In order to beat 90 percent of investors, meet your investment goals, and enjoy a worry-free retirement, you need to understand just a few basic concepts.

Michael Johnston, president of WealthChannel, joins the show to discuss the 7 things that every investor needs to know, and the launch of WealthChannel Academy.

Episode Highlights

• The power of financial literacy across different niches, and how WealthChannel Academy will help investors achieve a worry-free retirement.
• The 7 basic concepts that every investor should understand.
• Why most people (even highly successful and intelligent people) find investing and retirement planning complicated.
• What a sophisticated High Net Worth investor should understand before making an Opportunity Zone investment.

Guest: Michael Johnston, WealthChannel

• Michael Johnston on LinkedIn
• WealthChannel
• WealthChannel Academy — Apple, Spotify, YouTube

About The Opportunity Zones Podcast

Hosted by OpportunityDb founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

• Subscribe on Apple Podcasts
• Subscribe on Spotify
• Watch on YouTube

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Show Transcript

Jimmy: Welcome to the show. I’m Jimmy Atkinson. Becoming a millionaire is easy, or at least that’s what my guest today claims. I’m joined today by my long-time friend and business partner, President of WealthChannel, Michael Johnston. Michael joins us today from Eugene, Oregon. Michael, great to see you. Welcome to the show.

How you doing, buddy?

Michael: I’m great, Jimmy. Always good to be with you.

Jimmy: Good. Well, we see each other just about every day. We talk about every day. You’re my business partner. In this episode, for those of you listening or watching, it’s going to be a little bit different. We’re not going to talk extensively about Opportunity Zones in today’s episode. This is really a special bonus release of the podcast, to talk about our newest project that I’ve been helping Michael with at WealthChannel.

I’m super excited about this project. We’ve been working on it for a long time, and we’re rolling it out this week. It’s WealthChannel Academy. I can talk about it for a long time, but let me actually turn it over to Michael, to give you the rundown. Michael, what is WealthChannel Academy, exactly, and why are you so excited about it?

Michael: Yeah. Thanks, Jimmy, for having me on to talk about this. And you say this isn’t going to be about Opportunity Zones. It is a little bit, though, in that you were kind of the inspiration for this, Jimmy, and what you’ve done with this show. I think if I zoom out a little bit, you spotted something that was really promising and really excited, in the Opportunity Zone program.

And you kind of said someone needs to be the independent authority here. Someone needs to aggregate some data. Someone needs to make, kind of, a virtual meeting place for the different stakeholders to get together, and someone needs to do a lot of investor education, so that folks get comfortable with this, and they’re okay putting their money into it. And, you know, Jimmy, you’ve kind of catalyzed a whole bunch of investment into Opportunity Zones, by virtue of doing what you’ve done.

You know, I think there’s a lot of folks who, 10 years from now, when they get their tax-free distribution from their OZ investment, they should send you a fruit basket or write you a thank-you note or something like that. But anyway, seeing what you have done here, Jimmy, and kind of the power of education, and the power of financial literacy, and teaching investors how things work, simplifying it for them, getting them comfortable with it, kind of led to this bigger conversation we were having about, well, what if you do that more broadly, not just in this narrow niche of Opportunity Zones?

But I don’t think a lot of people would argue with me that there’s kind of a desperate need for financial literacy, financial education in this country, and a lot of folks have no idea about their finances, and they’re doing some really dumb things that they shouldn’t be doing. So, that’s kind of what planted the seed for WealthChannel Academy is, well, what if we can simplify investing? What if we can radically simplify investing?

Because it’s gotten so far, so complicated, and so convoluted that all these really smart and sophisticated people, people who are successful in life, and are intelligent, and they just get so overwhelmed, and they find it so complicating, and they’re kind of scared to touch it. So, we want to change that, Jimmy. We want to make investing simple.

We want to simplify it, kind of break it down to the core pieces of it, and make it way less intimidating.

Jimmy: No, I think it’s great. That’s why I’m excited about investing, has changed a lot over the past few decades. There’s a lot more options out there. It’s a lot more complicated. The old playbook doesn’t necessarily work, and even if it does, people don’t know enough about a playbook anyway. We don’t teach financial literacy nearly enough in this country. That’s exactly right.

I like the fruit basket idea, by the way. I’m going to be checking my front porch for fruit basket deliveries in the early 2030s. Send them all over. That’s a great idea, Michael. Let’s dive in a little bit more to WealthChannel Academy in a minute, but I’m curious. Well, you and I go way back, right? I’ve known you for, how long now, over 20 years.

Michael: Twenty-plus years.

Jimmy: We were roommates. Yeah. We were roommates for a time. We’ve been business partners for a long time. But a lot of you out there, a lot of my listeners out there, may not know exactly who Michael Johnston is. Can you give us a little bit more background on who you are, and why are you the perfect person to lead the way on WealthChannel Academy?

Michael: Yeah. Thanks, Jimmy. So, I’m a finance guy. I have a finance degree. I’m a CFA charter holder, the Chartered Financial Analyst designation, means I studied a whole bunch, and took some pretty difficult tests, and kind of proved my mettle as a finance geek. I’ve worked in investment banking and corporate finance. I’ve also worked for some startups, doing finances, as well as other things.

And one of those, a company, Jimmy, that you and I started, was called ETF Database. Similar story. We recognized in the 2008, 2009 timeframe that ETFs were taking off, and someone needed to step in and do some education, and be that independent authority on ETFs, on Exchange-Traded Funds.

And we did exactly that. And we, I think we did a pretty good job of it, and that site is still going strong. And it catalyzed a lot of movement from really expensive mutual funds into low-cost ETFs. So, by being a part of that low-cost revolution, Jimmy, I think that we saved investors, gosh, I don’t know how much money, but it’s hundreds of millions of dollars in annual fees that we’ve saved them by getting people more comfortable with moving from expensive mutual funds to low-cost ETFs.

So, a little bit of a detour there on kind of my professional career, but the takeaway is that I’ve always kind of been passionate about improving outcomes for investors, for retail investors. How do you make life better? How do you help retail investors essentially keep more of what they earn? It’s the bottom-line returns that matter, right?

So, I’ve always been super passionate about this. I’ve been a finance guy who’s surrounded by, like I said, a lot of folks who are smart and sophisticated and successful, but not necessarily savvy in the world of finance, so I get lots of questions, from aunts and uncles and cousins and brothers and sisters, asking me questions about this. So, it’s kind of, I’ve kind of been acutely aware, Jimmy, of this need for financial education, the lacking financial literacy, and more importantly, the impact that that has, that not being aware of some of the basics things that folks should be doing as investors, that have a really detrimental impact on, you know, what people are able to save, ultimately what they’re able to do in retirement.

So, this is a passion. It’s a passion thing for me. I’m super passionate about this. I’ve been passionate about it for a long time, and I think I’ve got the background to step in and do some of this education, Jimmy.

Jimmy: Well, I think so too. That’s why we put you in charge of WealthChannel Academy, and I’m excited to see what it turns into. And, you know, you’re absolutely right about the fact that this is needed. This is an opportunity here to provide a lot of education, like we did with ETFs and ETF Database, etfdb.com.

I think you’re right. We probably saved hundreds of millions, if not billions of dollars in fees for investors. I mean, we started that website back in ’08 or ’09, so it’s been around for a very long time. I’m doing the same thing, and you’re helping me out, with OpportunityDb, driving a lot of investment into Opportunity Zones, and saving investors a lot on taxes.

And now, WealthChannel Academy, let’s talk about that. And Michael, you have some content titled “The Seven Things That Matter,” at WealthChannel Academy. So, I’m wondering, can you walk me through what matters, exactly, when you’re putting together an investment portfolio, when you’re thinking about your finances, when you’re trying to prepare for retirement?

There’s a lot of noise out there. There’s a lot that you can do. There’s a lot of technical jargon. A lot of different, really fancy, sophisticated investment products out there, but what are the seven really basic things that matter?

Michael: Yeah. So, Jimmy, this was one of the aha moments I had, or one of the things that frustrated me, like, the issue with financial literacy, it’s not that there’s not enough content out there. It’s that, like, there’s way too much. Like, we have multiple 24/7 cable networks dedicated to the markets. We have hundreds of websites.

There’s, like, millions of pieces of content out there. Jimmy, I was on, look at Investopedia the other day, and they kind of brag about, like, “We’ve got 38,000 articles on our site.” And I thought, “That’s kind of a problem, guys.” Like, that’s just too much stuff. How are you supposed to figure out, like, what matters and what doesn’t? Because you don’t need to know 38,000 things, or a million things.

As you kind of alluded to, I think you need to know seven things. And if you understand those seven things, like, man, you are most of the way there. You’re going to beat 90% of investors. You’re going to meet your goals, you’re going to have that worry for your retirement. So, anyways, these seven things, what are they? So, I tell people, you start at the end. You’ve got to look at what is your endgame?

What are you ultimately saving for, investing for? Like, most people don’t have a grasp of that, of what do retirement expenses look like. So, that’s the first thing. What’s the end? And then the second thing, once you figure that out, well, that’s what I want in retirement. So, what do I need to get there? How much do I need to save?

And some of it’s going to come from Social Security, and some of it might come from pensions, but the rest is kind of up to you, right? So, once you figure out how much you need, number three, you can figure out, well, how do I get there? And, like, this is pretty easy, fortunately. Like, there’s a proven playbook. Like, spoiler alert. It’s invest in a portfolio of stocks and bonds over the long term, and let what Albert Einstein called the eighth wonder of the world, compounding returns, work its magic.

The fourth thing, Jimmy, there’s some traps out there, like fees and taxes, and these behavioral traps that we fall into. So, if you know what those are, you know how to avoid them, that’s another big thing checked off your list. The fifth is what I call the tools. Like, what do you use to do this? Do you use 401(k)s, IRAs, health savings accounts? There’s some awesome tools out there that make it, like, so much easier.

Like, tell people, you could go on, like, you could climb a mountain barefoot, but, like, it’s a lot easier if you’ve got hiking boots on, and it’s a lot easier if you’ve got a couple of those cool little poles that collapse down. Sure, you can do it without it, but a heck of a lot easier if you’ve got the right gear. And then the last couple things, Jimmy, are some basics of estate planning, like your legacy, what happens when you die.

If you do all these things, and then all this money goes to the government after you die, that’s pretty sub-optimal, so make sure you do a couple basic things. Your money ends up, the charities you support, the heirs, the people you care about. And then, last but not least is what’s the team that’s around you? Some folks want to do this totally alone, self-directed investor, feel that they’re comfortable doing all of it.

Other folks, they might want to have a tax guy, they might want to have an attorney, they might want to have a financial advisor, so if you do, understand how to incentivize those people, how to find the right people to do that, how to make sure that, you know, for lack of a better term, to be blunt, they’re not ripping you off, and they actually know what they’re talking about. So, that’s seven things, Jimmy.

I think if you understand those seven things, like, that’s it. So, tune out all the other junk, understand those seven things, and you’re there. So, that’s the goal with WealthChannel Academy, is focus on these seven things. We’re going to tune out everything else. And I think if people just do this, they’re going to do pretty well. And then the other piece of it, Jimmy, is this content’s going to be all created by financial experts.

It’s going to be created by me, primarily. I went through, kind of, my background. We’re not going to outsource this. Like, what happens a lot of the time is stuff gets outsourced to, like, the college intern, or to the English major, and no offense to English majors, in case my wife is watching here, but maybe shouldn’t be creating content, financial and investing content. So, the goal is to simplify, and then have folks who actually know what they’re talking about create the content.

Jimmy: No English majors over here, so offend away. I don’t mind at all. No, that sounds great. I can’t wait to see what you create, because I think it is really needed. Although I would suggest maybe, hey, number eight, invest in Opportunity Zones.

Michael: Well, yeah.

Jimmy: I kid, a little bit.

Michael: Well, I’d say, yeah, I’d say that’s one of the tools, right? Like, that’s one of the tools…

Jimmy: Yeah, I guess that was number four or five, was use the right tools, get the right gear. I’m going to ask you more about where you think OZs fit in in the very last question of the day today, so keep that in mind. So, you mentioned there’s this education gap, there’s this lack of financial literacy. There’s too much content out there.

You mentioned, Investopedia brags about having 38,000 pages of content. That kind of would be as though the IRS was bragging about how long the Internal Revenue Code is for the country. I mean, who can figure that stuff out? That’s what that reminded me of. [crosstalk]

Michael: Seventy-thousand pages, I think? Kind of depends on how you categorize it. Some people say 7000, some people say 70,000, but yeah, it’s pretty overwhelming, right?

Jimmy: Pretty long. Depends what size font you use. Well, that kind of begs the question, though. I think there’s a lot of really smart people out there who are not financial professionals. They may be very talented, very intelligent in other fields. Maybe they’re great doctors, or great dentists, or great teachers, or, you know, great firefighters and police officers, and intelligent folks out there, hard-working folks out there, but as intelligent and hard-working as people might be who are saving for retirement, they often find investing and retirement planning super-complicated.

And frankly, they’re bad at it. Well, why do you think that is? Why do smart people find these topics so difficult and so complicated?

Michael: Well, I think the biggest thing, Jimmy, is this isn’t something we teach. Like, this is not taught. A lot of kids do not learn this from their parents at home. Like, I love my parents. God bless them. They did a lot of things right, but they don’t have a clue about this stuff, and they never taught me about this, right? We don’t teach it in high school.

We don’t teach it in college. Like, I have a finance degree, and some of this basic stuff, like, we didn’t learn this. And then the other opportunity, I think missed opportunity, is, like, there should be something that employers are teaching when they hire, when they bring on new folks, especially folks who are just out of school. So, I mean, I think that’s the biggest issue, is that this isn’t taught anywhere, and it’s a massive failing.

Like, look, I think America is the greatest country in the world, but we get, like, a… we get a pretty bad grade in terms of financial literacy, Jimmy. And I think most people, like, yes, they say, “Oh, yeah,” nod, and kind of agree. Like, “Yeah, financial literacy, we should improve that or something.” But, like, I want to talk…I’ve got a couple stats that I think are just, like, mind-boggling here.

So, there are, I think, Jimmy, about 29 million zombie 401(k)s out there. So, people have been contributing to a 401(k) at a job, they leave the job, and then they just, like, kind of forget about their 401(k). Like, they’re not even aware that it exists or that they get to take it with them. I don’t know what they’re thinking.

Well, again, a failing of the employers, as much as the individual. But, like, that’s crazy, man. There’s 29 million 401(k)s out there that people just forgot about, and they have, on average, $50,000 in them. So, that’s, like, close to $2 trillion that people have just kind of forgot about. Like, wow. That’s crazy, right?

Jimmy: That is crazy. That’s absolutely nuts. I agree. We need to teach this in schools. I mean, if geometry and English and history are required in high school, why not make one course financial literacy? Maybe we can get rid of one of those English classes. That would be my vote, anyway.

Michael: Well, they won’t have to. They’ll be able to throw on WealthChannel Academy, and they won’t have to think about it or lesson-plan, so, if I do my job, that’ll be the easy solution there.

Jimmy: That’s good. Well, I just wanted another dig at English majors, so, let’s get rid of one of the English classes, right, and replace it with financial literacy, when you’re a junior or senior in high school. I think that’d be great. Okay, so, let’s talk about what does this all mean? What is it all leading to here with WealthChannel Academy? What type of impact can it have, if you’re able to get people to move from a bad letter grade?

Let’s say the average American taxpayer or American investor is at a D or D minus right now. What would it mean if you could take that average up to even a C or a C plus? What would be the impact?

Michael: Yeah, I’m sure some people are going to roll their eyes at me here, and maybe I’ll get a little hippie-dippie here, a little bit out there, Jimmy, but I don’t think you can overstate the impact of this. Like, if you can teach people to be just slightly better investors, to do some of the basic blocking and tackling, like, that’s a massive impact on our society. Like, what that means is people can retire sooner, they can have the retirement that they want.

I mean, a more secure financial picture generally translates to greater physical health. It translates to bigger and more stable families. Again we’re…you know, maybe we should hold hands and sing Kumbaya here in a minute, Jimmy. Like, I’m getting a little bit out there, but, like, I genuinely believe this. I think that if you can help people accumulate more wealth, by doing some basic things that don’t involve sacrificing time with their families, or other things that they enjoy, that has a massive impact on quality of life at the individual level, and, like, it makes a dent, I think, at least, in a lot of the problems that we have as a society.

Jimmy: It’s a huge lever, right?

Michael: It is. That’s a good way to put it.

Jimmy: Getting this stuff sorted out, and getting it sorted out early as possible, you know, ideally when you’re in your 20s or 30s, but even if you’re later in life, even if you’re in your 40s, 50s, 60s, I mean, there’s always time to make a change and get on the right track financially, and make sure your investment advisor isn’t ripping you off, for instance, making sure you’re taking care of the seven things that matter. Let’s talk Opportunity Zones for a second, before we wind down.

This will be my…one of the last questions I ask you. You know, I am of the mindset that, and I think you agree with me, Opportunity Zone investing is not for everyone. It’s really only appropriate for sophisticated, high-net-worth investors, who already have a lot of the basics covered. I mean, first of all, you have to have gains of, I usually say you have to have a gain of at least $50,000 before it’s even worthwhile.

But what else should investors have accomplished first before even considering an Opportunity Zone investment, because it is one of those, kind of, unique tools in the toolbox, but it’s not for everyone, right?

Michael: Yeah, that’s right. It’s maybe not the hiking boots or the poles, not kind of those basics that you need, but it’s definitely a tool that’s in that gear pack, or, to continue the analogy from before. So, yeah, I mean, folks should generally have, you know, be maxing out their 401(k) and their IRA with, you know, more traditional investments, stocks and bonds, diversified portfolios of stocks and bonds, before they’re thinking about using Opportunity Zones.

But, Jimmy, like, I agree about the tremendous power of OZs, and to fit this, kind of, into my framework, like, I mentioned one of the seven things you need to understand is the traps. Like, where do people go wrong? And a couple of those are taxes and are fees. Like, the impact of taxes on investing is, like, it’s absolutely massive, and there’s things like 401(k)s and IRAs and health savings accounts, and some other strategies that can help out just about everyone.

And then there’s things like OZs, for folks who have had a reasonably large capital gain, that can help them defer and eliminate taxes. But, I mean, that’s one of the big parts of this, is you avoid those traps. And one of those big traps, Jimmy, it’s taxes. Like, I like to…I joke, but it’s not really joking, I’m half-joking, that I think the three most important things you can teach your kids, you teach them to think for themselves, you teach them to have really good manners, and you teach them how to legally defer and avoid taxes.

So, you know, people think I’m a little bit nutty, but, like, there’s a part, like, I’m going to teach that to my kids. I’m going to teach all three of those things to my kids. And I think you’re going to teach them to your kids, too. So, avoiding taxes, eliminating taxes, deferring taxes, super-important for every investor out there, regardless of whether it’s with, kind of, a basic tool, like a 401(k), or something a little bit more sophisticated, like a Qualified Opportunity Fund.

Jimmy: My kid’s grown when I do this, but every once in a while, I will throw on an episode of “The Opportunity Zones Podcast” in the car, and make them listen for a few minutes, so I guess I’m getting there. One trap within Opportunity Zones, that you said you wanted to mention, is knowing what the level of risk is, also, right? Can you speak to that a little bit?

Michael: Yeah. So, you know, with Opportunity Zones, they’re generally Qualified Opportunity Funds. They’re generally going to be available to accredited investors. They kind of fall under this alternative umbrella, available to accredited investors, and I think the SEC has a definition of what’s an accredited investor, and that’s all fine and good. But I would kind of view an accredited investor is you understand and can explain the risks. And then, secondly, you’re okay losing the entire investment.

And, you know, hopefully, that doesn’t happen. That’s not, in most cases, what’s going to happen, but, you know, that’s kind of how I view accredited investors, is you’re able to lose this entire investment, and it’s not going to derail your retirement, or jeopardize your ability to put food on the table.

Jimmy: Yeah. We don’t like to talk about that around here too often, but yeah, OZ investments could go to zero, as could any type of investment could go to zero, but there are definitely some additional risks with this type of investment product, or really any type of private equity or private equity real estate deal, especially if it’s ground-up development, there’s always an added level of risk.

And I think that’s a good rule of thumb, Michael, is, hey, if you’re not able to withstand this going to zero, it’s probably not a good investment for you. You hope it doesn’t, right? You hope you hit a home run, and the thing triples or 10X’s in value. But yeah, they don’t, not all these things go up all the time, right?

That’s true of any asset class, though.

Michael: Yep. No, that’s right. I think that’s a good frame to look at it through, Jimmy, even if, you know, we’re using extreme hypothetical examples here. But the point is kind of around the level of risk tolerance, and there’s different places in your portfolio for different types of investments.

Jimmy: Absolutely. Well, Michael, it’s been great having you on. WealthChannel Academy, launching this week. I’m super excited to get it out there, and super excited to see where you take it. If anyone in our audience wants to know where they can go to watch and subscribe to WealthChannel Academy, what’s the URL?

Where do they go?

Michael: Yeah, so, they can go to wealthchannel.com/academy. And, you know, I’ll mention, Jimmy, I’m the face of this, but you’re a big part of this team as well. You’re an advisor, who’s had a lot of input here. You’re really great at doing investor education, at building community, so your fingerprints are going to be all over this thing. It wouldn’t be happening without you.

So, grateful for all your support to this point, and all the work you’re going to do that some of it you know about, some of it you maybe you don’t yet, but all that you’re going to do to make this thing a success.

Jimmy: No, that’s great. Well, you already learned something…you already taught me something with the seven things. I had forgotten a few of those, so thanks for reeducating me. I am really excited about this one. Please do visit wealthchannel.com/academy to learn more. Check out what Michael’s got cooking. Maybe you could use a little bit of this content yourself, or maybe you have some clients or some friends or family who could use it.

It’s going to be fantastic, if I do say so myself. Also, we do have show notes available on our website, at opportunitydb.com/podcast, and there we’ll have links to all of the resources that Michael and I discussed on today’s show. And please be sure to subscribe to us on YouTube, or your favorite podcast listening platform, to always get the latest episodes of “The Opportunity Zones Podcast.”

Michael, thanks again for joining me today. Really appreciate it.

Michael: Thanks, Jimmy. This was fun.