S3E5 – Rich Kasparian – 2 products that can help protect your wealth

Key Timecodes

• (00:42) – Show intro and background history
• (01:24) – His investing history
• (02:53) – What are his strategies?
• (04:13) – How he uses it to help his clients
• (07:05) – His investing strategy and understanding of its downsides
• (11:23) – How about the estimated returns and upsides
• (14:22) – What about the clients’ costs under this model?
• (16:23) – Understanding his income-generating product
• (21:07) – Deeper into this investment model
• (22:46) – A bit about the “Death benefit.”
• (24:09) – Investing insights from the guest
• (27:08) – The best advice he ever received
• (28:35) – Guest contacts

Transcription

[00:00:04.090] – Sean

Hey, this is Sean Tepper, the host of Payback Time and Approachable and transparent podcast on business investing in finance. I’d like to bring our guests to hear authentic stories while giving you actionable takeaways you can use today. Let’s go. As investors in the stock market, we have two high level strategies. One is wealth building while the other is wealth protection. My next guest is a wealth manager who helps us clients with two products that have decent upside potential and minimal downside risk. In this episode, we break down the returns, the costs, and how you can get started. Please welcome Rich Casperian. Rich, welcome to the show.

[00:00:44.350] – Rich

Hey, how are you? Great to be here.

[00:00:46.300] – Sean

Doing well. Thanks for taking the time to join me. So why don’t you kick us off and tell us a little bit about ?Your background.

[00:00:52.130] – Rich

Yeah. My name is Rich Casperian. I’m with Garden City Financial Group. We formed the firm about 13 years ago. Prior to that, I was with Smith Barney City, Smith Barney for a number of years and when things were melting down and I guess it was eight into nine, things started getting a little bit crazy out there. I then made the leap to go independent and that way I could provide customers with independent research, independent value. And it’s been 13 years later and it worked out very well.

[00:01:23.610] – Sean

Nice. Well, what I’d like to do first is dive into your personal background with investing and how you invest in the stock market, what your strategy is. We won’t spend too much time there because what we want to do is we’re going to talk about your practice and what you do to help your customers and for context of the audience. You’ve seen this with our onboarding our training is there’s really two main strategies at a high level. You’re either in wealth building mode, which Tykr is great for, or you’re an asset protection mode. You’ve got some significant capital in your investment account and now you want to really minimize the downside. You see your unrealized gains and losses, of course, during times like this. We’re going to dive into that a little bit today. But first things first. When did you start investing in the stock market?

[00:02:09.850] – Rich

For my college days, I went to St. John’s University and I always remember there was one professor in a finance class and he was, I think he was a former Goldman guy, a Lehman Brothers person. And he just had a way about him that he just got everybody interested in it. So I think initially I probably bought a couple of stocks, maybe senior of college, just something I kind of toyed around with. Then I had a friend who worked on Wall Street, so he had turned me on to some stocks. So that was probably early on when I would say my late college years when I actually first got interested into.

[00:02:52.310] – Sean

The market got you and what was your strategy at that point? Like, for example, this investor or professor you looked up to in some way, shape or form? Did he talk about a specific strategy he recommended?

[00:03:06.170] – Rich

No. I mean, to be honest, the strategy when you’re a senior in college is someone gave you a hot tip, that’s it. You had a couple of dollars and you put it behind it. But then as the years go on and you’re in the business, you realize that that’s sort of not any kind of a real type strategy. What I learned over the years, and especially in Smith Barney, was that there’s two approaches sort of to it. One approach is we hear a lot about diversification, but if you look at the current market, if someone would have said, well, the stock market is not doing well, it’s down a lot for the year, oh, I’ll just buy bonds and I’ll diversify, well, that hasn’t turned out so terrific either because of the rising rate. So there are strategies that you can utilize, and we certainly do it for our clients, where you look to have the upside of the market but can have some downside protections. And that’s sort of the philosophy I’ve had for, I’m going to say, the better part of almost two decades now.

[00:04:13.080] – Sean

Got it. And it sounds like you’ve been using that strategy with your own portfolio, but also helping your clients in the same way with the same strategy.

[00:04:22.070] – Rich

Absolutely, yes.

[00:04:23.510] – Sean

Let’s dive into that a little bit. Walk us through what you’re doing for your customers.

[00:04:27.290] – Rich

So there are a couple of different approaches you can take. If we go back about 15 or 20 years ago, even maybe 15 years ago, the question you’d always get is, okay, so you can protect some of my downside, but how much do I have to give up to protect that downside? And back then it was a very valid question because there were programs and products we usually had to give up a lot to protect. That has totally changed over the last several years, 1015 years. That is easily changed. So I’ll give you an example. So there are a couple of types of investments. One investment are known as structured notes. They’re bonds, they have maturities, but they’re tied to indexes. And they give you upside in the indexes, assuming you hit certain criteria in the markets or in the indexes, but they will give you downside protection up to a certain level. In some cases, that protection could be 20%, 30% or even sometimes 40% protection. Now, with these structured notes, look, there is always risk, it could be mature, everything could collapse and there could be a loss. But when you’re starting to say, hey, if I have 20 or 30% downside protection on a five year note and I have some really good upside on these indexes, well, then that’s a good thing.

[00:05:55.410] – Rich

So that’s sort of one strategy, and they’re called structured notes. Now, when we sometimes use the term note or bond. Oh, it’s got to be so conservative. Well, these are tied to indexes, so it’s not your sort of traditional bond where you’re buying bond and waiting for a coupon to come in every quarter. So that’s one strategy. The other strategy you can look at is in retirement, people are very concerned with income a lot of times or how much income am I going to have or my lifestyle. There are programs available out there through many insurance companies where you can provide an income for Life to a customer based on an investment, regardless of market conditions. Now, if the market does well, they’re potentially going to have More income. But if the market doesn’t do so well, there are built in features that will give them guaranteed income for life. So those are just sort of two types of strategies where you can really be on the forefront of getting some really good returns and good performance, but you have some downside protection or you have an income strategy for life.

[00:07:05.110] – Sean

Right. Let’s dive into those a little further. So with this, it’s called structured notes, is that correct?

[00:07:11.480] – Rich

Yes, structured notes, right.

[00:07:13.520] – Sean

You said like a maximum downside, is it downside loss of like 2030, 40% typically.

[00:07:20.560] – Rich

Typically the way they work is we have something called a barrier. So the Note You’re purchasing will have, say, a barrier. So let’s say the Barrier is 30% on the five year anniversary by the way. These notes come in one year, two years, three years, five years. They come in all different terms. I’ll just use the five that seems to be the most popular. If the Day of Maturity and one of those, let’s say the Bottom was tied to the S and P, the Russell and the Dow Indexes and the day of maturity all of those indexes are -15% -20% -29% you get all your money back. Regardless okay. If the Day Of Maturity an index breached or was below that 30% Mark at that point, it Would operate as any other investment. So at that point So as long as It doesn’t breach the barrier, even if The Market Is Horrendous, a customer basically gets All Their Money back plus any return they were due or owed along the Way. So that’s an example of how that downside works. And in all the years I’ve done these sort of structured notes, the only one I’ve ever seen breach that Barrier was tied to technology I’ve never seen the Dow Breach or the S and P and the Russell, even in the sort of the good years and the Bad along the way.

[00:08:45.620] – Sean

Yeah. And just to use an example, let’s say your Lower limit is set at 30%. Let’s say it goes to 31% at that point, it’s not a 1% loss, it’s the full 31%, right? Exactly. Okay.

[00:09:01.710] – Rich

And the other thing is, keep in mind it has to happen the day of the maturity for that debt to ensure a loss. So you could be down 35% a week before maturity, and then all of a sudden it comes back a few percentage points and you’re sort of in the game. And these notes are not driven for the quote unquote conservative or investor that can’t tolerate any downside or loss, because the upsides in many of these notes are very good. There are some really good upside notes.

[00:09:36.400] – Sean

Let’s talk about that. What kind of upsides can we expect?

[00:09:39.930] – Rich

There’s a note that’s really interesting and really cool because it plays both sides of the market. It’s called a dual directional note. And the way a dual directional note typically works is if the market is up, you can make money, and if the market is down, you can make money. And many institutions have these notes. Citigroup Morgan. Stanley goldman Sachs. JPMorgan. The way a dual directional note would work is five year maturity. Again, these are examples, these are the exact notes that are currently, you know but I’m just giving you an idea. If all three indexes are flat to positive at maturity, the way these notes work is you get an automatic return. It’s called the digital return. Let’s say it’s 40%. So if all three indexes are flat to positive, you would get an automatic return. In my example of 40%, if notes are down, then you also can get the best return up to 30%. Meaning if the S and P is down ten, the Russell is down 15 and the Nasdaq 100 is down 20. Even though things are at a loss, you’d make a 20% return plus your money back. So it plays both sides of the market.

[00:10:54.000] – Rich

These are called dual directional structured notes. So you have the upside as an automatic return if everything’s rosy and doing great, but you also have the downside. The worst of the three you would benefit from. And that has generally has a 30% barriers we discussed before.

[00:11:12.170] – Sean

Got it.

[00:11:12.630] – Rich

So these notes are really, really interesting because again, most notes will play the upside of the market with downside protection. This dual directional actually plays both sides of the market.

[00:11:24.010] – Sean

So I’m just doing the math here. Five year 44% total return, we’re looking at about seven and a half percent annual return, is that correct?

[00:11:34.480] – Rich

Right.

[00:11:35.280] – Sean

I’m running the math here in a calculator, right?

[00:11:37.470] – Rich

Yeah, exactly.

[00:11:39.310] – Sean

Got you. Okay. So you could tell your customers, I know you’re not guaranteeing, but hey, you’re looking at about between the seven and eight per year percent on the upside if everything’s going rosy right now.

[00:11:51.360] – Rich

Now, the other thing about the note is that upside return is uncapped. So if anything went above in that example of 44%, if you get the return, but it is an uncapped return, so potentially you can make some more. But I usually say to customers, in reality it’s the 44%.

[00:12:11.520] – Sean

Gotcha.

[00:12:12.450] – Rich

So it’s a little it’s a little complicated. The truck should note, but it’s sort of the easiest way to remember it is return on the dual directional, return on the upside. Return on the downside with that 30% barrier protection.

[00:12:25.160] – Sean

Got you. Okay. Yeah. In that case, I just reiterate, let’s say it’s at 30% down, and on that day of maturity, it’s 25% down. You’re not realizing that 25%, it goes back to zero. Is that correct?

[00:12:41.910] – Rich

Well, in the dual directional, if the worst of the three was down 25% the day of maturity, you would make 25% on your money plus your money back, plus your principal back, because it pays. It’s like longing and shorting the market in one note. That’s what a dual directional note does. And people say to me, how do they build these things? How do they do it? So we always have a joke. I said, these are the people they keep in the basement, and they feed them once a day. They build them with an option strategy. So they’re buying puts all on the way down. And not to get too much into the weeds, but they’re buying puts all the way on the way down for the protection. So the money is there in case there needs to be protection. And that’s how they generally built these products. They’ve been around a really long time.

[00:13:31.570] – Sean

Got you. Let’s take a quick commercial break. If someone tells you to buy a stock, the last thing you should do is buy that stock. The first thing you should do is ask why. Unfortunately, a lot of influencers on YouTube, TikTok, Twitter, Reddit, and really the list goes on are giving really bad stock recommendations and investment advice. The question is, how do you determine if what these people say is good advice or bad advice? That’s where Tykr can help. Tykr can quickly and easily determine if a stock is a good or bad investment. And it helps you manage your investments with confidence. But don’t take our word for it. Check out our trust pilot reviews to see what people are really saying. Go ahead and get started with a free trial. Visit Tykr.com. That’s tykr.com again, Tykr.com. All right, back to the show. I was going to ask how this is paid for. If you’re on the low end like that, let’s say you’re down 25%. But the fact that you mentioned these are options, that there’s a percentage of people out there that they’re opposite of a put and call for this.

[00:14:41.530] – Rich

Yeah, that’s typically out. And these notes, usually they’re issued monthly by major institution. So it’s a big chunk of business out there for a lot of these institutions. Every month, I probably get a list of easily 50 plus notes that are out there on the street.

[00:15:00.930] – Sean

Wow, interesting product. You’d be the first person on this podcast that actually talked about this. This is a new product, which this is pretty cool with mutual funds, index funds and ETFs, they all have an expense ratio, which is on top of the fees you would have. Like you’re a wealth manager. You probably charge an AUM fee, assets under management. And with this product, is there some kind of expense ratio customers can expect?

[00:15:29.450] – Rich

The way it works is there’s no management fee to purchase this product per se. What it is, it’s a new issue. So it’s each month they’re newly issued. The fee then is built into the underwriting of it almost like an IPO. And that fee is generally depending on the terms and durations. It’s probably somewhere between one and 3% depending on the duration of the year. But again, it’s built into the product. It’s built into the origination and the underwriting. So it’s not on top of the customer’s investment. And when it matures, there’s no redemption fee or anything like that. It just matures. So this could literally be bought in and a customer had a brokerage account. They’re not paying a fee on this if they owned it for five years. It’s the original it comes out of the original origination of it.

[00:16:22.250] – Sean

Got you. Okay, let’s talk about the income generating product. Can you talk about that a little bit?

[00:16:29.840] – Rich

Sure. So the biggest, I think, frustration people have about retirement years and just ask anyone who tried to retire in 2001 or 2009 or 2020 is how much am I going to have and how much can I live on depending on I don’t want my lifestyle to change. So that sometimes is another factor. So what insurance companies have done is they’ve built programs for years and years and years. And back in the old days, if we went back again 1520 years ago and you talked about an annuity, people would always say, oh, that’s so when I die, there’s money to give to my family. And that’s sort of the old way. It was they offered very little, very little investment strategy. And typically it was more of a death benefit scenario that’s drastically changed in all aspects. So the income based programs that are offered out there through insurance companies or these annuities, typically what they will do is they will offer you an income for life with some sort of a guarantee. So as an example, if someone had $100,000 in a retirement account, I’m just going to throw that out there and they have the ability, number one, to select various funds and make it diversified, which is aggressive or conservative as they want to do it with the guarantee, we typically will make it more aggressive because why not?

[00:18:04.680] – Rich

Because if you have a guaranteed potential income, why not do something like that? And what most of these companies will do, and they all vary a little bit, they would say, well, if on the first year anniversary your portfolio is up 15% because the market did well, we’ll lock that 15% in. And now your new income guarantee would be $115,000. Okay. Because that gets locked in. On the flip side, if the market isn’t doing well, let’s say year one, the market’s down 15% and now your hundred is worth 85,000. Most of these companies, what they’ll do is they’ll add a five or 6% bonus onto the hundred. So your new guarantee would be 106, even though your account value is $85,000. So normally the way it works is you’ll get that 5% for a period of ten years regardless. However, if the market is doing really well, you have the ability to capture that market, step up every year. At the end of the sort of puzzle, at the end of the duration, when you’re saying, hey, I’m ready to retire, we now know what your guaranteed income is, and your guaranteed income would be a percentage yearly of that total income, what we call an income base.

[00:19:31.610] – Rich

The nice part of doing this is what we do is because it’s sort of nice to see sort of how it looks on an illustration. What I always do is I go the opposite way. I give customers the worst case scenario and say, what if the market was never up for ten years? What would it look like? And if we took that 6%, added it to $100,000, and just kind of extrapolated out for ten years, what would the minimum income be? That way? So the nice part of it is a customer can really look at it and instead of doing what they normally do well, let me look at performance on this Fidelity fund well, let me look at performance on this American fund and how they did in the last 20 years. Well, this basically saying is if things, if the bottom fell out, this is where my income base would be, this is where my guarantee would be. So the nice part of this program is it predetermines the minimum income they would have in retirement years, obviously from much larger accounts. We had a customer, we did one, I’m going to say about five years ago, and I think the initial investment was 1.2 million in an account.

[00:20:44.540] – Rich

And when we put it on a timeline send and said x amount of years out, you’re going to have about $80,000 a year in income for the rest of your life. You know, now we’re talking about a real pension. So, so that these, these plans are very, very useful and it just, it gives somebody a real picture of what the future is going to be in their accounts.

[00:21:07.240] – Sean

Right, right. Thanks for breaking this down. I know I’ve, I’ve talked to a few people about annuities, but, you know, you use some nice clean math. Last year I was just going to round it up for the audience here. So you got one hundred K, six percent. You’re taking 6000. It’s not a lot to put in your bank account for a year, but when you move that up to a million. Okay, now we’re talking right about that 60,000. And you gave the example there 1.2. So about 80,000, which those are very realistic numbers, and it’s guaranteed, which is that’s a beautiful place that gives you the customer the peace of mind knowing regardless of what the market does today or tomorrow or next month or next year, I’m still getting my 80,000. So I can go enjoy hobbies and travel, do whatever I want.

[00:21:54.180] – Rich

Exactly. And what I do is I always take time when we do customer consults. I always explain it every time we talk how the guarantee works. Exactly. Because what people are normally used to is they get a statement, and it has one number on it. When you have one of these types of programs, the statement actually has three numbers on it. The first is the portfolio value. That’s the value if I cashed out today. The second is the income guaranteed value. This is the number that’s going to generate the income for life. And then the third piece, which is almost like a little bonus, is the death benefit. So there is also a guaranteed death benefit to those programs as well. So I always make it a point of walking customers through the statement just so they have the understanding of the values of each number.

[00:22:45.720] – Sean

Right. With the death benefit. Talk about that real briefly. It sounds like a little bit like a life insurance policy, correct?

[00:22:56.250] – Rich

Yeah. So the way the death benefits work typically is sort of the there’s a feature called an annual step up, locked in step up. And what that basically does is as the market is increasing, let’s say year after year, each year, they will lock in that number to their families as a death benefit. So, again, easy number 100,000. Year one, the account grows to 106, it becomes 106,000. Year two, it goes to 120, it becomes 120,000. If year five, it’s at 135,000. And then the market crashes and the market value goes to 90,000. But God forbid that person passes away, the family would get the 135,000 that are locked in at minus any withdrawal. And that yearly step up, typically, depending on the company, usually goes to about age 80, where it’ll continue to step up. Now, what it really means is the death benefit could and what I always say to customers, the death benefit could only go up. It can’t go down once you have that feature added on. So that’s typically how it works.

[00:24:09.140] – Sean

Awesome. Before we jump to the rapid fire round, is there anything else you’d like to share with our audience?

[00:24:16.770] – Rich

Yeah, I just think when people are just looking at overall investing, I think the most important thing are, number one, I work backwards. So what I’ll typically always say to a customer who wants to invest, we’re talking about retirement, is how much do you want to leave in cash for the rainy day? Because the last thing we want to do is invest money that the customer needs for living. So that’s the first thing. So I work backwards. Unfortunately, in my business, a lot of advisors work the other way. If a customer wanted to invest $400,000, they want to invest 395,000 of it and leave no liquidity. So that’s an important thing. And the other thing I would say to a lot of customers is that are you really diversified? Because we hear a lot about that. And what I find is we do a lot of portfolio reviews and what we find is people think they’re diversified just because, let’s say, they have mutual funds or ETS and just because they all have different names. Many of them own all the same stocks. So we’ll go through a portfolio and they have really cool names and different names and different fund families.

[00:25:33.060] – Rich

And we look and they all own Amazon and they all own Microsoft and they all own this. So that’s something that we look to really dive into and really look at and sometimes that’s really missed in this business.

[00:25:46.270] – Sean

Totally. Yes. Well, thanks for the context here and the different products you offer. And I definitely do see these as two solid ways. The listeners out there, if you’re looking for something that is an asset protection strategy, again, that’s that second strategy, not the first, which Tykr is really focused on that wealth building strategy. This is the asset protection. These are two solid products. But let’s move on to the Rapid fire round. This is part of the episode where we get to find out who rich really is. If you can, try to answer each question in 15 seconds or less. You ready?

[00:26:21.630] – Rich

Pressure is on. Here we go.

[00:26:25.370] – Sean

What is your favorite podcast?

[00:26:31.550] – Rich

I like Gary V and he does one. And believe it or not, I’m an Entourage fan. I like the entourage. Doug Ellen’s podcast.

[00:26:39.770] – Sean

No kidding. I’ll have to check that out. Nice. All right, what’s a recent book you read and would recommend?

[00:26:47.650] – Rich

There’s a book called The dispensables. It’s about the American Revolution and how it was flawed and all the things that occurred during it. It was very interesting book.

[00:26:58.090] – Sean

Very cool. All right, what’s your favorite movie?

[00:27:01.250] – Rich

That’s a tough one. Godfather, Field of Dreams, just to name a couple.

[00:27:06.920] – Sean

Those are good ones. All right, what is the best advice you ever received?

[00:27:13.230] – Rich

I think the best advice I ever received is there’s a thing when people are successful or they’re seeing success that everyone always seems to think it just continues and that there’s never going to be sort of any downsides or blips in the road. And one person said that as long as you feel like you’re moving forward, you’re going in the right direction. As long as you feel like you’re pushing forward, even when you’re stepping back.

[00:27:45.090] – Sean

Right on. That is good advice. All right. And last question is the time machine. Question if you could go back in time to give your younger self advice, what age would you visit, and what would you say?

[00:27:58.950] – Rich

I would say I probably go back to that 21, 22 year old. When you’re a little obnoxious and you think you know everything, to just relax, move forward, and do it one step at a time, that’s sort of what I would look at sometimes. When you’re at that age, you’re an overdrive, you just think everything happens so quickly, and you realize that everything is a process.

[00:28:31.060] – Sean

Yes. Patience. Patience is key.

[00:28:34.940] – Rich

That’s it.

[00:28:35.780] – Sean

All right. And I’ll turn it over to you. Where can the audience reach you?

[00:28:39.620] – Rich

Sure. Gardenstyfinancialgroup.com. We’re based in Long Island, New York, but we service customers throughout the country. You can find videos up there on blogs. Also YouTube, Channel, Garden City financial Group. Rich Casperian also would catch us on LinkedIn, so there’s a lot of ways, but Gardenstyfinancialgroup.com awesome.

[00:29:02.200] – Sean

Well, thanks so much for your time, Rich. Thanks.

[00:29:04.750] – Rich

It’s great being on the show. I appreciate it.

[00:29:06.580] – Sean

Right? We’ll see you.

[00:29:07.540] – Rich

Thanks.

[00:29:08.300] – Sean

Hey, I’d like to say thank you for checking out this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for spending some time with me. Also, if you have a moment, could you please head over to Apple podcast and leave a review? The more reviews we get, the more Apple will share this podcast with the world. So thanks for doing that. And last thing, if you do hear any stocks mentioned on this podcast, please keep in mind this podcast is for entertainment purposes only. Please do not make a buy or sell decision based solely on what you hear. All right, thanks for your time. Talk to you later. See you.