Financial advisors, attorneys, doctors, and fiscal consultants are essential professionals who help us navigate an ocean of information to make sound decisions. How do you choose a good one when the language they speak is a nebulous lingo few people fully understand?

Riccardo Grabbio is a seasoned financial consultant known for his pragmatic approach and extensive experience as Chief Financial Officer. In this episode, Riccardo helps clarify some common financial lingo so you can build trustworthy and clear communication with your financial advisor or find the perfect one you understand.

Listen to how to keep financial strategies simple on Spotify, Apple Podcasts, Google Podcasts, Amazon Music, Podbean, or your favorite podcast platform.

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TRANSCRIPT

Stephen Matini: So I represent your typical moron who doesn't know anything about finance. And let's say that I'm seeking for a financial advisor, where should I start?

Riccardo Grabbio: When we take a look at finance actually is not something very small, very narrow, something. There are thousands of aspects that we need to take a look at. So first question to me is asking yourself, what do I need? Because when you talk at about finance, it might be have your own personal budget, for instance, because your expenses are not under control.

Can be or maybe can be having a finance advisor because my company must improve, must improve for whatever reason because the balance between revenues are and cost are not enough or simply because I'm not managing well enough, my working capital for instance, or maybe because my cash flow is not coming, even though I'm making revenues, I, I do not understand why this is the second one.

Or maybe it can be for instance because I have a lot of cash, but I'm not capable of leverage that cash well enough to make my company grow better or how it should, or maybe simply because I have a personal heritage that I want to have a battery yield.

Riccardo Grabbio: And at the moment I don't have this is let me say very typical situation that Italian families has. For instance, just to give an idea because you need to know that the GDP of Italy is not satisfactory, is not a country that is growing a lot for several reasons. We are not efficient enough. Our industries are weak, must improve, we have tax issues and all those stuff.

But you need to know that Italian families are rather rich and what they have, they have a lot of cash because of generation and so on. And they have a lot of properties. And the big issues that I have seen, for instance in Italy is that what the Americans say is asset rich and income board, to me a financial advisor, this is the first rule of financial advisor, try to change this status because when you are asset rich and income board means that you are not efficient or better, you can't manage your asset.

And in this specific situation, for instance, the financial advisor can create tremendous value to, to a family for instance, try to think very rich family that has a good family office and exactly the same very rich family without the family office handling the money for them, the result would be completely different.

Stephen Matini: Based on everything you said so far, it seems to me that you, I think you mentioned like probably several things, they're important, but three are really important. One is that you don't need to have a big assets in order to start to be more financially savvy. That's one. Then you mentioned several times the importance of cashflow and the other one you emphasized the importance of time because from a financial investment standpoint, time is crucial more than the actual percentage you get paid in the moment.

Riccardo Grabbio: Yes, exactly. I can tell you talking about the time, which is the most important of one. There are several studies that I have read over the years from JP Morgan, but also from some other sources like banger and so on. And what they say is that in a period of at least 20 years in a bunch of 100% investors in the stock market, there was not one that lose one penny over or the 20 years.

It means that if you invest, if you buy and hold for 20 years, you're not going to lose money. If instead you try to, what, what we technically say, time the market. So you buy and sell, you buy and sell, then things get tricky. I can tell you one thing, I dunno if you have ever heard about Peter Lynch, I think in seven years in which he managed the found Magellan, he doubled the s and p 500 each and every year.

Riccardo Grabbio: So try to think a, a result what we are still talking now about his performance and the funny thing is that 90% of the investors that invest in his fund, they lose money over the year. And you can ask me how it can be possible that in 20 years a fund had a performance huge and the investors lose the money because they were not buying and holding, they were buying and then selling, buying and selling try to keep the best moment in which you to enter and to exit from the fund and doing that 90% of those, they lose the best return of the market. So buying a whole is a good advice.

Stephen Matini: So I I wanna ask you to define some key terms, you know that maybe could be useful for the people who are going to listen to the episode. How would you explain assets in the simplest way?

Riccardo Grabbio: An asset is something that brings you money in your pocket and on the other side you have liabilities. That is something that takes out money from your pocket. Why is tell you that? Because for instance, try to think to have a new big car, an expensive new car. Actually from the accounting standpoint, this is an asset. Then you, you, you d it in your, in your balance sheet, this is an asset then you will depreciate in 10 years and so on. This is technically an asset, but to me this is not financially an asset. Why not? Because it's not bringing you value any kind, it's not bringing you money in your pocket, it's draining money from your pocket. So keeping it in very simple. For our listeners, asset is something when you buy something that will bring you further money in your pocket than you are buying an asset.

Riccardo Grabbio: If it doesn't, then it's not an asset. Then we have some asset that intrinsically they produce something, they produce a value. Let me give you an an an example. A stock index or a single stock for instance, you have a company, you have an organization. Those people, they are all working together with a common purpose, which is to create earnings and so on. So it doesn't matter the price in the short term, in the long run it'll increase in value. Why? Because those companies are making earnings, they're paying dividends and so on. So there will be a good result in the, in in the future. But then there are some other asset that those, they have a value fine, but they don't produce anything. Let me give you an example. If we talk about precious metals, I dunno, gold for instance and so on in this one here is just a simple piece of metal, right?

Riccardo Grabbio: It has big value. Yes it does. The market is valuing is up and low value, it does a function in investment portfolio but is not producing anything. I mean, so in this case we are a bit more speculating. The price can go up or down. We don't know in the future can be be a function in the portfolio, but it's not creating anything. But this is another different kind of asset. Another kind of asset are bonds for instance. The returns typically is low, but you lend money to someone, to a government, to a private company, to a corporation, whatever, and they pay you the interest in in your return. This is another asset. It bring you money in your, in your pocket. Then there are also real estate. You can buy flats for, for instance you can buy apartments and so on. Rent it and as a return you have the pay that the people are paying to you. This is another, another example. For instance, those are assets.

Stephen Matini: How would you explain? Same question in super simple terms, P&L?

Riccardo Grabbio: Very simple difference between rev