Jason and Emilia discuss being cautious when making financial investments.

Below is the full transcript:


Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.

Jason: America, welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. It is my good fortune to have Emilia Bernal back in the studio with me. Emilia, welcome back.

Emilia: Thank you. Hello.

Jason: Hello. Why, I feel like it’s been a little while, like we haven’t done this-

Emilia: It has. Yeah.

Jason: Yeah, I’m feeling out of practice. Then especially the topic that we’re covering today, it’s heavy on me. The topic, this is episode 173, and the title is Caution, Beware, Warning. We’ll get into why this all came about in just a minute, but before we do, let’s renew our mind. Maybe that’ll give me some encouragement and some strength here. I’ve got a verse for us from Proverbs 15:22. Now, this is one I’ve shared before. My friend Steve, this is one of his favorites, but I think it’s appropriate given today’s topic as well. It says, Proverbs 15:22 says, “Plans fail for lack of counsel, but with many advisors, they succeed.” We’ll get into this episode in just a minute, but before we do, I know you always like to bring a smile to our listeners’ faces, so you got a joke for us this morning.

Emilia: I do. It’s summertime up in here, a lot of people going on vacation, so I thought a cute little vacation joke might be good for us today. Why didn’t the elephant buy a suitcase for his vacation?

Jason: I have no idea.

Emilia: He already had a trunk.

Jason: Of course.

Emilia: It’s pretty obvious maybe.

Jason: All right, so let’s get into this topic, Caution, Warning, Beware, number 173.

Emilia: Yeah, so why are we doing a show with the title, Caution, Warning, Beware? It sounds scary.

Jason: This breaks my heart. It makes me so angry and so sad. Even as we talk about it, I can’t even. The words, I can’t express how angry I am when I get an email like this. The reason we’re doing the show is … I’ve been doing Sound Retirement Radio now for almost 10 years. So far, we’ve had a pretty good track record, no big problems. But about a week ago, I got an email from one of our listeners, somebody I’ve never talked to personally, but he said … He shared with me that one of our past guests, he ended up reaching out to this past guest and doing business with him. Just had a really bad experience, and it was around the topic of real estate investing. He just wrote me this email kind of sharing what his experience was and what happened. It was just not good. It was really bad.

Jason: We’ve got to put an alert out there for our listeners. Now, we’ve since deleted that podcast, so it’s no longer available. We’ve removed it, so people can’t go back and listen to it. The hard part is I haven’t been able to reach the guest that we had. I tried calling the phone number that we had for him, and it’s been disconnected. I haven’t been able to hear the other side of the story. I’ve only been able to hear the side of one of our listeners that had invested in this real estate opportunity, if you will. It just didn’t go well for him. He owned the properties, but it just didn’t work out.

Jason: We need to have a conversation with all of our listeners about what to look out for, how to be careful. They need to know that just because we have somebody as a guest on Sound Retirement Radio, that does not mean that we’re endorsing those people. It just means that we’re trying to share concepts, ideas, and strategies with people as we become aware of them.

Emilia: That’s very important. I know you talk … A lot of this has to do with curiosity. You mentioned that you say curiosity is an important trait sometimes. Why is that?

Jason: Yeah. When you say curiosity, the first thing I think of is that old saying, curiosity killed the cat.

Emilia: Yeah, it’s a good saying.

Jason: It is a good saying. At the same time, curiosity is an important characteristic, something that I try to embrace, because I want to ask questions. I want to be curious. I think curiosity is kind of the jumping off point for learning and wanting to learn more about something. Again, Sound Retirement Radio, we’ve brought on a lot of guests over the years from a lot of different backgrounds, a lot of different industries, and every single one of them feels very strongly about what they believe to be the best way to approach whatever, whether it’s investments or insurance or retirement planning or Social Security. We’ve had such a wide variety of guests. When I first got this email from the client, my initial reaction was, “I’m not going to bring any more guests on to Sound Retirement Radio.” It’ll just be the Jason and Emilia show, and we’ll only share with them.

Emilia: Uh oh.

Jason: But I’m like, “That’s not the right thing to do.” We have to be curious. We have to be willing to ask questions, but we also need to do due diligence before we invest our money into anything. One of the reasons this makes me so mad and so angry, I’ll never forget years and years ago I met with one of my pastor friends. I was sharing with him. I felt convicted to … When I wrote my book, one of the lines in there is, “Make Jesus the Lord and Savior of your life, and put God first place.”

Jason: That particular line in the book, I put it in. I took it out. I put it in. I took it out. One of the reasons I didn’t want to put it in there was because I didn’t want to be held to this standard of being a Jesus follower, because I know that there’s a possibility for us to mess up, right? I went to my pastor, and I shared this with my pastor friend. I said, “Hey, you know, I really don’t know if I should put this in there, because again, there’s just a very high standard that you commit to when you publicly declare your faith.” I didn’t want to ever be in a position where God looked bad because of something I messed up with.

Jason: That’s kind of how I feel right now. I kind of feel like, “Man, we’ve got this trusted audience. People listen to us. We bring on a guest, and this guy ends up maybe not being completely ethical.” Again, I don’t know his side of the story, but it just makes me mad. But what my pastor friend said to me, he said, “Jason.” He reminded me of the story of David in the Bible. He said, “David was a man who was after God’s own heart. That’s how God referred to him, but David messed up a lot.” It’s hard for me to think that we have trust with our listeners, and so when we bring a guest on, I think people assume that our guests must be trustworthy, and they can’t assume that. Unfortunately, the world that we live in, there’s bad people out there that are motivated by greed or whatever it is that’s motivating them. You just have to be really, really careful, I guess, is the bottom line.

Emilia: Absolutely.

Jason: Yeah, it’s just very frustrating to me that any of the work that we do could point people to somebody that’s not serving people well. I think it underscores the importance of that verse that I shared, of having many advisors, and why it’s so important to have a trusted financial advisor, somebody that is familiar with this investment landscape. You can go to them and say, “Hey, here’s something I’m thinking about doing,” and getting some guidance from somebody before you invest your money, I think that’s a really valuable tool, a really valuable trusted person, especially as you age, because sometimes as we get older, it becomes harder to make those good decisions. We want to have people around us that can help guide us and protect us. I think especially in retirement, protecting what you have becomes more important than trying to make a lot of money, or if you’re getting close to retirement, because you don’t have time to recover from a major financial mistake. Yeah.

Emilia: It’s very important, yeah. Like you said, it’s just caution, warning, and beware. It’s always something to think about when you’re being curious about something new, which like you said is a good thing. It’s not always curiosity killed the cat. It’s just learning and taking the time to do things cautiously and carefully. Yeah. What is the most important thing you want people to take from this episode today?

Jason: To proceed with caution. You’ve worked hard for your money. You need to really make sure you’re doing your due diligence. Doing your due diligence means that you have to try to get references when possible. When it comes to something like buying real estate, you really … Well, let me just share, Emilia, some of the different investment tools where I’ve seen people get hurt the most from a financial standpoint.

Jason: First of all, one of the big warning signs that people need to have is yield. Right now, 30-year Treasury bonds are paying around 3%, maybe a little bit less than 3%. A Treasury bond would be considered a very safe instrument, as long as it’s held to maturity. 10-year Treasury bonds right now are paying a little bit more than 2.5% interest. If that’s our baseline for safety, anything that’s paying a yield or promising to yield greater than 2.5%, we have to be looking at cautiously. You look at fixed income. You look at bonds. Really high quality bonds from issuers that are very financially strong aren’t paying a whole lot more than Treasury bonds.

Jason: Then you look at high-yield junk bonds. High-yield bonds would be junk bonds. They carry a significant amount of risk. As a result of that increased risk, you get compensated with higher income. If you’re looking at an investment, regardless of the investment, and they’re talking about these really high rates of return, really high income or cash flows, that’s got to be a warning sign to you that you’re getting into something that’s potentially really risky. Warning sign number one is, is the income high? If it is, just know that you could be getting into something that’s risky.

Jason: The second thing is, with real estate, you really … We’re getting back into an environment now where people think that real estate only goes up. It’s amazing to me, because it wasn’t only 10 years ago that the real estate market bubble burst. It hurt a lot of people. We have seen real estate prices drop. To make a statement like, “Oh, well, they’re not making any more land,” or, “Real estate prices only go up,” I mean, real estate can be a good investment, but you really need to know what you’re doing and work with somebody that specializes in real estate investing. I would highly recommend, if you’re going to buy real estate, that you can see it, you can touch it, that it’s in your neighborhood, you know what the neighborhoods are that you’re buying the real estate in. That’s going to help you.

Jason: If you’re going to buy it out in a different area, you definitely want to go and explore and actually look at the properties you’re buying beforehand. That means you’re going to have to get on an airplane and go someplace to look at the properties. You really need to do your due diligence. If you’re going to invest a large chunk of your money in something, you want to know what you’re getting into. When it comes to people getting hurt financially, real estate is one area where I see this happen. It’s regulated different. It’s not like an investment or an insurance contract, where you’ve got a lot of regulatory authority overseeing that. You want to be careful with real estate.

Jason: The other one are things like non-traded real estate investment trusts. These are illiquid ways for people to pool money and buy real estate. I’ve seen where people have gotten hurt in those. Now, those can be legitimate investments, but they can … My experience has been it’s when people start getting involved in these alternatives that they have the potential to lose money. Non-traded real estate investment trusts, not to say they’re all bad, but just be careful, because they tend to promise really high yields. I’ve seen people hurt in those. Master limited partnerships, some of these limited partnership structures where again you have lack of liquidity, you really need to understand what it is you’re buying. I’ve seen people get hurt in those types of structures.

Jason: It’s really this alternative universe that I think people get hurt the most. One of the hard things about this, if you look at the SEC complaints, a lot of this investor … When people feel like they’ve gotten involved in something fraudulent, it’s because it’s been something recommended to them by a family or a friend. It’s usually family and friends that are siphoning people or pushing people towards these investments. Again, you just need to be really careful. Retirement, you’ve worked too hard to get involved in something that’s very high risk that you don’t understand at this stage in your life, at any stage in your life. None of us want to get involved in anything like that.

Emilia: Absolutely. You shared a lot of good examples there, but can you give us an example of how this investment idea was sold specifically or-

Jason: Yeah, so kind of the pitch was there were three different components. This particular person says, “I’m a realtor, and I’ll find you a house,” and to consider buying real estate in areas that are not overpriced, so looking for property in areas where you can buy a house for a low dollar amount, and then turn around and rent it for $1,000 a month. Again, it looked like the cash flow was pretty high on some of these properties. Piece one was you were going to work with a realtor that was going to help you find these properties in areas where it was less expensive to buy real estate.

Jason: The second piece of this was, “Okay, well, once we buy the property, then we also are going to have a rehab company that’s going to go in and fix these properties up.” Then the third component was property management. They said, “Hey, we’ll have a property management company get tenants into these properties, and then we’ll rent them out for you. Really, all you have to do is come up with the cash. We’ll find the house, we’ll rehab it, and we’ll rent it out for you.” It sounds like a good business idea. Somewhere along the line, something didn’t work, and now there’s people out there, like this listener of ours that sends me this email, that really feels like he’s been hurt as a result of taking bad advice from somebody that he didn’t feel like he was being told the whole story.

Jason: Again, there’s two sides to this. I don’t know both sides of the story. All I know is the listener that wrote in that was dissatisfied or unhappy. The reality is though, as I read through that email, is he did buy the property. He purchased what … I think he paid too much for the properties, and then one of the hard things about real estate too is you’ve got to deal with people. Now you’ve got renters in the house. Any time you’ve got people involved, it can get really messy. One of the things I talk with people about all the time, I have a really good friend that does a lot of real estate investing locally. He is somebody that I have a lot of confidence and trust in, but he’s somebody here locally that I’ve known for a long time.

Jason: But when you’re dealing with real estate, it can get messy. I’ve talked to clients that have had rental properties where they ended up having people making drugs, cooking meth, inside their rental properties, and trashing a house. I’ve had people that have committed suicide, or they’ve had rental properties where people have been murdered inside houses. Then as the owner of the property, you’re involved in not just all the legal stuff that goes along with that, but you’re involved with having to go in and clean those things up.

Emilia: A lot of responsibility.

Jason: A lot of responsibility and a lot … You’re just dealing with sometimes maybe not always the highest level of quality people when you’re buying those rental properties. A lot of people think of rental properties as cash flow, as a way to diversify an investment portfolio, which they certainly can be. There are plenty of really good stories out there of people that have had good experiences with investing in real estate, and people that have made a lot of money and really grown their wealth, and have really good renters. I mean, I don’t know if it’s 50/50, but because I get to meet with so many people and I get to hear their stories, I hear a lot of stories where things just can get really ugly with real estate.

Jason: Then when you have somebody in the house, depending on the state that you’re in, some states are friendlier toward the landlord. Some states are more friendly toward the tenant. It could become a very expensive process to get people out of these properties once you get them in there. Again, just really, really want to put a strong word of caution and warning out there for people that are thinking about investing in anything. You just need to do your due diligence. You really need to have advisors around you that can help you understand the advantages and disadvantages before you get involved in those types of transactions.

Emilia: Yes. What are some of the signs that people can look for when evaluating potential fraudulent investments?

Jason: Mm-hmm (affirmative). Well, of course, with an investment, you have a prospectus. With an insurance policy, you have an insurance contract. Generally speaking, when it comes to investments in insurance, you’re working in a world that’s highly regulated. Sometimes with these high risk things, or if people are getting involved in something fraudulent, there’s usually a sense of urgency, like you need to act now, there’s an opportunity, and if you don’t get in on it, you’re going to miss it. If it’s really a good opportunity, there shouldn’t be that type of urgency associated with it. Don’t ever be in a position where you feel like you’re having to make a very fast decision.

Jason: Number two, you’ve got to, again, look at the yield, so yield as an indicator of risk. If it’s producing a really high income, you have to know that you could be getting into something that’s very high risk. I remember probably 10 years ago, just here in our local community, there was somebody that had a billboard alongside the street that said that people could earn 12% on their money.

Emilia: Wow.

Jason: Well, that ended up being a fraudulent Ponzi scheme type of thing. People got in trouble. I’ve seen this with family members. We had some family members get involved in something. They came to me, and they asked me, “Jason, what do you think of this?” I said, “Don’t do it.” I said, “That doesn’t sound like a real deal to me.” They decided to do it anyways. I remember it was like two years later. We were sitting at a Christmas party, and I asked them how that was going for them. They said, “Oh, we had this check coming to us for a couple months, and now we can’t find the guy. There’s nobody to call, and all the money’s gone.”

Jason: I guess even if you do have good counsel, if you’re not willing to listen to the people that are warning you, because we can be tempted by greed. When you hear high numbers, high cash flow numbers, high income, high returns, we want to believe it. We’ll look for the reasons to believe it rather than look for the reasons to be skeptical. It’s hard, because there’s got to be trust. Trust is what makes business work. Again, you want to be curious. You want to learn about these different things. You just have to really proceed with caution.

Emilia: Okay, just close with one last question. What should people do if they feel they have been deceived?

Jason: Yes. First of all, the thing you don’t want to do is keep it hidden. Sometimes when people get hurt, they don’t want to share it with anybody, because they don’t want to look foolish. They don’t want to look like they’ve made a mistake. That’s the wrong thing to do. If you feel like you’ve been involved in something where it wasn’t what you were expecting, the department of financial institutions would be a good starting point. Every state will have a department of financial institutions that they can contact. The SEC has really good resources for investors looking at fraudulent potential investments. You’ve got your attorney general’s office usually in your state where you can reach out to them.

Jason: Emilia, I’ve seen this just happen so many different ways. I’ve seen people with … They get these emails saying, “Hey, you’ve won a lottery.” I’ve heard stories of somebody calls grandma and says, “Hey grandma, this is so-and-so. I need money,” and she sends him money, and it’s not their grandkid. I’ve seen people get involved in timeshare deals that were fraudulent in Mexico. The list goes on and on and on. But number one is don’t keep it a secret. Number two, try to find out if there’s resources out there through your department of financial institutions, the attorney general’s office. Just talk to other people. Share it with family members, and try to get good counsel. They may recommend that you talk and get some legal advice. Again, the most important thing is you don’t keep it a secret.

Jason: Before you make any of those financial decisions, have a trusted person or a team of people that you can bounce the ideas off of, a good financial advisor, a good CPA, a good attorney, people that can come around you and say, “Yeah, that looks like a good opportunity,” or, “No, it doesn’t.” Beware of anything that’s urgent where you need to make a decision right away. Another area that I see people get hurt is in precious metals, because again you’ve got a world that’s not highly regulated. There’s a lot of costs associated with some of those investments. Again, this is one of those episodes I was hoping I would never have to do, because I want to believe in the goodness of people and that people are out there to help people. When I get an email from one of our listeners of the show that says they’ve had a bad experience, again it just breaks my heart. I want to caution our listeners to be very careful.

Emilia: It’s an important show to have too though. I think sometimes these things need to be heard and brought up so that they are there, because sometimes you’re just not thinking about it.

Jason: Yeah, and I don’t know people’s personal financial situations. Stuff that we talk about on this program, it can maybe spur some ideas or thoughts, but they shouldn’t go out and act, even if it’s something that you and I are talking about, because this is not intended to give specific personal advice to people one-on-one. That’s when you consult with an advisor. That’s when you call us up and you say, “Hey, Jason. We’d really like to form a relationship with you. Here’s our entire picture. Can you give us some guidance going forward?” Then it would be appropriate to make some decisions in your financial life, but don’t do it just based on something you hear on a podcast or a radio show or a TV program or read in a book. You really want to work with somebody that has that fiduciary responsibility to act in your best interest and will be held to a high standard.

Emilia: Yeah.

Jason: All right, Emilia. Until next week, signing out.

Emilia: Bye.

Announcer: Information and opinions expressed here are believed to be accurate and complete, for general information only, and should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance-related discussions are subject to the claims paying ability of the company. Investing involves risk. Jason Parker is the president of Parker Financial, an independent fee-based wealth management firm located at 9057 Washington Avenue NW, Silverdale, Washington. For additional information, call 1-800-514-5046, or visit us online at soundretirementplanning.com.