Today’s guest is Todd Tresidder from Financial Mentor. Todd bills himself as The Money Coach where he helps is clients understand money and how it affects their life. His tag line is Financial Freedom for Smart People and that’s what we’re going to talk about today……how you can find and enjoy financial freedom as a private business owner.
One of the five areas of a sustainable business is having enough profits to support four areas of your business and life. In today’s conversation, Todd helps us understand how this fits in with what you need to do to enjoy financial security and freedom.
After you listen to this episode you’ll understand these issues:
- What a financial coach is and how it’s different from an investment advisor.
- Make sure you test drive your financial coach before signing on the dotted line.
- Beware of phone calls that come out of the blue.
- Just because your friends says it’s great, that may not be true. Do your own due diligence.
- If it looks too good to be true, it probably is.
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick and you’re at The Sustainable Business.
I’m going to bet today’s episode is going to be one of our best. Today, we have Todd Tresidder with us. I probably just massacre his last name. So, I’m going to ask him, correct eh?
Todd: You’re actually pretty close to it, Josh.
Josh: Okay, cool. Today, we have Todd Tresidder with us. Todd is kind of a serial entrepreneur. First he builds on wealth to the Hedge Fund Investment Manager before “retiring” at the age of 35 having reached financial independence. Now that he’s out of the world of actually working for a living, although he would probably disagree with that. He has a program called financialmentor.com where it provides education to folks about a variety of financial issues. He’s got some really interesting things to talk about. We’ll bring him in and start the conversation.
Hey, Todd. How are you today?
Todd: Good. Thanks for having me here, Josh.
Josh: My pleasure. Thanks so much for joining us. One of e-books you have—I’m not sure if it’s book or an e-book. It looks like a real book is, Don’t Hire a Financial Coach! (until You Read This Book). So, since I haven’t read the book, what am I going to find in there?
Todd: Well, you’re going to find a pro-consumer advocate position on the field of financial coaching. So, I cut my teeth in this business as a financial coach. Originally, I built the business as kind of a boutique financial coaching for most. I was curious if I could actually help normal people achieve unusually good financial results in life.
So, I started doing it as a coaching firm. I was probably the first financial coach on the internet back then it was 1998. If you search the term you get eight returns and nine returns. Now the returns are in the millions and all those eight or nine, I was the only one who was truly a financial coach. I kind of pioneer the business. Now there’s a ton of them. What the book really guards against is people who become best-selling authors and then they launch a back-end product for financial coaching and I hold up air quotes if you could see me right now.
They are calling it Financial Coaching, but it’s these force of people with headsets on and they get marketed out to these best-selling authors to provide this high ticket backend products and unwilling consumers get pulled into these hardcore marketing tactics. I’m not trying to guard against a legitimate financial coach— somebody who is providing us service. They are the front of the business. They show themselves as the business. They’re running service business and they try to serve people in that certian qualification.
What I’m trying to hide against is somebody who builds huge notorieties, an author, lecturer, speaker and then runs around market to back in coaching practice for very high ticket money because they’re trying to monetize their reputation as a best-selling author. That is causing a lot of problems. I had a lot of customers come to me who got really hurt by those kinds of organizations and they were genuinely seeking help and they got taken advantage of and as a result I wrote the book as a consumer advocate position.
Josh: So, when you’re looking to hire financial coach or financial educator, what would one look for?
Todd: I have a post up on my site called 3 Steps To Choose The Right Money Coach. If somebody wants to search in Google for the term “money coach” it should show up right at the top like in the top half of the page if not the number one search depends on the day and what area the country you’re searching from. In your goes in detail exactly how you sort through legitimate financial coach or money coach from one of these firms that you want to avoid.
At certain detail, there’s probably too much for an interview but basically you want to test drive the person, you want to do a research online first. It goes again step by step through due diligence process of how you select a person, but basically you start with a due diligence online. You find somebody who resonates with you, their background, their expertise as consistent with what you’re looking for to achieve and then you do a test drive with him. Make sure you guys connect that you can speak, that there’s trust there— on and on. It just goes to a whole process about how you correctly buy a financial coach.
Josh: Another one of your books is book about investment fraud.
Josh: Do you believe investment fraud is a big deal that something should pay attention to what was rare that somebody should pay attention to?
Todd: First of all, it’s not rare at all. It’s relatively common. Again, it was through my coaching clients and the amount of the investment fraud I was running across, that it prompted me to write the book. Let’s be clear, it’s not common in the registered security markets. If somebody is acquiring conventional securities to conventional channels, you’re not going to have a huge investment fraud. You still run into it. There are things— it’s very high level fraud that it’s gotten past all the checks and balances within the system. So, great example would be ENRON or WorldCom, right?
These historic frauds were the top level management was defrauding the consumer and putting up bogus information and eventually it comes forward whenever they lose money. Those are relatively rare. They are high-profile but they’re relatively rare. What the book really helps people understand is once you’re outside registered securities through conventional brokerage channels, how to avoid getting tripped up in fraud in those things.
That’s mostly where fraud exist is outside conventional channels.
Josh: When you say outside conventional channels, what might that be?
Todd: Let’s say you’re a retiree and somebody calls you on the phone and they’re trying to market some investment to you. You don’t know them and they’ve got this great way to make millions of dollars or like the big one now every retiree is starting for yield. The big pitch now in fraud is how to yield because they know that’s in high demand since nobody can get yield as to record this conversation.
Todd: — or it comes through a friend of a friend at your church. Somebody knows somebody and they’re invested in this thing and they’re making big money because usually a fraud will show positive returns in the beginning so that everybody talks about how good they’re doing and then they’ll rope in more people that way so ultimately they get a higher pay day. You might have a friend of a friend on church, this person is not an investment expert but you trust them because they’re church member and why would this guy be dishonest to you. He doesn’t know any more than you do. He’s not an investment expert.
He’s roped in just like you would be and he’s being showed fraudulent returns in the beginning so that he’ll talk to you about it and tell you how great it is. And then over time they get enough people in and then suddenly they vanished with all the money.
Todd: That would be another example.
Josh: It certainly Bernie Madoff but more sleaze.
Todd: That would be another example—a Bernie Madoff is returns that are too good to be true. I’ll give you another story I had. There’s another person who’s a financial educator particularly in terms of quantitative investment systems and I knew the guy. He’s a well-known author and I read one of his books. It’s an older copy of book. You won’t find it anymore. You wouldn’t understand why I finish the story. I picked up a copy of the book and I looked at the intro and the intro is written by one of the star students. It went to the track record for this guy.
You got to understand my background. I spent over a decade testing. I did all quantitative research so I was testing most mathematical risk management system, market timing systems, and investment management systems in the market. I spent ten, twelve years programming this stuff and testing it. I kind of know what works and what doesn’t. I have a strong background. I took at one of this guy’s track record and I said, “Well, either he knows something I don’t which not being egotistical but it’s unlikely or he’s a fraud.” And within six months and I could do it, just off the track record— I knew what he was saying was mathematically impossible.
At least within the framework with what I understood to be true and within six months he was under a CC investigation and eventually they had to pull the book and they had to remove foreword from this guy and they had to remove him from all. He was a star student. He had to remove from everything because he was actually wasn’t a star student. He was a fraud.
Bernie Madoff is another example, the people who fraud on that. They should have known better.
Todd: I mean that track record could not be achieved.
Josh: Right. Let’s talk a little bit about how much money you need to retire because most of our listeners today own private businesses and my guess is someday they want to retire. We won’t get into the specifics probably but they may think their business is going to get them but it’s not.
How do you figure how much money you actually do need for retirement?
Todd: Not to disagree with you. Business might get them there, but be under a different model from a conventional model or be under what we all call casual based model. I had to back up a second because what I’m going to say is very unconventional, okay?
Todd: Basically, in my world of retirement plan there are three asset classes. There’s business which is what you’re referring to, there’s real estate and there’s paper assets. Paper assets would be the traditional approach that everybody thinks of when they think of retirement planning.
Todd: With those three asset classes, I also have three different models. There’s the traditional model which is an asset based model which kind of implied [inaudible 00:09:28] question, right? How much do I need to retire? It’s really saying, how much assets do I need to accumulate in my account during my working days so I won’t do anything of substance and decumulator spend those down until I die. That’s kind of implied assumption behind the question, says one model.
Then there’s another model which I call The New Retirement. It’s built more around lifestyle. We can go into what that is. There’s the third model which is the Casual Based Model and that is where you drive— your retirement planning not based on assets. The funny thing about assets is, it’s a step removed from what you really want—retirement or financial freedom because really retirement is a myth or a misnomer. Retirement is nothing more than old age financial freedom. There’s nothing that says that you have to do it in an old age. You could do it at any age. I acquired it at age 35. People do different stages of retirement all kinds of different ages.
Let’s just agree that it’s really financial freedom. Financial freedom is defined as cash load seeding expenses. Casual from assets exceeds expenses. We have three assets classes to work with. You got quite a bit of flexibility on how you design a retirement plan. This is totally odds with what conventional retirement planning works. That’s why I said, “Business could do it, but you have to know what you’re doing. You have to plan for it accordingly.”
Josh: If business could do it, what would that look like?
Todd: Well, you have to transition your role as the worker be— as the creator of the business downward over time until such that the casual from the business more than paid your expenses but you are free to create the life you wanted it. At that point you have financial freedom using the asset class of your business.
Josh: Okay, so let’s say I’m a small business owner. I’ve got five employees. It’s not likely that I’m going to create casual from my business because I’m not involved in.
Josh: Because the business likely revolves around me.
Todd: Right, so what you do is slowly figure out how to make it not revolve around you. It might take years. I’m not saying that it’s something we just wake up one day and wave our magic wand. But you could slowly figure out like one of the things I coach my clients on is looking at every task that you’re acquired to do and view that as a failure of the system.
You try to figure out how to make it so it doesn’t require your involvement again. How can you reorganize a business? How can you train somebody? How can you shift the responsibilities so it’s not requiring your time? Progressively over time with that process, you can work your way out of the business.
Josh: Okay. I’m a professional services person. I’ve got two assistants that work with me. It’s my expertise at people who are coming to buy from when they do business with me. What would I be doing to work myself all of the job?
Todd: All right. Let’s look at it say it’s an attorney.
Todd: Let’s take an attorney as an example.
Josh: Good example.
Todd: Okay. I work with an attorney in the immigration service specialty. That was his specialized expertise. So, what he did was he progressively built the firm up, had attorneys come in underneath him as the firm got larger it supported more attorneys and he eventually work himself into a management role and then eventually work his way out of the management role.
He just started replacing all different aspects of the company. At the time he grew the company larger— the other thing that he did too and this ties in to the other asset— the class we were referring to. As he grew the company, I worked with him and he acquired a commercial building because at that point he had more attorneys, more staff was taking up of decent amount of square footage acquired the building and then rented out a portion of it.
As his firm grew, he kept taking over more and more of it and that building alone was enough for him to retire on— just the rental value of that property which the attorney firm paid for but then the firm itself also provided him freedom as he work his way out of being the service provider in the firm.
Josh: I see. Option two for most small businesses is probably more likely than option one and here’s why. It’s nice to say, “Gee, I can hire to make my business grow and bring all these people on.” My experience with that is some people can do that, most people never really acquire the skill to do it and there’s a lot of skill that’s required.
Todd: I’m not saying there’s not skill required. I’m just saying, it’s possible.
Josh: Yeah, it’s always possible.
Josh: It’s just I wouldn’t say probable.
Todd: Well, I know the angle is productizing.
Josh: Again, possible but a lot of folks who are in private business— this is my experience. Is that you’re kind of stuck where they are. There’s a reason they have five employees and don’t have 25. Because skill and what you need to learn to get to 25 is so extraordinarily different than it is with five. Most private business owners don’t make the jump. What you did key on is something I think is really important folks to think about.
That’s having assets that are casual assets and that asset, assets like real estate. To me, that makes a tremendous amount of sense. You want to take a look I say— at the end of the day I’m going to maybe stop working. When I stop working, most of the assets I have are going to create cash flow. I might get three or four percent out of them that I can spend, but if I have real estate, it’s a whole lot more money. It’s probably 10, 11 or 12% I get off of it because the economics of cash flow out of real estate is way different than the economics out of a pile of money sitting in an investment account.
Todd: Yes. I think the key is you have to get really clear on what you stand for and what your objectives are. Like if you’re clear you just want to run a boutique service business and you’re happy with that and that’s what you want your life to be then great. If you also want financial freedom then you have to do what we’re saying. You have to [inaudible 00:15:05] intellectual property, acquire assets or produce cash flow and use the business to pay for them.
There are different angles you can use, but the starting point is clarity. If you’re clear, you wanted to stay at five person firm and that’s all you ever want it to be. No problem then that’s your truth and then you go design your plan accordingly around that.
I’m just pointing out possibilities. For example, my coaching business is being productized into courses. I’m not accepting coaching clients any longer but I am building up the course business in the books as you’re referring to.
Todd: That would be an example of somebody productizing the business. There’s a variety of avenues that a business owner can take and it’s just the question on deciding what will work for you.
Josh: Right and what you have the skill set and the stomach to learn about it.
Todd: Yeah, what’s consistent to your values, your goals, your abilities, your resources.
Josh: Yes. So, if you have somebody you’re coaching— “Todd, I really want to stay at my five person business, but I do want to be able to leave my business and stop working someday.” What kind of advice would you give that person besides buy some investment real estate?
Todd: I think we’re recovering. I would work with them around a plan or what that means. First of all, what it means to stop business and stop worrying one day is that a euphemism for retirement. You’re just going to stop cold turkey and end it. That’s the goal then you go straight into what are the assets, what are the casual they’re going to provide, what date you want to stop and there’s Math and engineering behind it and you just develop the plan. I wouldn’t have.
Again, I might work with them around working their way out of the business and having the business as the business system that pays them in perpetuity. We might work on intellectual property licensing. We might work on productizing. We might work on growing their assets outside the business. We might work on growing assets at the business pays for and can be sold later on. There are a lot of different avenues you can go depending on the situation. It’s not just the blanket set of rules.
Josh: Sure. Do you ever get involved with people in designing qualified retirement plans?
Josh: Okay, that’s something that’s also provides a great opportunity for people who are looking at creating enough assets. So, if they chose to stop working they could.
Todd: Okay. I’m sorry when you meant designing. I thought you meant the actual design of the plan. You mean in terms of people using a 401k?
Josh: Well, 401k is the basics, but yes 401k is profit sharing plans, cash balance plans. All the alphabets super retirement plans.
Todd: Right. I work with clients on using those as an asset accumulation tool. Sure.
Josh: Right. There’s a thing in the investment world called The Four Percent Rule which essentially says, you can safely spend four percent of the money that you put aside and probably be protected from inflation. What do you stand on that?
Todd: Well, it’s a rule of thumb. It’s somewhat plausibly true. It’s a decent kind of benchmark, but don’t take it as truth. Wade Pfau, that’s P-F-A-U— he’s a professor retirement planning in American college. He did some fascinating research. First of all, I got to understand that Four Percent Rule was created on US data. Most research is done on US data. They don’t say that, but that’s where it comes from. [inaudible 00:18:11] plentiful data and easy to access and all that.
It’s expedient, but that isn’t really good. You don’t want to make decisions for your financial future based on some of these expedients and research. Wade founded the research on the international data and it failed 100% of the time. What we know is US data is generally what we call an optimistic outcome when analyzing any sort of investment return of planning worked.
It’s generally optimistic outcome because I called the United States The Economic Prom Queen Of The Last 100 Years. Her experience wasn’t the same as what all the other people attending the [inaudible 00:18:46]
Todd: That’s because we had no waters on our soil. We had no major political upheavals. We haven’t battle the major hyper inflation, deflationary collapsed except for 29. Things have been relatively stable— stable political climate plus and here’s the big plus, the big issue. We basically exported corporation, American corporations, I’m not going to say took over the world, but we exported that. There’s massive growth in the American economy over period. I think of people look over the last 100 years of history and blindly project their future and think that’s going to replicate go forth. You can be sorely, sorely disappointed.
So, the 4% rule is one example of that historical investment returns is another example. There are a lot of places where historical data using the US has been applied over long periods of time. It’s a little bit naive. Let me give you a specific example of how this works. In the reality of what 4% what really try to figure out is your safe withdrawal rates in retirement.
Your safe withdrawal rate varies widely and it’s a function of two variables— primarily two variables and that is the market valuation at the beginning of the holding period, interest rates at the beginning of the holding period. So, periods of low valuation and periods of high interest rates provide higher safe withdrawal rate over the subsequent 30 years. They vary widely anywhere from 4% historically out to almost 12% historically.
So, huge differences, right? Well, if you do the correlation based analysis which you can wait when I was done and you take the factors. You correlate them and you figure out what’s driving what. It turns out that where right now and out of sample period that shows or demonstrates our expected safe withdrawal rate in retirement.
Wade was projecting at around 2.8% of a safe withdrawal rates subsequent to 2010. It’s only gotten worse since valuation of recent higher interest rate or gotten even lower.
So, history will tell us the truth but let’s just say I wouldn’t get my retirement on it—on 4% rule that is.
Todd: I think it’s optimistic for the environment we’re in right now to record this.
Josh: That seems to be the consensus in the industry these days.
Todd, we are unfortunately out of time. I’m sure people wanting to get ways to get more information from you. Find out about your courses, your books, and all that kind of stuff. If they want to do so, how would they do so?
Todd: Go to financialmentor.com and that’s the hub of everything I have, everything I do. So I have like 80 calculators on the site because basically wealth is Math, finance is Math. A lot of people are uncomfortable with Math so I have calculators to figure everything out for you.
I have over a thousand printed pages of free material, all educational material. I give away a free course for new subscribers. It’s called 52 Weeks To Financial Freedom and No, you won’t get rich in 52 weeks but what it does is it outlines the entire process. You’ll go through to achieve financial independence and it goes in to a step by step instructions.
You have the framework that you’ll operate through. I will also give away free e-book it’s called 18 Essential Lessons from a Self-Made Millionaire. It touches on a couple of topics we did here but a lot more so if people got value from this discussion that’s a place you can get more. There’s no cost to any of it.
Josh: You just haven’t created enough stuff that’s all the risk to it.
Josh: So, I also have something for folks who are listening. I have a free one-hour audio CD. My course is called Success Sustainability. The five things you need to be paying attention to, to create an economically and personally sustainable business—to get it, it’s really easy. Take out your smart phone and please don’t do this if you’re driving, but take out your smart phone and text the word SUSTAINABLE to 44222. That’s the word SUSTAINABLE to 44222.
This is Josh Patrick. You’ve been at The Sustainable Business. I hope to see you back here really soon. Thanks a lot for spending some time with us today.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.