Deferred Sales Trust Investing Made Simple with David Young, CFA, former Executive VP at PIMCO

Deferred Sales Trust Investing Made Simple with David Young, CFA, former Executive VP at PIMCO

David Young is located in Southern California, and he is the founder and chief executive officer of Anfield Capital Management LLC. With over 30 years of investment experience, he has worked with many of the largest and most sophisticated institutional and private investors in the investment strategy with an investment strategy, portfolio management, and asset allocation. At the end of 2008, he retired as Executive Vice President with PIMCO to rejoin UC Irvine Merge School of Business as an adjunct professor of finance, and create Anfield Capital Management LLC. From 1999 to 2006 he was the head of PIMCO, his account management group in London, where he built a team of 25 investment professionals managing over 200 client accounts and approximately 50 billion in assets across the UK, Europe, and the Middle East and Africa. 

He spent his career in the investment management business. At one point, he wanted to kind of rediscover his passion for the art and science of managing money, so he saw an opportunity to kind of step to the side and work with a different type of client, financial intermediaries, interesting types of transactions and get back in touch with the clients.

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Deferred Sales Trust Investing Made Simple with David Young, CFA, former Executive VP at PIMCO

Brett:

I’m excited about our next guest. He is located in Southern California, and he is the founder and chief executive officer of Anfield Capital Management LLC. With over 30 years of investment experience, he has worked with many of the largest and most sophisticated institutional and private investors in the investment strategy with an investment strategy, portfolio management, and asset allocation. At the end of 2008, he retired as Executive Vice President with PIMCO to rejoin UC Irvine Merge School of Business as an adjunct professor of finance, and create Anfield Capital Management LLC. From 1999 to 2006 he was the head of PIMCO, his account management group in London, where he built a team of 25 investment professionals managing over 200 client accounts and approximately 50 billion in assets across the UK, Europe, and the Middle East and Africa. Please welcome to the show with me, David Young. David, how are you doing today?

David:

Doing great. Hope you’re all doing well.

Brett:

Absolutely. And for our listeners who are just getting to know you for the first time, would you give them a little bit about your story and your current focus?

David:

Certainly happy to do so. I spent my career in the investment management business. A brief stint in the early days at Rockwell International was way back in the kind of mid-80s. And then moved on from there to Smith, Barney Harrison is one of these venerable names in the investment management and brokerage and print securities industry, and from there, I went to a business school, then worked for a few investment boutiques, found my way to Pacific Investment Management Company in the early 90s. It’s a very large asset management firm, best known for its fixed-income work. However, you know, we did and they still do a lot of other things. And it was there for quite a number of years, 15 years, both here and then overseas., In Europe, where I was asked to go and open offices there and develop that part of the business. That was great fun, it was very challenging. It’s a tremendous kind of wild ride with a lot of opportunities. And I was lucky, right place, right time looking at hard work. And it never hurts. We did that. And then saw an opportunity upon my return here to the US. That was just some point you got to come back or you got to stay you can’t, you know, can’t live in Newport Beach, California, and London and Munich forever. That certainly put some miles on the relationship and the party as well. So I’d like to come back to work at the home office here for a number of years and I saw an opportunity to move on to the next phase of my life and the next chapter of my business career founded and field Capital Management. And then over time, some folks came with us. It was really at that point about wanting to kind of rediscover our passion for the art and science of managing money. Very big firms are great. They have a lot of resources, tremendous credentials, for a number of investors, that are not really accessible. So we saw an opportunity to kind of step to the side and work with a different type of client, financial intermediaries, interesting types of transactions kind of get back in touch with the clients. And that’s what I feel it’s all about.

Brett:

Beautiful, great, great summary, David. And, and it’s such an honor to have you on the show. And, and so I want to kind of dive right in. And we’re going to talk about really kind of the two audiences today. The first being, you know, potentially different self-trust clients. And then the second being the money managers or financial professionals that are actually looking for money managers like yourself that are more, financial professionals as far as gathering the wealth versus managing the wealth, which is really what Anfield Capital specializes in. But let’s focus first on the deferred sales trust clients that are looking at this strategy, a lot of our capital gains tax solutions clients that are coming in. 

Brett:

And you know, the first big question is, what is the deferred sales trust? Is it legal? How does it work? You know, all of those things. But the second most important question or just as important is, once the funds are there, how and where are they going to be invested. So let’s dive into what I call deferred sales trust, investing Made Simple, and let’s focus on that, like a laser. So if it were your deferred sales trust, David, and or for a family member, what would be a simple diversified investment of security allocation that you would suggest, and let’s just say, this particular person’s in there, you know, their 60s, and they’re worth somewhere between, you know, $5 and $10 million, and, and they, they don’t necessarily need or want the income right away, but they, they may want to start giving to some causes they believe in, or they may want to start to, to, to increase their income over a certain period of years. And so they have a general, you know, mid to high tolerance of risk. And so, based upon that, what might be some suggestions or questions that they would want to ask you or that you’d want to ask them to get started?

David:

Happy to do so. Complicated question. So I’ll try and hit the high points. And then Brett, you can, you can rewind a bit and drill in if there’s a particular I think, warrants, more discussion. So it sounds like a fairly typical case if you will. And here’s what I would say, there are some misconceptions about the deferred sales trust transaction, which is a financial instrument, some people believe that proceeds have to go back into the very often real estate to have to go into real estate. And that’s confusing it with like a 1031, or some other type of transaction, or maybe that they can’t go back into the same sort of asset class, some people believe that they have to have to be diversified, we think they should have the proceeds the holdings, but they don’t have to be. Some people think that they have to have a high income, you know, kind of yield profile. Again, they can be, there are advantages to that. But they don’t have to be. mean, there are some terms, there are terms that get set with every DST transaction, and the portfolio inside that DST, that trust wrapper, it has to perform on those on that original on that note on that deal that’s been struck. So it’s important at the, at the engineering phase, when you’re designing the transaction, that we have realistic expectations, and that we, you know, test for suitability and all the things that go along with that, to make sure that what’s inside the trust is appropriate and has the right kinds of attributes is it you know, maximum gains over time kind of total return price gains? Is it you know, and then there can be liquidity you know, limitations or effects that come with that. Is it maximum yield is it typically more, some blend in between those. 

David:

So, the most important thing that we talked about, which would be the most important thing we would talk about if a client came to us, none of the DST or trust or any other structure, be at a tax-qualified or taxable structure, be it through a financial intermediary, a wealth manager, CPA, you know, someone like yourself, or direct directly would be these four or five key principles number one, the time horizon is the number one most important thing in investing. When you have a time horizon, you have the flexibility to do more things, more tools become available to you. time horizon number one longer is better. Yeah, partially because in the early days, you don’t have the market environment that you think you’ll have on average over time, it’s just kind of the timing and the hand that you’re dealt so to speak, then you have an opportunity to recover the portfolio has an opportunity to recover time horizon number one longer better. So we want to establish that very clearly. Typically, in a DST structure, it’s a 10-year time horizon, and the question can be extended, rolled over renewed if you will. That’s for another discussion. What else can we look at, we look a lot at the expected return. And then we look a lot at the required return. The expected return is just that it’s a desire, I’d like to earn 5%, or 7%, or whatever the number is. And that just speaks to how rapidly kind of how fast the individual wants the money to run, how fast they want it to grow, we’d all like more. But with that comes more risk and other things. So you have to factor in those. The required return is probably more important. You have an asset, the proceeds in the trust from the sale of real estate or business, whatever it might be. And then you have liabilities that are set in terms of that trust. And those liabilities might be relatively easy to meet a relatively low return requirement built-in, or they might be quite difficult to meet that might require a reasonably aggressive investing posture. So we’d want to understand the expected and the required returns, they usually converge in a trust, because it’s dominated by the required returns set by the terms of the note and hold transaction, we would then look closely at the investor’s risk tolerance.

David:

That is, in our opinion, a combination of two factors. One factor being the ability to bear risk, which’s kind of almost a replacement, or a necessity sort of concept. If it’s all the money in the world. And you’re relying on it to retire and fund your lifestyle, whatever the case might be, that would be you know, lower ability to bear risk unless you had a heck of a lot of money. Right? That tends to be a function of the size of the assets relative to the individual’s lifestyle needs, etc. But we also look at the willingness to bear risk, willingness to bear risk is more of emotional behavioral finance, how do I feel in my portfolio goes down. Most people like it a lot when it goes up, they like it far less when it goes down. So they have this kind of tilted, you know, willingness to bear risk. So the ability to bear risk and willingness to bear this go together and form an overall more balanced risk tolerance is very important. People always focus on one or the other, we think how would you feel if it went down? How would you feel but what would be the other applications as the ability part, liquidity matters, again, depending on the terms of the trust, and you know, the purse where the person is in their lifestyle and their life stage, inside the Trump’s taxes are not an issue. But for another investor in a taxable context, we would certainly look at the tax implications of any investment strategy as well. Diversification works, it doesn’t work in every environment, it’s not perfect, but done properly. And we do it a somewhat different way, which we may want to talk about, it is still the best way to go by far. So let me pause there can drill into any of those or kind of jump off to some other topics. 

Deferred Sales Trust Investing Made Simple with David Young, CFA, former Executive VP at PIMCO

Deferred Sales Trust Investing Made Simple: “I believe the investor operates at a distinct advantage when he is aware of what path his thought process is following.”- Warren Buffett

Brett:

Absolutely appreciate that on this kind of little summary. So time horizon. Most important or one of the most important things to start with. The longer the better gives you the opportunity to recover. And you have some more flexibility, obviously, the longer you can go, the number two expected return. And then number three, required return, that kind of go hand in hand, we got to look at both of those things. And then we’re going to drill down on the investor’s risk tolerance, there are really two key things there the willingness to bear the risk and the ability to bear risk, right, and not ignoring one or the other or trying to get that as balanced as possible. And then, of course, liquidity and the ability to diversify. I think diversification liquidity right now may be as important or more important than what I’ve seen in the past, but I’m still pretty young, no pun intended on this right. I’m still been in the businesses just you know, about 14 years, whereas you’re an Anfield Capital combined management is over 300 years of invest of institutional investment management experience. So David, rather than me giving my opinion, I’m curious, where do you see getting out of debt, getting liquidity getting diversified in today’s marketplace? How important is that to you and Anfield’s Capital for your clients? 

David:

The hardest assignments we get are the bookends. I want to be really conservative, really low risk. But I still want to make some reasonable amount of return. Those are difficult because that means you’re talking generally speaking about a debt base to fixed income debt instruments fixed income-based type of strategy, not exclusively, but largely, and as we all know, interest rates are very low, now they appear to be taking up a little bit, but we’ve got a long way to go before, people are going to be happy with the just the straight yield from a diversified portfolio of corporate and mortgage in government and other types of bonds, fixed income instruments. So that’s a tough one because we’re operating in this really constrained environment. The other difficult one is the bookend, where it’s, you know, maximum growth, to heck with risk, it’s never a good idea, the risk is not your friend to your friend use properly, it’s the unexpected and an undesirable and unmeasured kind of risk, which we spent a lot of time squeezing out of portfolios, that’s for another conversation too, but so that other you know, go go go. The portfolio is also hard because it really means you have to be in, you know, fairly aggressive types of stocks and other instruments largely drawn from the equity or stock, you know, pile, if you will, or opportunity set. So, those are the toughest ones, when we get to be in the middle, we get to diversify, we can hold, you know, a range of a number of different types of instruments, asset classes, and different sectors and instruments. So we can build a richer, more robust kind of portfolio, that it’s more likely to weather, a range of storms, the storms appear to be giving us less notice, come faster, harder, and are more violent, if you will, then that, you know, periods in the past. And so that that makes that one, that’s why diversification is so much more important in this environment. The trouble is, again, we’re in a strange world where some of the higher return markets are feeling a little bit frothy, a little bit overbought, you know, not in every case. But clearly, stocks have been on a very strong run below, bonds are very low. So there is a bit of a conundrum out there. What we would do is say focus on how much risk you want to spend, and let that be the governor or the carburetor, the right, the calibrator for how the portfolio is designed. And then the risks, let them return themselves to return come along with the appropriate amount of risk. That’s very important in this environment. Because, the volatility is fairly heightened levels, and we expect it will continue that way for some time.

Brett:

Yeah, very well said and I really connect with the storms are coming faster and hitting harder and have bigger implications at this time. And we could drill down on the reasons for that. But let’s just assume that is the case. And I agree with you completely. It’s been It was a wild 2020. And who knows what 2021 has in store for us. 

David:

I can give you the reason why. And you know, it’s excess liquidity. Financial Markets, like many other systems, are, you know, they’re big, and they’re global. And they move very quickly. But they’re still ultimately kind of a closed system. They’re simply kids in and some entry and exit. But the global economy, economies, and global markets are stuffed full of money. We’ve all seen stimulus plans and maybe gotten a, you know, deposit in our accounts. “Ooh, you know, I like that.” But all that money needs, you’re just pumping up the amount of internal pressure in this generally closed system. And that pressure is going to magnify news, it’s going to magnify news that isn’t really all that important. It’s going to magnify the news that is important. It’s going to magnify those peaks and valleys. Because when money starts to move towards bonds or towards stocks, it will be that much more and it moves more quickly than ever before. So the excess liquidity which we expect will be with us for quite some time is the primary culprit for that heightened volatility,

Brett:

I think about like a dam or a big old dam like Hoover Dam right and it’s all the water that’s building up, right and then they pull the little water or they put another quarter, you know, a quarter 25% of water in there, and it keeps building up and then it starts to, you know, maybe leak over the top or they’ve got a lot more out or and then in sometimes it may break like that’s the part where we’re going, “ooh, is this going to break?” And what does that mean? Right, but all indications as far as it looks like inflation is still pretty relatively low. And it’s in every and again, it’s still I keep hearing. Well, the next 12 months seem pretty good. Or at least the next, you know, quarter seems pretty good. Any thoughts on I know, you know, timing and predictions or not? You got to be careful with those things. But where do you think we’re at in this market cycle? On what and given what’s happened in 2020? What do you feel like 2021s gonna look like for investors?

David:

Right, so with all the disclosures and, you know, cautions that need to go with this, each investor is different. We’re not in a position to describe or prescribe what anyone should do or not do, you should seek professional financial advice, just as you would medical tax or whatever the case might be, you know, in our opinion, you know, all these are Anfield’s own estimates, their forecasts, we don’t know, they’re certainly not guarantees, but it’s our best guess. And let’s just call it what it is. It really is, you know, hopefully highly educated guesses. And so, you know, we would discourage anyone from acting on any specific part of what I’m about to say. It’s a much bigger conversation. But then we said, we actually just finished a couple of days back, and these will be coming out hot off the press to our clients. And the advisors who work with us, most of our clients are actually other financial intermediaries that say, “I’m really good at tax or planning or, you know, estate planning or real estate or tsp trust, admitting not spending all day managing money, I have an idea, let’s partner with a firm like Anfield and will be their investment team. And so we can stay very focused. And that’s kind of a best in breed, best of class kind of approach.” And so here’s what I would say. Expect the first half we expected and feel our opinion, the first half of 2021 was where we are now, probably the to be a little bit soft in terms of us and global growth, that might be picked up in the markets, but there’s so much money chasing, you know, whatever good ideas are out there, that it might not be evident to folks if they’re investing in the stock market could lead to some challenge, a challenging environment for fixed income. But then when we look at the second half of the year, we do see stronger growth. So our call, overall for the year, we believe, now you’re looking at, potentially in the US, you know, could be a three to 4% gross domestic product, real GDP kind of year, that’s pretty good growth. And that’s for a whole lot of things coming out of COVID shutdown all the stimulus in the marketplace, pent up demand from consumers, you know, etc, etc, etc. So, we do see some opportunities in stocks, in particular, this is a generally constructive environment for stock market investing, with again, with all the caveats and disclosures ready in because there is heightened volatility. We’re a little more suspect of fixed income investing right now I mentioned before yields and interest rates are very low. And of course, what happens is, all that money combined with still some percolating sparks of inflation, which we do think will be gradually increasing over the course of 2021. And then maybe really become an issue a little bit further out. That’s going to put pressure on us and global bond markets, we could see a situation where rising rates might push bond prices down. Bonds don’t like rising rates, bonds like declining rates have come down for a long time and are very low. And at some point that journey ends and then we go up the other side of the journey so important to be defensive in fixed income, there are opportunities but but but defensive is the watchword there, overall a constructive environment for investing. But diversification for all those reasons back to your point before Brett is more important than ever before.

Brett:

Very well said. And now let’s dive into the financial advisors who, like you said it might be estate planners might be CPAs might be, you know, looking for a higher level of service and expertise and really like you say bringing And the Dream Team, right? I mean, it’s, it’s best when we niche focus, like capital gains tax solutions, although we say solutions, you know, we try to present the top five or so that 1031 exchange, Delaware statutory trust, the charitable remainder opportunity zones. And the deferred sales trust are our main five, but we niche focus on the deferred sales trusts. And so would you walk through if a financial advisor listening to this for the first time, just how you’re able to really help them. And I like the way you put it on your website, your insource investment team. And what that look like?

David:

So you have to enter before the vast majority of our clients, we have some institutional clients and downside, nations, those sorts of groups. But the bulk of our assets come through financial intermediaries for the reasons you described. And if you’re a financial intermediary, you have a bit of a challenge, which is, you’re, you’re probably, no offense, expert at managing money, you can’t be an expert in all things, right. But with the work you do for your clients, the whole point, of course, is to, you know, identify, protect, and then help even create, you know, substantial investable, assets, liquid assets, money. So, we see a lot of solutions, we see advisors try and manage the money themselves. That’s probably not their best and highest use, in many cases, it’s, you know, the tax work, or the financial planning or whatever, that kind of got the clients in the first place, right. And that will also be limiting from a practice perspective. If you, the more clients you get, the more time you’ll have to spend managing money, the less time you’ll have to spend with your clients doing the planning and servicing and getting more clients. So it’s deleveraging from the financial advisors’ kind of business model or practice perspective. So that’s an issue, you can hire someone to manage the money, they may be good, they may not be good, you got to find the right person, it’s they can be you know, pretty expensive if they’re a good year, and then you’ve only got one person they might leave they might not be they might be who knows, you can begin to hire a team of money managers, yourself. 

David:

Now you’re starting to be mid manager, that’s a different business model. It’s it’s expensive. There’s a lot of research and you know, hiring the right kinds of people. These tend to be reasonably highly compensated people in the grand scheme of things. And then I would argue, you’re really going down a tangent, getting away from your, your, your knitting, so to speak, which is never a great idea. You can outsource the money to a number of different kind of turnkey asset management platforms. They’re called tamps. These are places where an advisor can put money with a couple of other managers and it’s a little remote control a little distant, they’re their vendors, they’re selling you their service, they’ll spend a lot of time convincing you why you should hire them, and then the rest of their time, you know, working making sure that they don’t get fired. So it’s not always the best kind of solution. They’re not really integrated with your practice and not aligned with you and your clients to their vendors. And they have their own set of interests and motivations. 

David:

You can take the next step, which we call bringing in more of an outsourced CIO, some clients when they look to work with a financial adviser, think of that person as being their CFO. Right, this will be my chief financial officer, someone who will help me handle a range of different issues and bring in experts as and when needed. But I think that’s a good model, outsource CIOs are more, you know, more in our opinion, elevated and more evolved more advanced kind of solution, you need to start to have some pretty significant assets. For that to make sense. You do get a higher degree of alignment, you get more of a feel of like we’re in a partnership here. And there’ll be more services and capabilities available. What we’ve done is moving through that kind of you know, providing investment models and providing an outsourced CIO service, the real pole, the gravity, if you will, has been to this idea of an insourced investment team. So that means we have a relatively few numbers of larger financial intermediaries as clients, but we do much much more we are their investment department. We just happen to sit in a different place as you and I are now and everybody’s more comfortable with it. All we do is manage money and all the things surrounding it. We in many cases, do everything for them. I mean, literally everything that has to do with managing the money.

David:

And we also help them grow their business, we will be on phone calls with, you know, current clients, prospective clients, or in many cases, other advisors, they might be recruiting and bringing into their practice to grow their practice. So it’s a different more, it’s a more engaged, deeper, broader level of engagement. It’s like having your own investment team, you just don’t have to pay for all of it. As long as you’re okay with us having some other clients that we do ostensibly the same thing for, but we make sure that there’s geographic and other diversification. So our clients are, you know, across the street from each other.

Brett:

Beautiful. Thank you for sharing that. Now, a lot of the first clients there, they own real estate, and they’ve owned businesses and they’ve been active, you know, building wealth all of their lives, okay in there. And they want to perhaps be in real estate, perhaps I think it’s too high of a price right now, prices are too high. And it might not be a good time to buy, right, I want to do a 1031 exchange. And but for those who are meeting for the first time that is morely, let’s just say they prefer real estate, commercial real estate businesses rather than the stock market. What questions can they would they be asking to say, “Hey, how would David his team, you know, compliment that? What would that look like?” “David, could you walk through the person who says, You know, I did, I’m not a big software guy I did before I lost a lot. And I just, you know, I’ve made a lot of my wealth in real estate. And so that’s where I want to be”. So help that investor right now who’s learning about the deferred sales trust, perhaps for the first time.

David:

They’re probably frankly not. I mean, if the advisor has a practice, where they work with a lot of folks that are heavy in real estate, or we’re working with an individual, which is quite rare, we don’t really work directly with individuals who work through financial intermediaries largely speaking. You know, they’re the, they’re, they’re the real estate bugs, right? They’re the ones who often made their money in real estate, they’re most comfortable with real estate, they have, you know, the vast majority of maybe all of their investments in real estate. And the real question then is, you know, if there’s interest, well, there’s typically always some liquid monies laying around, it might be monies in reserve for future real estate, it might be income and rents and other such things coming off of real estate. Many of these folks, if they’re quite engaged, you know, there will be transactions. So there will be periods when there is investable money made available, where it will need to be, typically in a low-risk man are invested to get the most return, you can at least give very conservative and has to stay very liquid because they’ve chosen to take the bulk of their risk in the real estate asset. What you’re seeing increasingly, is a separation between what I call the dabblers. And then the folks who are, you know, really, really more expert or professional who are really concentrated in real estate, rather than doing it on an opportunistic basis. So we see that separation. But um, yeah, I mean, those are tough cases. The reality is for those folks unless they want to diversify less, there are meaningful amounts of short-term liquid money waiting to be deployed into real estate that we can manage for them, which can make sense unless they want to start to reduce their concentration. And, you know, increased liquidity, so monies will be spun off and not reinvested in real estate, but then invested in you know, some form of diversified stock-bond liquid alternatives, can be very interesting alternatives to the stock in the bond market, and also the real estate market. Liquid alternatives are reasonably newer asset class last 1020 years, 20 plus years, actually. So that can make a lot of sense. Part of our work would be helping them. Look, if they’re sitting largely in real estate and they’re happy and they have no intention of changing and they want to stay there. There’s not a lot we could do for them, quite frankly. But if they want to, you know, move to another place more diversified. Lighten up the real estate portfolio, any of those types of, you know, get more liquid towards who knows retirement or some other undertaking, maybe it’s charitable giving, you know, then we can help them in that tree.

Brett:

Yeah, well said and most, most of the clients we’re working with, they love real estate, don’t love overpaying Right now right they that’s why they love the deferred sales trust because it gives them what’s the one thing that’s we can’t get back which is time, right? It gives you the ability to sell high and buy low especially as best as they can. And then diversify and then also time, not just the financial, you know, decisions but also with less toilets, trash liability, less headaches, the time to spend with their family, to travel, hobbies, new business, new ventures, something elsewhere it’s not so dependent upon what they’ve built so far they can walk away and not feel trapped by those things. Because if I have them gain facts, they can differ. And so absolutely, the key here hopefully, if you’re listening for the first time, is, hopefully, you’re seeing that we at capital gains tax, we want to build a dream team as a part of that dream team have financial advisors who work with, in fact, my business partner, who’s the co-founder of the deferred sales trust, Robert Binkley. He, he’s a financial advisor, and he brought on David Young and we want to try to build a Dream Team. It’s not just one, one size fits all, we want to be able to customize based upon your needs your risk tolerance, and where you see the market at so with that being said, David, are you ready for the lightning round?

David:

Okay. I’m ready.

Brett:

All right. 

Brett:

What are the biggest challenges you’re currently facing? Or, you know, it could be in Anfield Capital, it could be your clients, just what’s the, you know, quick bullet point, biggest challenge? If you want to learn more, of course, you can get with David with me. And we can dive into those particulars. But what would you say the one or two biggest challenges either financial advisors are facing right now or clients with investing?

David:

Yeah, I think in many ways, they’re, they’re the challenges are for the advisor, if they really are, you know, sympathical with their clients, which most are, it’s the same is for the client. This low-interest-rate environment is has been going on for a long time. Some might be aware of that, depending on how long you’ve been in markets and resorts and things, or maybe you’re new to it. But um, and that presents a lot of challenges. So first and foremost, I think is the effect of extortion on capital allocation, lots of capital moving away from fixed income and debt moving into real estate, stocks, whatever the case might be driving up those values to where, as you mentioned before, people might be saying, Wow, I, you know, that’s not a great cap rate, you know, real estate, that’s not great, you know, PE ratio in the stock world. And so it’s not that rates are low, it’s that rates have been low for a long time. 

David:

Remember, this was born out of the financial crisis of 2008, nine, where the Fed had to, you know, again, take a lot of stimulative and create level activities to create a lot of liquidity. And that drove rates down to low rates, and they’ve stayed generally historically, low, or towards the lower band of history for now. 1012. I mean, we’re coming up on, you know, 15 years. And so what that means is that you can’t get enough yield out of a normally diversified portfolio to fund a typical four or 5% kind of spending rate in retirement. And so it’s just this to summarize it in one sentence, how do I get 5% in a 2% world? Because most financial plans, building a number something like four or five 6%, spending in retirement, to support lifestyle, etc. That’s an ongoing conundrum, and it’s really starting to bite. So we spent a lot of time working with advisors and clients, trying to figure out how to boost yield without taking an inordinate amount of risk in, you know, which would be leaning into a market where risk is feeling a little tired right now. That’s I think the number one issue, combined with that would be, you know, quite frankly, client expectations about returns. We hear it all the time. 

David:

Well, my Tesla is that you know, 600%, and why wouldn’t I just keep buying more of that? That’s oftentimes the wrong answer. Not always, but I wouldn’t keep rolling those dice. But then they see what the other return opportunities are. And they’re like, You know why? We’re trying to do them a favor by helping them understand all good things come to an end. And you don’t really want to be the last one. When they do and so yeah, it’s these heightened return expectations for everyone’s condition. Oh, the market went down, and buying more. That’s not going to be the right response forever.

Brett:

Very well said. It’s so much wisdom there. You can read a book just about that topic alone. So, we are running out of time. So what’s the number one book you’ve recommended for gifted the most in the past year?

David:

It’s such a tough one. I’m gonna whip on this bread. So we’re not going to end on the strongest possible note. I think my wife and everyone around me, as discovered that, you know, recommending books for me to read is not a great one. I must admit that the last book I got was from my wife, and it was interesting, but also how can I say it, politically charged topic. So given the current environment, if I may, I have to take a pass on that. I can recommend many good writers on financial economies. 

Brett:

All we need is one good one.

Deferred Sales Trust Investing Made Simple with David Young, CFA, former Executive VP at PIMCO

David:

I would read anything written by one of my former colleagues. Mohamed El-Erian is a brilliant thinker is a great writer. He’s written a few books over time. You know, Pamukkale, a former colleague, also excellent writer, these folks also have blogs and other such types of information you can read on a regular basis. They’re not to be missed. I think following someone like Jeffrey Gunlock, who’s an interesting thinker up a double line, Howard Marks one of the better thinkers in the business. Also very interesting always to read. And these are all generally available, you probably have just google their name and find out what they’ve written recently.

 

 

Brett:

Perfect. Thank you, David. Well, I want to thank you for being on the show again, the second time and we’re definitely gonna have you back again. And I want to encourage you to keep using the gifts and talents you’ve been given to bless others and help others create and preserve more wealth, manage risk, and then financial advisors to build there you know, their dream team of money managers with Anfield capital. So would you remind our listeners where they can find you one last time, and then we’ll wrap up the show?

David:

Great, very simple. The website’s anfieldcapital.com, which is an area in England where I was born. So anfieldcapital.com, that’s where you’ll find us. I encourage you to come check us out. 

Brett:

We so appreciate you David and also appreciate our listeners for listening to another episode of the capital gains tax solutions podcast. As always, we believe most high net worth individuals and those who help them they struggle with clarifying their capital gains tax deferral options, not having a clear plan is the enemy and using a proven tax deferral strategy to exit your business or real estate. And getting with somebody like Anfield Capital to help manage the wealth through one of our strategic alliances is the best way for you to grow your wealth. If we can help you at all to clarify your wealth plan from exiting again highly appreciated assets you got a capitalgainstaxsolutions.com, that’s capitalgainstaxsolutions.com and if you are a business professional financial advisor, commercial real estate syndicator luxury realtor, you can go to experttaxsecrets.com to learn more about how to use and how to learn about the different sales trust to use it to add value, you’d be a great tool to grow your business with that please rate review, subscribe. We appreciate everyone out there. Thanks so much. Bye.

 

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About David Young, CFA

Deferred Sales Trust Investing Made Simple with David Young, CFA, former Executive VP at PIMCODavid Young is the Founder and Chief Executive Officer of Anfield Capital Management, LLC. With over 30 years of investment experience, David has worked with many of the largest and most sophisticated institutional and private investors in investment strategy, portfolio management, and asset allocation.  At the end of 2008, he retired as Executive Vice President with Pacific Investment Management Company to rejoin the U.C. Irvine Merage School of Business as Adjunct Professor of Finance, and create Anfield Capital Management, LLC.  From 1999 to 2006, David was head of PIMCO’s account management group in London where he built a team of 25 investment professionals managing over 200 client accounts and approximately $50 billion in assets across the UK, Europe, the Middle East and Africa.

David holds the Chartered Financial Analyst Designation, an MBA with a concentration in finance from the Paul Merage School of Business at the University of California, Irvine, and degrees in Economics and Political Science from the University of California, Irvine. He has taught finance and investments courses at the Paul Merage School, the Financial Times Knowledge programs (UK), and CFA exam preparation courses sponsored by the CFA Society of Orange County, the USC / Los Angeles CFA Society, and U.K. CFA societies.  Mr. Young sits on several non-profit Investment Committees and Boards of Directors including The County of Orange (California) Healthcare System “CalOptima.”

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