Business Innovators Radio - Interview with Michael Opp Founder of Opp Financial – Their Unique Approach to Portfolio Diversification

Episode Date: May 16, 2024

Michael has been working in wealth management for over 25 years. He holds a Series 65 license and Insurance license. As a Fiduciary, he has provided financial services to business owners, families, and individuals. Michael has access to a wide array of financial assets. Enabling him to successfully meet the financial planning needs of his clients while building long-lasting, meaningful relationships with them.Michael received a B.S. in Business Administration and a minor in Economics in 1992. Michael’s belief-in being a well-rounded individual, allowed him to compete in college football and track at the University of Redlands in California. He continued to compete in the track and field circuit until just after the 1996 U.S. Olympic Trials. This experience compelled him to give something back to his community. Michael coached high school, youth football, and track and field for over 17 years. He also has been married to his wife, Tamalynn since 1996. They are proud parents of three children Brady, Lance, and Elena.Learn More: https://www.oppfinancial.com/Advisory services offered by Wealth Watch Advisors, LLC. All other services are offered through Opp Financial Group, LLC. Wealth Watch Advisors, LLC and Opp Financial Group, LLC are not affiliated.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-michael-opp-founder-of-opp-financial-their-unique-approach-to-portfolio-diversification

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with us Michael Op, who's the founder of Op Financial, and we'll be talking about their unique approach to portfolio diversification. Michael, welcome. back to the program. Glad to be back, Mike. Hey, so I know that diversification is kind of a common

cliche type word in financial services, so I want to definitely clarify that, but I always like to hear when someone has a unique approach to portfolio diversification. So give us a little bit of a definition of what you guys define as portfolio diversification. Yeah, absolutely. So I think one of the the fallacies of diversification that we have run across in the industry is there is what we call true diversification and Wall Street diversification. And let me explain that to you. When I first got into the business in late 90s, 97, And now our training program that, you know, I went through at Prudential Securities and some of the other firms that were out there, basically told you that, hey, diversification.

This is what diversification means. Diversity means that you want to get your clients in a basket of mutual funds. They want to have some large cap with growth in value. You want to have some small cap, maybe some. international, again, value and growth, and then probably some good bond funds. And if you do that, if you do that for your clients, that's going to smooth out the risk. And what that means, it's going to smooth out the volatility. So if one area of the market's going down, you've got other areas going up.

And, hey, look, you know, I bought into that concept hook, line, and sinker. And that's kind of how, you know, the industry evolved. And so when that was working all great until 2000 hit. And when 2000 hit, what was supposed to happen in my mind from my training was that, hey, if some of the areas of large cap or small cap dropped, I'm going to have the other ones that are going to offset them. But that's not what happened. In fact, every asset class,

last was dropping, is think if the whole tie dropped. And it kind of blew my mind, right? I said, wait a minute, that's, I'm doing what's right. I'm doing what I was taught. Diverscation. And then to compound that, make it even worse, we were told that, you know what, just write it up. Okay. Instead of making changes to portfolios and trying to adjust for the clients as these changing market crisis has occurred, we just, you know, said, hey, just keep them in the market. And then it dropped again and dropped again. And so, you know, what I came out of this was after 2002 is that, you know, hey, this idea of Wall Street's diversification, boy, I tell you what, that's for the birds.

That does not work. And what I realized is that there's only two types of diversification. Diverscation is no risk and risk, right? So that's where we start with our clients is what we call true diverscation. This money you cannot lose. And we look at the asset classes. They're guaranteed, principal guarantee, maybe your return guaranteed, and then your risk money. So that's where diversification really ought to be in clients' minds today.

You know, it's interesting you explained it that way because I think that a lot of people might think, oh, I'm diversified because I don't have all my money in Tesla. I've got it in Tesla, Microsoft, and Apple. So I'm diversified. And I think that on a surface level, there's people that think that. You know, oh, I'm in 10 stocks, not one. I haven't put all my eggs in one basket. But what you're explaining is Wall Street diversification, even if it's in one sector versus another, if it's in. Wall Street as a broad term, you can have huge risk and volatility.

So I love the true diversification. So let's talk a little bit about the basics of risk. What's kind of like an overview of the basics of risk? You touched on the Wall Street, but then how does that then tie into what you're teaching your clients regarding true diversification? Absolutely. So when we look at true diversification, we need to have money that we absolutely, okay, what portion of that portfolio can you not lose money?

Okay? That's the must money. That money that you're going to need to live on or whatever. And so we look at investments that are going to accomplish that goal. They're not going to lose money. They're going to get guaranteed rates of return. Okay. So that's that part of the diversification.

Now, for the other portion that, hey, this money, over here. How much of that money? Can you stomach 10% loss for a 20% gain? Can you stomach a 20% loss for a 40% gain? So we really need to take a look at it. How do we classify it? Then within those different categories, we determine, okay, what is the right investment to accomplish that? Because I think too many times that, you know, we see an investor say, oh, you know, I'm diverse. I've got mutual funds. I've got, you know, I've got my guaranteed bonds. I got these bond funds.

Oh, my gosh. Do you? I mean, do you own the bonds or are you part of a bond fund? Because that money is risky because you don't own the bonds. And so you have to make sure that when you are declaring where you want your money to be, when you're saying, hey, this is no risk. Make sure that that money is actually in a. no risk investment.

And if you this money here, you say, okay, I can risk it. Perfect. Then let's put it in something that's going to accomplish that goal with the least amount of fees. Or if you can find no fees, it's going to get you, you know, the growth that you're looking for in the future. So again, it really is just what we call proper placement in identifying them. Because too many people we see, they just didn't even know. And I think that's through faulty planning or advising is what our experiences. You just don't know what you don't know.

And when they finally are told how this works, it kind of is an eye-opener. So kind of leads into the next question, which is what's the importance of dynamic risk management? Because once you've identified what risk is and kind of laid out a basic plan, things can change, right? Absolutely. And I think this is where it's very important to have annual reviews, even semi-annual reviews. Life changes for families. Life changes for individuals. Sometimes people lose jobs.

Sometimes people have some sort of event where they had to spend more money. Or maybe they got to go to a nurse. seen home. And so what you have to do is, again, you know, you need to verbalize that and communicate that with your advisor. And again, that's what we do is that's why it's important to have reviews so that we can say, okay, what has changed? Because if you stick with the same risk profile that you started, you know, 10 years ago, but all of a sudden, we have these life changing events that have occurred, maybe cost of living, maybe, like I said, nursing home occurs, you know, whatever it is. Maybe you've got to help out a child. Now we have to figure out,

okay, are you in the right profile? And so we have to change those and adjust to those accordingly based on how your life changes. And again, that's why we call it dynamic risk, because sometimes we can take more risk or sometimes we have to take less risk based on your financial needs. Yeah, and you know, it's like the only thing constant in life is change. So that's dynamic. Things are going to change around. And it might be changing on the equation of the client, like they got older or they had a financial need come up or whatever.

It might be changing outside externally, like inflation and taxes and all that. So what do you advise your clients on how they can adapt to the change and the dynamic risks that they see out there, whether it's internally for them? them or externally that they can't control. Yeah. I mean, I think so the first thing that you got to do is you say, okay, what is what is going on, you know, in my life, right? Okay.

So if you have some sort of like, you know, right now, let's take, let's take interest rates. I mean, let's take inflation, right? Or taxes, okay? If you are in a position where all of a sudden you're in a new tax bracket, okay? And you're paying more taxes on that money. And, you know, government legislation changes, right? All of a sudden, tax rates go up.

And we have this, you know, national debt that is ballooning. It's going. Most, what I would say, you know, wise people think that tax rates are probably not coming down. They're going to go up. And so if you are going to lose money based on potentially future tax increases, maybe it makes sense do we take more distributions now do we do pre-planning for that okay or let's say that you know you are in a situation where you're retired and stuff but again everything's costing more right inflation and so that dollar is is getting stretched more and more and you're

struggling to live off of that how do we adjust that portfolio so that that maybe we can get more income with it, so that we can meet those needs because of the change in inflation. And so those are the things that is as our world changes and your world changes, your financial plan and the risk management, that's got to change too. And it's all kind of dialed into true north, meaning what is that initial? Where do you want to be at retirement? What's the gap? How much money do you need? What will you have? And if all of that is kind of all focused on that end result, then any changes is not necessarily a total 180. It's just a slight pivot here, slight pivot there, all making sure that you're being fully protected.

Exactly. And I think that the big takeaway from that is constant communication, right? Yeah. That's why it's so important because we can't, you know, again, that's why we have semi-annual reviews. That's why we go over, hey, has something changed? in your life. Because when you give us that information, that's going to affect the plan that you have, right? And it constantly changes. Nothing stays the same as you know, Mike. And so financial plans change. And so that's why you adjust them. And that's why, you know, you adjust the risk. And that's why we call it dynamic risk management, constantly changing. Yep. So let's kind of wrap up with the

thought here of taking all of that into consideration, the basics of risk and how it can change. And you'd need to adapt. What are some of the basics of creating that risk management plan? So when you are sitting down working with the client and presenting some options to them, what are you looking at for creating that plan with them? Yeah. And again, the thing that's really interesting again, these things we talked about before, they're not cookie cutter, right? It is very personalized. And so one person's tolerance for risk can be completely different. than somebody else's, right? You know, if you come in with some preconceived notion that, oh my gosh, you know, this client's got, you know, plenty of resources. They can take on more risk.

But maybe to them, they don't want to lose a dime. Maybe they're like, oh, you know, I don't, I don't want to lose anything. Or you have somebody that says, you know, I'm a little bit more willing to take risk. And so, not only you have different types of risk. You have how much money can somebody mentally stomach. You know, how much pain can they take in terms of losing money? And it's not a one-size-fits-all. So there's such a litany of questions that we ask, okay, how do you feel? How would that affect you?

I don't want my clients stressed out, even though I might have a preconceived notion that, oh, you know what, they can take more risk. But if they're stewing at night and they're worried about their money, we don't want that. We don't want that. We want you to live a, you know, again, a carefree, you know, sleep at night type of life, you know. And so it comes down a lot of times, too, is, you know, yes, we look at the financials. How much can you rest? How much can you afford? And then we also, again, that's where the personal list comes out is that, well, maybe this person is okay if they have more fluctuation or maybe they're not. So, you know, that's where we start. And then from there, We build into the different tools and investments that are going to satisfy that client's risk profile and how we show them how we get them there. Yeah. You know, and I think that's a big thing for people to keep in mind is you said we'll show them how to get there,

not we're going to tell them what they will do no matter what, no matter how they feel, and we're going to fit a square peg in a round hole. you're the guide. You're bringing up things that fit in with what you feel is good for the client. You're explaining what the risk is. You're that fiduciary. You're the independent that has all kinds of fresh and a lot of options. But mainly, you're just kind of laying it out like a waiter shows a menu and says, well, here's my recommendation. And you're letting them choose. But yet you're giving them that guidance. Exactly. I mean, I think the big thing is that you know, you have to leave your preconceived notions. to the side because every person is different, right? And where you think somebody might be going, all of a sudden you're really, oh, no, they don't want any risk. Okay.

So we just lay it out. What do you want in which we will customize it based on what the client wants to accomplish and what they feel that they mentally, you know, can, you know, is most appropriate for that. And so again, that's a great point. It's just we're here to show you your options, and then we'll build a customized financial plan through our, you know, financial institutions. That's going to – You know, and I think, too, Michael, when you were saying, you know, how much risk can you tolerate?

One person might say a moderate amount of risk, and another person might say a moderate amount of risk, but that number, that percentage might be completely different. So what one person says they could tolerate could be totally different. So again, it just gets down to what is that good amount of diversification. So I think if someone is listening to this going, I might want to at least clarify what true diversification is versus Wall Street and see what a good risk management plan is for me. If they're interested in learning more about this and also reaching out and connecting with you, what's the best way that they can do that? Yeah, I mean, I think if they want to see what true diversification and what a plan would look like, you know, feel free to call us. direct. We can be reached at 720-989-4295. Call us there and we'll just have a brief conversation and see, you know, hey, what does this look like? And what are you, what do you want to accomplish?

What do you want to see happen with your life? Or you can reach out to us. I'll send us an email Michael Op at Op Financial. But, you know, either way, just, you know, feel free to reach out. if you've got concerns, you've got questions, or maybe you just want to second opinion, how, you know, you're not feeling comfortable with your plan. I think it comes down to just asking the right questions. Yeah. You know, for your clients. 100%.

Well, Michael, thank you so much for coming back on. It's been a real pleasure talking with you today. Yep. My pleasure. Glad to be here, Mike. You've been listening to influential entrepreneurs with Mike Sondon. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.

www. influential entrepreneursradio.com.