that we love to give as financial advisors, financial planners is well, it depends. I don't like giving the it depends answer. But unfortunately, for a lot of things, it really does depend. And for a lot of finance, really, it's almost it's a lot of it is very subjective in the sense of how we view things, what we can look at, there are a lot of there's a lot of objectivity in finance. Absolutely. And I think that one of the things that we do that I've done, especially with becoming a certified financial planner, getting my MBA in finance, doing a lot of these things is we focus on the objectivity of what can take place inside of finance.


But when it comes right down to it, personal finances just that it's a little bit more personal than broad in general. And so it becomes a very difficult question to answer, just because for me to answer it truthfully, I need to ask you about 10 to 15 questions to give you to give you the best, the best answer for you the best answer for you individually. And I started thinking about that this weekend, when I got asked the question, this is a good friend of mine. We drilled together in Tennessee National Guard, he's got a great job makes great money. It has awesome employer benefits that allows him to save a lot. And he's really setting himself up for success. And he was asking about bonds because as we're coming into this market, and people are talking about bonds, he's got opportunities. And he's saying is this something that I should be looking into as interest rates increases? This is the yield for me to go out there and potentially start to add to a portfolio to help with my success. And he'll tell you in on about 20 minutes, just about bonds and the pricing structure of bonds and how they work and why they're in the news today. What happens when, when the Fed increases rates and you we start to see yields go up and the 10 year to the two year and 30 year treasuries and calls and all these different things with bonds. And I kind of realized that I didn't answer his question because I was just trying to give him the objective information. And I couldn't answer subjectively how it was going to work for him.


And as I was thinking about that, I realized I said, there are four things that really come into play with the subjectivity of finance. And those are the four things I actually want to talk about today. So I call them and I tried to think of a better name, but I couldn't. And so this is just this is just came to mind because it comes in. But these are the four P's to finance really the four P's to investing, maybe there's something else out there something better, and you guys can always send those to us. But you know, the four P's to subjective finance, whatever you want to call it, these are the personal aspects to you. And so individually, as we go through these, hopefully, you guys will kind of be thinking about what are what are my thoughts on this? How do I feel about this? What are my views on this as you're going through, because those are the things that you're going to have to identify, in order to make sure that we come to that view, bring this all together and apply it to your financial life. So without more intro, we're going to jump right into it.


And the first topic, the first P of finance or investing, if you will, is psychology. And so I've got written down here, psychology is how we respond to investing, saving and finance. And so the response aspect of this, the psychology that we hold, I like to think is a little bit further beyond our choice. It's psychology is almost more of the idea of what do we hold true? Based on the things that happened to us? Or what how do we feel about certain things based on our childhood, our history with money, how our parents handled money, how our spouse, whatever it might be, there's something in there just a little bit more deeply rooted in us that we may have less control over when it comes to our feelings on investing, saving finance money as a whole. And one example of this that I always like to give. And I give this, whenever I'm talking to the inmates of the Davidson County Prison, do a financial literacy course with them here. And I usually like to start off just to try to tie them into this emotionally. And I'll say there's a difference in the way that we feel when we have $20 in the bank, compared to when you have $20,000 in the bank. And I think that anybody that has been on either side of those coins is going to be able to tell you Yeah, absolutely, there's there is something, you feel a difference. When you open up that app on your phone and you see $20,000 Or when you're four or five days from payday, and you open up that app, and there's only $20 on their phone. There's a there's an emotional response that comes from that.


And that is a little bit more psychological with money and finance than it is anything else. There's a feeling that comes with that. And so, you know, in another example, this might be how do you feel when you see that your investing account went up? $1,000? Or how do you feel when you saw that it went down $1,000 our thoughts, our psychological plays on that kind of really tell us a little bit more about how we view money. And so I can tell you guys, one about me in particular, I grew up very poor, we grew up, you know, homeless for a good portion of the time living with friends and family. And kind of you know, by the time we were 13, started junior high, you know, living in a mobile home park and just really getting by paycheck to paycheck, scraping things together, food stamps, all that fun stuff to really just make ends meet. And now today, I'm at a place where I make decent living, you know, the army really set me up, I've got a college education, I've done a lot of the things to really help set myself up for success financially in life. Yet, when I view money in income, I have more of a scarcity mindset than I do an abundance mindset. What that means is that I see things as it's always kind of fleeting, it could be here today, gone tomorrow. And so, the way that I focus on saving and investing is with an idea that it's not always going to be around. And so, you have to make sure that you're doing the things to put yourself in a good place for if or when it goes away. Whether that means you're losing a job, or you know, the economy goes bad like we're seeing today and you know, your investing account goes down, maybe you're required some of that money for some short term purchases, or whatever it might be.


My mindset is always more of how can we save or get into a better position today compared to other people's mindsets where it's just like, well, you know, you can't take it with you. And I can always He's earned more money in the future and all this stuff. And so it really does change the psychology behind we are. And so you know, when it comes to the psychology of investing, there's no right or wrong answer. But you do need to understand how we respond or feel to the actions that come from investing to avoid to avoid making mistakes with your money. And so one example might be being too aggressive, when you're risk adverse, you might be 50,52 years old, and say, Oh, I'm way behind on my savings. So I need to try to get as much earnings from the market as I can. But if you're the type of person that panics when you see that the market is down, 15 10%, whatever, you know, whatever your investment account might be down right now, that that might not align with your psychology about investing. And so that might be an issue. The other part of that just might be too passive, being too passive when you're an aggressive person. Not saving enough, of course, again, that's kind of my thing I like to save, I like to think about what the money can come in, because I you know, it's not, it may not always be there, kind of at that scarcity, compared to an abundance mindset.


Or even just the opposite, saving too much, right? The one thing I always have to look at it as am I saving above and beyond, am I not enjoying my money today because of my psychology. And so really just making sure that we're not making emotional decisions when we're coming to this. But instead sticking to the plan, I think there's a book A Random Walk Down Wall Street and the one quote in there that always seems to stick out to me as the stock market's a terrible place to figure out the type of person that you are. And so really understanding kind of looking in depth diving deep into that psychology to figure out how you are is really going to help set you up for success.


And that'll move us into Topic number two, Topic number two of the four P's is philosophy. Now, philosophy is different than psychology, I think, obviously, anybody that's taken these two classes will recognize the differences. I do think there's a lot of overlap within these two. But what I have for philosophy is philosophy is our worldview, on investing, saving and finance. So where psychology might be a little bit more internal, something that we may not have as much control because it's based on the things that have happened to us philosophy might actually be a little bit more in our control our views and beliefs of what has taken place inside of the market, or what might take place instead of the market. Looking at example of philosophy and how it plays into our investing, saving finance.


One example of this might be I see a lot of people talk about with Warren Buffett and the idea of just you just put your money in a good mutual fund account, and you just let it ride, you just sit in there, you don't have to do anything, you buy a single mutual fund, or maybe you buy three or four or five different mutual funds, just leave it in there, and you let it go. That is somebody's philosophy, that is their worldview on saving and finance. Another example of how philosophy might come into play is, you know, you pay yourself first typically a very good philosophy when it comes to how we save for. But you know, we say, all right, when I get paid, the very first person I pay is me. And then I go and I pay my bills. This is a philosophy of finance, this is a philosophy of saving, and those philosophies are typically there to help us make the right choices with our money.


And so you know, keep in mind if psychology is how we feel philosophy is our belief on investing. So often our philosophy can stem from our psychology about money investing, but they're not necessarily the same. A couple more examples, investing is only for wealthy people. That might be somebody's philosophy in life. We go through here, investing is a waste of time, because the dollar is going to zero. I talked to some of these crypto guys that made a lot of money from the crypto market, and I've talked to some and their belief is that one day the dollar is going to be gone. And we're all going to be having digital wallets and spend in point 00001 You know, Bitcoin to buy milk or whatever it might be. So that is somebody's philosophy. There's no point in investing or saving because you can't take it with you. I actually kind of talked about that one with psychology as well about this, the difference in like how we view things whether you have a an abundance mindset or a scarcity mindset, if you have that abundance mindset, this might be the philosophy that you hold. It's just that you know what I can, I'm going to spend it because I can always save more later.


Another big one that you see with philosophy too, is actually religious constraints on investing. I've seen some where they're not allowed to receive interest payments from investments. And so these are kind of the philosophical view this that A philosophy brings to our saving and investing a lot of the times they can help us with our saving and investing strategy. But they can also hurt us the benefit that we have with philosophy, that is something that can be changed. So changing our philosophy, philosophical views on investing and saving, it can be difficult, especially but if they're a hindrance on your ability to make successful planning or to have a successful plan, then you really need to focus on changing that view. But for a lot of people, it'll just be the guiding light to how you invest and save. And really understanding your philosophy about these things can help you when it comes to making that plan.


Topic number three, this one is a pretty interesting one. This is principle. And so the principle that we hold for investing, saving, and finance. So I've got written down for this one that that principle is our core belief, to investing, saving, and finance. So if philosophy is our worldview, on investing, principle is our internal beliefs on investing and saving. It's a little bit a little bit, you know, diluted there in that sense, I guess, but just if you think about the idea of philosophy, being much broader having to having to do with a bigger scale, in principle is how we bring things into the way that we actually want to view things.


So think of principle as the old sayings you might have heard growing up, right, that's a that's a good one, one that always comes to mind with me, and I've no idea where I heard this from, but I just remember from a very young age hearing this and it's always stuck with me. But it's kind of like you never, never trust a skinny Cook, never trust a mechanic with clean hands. These are the types of things that we have, these are the principles that we might hold. For our money, it might be $1, saved as $1 earned. That's a big one that I remember hearing a long time. And another one that we've already talked about is pay yourself first. Again, that's the philosophy. But the principle that you might hold is that I pay myself first one that you hear with life insurance, and this is one that I kind of do believe in as well as buy term and invest the rest. So you know, this has to do more with the type of insurance policies you might buy.


One that I hear being here in Tennessee, we've got a pretty famous guy he likes to he likes to yell at you that debt is dumb. That is dumb. And that is a principle, right? There's nothing that actually comes out and says this is a holistic truth, but it really is more of a principle. Another one is for every dollar you spend, be sure to save two. Again, these aren't, these aren't necessarily things, these aren't laws, these aren't rules to the record, these are more so just the principle beliefs that we like to hold on to. So principle is not necessarily a bad thing. This should be a part of the view you take to help make your investing and savings decisions, you should sit down and say what are some of the principles that I hold about my money. And, again, there's not these should be positive now that not to say that there can't be a negative on these in here. And if you recognize that within yourself, identify it, and then say, is this something that's going to help or hurt with my overall plan, and if it's something that's going to hurt it, find ways to really counteract what that principle might be, and how it might actually hurt your overall plan.


So sit down and try to write out some of the investing and saving principles that you might agree with, I actually went through, and I did a list here. So I'm going to go through some of these, I say, you can't out earn early savings. That is a big one that I've always believed in. Somebody told me that from a very young age, I wish I wish I had listened more than I did, because I would have just saved so much more. Instead, I spent a lot of my 20s. And I still did a decent job saving but I could have done a better job. Another one that I always say and I might I think my clients that listen to this will know because I say it all the time is don't let the tax tail wag the dog. I'm very tax conscious. I'm not a big fan of having to open up my checkbook every year and pay Uncle Sam, but at the same time typically for paying taxes. It's because we've done something good. It's because we've had a benefit to ourselves. And that's why we pay taxes. And the one thing I don't want to do is I don't want to and I think I've actually Yep, I got it right here, don't turn down $1 because it costs a dime. And I don't want to avoid paying taxes. Because I've got to give Uncle Sam his pound of flesh. That's actually it's I wrote this list a little while ago but don't turn down the dollar because it costs a dime. That's another one I look at this is a lot of people will say, you know, I don't want to invest in this particular money mutual fund or this mutual fund or money market because there's a higher fee associated with it. And that could be true. But you know, is that mutual fund, potentially outperforming, is the fee going to be worth it?


There's a lot of people out there that don't like to work with financial advisors because we charge a fee. And the one thing I always say is, you know, you don't want to turn down $1, because it's going to cost you a dime. Another one, I always say to my clients, too, it's easier to save $1 than earn $1. And that, again, there's no real rule to that. But fundamentally, I think it's easier to save $1 than it is to earn $1 and more dollars saved leave, the more dollars earned. I actually didn't have that one here on the list. But it's another one I say. What I put in here is my investments are not the market and the markets in quotations there. I really can't stand when I hear people talk about they say, well, the markets doing bad. And I always asked him, what's the market? To who is the market? Where's the market? There's a lot of different index indices out there that you can really look at and say is this the market? Is that the market? How do you describe the market and the one thing I always say is my investments aren't the market. There's nothing because my investing account especially is so unique. And so is everybody else that I work with, that they really can't compare themselves to anybody.


Another one is if it seems too good to be true, it probably is. I'm going to tell a quick story about this one, because it's one I always think about, I had a good army buddy of mine tried to tell me and this was early, early 2000 10s, maybe 2011 2012 about forex trading, and he was some guy reached out, of course on Instagram or Facebook. And he's like, um, you know, I gave this guy $10,000. He's already sent me 4000 back. And he's still trade and all this and he wanted me to get into it. And I'll tell you right now, I talked to this guy just to try to figure out if it was a huge scam, I had no intention to give him the money. But it almost seemed too good to be true. And I'll tell you what it ended up being because after about a year guy just up and disappeared with, with my buddies money and probably a whole bunch of other people. So it's one of those things where if it seems too good to be true, it probably is. This is where doing your due diligence and kind of getting down to it is going to help a lot.



And then one on here. And I think this is actually one I want to say was Warren Buffett that said this, but he's like, you know, when everyone else is greedy, be fearful when everyone else is fearful, be greedy. And that's I think just a good one to come into. And then one that I actually my last one on here, because I think this is the biggest one that I hold to. And I got this one from those good old fashioned army safety briefs. But failing to plan is planning to fail. And that's always kind of stuck with me, I really liked that one a lot. Being a Certified Financial Planner, I think it's one of those things that I just hold inherently true.


It takes me right into our fourth topic, our fourth p of finance and investing, which is of course planning. And planning is our action to investing saving and finance. So just kind of looking back at this right, we have psychology, which is the way we respond to investing saving and finance philosophy is our worldview that greater stage platform views and thoughts on investing in finance principle, which is a little bit more internal, these are our these are our core beliefs to the things that we hold true in their planning is how all these things come together. It's the cornerstone of what we are going to be doing with investing and finance the action piece.


And that's exactly what planning should be planning should be a tangible plan. Because we we had a small group with our church and the guy had Phil had put out there, he said, you know, a plan is written down. If it's not, then it's just a dream. It's just a wish and less until it's written down. It's just it's just a wish that you have, once you actually have that plan, it is your actionable item that's going to guide you when it comes to investing in planning. Or excuse me investing and saving. And that's what I love about the plan so much. So when somebody comes to me, and I think back to that dinner party question or you're out with friends, and they ask you, what do you do, and you start talking to them? And they say, Oh, what do you think about? What do you think about this, this new investment or this mutual fund? Or whatever it might be? What are your thoughts on it? I always go back to the same thing is how would it fit into your plan? And unfortunately, not a lot of people have an answer to that question. It's really not about the plan it's more often than not, it's because they don't have a plan.


The second part is that they just don't know how to actually gauge the portion of that investing or that strategy, whatever it might be into their plan. So, you know, planning is where we bring our psychology philosophy and principles together build the path towards our goals, these things should work cohesively in order to get you a plan that's going to work with you. Your plan should take all the other aspects into account when coming together so you can't be somebody that's highly risk adverse think them you know, you think the markets going to crash or at any time There's bad news, you're kind of panicking. And you're saying, hey, I need a required 12% return year over year, there's just those two things that don't align. I mean, principally, philosophically, psychologically, those things cannot really align, because you're going to have to take more risk in order to achieve something like that. So, these are conflicting aspects, that it's going to leave you feeling worried, if that's a part of your plan, you're going to feel worried about what's taking place within your plan when you're trying to achieve that.


So, understand the plan must fit the person. So here is how you can go about building a good plan. First thing you need to do, think about how you are and other spending areas of your life. So, do you tend to make hasty purchasing decisions or think about something for weeks or for pulling the trigger? I said it on another episode, the one thing I started to do, because Amazon is just too easy, especially being here in Nashville, Tennessee, there's more and more items that when I look at it, I'm like this can be here in three hours. So, it's really simple for me to just order something and have it be here, one thing I started doing is if there's something I say that I quote, unquote, need, I put it in my cart on Amazon. And I'll close the app. And I'll typically wait two to three days, whatever it is, and then I go back, and I look at it again. And I say if this is still something I think I need, then I'll purchase it, have it delivered that day. If it's not, then a lot of the times I'm hitting the save for later or even just the delete button, because turns out, I don't really need those things. So kind of figure out how you think about that? Do you often regret large purchases shortly after making them? Or do you get excited about the idea of using your new purchases? When you get paid? Do you feel happy about being able to go and do what you want to do? Or are you worried about the bills and you know, making it to your next pay day? So these are some of the questions you should really look for. And there's no right or wrong answer. But this should help you with how to make decisions about your investing strategy and saving strategy as well.


The other part is take time to do the research. Often we can learn so much to get us on the right path with just a few hours spread across a few days or weeks. And I talked to a lot of people it says you know, you don't have to rush the learning portion of this process. But spending time to read articles, talk to experts, listen to podcasts, like the one you're listening to right now. These will help you greatly avoid making mistakes early in the process than that, you know making mistakes that's going to help you that or that's going to lead you feeling frustrated feeling like you should quit and then ultimately, it's going to lead you to that path. So take the time, do the research, find credible sources, people that know what they're talking to talk to experts, and try to get as much information free information as you can to help you kind of start to build this plan. And then put that plan on paper. Again, if it's not written down, it's just a wish, it's just a dream, it's got to come true. This is something that you need to put down a tangible plan that you can follow even just a one page plan that says this is what I this is what I want, this is how I'm going to do it. This is how I get there, and you roll with it.


And then you always go back and look at that plan. If your plan is I want to have X amount in retirement. And in order to get there, I need to save this much, then that's what you do. Everything just needs to be geared towards that maybe it means you take one less vacation throughout the year. Or maybe the opposite of that, right? Maybe you're like I this is how much I need. And I need to earn this much. And in order to earn this much I need to be this much invested in the market, kind of really building out those investment strategies is something I like to do. So if that's something that you would like for yourself, I'd be more than happy to do that for you, I can give you that plan and allow you to kind of go off and do that on your own. But understand writing down that plan is what you need. And you need to be able to look at it and remind yourself of it whenever you're considering those financial decisions. So put your plan on paper.


A quick note on outcomes with investing, right, nobody can predict the future and no one's going to be able to, you know, tell you where you should invest because you're going to earn X amount of money. But you can look at what personal goals you have and use that to determine the outcomes you will pursue in your investing strategy. Meaning is this a short term goals? Or is it a long term goal? Is your goal to grow your income so many times over X amount of years where you're going to be able to save and save and save and save? Or do you have a short window of saving and then a longer period of allowing that those savings to grow based on the investments that you're choosing. Understanding how this is going to come into play is really going to help you decide the type of investment accounts or the type of investments that you should be in within your accounts. And then again, we have to look at the psychology, the philosophy, the principles of how that's going to play in for you to really help you come into that.


So, you know examples of this might be like Are you a buy and hold? Do you want to sell something once it hits a certain price and then tries you know moving into something else you think so going to grow to rebalance? When this happens or that happens or do reallocate when this event happens in your life, maybe you know, kids are going to college now. So, I'm going to reallocate my funds into something a little bit more conservative. 10 years out from retirement and reallocating five years out and reallocating when I hit retirement and reallocating those are some of the things that you should really be considering.


And then lastly, hire professional to do something like this, if this is not something you want to do, I always say the people that come to me and say, Garrett, we want to work with you. It's not because they don't know how to do this. It's not because they're not smart, smart enough. A lot of them are some of the smartest people I've ever seen. And they know this stuff, you know, forwards and backwards. But they just don't want to do it themselves. And they would much rather go out, hire professional know, they're going to get the right job done for them in a timely manner. And they're not going to have to spend the hours to do it themselves.


So of course, you know, this is something you're interested in, you can always reach out to me, you know, my email address will probably be in the in the notes here below, you guys can reach out, you can also go to our website, and you can get the contact us page on the website comes directly to me, I'll be able to respond to that and help you actually start building out your financial plan as well. So, you guys, you know, investing is a confusing world, it can affect us emotionally and physically, truthfully. So understanding how react to money, what we believe what we hold dear and creating a plan of action that can help us navigate the difficult aspects of saving and investing and ensure our goals are accomplished are just paramount. It's huge. This is absolutely something we need to be focusing on. If you listen to this podcast, you're probably already on the right track. So, I commend you for that. Make sure you guys continue to listen tune in subscribe wherever you guys are getting your podcasts. You can also listen to all of our episodes at, that’s and of the contact page we also have a transcript of this episode. If you guys would much rather read through it and listen to it you can do that as well. But that's all for me guys. I appreciate you guys tuning in and we look forward to seeing you next time.


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