Afford Anything - Q&A: My Company Is Going Public and I Have No Idea What to Do – Plus, Should I Fire My Advisor?

Episode Date: June 24, 2025

#619: Dave is no longer happy with his financial advisor, but he’s nervous about switching over to self-management after being completely hands-off for so long. What should he do? An anonymous caller keeps hearing about the benefits of Cost Segregation for investment property. What is it? And should he apply this strategy to his recently acquired duplex? Another anonymous caller is eagerly anticipating a windfall from his employer’s upcoming IPO. How should he prepare for this, and what happens if it fails? Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode. Enjoy! P.S. Got a question? Leave it at https://affordanything.com/voicemail For more information, visit the show notes at https://affordanything.com/episode619 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, you were a financial planner for how many years? 16. Would it be sacrilege in your profession to tell somebody who has a financial planner to go do it themselves? No, not at all. Not at all. We're going to tackle a question from somebody who is asking about just that. We're also going to discuss in the world of real estate cost segregation. What is it?

And is that something that if you're a rental property investor, you should be looking into? And we're going to talk IPOs. All of that's coming up right now. Welcome to the Afford Anything Podcast, the show that knows you can afford anything, not everything. This show covers five pillars, financial psychology, increasing your income, investing, real estate and entrepreneurship. It's double-eye fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia.

Every other episode ish, I answer questions from you, and I do so with my buddy, the former financial planner Joe Sal C-high. What's up, Joe? Hey, Paula, what's going on with you? I am doing great. It is officially summertime here in New York City, which a lot of people complain about because people don't like it. What? How do you complain? There are people who don't like the sweltering weather in New York. I say bring it on. I love the summertime in the city. I saw a video the other day. Some of these creators on YouTube are so funny. They make shorts.

And this young woman going, okay, well, it was great. We'll see everybody back in September and had a fantastic time. And then there's like a pin drop. And you hear then this other voice, which is ostensibly, Paul, her boss going, no, there's no summer vacation from your job. She's, wait, what? We have to do this every day? Wouldn't that be great? In Europe, they at least take August off. Let's go.

I'm down with that. Who do I got to vote in? Vote for Pedro. I've never seen the movie, but I know the reference. Humble. Whole different show, people. That is a whole different podcast. We'll do some other day.

The movies I haven't seen. Is that the title of the episode? movies Paula knows all the lines too, but is never seen. Yeah, that's, it is actually quite a long list. Okay, you and I, before we hit record, we're talking office space. You have seen office space, though. I love office space. One of the best movies that I've seen, although that's not saying a lot.

Also, one of the only movies that I've seen. But you saw a great one. Oh, yeah. Because for people that haven't seen the older movie office base, there are so many quotable lines. You don't need a million dollars to do nothing. Look at my cousin. He's broke. Let's go to our first question today, which comes from Dave.

Hello, Paul. I am Dave from California, a long-time listener and second-time caller. My question is related to working with a financial management company that operates with an assets under management model with a yearly flat-rate membership fee. For some background, my wife and I use a referral link to a company you shared on your podcast back in 2021. Without saying the name, it starts with an F. We've been working with the company and have had great success working towards our financial and retirement goals. We feel like we are in a solid place financially with their help. However, recently the company significantly changed their customer service model

and we're not overly excited about the change and are considering moving on. We've considered the idea of self-managing our investments, then have an hourly fee, CFP, take a look at our portfolio as needed. However, we are reluctant because we are accustomed to the AUM model in having them manage the asset allocation and everything that's involved with that. With the many nuances of investing in personal finance, we fear that we may miss something if we self-manage. What would you recommend we consider in making this decision?

For some quick background, we pay a flat fee of $2,400 annually for their services. Our invested assets currently sit at $410,000, which include a combination of a brokerage account in Roth IRAs at $205,000 and $457 plans at another $205,000. Our IRAs and brokerage accounts are currently invested with fidelity through the financial company. We max out our Roth IRAs, we contribute 10,000 annually in our brokerage, and I max out our 457 contributions. We both have defined benefit plans for our government employers, myself with a 3% at 60 benefit,

and my wife with a 2.5% at 65 benefit. We are looking to retire in 10 to 12 years. We are both 44, which will give us 33 to 35 years with our employers in the defined benefit plan when we step away. And this will be our primary income stream in retirement. wife and I appreciate any guidance on the matter, and thank you for answering our question. Oh, and one last thing. A big shout out to Steve for everything he does. Thanks, Paula. Dave, thank you for being a long-time listener, a long-time afforder, a second-time caller. I am so curious as to which company this is, because I can think of a company that offers

financial planning services that begins with the letter F. It's five letters. It also ends with the letter T. But I just looked up their pricing model, and their prices are $2,100. 3300 and then over 6,000, depending on which tier you're in. So that doesn't jive with the 2400 that you laid out. And also this company that begins with an F, five letters, ends with a T. Also, this company, to the best of my knowledge, I think the first time I mentioned them was in 2024. So I'm actually racking my brain trying to think of. I just thought of one, Paula.

It's an assets under management model. I cannot stand them. They're marketing. I don't know much about the company. I know about the founder and I know their marketing is baloney. It's garbage. It drives me crazy. They're like, this is how we're different. We're so different. And then they proceed to talk about how they do things the same way everybody else does it. We're so different because we make more money when you make more money. Oh, like every other assets under management model. Yeah, that's great. Huh. Interesting. Okay. I'm trying to think of what that company could be. I can tell you which one it is. And I will go on record saying, I do not like this company. You don't have to. All right. Breaking news.

Breaking news. If anybody here is listening to Stackin Veggman's, I've railed against this company for a long time. Fisher investments. Oh. Fisher investments. Yeah. Ken Fisher. The son of Philip Fisher.

Yeah. Ken Fisher, who made the incredibly horrible statements a few years ago and then just shoves a bunch of money into more advertising so people forget what a classless human being he is. Once again, my opinion. I didn't even hear about the statements. I'm missing out on. Oh,

investment gossip. Horrible. The stuff that he said is the kind of stuff just out of touch billionaires say. And their advertising is so misleading. We are so different than everybody else. And let's explain a bunch of things that everybody else does so we can tell you that we're different when we're not. I don't think I would have mentioned, or I certainly wouldn't have recommended Fisher investments. What would I have said in 2021?

I'm really racking my brain on this. Ken Fisher is the son of Philip Fisher. Philip Fisher, his father... Phenomenal growth investor. Amazing, fantastic. When you think of the two styles of investing, there's growth investing and there's value investing, right? Benjamin Graham is known as the father of value investing. Philip Fisher is known as the father of growth investing.

Ironically, his son is a value investor. I'm a huge fan of the dad, Philip. I've never recommended the son, Ken. So I don't think... You don't think it would be them. I don't think it would be them. So the company that I'm thinking about Facet, which is a company... company that I recommended starting in

2024 and that I still recommend, they have a flat fee model. But FASET, their pricing model is $2,100 a year, or $3,300 a year or $6,600 a year, depending on your pricing tier. So when he said that he's paying a flat fee of $2,400

a year, it doesn't jive with their prices. Yeah, unless he got some add-on fee, add-on service, I don't know. But there's lots of firms that begin with F, so it could be something else. And speaking of F, I just want to be very clear about Ken Fisher here. I don't love the founder. I don't love things he said. And I also don't like their advertising. I don't know anything about what happens inside the company.

I think the advertising is misleading and the founder has done some very eye roll things. So just to be clear, if anybody uses Fisher investments and they're happy with them, I don't know anything about that. All right. But regardless of which company it is that Dave's talking about, let's go to the core of his question. Core of his question is, he has been with this company since 2021. He has historically been happy with them. But recently, the firm changed some element of its customer service model. Dave and his wife don't like the new change, but they're worried that if they self-manage, they might overlook something. So should they transition from this current model to self-managing with an occasional hourly CFP?

Joe, I'm curious to hear what you're going to say, but my answer to you, Dave, is yes, I think that sounds like a great plan. I think your financial situation is relatively straightforward. You both have public sector jobs. You both have defined benefit pensions. You have a 457 plan in Roth IRAs. You've got a fairly straightforward situation. You also clearly have a good deal of financial literacy, given the fact that you've been engaging with personal finance education since at least 2021, if not prior, and this is critical, and you will still be using the services of a CFP on an hourly basis to review what you're doing. So given all of that, I see no reason why you wouldn't switch to self-management if you don't like the changes that the company has made. I don't think it's that simple, Paula. Oh. I wish it was that simple. Before I even address where I have an issue with that. The first thing is a lot of the time when people want to change companies because the customer service model have changed, this is the most common reason. And this may not be the thing Dave doesn't like. But I've seen this a lot over my career.

And people tend not to like it at first. And that is that you've had one advisor, you've had one point of contact your entire time with them. And now they're going to a team model where you will still have this person as a primary contact. But if you want this, you're going to call this person, this you'd call this person. And now it doesn't feel as warm and friendly because now you're working with a team versus working with this one person. I will tell you, I get it. I went through this during my career in two different places. First of all, when I was on my own, I switched to a team model. My clients at first didn't like it. I did have a couple clients leave. And then again, after I sold my business, Paula, I had an agreement that I would stay on for a period of time. And during that period of

time, they also switch. So clients that have been used to dealing with me primarily and my former team, now they were dealing with a bigger team. And now same thing happened. You would lose people at those times. And I will tell you, in both of those situations, our ability to service you got better. As we record this, I'm about to go on a vacation for 18 days to Greece. If I'm in Greece and you've got a situation and the only person you want to talk to is me, it's horrible. It's absolutely rotten. And by the way, even when you did talk to me before that, you would go, hey, Joe, I need you to do X, Y, Z. You know what I would do? I would turn around, Paula, and I would go, hey, Tina, I need you to do this. And then sometimes, if it's at the end of the day and I'm talking to you and I'm in my car on the way home,

I forget to write it down. Late the next day, I go, oh, crap. I forgot to do that thing. and things delayed for a day because you're very happy with just me. And I'm not saying, Dave, that this is it. Right. But this was the primary change that I saw happen a lot. So this isn't specifically for Dave. This is for everybody. You may think you're going to dislike it.

It is way better to know that I just need to call Tina. So essentially, by having just one point of contact, you have a single source failure. Absolutely. Yeah, I became a huge bottleneck. And my question back to people, because I loved it when people would question me, about it before they let like why would you do this we just want to talk to you we don't want to talk to Tina and i would say okay do you want me at my rate processing your backdoor roth IRA thing this is just something that anybody can take care of you don't want me thinking about your

big picture stuff you want me on the phone getting this just processed dumb like the distinction between a lawyer and a paralegal why do you want me involved in this process you're What you really want is you want to call Tina for that and you want to call Joe for, hey, I'm wondering if I should do a backdoor Roth IRA. Do you think this is a good idea? If for some reason I hadn't already recommended it. We hadn't talked about it in a meeting. You're like, hey, I'm thinking about putting money in an IRA. Should I put it in pre-tax or in Roth?

What should I do? You want me thinking about that. I'm thinking about maybe leasing a car. Do you think I should lease a car? Oh, hell no. But going over that, like strategic stuff is really what you want me involved in. If I'm not doing that for you, you want me doing it for other people so that when you have that question later, I've got even more experience in that area versus being on hold with fidelity

to take care of the thing. The administrative death by a thousand paper cuts. Yes. So first of all, I get that change is difficult. And this might be a crappy change, Dave. You didn't tell us what it was. But if that's the customer service change, I might give them a shot to see if you like And what was cool was, as people got to know my team, as they got to know Tina, as people got to know my team, they're like, I like you better because I know you surround yourself with really good people. And I love Tina and I love Todd. And you know it was cool for Tina and Todd getting to know my clients as well, like knowing there's a team behind you over time felt much more comfortable than just having the one dude who goes to Greece for 18 days and isn't thinking about me. Right. So, Dave, that might not be it, but I really wanted to say that for everybody because that is a frequent change that I see. Now, on this particular, Paul,

again, beware what you ask for because Vanguard, when we think about overall cost, Vanguard, who is low-cost operator, has done a phenomenal job of showing people that lowering fees will help you save more money, right? We'll help your money grow faster. They're not wrong. They did a study that showed that a great financial advisor in your corner can add 3% to your average annual return. 3%.

You know what that 3% is from? It's from you fucking it up. A good financial advisor will get between you and your money. And so I think there's a big part of know yourself. I think for a large part of the afford anything audience, yes, hiring a fee only financial planner to do this, meet with you a couple times a year. Look at it, Paul. I think you're spot on.

But I know there's a bunch of people that hired me that used money. assets under management service that every time I hear and read people go, oh, you don't want assets under management. You know those suckers are just bleeding you dry. I know people that wouldn't have done if I wasn't the one making the move because the second you left my office, my job was to get it done. And by the way, I just gave you an analogy where if I forgot during the day, you know how pissed people were if I delayed it for 24 hours?

If I didn't do it within 24 hours, people were upset. You know what? You will let yourself go for two weeks, three weeks. six months, five years, and you go, yeah, I should have done that. I should have done it. And you don't do anything. So assets under management, which gets a lot of vitriol in our community, is a phenomenal money saver. We do a great job of calculating the cost of assets under management. None of that is a lie. As a community of financial influencers and financial journalist, financial media people, we have done a really crappy job of calculating the cost of the

horrible decision-making we make when we're left to our own devices. And I think for a big portion of the world, that cost is way higher than the 1% asset management fee, which is huge and horrible and rotten and oh my God, we got to get away from it for a lot of people. Advising them to get away from that model is a monster mistake. Now, for other people, and I think you're right on Paula with this community, that you're listening to these podcasts, you're in it to win it, You get the importance of making the move now. You get opportunity cost. You know the rule of 72 and man, we got to get that money doubling faster.

If you get all that, you're going to make the moves. You should not have asset under management, which is why at the beginning of this conversation when you asked me, have I ever said, yeah, go do it yourself. I had clients that hired me just to meet with me twice a year and then have two phone calls twice a year. And that was it. Because you know what? Me doing asset under management model with them would have been a huge waste

money. They were clearly going to make the move themselves. They were driven. They had great processes on their own. They didn't get stuck in the weeds. They didn't second guess themselves. They would leave the meeting. They would make the move. Why waste money on me shepherding your sheep? But for other people, man, if they left my office, the sheep would go run all over the place, would run a buck if Joe didn't, with his team, with Tina and Todd, if we didn't go make the move right away and get stuff done. So I think Paula, the first thing, Dave, I would say is know yourself. Does the assets under management model the fact that they were actually doing the stuff?

It is way more fun when we disagree. But I like your answer better than the one that I initially gave. I should say the answer that I initially gave made some assumptions because my answer to Dave is premised on the idea. that Dave, given his level of financial literacy, given his level of paying attention, given all of that, that Dave is going to make the moves. And then 100% right on, right move to make. Yeah. So assuming that Dave is going to make the moves and he's going to follow through, then yeah, why bother paying the asset under management fee? Do it yourself.

I love the idea of having an hourly flat fee CFP who checks in with you a few times a year as, for lack of a better term, a babysitter, an overseer. Some adult supervision in the room. I think that's a... Just a smart person in your corner. Yeah. Yeah, exactly. Exactly. I love the idea of do it yourself with a little bit of adult supervision checking in. And oftentimes, if you're running a business, you might have somebody, a coach, a business coach who does that with you, right? They're not in the day to day of it. They're not handling the administration, but they're checking in with you periodically. So the do it yourself. but with the oversight of a periodic coach, that model applies not just to the management of assets, but to the management of a lot of projects. But, again, that all is based on the premise that you're actually going to follow through.

And to your point, Joe, that's not necessarily an assumption that we can make. I do think for this community, Paula, your instinct is probably right on. But I do think that for the world at large, it just grinds me. In fact, it's funny in someone that I was doing a coaching session with told me that by listening to online advice, they switched from an advisor who was making a lot of the moves, everything over to VTSAX. And it was amazing.

It was only when he heard you and I talking about the efficient frontier that he realized that his assets were on the efficient frontier. And his old advisor had everything. thing in a spot where it should be, he had paid a bunch of fees and taxes to move things over to what he heard was right. Wow. Oh, man. There's two things going on. Number one, this one size fits all advice that I hear often from online forums and financial media doesn't work. But also, shame on the advisor for not being able also to articulate why they were doing the stuff that they were doing because half of this is really, truly about having somebody in your corner that has the heart

of a teacher. For me, I always want my advisors to share with me enough about why we're doing stuff. I don't want to just trust them. I want to know why they're doing stuff so that if they get hit by a bus, I'm smarter for having work with them than I was if I didn't have that. I don't want them to get hit by a bus. And I'm like, oh, my God, I'm screwed. I don't know what I'm doing. Maybe I don't. But I know more because I worked with them than I did before. I think that's the value of a good advisor. I don't just blame online communities. I also blame his advisor who had him on the efficient frontier for not being able to articulate how important this was and how this was going to help him achieve his goals in a better way. So here's a question, Joe. Let's say that Dave is confident that he will

be able to handle the initial setup, make sure that all of his investments are in the right places. But let's just say hypothetically, he's hesitant about periodic rebalancing, about tax loss harvesting, about all of the ongoing maintenance and care of those assets once they are initially set up. What would you say in that situation? I think maybe initially then schedule two meetings a year and schedule those meetings for those times. I think doing tax loss harvesting in late November, early December, so make that sense. second meeting of the year, maybe do like a June, December. Studies show that if you rebalance more than once a year, the juice often isn't worth the squeeze. You get a little more juice. Twice a year, I think, can really calm your nerves. Sure, it's more money than if he only met

with somebody once a year. But I think that gaining that confidence is also super important. So it can be a great insurance policy to schedule that first meeting in June. Am I doing all right? Am I still on track, am I hitting my milestones? And then the December, okay, let's tax loss harvest, let's rebalance. Or I could even do this. If I'm going to do one one time and one the other time, I can do my rebalance in June and my tax loss harvesting. If I just want to focus on one thing, have those be my two check-ins for that year. All right. So it would still work with a do-it-yourself model with the occasional check-in, the period of check-in. Absolutely would. Joe, then it sounds like you agree with me. Okay, I do. Just to put a cap on this, I truly think that if you start with, what is the service I'm going to get and then ask what the fee is for that service? It's way better than what I read consistently online, which is the first question you want to ask is about the fee they're going to charge. That's like walking into a car dealership and going, how much does the car cost? Car dealer goes, what's a,

What are you talking about? Which car? Yeah. Which car? What's going on? No, before I ask anything, I want to know what the car cost as I'm walking out of here. And financial advisors are so all over the board. The way that a Lincoln financial advisor or Northwest Mutual Financial Advisor works,

the way in Edward Jones advisor works, the way an RIA works, I just looked at three completely different models. The way the Fisher Investments people work, the facet people, like there's five different models right there. I want to know what the difference is between those. And by the way, if I just said those names and you don't know the difference between those, why would you go in and ask, what's the fee? Because I'll tell you, you're going to get five different outcomes with all five of those firms. You're going to get vastly different outcomes from all five of those firms that I just mentioned. Right. So it's like not knowing what the distinction is between a Hyundai and a Lamborghini.

A hundred percent. And I think the key there is that for my needs, Am I looking for the things that a Hyundai does really well? Or am I looking for the things that a Lamborghini is going to bring to the table? What do I need? So I want to assess my need first. I'm not pushing the buttons. I'm not getting anything done. Nothing seems to be moving.

I'm doing a great job of saving, but it comes to these moves that I know I need to make, even though they're basic. I just don't do it. Yeah, I'll meet with you once a year. I'm going to give you an asset allocation. You're going to take it home.

You're like, oh, crap. That does not work for me. I'm sorry. No, how about I hand it to you and you do it? Because then at the very least, something gets done. great, fantastic. That person's going to need something completely different than somebody who's, you know what, I feel like I'm going the right direction. I know how to use online calculators.

I'm making these moves, but I just really feel like I'd love to have the insurance policy of a smart person spot checking my work. I also want to run some things by people that I'm thinking, should I be doing this? Should I read this? I loved it when people would bring in media pieces, Paula, and they go, what do you think about this? Susie Ormond just wrote this column. What do you think about Susie's column?

And I would say, you know what's funny? All this stuff is great. But Susie's talking to 10 million people, talking to you, just you, here is where this doesn't work for you. This thing she said doesn't work for you. This thing doesn't work for you. I love those conversations because my client walked out smarter and they knew that, yeah, okay, Susie's not horrible, but there's things she says that does not apply to me. Owning a private island?

And broadly speaking, any person, Susie Ormond, Dave, or anyone is necessarily talking to the masses and necessarily has to tailor what they say to the crowd. Large audience that they're never going to get to see face and face. So to make sure people are better off, they need to paint some very broad strokes. Love this discussion, Dave. Yeah. Hopefully this helps you, but helps a lot of the afford. anything community as well. Thank you for the question, Dave.

And let us know what happens. Call back, leave a voice note. Let us know what you decide to do. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology, built to evolve with your business. Fifth Third Bank has the big bank muscle

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Bye-bye. Anonymous, thank you for the question. And before we answer, we have to give you a name. Oh, man. Joe, have you seen any good movies lately? I have. I saw the last Mission Impossible Final Reckoning. It's a part two of a movie series.

Mission Impossible first started forever ago. I thought, what a dumb movie series. And I'm not a huge Tom Cruise fan. So, Paul, I was like, yeah, I'm out. And I don't know why, but a few years ago, I just started watching one at home. These movies are so fun. They just are fun. The stakes are high.

The enemies are bad. They're bad people. And Tom Cruise and his team are super fun. And you get to see all these beautiful locations. So anyway, because of the fact that my favorite scene from a Tom Cruise movie is where he is climbing on the outside with suction cups, the highest building in the world, the Birch Khalif. And we're talking real estate. We should call him Tom. Wow.

Look at that tie in. Oh. Well, Tom, here is an interesting. Introductory 101 to cost segregation. Before we talk cost segregation, let's first establish how rental real estate is taxed, because your home depreciates over a specific period of time, typically 27 and a half years. So let's say you were to put a new roof on your home. We're going away from cost segregation and we're just going to establish right now the notion of depreciation because that's the first piece to understand. Let's say that you were to put a new roof on that home. In the year that you buy that new roof, you can't write off the entire roof that year that you put it on your home. Instead, you have to depreciate that roof over its usable lifespan. And the same is true of every major component to your home. Let's say that you replace the windows, you replace the siding, you replace the flooring. You can't write all of that off as an expense. You have to

depreciate it. And beyond homes, beyond real estate specifically, I want to broaden this out, any capital intensive business is faced with this same problem. So if you run a business in which you have to buy a forklift, or if you run a business in which you have to buy heavy machinery or heavy equipment, you can't write the cost of that off in the year that you make that purchase. Instead, you have to depreciate it and to really expand this out to a much bigger conversation about taxes. You know how often we hear these conversations about taxes and they talk about people who make over $400,000 a year, blah, blah, blah. You hear that often in the news. A lot of times the quote-unquote people who make more than $400,000

a year are not literally W-2 employees who have a very high paycheck. Sometimes that's true. Sometimes there are extremely highly compensated professionals. But there's also a significant proportion of, quote-unquote, people who make over 400,000 a year or 500,000 a year, who are actually small business owners. And they are engaged in some type of business that has heavy capital expenditures. And they have a business structure that is either LLC or an S-Corp, which is a pass-through entity, which means that their taxes pass through to them personally. And so if they're spending a lot of money on heavy CAPEX, if they're buying forklifts, right, if they're buying machinery for that business, if they're making these heavy capital expenditures, because they can't write that

off, they get taxed as though they've made $700,000, $800,000 a million when in fact they've brought that in as top line revenue and then spent a lot of that on heavy capital expenditures for their business. And so that's how you can get into a situation where as a business owner, you sometimes might have to take out a loan to pay your taxes if you haven't done the proper planning in advance because you don't get to write off those expenditures in the year that you make them. Yeah, ouch. So the fact that you as a business owner, as any type of a business owner, are forced to depreciate an expense over a long period of time can be really detrimental to your ability to operate that business and very detrimental to cash flow.

And so in the world of real estate, this is where this notion of cost segregation comes in. So cost segregation is a tax strategy in the world of real estate where you accelerate depreciation so that you can expense more of this up front. Now, typically in residential, the cost of a building is depreciated over 27 and a half years. If you buy a commercial property, typically that depreciation is 39 years. But cost segregation is a strategy that finds the opportunities for accelerated depreciation. And what that means as a business owner is that you get increased cash flow because you've made these expenses, now you get to write more of them off. So ultimately, you're still paying the same amount in taxes, but you're shifting the when

of when that tax happens. To give a couple of examples, let's say that you upgraded the electrical system. Let's say that you upgraded the plumbing system. Let's say you put in new flooring, right? Those are all building components that can be cost segregated. You made a big remodel, or maybe you expanded the footprint of the property, right? these all present opportunities for cost segregation. Now, in order to move forward with this, you'll want to enlist a professional to do a cost segregation study on the property.

I was just thinking this, Paula, because I can see the huge opportunities, but I can also see the quote paperwork that you could also create. Exactly, exactly, right? This is at advanced level stuff. And so this is not something. We just had this conversation. with Dave in our first question about should I do it myself or should I turn over my assets to a financial planner that has an assets under management model. So in the world of managing, let's say an individual who's managing their own portfolio, there is, as we just talked about with Dave, the opportunity to do it yourself. When it comes to cost segregation on a piece of real estate, this is absolutely not in any way whatsoever a do it yourself project.

Well, and I think on a small project, too, correct me if I'm wrong, because real estate is not my forte. Love it, but not mine, especially rental real estate. I got to think that if you think it is DIY, then that juice may not even be worth the squeeze. Exactly. You're just creating complexity and your time's not worth the effort. Yeah, yeah, exactly. A lot of times, if you are an individual investor, a mom and pop investor, who is at the beginning of your real estate journey,

the price that you would pay just to get a cost segregation study done is oftentimes not at that stage yet, right? Because a cost segregation study, the price is going to vary, but you could pay anywhere from $5,000 to $15,000 just for a professional to come in and do that study. Yeah. So the benefit to cost segregation is that you quickly recapture some of that depreciation, which means you have more cash in your pocket, which means you can, invest more. But the drawback is the process for that is so complex. And that's the issue with the tax code generally. Oftentimes, tax savings that we might qualify for are so complex to get at that just the hurdles, the administrative hurdles involved in getting at them can be onerous. Because here's the thing.

You likely, I'm assuming, probably have a CPA who's doing your taxes, I'm guessing. And a CPA, as they're processing the taxes on your piece of real estate, they will, a lot of times depreciate the building. And they, of course, cannot depreciate the land because land doesn't depreciate. So they might separate out the building from the land. And that's the end of the story. And you file your taxes and everybody lives happily ever after. But with a cost segregation study, let's say you've made some land improvements. All right.

Now those land improvements can be depreciated, even though the land itself cannot be. And I should add, when we're talking about accelerated depreciation, if you're a question is, okay, wait, how accelerated, there are certain elements that can be depreciated over five years, over seven years, over 15 years. So that's significant savings as compared to a straight-line depreciation. of 27 and a half years, right? If you compare 27 and a half years versus five years, right, that's a very accelerated depreciation. But again, the cost of the study is so cumbersome, is so expensive that it's really often

not worth it if you're dealing in low dollars. The fees might exceed the savings. Right, right. So that is an introductory primer to cost segregation and its precursor, which is the concept of depreciation more broadly and accelerated depreciation specifically. Isn't that fun, Joe? Accelerated depreciation. Pinch myself. I didn't think it could get more fun. After talking about financial planning fees, turns out it could. You could play a drinking game with this podcast. Take a shot every time I say the word depreciation or assets under management.

And you're drunk. Speaking of drunk, no, that's that's a terrible. It's a terrible segue. And that's not at all where we're going anyway. I know, right? Thank you, Tom, for the question. I love that you're thinking ahead. I love that you're thinking about this.

And congratulations again on buying the duplex. I am a huge fan of multi-unit properties generally, both in terms of creating great rental returns and as a social good, we live in a nation in which we do not have sufficient housing. And so multi-unit properties, which increase density, those properties create more housing. And that's exactly what we need. And so I'm a huge supporter of duplexes, triplexes, four plexes, any kind of multi-unit. I think the country needs more of that. And also, as a rental investor, they tend to provide bigger profits because you consolidate multiple units on the same underlying parcel of land. All the plexes. You like all the plexes. Yes, all the plexes. I'm a fan of

of plexes. And I'm going to say, also thank you, Tom, for lighting up the Cineplex with a great new movie. This is the Segway. Look at the Segway. Wow. Ninja. Look at that. You're welcome. Up next, we're going to dive into the world of IPOs. Welcome back. Our final question today also comes from Anonymous. Oh, oh, oh, you know what that means. You know what that means. I saw another movie. this movie was so fun. I am so over superhero movies, just so over them. I don't want this multiverse stuff they've been doing. Paul doesn't know what I'm talking about.

But people have seen these movies. They're doing this multiverse. It's horrible. It was so bad that on a recent movie, they were actually making fun of themselves in the movie because everybody hates this multiverse about how Superman goes into a different area. Now he's got to fight Superman. It's so dumb. It's jump the shark.

Yes. But they actually got to do it. Got it back. Some of those movies have been so fun and can have a little bit of fun social commentary that I don't mind if it's not too heavy-handed. But the newish movie Thunderbolts was really fun. They're about the superheroes that are not great people, Paula. They're not phenomenal. And they're not even great superheroes. They're flawed. And they have to fight a villain who's flawed. Julia Louis Dreyfus plays a fantastic kind of evil person, which you think about what a comedic actor she is. and how great she is on vice. Just so funny and pulls that off great. But I want to draw attention to the guy who plays one of the flawed heroes, Red Guardian, and he does a hilarious, hilariously bad Russian accent, which is because of the movie, it's supposed to be hilariously bad.

He's Red Guardian and it's David Harbour, the same guy who is the sheriff on Stranger Things. And Stranger Things is fantastic. So anyway, this is a fantastic question. And so I thought we would call him David. David. I love that name. So we had Dave earlier and now we got David. All right.

Dave and David. Our final question today comes from David. Hi, Paula. I am sending in a voice memo as anonymous, mostly because I love hearing what kind of names you guys come up with. I currently work at a privately held company that is planning to go public in the next few years. As part of my compensation, I'll be receiving equity in the company. And I have two questions that I'd love your insight on.

First. can you walk me through how this will work operationally? If the company IPO is at a $1 billion valuation and I have a 1% stake, does that mean I technically have a $10 million in equity? How does that equity show up? Would I just see it in my brokerage account after the IPO? Are there any fees or taxes that I should be prepared for that would affect this valuation or the amount in equity? Also, I've heard about companies that have had quote unquote failed IPOs. What does that actually mean and how could that impact what I would take home from this transaction? Secondly, what's your advice for managing this kind of equity event from a financial

planning standpoint? I'm currently investing aggressively in real estate and mutual funds to eventually become work optional with my wife. If the IPO goes well, we would definitely hit that goal. So should I be adjusting my strategy now in anticipation of it? And post-IPO, what should I be thinking about? Do I sell immediately, hold long-term, or something in between? What are the tax implications? And can I even hold on to the shares if I leave the company? Really appreciate your help and breaking this down. And thanks so much for all the work you guys do.

David, thank you so much for the question. Paula, you're ready to dive deep into the world of working for a company that might go public? Yes. And that's such an exciting time. Wow. First of all, working for a private company has a bunch of upsides and downsides. So let's talk about this. If somebody maybe is going to get hired by a private company.

company that may someday go public, there are a lot of advantages and there is a lot to also worry about. Number one is when a company is public, they're much more heavily regulated on how they do things. So the ladder is going to be much more ironclad. You're going to have a benefits package that has to be very transparent and everybody is paid on pretty consistent levels. In a private company, because it's all privately held, the benefits you receive could be a little different than the person next to you that you're working with because they don't have a lot of those systems and processes. That also means that in some areas, the opportunities for advancement are better. You might work on some cool stuff that's long-term thinking. A publicly held company is going to work on next quarter's results much more often. So your ability to work on some of these long-term, cool, exciting things that aren't going to pay off for the next five years. Might be a little more muted. Now, both of those, you can see the upsides and downsides of those. When it comes to owning a piece of the company, this is big because when you own shares of a private company,

your ability to sell those back or even to count them in your financial plan are very difficult. You have to look at what's often called the offering circular. There's going to be some paperwork. We'll just call it Paula some paperwork that you get. You're going to get a bunch of PDFs that explain the rules around these public, held shares. So you have to know how you're allowed to sell them back without IPO. And we'll get to all the IPO stuff here in a second. You might only be able to sell them back to the company. You might not be able to sell them at all. You might have only limited times and windows when you

can sell them back. So you really need to know who you can sell them to, how you can sell them, if you can sell them to outsiders, sometimes in a privately held company, You can sell them to people, but they need to be an accredited investor, but you can just offer them up to any accredited investor. And then you've got to figure out how the hell am I going to find accredited investors to buy my shares if I decide to get rid of them. You may have to give those shares back before you leave the company and they might not be worth the same thing. I always struggled as a financial planner on how the hell are we going to factor this into your financial plan. And so we really need to know your exit strategy and what the company is making available with those privately held shares. When you find out that you're going public.

So first of all, David, I wanted you to know that because you said they plan on going public. Failed IPO, which is one of your questions is a real thing. They may say, hey, we plan on going public. And that's all sexy when you join a company. And then you find out that this is a little more nebulous than you thought. and that's the plan, there's no specific timeline for that. So I want to know with these private shares, what I can do, what I can't do in case there is no IPO. When the IPO is announced, the company goes through what's called a quiet period,

which is annoying when you're on the outside. It's even more annoying when you're on the inside and you're not an insider, meaning you work at the company, but you don't have knowledge of what's going on in the C-suite. These sweet sweet people are not allowed to tell you anything. And during that quiet period, you aren't really sure what the heck is going on. During this IPO time before the quiet period, the company will go on what's called a road show. And the road show is where they go around the country and they're trying to attract investors so that they have a great IPO and everybody loves them. Everybody hears about them.

These big investors, usually pension funds, some hedge fund managers. mutual fund companies. This is the company equivalent of a book tour. It totally is. Absolutely. You want the right people to show up at your tour who are potentially going to buy a lot of shares during the IPO. Or the company equivalent of a political rally. A hundred percent. Wow. Same model, all these industries. Yeah, because the goal, if you think about a public market, Paula, what is it? Supplying demand. I want a lot of demand for this thing. So the road show before the quiet period, they're going to go around and they're going to try to drum up. business. This is generally in conjunction with a Wall Street firm, aka Goldman Sachs, let's say. So you'll go with some Goldman Sachs people around the country if you're one of the insiders

and you will tell your story to a bunch of potential investors. It can be an exhausting time, but Goldman Sachs will get a feel for how well this IPO is going to go. And they will begin to see the order flow in, a people that want to buy it when the company goes public. So they can see ahead of time all these orders that are waiting. So they get a really good idea of even though we're letting people buy insiders, we're going to let them buy it, let's say, $20 a share. We think this is probably going to open at $40 to share just because so many people immediately are going to want to gobble it up and in a public market, the price just keeps going up and up until we find equilibrium. That is a great IPO. So two things I mentioned there, David, you want to know.

First of all, what is the IPO price going to be? And they have to tell you that before the road show. They will know that they're going to say, this is going to IPO at 20 bucks. Do you want in? Do you not want in? Second thing is you also need to know that this price may be significantly higher when it actually IPOs. So even though they say it's going public at $20, it might pop at $40 by the time the market opens. Because if there's so much pressure, the very first trades might be at double that. I've seen a lot of investors, Paula, get really excited about an IPO and they hear that the price is 20 bucks. So they put their order in on the day it goes public.

And they're like, what a rip off. I got it for 40. I thought the IPO price was 20. They're not ripping you off. Everybody wanted that IPO. And by the time your little butt could get shares, it was already high, even though you bought it two minutes after it opened. So just because it says this is going to be the go public price does not mean that's what you're going to get, which by the way should also pop the bubble for 99% of our afford anything audience. I'm buying an IPO.

Why the hell do I want to buy shares of a company that has no track record that's been public versus other companies that I can look back 20 years and see, Quarter by quarter, how well they've done. You're buying into FOMO. You're buying into got to have the new thing, which is fine if we're talking about a new handbag or we're talking about the new video game or whatever it might be. But when it comes to your investments, why am I buying into the FOMO? Buying into IPOs is far more dangerous than people think, which gets to, David, the downside, which is they go around the country drumming up business at a time when our president's

talking about tariffs and people are worried and you're in the import export business. A lot of this stuff is coming from outside the country, this company that you're working for. And everybody's, I don't know what's going to hold for that because I don't know politically what that's going on. There's a lot of uncertainty around that. So if you're in the import export business and you're trying to IPO right now in a time of terror.

And by the way, I'm using tariffs because it's what we all know right now. It could be any element of uncertainty. Any time frame, whatever the heck is going on. Well, Eli Lilly's last drug was horrible and didn't do what it was said to do. And you're a drug company? Oh, I don't know. There's going to be a ton of fear. And everybody's going to bring that up, all the fears around whatever the thing is.

This creates a situation where they're trying to go public for 20 and nobody wants to buy it for 20. There's very little demand. And sometimes you see publicly when a company IPOs all of a sudden, there's a big drop that day. Yeah, big drop. Two things happen. There's that big drop. quote, unquote, a failed IPO. Supposed to open at 20, opens at 10.

This money that you thought you had, David, you only have half of that money. Right. Because the amount you had on paper, minutes before it went live, has now been decimated in its half. More commonly, because Goldman Sachs or the Wall Street firm is good at their job, during that roadshow, they can see that nobody's coming to the tour. Or if they are coming to the tour, everybody's really negative. They're not getting any bites. They're not seeing any order flows in with the IPO, Paula. They will then either cancel it or they will just put it off six months.

Usually they'll say, hey, we're going to wait a year. Now, if that happens, that's actually kick ass. Yeah, yeah, that's good planning. Yeah, saves everybody this whole problem and this public, a horrible thing that's going to make all the papers about how your company sucks. Right. Even if it doesn't suck. Yeah, well, look at Uber's IPO, right? classic failed IPO and it created a bunch of bad PR for Uber.

Failed IPO can go one of those two ways. So again, from a financial planning standpoint, now that you know that, let's widen this. Number one is if the IPO fails early during the road show and the Wall Street firm advises your C-suite people to go, let's hold off. You might be private longer than you think, which means any financial planning you do around the liquidity of those shares is a mistake until it goes public. Don't go get a mortgage on a way bigger house until that thing opens. And then second, when it opens, you can't put $20 a share in your financial plan because you don't know what that's going to be. Now, you can do what

financial planners will call an if-then scenario. If it opens at 40, here's what your graph looks like. If it opens at 10, here's what your graph looks like. And I actually, Paula, like some of that plan. because you go, if it opens at 10, this is our strategy. If it opens at 40, this is our strategy. And those could be completely wildly different strategies. And doing that so that you have a clear road of what's going to happen the day that opens is some pretty smart planning. He mentioned if I own a 1% stake in the company, you will not just own a 1% stake. You will own X number of shares.

So you don't want to think about percentage stake. You want to think about the number of shares in the company. And generally when I was working with people at privately held companies, they knew their percentage stake, but they also knew the number of shares. And they knew what was called the float, the number of shares that were out there total. I want to look at the number of shares so I can break that down to $20 a share, $40 to share, $10 to share, whatever that is. For me, trying to do the math on a 1% not as effective as looking at the actual share price. And Joe, is that because your ownership state could be diluted? Later on, it could be diluted.

Yeah. Yeah, it could. If they have treasury shares that they're holding back, which the company will often do that, they own X amount and then they make more public. Or they cut your share value in half. They've double the number of shares and then they take those treasury shares and they've got double that. Or they find a way through the way that they did their filing of having these other classes

of shares that they can then swoop in and change the class. There's tons of ways to dilute your ownership. I just want to know, I own 500 shares at $20 a share, or 5,000 shares or 50,000 shares at $20 a share. And you will have that. Even in a private company, they will have a valuation and they will tell you how many shares you own. I want to know the number of shares.

I want to know what they're valued at, even privately. Right. When you see they do another round of funding, you'll read this all the time from Silicon Valley, that this tech company now did another funding round. Monarch Money just did another funding round. It was very successful, by the way. Nice. In Monarch's latest, that funding round was basically.

based on a higher valuation. I don't remember the number, but it was higher than it was before. So these companies go in. They look at the size of the company. They look at the worth of the company and they put a valuation on it. New investors can get in. And that immediately gives previous investors a profit if they can sell those shares, which I said earlier, you got to know when you get in under what circumstances you're allowed

to sell the shares. So sometimes you high five yourself because you're like, oh my God, my share is double Yeah, but in your paperwork, you can't sell them. So on paper, you're worth more. But until those babies go public or you have a selling event, it doesn't matter what it says on paper. But that also allows them to garner more money faster if the company is valued at a higher multiple for the next round of funding, even if it's still private. So during that IPO process then, the next question is, do I sell them all right away? Do I hold them?

It's really cool to go on CNBC.com and look up insider trading. And it's funny because a lot of us know insider trading is somebody's going to jail. That's how we know it. Insider trading is legal and people don't go to jail. Now, insiders, when they trade, they're subject to a lot of rules with the SEC. They can only trade at certain times. They can't trade around earnings announcements. so they can't front-run earnings announcements, unlike Congresspeople who can.

Right. By the way. Yeah. No front-running, which is I buy in and then we announce great results. They have a period where they can't do anything. And when I was a financial advisor for some of these people at auto companies in Detroit, there were times we could sell and times we couldn't sell. So you've got that.

So there may be a number of days after the IPO in which you have to hold your shares. I've seen that before. That's all going to be disclosed to you. when the IPO gets closed. You will know whether these shares are restricted or unrestricted. Restricted shares means there's going to be terms and conditions on how you get rid of them. And a lot of the time you've got some restrictions if you're an insider about when you're allowed to sell. You'll still have a lot more clarity around what your shares will be worth because let's say that they do open at 40. Then in a financial plan, Paula, I could use maybe $30, $35 a share by the time your shares were unrestricted.

and we could have a high degree of confidence that at the very least, they're only going to go on 15 or 20 or 30%. We can use a conservative number that is still going to be fairly reliable once your company's public. But you will know the restrictions ahead of time. Whether you sell or you hold really now is not based on the company as much as it's based on your overall financial plan. There are some general rules that CEPs will tell you.

hold more than 10% of your portfolio in one individual company. Now, if this has just become 99% of your net worth, then you've gone from somebody with maybe a $50,000 investment portfolio to now that you have these public shares, you now have a $6.5 million investment portfolio, right? Getting that down to 10% in a single event where you're going to sell the shares is ridiculous. It doesn't make sense to anybody. So when you go into CNBC and you find, these industry insiders and you see how they are selling, you will almost always see, Paula, these phenomenal financial plans, CEO of X company, say Tim Cook at Apple, Tim Cook gets incentive shares, and he gets a bazillion dollars incentive shares. You will see once a quarter,

if you go and you click on insider trading, because it has to be public what the insiders are doing, you see once a quarter Tim Cook selling off $500,000. thousand shares once a quarter that is not tim cook that is the tim cook's financial planning team who has advised him to dollar cost average out where they're selling x number of shares on the same day and literally it'll be the same day every quarter or every month you'll see tim cook gets rid of a hundred thousand shares or whatever it is that's a financial plan in action and that's a great way to sell off your shares to get down to the amount that's a responsible amount to hold where you're not going to sell them all today but every quarter of

quarter, I'm going to sell X number of shares until I get to this is only 10% of my portfolio or whatever your number ends up being. I like that much, much better than what you will see non-professionals do, which is A, we'll wait and see, or B, we got this new drug coming. We got this new thing coming. I'm going to wait and I'm going to hold. And then you find out Enron happens. And there's only 10 people in the company that know that the company's about to down. And this is really a house of cards, right? We don't want that. So I think once your company's public, look at your financial plan. How much of this money do I need to have it as stable money that's based on a broader index toward my goals? Sell some at the IPO if you're able.

You're going to get documents to tell you whether they're restricted or unrestricted. And then dollar cost average out over a period of time, whatever that might be that fits your scenario. What this all leads to, Paula, is this is a time when working with a pro who has been through this IPO process before with other people and help people go from working for a company that was private into a company that's public and how to disperse this in an orderly exit manner, I think pays huge dividends. You know, that is the central theme through the three questions today. It totally is. It's working with a pro. Yeah. These are all professional level questions.

Yeah, exactly, exactly. Dave, from question number one, had questions about working with a pro to manage his retirement portfolio. And maybe he needs less pro. Right. Yeah, exactly. He might need less pro. He might choose to do it himself. Anonymous Tom is probably not at the stage where cost segregation is something that he would need to engage in.

But one day, as his real estate empire grows, one day he may get there and he will absolutely need a pro for that. And then... And by the way, before you... move on. You called him anonymous Tom. We know it really was Tom Cruz. That was. Okay. Tom Cruise. Tom Cruise. Big fan of the show. Huge fan of the show. As is, David Harbor, I'm sure. And David Harbor of question three. I know who Tom Cruise is. I actually have no idea who David Harbor is. Oh, come on. I'm taking your word for it. That's the name of some celebrity somewhere. He's also, I don't know if he still is, but he was married to Lily Allen.

And so tell me know who Lily Allen is. I do not know who Lily Allen is. One star. In any event, it looks like David also will need a pro on his side. That's an important one to get a pro because he may end up with restricted stock units. He might end up with different incentive programs depending on what he does. That can be a tax minefield and an investment strategy minefield. Joe, thank you for that incredible primer on IPOs. I think we actually made it through that in an orderly manner. This is IPOs 101.

cost segregation 101 and assets under management 101 also maybe that's the second theme of today's show really the broader arguments on each of those three exactly yeah good stuff joe thank you again where can people find you if they'd like to hear more of you you will hear a show we call the greatest money show on earth because as paula pant knows more than anybody it is a circus the stacky Benjamin show is a variety show which encourages you to get out there and do it we have phenomenal mentors on Wednesdays. We have on Mondays a deeper dive conversation with my co-host, CFP OG, Josh Bannerman, and Mom's Neighbor Doug from Mom's Basement. And on Friday, we have a chatty roundtable discussion with people like the Paula Pant. And just phenomenally fun time, Monday, Wednesday, Friday. Come join us.

Awesome. Thank you, Joe. And thanks to all of you for being afforders. If you enjoyed today's episode, Please do three things. First, share this with the people in your life. Share it with your financial planner. Share it with the person who's responsible for the administrative side, the Tina, who handles being on hold with fidelity. Start with your cost segregation expert. Exactly. Share it with your cost segregation expert. Share it with your IPO advisor. Yeah, the HR people. Right. Yeah. Share it with the HR team at work. Share this with all the people in your life. Share it with David Harbor. Share it with David Harbor and Tom Cruise. Yes. And Lily Allen, share this with all those people. That is the single most important way that you can. Paul is saying these names that she is no idea who they are. Literally no clue.

Share it with Pedro who we're voting for, apparently. Vote for Pedro. Share it with Pedro. Share it with Napoleon Dynamite and Napoleon Bonaparte. Share it with everyone you know named Napoleon. I don't know. If this is a spoiler alert, but might not be able to share it with Napoleon Bonaparte. Oh, no.

I know. Oh. But you know what Napoleon bought a part would say if you were alive, Paula? What's that? Let me out of this coffin. Aw. That is the single most important thing that you can do to spread the message of F-Double I, R-E. Chat about this episode with members of the community at afford-anything.

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I'm Paula Pan. I'm Joe Solcihai. And we'll meet you in the next episode.