Podcast 155. Staying Strong During Market Volatility with Gil Baumgarten

Average Joe Finances:
0:00

Hey, welcome back to the average Joe Finances podcast. I'm your host, Mike Cavaggioni and today's guest is Gil Baumgarten. So Gil, super excited to have you on the show and thank you for joining me today.

Gil Baumgarten:
0:10

Thanks for having me. Glad to be here.

Average Joe Finances:
0:12

Yeah, absolutely. Hey, I want to kick things off the same way I start every podcast episode, and we wanna know more about you. You can go as far in depth as you want into your background or as little as you wanna share. It's all good for us, but we wanna know a little bit more about you. So if you could share yourself share a little bit about yourself, share your story. Who is Gil Baumgarten?

Gil Baumgarten:
0:31

So from a business standpoint, I got into the brokerage business in 1984. Stayed for 15 years at what ultimately became Smith Barney. I originally started at a company called EF Hutton. I moved to Payne Weber in 2000 and stayed for another 10 years there. Payne Weber became UBS in the meantime. So that's my 25 years on Wall Street. I didn't really like, the way those firms handled their business. And I decided to switch to a fiduciary business model where it's a client advocacy mindset as opposed to selling products and services to clients for a commission. It's just a different kind of of a business model. And I did that 12 years ago. I have raised a little over a billion dollars from 200 investors that basically have me establish their investment plans and go out and execute their plans for them. We have a tax centric kind of a mindset with the way we do that. And anyhow, I have nine employees and I run it. I ran like that.

Average Joe Finances:
1:32

All right awesome background. A lot of experience there, right? 25 years on Wall Street working for those other management companies before you branched off to your, to do your own thing and be more of a fiduciary versus.

Gil Baumgarten:
1:42

That's right.

Average Joe Finances:
1:43

Yeah. Versus selling products that would, get you based off commission. So being a fiduciary are you now, do you do like fee only? Is that how you do it?

Gil Baumgarten:
1:52

Yeah, fee. It's fee only. I'm not registered for any kind of side money or commission compensation at all. It's strictly off limits. Yeah, so we charge clients a percentage of their assets. Sometimes we charge hard dollar fees where, our client will ask us to work on a particular project and we'll just charge them a separate fee for that. So that's how it operates. In your listeners may not know this, but in the advice delivery business, you really have two ways to deliver that advice, and it's based on how you get paid. Anybody can give investment advice to anybody else as long as they're not getting paid for it. If you're getting paid for it, you're forced into making one of two choices. You either have to have a series seven registration and work for a brokerage firm and get paid commissions from that brokerage firm, or you cannot work for a brokerage firm and you register with the SEC and then you have to be a fiduciary. And those were the only two paths, and I just found too many cross currents that I couldn't navigate in things that I wanted to do for clients that. Were not allowed to be done in the way I wanted to do it on a brokerage platform. They had lanes they want their advisors to stay in, and those lanes don't always benefit the client, and that's where we would get into Lockhorns over the way we were gonna solve particular problems.

Average Joe Finances:
3:11

Yeah, that's fantastic. I've had a couple financial advisors on the show that are also fee-based and fiduciaries, and that's one, one of the things I appreciate about you guys is how you actually put the client first, right? You're like, Hey, I, your best interest is what we have in mind, right? It's what we wanna do and make sure that we're taking care of you. Make sure your accounts are following your plan the way that you want it set up. And that you're advising them based on, what's best for them.

Gil Baumgarten:
3:38

Right.

Average Joe Finances:
3:38

Versus what's best for you.

Gil Baumgarten:
3:40

That's right.

Average Joe Finances:
3:41

For your pockets, right?

Gil Baumgarten:
3:42

And in the brokerage business you run across in the brokerage business, you run across those issues all the time, right? And. Can pretty much navigate about 90% of it. And when your business is small, the other 10%, eh, you can deal with it. I had several hundred million of my client money and I kept running into these issues that it just wasn't the right way to solve their problems. And so I just decided to chuck the whole thing and tell people I rolled all my oranges out on the street and I had to get them back in my cart. And so that's what it was, is trying to tell my clients about a new way of doing it and it lowered all of their costs and it really made life much better for them too. And then they started referring all their friends and relatives and that's how a 250 million business at inception, 10 or 11 years, actually 12 years later, can now be a billion and three you don't do that without advocates out there for you telling their friends and associates about the differences between the way we do used to do things and the way we do it today.

Average Joe Finances:
4:42

Absolutely. It's building that reputation, right? And you get that word of mouth out there by saying, Hey, we switched up how we're doing things and now we're working with a, an advisor that has our best interest at heart. And, let me tell you about it.

Gil Baumgarten:
4:56

Yeah.

Average Joe Finances:
4:56

That kind of grassroots momentum that you get when you have that positive outreach is absolutely amazing.

Gil Baumgarten:
5:02

Yeah.

Average Joe Finances:
5:02

Yeah. So actually I wanna talk to you about that. Like, when it comes to the people that you help, the people that you advise and they're working on building their wealth, right? So how is it that, that they can go about doing it? Is there a certain discipline level that's needed? What is that like for people to start building their wealth with you?

Gil Baumgarten:
5:19

You mean, is there a certain discipline that's different on the fiduciary platform than it would be on a brokerage platform?

Average Joe Finances:
5:25

Yes.

Gil Baumgarten:
5:25

Or is.

Average Joe Finances:
5:25

Yes, absolutely.

Gil Baumgarten:
5:26

What kinda discipline do investors?

Average Joe Finances:
5:28

Yeah. What kind of difference would that be? If somebody's working on the brokerage platform right, and then they switch over to the fiduciary platform and they're working with somebody that has their best interest, what kind of discipline is needed for them at that point?

Gil Baumgarten:
5:40

Okay.

Average Joe Finances:
5:40

Because cause on the brokerage platform, it's pretty much like here it's. You're buying this product and that's it, right?

Gil Baumgarten:
5:46

Yeah.

Average Joe Finances:
5:46

Where with, somebody that's a fiduciary that's actively working with you to help you build your wealth, what, there's a difference in that mentality.

Gil Baumgarten:
5:54

Yeah.

Average Joe Finances:
5:54

On the investor side.

Gil Baumgarten:
5:55

I'll give you a couple of specific examples. In the investment world being a broker, let's say my firm might do a deal with AT&T and it would be a structured note that said, if AT&T's share price does this or that between these dates, then I would get this guaranteed return and it would be a note issued by Merrill Lynch or UBS or whatever else. And so there might be a three or four. Commission built into that vehicle. So a client puts $10,000 in it and the broker would earn three or 4% of that. Now, contrast that with the way a fiduciary would address that. You could actually create, in almost all of those circumstances, an AT&T synthetic long position with options that would have the near, exact same characteristics and the client could make that transaction for less than three-tenths of 1%. So the commissions that are embedded in a structured product are almost always multiples bigger than the exact same thing that could be created if the client really understood what the characteristics were and the other synthetic. Vehicles that could mimic that and match the risk and reward without matching the cost structure of the way the brokerage firm wanted that to be promoted. That would be issue number one. Issue number two would be when I worked at UBS at the time, and I don't know if they still do this or not, Vanguard Mutual funds were not allowed on the flatform. The reason being Vanguard is a nonprofit. It's costs and expenses that they pass through to investors are a fraction of pretty much everybody else's cost structure. And because Vanguard would not pay soft dollar money to the brokerage firms, they were pretty much persona non grata. Additionally, Vanguard does not put 12B-1 fees into their mutual funds that would kick back revenue to the brokerage firm that custodied it on their platform. So if you buy a mutual fund from you name, it doesn't matter any of the big firms. Let's call it Invesco. In many cases, Invesco is gonna have a 12B-1 fee of a quarter of a percent embedded in their expense structure. And if their mutual fund sits on Merrill Lynch's platform, Merrill Lynch is gonna get that quarter of a point. Kicked back and it's totally invisible to the client. And then that fee ends up feeding part of the ecosystem at that broker's room. Vanguard does not play that game at all, and because of that, they're not known to be greasing the skids and therefore they're mutual funds are not allowed on many brokerage platforms, when in fact, an A client who has needs might, those needs might be very well served by an extremely low cost mutual fund, such as Vanguard, where in that case, I was not allowed to show that to a client.

Average Joe Finances:
8:51

Yeah that's a great point. And that's one of the biggest differences too, right? You can custom build these products like I was saying before, like that has your client's best interest at heart for what it is, what risk they're willing to take, and what it is that they're trying to do with their money before they invest it, versus.

Gil Baumgarten:
9:06

That's right.

Average Joe Finances:
9:07

Having to go. Strictly into I guess the structured plan that the the brokerage has for them.

Gil Baumgarten:
9:13

Yeah. That's awesome. And so in many cases, the broker does is put in the position of BA basically being a money harvester. From their friends and associates in the community. And then they plug that into a system and the brokerage firm wants to take it from here. And many cases, there's two or three levels of fees. The broker gets compensated on one level, the firm gets compensated in the split arrangement with the broker, but then the firm turns around and invests the money with other third parties that also charge fees, many of which is hidden from the client. And many people. Maybe even Most people believe that if a cost exists, it has to be shown on their statement as a deduction. So if you have a hundred thousand dollars account and a thousand dollars fee was charged, most people think they're gonna have to show that to me as a lion item on my statement. Nope. That rule only exists if you're doing business with somebody like me. All of my compensation has to be shown as a line item on a statement. A brokerage could actually invest you in a vehicle that deducted the thousand dollars from the a hundred thousand and just simply put a $99,000 value on your statement and the thousand dollars just completely vanished. And would it end up in the ecosystem that compensated all the providers? Without the client ever knowing that money was gone. Now that will show up on a disclosure document, but you would have to be going through these big documents that they know you are not going to read in order to ferret out what it is that you're actually paying. And so that dark money does not exist on the fiduciary side of the business and it is prevalent on the brokerage side of the business.

Average Joe Finances:
10:52

Yeah, no and those are key differences that, that people should understand. cause I have An account for my children set up right now through a brokerage. And I do, I get those statements in the mail, with the disclosures and you really have to look through everything before you get to the part where you can actually see the fees charged.

Gil Baumgarten:
11:07

Yep.

Average Joe Finances:
11:08

And everything else, which. When you think about it you might not think it's much because you're saying, oh, look, I'm getting this much of a percentage of a return. But what you're not realizing is how much more you could have made if you weren't paying those fees.

Gil Baumgarten:
11:18

That's issue number one. And people should also remember that the fees are applied to the entire dollar value of the investment, not to the return portion. And there's a lot of confusion where somebody says I'm making 8% and I'm only paying 1%. That's not 1% of 8%. That's 1% of a hundred percent. And if that is one percentage point, that's 12 and a half percent of your return that goes to that fee. And then that fee repeats itself every year, you're talking about a 30 or 40 years later. There's a dramatic difference between whether you're paying a one and a half percent fee or you're paying a half a percent fee, and people lose sight of that because the numbers seem so small. They're not small at all.

Average Joe Finances:
12:01

Yeah, just think about it from the point of, when you reach a million dollars, how much that 1% is costing you at that point.

Gil Baumgarten:
12:07

That's right.

Average Joe Finances:
12:07

Right?

Gil Baumgarten:
12:07

That's right.

Average Joe Finances:
12:08

That's huge. Okay I want to talk about somebody that's getting out and getting started and they want to start building their wealth. Do you think that they should pursue aggressive tactics to, to get ahead quickly or what are your thoughts on that? I would say somebody that's just starting out in life, right? They graduated college, they got their, they got their job. Now they're paying off their student loans, but they wanna start investing for their future because they don't wanna wait until they're 60 years old. 60 years old to retire. And they wanna go aggressively. So what would you say to somebody like that?

Gil Baumgarten:
12:37

I think that, first of all, that's a fantastic question. A natural inclination on the part of young people is to do aggressive investing because they feel like they're so far behind. Or they might just simply have very high expectations about, how rich they're going to be by the time they're 29 years old, and I really have to hit some big licks in a bunch of Bitcoin in order to really get this ginned up so that I can pound my chest in front of all my friends and show them how much smarter and more successful I am. That's really what's going on. Now, not everybody will admit to that. Maybe they'll admit to that when they're looking in the mirror, but they're not going to admit that to somebody else. For all the successes and actually being successful at that would be the worst thing that could happen to them because it would affirm them in a very bad pattern of behavior that sooner or later is gonna undermine them. And what they're going to find is 10 or 15 years later after hopping from speculative investment to speculative investment. Maybe with a little bit of success here or there. Failure in the end, what they're gonna lose sight of is one, the taxes that they pay when they are successful and when they are not successful, it's generally not deductible. That's issue number one. And they're going to lose sight of the fact that the. They could have been invested in something else that would've doubled or tripled in value. So many people start with their$10,000 and four years later they feel fine about themselves because they still have $10,000 and they haven't totally wrecked themselves. But they've probably lost sight of the fact that in that same four year time period, the S&P-500 doubled in market value and they're already $10,000 behind and they don't even know it. So those are the enemies. And Most people, by the time they are 45 or 50 and have really fallen short of their expectations, that's when they begin to develop better patterns and habits. If they had those better patterns and habits when they were 25, they would've already been a hundred thousand dollars ahead of the game by the time they are 45, and that's gonna be a million dollars difference when they're 65. And Establishing good habits early on would be a much better way than being highly speculative and getting stung a time or two. So that's the way I would tell people to be careful.

Average Joe Finances:
14:57

No I really like that. As a matter of fact, I think this is a really good time to mention your book, right? Because I feel like this kind of outlines that, right? Your book is called Foolish How Investors Get Worked Up and Worked Over by the System. And I know we touched on some of the stuff that's in that book earlier about, some of the brokerage fees that are involved in the system, right? So can you talk about your book a little bit.

Gil Baumgarten:
15:18

Sure.

Average Joe Finances:
15:18

How it touches on these items? Especially for somebody that is looking to start investing and build their portfolio and build their wealth.

Gil Baumgarten:
15:27

I think the book is appropriate for investors of all stripes. I don't think it, somebody who is a neophyte, I think would be able to relate to a lot of it. Many of the things that we touch on in the book are going to be "AHA" moments for people who already have a string of bad experiences. But I think anybody can get something out of it. So the book is essentially the first one third of the book is about the brokerage industry, how it operates, where they make their money, where they deceive people or confuse people or deliberately construct a narrative that doesn't really exist and they get people. Hopeful in playing the game and how they make their money and where their conflicts of interests are that's the first third of the book. The back two thirds is about the reality of being human, being greedy, being fearful, and how all of these. Mental ego issues pollute the ecosystem with regard to how we decide to do things when we decide what we are pressured by, what we aspire to. All of those issues are repeating patterns that in 38 years of giving advice to thousands of people and doing billions of dollars of transactions on their behalf, I see the same mental issues come up over and over again and repeat bad behavior that is not profitable because people don't understand taxes, they don't understand their vulnerability to ego and desire. They don't understand that they fear a loss much more than they desire a gain that causes a warped sense of how I take risk. All of those things are flushed out in the book so people can identify with it and maybe refer back to it when they're faced with a decision and say, I remember that book that I read that gave me tips on how to get around this. And so that's really what the back two thirds of the book is about.

Average Joe Finances:
17:22

Now I like that. So one of the things I wrote down as you were talking about that is like this mentality of greed, ego, and desire, right? That I think a lot of people face when they start investing, especially if they have it in their head that, I'm gonna go in, I'm gonna go hard, I'm gonna make a lot of money, I'm gonna become a millionaire. So they put this in their head right from the very get-go. And it's one of the things that Can harm them in the future. Because they have this. I guess you could say they're ego investing, right? It's all about, Hey, what can I put into and get this return so I could be like, Hey look at what I'm doing guys.

Gil Baumgarten:
17:59

Yes.

Average Joe Finances:
17:59

Versus something that's more safer and gradual. Yeah. Index funds, mutual funds and things like that where you're gonna build your wealth over time with compound interest. I think everybody looks for that quick hit that dopamine shot.

Gil Baumgarten:
18:11

Yep.

Average Joe Finances:
18:11

And so what are your thoughts on that? What are some ways to get around that, that there's a dopamine environment.

Gil Baumgarten:
18:17

There's an element of a rush that people get from making a decision, making a profit. And one of the patterns that comes out of that is that somebody will assemble a portfolio that they think is diversified, and that might be nine tech stocks that share super commonality between them, and that is not diversification. So those are really nine speculations that they've put in their portfolio, and the first one that jumps 10%. They're gonna sell it. And the reason why they're gonna sell it is because it prints a profit. I can feel good about myself and I can go tell all my friends, and I'm not risking the loss of my 10%, the other nine are gonna go down in value, and they're not going to sell those because that would affirm to them that they had made a bad decision and nobody wants to be affirmed in that. So you have a pattern that repeats itself, that people sell their winners and. Their losers, and that means they end up with a portfolio that's chopped full of losers because they've already sold all their good ones. Mathematically, they should sell the worst performers every month and try something new. If they're going to keep themselves in this speculative vein, because the$10 stock that went to 11 is the one that's most likely to go to a hundred. And they end up selling it before it can ever manifest in a large profit. So that's one pattern that I would tell people to be aware of, and frankly, they would've been way better off to have done what you said, and that is to buy an index fund.

Average Joe Finances:
19:44

Yeah. And I bring that up because I have done that in the past. Right there, there was a particular stock that I bought that, that jumped up. Like I, it doubled in value, right? And I said to myself, oh, great. I doubled my money. I'm gonna sell it. Three months later, it was worth 25 times , what I bought it for. And I said.

Gil Baumgarten:
20:03

Yep.

Average Joe Finances:
20:04

This $4,000 investment would've been worth $500,000 if I would've just freaking left it alone.

Gil Baumgarten:
20:10

Yep.

Average Joe Finances:
20:10

But I let that get to my head that I doubled my money and I'm, and I still tell myself, Hey, I doubled my money. It was a good profit. I went from 4,000 to 8,000. If I would've just pulled the 4,000 out that I initially invested, just let it sit there, I still would've made $250,000. But no, I let that ego get to me that I doubled my money and I pulled out. So I think that's a very good point. And and I wanted to talk about that because I've experienced this myself. And now, I focus mostly on real estate, right? But, or what I'm investing in the stock market for, on the side and also for my children. I stick with index funds or mutual funds, stuff that I can see gradually. Compounding and doubling over a seven year period. I like that it's something that's safe for them. And that, by the time I go to give them this and say, Hey, you're 18 now and I've been putting this money away for you, and here you go, start your life. It's gonna be a very healthy amount of money.

Gil Baumgarten:
21:07

Sure.

Average Joe Finances:
21:07

And I would recommend to them to actually. Leave it alone. You have this on your corner. Go do something else. That would be my initial advice to them is not to sure. To take it right. And let it just keep building. But I, I think it it's good to, to have that discipline right. To not get so hotheaded when you see something magical happening and you're like, oh, cool, I'm gonna go ahead and cash this out. Let it keep riding.

Gil Baumgarten:
21:29

Yep.

Average Joe Finances:
21:29

And stay safe.

Gil Baumgarten:
21:30

Yep, I think that's all good advice. Another thing that people young in their investing career, also tend to do, and that is that they want to find ways to display their success to other people. They'll buy a fancy watch, they'll buy a fancy car and that's all fine. And I've been through that phase in my life and still exhibit some of it today. But the wealth is really the sum total of all the money you've never spent. And many people want to display that wealth. I can tell. You buy a Rolex and it's not worth the same thing tomorrow that you paid for it today and 10 years from now, it's gonna be worth even less. And the more important thing is that the index fund that you could have bought instead might be worth three times the amount of money that you put in it, or in this case, six times the value of your residual Rolex. And so that's another pattern that I see people display and they will also borrow money. To buy things that decline in market value, which only augments how bad that investment becomes. Borrowed money against a car, for example, only makes the loss when you sell it in the future worse because you also paid interest to carry that vehicle and you had to pay for insurance and so on and so forth. I tell people never borrow money for something that's going to decline in market value. Borrowing money is great if you're gonna start a business. Borrowing money is great if you're gonna buy a piece of real estate. Borrowing money is great if you're gonna get a mortgage and, buy a house. Those can all appreciate in market value borrowed money is not a problem for those kind of things, but borrowed money to go on a vacation, borrowed money for a piece of jewelry, borrowed for those kind of things, do not do it.

Average Joe Finances:
23:15

Yeah I really appreciate that because that, that is like the premise of how, why I started this podcast and why I started average show finances, right? Was because I had put myself in those situations where I had a large amount of credit card debt. I had a large amount of personal loans and auto loans and just just things that were not giving back to me. I was spending this money and it wasn't working for me. And once I disciplined myself and realized what this difference is between. Employing my dollars to work for me versus me spending it and not getting anything in return, right? Besides that, that maybe short dopamine hit and that self-gratification of having a new car or, buying this this thing that I really wanted and just swiping it on my credit card.

Gil Baumgarten:
24:04

Yep.

Average Joe Finances:
24:05

Because I couldn't actually afford it at the time, with cash. And I think that's like the biggest piece that people should take away is you got to discipline yourself to not go after the shiny object, right?

Gil Baumgarten:
24:17

That's right.

Average Joe Finances:
24:17

Shiny object syndrome that everybody gets. Sure. Now I just recently retired from the Navy after 20 years I bought myself a Tesla last year. It was my retirement present.

Gil Baumgarten:
24:25

There you go.

Average Joe Finances:
24:25

And that, that's one of the things that I was like, I'm giving this to myself as a reward for a good career, right?

Gil Baumgarten:
24:31

Yep.

Average Joe Finances:
24:31

Whereas if I was to go do that today, I would probably not go buy a brand new car. I would go buy the car that I could afford cash because again, it is something. The day you drive it off the lot is worth less than the day that you bought it. As soon.

Gil Baumgarten:
24:45

That's true.

Average Joe Finances:
24:45

As you take it off the lot it, it depreciates in value between 10 to 15% immediately.

Gil Baumgarten:
24:50

And this has to be a repeating way to value things.

Average Joe Finances:
24:55

Yeah.

Gil Baumgarten:
24:55

In the way you affirm yourself and the way you feel about things. Some people are shopaholics, people have different ways that they've manifested and frankly, I have to admit, I have a weakness for cars. I have owned some really expensive cars. I have always been able to afford them because I've made a good living. I'm 63. I could have retired a long time ago. I have plenty of money. But even my last half dozen cars have all been used. I just would not pay the premium for the, a hundred thousand dollars car that I wanted. I would let somebody else drive it for a year and I would buy it. I actually bought a used Range Rover three years ago that was a year old. Somebody had bought it on a lease and paid 116,000 for it. They put 34,000 miles on it comes off the lease and it. Clean, I paid 58 for that. Ranges. Now here I've got a fantastic car that's got a few miles on it, but I saved myself the other 58,000 to get to 116, and I have invested that money since then. So that's the way that E, even though I could afford to buy a brand new Range Rover, I will not do it. There's just not enough value in it for me. So I buy the used range rover.

Average Joe Finances:
26:07

Look at that one year later. You got it for half price. Half price, absolutely insane. So like right now, I'll give you an example of so my wife drives a 2013 GMC Terrain, right? That we paid off years ago and we,

Gil Baumgarten:
26:21

and it cost you almost nothing to own it now.

Average Joe Finances:
26:24

Yeah and we don't, yeah, we've had a couple big maintenances come up and everything, but that's the thing. We keep up with the maintenance, we keep up with everything, and it's been a fantastic vehicle and we're gonna ride that thing probably until it falls apart. I just replaced all the tires. But, it's really a great feeling to know that we're, we don't have a note, we don't have a payment on this car. I was able to drop my insurance down because, all I need is liability insurance.

Gil Baumgarten:
26:47

That's another point. So when I was in my thirties, I had a Chevy Blazer and I spun it out on a icy road and wrecked it. And at the time, this was many decades ago. It was $1,300 worth of damage and I had a $250 deductible on my insurance. I called my insurance up, told him I had this little fender bender, and I filed this claim and he said, I got to tell you, your insurance premium is gonna go up because now you're not in low risk coverage. And I said how much is my premium gonna go up by? And how long is that gonna last? And he said your premium's gonna go up by $700 a year, and it's gonna last for three years. And I'm like, , that's $2,100 that I'm gonna pay in additional premiums. I've got a $250 deductible and whatever it was, $1,300 worth of damage. I'm gonna get a check for a thousand dollars and I'm gonna give you back$2,100 in return in increased premiums. He said, that's pretty much how the math works. And I'm like why did I not have a thousand dollars deductible to begin with? I could have lowered my premiums and then self-insured for this first piece of this because of the way this risk dynamic works. And he says you probably should have done that. And I said, you probably should have told me about that five years ago when I bought this policy from you. So you're fired as my insurance agent. And I went and hired a new insurance agent and raised all my deductibles and it's. Now a number of decades since, and I have not filed another claim, and I've saved all of those years of that $700 premium that I now just simply have a larger deductible on my car insurance.

Average Joe Finances:
28:21

Yeah I'm glad you bring that up because I've always had a thousand dollars deductible on my insurance policies because

Gil Baumgarten:
28:27

That's the largest they'll let you have.

Average Joe Finances:
28:29

Yep.

Gil Baumgarten:
28:29

I told him I wanted a$5,000 deductible so that I could get my premiums down to three or $400 a year. He goes, we don't do it that way.

Average Joe Finances:
28:37

Yep, yep. Absolutely. And it's the amount of money that you save on that insurance premium is enough for you to pay for any damages that might happen anywhere

Gil Baumgarten:
28:46

Absolutely Year after year. That's exactly the way to do it.

Average Joe Finances:
28:50

Yep. No that's, man, that's fantastic. So I, I appreciate that. Gil, this has been an absolutely fantastic conversation. really feel like that discipline piece and that mentality piece that you talk about both in your book and what with the. with what you shared with us today is absolutely what people need to be successful no matter what route they go down, right? So I wanna transition this into something that I call the final round. It's where I'm gonna ask you four questions that I ask everybody that comes on the show. But it's gonna be more based on how does Gil react when he's putting in tough situation, so if you're ready to go, we'll get that party started.

Gil Baumgarten:
29:23

Okay I'm ready.

Average Joe Finances:
29:24

All right, Gil, let's do this. So the first question of the final round is, what's the biggest mistake you've ever made in finances or investing?

Gil Baumgarten:
29:33

10 years ago, a buddy of mine who was in the oil business had a buddy of his who had been drilling wells and had done really well in East Texas and wanted me to put $250,000 of my own money in a drilling program, and what I didn't understand at the time is that guy was drilling offshore rather than onshore, and I think he would've been successful given enough time. He was a great guy with great experience, and it was just a fluke that. At the same point in time, the oil market went from a hundred dollars oil down to $20 oil and ultimately went to zero in 2020. And it wiped out a whole bunch of oil investors in late 15, 16, 17, and my $250,000 essentially went kaput. And so that's the worst investment I've ever made. I also bought a Mini Cooper when they first came out in 2002. I had the third one in Houston and they were trading for a huge premium, and I just had to have one. And so I bought a Mini Cooper and then, year later I was tired of it and I could only get about half my money back because it had depreciated. And then the $5,000 sticker premium that I paid for one had dissipated by that point in time because they weren't so new anymore. And so that would probably be my second worst in.

Average Joe Finances:
30:48

Yeah. That fresh, that freshness of, or the new the whole new I don't know what's the right way? Like when something new that comes out, that's like the trend. The trend. That whole trend.

Gil Baumgarten:
30:57

The trendy premium.

Average Joe Finances:
30:58

Yeah. Yeah. That whole trend just died down. And what was it the Italian job that came out that made the Mini Cooper so popular, right? Yeah. Yeah. That kind of hyped it up a bit and then it just In a way. Yeah. Oh man. I appreciate that transparency. Especially with that investment in the oil industry.

Gil Baumgarten:
31:12

At first, I recalled from it. I thought, oh my gosh, I'm gonna change the way I invest my money. No, it was just a fluke of timing, and that's another thing that I would give as a. Vice. Do not let a setback like that sort of undermine your confidence. You have to get back in the game. It's almost like falling off of a bicycle. You do not put your bike in the garage after that. Get back on that bike and figure out what you did wrong. Because that's the key to getting your 250 back. And I've made that 250 back dozens of times over since then in other things that I could have avoided if I had, taken it too seriously.

Average Joe Finances:
31:45

Yeah. A lot of people they get that t ime where they make a bad decision or they invest in something that doesn't go the way that they had hoped and they completely step away from that. And one of the things that, especially as a real estate investor when you have something like that you run into a deal and it turns out to be a bad deal. A lot of people walk away after that. But, in, in this space, whether it's in real estate or in stocks or any other private investment that you go into the way I look at that is it's education, right? You learn something out of that. It might be an absolutely expensive education but it's something that you learn and you shift how you do things. But you don't completely walk away. Don't let that be the catalyst that makes you say, oh, I'm just gonna keep my money in the savings account. Because if you do that, you're losing, what seven, eight, 9% a year just to inflation, yep. Yeah. That's huge. I appreciate that. My next question kind of ties into this and that is, what is something that you've learned that you wish you knew when you first started?

Gil Baumgarten:
32:37

I wish I understood the tax code because there was a lot of mistakes that I made by not following the path that the government gives you the greatest incentive to follow. So if you look at the way tax deferral works, the way ordinary income taxes apply, the way ordinary income taxes apply based on your level of earning the. Capital gains are taxed the way short-term capital gains are taxed. If you look at all that in an ecosystem and if you understood it on a spreadsheet, there is a definite path that you would follow that led to the maximum amount of outcome. And I did not have that spreadsheet memorized when I was younger, and I stumbled right into some big tax traps that I never really understood how they worked. Years later, I look back on my behavior and I'm like, oh my gosh, if I had only known how that spreadsheet was laid out and through the school of hard knocks, I pretty much memorized where all those pain points were and had established a different set of priorities with regard to how I approached decisions. I tend to avoid most anything that generates ordinary income and I look for dividend or long-term capital gain because the taxes are twice. And and I don't overvalue deferral, I value tax free and I value step up and basis rule and I value 23.8% maximum tax on long-term capital gain. And so I have these trade-offs where if I'm looking at a vehicle that generates ordinary income, it's gonna have to be 40% higher because the taxes are 40% higher. So that's the, that would be what I would put on that list.

Average Joe Finances:
34:14

Okay. Yeah, that's that. I really appreciate that. I feel like a lot of people they don't realize how much money they lose in taxes. Where, the, if you just understood the tax code itself and or not, you don't even have to understand it fully, but you have a good understanding about it and you have a good CPA that understands, how you invest. Not just your, somebody that's gonna go into QuickBooks and do it for you, right? Yep. But somebody that really understands whether you're investing in real estate or the stock market, how to claim certain losses how to claim depreciation and how much money you can actually save on that tax bill by doing it properly versus just saying, oh, I'm gonna file my taxes and yeah, this is how much I made this year, this is how much I had in gains. And you. Properly filing. The losses that you took or the depreciation that you can claim can really be a large amount that you wind up paying that you didn't have to pay.

Gil Baumgarten:
35:04

That's right.

Average Joe Finances:
35:05

So I think that's awesome. Okay. The next question again, ties into this, is do you have any tips or tricks that you would recommend as someone that is just getting started today?

Gil Baumgarten:
35:13

Start out small and start out systematically. You can buy mutual funds online. And do not rely on your willingness to write a check to your mutual fund, put it on automatic bank draft, because I have had people say, yeah, I wanna do this. I wanna invest a thousand dollars a month, and I wanna do that from here till, my kids are 18 and they look up two years later and think that they've made 24 deposits. And they ask me how many times that they've sent a check in. And I say, it's just doesn't happen with the frequency that it could, if they had an automatic bank draft where they were sweeping that money out it is surprising how fast 30 days transpires and you just need more discipline. And an automatic bank draft is a way to put discipline into the process, and you'd be blown away by how big those numbers can get if you start early and do it.

Average Joe Finances:
36:08

Absolutely. I actually have mine set up that way twice a month. It's going into my kids' account yep. Yeah. Fantastic. Having that automatic and just like set it and forget it type deal. And then I look at my quarterly statements and say, oh, okay, cool. This is what's happening and this is how much

Gil Baumgarten:
36:22

That's right.

Average Joe Finances:
36:22

I tell my kids all the time, I'm like, I'm not gonna tell you how much you have, but you guys have like more money than me. Okay.. So just leave me alone. You're gonna be okay. Yeah. So yeah that's awesome. All right, so the next question is this is an opinion-based question, but do you have a favorite business? And I'm gonna preface this with, besides your own, do you have a favorite business investing or real estate related book or podcast, or both?

Gil Baumgarten:
36:43

I really like the Intelligent Investor by Ben Graham. So that Ben Graham was Warren Buffett's economics professor at Columbia. The book is probably 50 years old, but there's some real pearls of wisdom in there. Don't be intimidated by the big thickness of it. You can skim it. Go into the table of contents and just look through there and find some of the nuggets of information and go look that up. You don't have to read the whole book. There's a lot of formulas in it. It can be very intimidating. Do not let that stop you. There's all kinds of very practical words of wisdom about how to view the world. And Ben, that, that book by Ben Graham would be one I'd put very high on my list.

Average Joe Finances:
37:20

Awesome. Thank you so much for that. And by the way you describe it, that might be one of those ones that might be a good Blinkist read, right?

Gil Baumgarten:
37:26

That's right.

Average Joe Finances:
37:26

Or one of those programs that can give you like the important nuggets that you need out of that Yeah. That book. Absolutely. Yeah. That's awesome. I'm gonna have to add that to my list, awesome. All right. Hey Gil. So this has been awesome. That is it for the final round. That is all the questions I have for you. However, I do have one more question. It is the most important question involved. So for the listeners that have been listening to this episode, saying, man, like I really. Appreciate Gil's transparency and how much of fiduciary he is and how he's got the client's best mind at heart. I wanna know more information about him. I'd like to know where I could find him. Do you, so do you have a website, social media, or anything that you could share with us where people could find you and where can we find your book?

Gil Baumgarten:
38:05

My book is on Amazon. It's called Foolish and you'll be able to find that there. It's also on Target. It's at the Harvard Bookstore. There's a couple of different places that you can buy it online. I have two websites. My business website is called Segment Wealth Management, so that's segmentwm.com. So what we do for clients. And how we do it is all there. And then I have a Gil Baumgarten website that is more information about the book. I'm an artist and I do artwork and some of my more personal stuff is on my personal website. And that'd be gilbaumgarten.com. Gil with one L. And then what else did you ask me in that? I think that's it.

Average Joe Finances:
38:41

You have any social media? Oh, you have social media?

Gil Baumgarten:
38:43

I have LinkedIn and I have Facebook and, all that. And Segment Wealth has its own LinkedIn and Facebook page. We also, I also write a blog every two weeks. I write about, Interest rates or the stock market, this or that, or taxes or IRAs or whatever and you can sign up for free, segment wm.com/blog. We won't solicit, we don't share our list. We don't ask people for anything. We don't call, we don't do anything. Go in there and put your email address in there and whenever we write something, it'll come into your inbox and you can unsubscribe anytime. And there's no charge to get it.

Average Joe Finances:
39:20

Yeah. That's awesome. Thank you so much for sharing that with us. Great resources for my listeners, I will make sure that those links are in the show notes to make it easy for you, so you can just click away or copy and paste. Just don't do it while you're driving. Gil, this has been fantastic. Thank you so much for taking the time to, to chat with me today.

Gil Baumgarten:
39:36

Glad to be here. Thanks for having me.

Average Joe Finances:
39:38

Absolutely. And hey, to my listeners, thank you so much for joining me and our special guest, Gil Baumgarten, on the Average Joe Finances Podcast. Go leave us a five star review and tell us what you liked about today's episode with Gil. Aloha from Hawaii and have a great rest of your day.