Sean Casterline of Delta Capital Management On The 5 Essentials for Smart Investing

An Interview With Jason Hartman

Pay Yourself First — I know this one gets beat into our heads, and it’s a common thought. But it’s true, and as much as people say they agree with it, they typically don’t follow it. You don’t build wealth in the capital markets by being the next great stock picker. You build wealth with a disciplined strategy that puts your long-term financial success ahead of your short-term desires. Both of my boys regularly invest in their ROTH IRA, and I make sure they make their contributions first. They’re welcome to spend what they have left over. But they will pay themselves first.

As a part of my series about The 5 Essentials of Smart Investing, I had the pleasure of interviewing Sean Casterline.

Sean Casterline is the President and Senior Portfolio Manager for Delta Capital Management, LLC, a Federally Registered Investment Advisory firm located in Maitland, Florida. He is a speaker, an investment advisor, and the author of the book “Investors Passport to Hedge Fund Profits”. Sean also has the distinction of being a CFA Charterholder and is a former Arbitrator for the NASD.

Thank you for doing this with us! Our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

I came out of the University of Florida with a finance degree, and my desire was to engage in something financially related. While at school, I wasn’t sure which direction I would go. But the stock market and the investment advisory business always intrigued me. It’s an ever-changing landscape, with markets and economies, and I felt like this industry would constantly challenge me and create intrigue through the capital markets. Additionally, and maybe more importantly, I always loved the thought of helping investors navigate the capital markets. Moreover, I love the challenge of helping investors meet their long-term financial goals. I get plenty of Christmas cards!

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

I could probably share a thousand stories. Investors are so unique, and they all see investing and financial planning differently. Sometimes, I feel more like a bartender than an advisor.

I’m not sure it’s the most amusing story, but it’s the one that popped into my head when I saw the question. I had a client named Hazel. She was a tough woman but also very loving in her own way. Hazel was 88 years old at the time, and she had a trainer coming to her house twice a week to keep her working out and healthy. One Wednesday afternoon, Hazel called me, and she was distraught. She related that she had to stop having her trainer come in. I asked her why, and she said she could not afford her. I was surprised by the call and reasoning as, at the time, Hazel had over $700K of investments with us. I told her she had plenty of money to keep the trainer, and Hazel replied that the money was for her two sons, and she didn’t want to touch it. I told her, “Hazel, I know your two sons, and I wouldn’t give them a nickel!”. She kept the trainer and was happier and healthier for it.

The moral of the story is that investors work hard their entire lives, and they should enjoy the money they’ve saved. The Great Generation were great savers, but partly because they went through the Great Depression, they often are reluctant to spend. It’s not to say retirees should spend their money frivolously, but they should enjoy the fruits of their labor. We should all challenge our kids to create their own legacy and not depend on the passing of wealth.

Are you working on any exciting new projects now? How do you think that will help people?

We are constantly working to improve our portfolios and our positioning. In the last five years, we’ve worked hard to recalibrate our portfolios using more exchange-traded funds (ETFs) as opposed to traditional mutual funds. ETFs tend to be more fee and tax-efficient; every dollar counts for our investors.

We have also added new research to our portfolio management process that involves analyzing our portfolios using AI software that we subscribe to. It allows us to evaluate our current positions and look for more efficient opportunities in the marketplace. AI is touching us all, and we’re glad to have found a fantastic tool for our processes and clients.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. According to this report in Fortune, nearly two-thirds of Americans can’t pass a basic test of financial literacy. In your opinion or experience what is the cause of these unfortunate numbers?

It’s sad, but true. I think our country and education system have done a below-average job creating financial education for our people. As a finance major, I received a lot of high-level financial education. But a consumer doesn’t need that depth of education. In my opinion, it would make a lot of sense for high schools and colleges to create a basic finance curriculum and make it mandatory for everyone, regardless of their focus of studies. I’ve literally met people who can’t balance their checkbooks or pay their bills. It’s that bad in our country today. I’ve also met people with an exorbitant amount of cash sitting in a bank earning 0.10% because they fear a stock market or bond market crash. This is just a lack of understanding and knowledge of how the markets work and what alternatives are available in the investing world today. You don’t have to take a lot of risk to get a return that will keep you ahead of inflation.

Last, I would include basic estate planning in this area. For everyone in our country to not have a basic will is a travesty. A will would help individuals spell out their wishes upon death. But it also lists a healthcare and financial power of attorney in case you are incapacitated. These are critical items, and most people don’t even know they exist.

If you had the power to make a change, what 3 things would you recommend to improve these numbers?

1. First, we need a better foundation of financial education. We need to install basic finance classes at every high school and college. They don’t need to be overly challenging classes. They need to be foundational and practical for a typical consumer.

2. I would make Medicare and Social Security classes mandatory for anyone who files for them. You can make them online and fun. I have encountered several retirees who took Social Security at the wrong age or didn’t get the correct Medicare supplements for their unique needs. Mistakes like these can cause significant financial damage to retirees during their golden years.

3. I think it would make a lot of sense for the US government or the Securities and Exchange Commission to set up education on the different types of investments that are available to investors, young and old. If you ever listen to financial radio, you will inevitably hear some lugnut pounding the table on how annuities are the cure-all for everything. What he’s not telling you is that you will pay him or her a 7 1/2 % commission, and your money will be locked up in a surrender charge period for up to 14 years. They are great salespeople, but consumers need to be able to discern the whole financial story.

Additionally, most investors don’t understand how amazing tax-free growth can be with structures like ROTH IRAs and Health Savings Accounts (HASs). If you have 401K available to you, you can most likely put $22,500 into your ROTH 401K. The limits are much higher inside a company plan than in a typical ROTH IRA. These are just some of the small nuances that the SEC or the government could outline for investors.

Ok, thank you! Now to the main question of our interview: You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing, what would you say? Can you please give a story or an example for each?

1. Pay Yourself First — I know this one gets beat into our heads, and it’s a common thought. But it’s true, and as much as people say they agree with it, they typically don’t follow it. You don’t build wealth in the capital markets by being the next great stock picker. You build wealth with a disciplined strategy that puts your long-term financial success ahead of your short-term desires. Both of my boys regularly invest in their ROTH IRA, and I make sure they make their contributions first. They’re welcome to spend what they have left over. But they will pay themselves first.

2. Invest in Tax-Free Vehicles — Americans live in a country with a very tax-friendly environment with low tax brackets. But our government has created an enormous debt problem for our country, and our spending is out of control. In our estimation, tax brackets are increasing regardless of who is in office. Many investors think this can’t happen. But it may surprise you that from 1960 to 1963, the lowest marginal tax bracket was 20%, the middle bracket was 69%, and the highest was 91%! I don’t think we’re going back to those levels. However, investing in the correct vehicles is imperative because higher brackets are on the horizon. This is one of the reasons I set up Custodial ROTH IRAs for my sons when they began working in their early teens. We used it as a learning tool as they got input into what stocks we bought. Not surprisingly, they started off buying Nike, Tesla, and Ferrari. But they are also learning how much tax-free investing can influence the type of retirement plan you have.

3. Manage Your Debt — It’s so easy for young people to get a credit card and just assume it’s free money. However, it can also be the item that puts young investors into financial catastrophe if they don’t use their credit cards correctly. When my boys turned 18, I got them both credit cards. I felt it was essential to help them establish credit. However, I also felt it was a great teaching tool for them in their financial journey. The card rates were high, but I made an important point to them that they need to use the card and pay it off EVERY MONTH. They were told they needed to buy things they could afford and not finance extravagant items. They can have things they want, but not at the expense of high-interest-rate credit cards.

4. Ask for Assistance — Obviously, I work in the financial services world, so my boys have a bit of a leg up. But many things I’ve learned in my life didn’t come from books. The information came from my research on the topics online or simply from conversations with other advisors who specialized in those areas. The world of finance is ever-changing, and it behooves any investor to ask questions when they have them. Don’t assume the answer. The last thing an investor wants is an IRS issue to arise because they didn’t take the time to ask a simple question.

5. Don’t Ignore Estate Planning — For my two sons, estate planning is the farthest thing from their minds. They are young and starting their adult life. They are focused on their careers and, eventually, their budding families. However, having a simple will in place is critical, and as your family grows, knowing the difference between a trust and a will can be a huge benefit. Tax laws change, and your life changes with it. As such, understanding how estate planning works and the importance of it in every time frame of your life is critical.

What are your thoughts about investing in cryptocurrency? Can you explain what you mean?

Cryptocurrency usage has moved to the mainstream, which tells you it has legs. One of my friends acquired a 1% mortgage on a house he was building because he double-backed the mortgage with Bitcoin. I have another friend who bought a Tesla with his Bitcoin. Crypto is being used in everyday life, and that’s much different from when it first came out. That said, I view cryptocurrencies like I view gold. You want exposure to the asset class, but you don’t want to load up your portfolio with it. Crypto tends to trade in very large ranges and has one of the highest standard deviations in the investing world. That tells you they have an inherently more elevated level of risk. I want to have exposure to Crypto for my money, but I wouldn’t invest more than 5–10% of my total portfolio value in them.

What are your thoughts about daytrading, using apps like Robinhood? Can you explain what you mean?

How often have you been to a party or gathering, and someone introduces themselves as a day trader? When it happens to me, I immediately tell them I’m a plumber.

Don’t get me wrong, day trading sounds great. It’s exciting and sexy. Even Hollywood has gotten into the fold. I’ve seen movies made with handsome square jaw actors with their ties undone because they just went through a voracious day of trading. But it’s fool’s gold. According to an article by the Data Science Society last year, approximately 1–20% of day traders profit from their endeavors. Exceptionally few day traders ever generate returns that are even close to worthwhile. This means that between 80 and 99 percent of them fail. Numbers like these are probably what prompted Princeton professor Burton Malkiel to say, “I don’t confuse day traders with serious investors”.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

The easy answer is my father, Roger. He made me the man I am today. But the person who has had the most significant influence on my “financial” life was one of my finance professors at the University of Florida, Joel Houston. I could probably name several professors with whom I’ve had great relationships. But Joel was one of those professors that always challenged you. I loved his teaching style and his caring demeanor. I was able to take classes with Joel during my undergrad years and during my MBA studies.

I owe Joel a lot — much more than you may think. I was at UF during the summer of 1990 and couldn’t get the prerequisite classes I needed to graduate on time. I didn’t have the money to return to school if I didn’t finish the next year. So, I was distraught. I thought about dropping out. Instead, Joel recommended that I petition the business school, and my petition was granted. I ended up taking my upper-level classes before my prerequisites to graduate. Joel is literally the reason I made it through.

I haven’t seen Joel for a few years. But I kept in touch with him after college. He was gracious enough to write a recommendation for my book Investors Passport, and he also co-authored one of the CFA Charter holder finance books, which I was proud to study.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

One of the world’s greatest investors, Warren Buffett, once said, “Do not save what is left after spending, but spend what is left after saving.” That quote speaks volumes to me, and it has been the foundation of my financial life. Too often, consumers put off investing for things they want today. It’s completely backward. Pay yourself first and spend what’s left over. If there’s nothing left over, wait until next month. People who have success in investing are mechanical about it. They methodically invest their money every month, and they don’t get caught up in the swings of the markets. It’s a lesson I’ve lived by over the last thirty years and a lesson I’ve “shouted from the mountain tops” to our investors.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. :-)

I would focus my “world-changing” efforts on financial education. I simply don’t think enough financial education is taught in our country today. If you polled every American, I would almost guarantee that most of our country doesn’t understand estate planning and how a will or trust works. Most would think a will would cost them thousands of dollars. They don’t know you can do a simple will online for free. The same poll would show that most Americans have no idea the difference between a mutual fund and an exchange-traded fund. But the differences are critical. It can mean thousands if not tens of thousands, of dollars to their bottom-line net worth by simply selecting the correct vehicle for long-term growth. The world of finance is ever-changing, and our educational system should be changing with it.

Thank you for the interview. We wish you continued success!

About The Interviewer: Jason Hartman is the Founder and CEO of Empowered Investor. Jason has been involved in several thousand real estate transactions and has owned income properties in 11 states and 17 cities. Empowered Investor helps people achieve The American Dream of financial freedom by purchasing income property in prudent markets nationwide. Jason’s Complete Solution for Real Estate Investors™ is a comprehensive system providing real estate investors with education, research, resources and technology to deal with all areas of their income property investment needs. Through Jason’s podcasts, educational events, referrals, mentoring and software to track your investments, investors can easily locate, finance and purchase properties in these exceptional markets with confidence and peace of mind.

Starting with very little, Jason, while still in college at the age of 19, embarked on a career in real estate. While brokering properties for clients, he was investing in his own portfolio along the way. Through creativity, persistence and hard work, he earned a number of prestigious industry awards and became a young multi-millionaire. Jason purchased a California real estate brokerage firm that was later acquired by Coldwell Banker. He combined his dedication and business talents to become a successful entrepreneur, public speaker, author, and media personality. Over the years he developed his Complete Solution for Real Estate Investors™ where his innovative firm educates and assists investors in acquiring prudent investments nationwide for their portfolio. Jason’s sought after educational events, speaking engagements, and his popular “Creating Wealth Podcast” inspire and empower hundreds of thousands of people in 189 countries worldwide.

While running his successful real estate and media businesses, Jason also believes that giving back to the community plays an important role in building strong personal relationships. He established The Jason Hartman Foundation in 2005 to provide financial literacy education to young adults providing the all-important real world skills not taught in school which are the key to the financial stability and success of future generations. We’re in a global monetary crisis caused by decades of misguided policies and the cycle of financial dependence has to be broken, literacy and self-reliance are a good start. Visit JasonHartman.com for free materials and resources.