Morgan Stanley
  • What Should I Do With My Money Podcast
  • Jun 26, 2024

A Savvy DIY Investor Seeks Advice


Jamie: Meet Jacob. He's in his mid-forties, married and a savvy investor. He has a successful career in cybersecurity, but worries what might happen if his experience becomes obsolete in such a rapidly evolving field.

Jacob: there will be a day when my expertise in the industry may not be as, relevant but I just want. To sort of have peace of mind that I can hang this up anytime I want if the passive income is there to support My family's needs so that that kind of keeps me up

Jamie: Jacob has been thinking strategically about his income since he was a little kid. His parents devised a very effective way to encourage him and his sister to save their money.

Jacob: One of the things that they taught us about savings was if we save now, deposit that into a bank, then they would actually match that savings. We won't be able to touch that for a couple of, uh, years really not until we're 18. And so the incentive for us was to decide. Do we want this sort of delayed gratification where we can get access to it later? Or Do we want to deposit now to see that double?

Jamie: Jacob did chores at home and sold mix tape CDs to his classmates to earn money. Sometimes relatives would give him money for his birthday and he'd put all of it into his bank account.

Jacob: It was quite fun to go to the bank and we had those passport like books, every time you go in they would Print on it to show how much interest you earn. So it was kind of like a game for us, for my sister and myself to. See this growth.

Jamie: Fast forward a decade and Jacob realized just how effective his parents' matching policy really was. That and compound interest.

Jacob: It was, uh, maybe between ten to fifteen thousand dollars, which for, a teenager was a lot of money

Jamie: Jacob continued to build on his parents' lessons, and today he has about 2 million in assets, including some stock at his company.

Jacob: At the time when I joined, it was, in the early stages of its journey. so it was startup-ish. Over the course of four years, the equity that was, provided to me, for joining, has appreciated in in fact, the private market value Is close to 1. 5 million, I believe so I think when the company decides to go public probably this year, that May potentially turn into a couple million at least

Jamie: that would be a significant windfall for shareholders like Jacob.

Jacob: My wife and I are deciding how we would leverage that new equity for purchasing a single family home, which we're very keen on.

Jamie: That could put Jacob in a great place financially, but he doesn’t know what his next step should be. He wants to make sure he and his family are set, even if something were to happen to his career. A solution could be finding a way to rely on income generated from his assets like investments and real estate rather than his salary.

Jacob: I think for me, it's more about just making sure I, can live comfortably with, passive income. Of course, we're all not going to make all optimal decisions along the way, but, I don't know what I don't know, and I'm hoping to get educated on some of the different concepts about this.

Jamie: and that's where we'll start today. I am Jamie Roo and welcome to What Should I Do With My Money? An original podcast from Morgan Stanley. We match real people asking real questions about their money with experienced Financial Advisors. Here at Morgan Stanley, we work with a range of clients. Some are experienced investors. Others are new to working with a Financial Advisor. On this show, you get a front row seat to hear what these initial conversations are like and get answers to some of the questions you might have yourself.

Jacob came to this conversation having done his homework. In fact, he's been managing his money using solid financial know-how that he researched himself. He told us he was skeptical about Financial Advisors because he couldn't see what additional value they could offer. But he was starting to have questions that his research couldn't answer. For instance, he wasn't sure how to tap into his company's stock to help him achieve his short-term goals, like buying a home or how to benefit from the stock's potential upside while taking some chips off the table.

To help expand Jacob's perspective, we have Kathleen, a managing director and  Private Wealth Advisor at Morgan Stanley. Kathleen has more than three decades of experience and credits a family tragedy with inspiring her holistic approach to financial planning.

Kathleen: My father, he had been a reconstructive and plastic surgeon as well as a heart surgeon. He was extremely successful at that, but he was even more successful as a real estate and liquid investor. And my father became very ill in his late 50s. And I had to immediately step into taking over, many things for him that had gone into disarray. But I quickly realized that as I met with different professionals, that you use as you build wealth that no one knew the whole story and no one knew everything we needed to know in order to get everything in order, and take care of this financial and as well as health and, emotional state, and so that really, was probably my first Financial Advisor role in life.

Jamie: And that's how Kathleen approaches her work with her clients, getting to know them, gathering data, and pulling all the pieces together into a plan that addresses their specific needs.

Jacob: Hi Kathleen, nice to meet you.

Kathleen: Nice to meet you as well.

Jacob: one thing that's been on top of my mind, I think it's going to be a big event for my wife and myself is when this liquidity event happens for the company I work at

Jamie: Jacob's Company is expected to go public in an IPO. That would mean that the shares he already owns currently valued at $1.5 million could soon be worth much more, and he expects to receive additional shares after the IPO as well.

Jacob: I do want to capture that growth. But knowing that that growth is still there, I do want to take some chips off the table and invest in, a single family home. So making this investment it is going to be quite a big chunk, but do I liquidate 50%, 75%, of what I own with knowing that RSUs are still coming also. So just want to get a better thought process around that event.

Jamie: RSUs are Restricted Stock Units. They are shares of company stock that are granted to the employee as part of their compensation package.

Kathleen: So with RSUs, when you have a company like this that's successful and you feel is going to continue to be successful, we want to model the risk reward of how much we keep, how much maybe we liquidate, how we maybe manage the risk, and keep the entire position early on, with strategies that we use, where you can tap the equity and the value without liquidating the position. And then longer term, starting to build out. Ways that that wealth becomes, first of all, protected , but also can move to the next generation and provide a safety net for them. My job is for my team to really put together all the data on one or two pages where you can make optimal decisions with our help and with our understanding of what's happened for others that are like you. Does that make sense?

Jacob: It does. And I think, um, I looked at some of the different techniques, like security based lending and things like that, but there were just, One-off activities and I think what I'm hearing from what you're saying is sort of the holistic view, a broader view which is sometimes I think I miss as I'm I get too maybe narrow focused on that so I get what you're saying. It totally makes sense. Yeah

Kathleen: Good. Good. I'm glad to hear that because really that holistic approach, that's a great word for it. It's so beneficial and having a team of professionals researching, designing solutions and customizing so that we optimize your outcomes and we guide you along the way.

Jamie: Having always been a DIY investor, one reason Jacob hadn't reached out to a Financial Advisor was because of a very common concern.

Jacob: One of the hurdles for me was the pricing model, um, the one that attracted me was more of the fixed cost versus the assets under management percentage of assets under management. Can you talk a little bit more about that to make me understand sort of the different perspectives, uh, approaching that

Kathleen: Yeah, that's a common question as we begin a relationship with a client, so, we use software, to produce financial plans, and really they're living, breathing, ongoing, integrated plans, and one of the big pieces that speaks to that preservation and that risk decision is really looking at probability analysis and applying that to where you sit now, what your plan is going forward, and, and modeling the different potentials. We can really look and say, if this is the way our planned savings and spending are going, what are the various outcomes? So there's a couple of variables. We don't know what type of markets are ahead of us for our asset class mix. We don't know how we might rebalance or change that asset class so we can model those.

Jamie: So Jacob is right in that there are different fee models that Financial Advisors may charge depending on the types of accounts and services involved. Financial Advisors like Kathleen do typically have a fee structure based on a percentage of the assets they manager. Kathleen explains to Jacob what kinds of services those fees cover and how a financial plan can evolve as his needs change. His investments are a big component of his financial plan and the asset allocation of his investments, how the money is invested among different types of investments like stocks, bonds and funds can change depending on his goals. For example, if Jacob wants to prioritize preserving his money rather than growing it, his asset allocation will be more conservative, taking on less market risk, but whatever his asset allocation may be. Kathleen's financial planning tools allow her to pressure test his plan, modeling the impact of good markets and bad markets on his portfolio to let him know the probability that he'll be able to meet his goals under a wide variety of scenarios.

Kathleen: Those models are extremely helpful because now instead of wondering or trying to decide where I sit and what. You know, should I be all about preservation or should I still, how much of a growth engine should I have?

Jacob: I really like the modeling capability that Morgan Stanley provides. I think having the visibility and the graphs and data that comes with it, that helps me to have something substantial, or sort of something visual for me to sort of make those decisions. That makes sense. That makes total sense. I'm curious for folks who, um, your clientele that sort of in, a very similar age where their salary power, at this age is probably the highest and then as I look to my next decade, the crowd gets thinner, for my role, meaning as you go into leadership, higher leadership, the roles get smaller and so fewer, too. How do other clients look at that in terms of if they want to hang up their, their gloves, meaning do they look at just passive income, making sure that your debt to income ratio is low? Should I be completely debt free? Like, how do I approach that?

Kathleen: Hmm. Yeah. This is the question, how do you approach the unknowns of the future? Focus on creating a dynamic plan and what we're looking to do is test your ability to maintain a sustainable withdrawal with a very high probability over the longest range of life expectancy possible.

So, so let's just think about you today, let's build a plan that's based on your reality today. And in that, let's model what you're currently doing, savings after expense. And that allows us then to build a range of what if scenarios that can address all these unknowns, these things you're worrying about.

What if you have to stop working or you want to, and life changes. So let's look at all the variables, inflation, interest rates, tax rates, market returns and economic cycles. How investment income changes, how growth of assets change, and what maybe you should sell and go ahead and spend, and what you should, uh, you know, maintain to keep income flowing.

Let's model them all. And then I look at where is our highest probabilities and despite maybe some really bad, markets or bad economic cycles, we're going to be okay. We can sustain ourselves and have passive income and not run out of money and have something left over for the next generation. If we so wish

Jamie: Reducing his reliance on his salary is yet another goal that can be incorporated into Jacob's financial plan and model to understand the probability of success. This is really the beauty of creating a financial plan. As your circumstances change, you can get a good idea of whether your plan still works to meet your goals, and what optimizations you might want to make to stay on track.

Jacob: One thing that stood out that I think I would value quite a bit is the what-if scenarios. Especially as I internalize those, having someone professional taking a look at that, understanding sort of the environment really well, and providing the different scenarios.

Kathleen: I think that that is really next step because going to an advisor who's going to ask you a great deal of questions, dig in, literally ask you to hand over documents so they can do the digging for you, that will yield so much in terms of positive executable things you can do today and prepare for tomorrow

Jacob: Great advice. Appreciate Kathleen. You know, I took a lot of different golden nuggets from what you shared with me.

Kathleen: It was lovely to meet you. I wish you all the luck in the world and all the best outcomes in the world.

Jamie: So Jacob, what did you think of the session today?

Jacob: It was very enlightening, definitely insightful. There was a lot of good stuff that I really appreciate from Kathleen that she shared

Jamie: what did you think about the financial planning process that she described?

Jacob: I think the value add that I’m really looking for is the modeling. So, let's say today I get a model of how I want to tackle a what-if situation the next week. That what if may slightly vary. And so, the team should be able to come up with something that is adjusted to the new what if scenario. And if I have that quick Feedback loop I'm able to make optimal decisions along the way because I have something that can respond or provide some insight pretty quickly. So I can see leveraging pretty quickly, especially as life gets more complicated as we get older.

Jamie: Are you thinking about anything differently after talking to Kathleen than you did before the conversation?

Jacob: I think, the biggest takeaway is I don't think my wife and I have to go through this financial journey alone with ourselves. We can have a team to be looking out for us also. I've always been hesitant to go all in with a Financial Advisor, but I think one thing that just clicked on me was, you know, in my field of cybersecurity, people come to me for advice for guidance, maybe initially things are pretty straightforward, black and white. But as the complexity arises, then that's where my expertise comes and shines and so, why wouldn't that apply to financial advice too?

Jamie: Thank you so much for joining us today, Jacob. It was a pleasure getting to know you best of luck to you.

If you'd like a deeper dive on what was discussed today, or if you're interested in having a financial plan done for you, come see slash my money. I'm Jamie Rowe. Talk to you soon.


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Jacob has confidently and competently managed his own money since he was a young adult and has a healthy skepticism for how a Financial Advisor would add value for him. But as his wealth grows, he tells us “I don’t know what I don’t know.” Listen as Jacob’s conversation with a Financial Advisor sheds light on exactly how he might benefit from experienced outside help.

Jacob's upbringing instilled a strong savings ethic which led to substantial assets, including investments he’s been comfortable managing on his own. But Jacob’s life is about to get more complicated as his company eyes an IPO, which could lead to a million-dollar payday. Eager to know what his next move should be, Jacob sits down with Kathleen, a Morgan Stanley Financial Advisor, who plots out a plan to help him reach short- and long-term goals, including buying a home in a hot housing market and planning a transition to passive income.

What Should I Do With My Money? is also available on Apple Podcasts, Spotify, Google Podcasts and other major podcast platforms. 

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