Mike and Steve on Purpose-Driven Investment Planning (Ep. 13)

Welcome to Ideas by Mike, the podcast with Mike Milligan, where you will find one-of-a-kind financial planning advice for your one-of-a-kind life. With over 22 years of experience as a Certified Financial Planner, Mike shares experiences and advice on crafting simple, easy-to-understand financial plans based on your values and priorities. He believes that taking a personalized approach is the best way to prepare for the future and give meaning to your finances. So, follow along as Mike, and from time to time, his guests explore different strategies and tools that could help you secure your financial future in retirement. Now, onto the show.

Hello, and welcome to the Ideas by Mike podcast with your host, Mike Milligan. I'm Wendy McConnell. Hey, Mike, how are you?

Good, Wendy. How are you doing today?

I'm good. I'm good. I'm excited. Here we are. We've got another guest. We're moving and shaking. And tell us about who we have today.

So, one-of-a-kind financial planning is what we do, right? And that may— it's made up of 5 things that our listeners have just— they know about it, right? It's tax planning, retirement income planning, investment planning, long-term care planning, legacy planning. We're talking about the investment planning piece. Right. And Steve Osterneck with Advisory Alpha, he's the CEO, he's the chief investment officer, a CFA and CFP. Right. And Steve, if I've heard right, unofficially, you were the youngest combo CFA-CFP back in the day, right?

I'll say one of the youngest. But, you know, it's, it's hard to tell. There's more and more today. But it was a good journey.

Steve, just for everybody who loves geography, where are you?

Yeah, we're in West Michigan, right on the lakeshore on Lake Michigan. We got the sandy side of the beach here, right across from Chicago. They got the, unfortunately, the uglier side of the beach.

Okay, nice. Steve, we have a partnership together through JB Wealth Advisors where I'm an investment advisory rep and partner there with, uh, uh, Jim Fisher, who was on last week to talk about— or our last episode to talk about retirement income planning. Um, but one of the things that we partnered together is all about innovation, and I think that's really what makes your firm, but you, one of a kind also. So, before we talk about investments, uh, talk to us about what makes Steve a one-of-a-kind person.

Yeah, no, I love it. I love the question. You know, I, I think everybody's got their own, you know, lane and their own talents, and, uh, I think just in I think in general, the more you can focus on that, the more happier you are in business and in life. And I think innovation and vision is something that I really focus on, specifically innovation in our firm. I mean, the different investment strategies that we offer to the different client communication resources that we offer. I mean, there's a lot in our business that we just want to get better. We always want to improve. We want to innovate. We want to find solutions. And in my personal life as well, I follow a lot of the same philosophy and it's just I find myself a little drawn to those types of things, be it with kids or other organizations. But I've actually got 4 kids, kiddos at home ranging from 2 to 13. I tell people I feel too old to have a 2-year-old, but it's true.

That's awesome.

It is what it is, but they're into soccer and we're doing a lot of cool things there, starting teams and being innovative there. And my daughter's actually into singing and songwriting. So, she's working on her 3rd song in a studio and trying to get her real-life experience there and just doing cool things. So, yeah, to your question, I just think it's that innovation part. I like doing things a little different and thinking big and looking outside of the box. It's a lot of fun.

Steve, how would you define investment planning and why is it critical for long-term financial success? Yeah.

I mean, I guess everybody defines these things a little bit differently. I think of investment planning, I love the term planning, and I love, Mike, I love your firm and how you're structured. I mean, you're right. We do have a partnership. Why that's so critical in today's market is there is so much work that's needed on the broader comprehensive financial planning side of things that it's very difficult for financial planners to do everything all by themselves, specifically in the investment realm. The markets have gotten a lot more complicated. Technology, AI, so many different things have evolved. And so, when I think about defining investment planning, it's really connecting your portfolio and your investments into your financial plan. How are we using our financial resources to best achieve our financial plan? And that's what investment planning is all about. And I also think it speaks to our relationship and how we operate. We specialize in investment management. That's what we do. And we want to give ample room for the financial planning components to make sure we're getting those things right. Because if you drop the ball on either of these things, you can have some unfortunate outcomes. And so again, I just think it's so pivotal to give that right, you know, focus on all of those different parts and pieces.

Steve, I often tell a story that, you know, from an investment planning standpoint, you know, the other thing that people have that's really like their other biggest assets, their house. And people can— this is a story I tell people about their house when I'm talking about investment planning. I tell them that, you know, you can go buy a lot, right, just in your community, and you can walk over to Home Depot. Because Home Depot has everything you need to build a house there, right? You can just walk down the aisles, you can get the cinder blocks for the foundation, you can get the 2x4s, you can get the plywood, you can get the roofing, you get everything there, right? But do you do that?

No.

People go, they see an architect, who then they go hire a builder. Who then the builder gets subcontractors and the subcontractors then walk into Home Depot to get the cinder blocks, the 2x4s, right?

Right.

So like what you were just saying, right, about planning, you know, being necessarily more important than the product is like one of our firm's foundations. But, you know, people always want to talk about the products, right? They always want to talk about like what Nvidia is doing or what this is doing, right? So, like, you know, as opposed to being— to chasing return, like, I mean, what do you think are the key components of a solid investment plan?

Yeah, I mean, it's funny. I— when you think about the— those necessary ingredients from the context of, like, what you're saying, like, what are the ingredients to make sure that we're building this investment plan properly? I actually take a step back and look at this term investment policy statement. Some listeners might be familiar with this term, others may not be. But this idea of an investment policy statement or an IPS, it's more of an institutional term. It's a document that kind of guides how an institution would manage their resources, manage their investments. And in the institutional market, there's more governance and guidelines around, hey, we need these things defined, you know, because— Otherwise, we may not be the best fiduciary for our organization. There can be legal ramifications, etc. We don't use this term for just a standard retirement income planning client, but I think we can actually borrow some really good education from why is an IPS created and what is in an IPS. And the foundational components I'll start with are risk and return. You know, we've got to define risk. But even with risk, there's a capacity for risk, and there's a tolerance or a preference for risk. So, risk isn't always that simple. Same thing with returns. It's like, there's these comments, desired versus required returns. What's your required return to meet your goals? But what's your desired return? You know, so, there's a little more under the hood on risk and return. But then, the other component of factors in an IPS, they characterize as investment constraints. And that's things like time horizon, liquidity, Tax specifications, personal or behavioral characteristics that are important. So, there's kind of a whole category of these investment constraints in addition to the risk and return objectives of the portfolio. So, that's how I think I'd boil it down. And I think, again, it's a little stodgy to think about, I guess, in the context of an IPS, but sometimes we can take good things out of those old stodgy principles. That's good.

What do you think the most common mistakes are that people make when building an investment portfolio, and how can they avoid them?

I'm a big investor education kind of guy. Like, I love investor education and I study it. We put a ton of resources out through our firm to help educate folks. And I would say on the broader level, unfortunately, it's just education. I think that it's difficult in this industry to really understand. And this isn't the problem for for clients; it's it's a problem for the industry, really. You know, we make up these you know fancy jargony terms that make no sense, and then you know people's eyes glaze over. So it's you know it's hard to understand really the the business. But to get a little bit more granular, a little more specific, I think in the in inside of that educational gap, I guess I would say there is a lot. Of behavioral biases. Holy smokes. I mean, when I look at the average investor, they even— so without fully being aware of it, they've got a lot of behavioral biases that guide how they make investment decisions. If that's like a recency bias, hey, the markets have done really well, so I'm going to keep investing more aggressively, or hey, the markets haven't done really well, so I'm going to invest more conservatively, um, to, to, you know, hindsight bias, to, um, just fear of regret. I mean, there's so many things, and these are all again kind of like odd psychological terms in a sense, but man, they're alive and well. I mean, especially when you've got things like, you know, COVID happening and you got, you know, the Fed, you know, changing monetary policy aggressively, and then you got, you know, inflation, which is A, you know, has become a really large factor for retirement income planning. You know, there's a reason why people are emotional about their investments, right? But I think that's just where, if I have to boil it down, I'd say it's more on the behavioral side, as, as odd as that maybe is, that I think is the, is the largest unfortunate culprit, probably, for poor investment plans.

Steve, off script for a second here. Who are your heroes in the investment world?

Well, you know, it's, uh, I would have to say everybody's gonna know this person. No, I'm just kidding. It's actually my dad. So I got raised in the business. I started when I was 16. I left, uh, you know, we back in the day, you know, we would have like study halls or whatever. And we had a little work release thing. So I would leave I would put my two study halls at the end of the day and then leave work, leave school early and go work for for my dad when I was sixteen. And he he's been in the business. He's still part of our investment committee, but he's been in the business over over forty years. And he you know I remember going out for lunch with him when I was like sixteen, seventeen years old. And you know I don't know what you would talk to you know your your parents about whoever's listening. But like I would ask my dad about like hey what's a mutual fund? And why? What's an A share versus a C share? And why do the stock markets go like you know? Why do they move like they? Yeah, it was just funny dialogue. But I love the business. I grew an early passion for the business. We talked about I am a chartered financial analyst and a certified financial planner. My dad kicked me in the butt early to get those designations. Thankfully, before I had my four kids, and you know. But he's just been a great mentor. I got a firsthand look at. My dad would meet with clients on the financial planning side, so I got a really early firsthand look at a six you know at sixteen right around how people are meeting on their finances. They're they don't know a lot, but they need a lot of help, and it just it opens your eyes to a lot of different wild situations. But yeah, it's my dad's been an awesome mentor. I wouldn't I wouldn't be here where I am without his his. guidance and mentorship. It's a cool story.

That, that reminds me, like, when I was, when I was young in this business, my— I don't— never told the story to our listeners before. But like, when my son Zach, who's 27 now, was 5 years old, we would just be out in the community at soccer matches, baseball games, and all that. And I would get him to ask people, how diversified is your portfolio? I've got this little cute kid, right, who Just, he would ask everybody that, right?

I love that.

And people would just look up and smile. And he goes, well, my dad's a CFP. Yeah. I mean, it was just like he was my best marketing tool, right? I love that story about your dad.

Yeah.

Yeah.

I could have helped him more. I could have helped him better market. I think that's what you're trying to tell me. Your son was a way better marketer than I was.

Well, my son is now in medical school, right? He realized he did not want to be in the investment world.

You burned him out.

That's right. I burned him out early, right? He's had a— he's had a 22-year career in finance. Now he's gonna go do something a little more meaningful. Hey, let's, uh, hey, let's brag a little bit, if you don't mind. How much does Advisory Alpha manage? I mean, it's not an insignificant number.

Yeah, you know, I, I don't know. You're a small business owner. You understand. I mean, I love the I love the independence of small business, independent ownership, being able to fight for your clients, being able to make policies for your business that you feel are best for your clients. And I know you do that. I know you believe in that. We do too. Our competitors, not— I can't say all of them, but darn near the majority of them, you know, they're owned by investment providers that are manufacturing products and maybe even putting those products in the portfolios they recommend for clients, you know, or insurance companies or private equity companies. Not that any of the above are bad, but we're privately owned. And in the whole scheme of things, of investment managers, we're not the largest, but we manage just around $3.8 billion, just under $4 billion of assets. We feel like that's a big number. It means a lot to us. We take that very seriously with our team. But, you know, there are firms that manage more than us for sure as well. And but I think that's the significance of— I just, I love being able to manage the business in a way. And I'll tell you, I know you believe this too, but we will make strategic decisions in our business that have nothing to do with profitability, revenue, numbers. We will make decisions We've invested a lot in a charitable solution, for example, and we waive our fees on managing assets in our donor-advised fund program. It's like big business isn't really going to do that. There's no logical reason to do that. But we're huge believers in charitable giving and charitable strategies, and we want to do something about it. So, it's just those are the examples I think that when we wake up in the morning, like back to the innovation side, it drives me. It's fun. I love being able to do that. So, you know, we're thankful for what we have. We've grown a lot, but not the biggest out there either. But that's just okay, you know?

Hey, it's a great— it's a great business model, right? Because you get to really— you get to be one of a kind for people, right? You get to help advisors grow. You get to help the communities you live in. You get to really make an impact. Just to remind everybody what a billion is, You know, if you take $1, that equals 1 second, a million is 11.7 days, a billion is 32 years. And so if you do $3.8 billion, that's over 100 years, right? If you equate time to dollars. So it's not an insignificant amount of money. It's a lot.

I've never heard that example before. That's a good example.

Well, I use it for tax planning because, yeah, you know, not to divert a little bit here, but like if If a, if a billion is 32 years, a trillion is 32,000 years. And how many trillion are we in debt in the U.S. right now?

A bit.

Yeah. Yeah. And so, I mean, and if you think about it, 32,000 years is like incomprehensible.

Yeah.

Right. So a trillion dollars is like incomprehensible, right?

That's fair.

It is. So a lot of our folks, you know, they come to us for the financial planning piece, but they still want to somewhat do some of it.

They want to be hands-on.

With their own personal finances, and we do. We do encourage that with some part of people's money. Like you know, it helps with you know staying mentally sharp, and you know a lot of people have done it themselves for a long time, right? But but if you were if you were just going to recommend tools that people could use, right? So like here we are at Home Depot, right? And we're going to walk them down an aisle or two to say you know you should use this tool or this tool. What what tools would you tell the like? do-it-yourselfer to use to maybe help lower risk or, you know, just, or just, or just maybe something they've never heard of before?

Yeah. Well, I think part of it is, are you, you know, I wouldn't recommend doing the financial plan on your own. I mean, I think the financial plan, there's so much interrelation between tax and estate and retirement income and everything. I just, I wouldn't really recommend that. If you want to take a chunk of your portfolio and manage that on your own, which I think is your question, you know what tools are there to help with that? For and first of all, even before I get there, I would say make sure you coordinate it with your advisor, right? With with the financial planner because it's like there's this term in the in the in the CFA kind of program called a completion portfolio, and it's a little related to this. But the idea of a completion portfolio is. You build a portfolio that complements and completes some other assets, if that's held in kind or if it's self-managed by a client. It's— we want to make sure that any of the assets being managed outside of the advisor's purview— and again, I don't care if that's us or somebody, some other advisor— you want to make sure that you're not having these unintended concentrations and risks and overlaps, really, So we can run an overlap report, which is one thing that I would say if you know that you can run analytics to see the exact amount of overlap. But there's other other other risks as well that you just want to make sure it's coordinated. But there are some pretty cool tools. One out there that that we use and it it is available to anyone is called Koyfin. K O Y F I N. Koyfin. It's a great investment analytic dashboard. A lot of cool analytics on markets and investments. The other, the other one that I would recommend actually is not a like a tool; it's actually a free resource from the St. Louis Federal Reserve Board. It's called Fred, they call it. But if you just Google Fred and St. Louis Federal Reserve or any of the above, Fred is a website of a tremendous amount of. data, yields, market data, a ton of history in different types of categorizations of data. And it's a free resource, it's available to anybody. So it's just another, another, you know, neat, neat place to kind of get some cool analytics.

Wow, that's, that's really helpful. I like— we use FRED with our clients all the time.

Cool.

To show them like where market rates are heading, right?

Sure.

One month, you know. There's a lot of. I mean, when when you're talking about like unlimited data there.

Oh yeah.

Those those those yield nerds at the Fred, man, they got it right. And we can we can really dive in there really good.

It's wild. Yeah.

Steve, thanks for your time today. I really appreciate it. You know, we're gonna. Well, Nick, who's the director of financial planning for Advisory Alpha, was out sick today, and Steve just like. Pinch hit, right? And so, you know, we really appreciate you coming in on short notice. And, uh, I mean, I think this was absolutely amazing, Wendy.

So awesome. Thanks for having me, Steve.

Yeah, that was great that you just decided to, you know, well, I'll do it. So Steve, if people have more questions for you, how can they get in touch?

Yeah, um, I mean, feel free to reach out to Mike directly. Um, happy to give my contact info as well, but maybe Mike, that's easier to kind of flow flow through you or your team. But I would say, I mean, if there are questions, I mean, again, we love the investment education part of this business. So, by all means, if there was anything that I said that triggered questions or anything else, yeah, please let us know. And I'm happy to be back as well and tackle topics that are important to people. I just love that stuff.

Yeah, that would probably be good, like, in a couple months, Steve, if you'd be up to it. collect questions from people, right?

Be great.

You know, now's not the greatest time to do that, right? Because the first question everybody's going to say is, what do you think about the election? Right? And that we're, we're going to get past that before we start letting people ask.

I will say, though, we are just launching a series of investor educational one-pagers on the elections and investing. So I'll put a plug in for that. It's a resource, Mike, that, that all of our advisor partner teams will have access to. We're doing videos. Uh, 5-minute or so videos on 4 different topics related to the elections, along with one-pager educational summaries. So, if anybody's interested in that, um, Mike, your team will have that shortly. I think it's going to be an awesome resource because you're right, there's a lot of questions about it and a lot of things to consider.

And that's what I really appreciate, our partnership together, right? The commentaries that come out about why you were doing— you guys don't hide behind a curtain. About why you're making decisions, right? You tell us as the advisors and we tell the clients exactly why we're doing what we're doing, right? There's, there's no hiding, right? And I love that about it. So yeah, Wendy, if anybody wants to reach out to us, it's the same as always. Just Google @IdeasByMike, right? And you're going to find every way in the world to reach out to us. The website, ideasbymike.com. I mean, we're looking forward to our continued partnership and growth. with Advisory Alpha through JB Wealth Advisors and just to be able to really help people live that one, you know, the one-of-a-kind life they're living. We want to create that one-of-a-kind financial plan for them.

All right, great. Well, thank you. And thank you for listening today. Please like, follow, and share this podcast with your friends. Until next time, I'm Wendy McConnell.

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