WEBVTT - Talking Recipes with a Master Chef 0:00:06.200 --> 0:00:09.520 Welcome to Trillions. I'm Joel Webber and I'm Eric Beltonis. 0:00:09.640 --> 0:00:12.320 We talked a lot about all the variety of etf 0:00:12.440 --> 0:00:14.880 that are out there, but we haven't talked about how 0:00:14.880 --> 0:00:17.840 to put all of things together. Yeah, I mean the 0:00:17.840 --> 0:00:19.759 e t f s are like the ingredients. You throw 0:00:19.800 --> 0:00:22.320 them together and you have a dish, and that's called 0:00:22.320 --> 0:00:24.320 the portfolio. And how do you do that? That's a 0:00:24.360 --> 0:00:26.000 big open and question for a lot of people. I 0:00:26.000 --> 0:00:28.639 love that we're already talking about food because really this 0:00:28.680 --> 0:00:31.440 episode is gonna be a little bit about recipes. Oh god, 0:00:31.480 --> 0:00:34.560 all right, you can't eat yet, okay, but three hours 0:00:34.560 --> 0:00:37.320 to launche Let me have some food. But joining us 0:00:37.320 --> 0:00:43.360 today is a guy named Dan Egan who works at Betterment. Betterment, Eric, 0:00:43.880 --> 0:00:46.400 you know a lot about this is a robot advisory. 0:00:46.560 --> 0:00:50.760 So robo advisors they use ETFs to build portfolios. And 0:00:50.920 --> 0:00:52.880 what they do is they get you know, they ask 0:00:52.960 --> 0:00:55.080 you a couple of questions, you fill it out, they 0:00:55.120 --> 0:00:58.080 determine your risk tolerance, and boom, you're in a portfolio 0:00:58.160 --> 0:01:01.200 of say four to ten et fs. They charge you 0:01:01.360 --> 0:01:04.040 twenty five basis points, which is more than half as 0:01:04.120 --> 0:01:06.880 cheap as an average advisor. They do some rebalancing, some 0:01:07.000 --> 0:01:09.839 tax laws, harvesting, and there's no minimum, So robo advisors 0:01:09.840 --> 0:01:13.200 are very popular with millennials and people just getting started 0:01:13.280 --> 0:01:16.640 who don't have other sort of life things and build 0:01:16.720 --> 0:01:19.160 up of wealth that requires maybe more of a human touch, 0:01:19.240 --> 0:01:21.600 although Betterman starting to do that too. But the thing 0:01:21.640 --> 0:01:23.920 about Dan is he does that so he puts the 0:01:23.959 --> 0:01:26.640 portfolios together, but he also does a lot with behavior 0:01:27.000 --> 0:01:31.040 and Betterman exclusively uses e t F. Yes, so Dan 0:01:31.760 --> 0:01:34.040 part of his job and the and the company as 0:01:34.120 --> 0:01:35.480 a whole is to go through the e t F 0:01:35.640 --> 0:01:37.680 and decide which ones who want to use and in 0:01:37.760 --> 0:01:41.679 what percentage to make this portfolio a K the dish. 0:01:42.240 --> 0:01:45.040 By the way, this week Eric Me and our producer 0:01:45.160 --> 0:01:48.800 Jordan's went on the road down to Betterman's office, So 0:01:48.960 --> 0:01:51.720 you're gonna hear a little bit of an office vibe 0:01:51.880 --> 0:01:53.720 at this episode because of the show on the road. 0:01:53.880 --> 0:01:58.640 That's code for not great audio, so enjoy Anyway. This 0:01:58.720 --> 0:02:04.480 week con Trillions meet a master chef. So we're here 0:02:04.480 --> 0:02:10.240 at Betterment with Dannygand who are you? So? I am 0:02:10.480 --> 0:02:14.160 the director of behavioral Finance and investing in Betterment. Betterment 0:02:14.320 --> 0:02:17.760 is a what we're called a robo advisor, so we're 0:02:17.880 --> 0:02:22.600 predominantly online financial advisor and investment manager. We were the 0:02:22.680 --> 0:02:27.160 original so we started taking client money back in two 0:02:27.240 --> 0:02:30.239 thousand and ten. So yeah, we're actually getting to be 0:02:30.639 --> 0:02:33.240 old and tenured. So a lot of times people will 0:02:33.240 --> 0:02:37.080 associate robo advisors as a disruptor. What are you disrupting? 0:02:37.120 --> 0:02:39.440 We'll talk about the traditional advisor and how you're different 0:02:39.520 --> 0:02:42.120 and why this is catching on. A lot of the time, 0:02:42.880 --> 0:02:45.520 the seeds of our our own destruction in businesses are 0:02:45.560 --> 0:02:47.840 seven by choices that we make or choose to not make. 0:02:47.919 --> 0:02:51.240 And I think if you go back to when Betterment 0:02:51.360 --> 0:02:53.799 was founded, it was right after the financial crisis, and 0:02:54.000 --> 0:02:56.720 there was a lot of lack of faith about their 0:02:56.800 --> 0:02:59.800 being good financial advice being distributed. It was high cost, 0:03:00.280 --> 0:03:02.320 despite the fact that a lot of it was pretty 0:03:02.440 --> 0:03:07.640 consistent and systematizeable. People had gotten comfortable with the Internet. 0:03:08.160 --> 0:03:09.760 So I think if you if you went back in time, 0:03:09.800 --> 0:03:12.160 you could say, actually, a lot of the established players 0:03:12.280 --> 0:03:15.600 very much could have dumbness themselves, but it would have 0:03:15.720 --> 0:03:20.239 meant cannibalizing revenues um and a really big I T investment. 0:03:20.600 --> 0:03:22.959 So let's talk about that. User experience. So when someone 0:03:23.040 --> 0:03:26.519 comes to the Betterman dot com website, where do you 0:03:26.560 --> 0:03:29.600 go from that? So I think the first most important 0:03:29.639 --> 0:03:32.560 thing is that we need to make it easy for 0:03:32.639 --> 0:03:35.000 a wide variety of people to get to the point 0:03:35.040 --> 0:03:37.760 where they understand what Betterment is doing for them. And 0:03:38.440 --> 0:03:42.240 that involves allowing the client to both see how we 0:03:42.360 --> 0:03:45.280 believe we have value, so focusing them on we're going 0:03:45.320 --> 0:03:48.360 to build you a diversified portfolio. We're going to recommend 0:03:48.480 --> 0:03:51.480 risk level and allow you to have multiple portfolios depending 0:03:51.560 --> 0:03:55.040 upon the goal that you're investing for. And we're gonna 0:03:55.080 --> 0:03:57.080 talk about the value to you in terms of tax 0:03:57.160 --> 0:04:00.280 efficiency or getting your time back or get a better 0:04:00.360 --> 0:04:03.720 financial plan to set up for yourself. That experience is 0:04:04.200 --> 0:04:06.240 really dependent upon the customer and how they choose to 0:04:06.280 --> 0:04:09.240 interact with us. So we sometimes have what's interesting is 0:04:09.360 --> 0:04:12.520 um how much selling we really don't do on the website. 0:04:12.560 --> 0:04:14.640 I would say it's some very large percentage of our 0:04:14.680 --> 0:04:18.360 clients show up, spend no time on any of our 0:04:18.440 --> 0:04:21.280 marketing pages. They've heard about us through a friend or 0:04:21.400 --> 0:04:23.960 through some other um sort of medium where the site 0:04:24.040 --> 0:04:26.920 I'm in and they you know, they hit our website, 0:04:27.000 --> 0:04:28.920 they open an account and all of a sudden, there's 0:04:28.920 --> 0:04:30.960 a hundred thousand dollars coming in in the next week, 0:04:31.720 --> 0:04:36.280 So why use a robot solution out? Yeah, and let 0:04:36.320 --> 0:04:38.600 me jump in on that, because I think a real 0:04:38.680 --> 0:04:41.520 advisor at this point and say, that's great, you're doing 0:04:41.560 --> 0:04:44.040 as allocation for me, But what about some of the 0:04:44.080 --> 0:04:48.120 more human things that I provide. Yeah, it always sounds 0:04:48.200 --> 0:04:50.960 so much like somebody trying to convince themselves as much 0:04:51.000 --> 0:04:53.960 as anything, or a little bit of fear in their voice. 0:04:54.320 --> 0:04:57.960 So I worked in wealth management with high night Re 0:04:58.040 --> 0:05:00.720 financial advisors before, and the thing that kept striking me 0:05:01.200 --> 0:05:04.040 was what percentage of what they do could be done 0:05:04.120 --> 0:05:07.719 systematically by a computer? And if you think about inputs 0:05:07.760 --> 0:05:09.719 in my background and behavioral thing, I look at people 0:05:09.720 --> 0:05:11.479 and I say, we have this this brain, this little 0:05:11.600 --> 0:05:14.200 chunk of meat between our ears, and it takes inputs 0:05:14.440 --> 0:05:16.960 from our eyes and from our ears, and then it 0:05:17.080 --> 0:05:19.280 runs little algorithms, then it decides what to do, which 0:05:19.320 --> 0:05:22.120 are its outputs. You can do a lot of that 0:05:22.279 --> 0:05:24.080 kind of mimicry of saying I'm going to talk to 0:05:24.120 --> 0:05:27.360 a financial planner and I'm gonna say somebody wants to 0:05:27.400 --> 0:05:29.320 open an I RA, what do you need to know 0:05:29.480 --> 0:05:31.040 we're going to give them good advice about that? What 0:05:31.200 --> 0:05:33.560 questions do you ask? How do you use that information? 0:05:33.640 --> 0:05:36.719 And what's the output? And I would say, like version 0:05:36.839 --> 0:05:40.320 one point of rogue advising is just the picking off 0:05:40.400 --> 0:05:42.839 of whatever is the lowest hanging fruit that is easiest 0:05:42.880 --> 0:05:46.680 to do. The advisors do like say, you know, should 0:05:46.720 --> 0:05:48.359 I use a wall for a traditional ira A? How 0:05:48.400 --> 0:05:50.000 much should I contribute to my four O one kit? 0:05:50.400 --> 0:05:53.680 These are things that is very apparent how you would 0:05:53.720 --> 0:05:55.560 make this decision and how you give this advice. And 0:05:56.120 --> 0:05:58.440 I think as that people confuse the advice from the 0:05:58.640 --> 0:06:03.480 distribution mechanism. I think that take good advice and you 0:06:03.520 --> 0:06:05.640 can think about like did the advisor send it over 0:06:05.760 --> 0:06:08.520 email or did they use and excel? You know, there 0:06:08.520 --> 0:06:10.440 are these things that are like the medium through which 0:06:10.480 --> 0:06:13.400 you give the advice. We effectively just said we are 0:06:13.440 --> 0:06:15.240 going to do this through medium where we can give 0:06:15.279 --> 0:06:18.119 it to everybody through a website, and we're gonna invest 0:06:18.160 --> 0:06:21.560 heavily in writing the algorithms correctly knowing what questions we 0:06:21.600 --> 0:06:23.720 should ask, and then it's simply a matter of you know, 0:06:23.880 --> 0:06:28.480 scaling it up very quickly. So let's talk about I've 0:06:28.560 --> 0:06:31.000 just put a hundred dozen dollars because hey, let's make 0:06:31.080 --> 0:06:33.200 up a number. Right, you're gonna put me. You're gonna 0:06:33.279 --> 0:06:36.160 basically do ask that allocation for me, and you're gonna 0:06:36.160 --> 0:06:38.080 do that based on of series of questions that I 0:06:38.200 --> 0:06:42.000 basically answer, Right, are all those solutions and those portfolios 0:06:42.480 --> 0:06:45.920 straight out the shelf or are their custom options as well? 0:06:46.600 --> 0:06:49.480 So it's interesting, Uh there, I forget what the number is. 0:06:49.520 --> 0:06:51.840 There are literally thousands of different end states that you 0:06:51.880 --> 0:06:53.880 can end up in. The First thing we do is 0:06:53.920 --> 0:06:56.920 I like to think about we talk about your circumstances 0:06:57.320 --> 0:06:59.640 and your goals where you want to be in the future. 0:06:59.720 --> 0:07:02.840 So there are facts about you. Um, let's use, for 0:07:03.040 --> 0:07:05.720 example of the fact that we're in New York City. Now, 0:07:05.800 --> 0:07:07.920 if you live in New York City and you're making 0:07:08.040 --> 0:07:10.720 a pretty serious income, you're gonna pay both federal high 0:07:10.760 --> 0:07:14.080 federal tax rates and high state and limberal taxes. So 0:07:14.200 --> 0:07:16.280 there's an interesting piece of tax information in terms of 0:07:16.360 --> 0:07:18.720 how you learn and how much you learn that actually 0:07:18.920 --> 0:07:22.360 feeds through into the investment process, which is that if 0:07:22.400 --> 0:07:24.960 you're using a taxable account with us, you're probably going 0:07:25.000 --> 0:07:27.920 to push you towards using New York State municipal bonds 0:07:28.320 --> 0:07:30.320 because there's so much tax savings in it for you. 0:07:31.080 --> 0:07:33.880 So one element is who you are, your circumstances. The 0:07:33.920 --> 0:07:37.000 other element is um your future. You know, are we 0:07:37.080 --> 0:07:39.640 talking about opening up a roth IRA, a traditional ira, 0:07:39.640 --> 0:07:42.720 a taxable account? How much risk should we take? How 0:07:42.840 --> 0:07:45.360 long should we be investing for? How are you going 0:07:45.400 --> 0:07:49.880 to withdraw that money? So strangely that like the foundation 0:07:50.040 --> 0:07:52.520 on which the allocation and the advice is built isn't 0:07:52.560 --> 0:07:56.240 about investments. It's about the investor, and from there we 0:07:56.320 --> 0:07:58.480 start thinking about how we can match and tailor the 0:07:58.560 --> 0:08:01.680 investments to serve the investor. So in this case, you 0:08:01.800 --> 0:08:05.000 might say, I'm looking to put my kids through college 0:08:05.200 --> 0:08:07.200 in New York State in a few years. I've already 0:08:07.240 --> 0:08:08.640 done the five twenty nine, I want to do things. 0:08:08.640 --> 0:08:10.440 I'm want to save some more. We would put you 0:08:10.560 --> 0:08:13.360 into a portfolio that had less risk because it's a 0:08:13.400 --> 0:08:16.040 short time horizon, and also there would be a higher 0:08:16.080 --> 0:08:18.520 weighting towards New York State municipal bonds. So that's not 0:08:18.680 --> 0:08:21.640 like a very specific example, but just how do you 0:08:21.680 --> 0:08:24.880 think about asset allocation in general? On a more metal level. 0:08:25.640 --> 0:08:30.240 So we kind of simplify things down to generally speaking 0:08:30.320 --> 0:08:33.679 the stock versus bond allocation. So if you are in 0:08:33.840 --> 0:08:37.840 our bond allocation, we basically think that means a fine site, 0:08:37.920 --> 0:08:40.600 no risks. In that case, you are a hundred percent 0:08:40.720 --> 0:08:44.439 in sh V, which is a ultra short treasury. That's 0:08:44.480 --> 0:08:47.000 like putting your money magic exactly right. It is is 0:08:47.120 --> 0:08:48.640 is close as you gonna get to a money market 0:08:48.720 --> 0:08:50.760 fund in the e t F world, Which leads to 0:08:50.800 --> 0:08:54.160 another question, which is is everything you guys do E 0:08:54.280 --> 0:08:56.800 t F it is to pick up and keep talking 0:08:56.840 --> 0:09:02.559 about it with this basic poor close and how do 0:09:02.600 --> 0:09:06.839 you pay? So in every case we are looking at 0:09:07.160 --> 0:09:11.599 maximizing the customer's takeover trends. So we generally think that 0:09:11.760 --> 0:09:16.000 it is unlikely that any fund that is actively manage 0:09:16.040 --> 0:09:19.119 and that includes active in disease is going to outperform 0:09:19.240 --> 0:09:22.319 or at least there's a really significant headwind, and so 0:09:22.440 --> 0:09:24.360 we tend to look at funds that have very low 0:09:24.440 --> 0:09:28.199 expense ratios, that are large hand liquid so that we 0:09:28.360 --> 0:09:30.760 can buy them and sell them there's a lot of 0:09:30.800 --> 0:09:36.400 outstanding interest without the customer paying significant transaction costs. Also, 0:09:36.520 --> 0:09:39.240 where if there is a big move, We as a 0:09:39.720 --> 0:09:41.280 sort of trader are not going to have a lot 0:09:41.320 --> 0:09:43.680 of impact on those markets because there are so many 0:09:43.720 --> 0:09:47.080 other people trading. So all of it comes down to cost, 0:09:47.200 --> 0:09:50.360 either the expense ratio of the fund, the bid ask 0:09:50.520 --> 0:09:53.280 spread of the fund, the depth of market of the fund, 0:09:53.960 --> 0:09:56.760 just trying to keep all of those costs, both sort 0:09:56.760 --> 0:10:00.120 of ongoing and liquidity related as low as possible. And 0:10:00.240 --> 0:10:03.520 for the any international section of the portfolio, what what 0:10:03.600 --> 0:10:05.319 do you use for that view? Do you know, is 0:10:05.400 --> 0:10:10.200 it something that is uh international developed or something that's 0:10:10.240 --> 0:10:13.520 total international or do you ever do single countries? Great questions, 0:10:13.800 --> 0:10:17.280 So we do on the stock side. We use our 0:10:17.400 --> 0:10:19.480 primary ticker, and I'll get back to what I mean 0:10:19.559 --> 0:10:23.599 by that is v A, which is the Vanguard International 0:10:23.720 --> 0:10:27.120 Developed Fund. Believe it costs something like eight basis points. 0:10:27.640 --> 0:10:31.600 And then we also have the International Merchant Market Fund 0:10:31.640 --> 0:10:35.880 VWO and the key there it's really interesting in the 0:10:36.040 --> 0:10:39.400 field that it is sometimes cheaper to use more funds 0:10:39.440 --> 0:10:42.880 than to use just one fund um. So our portfolio 0:10:43.200 --> 0:10:46.000 as a whole cost I believe about nine or ten 0:10:46.040 --> 0:10:48.400 basis points once you take into account all of these 0:10:48.480 --> 0:10:51.400 fund costs. If you were to use the all Country 0:10:51.480 --> 0:10:53.960 World Index et F, which is provided by black Rock. 0:10:54.000 --> 0:10:56.520 I believe it costs thirty three basis points and they 0:10:56.559 --> 0:10:59.560 have asset allocation funds UM that can do someone I finast. 0:10:59.600 --> 0:11:02.400 Vanguard has bt BT that's the whole lenge, a lot 0:11:02.480 --> 0:11:05.320 of it, that's twelves. Yeah, it's interesting. Yes, you've got 0:11:05.440 --> 0:11:08.000 cheaper using a couple of products instead of the whole 0:11:08.040 --> 0:11:10.079 lenge a lot of one exactly, even if it's even 0:11:10.440 --> 0:11:13.319 And it's Vanguard to boot, which is interesting exactly. And 0:11:13.400 --> 0:11:16.280 it also allows us to manage risk at different levels. 0:11:16.360 --> 0:11:18.719 So imagine that you're a customer who comes in with 0:11:19.080 --> 0:11:21.200 a long time horizon. We give you a knight fetures 0:11:21.240 --> 0:11:23.520 in stock portfolio. But then as your time arts and 0:11:23.600 --> 0:11:25.559 gets shorter and shuter, you get closer and closer to 0:11:25.640 --> 0:11:27.760 needing to spend the money. We want to decrease the risk. 0:11:28.559 --> 0:11:31.599 We want to be able to change the proportion that 0:11:31.800 --> 0:11:34.920 vw A emerging markets makes odds. We don't want to 0:11:34.960 --> 0:11:38.160 be stuck into one just one allocation. So there's a 0:11:38.280 --> 0:11:41.080 level of granularity that allows us to take on more 0:11:41.840 --> 0:11:44.599 emerging market risk, more small cap value risk at the 0:11:44.679 --> 0:11:46.400 high end, and we want to be able to tourne 0:11:46.440 --> 0:11:50.720 that down at the low end. So by having these slices, 0:11:51.240 --> 0:11:54.120 we couldn't go much simpler. But by having these slices, 0:11:54.160 --> 0:11:57.000 it's actually less expensive to clients and it gives us 0:11:57.080 --> 0:12:00.800 more control. The more granular you cut something, the more 0:12:00.920 --> 0:12:03.480 you can tax lost honest and so we actually wanted 0:12:03.559 --> 0:12:06.839 to have things that were sufficiently unlike each other that 0:12:06.960 --> 0:12:10.679 we would maximize tax lost honesting opportunities. And of course 0:12:10.720 --> 0:12:12.840 this question we talked about, you know, you talked about VW. 0:12:13.400 --> 0:12:15.160 That's the being guard emerging markets. Now there is a 0:12:15.280 --> 0:12:18.199 cheaper one in schwab, you don't always go for the 0:12:18.800 --> 0:12:20.520 one that's the cheapest, because you could have a new 0:12:20.559 --> 0:12:23.640 issuer come out and be say zero fees, but you 0:12:23.640 --> 0:12:26.040 would necessarily go for that. So is there a liquidity 0:12:26.080 --> 0:12:28.959 threshold you look at like how many what's the volume 0:12:29.000 --> 0:12:30.480 have to look like for you to buy it? But 0:12:30.800 --> 0:12:34.800 so I love Mexican food, So we use a measure 0:12:34.840 --> 0:12:38.560 called the tact the total annual cost of ownership, which 0:12:38.640 --> 0:12:42.319 includes both the expense ratio that the fund charges but 0:12:42.440 --> 0:12:44.840 also the cost of getting in and out of the fund. Right, 0:12:45.000 --> 0:12:47.280 so it's a little bit like my parents live on 0:12:47.360 --> 0:12:50.760 a barren island and their house might be really cheap, 0:12:50.840 --> 0:12:52.480 but it's going to cost you a pretty big toll 0:12:52.520 --> 0:12:54.640 to get onto that island. And the toll in this 0:12:54.760 --> 0:12:58.160 case is the bitest spread, right, the okay, And that's 0:12:58.280 --> 0:13:00.440 you just put that into percentage terms and it's usually 0:13:00.520 --> 0:13:03.880 and then you put that into the taco because tacobou 0:13:04.000 --> 0:13:08.320 it's healthy and delicious. Um. So yeah, that that measure 0:13:08.400 --> 0:13:11.559 guides us. And in a lot of cases, Uh, a 0:13:11.760 --> 0:13:14.000 new fund will come out that doesn't have a lot 0:13:14.080 --> 0:13:18.120 of existing people training it. Um, it doesn't have very 0:13:18.640 --> 0:13:21.839 m good spreads, and so we'll watch it. This is 0:13:21.840 --> 0:13:23.480 actually a big part of what we do. We actually 0:13:24.080 --> 0:13:27.560 revisit what funds we purchased on behalf of clients every 0:13:27.640 --> 0:13:30.320 quarter and so every quarter we can say, oh, there's 0:13:30.320 --> 0:13:32.440 a new fund out here. Um, it has a really 0:13:32.559 --> 0:13:35.760 good sort of prospective. It's not ready for showtime yet. 0:13:36.280 --> 0:13:49.040 Is that a taco party? Yes? It is. So you 0:13:49.120 --> 0:13:52.880 also have this really unique background because you have an 0:13:52.920 --> 0:13:56.559 expert decent behavioral science. Talk about that. How did you 0:13:56.760 --> 0:14:03.400 acquire that by being decisive? So quick step back? What 0:14:03.720 --> 0:14:06.160 is behavioral science I mean? And how does it plan 0:14:06.240 --> 0:14:09.439 to investing was what is that? So a lot of 0:14:10.160 --> 0:14:12.959 the economics and finance profession, when when it was really 0:14:12.960 --> 0:14:15.520 starting out and starting to get very rigorous and empirical, 0:14:16.080 --> 0:14:18.920 you need to make assumptions about how people behave, and 0:14:19.320 --> 0:14:21.440 the math is a heck of a lot easier if 0:14:21.480 --> 0:14:24.040 you assume people are rational and make good decisions and 0:14:24.080 --> 0:14:27.840 don't have biases. So for years a lot of models 0:14:27.880 --> 0:14:31.080 were built up on the idea that on average, you know, 0:14:31.240 --> 0:14:33.400 people are kind of smart, or they figure things out 0:14:33.440 --> 0:14:36.640 and they're not making systematic mistakes. I remember, so I 0:14:36.800 --> 0:14:40.840 was a sophomore in college and underground and starting to 0:14:41.000 --> 0:14:44.640 read some papers about how people made systematic errors and 0:14:44.720 --> 0:14:48.200 probability or in investing, or how they thought about money, 0:14:48.240 --> 0:14:50.720 and thinking, you know what, this is really interesting. I 0:14:50.760 --> 0:14:52.680 think I could like have a career as an academic 0:14:52.760 --> 0:14:55.200 in it. And then I continue to read and realize 0:14:55.240 --> 0:14:57.040 that like all of my ideas had already been done 0:14:57.040 --> 0:15:00.600 in the nineteen seven years of academics. Um So I realized, actually, 0:15:00.640 --> 0:15:01.720 I'm going to have to have some kind of a 0:15:01.760 --> 0:15:04.560 different career and the idea of actually applying it in 0:15:04.640 --> 0:15:07.520 the real world and saying, okay, people think about money 0:15:07.560 --> 0:15:11.320 differently than economists. Do they make specific errors? What are that? 0:15:11.560 --> 0:15:13.920 And as there an opportunity to help people have better 0:15:14.000 --> 0:15:16.560 outcomes if we work with them as real human beings 0:15:16.720 --> 0:15:19.920 rather than is perfectly rational agents. So that's a large 0:15:19.960 --> 0:15:21.960 part of it is saying like, how do people actually 0:15:22.040 --> 0:15:25.080 make decisions if they knew better, how would they make decisions? 0:15:25.120 --> 0:15:27.080 And how do we close the gap between those? So 0:15:27.320 --> 0:15:29.640 can I go to an example of this? So and 0:15:29.720 --> 0:15:32.960 everybody's wondering about this when the next market downturn happens, right, 0:15:33.120 --> 0:15:36.400 or a correction or a bear market, talk about what 0:15:36.640 --> 0:15:39.480 you would do for clients who are scared and want 0:15:39.520 --> 0:15:43.560 to sell everything. I tend to think that a vaccine 0:15:43.640 --> 0:15:47.120 is way better than are here. Um, this is tough. 0:15:47.200 --> 0:15:48.920 So this is one of the toughest things we've strung with. 0:15:50.680 --> 0:15:55.360 Generally speaking, we are boring. We are not here to 0:15:55.400 --> 0:15:57.200 help you out perform. When we talk to you about things. 0:15:57.240 --> 0:15:58.800 We talked to you about goals and whether or not 0:15:58.840 --> 0:16:01.040 you're on track to hit goals and how are you 0:16:01.320 --> 0:16:04.120 situated today for what you need to achieve in the future. 0:16:05.200 --> 0:16:07.240 If you log onto your betterment account, we don't talk 0:16:07.240 --> 0:16:09.600 about what the market did yesterday. Or the past month, 0:16:09.680 --> 0:16:12.040 or really at all. We talked to you about are 0:16:12.120 --> 0:16:13.800 you on track to hit your goals? And where does 0:16:13.840 --> 0:16:15.480 it look like you're going to be in five years? 0:16:15.560 --> 0:16:17.840 And is your portfolio drifted and what should you do 0:16:17.960 --> 0:16:21.840 about that? So the experience of being a Betterment customer 0:16:22.000 --> 0:16:25.200 is very different than going to an online worker site. 0:16:25.880 --> 0:16:28.960 And I think that shift of focus from what happened 0:16:29.040 --> 0:16:31.120 recently to what I need to know about the future 0:16:31.160 --> 0:16:34.280 and what can I change it's a dramatic driver of 0:16:34.360 --> 0:16:38.120 differences in behavior. So when we use red and green 0:16:38.200 --> 0:16:39.920 on our site, it has nothing to do with what 0:16:40.000 --> 0:16:41.520 the market did and has to do with whether or 0:16:41.520 --> 0:16:44.440 not you're on track for the future green, or whether 0:16:44.560 --> 0:16:46.600 or not there you need to make some actions to 0:16:46.640 --> 0:16:49.000 get back on track. I think part of it is 0:16:49.120 --> 0:16:52.880 that we get very smart clients to UM. There's been 0:16:53.400 --> 0:16:55.480 a number of different pieces of research I've been involved 0:16:55.520 --> 0:16:59.640 with or other people have that clients very strongly self 0:16:59.680 --> 0:17:03.480 select to something that they that is what they want. 0:17:04.119 --> 0:17:08.200 So if you want gambling and get rich quick, you're 0:17:08.200 --> 0:17:10.240 gonna be in some kind of an easy, low cost 0:17:10.359 --> 0:17:12.560 direct brokerage where you get to come in and buy 0:17:12.600 --> 0:17:14.560 your apple and sell it and shorten and do all 0:17:14.600 --> 0:17:18.239 these cilienings. Our customers, we don't. We don't have UM. 0:17:18.400 --> 0:17:20.040 You you come in and we talked to you about 0:17:20.119 --> 0:17:23.600 goals and plans and taxes and finance, UM, and we 0:17:23.680 --> 0:17:26.000 never talked about single stocks. We don't. We don't have 0:17:26.080 --> 0:17:27.880 anything that shows you in a single stock that you're 0:17:27.880 --> 0:17:32.920 invested in. So we have customers who that works. We 0:17:33.040 --> 0:17:35.119 have people who are interested in the long run and 0:17:35.280 --> 0:17:38.480 planning and making smart decisions, not in short term market 0:17:38.520 --> 0:17:40.560 timing anything. So I actually I think there's gonna be 0:17:40.600 --> 0:17:44.080 a really interesting sort of shift for you know, people 0:17:44.119 --> 0:17:46.159 ask what's gonna happen to the instus Number one, I 0:17:46.280 --> 0:17:48.399 don't need to do too much because the customers who 0:17:48.440 --> 0:17:50.880 are our customers are already heading the game. They're already smart, 0:17:50.920 --> 0:17:53.960 they know what's going on. We're building interfaces and services 0:17:54.160 --> 0:17:57.040 in a way that helps reinforce that by helping them 0:17:57.119 --> 0:17:59.960 focus on the future and not the past. And finally, 0:18:00.040 --> 0:18:03.639 there is some elements we actually have been through. I 0:18:03.680 --> 0:18:08.040 think there was a draw down in early Every time 0:18:08.160 --> 0:18:09.800 we have these little I sort of think of them 0:18:09.840 --> 0:18:12.680 as dress rehearsals for the big thing. We run small 0:18:12.720 --> 0:18:15.040 experiments about how much do we you know, if we 0:18:15.160 --> 0:18:17.239 do this on our mobile phones, does that help? If 0:18:17.280 --> 0:18:20.280 we do this kind of intervention on the level, how 0:18:20.359 --> 0:18:22.240 effective is it? You know, like should we use people 0:18:22.359 --> 0:18:24.880 or should we make it be more anonymous. We're constantly 0:18:25.000 --> 0:18:28.600 learning and really systematically learning about what works at scale 0:18:29.040 --> 0:18:32.800 for improving behavior. UM, and it works on our client base. 0:18:33.040 --> 0:18:37.680 When you think about that proactivity from your perspective, it's 0:18:37.680 --> 0:18:41.240 also do in all disaster. I guess from a from 0:18:41.280 --> 0:18:44.280 an investining same point for an investor, what's the single 0:18:44.320 --> 0:18:48.080 biggest investment think that people meant there? Oh, it's it's saving. 0:18:48.640 --> 0:18:53.760 It is not saving enough and usually in the right way. 0:18:54.480 --> 0:18:58.119 So UM, if you're saving in a taxable cash account 0:18:58.240 --> 0:19:00.560 before you're saving in your fraual on ky where your 0:19:00.560 --> 0:19:03.400 employer notches, you're literally missing out on a hundred percent 0:19:03.480 --> 0:19:07.080 returns immediately in a tax advantage of vehicle. Again, this 0:19:07.280 --> 0:19:09.840 is where I think what we do is incredibly sexy 0:19:10.040 --> 0:19:12.240 because we help you avoid those mistakes that cost you 0:19:12.320 --> 0:19:14.879 the most money, making sure that you're hitting the company 0:19:14.960 --> 0:19:17.760 match or that you're using the tax advantage vehicle and 0:19:17.920 --> 0:19:22.359 which was et cetera. UM. On the other hand, so 0:19:22.520 --> 0:19:24.320 I think that saving and saving the right amount in 0:19:24.400 --> 0:19:26.879 the right way and for the right things, like, um, 0:19:27.720 --> 0:19:31.680 how much do I wish that five years ago the 0:19:31.760 --> 0:19:35.480 future Dan went to like pasted Dan and said, you're 0:19:35.480 --> 0:19:38.199 going to have a kid. Like you are a married, 0:19:38.400 --> 0:19:41.000 twenty nine year old guy, You're gonna have a kid. 0:19:41.280 --> 0:19:44.920 Start saving today. That kind of foresight is very valid. 0:19:45.200 --> 0:19:49.399 People people's biggest mistake is not thinking about their saving 0:19:49.480 --> 0:19:51.639 in the right way and making it effortful. People like, 0:19:52.359 --> 0:19:54.080 the more that you're not thinking about you're saving it, 0:19:54.119 --> 0:19:55.639 you're doing it any way. The more good, the better 0:19:55.680 --> 0:19:59.720 you're gonna be at it. So help me better understand 0:20:00.040 --> 0:20:04.600 my own brain. And what games do you guys play 0:20:05.320 --> 0:20:09.040 to help me help myself? Sure, I love this because 0:20:10.200 --> 0:20:12.240 there's a lot of a lot of jobs in life 0:20:12.280 --> 0:20:14.159 where like when you do good at it, people know. 0:20:14.960 --> 0:20:16.639 And actually, in my job, if I'm really good at 0:20:16.680 --> 0:20:18.879 our clients have no idea that I've kind of like 0:20:19.000 --> 0:20:22.520 Jedi mind tricked now, which is gonna say, I mean tricky, 0:20:22.520 --> 0:20:24.600 It's just that it's it's part and parcel of the experience. 0:20:24.800 --> 0:20:27.800 So a good example is the use of color. It's 0:20:27.840 --> 0:20:29.800 not that we don't use color it's that when we 0:20:29.960 --> 0:20:32.840 use color, we're gonna give you the impression of everything 0:20:32.920 --> 0:20:35.480