7 Signs You’re About to Get Hosed – Episode 89

Have you ever jumped on an investment bandwagon that went south? As a successful dentist you’re a prime target for opportunistic dealers who don’t mind risking other people’s money. In this episode of Dentist Money™, Reese and Ryan explain the difference between legitimate investments and potential money pits. They also list the warning signs of dangerous advice so you can avoid it altogether.

Podcast Transcript:

Speaker: Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor.
This is Dentist Money. Now, here’s your host, Reese Harper.

Reese Harper: Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m here with my trusty old co-host, Sir Ryan Isaac.

Ryan Isaac: Yep.

Reese Harper: And, as you know, I’m your host, Reese Harper.

Ryan Isaac: Yep.

Reese Harper: Today, we have our sixth time special guest, Q.

Ryan Isaac: Q in studio.

Justin Copier: I’m here.

Reese Harper: He goes by one letter because when we first brought him into the studio he stood at a microphone and was mocked as the Q&A mic guy by Sir Ryan Isaac.

Justin Copier: Yep. We’ve come a long way since then.

Ryan Isaac: It feels like another life.

Reese Harper: No, and I put my foot down and I said there’s no bigotry and intolerance in this studio.

Ryan Isaac: No.

Reese Harper: Are you excited about today’s show?

Ryan Isaac: I’m unbelievably excited about today’s show.

Reese Harper: I’m clenching my Kirkland purified water in hand and ready to go.

Ryan Isaac: Yeah. Well, today we’re going to talk about something that comes up a lot in financial conversations in general. It’s kind of this topic of you hear something that seems like it could be really good advice when it could be not only not good advice but maybe bad advice or dangerous advice.

Reese Harper: So, we’ll say today we’re going to talk about, maybe the warning signs. How you know you’re about to get delivered some kind of crazy piece of advice or something that just might be bad? I mean, this is just the warning signs of bad advice.

Ryan Isaac: Yeah. Here’s the disclaimer I would make. Are you gonna hit a C for G? Are you going to hit a chime on this?

Reese Harper: I’m going to do a G.

Ryan Isaac: It seems like you were ready.

Reese Harper: G for good advice.

Ryan Isaac: Okay. G for good advice.

Reese Harper: You’re going to be getting good advice today.

Ryan Isaac: The disclaimer I would make is that, because we get this sometimes when we tell a story where it could be an actual story but that’s really common because. We’re not going to use a lot of people’s personal stories on here.

Reese Harper: It’s too hard.

Ryan Isaac: It is too hard. But I would say that if you hear any of these stories, like, I got pitched that the other day and I was just telling you about. It is not unique to just one person. So if you hear one of these stories and it’s like, “Hey that was my story I just told you about that last week,” you’re probably like the 20th person that said that exact same thing.

Reese Harper: Yes. These are the most common warning signs-

Ryan Isaac: Very common.

Reese Harper: -of bad advice and they have to have been at least repeated 10 times within one calendar year for them to make it on the show.

Ryan Isaac: Before we can tell the story because then no one knows who they are.

Reese Harper: We’re basically saying don’t feel like you’re that special.

Ryan Isaac: We’re not … Okay. That was long way of saying we’re not singling anyone out, okay? These are common things. We’re going to start with a little bit of a story. I went to the SEC’s website and they report scams and frauds-

Reese Harper: The SEC, for those of you who do not know, is the Securities and Exchange Commission. The government body that regulates investing.

Ryan Isaac: Yes.

Reese Harper: I was giving that out for you, Q.

Justin Copier: Thank you, yeah.

Reese Harper: Q is wondering.

Justin Copier: You’re giving me the punch on that one.

Reese Harper: Yeah. You were thinking football.

Justin Copier: Yeah. I was thinking the-

Reese Harper: Obama?

Justin Copier: –southern, what is it? The southern-

Reese Harper: Exchange conference?

Justin Copier: The Southeastern conference.

Reese Harper: Yes.

Justin Copier: LSU, Alabama. All the good football[crosstalk 00:03:25]

Reese Harper: I was thinking LSU right when you said that.

Ryan Isaac: The big games. Okay. All right. Well, I went to the SEC, non-football, the government regulating investment body, I went to their website because I wanted to try to find the most outrageous claim of a scam that actually worked on some people, unfortunately. I found the story from 2011, this guy in Atlanta. It was pretty vague. It’s just crazy to think of how you would get into this but, he had this secret and risk free trading platform that involved transactions between international banks. That’s it. That was like the description of the thing. Arbitrage between banks and pricing, I don’t know what it was-

Reese Harper: Currencies.

Ryan Isaac: Currencies. Yeah.

Reese Harper: Just throwing that out there.

Ryan Isaac: It could have been currencies.

Reese Harper: I was just throwing that out there.

Ryan Isaac: It was supposed to generate substantial return on a recurring basis. The substantial return though, he’s promised substantial recurring return was 300% every 14 days.

Reese Harper: Seems reasonable.

Ryan Isaac: Extremely reasonable. If you do the math, the formula to take that 14 day return and turn it into an annual calculation, your annual return is, it’s like in the trillions.

Reese Harper: It’s over a trillion dollar annual return.

Ryan Isaac: Percent.

Reese Harper: Yeah.

Ryan Isaac: It’s insane.

Reese Harper: You wouldn’t have thought that though by looking at 300% every 14 days, that it would be that insane.

Ryan Isaac: No. I mean, 300 is still crazy.

Reese Harper: You’re just going to triple your money every 14 days. That doesn’t seem that sketchy.

Ryan Isaac: Totally normal.

Reese Harper: Okay.

Ryan Isaac: So, this guy, I mean, it wasn’t like Bernie Madoff-

Reese Harper: My point is, sometimes when people list returns in an individual number, it doesn’t feel like they’re going to be that outrageous.

Ryan Isaac: Okay. I’m glad you’re saying that. I thought you were being a little sarcastic.

Reese Harper: Well, I was, but in a truthful way.

Ryan Isaac: But what you’re saying is true because, I mean, you hear 300% and your brain kind of goes, “Well, that’s really high, but that’s probably doable. If this guy’s really smart, that’s probably really happening.”

Reese Harper: Yes.

Ryan Isaac: Anyway, it was a few million dollars and he had to pay a lot of it back and got in a lot of trouble. But the first thing that we’re going to talk about is one of the warning signs of bad advice, or maybe something worse like a fraud or a scam would be when someone is leading with some outrageous return claims.

Reese Harper: Yeah.

Ryan Isaac: You know, “Here’s an investment opportunity and the return is X,” and you kind of hear it and go …

Reese Harper: Well, 300% is the exception. Usually-

Ryan Isaac: I found it pretty extreme.

Reese Harper: You did find it and I congratulate you on that. You deserve a C for Chi.

Ryan Isaac: Thank you.

Reese Harper: But here’s the thing, if you look at the normal claims on returns, usually you’ll hear someone say it’s like 8% or 5% a month. It sounds like reasonable single digit number per month.

Ryan Isaac: Okay.

Reese Harper: I see that all the time, like 8% a month, 11% a month, it starts getting crazy. But you hear 3% a month, 5% a month, 8% a month.

Ryan Isaac: Well, you had a conversation about, it was a $7,000 return from a $180,000 investment monthly return.

Reese Harper: Yeah.

Ryan Isaac: It was like 3.89% per month, that’s what it came out to.

Reese Harper: Yeah. It ends up being … That’s a totally different way shocking returns are presented. One of them is a per month percentage. Someone says it’s a per month percentage and you don’t really do the math. So, take a 12% per month return, that’s really a 290%-

Ryan Isaac: Annual return.

Reese Harper: -annual return. Right? You’ve seen lots of situations, and I’ve seen lots of situations, where people say 10% a month, 11% a month.

Ryan Isaac: And it’s not uncommon.

Reese Harper: No. This year, I probably had it happened at least a dozen times.

Ryan Isaac: Yeah.

Reese Harper: This trading strategy that someone’s implementing, or this currency strategy, or this play on commodities, or this oil and gas play is giving me 10-

Ryan Isaac: 10%, 12%.

Reese Harper: -or 12% a month. I mean, when you do the math, it’s like, that’s kind of insane. But when you do the math of an annualized number, it feels insane. But when you hear that number on monthly basis sometimes you don’t know how to quantify that. As a normal person, when you hear 7%, we-

Ryan Isaac: You pointed to Q when you said “normal.” You looked at Q.

Justin Copier: I’m the normal person in the room.

Reese Harper: You’re the normal person.

Ryan Isaac: You’re that normal guy in the room? Definitely normal.

Reese Harper: If you hear 7% a month, you’re not going like, “That’s not possible.”

Ryan Isaac: If you don’t spend your days in finance and looking at investment returns and different investment opportunities, yeah, I mean, that could seem rational.

Reese Harper: Let’s just say someone gives you that 12% a month, okay? It’s a high number that we hear a lot. Let’s just say you put in 50 grand into that.

Ryan Isaac: Okay, yeah. Your 12% a month which equals 290% per year, your 50 grand turns into $45 million after five years.

Reese Harper: Now, repeat. Repeat.

Ryan Isaac: Fifty grand turns into $45 million after five years of investing.

Reese Harper: Yeah. If we move that number down to 10%, 8%, I mean, you still have tens of millions of dollars after $50,000 investment in a very short period of time.

Ryan Isaac: You basically become the world’s wealthiest person in a decade.

Reese Harper: Yes. You’d own most of the public companies.

Ryan Isaac: You could buy Amazon from Bezos.

Reese Harper: Yes, you could on 50 grand investment.

Ryan Isaac: Yeah.

Reese Harper: Another way that you’re told shocking returns, that was our first kind of point, if someone’s going to tell you a shocking return, that’s how you know it’s bad advice. When they lead with the shocking return.

Ryan Isaac: Yeah.

Reese Harper: Another one was someone came in and they said that they were going to receive $7,000 a month from investment of $180,000.

Ryan Isaac: Okay.

Reese Harper: And to this person, that monthly return, it seemed high, I mean, this person’s a sharp person, they hear this number, they weren’t like, “Oh my gosh, it seems like, are you nut.” I mean, they were like, “This is pretty aggressive, but it seems possible based on the story I was told.”

Ryan Isaac: Okay, yeah.

Reese Harper: If I put in 180,000, I’m going to get 7,000 per month. I said, “Well, that’s about 4% a month. That’s about a 60% annual return.

Ryan Isaac: Yeah.

Reese Harper: Does that smell right to you, 60% annual return? He’s like, “I don’t think so.” Yeah, that doesn’t seem right.

Ryan Isaac: Yeah.

Reese Harper: That number doesn’t seem right. If we did that, your 180,000 that you put in, you’re going to have almost $2 million in five years.

Ryan Isaac: Yeah.

Reese Harper: Do you think that’s normal?

Ryan Isaac: It’d awesome.

Reese Harper: Yeah, it’d be great. What kind of thing was it? It led me to ask some more questions and it turned out this was a real estate project. Anytime I see a real estate project with those kind of numbers, I’m like, “That’s never going to happen.”

Ryan Isaac: Yeah.

Reese Harper: Real estate is a market that’s much more rational.

Ryan Isaac: And steady.

Reese Harper: You can have high returns if you go and buy a raw piece of land that’s never been zoned, develop it and carve it out for condos and sell it off. If you go from a piece of sagebrush land out in Orange County and you flip that thing because you knew some way to get it through the city magically. I mean, there’s some big returns, but they’re not 60% annual for five years. That would be like someone, you know …

Ryan Isaac: So, the train of thought here has to be either: a, this is bogus; b, maybe it’s happening for two months but there’s no way this is going to continue.

Reese Harper: Yes.

Ryan Isaac: You can’t plan on sustainability with anything. Even if it’s true, even if you saw proof of it, you can’t plan on it continuing.

Reese Harper: Yeah. A company like Facebook might have a period of time wherein its really early years-

Ryan Isaac: Sure.

Reese Harper: -where Mark Zuckerberg, in the first five years of the business he started getting capital, the business had exponential growth for a very short period of time. But it wasn’t something that he understood was going to happen and he didn’t really know what kind of exponential return would happen from it, and consequently he didn’t know what value to place on it. So, someone might have got that return, but it was an accident more than it was like a conscious, like Mark Zuckerberg saying, “Sure, I’m going to let you make 100% return for the next three years.”

Ryan Isaac: Yeah, “And we’re going to replicate this forever.”

Reese Harper: Yeah. I mean, you just look at Facebook’s returns since it’s gone public and you’re getting to a more rational kind of place.

Ryan Isaac: The more time goes on.

Reese Harper: Yeah. So, think that, if someone gives you a disproportionately shocking return, kind of run the math on it, or ask someone, call in to Sir Ryan Isaac and can ask him to run a math on it.

Ryan Isaac: Give us a call on 833-DDS-PLAN.

Reese Harper: Even Q. Q likes running the math on this stuff. He’s actually a finance whiz. People wouldn’t really know that, but he can build spreadsheets to analyze the return on your little investment here.

Ryan Isaac: Yeah. Here’s what I would say though, just as we finish up this first part, as a caveat to that, sometimes people say things to you, they’ll present an investment opportunity or they’ll say, “I invest in this thing and I get 12% a month.” Sometimes they just don’t know that that’s not true too.

Reese Harper: Yeah.

Ryan Isaac: We’ve heard those stories where client will say, “My buddy is getting X percent per month on this investment. It sounds pretty good and I know it’s legit. I know the people running this thing,” and it turns out that that’s just not true information. The friend doesn’t understand that they’re getting 12% a year, not per month. That happens all the time, too.

Reese Harper: Yeah. It’s true. Okay. Number two warning sign.

Ryan Isaac: Yeah. We talked about this a little bit before, but when somebody leads with you should do this thing, buy this investment, or take part of this thing because of who’s involved.

Reese Harper: Because of a high-profile person.

Ryan Isaac: Person, organization, or something.

Reese Harper: It’s like, “This person is behind that investment.” “This is the Tony Robbins …”

Ryan Isaac: Yeah, the Tony Robbins flip. The Tony Robbins’ trade.

Reese Harper: Yeah. “This is the Kiyosaki trade. Only he can do that”

Ryan Isaac: Do you want to be a rich dad or poor dad? Which dad will you want to be? It’s going to be like mediocre dad.

Reese Harper: Personally, I still … I have nothing against either those two people-

Ryan Isaac: We just don’t know weird names.

Reese Harper: These are names, this is a lot of times when you’ll see people, it’s a very common tactic to lead with the name of a credible person so that investors kind of bypass the more rational math that has to happen to make an investment decision and they just get behind the person.

Ryan Isaac: Or sometimes it could be like a very completely unrelated party, it could be just like a rich local athlete that made it to the pros once and still lives in your local towns. It’s like “Well, he’s part of that. You know who that guy is, right?” He used to play for so and so. He lives there and he’s got money in that thing.”
This type of thing is really common with what’s called affinity fraud. Affinity fraud is where, it’s one of the SEC’s top frauds or types of fraud or scams. It’s where you have someone in a position of trust a lot of times it’s in religious organizations. So, in pockets of the country or the world where religious organizations and culture are really tightly knit, it happens a lot.
The SEC has a list of affinity fraud scams that they’ve busted and prosecuted people for. It’s kind of crazy. There was one, I found one of these where it was like an ex-military guy and he raised a bunch of money and he had this proprietary day trading kind of thing. He just want to spend and invest money on a lavish lifestyle, mansions, and cars, and clothes. Kind of he looked Q, basically.

Reese Harper: Yeah, more like Q’s lifestyle.

Ryan Isaac: Yeah, his lifestyle.

Justin Copier: High-roller.

Reese Harper: Yeah, 10-4.

Ryan Isaac: He just went through his ex-military community. He was a respected person. They had something in common, they both served in the military. And he was able to raise a lot of money. His promise was 200% annual returns. That was his promise. But he stole a few million bucks from people in his community, in the ex-military community. You see this in, like you said, religious organizations. It happens in a lot of refugee organizations.
On the same website, you’ll see like down in Florida where you have a lot of populations coming from other countries and that lived … Like in the Cuban community, there’s a lot of fraud that has happened in the Cuban community throughout Florida, a ton.

Reese Harper: It happened too in Idaho. I wrote about this in a Dental Town article a few years ago where between Thousand Oaks California and Southeastern part of Idaho, almost $800 million was roped into fixing up old businesses and putting them back on the market.

Ryan Isaac: Like buying some value stocks?

Reese Harper: Yep, except private companies helping them out. It was just one of the biggest Ponzi. I think it’s a seventh largest Ponzi scheme in the history of the US and it happened in the Mormon community inside of Thousand Oaks California and Southeastern Idaho. It’s like church people telling church people about what they were doing with their money.

Ryan Isaac: Yeah, and it’s common. You’ll hear so-and-so is a leader in the community or a religious leader in my church. You’ll hear people just kind of point to that and then stop asking questions. So, I guess that’s the point of this one, is you can’t just hear a name that’s involved and then just assume that everything is fine or that it’s appropriate for you even if it is legitimate.

Reese Harper: Just don’t trust that source too much. Don’t let the fact that they’re … I mean, that’s also a good thing. I mean, if somebody credible is actually involved, like a credible financial mind, like if Warren Buffett buys into GE stock, you’re not like, “It’s affinity fraud. Warren?”

Ryan Isaac: That Warren. He’s getting his group of …

Reese Harper: Sage of Omaha is getting played by GE. So, I’m just saying …

Justin Copier: The Oracle of Omaha.

Reese Harper: Yeah, the sage.

Justin Copier: I just had to correct you there.

Reese Harper: Yeah, thank you. The sage. Where is this coming from?

Ryan Isaac: I disagree.

Reese Harper: Ultimately, though, you don’t want to put too much emphasis on that because, even if it is someone very credible sometimes they get it wrong, sometimes they don’t do the appropriate amount of research, what number of reasons they have to do with it could be-

Ryan Isaac: Yeah. I mean, how many famous or rich people have been also scammed?

Reese Harper: Yeah.

Ryan Isaac: You hear about that all the time.

Reese Harper: I hear quite a bit the comment like, “Well, can you just tell me what you find out? And once you know, then I won’t have to.”

Ryan Isaac: Yeah.

Reese Harper: I’m not saying-

Ryan Isaac: I’ve said that to you probably 10 times before.

Reese Harper: I’ve said that to other people myself.

Ryan Isaac: I want to buy a mountain bike. You spent four years researching mountain bikes, can you just tell me what mountain bike …?

Reese Harper: I think there’s just an allure to not having to do your own due diligence. The problem is, if you don’t do your own due diligence, you will not ever forgive yourself if you get it wrong, when it comes to big financial decisions. Okay. Let’s go to number three, book three.

Ryan Isaac: Yeah, book number three.

Reese Harper: If the advice you’re being given is a huge deviation from a current plan that you’re executing, and I would say that it’s a thoughtful plan that you have implemented.

Ryan Isaac: Yes.

Reese Harper: If your current plan that you have is like-

Ryan Isaac: Also not a good plan.

Reese Harper: -also not a good plan, then I wouldn’t make this apply. But if you have a good plan and you have spent lots of time and asked a lot of experts and feel like you have multiple people saying what you’re doing is a good plan, whether that’s the real estate you’re about to buy or the practice location or the associate you’re about to hire, or the financial plan you’re going to make, or the tax filing that you’re doing, if you’ve really had a good plan but someone comes in and says something that’s a huge deviation-

Ryan Isaac: That’s totally different.

Reese Harper: -and it feels compelling, so it’s like, “Oh, how did I not know about this secret other plan?”

Ryan Isaac: Yeah. Mine is like trudging along, but it’s not flying. It’s other.

Reese Harper: Yeah. If it’s a big deviation, then you should probably think twice about following that advice.

Ryan Isaac: Something can come along though where someone goes, “My 25% of income that I’m saving that’s going to this kind of plan that I’m doing, if I just diverted it here, my return would go from 8% to 30%, and then I retire at 52 instead of 61.”
To your point, you just kind of have this deviation from what was rational and what was diversified. You kind of had your risk spread in different places, it was accomplishing different things, you’re building liquidity, you’re lowering your tax rate. And then you just take all that money and shove it into some investment that’s supposed to be riskier and higher return, but it’s a complete deviation from what you’re …
That’s just kind of a warning sign that … If it’s totally opposite from what you’re doing before, that should give you pause.

Reese Harper: Yeah. I would say that that totally applies to investing and it also applies to other big decisions that you’re making.

Ryan Isaac: Like business?

Reese Harper: Yeah. Just think, in your practice, if what you’re about to go and do is a big deviation from what you’ve been doing-

Ryan Isaac: And what’s working.

Reese Harper: -and what’s working, but it’s a big pivot, you should just do … Incremental change is always better than huge change. Like this morning, I got a phone call from … It’s back to investing kind of conversation. This morning, I got a phone call from a client while I was driving to the office. It was 4:30 AM, really early coming in, just the crack of, the light had yet come out.

Ryan Isaac: Is this after you baled the hay?

Reese Harper: This is after we … I was at an exercise party for an hour, so I was really tired. I’m driving down the road to the office and I get a call and it’s from a client. The client says, “Hey, one of my friends is in trouble.” I’m like, “Okay.” He says, “He just called me and he said that his financial guy is telling him to take his money, almost all of it, and put it into this deferred annuity. Should he just go put it on …?”
This guy’s a successful person, his millions of dollars is going to pivot and shift into an entirely new strategy. The person had a kind of a more, I’d say, diversified mix of different type of accounts, kind of a more rational approach from what the client thought. The client that I was talking to, my client, was telling me that he was worried about his friend. He wanted to know if he could call my cell phone.

Ryan Isaac: That’s a good friend.

Reese Harper: “Can I just have him talk to you?” He’s like, “It doesn’t smell right to me.” I’m like, “Dude, way to go.” To reach out, defend your friend-

Ryan Isaac: And notice a red flag. I mean, he’s noticing something here, like you’re about to pivot into this thing that’s totally opposite and very concentrated to you.

Reese Harper: Yeah. And good for his friend too. It sounds like he must have had a little bit of pause in order to ask or talk to his friend about it and see maybe she had a second opinion. I just thought that was kind of amazing, like how many times does that not happen now where there’s this really compelling pivot, really compelling big deviation from current plan and then it results in someone actually implementing that new strategy and never really actually questioning it or getting a second opinion or having a few set of eyes go over it, and next thing you know they get taken advantage of.

Ryan Isaac: Should we take a break right there?

Reese Harper: No.

Ryan Isaac: No?

Reese Harper: Okay, fine. Let’s take a break.
Hi, this is Reese Harper. I’m the host of the Dentist Money Show and CEO of DentistAdvisors.com. I want to take just a minute and explain why DentistAdvisors.com is different than your average team of financial advisors. We hope you plan, invest and retire better using a unique set of tools you won’t find anywhere else.
First, we use our proprietary methodology called Elements to access your financial health. The Elements framework enables us to give you data-driven, objective advice based on a comprehensive picture of your personal and practice finances. We maintain that picture in a custom dashboard that tracks all your assets, debts and accounts, so you know what you’re worth anytime and anywhere.
Because we work with dentists and specialists, we can leverage our industry expertise to weigh your progress against your peers. We are the premier wealth management firm for dentists and specialists and we’re ready to put you in a more predictable path to financial independence.
Start now by booking your free consultation today at dentistadvisors.com. Thanks again for listening. Now, let’s get back to the show.

Ryan Isaac: We’re back.

Reese Harper: We are back.

Ryan Isaac: We’re back in studio with you.

Reese Harper: Let’s go into the next chapter of our story, of our saga here.

Ryan Isaac: [Crosstalk 00:24:51] good working title for this one.

Reese Harper: Yes.

Ryan Isaac: This is just the gray area pitch.

Reese Harper: Let’s talk about this next piece of bad advice. When someone tells you, “There’s a bit of a gray area.”

Ryan Isaac: Okay. First of all, one of my biggest pet peeves in this is that it’s usually preceded by a pitch on, like touting their audit defense record. “Hey, just before we talk about this, I just want you to know this is a gray area, but our audit defense have been audited a million times. We win every single one of them.”

Reese Harper: Yeah.

Ryan Isaac: Should you maybe not be doing the thing that’s making you get audited so frequently? You guys have heard that where, in the sales pitch, point number two is that their audit defense is really stellar.

Reese Harper: Or that it’s a little loophole that we’ve found, a little tax case loophole.

Ryan Isaac: Let’s talk about gray areas, loopholes, the things that big boys are using that now the small guys have latched onto.

Reese Harper: Yeah. I’d like to talk about the life of an outlaw in the gray area working on secret loopholes. That’s the kind of tone. So, if you hear someone talking like this a little bit, they invoke the power that they’ve had to overcome the government, the IRS, to defend you against the evil, the oppressive Internal Revenue Service that-

Ryan Isaac: The top 1% get away with it.

Reese Harper: Yeah.

Ryan Isaac: But now it’s your turn.

Justin Copier: Just like the same guy that turns and looks the other direction when he gives you his business card.

Reese Harper: Covers his eyes.

Ryan Isaac: Instantly look away? Yeah. It’s the same feeling.

Reese Harper: Yeah.

Ryan Isaac: It’s the same awkward social fear.

Reese Harper: I don’t want to go into every little detail here, but there is a lot of abuse around different entity structure.

Ryan Isaac: Yeah. Let’s just maybe name some of the common ones that we-

Reese Harper: Yeah. I’d say anytime that someone comes and tells you that you can avoid paying taxes by setting up all of your corporations a certain way, here’s one thing I can say definitively, the IRS wants between 20 and 40% of your income no matter what.

Ryan Isaac: And they’re going to get it.

Reese Harper: And they will find a way to get it. Now if you find a way to make sure they don’t get it, you’re doing one of two things, you’re either not making any money and you’re just hiring people and expanding and buying stuff and growing a business, and eventually you’ll pay a lot in taxes when you grow the business. That’s legal. The IRS does not mind you not paying taxes if you’re not making any money.

Ryan Isaac: It’s like that meme, the guys pointing to his forehead, he’s like, “You can’t pay taxes if you don’t make money.”

Reese Harper: Yeah. Now if you’re making money-

Ryan Isaac: And you’re not paying any taxes.

Reese Harper: -and you’re not paying any taxes, you’re probably doing something that’s in the old gray area, or you’re a bit of an outlaw, you’re finding the old legal loophole.

Ryan Isaac: Yeah.

Reese Harper: I mean, good for you, I guess. Good on you. But-

Ryan Isaac: That is possible. If you’re saying, round numbers, if you’re saying the IRS wants 20% of your income, or whatever, 30% of your income, and you managed to give them 28% instead of 30, you probably did take advantage of things that were intended for you to take advantage of-

Reese Harper: Give them some … Let’s say 25.

Ryan Isaac: Twenty-five.

Reese Harper: I mean, I could save five to six points.

Ryan Isaac: Still very, very meaningful.

Reese Harper: Yeah, it’s a big deal. It means tens of thousands of dollars. It means as much as $100,000 probably for many of you per year. Just taking advantage of the actual legal things you can do. Just be very cautious about following a strategy or someone who is invoking their ability to keep you away from …

Ryan Isaac: Yeah, to eliminate it.

Reese Harper: Let’s talk about the next item in our list.

Ryan Isaac: The free lunch? This is my favorite type of lunch.

Justin Copier: Do you know the acronym for this one?

Ryan Isaac: No.

Justin Copier: TANSTAAFL.

Ryan Isaac: What is it?

Justin Copier: There ain’t no such thing as a free lunch.

Reese Harper: Oh, TANSTAAFL.

Ryan Isaac: TANSTAAFL. Really? I think this is going to go viral now because of that.

Reese Harper: #TANSTAAFL, #Q, #NoRisk.

Ryan Isaac: But all the return.

Reese Harper: Yes. At some point, you have to kind of recognize that every part of an investment has a cost.

Ryan Isaac: Or any type of opportunity at all, right?

Reese Harper: Yeah, any type of opportunity as a cost. In investing, there are two main types of costs that you have to think about: things you buy will change prices a lot or they won’t; and if you want to buy something that doesn’t change its price a lot, it’s not going to grow a lot. It won’t go up like if you want to buy white flour, the likelihood of that changing price is not as great as gold.

Ryan Isaac: What you’re trading there is you’re gaining safety, you’re lowering the cost you’ve got to pay in volatility, but you’re giving up potential growth.

Reese Harper: Yes. So, when everyone says “risk return,” it can kind of be confusing. That’s like financial jargon. But I think when you say “liquidity” or “access to my money,” just say, investing is about two principles: I can get access to the money or I can have a stable price. Those are the two things I’m trying to compare: it’s either really accessible or not; or the price is going to be fast moving or not. That’s the way to start comparing investments. So, if you want something that has a high return, you’re really going to be inherently buying something that changes its price a lot.

Ryan Isaac: Or runs the risk of not being able to get the money back.

Reese Harper: And both, because, yeah, the things that are going to give you a big change in price also have very low liquidity; and things that have lots of liquidity don’t usually change their price a lot. So, those are just two correlated variables.

Ryan Isaac: I think the principle here that we just want clients to know is that, or anyone, is if you’re ever in a situation where you feel like you’re hearing something that’s all upside and there’s not a price you have to pay in any respect for it, question that and dig deeper on it because there is a cost you’re going to have to pay in some form or another.

Reese Harper: Yeah.

Ryan Isaac: Okay.

Reese Harper: Let’s talk about one of my favorites, which is bold future predictions about the world economy and markets.

Ryan Isaac: So, getting advice to make an investment decision based on a bold prediction.

Reese Harper: Like?

Ryan Isaac: For example.

Reese Harper: Let’s say, that someone says that we are about to have the biggest crash in the market since the Great Recession.

Ryan Isaac: Okay.

Reese Harper: And you’d be like, “Okay.” That’s what I heard this week. Someone was advertising that on TV. Or the worst decline in the Dow Jones in the history of the stock market. We’ve had the largest point decline in the Dow Jones index since the start of the market. Well, yes.

Ryan Isaac: Points, yes.

Reese Harper: Yes, because that is how the Dow Jones works. The bigger it gets the easier it is for us to have a large point decline. Like 1% today is very different-

Ryan Isaac: Represents a larger percent, yeah.

Reese Harper: Yes, 220 points instead of 180 points.

Ryan Isaac: Yeah. It’s like saying, “I spend more money on groceries than I ever have at any point in my entire adult life,” which is true, but as a percentage I spend less than I did 10 years ago.

Reese Harper: Yeah. Sometimes you’ll hear big claims like this. If you don’t think through the logic, it can be really scary.

Ryan Isaac: Yeah. Data can be misleading, even real true data.

Reese Harper: Yeah.

Ryan Isaac: Okay. I guess, the point of this though too, is that you making a major financial decision based on a prediction that’s kind of like a big one-time event, world’s going to end, market’s going to crash, economy’s going to tank, it could, they do move in cycles. At some point, that person will be correct. The amount of times that the market actually does decline surprises people. But you can’t make major life decisions based on a future prediction and when that’s going to happen too.

Reese Harper: Yeah. I’ve seen that happened a lot recently with commodities, with oil, with energy prices. I think on both sides someone’s saying that this market is going to decline and someone’s saying this market is going to recover. Let’s make a bold prediction about the future price of gold or about the future price of West Texas Intermediate crude oil. Okay? All of those prices and predictions, whether it’s a stock prediction like an IPO or a currency prediction, or the fate of an economy or a war, or you’ll hear a lot of big bold predictions, and those things tend to get, they make great headlines and so people love to use them. People on Twitter share them, people in social media share them because a good headline that’s trending is one of the best ways to draw attention to your article and your content and sell advertising.

Ryan Isaac: Justin tries it all the time.

Reese Harper: Justin tries it all the time.

Justin Copier: Yeah.

Ryan Isaac: Doomsday prophecy headlines.

Reese Harper: Yeah. It’s a restriction we have. It’s not part of our code of ethics.

Ryan Isaac: That stuff spreads so fast among groups of friends and peer groups though.

Reese Harper: Yeah.

Ryan Isaac: What starts out as a rumor of something that’s about to happen, that’ll spread through a group of a dozen friends or colleagues in the dental community in a city and you’ll hear it.

Reese Harper: It’s like wildfire.

Ryan Isaac: Yeah. They come to you like kind of like as if it’s already happening and everyone, because we always get brought in the conversation kind of at that point when there’s a lot of emotion worked up and it’s almost as if it’s already happening and everyone clearly knows about it.

Reese Harper: The consensus is already agreed upon. I think we all do this too.

Ryan Isaac: We say things all the time.

Reese Harper: If we think back like, “Do I really even believe that? Is that really how I think is that really true or was I just emotional and kind of that just feels good to say that or to believe that, it just feels comfortable?”
Don’t make investment decisions on really bold future predictions that might alter the landscape of the financial market. That’s not a good way to invest money.
Last one that I like that is probably the most common offender and the warning signs of bad advice is when someone comes to you and pitches you an opportunity and there’s literally the worst financial documentation-

Ryan Isaac: The worst being none.

Reese Harper: -that you’ve ever seen. I mean, there’ll be like an email with some words. Okay? So, technically, there is no financial documentation.

Ryan Isaac: Can someone pitch an opportunity in GIFs? Memes and gifs.”

Reese Harper: Yeah, it’s a meme.

Ryan Isaac: Yeah.

Reese Harper: There really needs to be good financials in order for a business to operate and the reason those should exist … Why do good financials exist? Well, they exist for two reasons: either someone had to make them up to meet some compliance rule or-

Ryan Isaac: Which is to raise money.

Reese Harper: That’s probably a lot of the reason why you might be getting financials from someone as if they’re wanting an investment from you and they’ve had to come up with something to give to you so that you could kind of look at it and be like, “Oh, that’s cool.” You’ll know when it’s that one because it’s really pretty. It’s got logos, and color, and it’s got some pretty-

Ryan Isaac: High gloss?

Reese Harper: High gloss. It’s in a PDF. Well, it’s got a cover sheet. It’s really ornate. That’s when it’s like first show.

Ryan Isaac: Okay.

Reese Harper: When it’s real financials-

Ryan Isaac: It’s really boring.

Reese Harper: It’s usually because someone actually is using it to operate with or they actually make decisions with the numbers. They’re looking at the numbers and actually, they are making hiring decisions based on their numbers, or they’re making overhead decisions, or they’re cutting bonus checks based on their numbers, they’re using it to calculate payroll. Right?

Ryan Isaac: Yeah.

Reese Harper: I was just meeting with a dental practice yesterday and the owner of the practice has a spreadsheet that he keeps to track all of his payroll expenses for his own use and for all of his marketing expenses and everything. It’s what he uses to cut checks to his associate and how he decides what profitability is-

Ryan Isaac: Shout out to our fellow spreadsheet warriors.

Reese Harper: Yeah. That financial document, I really trust because he’s using it to make actual decisions.

Ryan Isaac: There wasn’t a marketing team that made that.

Reese Harper: There wasn’t a step in between him using it to operate his business and then one to raise money and sell it to me. I’m just looking at the real numbers.

Ryan Isaac: Yeah.

Reese Harper: I think that’s when you can kind of tell when something’s healthy, or when something’s real is when it’s P&L that someone sends you that might not have … Maybe the categorization is just a mess and you don’t understand what’s going on, but it’s probably real numbers that they’re actually using.

Ryan Isaac: That would be common in acquisition or a transition where one practice is giving the new buyer the numbers. If you look at the P&L, you’re like, “Man, this could be a lot more specific or categorized better,” but those are the numbers.

Reese Harper: Yeah. You should have more confidence the more clarity the more organization someone has around financials, but you shouldn’t be scared of someone who has financials that they’re using to operate that aren’t perfect. It’s not about like having perfect financials or having perfect profitability or perfect overhead categorization or perfect metrics. But usually what we’re talking about here, we’re not talking about like just buying a dental practice. I mean, that’s one investment, we really talking about putting capital into a separate investment.

Ryan Isaac: Yeah. The hard ones were the privately held kind of investments and companies, you know, like profit. Those are tough.

Reese Harper: Yeah. Those comes up a fair amount all of you are going to have an opportunity at some point in your life-

Ryan Isaac: But those are the pretty packets, then that’s what’s hard and they’re filled with numbers and data. Those are the really nicely bound, high gloss, cover sheet.

Justin Copier: All the numbers probably end in zero.

Ryan Isaac: They’re all round, all of them.

Reese Harper: Yeah. That’s a good insight, Q. You know when something is a fake assumption when everything is ending in some round number of some kind, because what happened is it’s literally a piece of data entry. No number in the world is really perfectly round. No overhead item. No budget estimate. It’s always like an actual number that ends in an odd or even number and it’s usually not zero. So, when you see like forecasts and projections that are pretty numbers and all rounded and they look great, just don’t trust them because it’s not real.
What you should really trust is actual operating financials from businesses. Every operating business that’s worth investing in should be able to show you both their past performance and their assumptions for what they’re going to do in the future.

Ryan Isaac: And how those assumptions are being made too.

Reese Harper: Yeah. And they shouldn’t be dramatically different from what has happened in the past.

Ryan Isaac: Yeah.

Reese Harper: If a business has had X percentage of growth in the past and then just by getting your money, they’re now forecasting triple the growth rate that they’ve ever had. That’s a problem because business doesn’t usually work that way. It’s incremental progress even when money is brought on. There’s some waste. You’re going to invest money in a company and that company’s going to unfortunately waste a good chunk of it on mistakes that they’re going to make. They’re going to misuse it. They’re not going to deploy it completely efficiently.

Ryan Isaac: Yeah.

Reese Harper: I think real numbers people are actually using is a real good way to know if you’ve got something you can make a decision off of. Any business that you’re trying to invest in, if it doesn’t have clear financials or documentation, if the person’s not being really transparent with you, just walk away from it.

Ryan Isaac: Okay. All right. I found an old proverb. It just says proverb. I want to say Chinese proverb because it just sounds like it’s more fancy and probably more wise.

Reese Harper: Okay. That’s true.

Ryan Isaac: But the proverb says: “A danger foreseen is half avoided.” Meaning, if you can just see some of this stuff coming, you’ve done half of the work right there.

Reese Harper: I like that quote, “a danger foreseen is half avoided.” I think in advance of making any mistake, if you can see what’s coming down the pipe, you’re going to be able to make a lot better decisions.

Ryan Isaac: Okay. We would really appreciate, this would not be a mistake on your part, we would love if you would go to iTunes and leave us a little review.

Reese Harper: For the love of everything holy.

Ryan Isaac: When you google our podcasts in iTunes, there’s a lot of awesome dental podcasts out there and help people find us better, there’s like the little parentheses and how many reviews people have, and we would like our number to be bigger.

Reese Harper: Yes. If you do review us, please send us an email. Send one to Ryan@dentistadvisors.com. Tell him you sent a review and he will go out of his way to provide you with a free benchmarking report. How about that?

Ryan Isaac: Yeah. How about that? Do that. Review us on iTunes and I will go out of my way, which is very vague, but I will go out of my way to provide that. Yeah. Rate us on iTunes.

Reese Harper: How about a savings rate benchmark, burn rate benchmark, tax rate benchmark?

Ryan Isaac: Whatever you want. What do you want to know? I’ll benchmark it.

Reese Harper: Okay. Do it iTunes review and Ryan will do some an email on some benchmark for you.

Ryan Isaac: Email me, iTunes review, ryan@dentistadvisors.com. If you want to call us for any questions-, or if you have complaint, you ask for Reese. If you have questions and you want to be nice, you just call me or Q.

Reese Harper: Yes. Ryan handles the easy stuff, I handle the tough stuff.

Ryan Isaac: I only talk to the nice reporters.

Reese Harper: Phone number?

Ryan Isaac: 833-DDS-PLAN.

Reese Harper: 833-DDS-PLAN.

Ryan Isaac: Give that a call. Or if you’d like to just book a phone call online, you can go to dentistadvisors.com. Right at the top, there’s a link for our calendar, book a phone call at your convenience on your schedule and we’d love to hear from you.

Reese Harper: we’d love to help you save all of these warning signs of bad advice, make sure you’re pointed in the right direction.

Ryan Isaac: Yeah. Actually, that would be really fascinating. If you are in the middle of an opportunity and one of these or any of these warning signs are kind of, you know-

Reese Harper: On your radar.

Ryan Isaac: -on your radar, call us, let’s talk about it.

Reese Harper: Love debunking any bad investment. I love finding good ones.

Ryan Isaac: Yeah.

Reese Harper: We may end up taking it away from you though.

Ryan Isaac: We may ask you to sign a disclosure so we can repeat it on the air. Anyway, thanks for listening. We appreciate it.

Reese Harper: Carry on.

Behavioral Finance