Episode Transcript

# FA Episode 8 - Ross Powell

Speakers: Craig Andrews, Ross Powell, Bluesman Grendel and the Compliance Choir

[00:00 - 00:01] Craig Andrews:
You never know how much time you have. For me, that stopped being an idea and became reality on August 22nd, 2021. The doctors put me on a ventilator and told my wife to call hospice so she could prepare for the day they planned to pull the plug. Six weeks later, I woke up to an entirely different reality. I could not walk, I could not talk, I could not even lift my own arm, and I woke up realizing something else, I had not made the right preparations for my family. The plans I thought were pretty good fell through when it mattered most. That is why fiduciary alchemy welcomes voices that would have warned me about the holes in my plans. My hope is that you live a long and prosperous life, but I also hope you make better plans than I did. So tune in, take notes, and stay with us through the end when bluesman grindle and the compliance choir. Taking a word of caution. Today, I want to welcome Ross Powell. He is a CPA and a wealth advisor at Insight Wealth Partners. They are a firm dedicated to helping clients design and implement personal wealth strategies that align with their life goals. Not only that, Ross has a particular passion in turning tax problems in the cool opportunities that increase wealth. Ross, welcome.

[00:01 - 00:01] Ross Powell:
Thank you so much. Glad to be here. Glad to have this conversation and see how I can help you and help those who are listening.

[00:01 - 00:02] Craig Andrews:
Yeah, well, I always enjoy chatting with you. For those that don't know, let's go ahead and plug Success Champions Networking. That's how we met, it's a B2B networking group. I get cold-pitched for my Leaders in Legacy's podcast, Daily, and I tell people, I was like, if you want to get on the podcast, just join SCN. That's like the easiest way. That's probably the easiest way to get in. It's a good day. It's full of business leaders, helping business leaders do great work for each other. It's a quality networking done right. Yeah, and I think that's really the thing. The done right, and that's kind of like the focus of what we want to talk about, is getting things done right. But first, let's talk about done wrong. You told me about your appetite for cars after graduation.

[00:02 - 00:02] Ross Powell:
Yes.

[00:02 - 00:02] Craig Andrews:
And maybe the worst part of this is that they weren't really nice cars. They were just cars.

[00:02 - 00:03] Ross Powell:
The origin of this conversation is that when meeting a prospect or a new client, and they're kind of hesitant to talk about some things that they are judging themselves for having done wrong, giving them the opportunity to see that I had plenty of education. I had the bachelor's and master's in accounting, and I still made this wrong decision. I knew how money worked, I knew the compounding power of interest, and if it works in your favor, it's great. If it works against you, it's the worst. But I soon as I was fully employed at an accounting firm, preparing tax returns and making recommendations on what to do for your business to reduce those taxes or your personal return or whatever, soon as I was fully employed and my wife was fully employed, we got into $45,000 worth of vehicle debt.

[00:03 - 00:04] Craig Andrews:
Well, today, that's like the price of a Toyota Corolla.

[00:04 - 00:05] Ross Powell:
Yeah, so this was 2008, 2009, yeah, fall of 2009, and gosh, we just weren't in over our heads. We could afford the payments, but we shouldn't have been because we bought assets and that's in air quotes for the listeners that are constantly declining in value. Every time you put another mile on it or another day on it, it is worth less than it was the day before or the mile before, and we're paying the financing costs. So not just the principal value of the vehicle, but also the financing charges of borrowing that money that we didn't have to pay for these vehicles that we didn't really need. And it was way more vehicle than we needed. And then in 2011, my wife was pregnant with our child's and car seat wouldn't fit in the back seat of her vehicle rear facing, which is what you need for infants, something we didn't test at the time, even though we planned on having a family. So just compounding multitude of errors that I gladly confessed to my prospects and the clients of how I'd messed up on something so small, I couldn't get past the psychology of money, even though I knew the technical side of the dollars and cents.

[00:05 - 00:05] Craig Andrews:
What was the passion, or what was the motivation that made you do that?

[00:05 - 00:06] Ross Powell:
It always viewed like making a big purchase once I was fully employed and out of college. And so it's scratched that itch of having a thing, buying a big ticket item, now that I was grown up, 21, 21 I got married 22 and we were doing this.

[00:06 - 00:06] Craig Andrews:
So I mean, I talk about people that wear Rolex watches, and I may be alienating some of the audience, but I describe Rolex watches as a neon sign that you hang on your wrist to tell the world that you made it. And so for you, it was that car.

[00:06 - 00:06] Ross Powell:
Sure, yeah, it was a sign to say, I don't need anyone's help anymore, I've got this on my own, I'm going to be just fine, you don't have to worry about me anymore. Look at this thing that I've done, I've purchased my own vehicle.

[00:06 - 00:09] Craig Andrews:
Yeah, and that's the thing, I mean, we all have our motivations, and especially when we hit big milestones in life, it's, you know, we're like, well, you deserve, I mean, this is the message we receive over the everywhere, well, I'm a marketer, I'm part of the problem. You deserve this, you work hard, you deserve this, you deserve this, yeah. Even if you don't have the money for it, or you haven't saved for it, you deserve it because there is one life that lives, and you better live it right, as is described by society, as described by marketers, as described by the entertainment that we ingest. So, you know, it was funny years ago when I first moved to Austin, shortly after I moved to Austin, I had a car that, and it was, I think it was about 25 years old, and I knew it needed to be replaced. And now I will say this, I had a really cool sports car that was new and not old and not. It was a little bit of an emotional purchase, I had just gotten through a divorce and I figured the car was cheaper than hiring a counselor. And just because you have a car, you probably still need the counseling, this is another conversation for later maybe. Yeah, but it came time to replace that 25 year old car. And I was coming out of work one night, and I saw a car in the parking lot, and I knew who it belonged to. It was a guy named Keyshore who was getting ready to move back to India. And there was a Honda Pilot and had like a little bump in the fender, the front wheel well. And I just, I stopped, I turned around, went back into work, and I walked in the Keyshore's office and said, "Hey Keyshore, you're getting ready to move back to India," right? And he said, "Yes." And I said, "Are you giving me some on your car?" "Yes." I was like, "I might be interested." He's like, "Oh, Craig, it has a lot of miles and it has some bumps." And I'm like, "Jackpot!" I'm like, "This is my kind of, I smell bargain already." That's right, that's right. Because you know, under that bump was a very, very reliable car, a well-made car. And I told him, I said, "I tell you what, you know, I'll buy it from you. You drive it up until the day you get on the airplane, I'll even drive you to the airport." And you can just hand me the Keyshore from there. And, but it ended up being a really, really good car that, you know, it was reliable and lasted a long time.

[00:09 - 00:10] Ross Powell:
Yeah, and getting into the technical side, the declining nature of the value is not a straight line slope. Yeah. It's this logarithmic, quick decline in the beginning. And then it kind of platoes and starts to dribble. But when you get to the end, owning it another year after 10 years, there's like minimal drop in value, depending on how much you're, you know, using it. So, just the time necessary implications on the decline in value is mostly gone by the time you're looking at it. And it's already got a couple of buttons sent out. It's carried a kind of bunch of miles on it, but it still has plenty of life left in it.

[00:10 - 00:11] Craig Andrews:
Oh, yeah. I picked it up for like 10 grand and, yeah, it was a great car that served me for a long time. Yeah. You put a bunch of miles on it and then sold it for six. Yeah. Yeah. Great. Well, let's, let's talk about, let's talk about others, you know, and one of the things I was telling you, when, you know, a lot of people know me, know that I was in a coma and, you know, wasn't expected to come out and, you know, I realized a few things when I came out of the coma and one was I hadn't done, I hadn't left my family in a good position. I hadn't been working on the planning that I needed to do. And I imagine you run into this often, you're watching, you're watching the train wreck in motion.

[00:11 - 00:13] Ross Powell:
I do. And you never know if it's going to be a train wreck or not. But particularly when it comes to estate planning and then life insurance, this is the end of life conversation that no one wants to have necessarily feels comfortable having the get kind of backed into a corner and they don't feel like they got their needs heard. And so unlocking some of that baggage in the conversation of what do you have in place now? If it's nothing, how do we get to what you could potentially need and hopefully replace that? Like we were talking about in the earlier is that when some people are making the decisions on getting their estate documents in place, their wills and their springing trusts if they've got minors and their naming fiduciaries and their naming beneficiaries in their wills, they just feel paralyzed because they feel like they've got to make the decision right now and it has to be exactly right for the rest of their life and they're maybe in their mid 30s and they feel like this has to be set in stone for the next 60 years. One of the things that we do is to help them put a pen in the map that financial future map 10 years from now just to say, okay, your children, if you have them will be 10 years older, will they still be minors? And what documents would you need in place then? If you pass away in anytime between now and that next 10 year point. So that really shrinks their potentially 60 year timeline down to something that's manageable and digestible and gets them able to move forward on making those decisions appropriate for their family and getting those documents, please.

[00:13 - 00:14] Craig Andrews:
I like that because I know a lot of people can get overwhelmed by thinking about the enormity of the problem and I would imagine there's also a sense of perfectionism that's built in there. I have to get everything right and in the pursuit of getting everything right, they get absolutely nothing done. Yeah. And helping them know that it's most likely that this document is not going to get used but it's going to get replaced when your life changes or your circumstances change or whatever. We just want it in place. If you don't have any changes, that helps them to take action and kind of give their heirs and their surviving family this love letter, everything nice and wrapped up in a bow of here is the settling of my financial affairs and the things that we discussed if we're not here to take care of them. So if somebody is looking at and they're like, what are the, what would you say are like the first three to five things that somebody needs to knock out?

[00:14 - 00:15] Ross Powell:
I've got to have some more frame of reference because I meet with clients across the age spectrum, across the wealth spectrum and across the income spectrum. So I'm not going to try and make the same recommendations to a 25-year-old that I would make to a 65-year-old. Yeah. Does that make sense?

[00:15 - 00:15] Craig Andrews:
Yeah, it does. Let's pick one. Let's say you're talking to somebody that's 40, that has maybe one, two, three million in assets, like 401(k)s or whatever.

[00:15 - 00:16] Ross Powell:
Sure. Yeah. At this point, I would recommend probably that you look at your own emotions in the roller coaster that is market investment. So how, when the market is up and your assets are up, how does that make you feel and what decisions do you lean towards adjusting? What individual stocks do you own and why and is your process of choosing entry and exit points appropriate so that you learn more about yourself and the market as a whole?

[00:16 - 00:16] Craig Andrews:
Yeah. And so let me ask about that. Do you recommend that people pick individual stocks or funds?

[00:16 - 00:17] Ross Powell:
Typically no. What we do best is pairing very low-risk assets with very high-risk assets. So it's a large concentration in low-risk income-producing assets with a small concentration in high-risk, very volatile market-participating options. So on all of the risk analysis profiles that you'll see, these two are on opposite ends of the spectrum. When you put them together the way that we have, if the market moves down, you hit a floor. And if the market moves up, you get to continue to participate with that market movement because they're so volatile.

[00:17 - 00:17] Craig Andrews:
We used to have a client that had a newsletter that we would talk about specific stocks. And so we were marketing to stock pickers. They also had a managed wealth part of their business where basically they would put together, they were very, very good value investors, I mean, seriously good.

[00:17 - 00:17] Ross Powell:
And they had like - By the right companies, hold them for the right time that's right for you and do what you need.

[00:17 - 00:19] Craig Andrews:
Yeah. They had a 30-year average of like annualized average of like 17, 18 percent returns. That's great. Yeah. But they also had this newsletter. And when I figured out we were marketing, we were really marketing individual stock pickers. I went off and I did some research and it turns out there's a lot of research about them. And it said that people that pick individual stocks, they fit a certain profile, but generally they bought high and they sold low, they would hold on to them for too long. They always thought that they were better stock pickers than the pros that show up Monday through Friday and do nothing but analyze portfolios. And once I figured it out, I was like, oh, I know how to market to these people. I was like, oh, yeah, and they were investing for the sake of excitement. Gave them excitement in their life. And they were super, super easy to market to and we gave them what they wanted. We gave them excitement and we put it in the copy. But the thing that really stood out was it's not a great wealth strategy. It's just not. I'm trying to look up the study. I think it's down bar, done bar, something, forgive me for not having it locked and loaded ready to go. But that individual stock pickers typically underperform the market by two to three percent because of their strategic entry and exit not being aligned and not capturing the market movement in the right days and the right times in the right segments.

[00:19 - 00:19] Ross Powell:
So the way that we go about avoiding that is by taking options. That small portion that's very risky and buying it in options on the market as a whole. So as we buy it on a indexed ETF. So all of the top 500 SMB 500 companies are in this index and we're buying options on that index. Yeah. It still requires some timing, but in general, I want timing to be individual based, not based on the market.

[00:19 - 00:21] Craig Andrews:
Yeah. Well, for me, I like building machines that just kind of run and run and run. And it seems like picking individual stocks is like buying a Ferrari or something. You know, like always under the hood, trying to tune it up because it's breaking. If you enjoy that, if you enjoy working on a Ferrari or some race car or whatever, make sure that it's contained into something that you can afford to lose, it would be something that I would recommend. Like if you want to get into trading as a hobby, almost all hobbies lose money. Like when I had the hobby of guitar repair, I never sold any guitar repair and I did poor work on my own stuff. So I enjoyed it. It was great. But no, when it came to a professional repair needed, I had to go find a luthier. Well, I read just recently Warren Buffett, you know, laments that he sold Apple too soon. And you know, here's like one of the best investors of history. And even he makes mistakes, you know, not on some obscure stock because he doesn't buy obscure stocks. Sure. You know, he somebody explained that to me once is like when when he's making a purchase, it's like a one or two billion dollar purchase, but at the same time, he doesn't want to own the company. And so that greatly narrows the scope of companies that he can invest in without being the owner. And but yeah, yeah, he felt like he messed up Apple. Let's let's talk about the tax side of it, which is really interesting.

[00:21 - 00:22] Ross Powell:
That's what do you what do you do in tax and why does it matter? Yeah. So comparing tax gains to market gains. If your top tax rate is 37% and we can move that down to 20% based on the nature of your timing or the nature of your type of investment or the structure that it's in, that's a permanent 17% on that income.

[00:22 - 00:22] Craig Andrews:
Yeah. And so if I can do that and also get your market returns, that's double leveraged. And that's that seems like that's 17% per year. You know, when I quoted that former client that their portfolio was doing like 17, 18% over a 30 year period, yeah, there were some years in there that were absolute dog crap. Sure. But if you're able to do this with tax, this is that's, I'm assuming less sense, step to

[00:22 - 00:24] Ross Powell:
market conditions. It's less sensitive to market conditions and more sensitive to how you're earning your income in that particular year. Because income tax is the largest of taxes outside of a state tax. And the state tax is usually deemed as an elective tax. So if we can do proper planning at the right time, we can lock it in where you're under that cap, we can't control the laws or when they change or that kind of stuff, but we can do as much as we can more easily on a state tax than you can on, on income tax. Because at some point, some different types of income are just going to occur in the year. And it's beneficial for you. It's great, but it will come with a tax challenge. So anything that you can do to peel a shave that tax off by changing its nature or the relative investment. If you can convert income tax into capital gain tax because of your contract on the original investment and your payback, instead of contract wages, it's just in some other form stock compensation that you hold for long enough or it could be long-term, anything that you can layer in to reduce that tax in a particular year is one way to add additional gains.

[00:24 - 00:25] Craig Andrews:
Well, and then with the money that you save from that, you can go invest that, or you can hold it in cash and well, like going back to your 40-year-old, if they have an investment that's in a brokerage accounts and it's taxed as the activity happens, they need to exercise this activity, then they can live on this cash that they've already been taxed on and increase potentially their underfunded 401(k). And so that brings them less cash in their paychecks but gives them the opportunity to use this cash that they've already been taxed on.

[00:25 - 00:25] Ross Powell:
When you get out of Main Street every day, America, and you're looking at other tax strategies, there are people who would recommend that you borrow against the value of the stock that you own in your multinational company, like Jeff Bezos and Amazon. Here is only one Jeff Bezos, one Amazon. This is a repeatable strategy by someone who owns this particular, but it's a very, very small and limited people who are able to access enough of that growth for it to make sense for them. And when you borrow money, you're committed to the cost of interest every year. Is that cost of interest less than a one-time activation of that tax is part of the analysis that used to be done before you really execute any strategy.

[00:25 - 00:26] Craig Andrews:
Yeah. And I hope that there are disclaimers included in this podcast that I'm not giving any advice to anyone in particular, just kind of talking through what might be possible. Yeah. No. And that's, I mean, why don't we just go and say that, none of this. None of this is advice, this is just discussion prior, you know, prior performance is no predictor of future performance. And you should always seek a professional before taking any action.

[00:26 - 00:26] Ross Powell:
Yes. A professional who knows your situation because each situation has its own unique challenges.

[00:26 - 00:28] Craig Andrews:
Yeah. Yeah. Now, when you were talking about that, yeah, there's a small part of the population that has access to some pre-unique vehicles. And what was the guy's name that founded WeWork? Something Newman always forgets first name. I don't remember. Well, you've seen my presentation where I talk about how Jamie Dimon came out and admitted making a really, really bad mistake, you know, that lost $6.2 billion. I mean, heck, I heard him interviewed on the news this morning as just, you know, this brilliant CEO. Another mistake that, I don't know if he made it personally, but JP Morgan definitely did, because they gave that Newman guy, the founder of WeWork a hundred million dollar personal line of credit based off the value of WeWork. Yeah. That was, and look, what I know about WeWork came from the Apple TV show. Yeah. So, this is a fictionalization of the RealWork, but over leverage is like the main idea, right, is that they borrowed way more than the company was worth. Yeah. So, yeah, the movie or that TV show or movie or whatever, you have as a series, gave the impression that, you know, he got the, he met with Jamie Dimon personally and got it from him. But in reality, because I've checked, there's no evidence they met personally with Jamie Dimon, but how many people do you think JP Morgan gives a hundred million dollar line of credit to that Jamie Dimon's not involved in at some level? Yeah. I would think there would be some relative controls in access to that kind of cash flow, but it's a lot of dollars, man. Yeah. Well, so kind of coming back to the, you know, the tax thing, I mean, I just think the genius

[00:28 - 00:29] Ross Powell:
of focusing on that is in the example you gave, you know, you immediately get that 17% savings. So that's like an immediate 17% gain. And then you can take that and reinvest that and it just becomes a real force multiplier. It does typically people in that type of tax situation, or we're talking about, you know, this shifting, it also is in some kind of self-employment. And so that comes with the additional layers of other tax that can be challenging. The more of those that you can reduce and avoid or strategically align with, with your end, whether it's an exit of the business or transfer to heirs, those are good opportunities for good strategic tax planning to benefit the growing wealth that you're now steward of.

[00:29 - 00:30] Craig Andrews:
Yeah. So let's, let's wrap up with this. You mentioned something in the green room about stewardship. And what does that mean to you and what does it look like in action?

[00:30 - 00:31] Ross Powell:
Yeah. So stewardship is one of those words that is in the financial sphere. And the way that I view it is that I have been given this responsibility to manage my household, to manage my business, to manage my time for the benefit of those that I can impact with it. And that's what I want to, I want to hammer home is that if you can be a good quality steward of the funds and the assets and the finances that you have been given, it will leverage the opportunity to do that same thing with the time that you've been given.

[00:31 - 00:31] Craig Andrews:
Yeah. I love that. Ross, how can people reach you?

[00:31 - 00:31] Ross Powell:
A great way to reach me is through my website at InsightWP.com. That's the whole firm. You can find my link and on my bio. There's access to my calendar where you can send me an email, Ross dot Powell at InsightWP.com. So two great ways to reach out and have a conversation. I have a LinkedIn page, I have a Facebook page, but social media is usually slower for me.

[00:31 - 00:31] Craig Andrews:
Yeah. Well, thanks for coming on fiduciary alchemy.

[00:31 - 00:31] Ross Powell:
Yeah. Thanks for having me.

[00:31 - 00:32] Craig Andrews:
Thank you for tuning in to fiduciary alchemy, the coolest financial podcast you're likely to find. We go looking for voices like the one you just heard because I want you to dodge the mistakes that I made and learn it without the coma, without the drama, without nearly paying the man. I don't know why I lived, when so many others die, that part's still a mystery. Now, some folks ask, Craig, what is it you do? Well, I'm telling you now, that's no mystery at all. We solve hard marketing problems and crowded markets, so good folks like our guests can rise above the noise, become visible, memorable, irresistible, and grow like never before. If organic growth is your problem, reach out, call me. Let's make a plan and bring your next steps into the light. But don't leave yet, stick around a minute more and listen to bluesman grendel and the compliance choir deliver a word of caution, just for you.

[00:33 - 00:36] Bluesman Grendel and the Compliance Choir:
This podcast is for information, education, that is all. It is not financial tax or legal advice to guide your call. Nothing here is an offer, nothing here is a buy or sell, no recommendation, no solicitation. I'm saying it plain and well, plain and well, plain and well, pass good form and say no promise of what tomorrow brings, markets turning people loose on all kinds of hopeful things, every investment carries risk, prints a book and fade away. What works for one won't fit us home, that truth is here to stay, fade away, fade away, yeah, that's the compliance blues, get your own financial tax and legal help before you move, that's the compliance blues, your situation's yours alone, your needs are not the same, different facts and different goals can change the whole damn game. Don't talk to somebody qualify before you choose your own, because the weight of every money move is your own load, your own load, your own load, your own load, that's the compliance blues, get your own financial tax and legal help before you make your move, that's the compliance blues. For my channel only, educational to get qualified financial tax and legal advice, that is right for you.