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Speaker 1: Welcome to How to Money. I'm Joel and today I'm

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Speaker 1: talking becoming a rational investor with Ben Felix. Okay, So,

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Speaker 1: as a guy who's six feet six inches tall, it's

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Speaker 1: always a little disconcerting to stand next to someone who's

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Speaker 1: taller than me.

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Speaker 2: I'm not used to looking up at people.

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Speaker 1: But I'm not in the same room with Ben Felix today,

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Speaker 1: and I'll gladly deal with that discomfort to chat with him.

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Speaker 1: He's six foot eleven, he's a former basketball player unlike me,

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Speaker 1: and he's one of the clearest voices in finance and

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Speaker 1: investing today. Ben is the co host of the Rational

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Speaker 1: Reminder podcast and he runs a killer YouTube channel full

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Speaker 1: of thoughtful, evidence based investing advice. He's a CFA, he's

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Speaker 1: a CFP and basically an alphabet super credentials after that,

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Speaker 1: but more importantly, he helps regular people understand the why

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Speaker 1: behind their investing decisions. So Ben, thanks so much for

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Speaker 1: being here today. I appreciate it.

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Speaker 3: Oh thanks for the invitation and for the very kind introduction.

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Speaker 1: So my first question, I'll get to that first, and

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Speaker 1: then I have another question about your height. But we

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Speaker 1: drink a craft beer.

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Speaker 2: On the show.

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Speaker 1: Most of the time, we spend outrageous sums some people

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Speaker 1: would say on good craft beer, but we're still being

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Speaker 1: thoughtful about our investments for the future. What do you

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Speaker 1: like to splurge on that some people might also think

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Speaker 1: is a little outrageous.

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Speaker 3: Probably things related to health and physical activity, Like I

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Speaker 3: have a pretty expensive mountain bike which I had to

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Speaker 3: have custom made because of my height. As you as

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Speaker 3: you know it. I don't try away from spending money

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Speaker 3: on good food. I don't actually drink any alcohol, so

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Speaker 3: I don't spend money on that. Yeah, stuff related to

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Speaker 3: health I have. I don't know if people will know

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Speaker 3: what these are. I have Norma tech boots, which are

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Speaker 3: like these airbag boots that you put on after you

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Speaker 3: play sports to help you recover more quickly.

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Speaker 2: Oh, I have seen them.

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Speaker 1: Yea.

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Speaker 3: Yeah. So I'm thirty eight in a couple of weeks here,

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Speaker 3: so when I play a basketball game the next day,

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Speaker 3: I'm more sore than I used to be. But the

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Speaker 3: airbags are the normal tech boots help. So I don't

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Speaker 3: know stuff like that health related, physical activity related stuff.

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Speaker 3: I'm more than happy to splare John.

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Speaker 1: How often do you get asked about your height and

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Speaker 1: whether or not you played basketball? And does it always

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Speaker 1: happen when you're at the grocery store? Is what it

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Speaker 1: always happens for me.

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Speaker 3: If I'm out in public or in a place that

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Speaker 3: I'm not usually I get asked pretty close to one

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Speaker 3: hundred percent of the time about my height. If I'm

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Speaker 3: you know, if I'm at a place where I know everybody,

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Speaker 3: I don't get asked. But yeah, anytime in a new location,

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Speaker 3: grocery store or whatever, out in public, it's yeah, it

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Speaker 3: pretty much happens all the time.

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Speaker 1: When you get asked. Though at least you can be like, yeah,

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Speaker 1: I was a great basketball player. When I get asked,

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Speaker 1: I can be like not really, and so it's even

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Speaker 1: more shameful.

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Speaker 2: I think for me. Your first degree ben was in engineering. Yeah.

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Speaker 1: Do you think that's had an impact on how you

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Speaker 1: think about money and investing? Kind of taking that engineering

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Speaker 1: mindset into how you think about finances?

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Speaker 3: I think so. I remember when I first came from

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Speaker 3: engineering into finance. I did an MBA. I went to

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Speaker 3: Northeastern University in Boston actually, and then came back to

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Speaker 3: Canada to do an MBA in finance, and I started

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Speaker 3: that program, wasn't really far into it yet hadn't taken

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Speaker 3: too many finance courses, And I started doing an internship

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Speaker 3: at a local investment company, and I remember being shocked

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Speaker 3: really at how unscientific a lot of the work was.

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Speaker 3: When I came from this engineering background, where everything's scientific

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Speaker 3: and evidence based, and it took me a while to

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Speaker 3: figure out that there is a way to apply that

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Speaker 3: type of thinking to financial decision making and investing. But yeah,

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Speaker 3: I don't know if I would have arrived at that

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Speaker 3: place as quickly if I had not come from an

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Speaker 3: engineering background.

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Speaker 1: Why do you think the approach to money is often

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Speaker 1: so unscientific? Why is there less engineer mentality when it

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Speaker 1: comes to finances typically.

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Speaker 3: Yeah, Well, a lot of it has to do with uncertainty.

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Speaker 3: It's really hard to say what is optimal in investing.

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Speaker 3: Whereas in engineering, you can engineering engineer something with a

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Speaker 3: pretty tight tolerance. You can use scientific principles and test

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Speaker 3: things and we can pretty definitively say yes, this is

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Speaker 3: the optimal way to design this whatever aircraft part or

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Speaker 3: something like that. It's not that simple with investing because

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Speaker 3: there's so much, so much uncertainty, and you can always

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Speaker 3: find whatever a stock that's performed better than the market,

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Speaker 3: or a fund manager who's performed better than the market,

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Speaker 3: which makes it really easy to say, well, hey, this

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Speaker 3: thing is better, that's what I should invest in, But

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Speaker 3: that unfortunately does not predict how something's going to do

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Speaker 3: in the future. And I think that leads to a

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Speaker 3: lot of really really difficult, difficult pieces of information for

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Speaker 3: people to interpret, because I can say, you know, it's

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Speaker 3: really hard to beat the market, but then someone can say, well, no,

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Speaker 3: this fund manager beat the market for the last twenty years,

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Speaker 3: what do you mean? And I think that type of

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Speaker 3: information just makes it hard for people to really understand

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Speaker 3: what the evidence about investing says.

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Speaker 1: It's like, we'll look at Warren Buffett, bam, come on,

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Speaker 1: don't you get it right?

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Speaker 3: I made a video on that because that comes up

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Speaker 3: so often exactly. That's the kind of thing. Those anecdotes

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Speaker 3: make it really hard for people to believe what the

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Speaker 3: evidence says.

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Speaker 1: So it seems to me that in recent years conversations

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Speaker 1: about investing have become more normalized like it used to

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Speaker 1: be that and I still think in some ways money

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Speaker 1: is a taboo topic, but especially when it comes to investing,

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Speaker 1: there's just been a lot more interest and gen Z

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Speaker 1: seems to be more like fluent when it comes to investing.

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Speaker 1: I think the pandemic was part of that stimulus tracks

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Speaker 1: and just kind of general democratization of investing apps, and

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Speaker 1: some of that's good, some of that's bad. But like,

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Speaker 1: if someone were to ask you why they should be investing,

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Speaker 1: what would your response.

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Speaker 3: Be, Man, it's a way to put your money to work.

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Speaker 3: And maybe that's a cliche thing to say, but when

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Speaker 3: you invest in something that has a positive expected return,

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Speaker 3: it takes a huge amount of the load off from

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Speaker 3: how much you need to save to fund your eventual

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Speaker 3: future where you don't have to where you're not working

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Speaker 3: your retirement, if we want to call it that your

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Speaker 3: financial independence. So if you don't invest, if you just

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Speaker 3: hold cash, for example, the amount the proportion of your

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Speaker 3: income that you need to save to fund your eventual

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Speaker 3: financial independence is much much higher than if you're taking

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Speaker 3: your savings and investing in something with a positive expected

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Speaker 3: return like the stock market. So that's the biggest thing

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Speaker 3: I think is that it helps to grow your wealth

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Speaker 3: for the future. And there's other stuff too, like if

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Speaker 3: you're not investing, there's a good chance you're actually losing

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Speaker 3: money to inflation, so we at least need to combat that.

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Speaker 3: But I think the biggest thing is taking some of

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Speaker 3: that load off, some of that savings burden off, so

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Speaker 3: that you can live your life today and let your

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Speaker 3: money grow by investing in positive expective return assets for

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Speaker 3: the future.

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Speaker 1: Maybe some of the silver lining of the insane rate

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Speaker 1: of inflation we've seen in recent years has been helping

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Speaker 1: people understand the reality that inflation exists and maybe pushing

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Speaker 1: us more towards investing. Like, I don't know if there

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Speaker 1: is a silver lining that might be it.

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Speaker 3: Yeah, I mean, if you look look through history, the

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Speaker 3: biggest risk to long term investors has really been inflation.

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Speaker 3: Like it's been that that's what has caused retirement portfolios

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Speaker 3: to fail more often as opposed to poor stock returns.

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Speaker 3: It's really poor real stock returns adjusted for inflation, and

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Speaker 3: it's been more high inflation than low stock returns that

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Speaker 3: have caused a lot of that pain.

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Speaker 1: Speaking of inflation, that's like, I feel like that's something

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Speaker 1: we hear more and more concerned. Affordability is like the

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Speaker 1: top issue politically, and it's like one of the top

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Speaker 1: issues if you're instead of talking about the weather, you

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Speaker 1: just talk about how high prices are now. Right when

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Speaker 1: you just run into someone randomly out and about as

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Speaker 1: an advisor, what are maybe some of the biggest questions

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Speaker 1: and concerns that your clients are currently bringing into meetings

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Speaker 1: right now.

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Speaker 3: Right now, it's not so much about inflation. I think

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Speaker 3: everyone's aware of that. Everyone knows that prices of stuff

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Speaker 3: have gone up. Everyone also knows though, that asset prices

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Speaker 3: have gone up. Like, yes, inflation has been high, but

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Speaker 3: the stock market has also been nuts, So that's not

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Speaker 3: coming up as much. The thing that's coming up most

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Speaker 3: right now is concerns about an AI bubble. I'm not

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Speaker 3: saying that we are in an AI bubble. I'm also

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Speaker 3: not saying that we're not. I can't predict what's going

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Speaker 3: to happen in the future, but that's what's coming up

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Speaker 3: most often. As you know, market returns have been so good,

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Speaker 3: stock prices, particularly for a handful of stocks in the US,

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Speaker 3: are so high, and they're also such a large proportion

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Speaker 3: of the market. I'm really worried about that and what

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Speaker 3: that's going to mean for the future of my portfolio.

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Speaker 3: So that's probably the conversation that we're having to have

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Speaker 3: with people most often right.

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Speaker 1: Now, when when you talk about like savings rates across

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Speaker 1: the world, Americans like typically come up at the bottom

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Speaker 1: of the pile. We don't have a very high savings

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Speaker 1: rate on average. I think how to money listeners would

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Speaker 1: be like highly advanced in that regard, right, saving a

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Speaker 1: decent chunk of their income. If you were to talking

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Speaker 1: to a client and they were like, I don't like okay,

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Speaker 1: I can agree that I should be investing, and it

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Speaker 1: makes sense. I need to grow wealth for my future

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Speaker 1: and that just saving it isn't going to cut it.

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Speaker 1: What should the average savings or an investing rate be?

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Speaker 1: What should people be shooting for? Do you have advice

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Speaker 1: on that? Is there like a rule of thumb?

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Speaker 3: There are rules of thumb. I don't think that there

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Speaker 3: is a universally ideal savings rate. People love rules like

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Speaker 3: just do this, but I don't think it. I don't

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Speaker 3: think savings rates are one where we have those. There

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Speaker 3: are ones that are decent, like ten percent of your

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Speaker 3: net income. That comes up a lot. I think that's

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Speaker 3: a pretty useful guideline. There are, of course more extreme

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Speaker 3: versions too, like fifty percent of your income. If you

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Speaker 3: want to reach fire, financial independence, retire early. I think

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Speaker 3: the main issue with either of those rule of thumb

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Speaker 3: approaches is that any or any universal prescription about a

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Speaker 3: savings rate is that everybody has a different financial situation.

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Speaker 3: Everyone's got different goals, they've got different preferences, and there's

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Speaker 3: there's a there's a concept in economics called utility, and

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Speaker 3: I don't want to get to jargon here, but I'll

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Speaker 3: try and explain what that means. It's basically a way

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Speaker 3: to quantify the satisfaction that you get from something. So

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Speaker 3: in economics they say utility, and that means it's a

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Speaker 3: way to put a number on how much satisfaction you're

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Speaker 3: getting from a thing, in this case, from spending spending money. Again,

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Speaker 3: some jargon here, but I'll talk through it. Spending money

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Speaker 3: tends to have decreasing marginal utility. So that means that

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Speaker 3: the more the additional satisfaction that you get from more

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Speaker 3: spending tends to decrease with each dollar of spending. I'm

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Speaker 3: gonna I'm gonna build on this and hopefully it makes sense,

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Speaker 3: but it's it's an important concept. Uh So, more spending,

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Speaker 3: less marginal utility, but the satisfaction that you get from

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Speaker 3: lower levels of spending is really high. And that's the

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Speaker 3: spending that you you know, you're paying your rent or

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Speaker 3: your mortgage, you're buying groceries, you're treating yourself to whatever,

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Speaker 3: a coffee or a meal out from time to time.

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Speaker 3: That spending has really really high utility, much more so

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Speaker 3: than you know, buying your whatever, second second Lamborghini. So

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Speaker 3: that's the concept of marginal decreasing marginal utility of spending.

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Speaker 3: And then the other important related topic here is is

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Speaker 3: something called time preference, which is basically, like all else equal,

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Speaker 3: it's better to have what you want now rather than later,

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Speaker 3: and even even more so when we account for the

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Speaker 3: fact that you don't know if you're going to be

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Speaker 3: alive in the future, which is kind of a dark

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Speaker 3: thing to think about, but it's a it's a fact.

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Speaker 3: Now economists can model all of this stuff quantitatively to

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Speaker 3: figure out exactly how much someone should be saving over

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Speaker 3: time based on their specific circumstances, goals, and preferences. And

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Speaker 3: I think what gets really interesting here. So we talked

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Speaker 3: about or I mentioned the ten percent or fifty percent

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Speaker 3: of your income rules of thumb, But when when economists

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Speaker 3: take this concept of utility and model it out, model

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Speaker 3: out the optimal amount of save for people in different circumstances.

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Speaker 3: Some of that research actually shows that young people should

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Speaker 3: not be saving at all due to the marginally utility

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Speaker 3: of spending today when they're young and when they've got

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Speaker 3: a lower income.

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Speaker 1: That is that the paper from Was it from Yale?

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Speaker 1: Was it James Choi that wrote that paper about.

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Speaker 3: No, this one's not James Choi. It's I can't remember

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Speaker 3: the author's names to the Journal of Retirement, Okay, I

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Speaker 3: can send it to you. But it says it's something

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Speaker 3: about how this life cycle model shows that young people

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Speaker 3: shouldn't be saving at.

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Speaker 2: All, which is so interesting.

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Speaker 1: Like as someone who sees the impact of time in

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Speaker 1: the market, and when I think about the dollars I

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Speaker 1: invested when I was twenty one, twenty two, twenty three,

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Speaker 1: they were harder to part with because I had less money,

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Speaker 1: but I was like creating a habit. And I was

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Speaker 1: also like, the return on those dollars invested at a

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Speaker 1: really early age is far superior than dollars that I'm

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Speaker 1: going to invest in the next decade.

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Speaker 3: Totally, and that and that's the train off that people

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Speaker 3: have to balance and that's the trade off that this

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Speaker 3: utility based model is trying to balance. It's showing that, Hey,

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Speaker 3: even though what you just said is absolutely true, the

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Speaker 3: habit thing I think is important. I'll come back to

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Speaker 3: that in a second. Even though what you just said

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Speaker 3: is true, compounding is important, time in the market is important,

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Speaker 3: but the utility gains that you're going to get from

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Speaker 3: that early consumption when you have relatively little income, are

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Speaker 3: actually going to outweigh the utility you'll gain from the

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Speaker 3: compounding that's going to fund your future spending, at least

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Speaker 3: when you're younger. And then eventually you do have to

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Speaker 3: save probably a higher proportion of your income to catch up,

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Speaker 3: but when you're doing that, you probably have a higher

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Speaker 3: income at least based on this model. And for lower

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Speaker 3: income people, it's also interesting because government pensions are going

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Speaker 3: to cover a lot of their future spending, so social

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Speaker 3: security in the US, Canada Pension Plan and old age

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Speaker 3: security in Canada, so they may not need to save

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Speaker 3: that much either. So again, those sort of rules of

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Speaker 3: thumb ten percent of your income, they're not going to

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Speaker 3: make sense for everybody. Now, the habit thing I think

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Speaker 3: is really important because while everything that I just said

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Speaker 3: is true in an economic model. If people listen to

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Speaker 3: this podcast and say, oh, well, I'm a young person,

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Speaker 3: I don't need to save at all, they might just

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Speaker 3: never start saving because they never built the habit.

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Speaker 2: That's a real risk. Yeah, it's a real risk.

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Speaker 3: So I don't know. I think building that habit to

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Speaker 3: save early does make a lot of sense, and it

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Speaker 3: might lead to a little bit of budget discomfort. But

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Speaker 3: if that means that you're actually going to save for

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Speaker 3: the future later as well, it's probably worthwhile. So yeah,

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Speaker 3: I guess it's a little bit more nuanced than you know.

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Speaker 3: Here's the rule of thumb. I think people do have

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Speaker 3: to think about the utility or the satisfaction that they're

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Speaker 3: going to get from spending as opposed to saving today,

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Speaker 3: but they also have to trade that off with their

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Speaker 3: desire to build wealth for the future. So like we

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Speaker 3: don't use a you know, save ten percent of your income.

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Speaker 3: We use a full financial projection model where we can show,

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Speaker 3: you know, if you don't save now, here's how much

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Speaker 3: you have to start saving later to meet your lif

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Speaker 3: long term goals, and then people can make decisions based

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Speaker 3: on that information as opposed to a rule of thumb,

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Speaker 3: which I would call like a pretty blunt instrument for

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Speaker 3: a pretty important long term decision.

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Speaker 1: Does part of that projection have to deal with people

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Speaker 1: their desire to maybe switch careers and earn less in

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Speaker 1: the future. They're like, yeah, I'm working this job, and

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Speaker 1: yeah I'm making great money, but my goodness, I don't

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Speaker 1: want to be doing this forever. And so if I

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Speaker 1: save and invest more now, I feel like I can

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Speaker 1: take the pedal of my foot off the pedal a

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Speaker 1: little bit and be comfortable earning less in the future.

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Speaker 3: For sure, if that's what somebody wants to do. If

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Speaker 3: someone if someone says they don't love what they do

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Speaker 3: but they're making a ton of money, then that becomes

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Speaker 3: more of a financial independence retire early type conversation or

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Speaker 3: a coast fire conversation where it's like, hey, how much

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Speaker 3: do you have to build up in savings now so

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Speaker 3: that you can chill out later but still earn some

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Speaker 3: income but chill out and not keep the pedal to

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Speaker 3: the floor. So we definitely have those conversations. We also

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Speaker 3: have conversations with people who absolutely love what they do

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Speaker 3: and don't envision retiring ever, So there's a gain and

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Speaker 3: very different conversations. It would lead to very different savings rates.

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Speaker 1: I saw this recent survey. It found that millionaires value

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Speaker 1: their therapists more than their financial advisor, and then a

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Speaker 1: decent chunk of them are thinking about firing their advisor.

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Speaker 1: What do you think that says about the financial advice

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Speaker 1: industry as a whole.

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Speaker 3: I mean, I can tell you that that's where things

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Speaker 3: are going more toward that those types of conversations, as

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Speaker 3: opposed to, you know, picking the right stocks or investment

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Speaker 3: funds or whatever. I think that that was the historical

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Speaker 3: value proposition of financial advisors, that hey, we're going to

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Speaker 3: identify the best stocks or we're going to pick the

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Speaker 3: best fund managers. The evidence continues to mount though, that

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Speaker 3: that approach to advice is probably not productive and probably

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Speaker 3: making people worse off rather than better. One of the

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Speaker 3: things that I like to say, kind of tongue in cheek,

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Speaker 3: but also like pretty seriously is investing as a solved problem.

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Speaker 3: We kind of know what good investing looks like, at

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Speaker 3: least in broad strokes, even if we don't agree on

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Speaker 3: every little detail. We know that broad diversification matters, low

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Speaker 3: costs matter, tax efficiency matters, acid allocation matters. So again,

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Speaker 3: not everyone's going to agree on precisely what the optimal

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Speaker 3: portfolio looks like. But in those broad strokes kind of like, Okay,

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Speaker 3: if you can get that at a really low cost,

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Speaker 3: you're way ahead of most people. Now you can get

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Speaker 3: that at a very low cost using index funds on

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Speaker 3: your own, in a brokerage account or through a robo

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Speaker 3: advisor that kind of does some of the legwork for you,

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Speaker 3: but for really really low fee. So that service, like

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Speaker 3: good quality investing, has been commoditized. It's available to super

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Speaker 3: super low cost. And again, we know that it's really

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Speaker 3: hard for people to beat the market, and I don't

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Speaker 3: think that anybody should be paying for the attempt to

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Speaker 3: do so because the evidence is so overwhelming. The financial

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Speaker 3: advice industry knows all of this, and the model has

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Speaker 3: really gone toward what I would wealth management, which is

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Speaker 3: the integration of financial planning and investment management and a

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Speaker 3: large component that is behavioral, like the therapist type function.

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Speaker 3: I mean, there are even professional designations for financial advisors

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Speaker 3: now that are it's called the financial therapy credentials, because

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Speaker 3: it's so widely recognized that this is becoming such an

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Speaker 3: important part of what we do. As a practitioner, I

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Speaker 3: can tell you that a lot of the conversations that

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Speaker 3: we have with clients are like a lot closer to

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Speaker 3: a therapy session than to what you would imagine a

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Speaker 3: financial advice session would be like, because so much, so

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Speaker 3: much of a financial decision is emotional. It's about trade

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Speaker 3: offs between about trade offs between now and the future,

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Speaker 3: and it's about how to deal with money and relationships

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Speaker 3: and yeah, so that's that's all really important. So I

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Speaker 3: think it kind of follows from that that financial advice

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Speaker 3: has has shifted. It is in the process of shifting.

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Speaker 3: A firm like PWL. We use low cost investment funds,

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Speaker 3: but we do focus on financial planning, focus on having

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Speaker 3: really really close relationships with their clients, which again leads

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Speaker 3: to sort of that therapist type relationship in many cases

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Speaker 3: as you're talking through important financial decisions. So I think

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Speaker 3: that's great to hear that people who are not getting

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Speaker 3: that type of relationship from their financial advisors are considering

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Speaker 3: parting ways, and I think that they should. But I

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Speaker 3: think that there is still a model that works. I

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Speaker 3: know from our firm specifically, we have grown a ton

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Speaker 3: since I've been here for twelve years and we've grown

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Speaker 3: a ton and continue to grow. So there's at least

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Speaker 3: for what we're doing, quite a bit of demand for

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Speaker 3: that more. I guess you could call it holistic approach. Yeah,

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Speaker 3: I guess there's other stuff too, Like people make mistakes

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Speaker 3: when they're left to their own devices, they get nervous,

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Speaker 3: they get distracted. They want to invest in AI stocks

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Speaker 3: or in old or whatever has gone up recently, and

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Speaker 3: having a sounding board or a person to talk to

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Speaker 3: I think can be pretty valuable from that perspective as well.

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Speaker 1: I mean that's what There was a Vanguard study many

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Speaker 1: years ago about the value of financial advisor, and they

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Speaker 1: found the average person with a financial advisor experienced much

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Speaker 1: greater returns, not necessarily even because they were invested in

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Speaker 1: the hot new fund, but because of the behavioral coaching

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Speaker 1: that they received from their financial advisor. So a two

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Speaker 1: and a half forget if it was two and a

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Speaker 1: half or three point percentage better returns, but it was

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Speaker 1: significantly better returns for people who had a financial advisor

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Speaker 1: versus people who didn't.

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Speaker 3: Yeah. I don't put too much stock in that Vanguard study.

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Speaker 3: I think they oversell it, but in principle, I think

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Speaker 3: that it's generally correct, and I know again from my

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Speaker 3: experience as a practitioner. We have a ton of conversations

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Speaker 3: with people who when some asset has gone up recently,

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Speaker 3: like it's AI right now, it's been you know, cannabis

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Speaker 3: stocks in the past, Crypto, what else was there? Clean tech?

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Speaker 3: Like all these things happen, and all of a sudden,

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Speaker 3: asset prices in some sector of the market go up,

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Speaker 3: and then a lot of investors are like, oh, I

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Speaker 3: want to invest in that, and so they come to

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Speaker 3: us and talk about it, and we usually explain to

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Speaker 3: people why it probably does not make sense to do that,

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Speaker 3: and that usually ends up saving them a whole lot

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Speaker 3: of money, because people want to invest in stuff after

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Speaker 3: it's gone up, not before, and usually there's some level

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Speaker 3: of reversion to the mean and prices come back down.

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Speaker 3: So I think that matters. The other thing we see

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Speaker 3: is when markets go down, some people do get very nervous.

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Speaker 3: Every market decline is unique, but it's also not like

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Speaker 3: market declines have been happening for hundreds of years. As

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Speaker 3: long as we have data for asset prices, there have

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Speaker 3: been just extreme asset price drops. It happened from time

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Speaker 3: to time, so that part's always the same. They usually recover.

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Speaker 3: It's more likely to have a recovery than not after

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Speaker 3: a big decline. But everyone feels different because it's happening

437
00:21:57,400 --> 00:21:59,199
Speaker 3: for a different reason. I mean, COVID is such a

438
00:21:59,200 --> 00:22:02,879
Speaker 3: good example where we all lived through that, and that

439
00:22:03,040 --> 00:22:06,080
Speaker 3: was crazy. The world was shutting down. We're looking around

440
00:22:06,119 --> 00:22:08,040
Speaker 3: like we have no idea what the future is going

441
00:22:08,080 --> 00:22:10,480
Speaker 3: to look like. And so again in that case, we

442
00:22:10,520 --> 00:22:13,280
Speaker 3: had conversations with people who were like, I really don't

443
00:22:13,320 --> 00:22:15,240
Speaker 3: feel comfortable. I want to get out of the market,

444
00:22:16,000 --> 00:22:18,679
Speaker 3: and we would have conversations about listen, this is what

445
00:22:18,720 --> 00:22:20,720
Speaker 3: has happened in the past when crazy things have happened

446
00:22:20,760 --> 00:22:23,320
Speaker 3: in the world, and here's what we think we should expect.

447
00:22:23,720 --> 00:22:26,399
Speaker 3: And as we all know, markets were covered and staying

448
00:22:26,400 --> 00:22:28,879
Speaker 3: invested was the right thing to do, as it typically is.

449
00:22:28,880 --> 00:22:31,479
Speaker 3: So those are those behavioral things which is not quite

450
00:22:32,040 --> 00:22:34,760
Speaker 3: the therapy idea, Like that's a different type of behavioral

451
00:22:34,760 --> 00:22:37,840
Speaker 3: coaching that happens with financial advice, but I think it

452
00:22:37,880 --> 00:22:40,440
Speaker 3: is super valuable. And then one other thing that I

453
00:22:40,480 --> 00:22:45,080
Speaker 3: would mention here is owning stocks is hard for some

454
00:22:45,119 --> 00:22:48,200
Speaker 3: of the reasons that I just mentioned they're volatile, they

455
00:22:48,200 --> 00:22:50,479
Speaker 3: go up and down in price a lot from day

456
00:22:50,520 --> 00:22:53,280
Speaker 3: to day, which makes them hard for some people to own.

457
00:22:53,840 --> 00:22:57,439
Speaker 3: And to the extent that an advisor can make someone

458
00:22:57,560 --> 00:23:01,280
Speaker 3: more comfortable with a riskier portfolio. And there are academic

459
00:23:01,520 --> 00:23:05,960
Speaker 3: there are academic papers on this that could offset a

460
00:23:05,960 --> 00:23:08,320
Speaker 3: lot of the cost of advice. Which is kind of

461
00:23:08,320 --> 00:23:10,439
Speaker 3: a weird thing to think about. But if if you

462
00:23:10,440 --> 00:23:12,800
Speaker 3: would have been in a portfolio of fifty percent stocks

463
00:23:12,840 --> 00:23:16,520
Speaker 3: and fifty percent bonds, but with the guidance of an advisor,

464
00:23:16,560 --> 00:23:19,000
Speaker 3: you feel comfortable being in a I don't know, seventy

465
00:23:19,040 --> 00:23:23,120
Speaker 3: percent or eighty percent stock portfolio that that can be

466
00:23:23,359 --> 00:23:26,200
Speaker 3: really really valuable in the in the long run.

467
00:23:26,440 --> 00:23:27,680
Speaker 2: So that's a good point.

468
00:23:28,359 --> 00:23:29,439
Speaker 1: Are There's a lot more I want to get to

469
00:23:29,440 --> 00:23:31,640
Speaker 1: with you, Ben, including I want to talk about alternative

470
00:23:31,840 --> 00:23:35,440
Speaker 1: investments as those become more popular. What role do they

471
00:23:35,440 --> 00:23:38,000
Speaker 1: play in our investing portfolio. We'll get to that and

472
00:23:38,080 --> 00:23:47,720
Speaker 1: more right after this. All right, we're talking about Ben

473
00:23:47,720 --> 00:23:51,560
Speaker 1: Felix talking about rational investing. Ben, let's let's talk about

474
00:23:51,560 --> 00:23:53,520
Speaker 1: how someone builds a portfolio maybe that they can stick

475
00:23:53,560 --> 00:23:56,119
Speaker 1: with over the long run because it's easier, it's cheaper,

476
00:23:56,160 --> 00:23:59,199
Speaker 1: than ever to invest right, whether that's through your four

477
00:23:59,280 --> 00:24:01,359
Speaker 1: oh and k at work of people automatically opted in,

478
00:24:01,400 --> 00:24:04,000
Speaker 1: whether that's through a low cost brokerage firm, whether that's

479
00:24:04,720 --> 00:24:08,840
Speaker 1: through one of the new fangled you know, online places

480
00:24:08,840 --> 00:24:10,760
Speaker 1: like robin Hood or in one or something like that.

481
00:24:10,840 --> 00:24:14,480
Speaker 1: But it's also easier than ever. The easier thing is good,

482
00:24:14,920 --> 00:24:16,800
Speaker 1: but in some ways it can be bad because it

483
00:24:16,600 --> 00:24:20,240
Speaker 1: can be easier to take on outsize risks or you know,

484
00:24:20,320 --> 00:24:22,760
Speaker 1: go all in on the hot ai stock because you

485
00:24:22,800 --> 00:24:26,119
Speaker 1: saw someone tweet about it. Does that worry you for

486
00:24:26,200 --> 00:24:29,399
Speaker 1: DIY investors and especially for younger investors, Like it's easier

487
00:24:29,400 --> 00:24:30,840
Speaker 1: to get in, but it's also easier to make a

488
00:24:30,840 --> 00:24:31,399
Speaker 1: big mistake.

489
00:24:31,840 --> 00:24:34,960
Speaker 3: Yeah, I think ease of access is great. Making investing

490
00:24:34,960 --> 00:24:41,080
Speaker 3: more accessible to people is great. But I suspect and

491
00:24:41,119 --> 00:24:44,320
Speaker 3: I've I've got reasons to have these suspicions that will

492
00:24:44,440 --> 00:24:46,440
Speaker 3: if you look at if you looked at a cross

493
00:24:46,480 --> 00:24:52,440
Speaker 3: section of DIY investing accounts, my hunch is that it's

494
00:24:52,440 --> 00:24:55,919
Speaker 3: a bit of a disaster. I think that we know

495
00:24:56,000 --> 00:24:59,320
Speaker 3: what good investing looks like, but I don't think that's

496
00:24:59,359 --> 00:25:01,159
Speaker 3: what a lot of people do. And I think that

497
00:25:01,200 --> 00:25:05,200
Speaker 3: the brokerages are part partially to blame, maybe more than partially,

498
00:25:05,960 --> 00:25:11,959
Speaker 3: because they do they incentivize or gamify taking wild risks,

499
00:25:12,760 --> 00:25:16,479
Speaker 3: using option strategies, all this kind of stuff. And if

500
00:25:16,520 --> 00:25:20,200
Speaker 3: you're a novice investor who doesn't know any better, doesn't

501
00:25:20,240 --> 00:25:23,359
Speaker 3: spend a ton of time reading about this stuff, and

502
00:25:23,760 --> 00:25:25,880
Speaker 3: your brokerage is saying, well, hey, you can trade options now,

503
00:25:26,840 --> 00:25:29,840
Speaker 3: I think that's you know, if you don't know why

504
00:25:29,880 --> 00:25:32,639
Speaker 3: you shouldn't do that, you might do it. And the

505
00:25:32,680 --> 00:25:35,520
Speaker 3: evidence on that shows that people tend to not do

506
00:25:35,640 --> 00:25:38,520
Speaker 3: so well when they trade when they trade options. So

507
00:25:38,800 --> 00:25:41,959
Speaker 3: I agree with you that easy access to financial markets

508
00:25:42,000 --> 00:25:44,280
Speaker 3: is incredible and we're living in this golden age of

509
00:25:44,320 --> 00:25:47,040
Speaker 3: investing where you can buy the market, you can buy

510
00:25:47,080 --> 00:25:49,520
Speaker 3: all of the stocks that exist in the world basically

511
00:25:49,600 --> 00:25:52,640
Speaker 3: or a very close approximation for a very low cost,

512
00:25:52,640 --> 00:25:54,400
Speaker 3: and you can do it super easily and a nice

513
00:25:54,720 --> 00:25:57,800
Speaker 3: user interface like all that stuff is incredible. But yeah,

514
00:25:57,880 --> 00:26:01,480
Speaker 3: I think I think that there's also a lot of

515
00:26:01,520 --> 00:26:06,320
Speaker 3: room for error, and there's a lot of incentive for

516
00:26:06,880 --> 00:26:11,000
Speaker 3: some of these platforms to induce people effectively to make

517
00:26:11,200 --> 00:26:16,359
Speaker 3: to make errors because they're profitable for the institutions.

518
00:26:15,920 --> 00:26:19,159
Speaker 1: Yeah, Yeah, do you worry too that? Maybe even just

519
00:26:19,280 --> 00:26:21,320
Speaker 1: think about how well the stock market's done over the

520
00:26:21,320 --> 00:26:24,800
Speaker 1: past fifteen years, And yeah, twenty twenty two was one

521
00:26:24,800 --> 00:26:28,040
Speaker 1: of those outlier years where not so hot, but overall,

522
00:26:28,200 --> 00:26:31,879
Speaker 1: even corrections have felt like a blip. It's like the

523
00:26:31,920 --> 00:26:35,760
Speaker 1: COVID correction. Was it lasted, it was so short term.

524
00:26:36,840 --> 00:26:40,840
Speaker 1: How do you behaviorally for investors? Has that left them

525
00:26:40,960 --> 00:26:43,800
Speaker 1: maybe unable to deal with a meaningful or a prolonged

526
00:26:43,920 --> 00:26:45,800
Speaker 1: correction that might be coming in the near future, that

527
00:26:45,840 --> 00:26:49,320
Speaker 1: they just assumed that stocks are just a far better

528
00:26:49,400 --> 00:26:52,000
Speaker 1: version of a highal save music account that just continues

529
00:26:52,040 --> 00:26:53,480
Speaker 1: to add money.

530
00:26:53,920 --> 00:26:55,840
Speaker 3: I do worry about that. I think you're right. There's

531
00:26:55,840 --> 00:26:59,040
Speaker 3: a whole generation of investors who have basically seen stocks

532
00:26:59,080 --> 00:27:01,000
Speaker 3: go up, and when they've seen them go down, they've

533
00:27:01,000 --> 00:27:04,639
Speaker 3: recovered really, really quickly, which is not what always happens.

534
00:27:04,680 --> 00:27:06,960
Speaker 3: If you look back through through history, there can be

535
00:27:07,160 --> 00:27:10,480
Speaker 3: declines that take quite a long time to recover from,

536
00:27:11,000 --> 00:27:15,360
Speaker 3: especially when you account for inflation. So if we have

537
00:27:15,400 --> 00:27:18,480
Speaker 3: one of those, which I can't say that we will,

538
00:27:18,480 --> 00:27:21,119
Speaker 3: if history is any guide, there probably will be another

539
00:27:21,160 --> 00:27:25,720
Speaker 3: prolonged decline. Yeah, I think that it could be difficult

540
00:27:25,720 --> 00:27:29,119
Speaker 3: for some investors to stick to whatever strategy they have

541
00:27:29,880 --> 00:27:33,920
Speaker 3: and remain invested. I think if you're properly diversified, that

542
00:27:34,400 --> 00:27:38,560
Speaker 3: helps a lot. I would worry more about people invested

543
00:27:38,600 --> 00:27:41,880
Speaker 3: in single sectors that have gone up, like maybe it's

544
00:27:41,880 --> 00:27:45,240
Speaker 3: the mag seven or AI stocks or whatever, which similarly,

545
00:27:45,280 --> 00:27:47,640
Speaker 3: they've they've done really really well for a really long

546
00:27:47,680 --> 00:27:50,960
Speaker 3: time and haven't had a whole lot of big, big corrections,

547
00:27:51,040 --> 00:27:55,080
Speaker 3: especially not long lasting ones. But there have been cases where,

548
00:27:55,359 --> 00:27:59,840
Speaker 3: you know, and I'm not necessarily drawing a parallel here,

549
00:28:00,119 --> 00:28:01,960
Speaker 3: although there are some parallels, but if you look at

550
00:28:02,160 --> 00:28:05,560
Speaker 3: the dot com era where tech stocks in US large

551
00:28:05,560 --> 00:28:10,199
Speaker 3: cap stocks more generally had a crazy run and then

552
00:28:10,720 --> 00:28:17,760
Speaker 3: dropped and then didn't really recover for twelve years, that's plausible.

553
00:28:17,800 --> 00:28:19,560
Speaker 3: And again I'm not predicting that. I'm not saying that

554
00:28:19,600 --> 00:28:22,320
Speaker 3: the current market is exactly like that. I think that

555
00:28:22,320 --> 00:28:25,520
Speaker 3: there are meaningful differences. But that's a tough period to

556
00:28:25,520 --> 00:28:28,320
Speaker 3: live through as an investor, and we, just as you mentioned,

557
00:28:28,400 --> 00:28:30,639
Speaker 3: we have not had one of those for basically a

558
00:28:30,680 --> 00:28:31,760
Speaker 3: generation of investors.

559
00:28:32,320 --> 00:28:34,640
Speaker 1: How can someone prepare themselves so if they let's say

560
00:28:34,640 --> 00:28:37,080
Speaker 1: they are a lot of DIY investors listening to the

561
00:28:37,160 --> 00:28:39,800
Speaker 1: show who are like, I'm trying to stay diversified, keep

562
00:28:39,840 --> 00:28:42,880
Speaker 1: it low cost, keep putting money in like clockwork every paycheck.

563
00:28:43,720 --> 00:28:46,640
Speaker 1: I'm not necessarily planning on hiring a pro to help

564
00:28:46,640 --> 00:28:47,360
Speaker 1: coach me through it.

565
00:28:47,480 --> 00:28:48,120
Speaker 2: How do I.

566
00:28:49,440 --> 00:28:54,800
Speaker 1: Get prepared so that when or if something terrible happens

567
00:28:54,800 --> 00:28:57,480
Speaker 1: in the market it's a prolonged downturn, Like my portfolio

568
00:28:57,560 --> 00:29:01,480
Speaker 1: looks like it's cut in half, God forbid, how do

569
00:29:01,560 --> 00:29:02,200
Speaker 1: I make it through?

570
00:29:02,840 --> 00:29:06,120
Speaker 3: Yeah? So I think that it's the preparation starts now

571
00:29:06,800 --> 00:29:10,440
Speaker 3: and it's really being diversified like that is. It's famously

572
00:29:10,480 --> 00:29:13,680
Speaker 3: called the only free luncheon investing. So I mentioned not

573
00:29:13,760 --> 00:29:16,560
Speaker 3: being all in one sector. I think all being all

574
00:29:16,600 --> 00:29:19,080
Speaker 3: in one country probably doesn't make sense either. I know

575
00:29:19,120 --> 00:29:21,240
Speaker 3: a lot of US investors and a lot of international

576
00:29:21,240 --> 00:29:25,280
Speaker 3: investors only invest in US stocks, which is the market

577
00:29:25,320 --> 00:29:29,440
Speaker 3: that's done the best over the last twenty or so years.

578
00:29:29,960 --> 00:29:33,640
Speaker 3: And that's you know, that's a tough place to be

579
00:29:33,840 --> 00:29:36,280
Speaker 3: if that one market. And I know it's a big market.

580
00:29:36,360 --> 00:29:37,840
Speaker 3: I know it's special in a lot of ways. I

581
00:29:37,880 --> 00:29:40,560
Speaker 3: know it is it's self diversified. I understand all of that,

582
00:29:41,360 --> 00:29:44,360
Speaker 3: but it is possible, and it has happened historically for

583
00:29:44,520 --> 00:29:48,120
Speaker 3: one market to have a prolonged period of low returns.

584
00:29:49,000 --> 00:29:50,960
Speaker 3: And again, I'm not saying I think that's going to

585
00:29:50,960 --> 00:29:53,280
Speaker 3: happen to the US, but I think that investors have

586
00:29:53,360 --> 00:29:55,680
Speaker 3: to be prepared for the fact that it could happen.

587
00:29:56,280 --> 00:29:59,320
Speaker 3: How do you prepare for that while you diversify your portfolio,

588
00:29:59,640 --> 00:30:02,840
Speaker 3: you own stocks outside of the US, and I think

589
00:30:02,880 --> 00:30:05,719
Speaker 3: that's really the best way to prepare for it.

590
00:30:06,200 --> 00:30:10,400
Speaker 1: Yeah, I mean you're Canadian. I'm guessing you're not one

591
00:30:10,480 --> 00:30:13,600
Speaker 1: hundred percent exposed to Canadian stocks because you live in Canada,

592
00:30:13,920 --> 00:30:16,640
Speaker 1: but a lot of US investors are. And in some

593
00:30:16,680 --> 00:30:19,000
Speaker 1: ways you can kind of understand it, right as like

594
00:30:19,080 --> 00:30:23,920
Speaker 1: the powerhouse economic powerhouse of the world, and when you

595
00:30:23,960 --> 00:30:26,760
Speaker 1: look at yeah, returns over the past twenty years in

596
00:30:26,880 --> 00:30:29,959
Speaker 1: just the investing environment of the United States. I mean

597
00:30:30,000 --> 00:30:32,680
Speaker 1: even like Jack Bowell famously was like, yeah, you don't

598
00:30:32,800 --> 00:30:35,920
Speaker 1: need an international exposure, and you can understand the rationale

599
00:30:35,920 --> 00:30:41,040
Speaker 1: for that. But do you think that the US investors like,

600
00:30:41,080 --> 00:30:44,200
Speaker 1: what should allocation look like? What does diversification look like

601
00:30:44,240 --> 00:30:47,560
Speaker 1: when you live in a country that has also produced

602
00:30:47,880 --> 00:30:51,600
Speaker 1: such massive economic prosperity and value for investors.

603
00:30:51,840 --> 00:30:53,800
Speaker 3: Yeah, so the US has been a great place to invest.

604
00:30:53,840 --> 00:30:57,800
Speaker 3: Don't get me wrong. I think having some level of

605
00:30:57,800 --> 00:31:02,520
Speaker 3: home country bias is reasonable for a lot of interesting reasons.

606
00:31:02,560 --> 00:31:06,080
Speaker 3: Like I think owning stocks in your local currency is

607
00:31:06,880 --> 00:31:10,400
Speaker 3: not a bad thing. The tax treatment of local stocks

608
00:31:10,880 --> 00:31:12,880
Speaker 3: local to whatever country you live in tend to be

609
00:31:13,000 --> 00:31:15,640
Speaker 3: tends to be better. Like I know in Canada, for example,

610
00:31:15,680 --> 00:31:18,520
Speaker 3: it's it's more tax efficient to own Canadian stocks than

611
00:31:18,600 --> 00:31:23,880
Speaker 3: non Canadian stocks, So that's there's tax efficiency. Cost efficiency

612
00:31:23,920 --> 00:31:26,280
Speaker 3: tends to be lower to own stocks in your home country.

613
00:31:27,840 --> 00:31:31,600
Speaker 3: Another really interesting one. And then Eugene Fama, who's a

614
00:31:31,640 --> 00:31:35,040
Speaker 3: Nobel laureate economist, he talked about this when he was

615
00:31:35,040 --> 00:31:37,080
Speaker 3: on our podcast, and when he said this, I had

616
00:31:37,080 --> 00:31:39,480
Speaker 3: not heard this argument before, but I think it's very interesting,

617
00:31:39,880 --> 00:31:44,920
Speaker 3: which is that in times of turmoil, of global turmoil,

618
00:31:45,040 --> 00:31:47,680
Speaker 3: geopolitical conflict and war and all that kind of stuff,

619
00:31:48,760 --> 00:31:51,880
Speaker 3: foreign investors don't tend to get treated very well, and

620
00:31:51,920 --> 00:31:54,480
Speaker 3: so owning stocks in your local country from that perspective,

621
00:31:54,600 --> 00:31:58,680
Speaker 3: can be a lot safer. So there's another another interesting

622
00:31:58,720 --> 00:32:01,840
Speaker 3: reason to own or to overweight home country stocks relative

623
00:32:01,880 --> 00:32:04,280
Speaker 3: to the market, and this is a thing that pretty

624
00:32:04,320 --> 00:32:07,040
Speaker 3: much every country. I think it probably is every country.

625
00:32:07,200 --> 00:32:10,880
Speaker 3: If you look at how in local investors allocate their portfolios,

626
00:32:11,360 --> 00:32:14,800
Speaker 3: having a home country bias is extremely common. I think

627
00:32:15,040 --> 00:32:19,240
Speaker 3: it's pretty much ubiquitous. And you can look at that

628
00:32:19,280 --> 00:32:21,680
Speaker 3: and say, well, people are making a mistake, which is

629
00:32:21,880 --> 00:32:24,520
Speaker 3: maybe true to an extent if it's extreme. But you

630
00:32:24,560 --> 00:32:26,640
Speaker 3: can also look at it and say, maybe there's some

631
00:32:26,720 --> 00:32:29,360
Speaker 3: economic rational for why people are doing that. So I

632
00:32:29,400 --> 00:32:31,880
Speaker 3: think the truth is probably somewhere in the middle. So

633
00:32:32,000 --> 00:32:35,760
Speaker 3: here in Canada, we do allocate about thirty percent of

634
00:32:35,760 --> 00:32:39,360
Speaker 3: our portfolios at my firm, and a lot of investment

635
00:32:39,440 --> 00:32:43,000
Speaker 3: products also do this. About thirty percent or roughly a

636
00:32:43,000 --> 00:32:47,160
Speaker 3: third of the portfolio is in Canadian stocks when Canadian

637
00:32:47,200 --> 00:32:50,080
Speaker 3: stocks are about three percent of the global market. So

638
00:32:50,120 --> 00:32:54,320
Speaker 3: it is a big overweight, but it's what we do

639
00:32:54,960 --> 00:32:56,840
Speaker 3: and we think it makes a lot of sense. There's

640
00:32:56,880 --> 00:33:00,920
Speaker 3: a couple academic researches, one academic research paper, one paper

641
00:33:00,920 --> 00:33:03,360
Speaker 3: from Vanguard that suggests that that level of home country

642
00:33:03,360 --> 00:33:06,640
Speaker 3: bias in Canada is reasonable for the US. It's obviously

643
00:33:06,720 --> 00:33:10,000
Speaker 3: different because the US is like sixty three percent of

644
00:33:10,040 --> 00:33:12,960
Speaker 3: the global market cap, so a home country bias might

645
00:33:13,000 --> 00:33:17,239
Speaker 3: be seventy percent or seventy five percent or something like that.

646
00:33:18,080 --> 00:33:22,120
Speaker 3: But I do still think having diversification beyond that outside

647
00:33:22,120 --> 00:33:23,480
Speaker 3: of the US is important.

648
00:33:24,120 --> 00:33:29,080
Speaker 1: We're seeing more like alternative investment options for investors, which

649
00:33:29,080 --> 00:33:32,880
Speaker 1: I think is just another potential hurdle to overcome, and

650
00:33:33,760 --> 00:33:36,920
Speaker 1: often it just like seems super sexy. Oh, you can

651
00:33:37,000 --> 00:33:39,320
Speaker 1: invest in wine or whiskey or arts, like there's all

652
00:33:39,360 --> 00:33:42,280
Speaker 1: these ways to investge in these really cool ways or

653
00:33:42,680 --> 00:33:46,520
Speaker 1: little sliced up bits of real estate deals on different websites.

654
00:33:46,920 --> 00:33:47,400
Speaker 2: How do you?

655
00:33:47,440 --> 00:33:50,320
Speaker 1: And it seems like alternative investments are set to become

656
00:33:50,320 --> 00:33:54,600
Speaker 1: more widely available even inside of retirement accounts. Is this

657
00:33:55,000 --> 00:33:57,320
Speaker 1: a fun investing outlet for people or is this something

658
00:33:57,440 --> 00:34:01,360
Speaker 1: that they should avoid completely. I'm curious where you fall

659
00:34:01,480 --> 00:34:03,640
Speaker 1: on investing outside of the stock market.

660
00:34:03,840 --> 00:34:08,400
Speaker 3: Yeah, so alternatives like there's collectibles like you mentioned wine

661
00:34:08,640 --> 00:34:11,640
Speaker 3: and art and all that kind of stuff. The big one, though,

662
00:34:11,680 --> 00:34:15,000
Speaker 3: and the one that is being considered for US retirement accounts,

663
00:34:15,080 --> 00:34:17,360
Speaker 3: is or I don't think maybe it's maybe that legislation's passed.

664
00:34:17,360 --> 00:34:19,960
Speaker 3: I'm sure I don't follow the US market as closely.

665
00:34:20,920 --> 00:34:25,279
Speaker 3: That's private assets, so private equities and private credit is

666
00:34:25,280 --> 00:34:29,400
Speaker 3: what they're trying to put into US retirement accounts. I've

667
00:34:29,400 --> 00:34:32,080
Speaker 3: spent a lot of time looking at these products and

668
00:34:32,120 --> 00:34:35,440
Speaker 3: reading the literature on these products. I don't think that

669
00:34:35,520 --> 00:34:39,279
Speaker 3: the juice is worth the squeeze. There's a couple of

670
00:34:39,320 --> 00:34:42,919
Speaker 3: arguments in favor of them. One is that they perform better.

671
00:34:43,480 --> 00:34:46,920
Speaker 3: The other is that they're imperfectly correlated to publicly traded assets.

672
00:34:47,920 --> 00:34:50,840
Speaker 3: On the correlation point, I think the big problem is

673
00:34:50,880 --> 00:34:54,080
Speaker 3: that they do have a low correlation. If you go

674
00:34:54,120 --> 00:34:56,680
Speaker 3: and look at a private equity fund and compare it

675
00:34:56,719 --> 00:34:59,080
Speaker 3: to a public equity fund and say are the correlated,

676
00:34:59,120 --> 00:35:02,040
Speaker 3: they're not going to correlated. But it's not because they're

677
00:35:02,040 --> 00:35:05,600
Speaker 3: materially different assets. It's because the private equities aren't traded.

678
00:35:06,280 --> 00:35:09,160
Speaker 3: They're not valued every day like public assets are. When

679
00:35:09,160 --> 00:35:12,399
Speaker 3: you adjust for that, when you desmooth the returns of

680
00:35:12,920 --> 00:35:15,480
Speaker 3: private equities, they're going to look a lot more similar.

681
00:35:15,520 --> 00:35:19,200
Speaker 3: Like fundamentally, there's still stocks, it's still the same thing.

682
00:35:19,200 --> 00:35:22,880
Speaker 3: They're just not priced. They're not priced daily. Private credit

683
00:35:22,920 --> 00:35:28,520
Speaker 3: is similar. When you benchmark these things against risk appropriate

684
00:35:28,640 --> 00:35:33,719
Speaker 3: public securities, they don't tend to be very compelling, So

685
00:35:33,320 --> 00:35:36,680
Speaker 3: you can show, yeah, hey, private equity over some periods

686
00:35:36,680 --> 00:35:41,200
Speaker 3: has done better than public equity, but that's not because

687
00:35:41,239 --> 00:35:45,120
Speaker 3: it's special. It's because it's taking more risk, and so

688
00:35:45,120 --> 00:35:47,799
Speaker 3: if you compare it to risk your public equities, a

689
00:35:47,800 --> 00:35:50,759
Speaker 3: lot of that outperformance tends to go away. So those

690
00:35:50,920 --> 00:35:55,200
Speaker 3: two arguments, correlation and outperformance, I don't think they're very strong.

691
00:35:56,120 --> 00:35:59,080
Speaker 3: And then the other big issue in private markets, for

692
00:35:59,320 --> 00:36:02,799
Speaker 3: you know, someone who's listening to this podcast, and for

693
00:36:03,040 --> 00:36:06,839
Speaker 3: a lot of investors is adverse selection. Private markets are

694
00:36:06,920 --> 00:36:09,520
Speaker 3: pretty small, Like if you look at how much of

695
00:36:09,560 --> 00:36:14,840
Speaker 3: the overall market is investable private assets, investable private assets

696
00:36:14,960 --> 00:36:17,480
Speaker 3: is pretty small. There's lots of non investable stuff like

697
00:36:17,520 --> 00:36:19,839
Speaker 3: the dry cleaner on your street or whatever. You can't

698
00:36:19,840 --> 00:36:24,480
Speaker 3: invest in that, but investable private equities pretty small, and

699
00:36:24,480 --> 00:36:26,080
Speaker 3: there's a lot of people that want to invest in

700
00:36:26,120 --> 00:36:28,200
Speaker 3: them right now, although that's declining a little bit, but

701
00:36:28,239 --> 00:36:30,640
Speaker 3: for the last whatever five or ten or so years,

702
00:36:31,200 --> 00:36:34,120
Speaker 3: that ASID class is really picked up steam. And the

703
00:36:34,160 --> 00:36:38,000
Speaker 3: problem is, if you're a typical investor listening to this podcast,

704
00:36:38,840 --> 00:36:40,440
Speaker 3: you're probably not at the front of the line to

705
00:36:40,440 --> 00:36:44,000
Speaker 3: get an allocation to the best private fund managers. You're

706
00:36:44,000 --> 00:36:46,080
Speaker 3: probably at the back. Yeah, and you're probably not even

707
00:36:46,120 --> 00:36:49,279
Speaker 3: in the line for the best fund manager. So you

708
00:36:49,320 --> 00:36:52,640
Speaker 3: get the allocations to funds that nobody else want it.

709
00:36:52,760 --> 00:36:54,120
Speaker 3: That's the adverse selection.

710
00:36:53,880 --> 00:36:55,640
Speaker 2: Issue, sloppy seconds of a source.

711
00:36:55,400 --> 00:37:00,759
Speaker 3: Sloppy seconds. That's that's right, And so that's problematic for

712
00:37:00,800 --> 00:37:03,960
Speaker 3: obvious reasons, but even more so in private markets when

713
00:37:03,960 --> 00:37:06,840
Speaker 3: you look at the dispersion in returns between the worst

714
00:37:06,840 --> 00:37:11,480
Speaker 3: and best funds, it's massive, massive, And so even if

715
00:37:11,480 --> 00:37:14,280
Speaker 3: we can look at the data and say, hey, on average,

716
00:37:14,360 --> 00:37:16,960
Speaker 3: private assets have done well, maybe they've even done a

717
00:37:16,960 --> 00:37:19,480
Speaker 3: little bit better than public markets, depending on the benchmark

718
00:37:19,520 --> 00:37:22,960
Speaker 3: in the time period, but you can't invest in an

719
00:37:22,960 --> 00:37:24,920
Speaker 3: index in the way that you can with public markets.

720
00:37:24,920 --> 00:37:27,480
Speaker 3: You can't invest in, you know, the private market. You

721
00:37:27,480 --> 00:37:29,720
Speaker 3: can invest inough fund or maybe a couple of funds

722
00:37:29,800 --> 00:37:33,640
Speaker 3: if you have enough money and you take a ton

723
00:37:33,680 --> 00:37:36,160
Speaker 3: of manager risk there where there's a good chance, especially

724
00:37:36,239 --> 00:37:38,279
Speaker 3: if you're you know, listening to this podcast, it's a

725
00:37:38,320 --> 00:37:40,839
Speaker 3: normal person, there's a good chance you invest in one

726
00:37:40,840 --> 00:37:43,560
Speaker 3: of the not so good private funds, and that can

727
00:37:43,600 --> 00:37:46,839
Speaker 3: be really damaging to returns. And then the other thing,

728
00:37:46,920 --> 00:37:49,640
Speaker 3: and this one's brutal and I don't know. I don't

729
00:37:49,640 --> 00:37:52,920
Speaker 3: know if it's appreciated enough. Is liquidity or illiquidity. A

730
00:37:52,920 --> 00:37:55,560
Speaker 3: lot of these things are illiquid just by their nature.

731
00:37:56,160 --> 00:37:58,680
Speaker 3: If you invest in a fund and the fund goes

732
00:37:59,360 --> 00:38:01,680
Speaker 3: and invest in a private company, you can't just go

733
00:38:01,719 --> 00:38:03,560
Speaker 3: and sell a private company tomorrow if you want to.

734
00:38:03,960 --> 00:38:07,319
Speaker 3: And so what can happen and what has happened is

735
00:38:08,000 --> 00:38:09,800
Speaker 3: if investors want their money out of these funds, that

736
00:38:09,920 --> 00:38:13,600
Speaker 3: the fund manager will will and can say no, sorry,

737
00:38:13,920 --> 00:38:16,239
Speaker 3: the fund's locked, and you don't get to get your

738
00:38:16,239 --> 00:38:19,120
Speaker 3: money back out. That's like, if you're a really long

739
00:38:19,200 --> 00:38:21,600
Speaker 3: term investor and you understand the risks, it's not the

740
00:38:21,680 --> 00:38:25,319
Speaker 3: end of the world. But for most people who may

741
00:38:25,320 --> 00:38:27,960
Speaker 3: need liquidity and may end up realizing, oh shoot, I

742
00:38:28,000 --> 00:38:30,840
Speaker 3: actually did need that money, it's not so nice to

743
00:38:30,880 --> 00:38:32,000
Speaker 3: have it locked up.

744
00:38:32,200 --> 00:38:35,240
Speaker 1: So it sounds like a lot of issues with investing

745
00:38:35,239 --> 00:38:38,759
Speaker 1: outside of public markets. And then when you look at

746
00:38:38,960 --> 00:38:41,240
Speaker 1: even some of the websites where people can directly invest,

747
00:38:41,680 --> 00:38:44,560
Speaker 1: like the fees can be incredibly high, and the returns

748
00:38:44,640 --> 00:38:46,400
Speaker 1: man the way they make them look on the front

749
00:38:46,400 --> 00:38:48,440
Speaker 1: page can look incredible, But you dig a little bit,

750
00:38:48,760 --> 00:38:51,440
Speaker 1: a little bit deeper and especially real estate falling on

751
00:38:51,520 --> 00:38:55,359
Speaker 1: hard times. Man, just to see all of the individual

752
00:38:55,560 --> 00:38:57,799
Speaker 1: investors who are like, I feel like I need some

753
00:38:57,840 --> 00:39:00,000
Speaker 1: real estate exposure, and so they're going to these webs

754
00:39:00,120 --> 00:39:02,720
Speaker 1: sites to feel like they've got part. And it seems

755
00:39:02,719 --> 00:39:06,560
Speaker 1: like this brilliant move to have diversification. I heard Ben

756
00:39:06,600 --> 00:39:09,799
Speaker 1: talk about diversification. I should probably have some real estate

757
00:39:09,840 --> 00:39:13,840
Speaker 1: exposure in my portfolio. And it ends up like completely

758
00:39:13,840 --> 00:39:17,439
Speaker 1: biding the dust, eliminating all their capital, or at least

759
00:39:17,480 --> 00:39:21,320
Speaker 1: at the minimum, providing paltry returns. And the thing that's

760
00:39:21,400 --> 00:39:24,759
Speaker 1: baked in for good is the high fees, even if

761
00:39:24,880 --> 00:39:29,080
Speaker 1: you do have solid returns that you have to overcome

762
00:39:29,400 --> 00:39:32,080
Speaker 1: in order to compete with what's happening inside.

763
00:39:31,719 --> 00:39:32,880
Speaker 2: Of your low cost index.

764
00:39:32,960 --> 00:39:35,920
Speaker 3: One man, I didn't. Yeah, So when I'm talking about returns,

765
00:39:36,160 --> 00:39:38,120
Speaker 3: I'm talking about net A few returns tend to be

766
00:39:38,520 --> 00:39:41,319
Speaker 3: you know, call it similar to public markets. But that's

767
00:39:41,560 --> 00:39:45,480
Speaker 3: net of you know, by some estimates, like somewhere between

768
00:39:45,520 --> 00:39:48,960
Speaker 3: five and seven percent that you're paying to the manager

769
00:39:48,960 --> 00:39:51,719
Speaker 3: in order to get those returns that are similar ish

770
00:39:51,760 --> 00:39:55,920
Speaker 3: to the public markets. So yeah, there's a paper on this.

771
00:39:56,640 --> 00:39:58,719
Speaker 3: I don't remember the full title, but it refers to

772
00:39:58,719 --> 00:40:02,959
Speaker 3: private equity as the billionaire factory, and it's basically showing that, hey,

773
00:40:04,160 --> 00:40:07,520
Speaker 3: private market private equity investors have gotten roughly the same

774
00:40:07,520 --> 00:40:11,360
Speaker 3: returns as public equity investors, but private equity fund managers

775
00:40:11,680 --> 00:40:15,560
Speaker 3: have become exceptionally wealthy because they they they actually performed

776
00:40:15,600 --> 00:40:19,120
Speaker 3: really well before fees, but the managers extracted all of

777
00:40:19,120 --> 00:40:21,960
Speaker 3: that value for themselves, and the fund investors were left with,

778
00:40:22,800 --> 00:40:24,879
Speaker 3: you know, not much, if any value added.

779
00:40:25,000 --> 00:40:26,680
Speaker 1: So basically we're in the wrong line of work we

780
00:40:26,719 --> 00:40:28,520
Speaker 1: should be. If you want to be a GP, that

781
00:40:28,640 --> 00:40:31,480
Speaker 1: should be fund. All right, you got more to get

782
00:40:31,480 --> 00:40:34,880
Speaker 1: to with Ben. We're going to talk about investing versus

783
00:40:34,920 --> 00:40:36,920
Speaker 1: debt payoff. Well, you know, if you want to be

784
00:40:37,000 --> 00:40:39,880
Speaker 1: a smart investor, which takes precedence. We'll get to that

785
00:40:39,920 --> 00:40:50,200
Speaker 1: and more. Right after this, I'm talking with Ben Felix

786
00:40:50,200 --> 00:40:55,040
Speaker 1: talking about rational investing. And Ben, you've said at one

787
00:40:55,040 --> 00:40:57,720
Speaker 1: point recently I saw you say that total market index

788
00:40:57,760 --> 00:41:00,880
Speaker 1: funds are a great choice for most people, but not

789
00:41:00,920 --> 00:41:04,160
Speaker 1: all people. Why are total market index funds not the

790
00:41:04,200 --> 00:41:05,440
Speaker 1: ideal choice for everyone?

791
00:41:06,000 --> 00:41:08,920
Speaker 3: Oh? Man, that's a that's a question that's like super

792
00:41:08,960 --> 00:41:12,400
Speaker 3: complicated to answer properly. But I'll try. So it's like, okay,

793
00:41:12,440 --> 00:41:16,759
Speaker 3: it's like the the in theory, the optical portfolio for

794
00:41:16,800 --> 00:41:20,920
Speaker 3: the average investor is the market, so that means owning

795
00:41:20,960 --> 00:41:25,279
Speaker 3: all assets. The theoretical market portfolio is everything everything that

796
00:41:25,320 --> 00:41:28,040
Speaker 3: can be owned, and the idea is that all assets

797
00:41:28,120 --> 00:41:31,759
Speaker 3: get priced such that their weight in the market portfolio

798
00:41:31,840 --> 00:41:35,359
Speaker 3: for the average investor is optimal based on the you know,

799
00:41:35,840 --> 00:41:38,960
Speaker 3: preferences and needs of the average investor. So you can

800
00:41:39,000 --> 00:41:41,760
Speaker 3: infer from that. Okay, the average investor, it's not feasible

801
00:41:41,760 --> 00:41:44,720
Speaker 3: to invest in literally all assets, but total market index

802
00:41:44,760 --> 00:41:48,440
Speaker 3: funds give us a pretty good approximation of all tradable assets,

803
00:41:49,000 --> 00:41:51,719
Speaker 3: at least the ones we would want to invest in. Now,

804
00:41:51,760 --> 00:41:54,600
Speaker 3: technically private assets are included in the market portfolio too,

805
00:41:55,040 --> 00:41:56,520
Speaker 3: but for all the reasons we just talked about, I

806
00:41:56,560 --> 00:41:58,919
Speaker 3: don't think that they that they need to be there

807
00:41:58,960 --> 00:42:01,759
Speaker 3: for for most investors. So we start from there. If

808
00:42:01,760 --> 00:42:03,560
Speaker 3: you're the average investor, you should just own the market,

809
00:42:03,600 --> 00:42:06,440
Speaker 3: which you can do through low cost index funds. Okay, great,

810
00:42:07,000 --> 00:42:10,399
Speaker 3: what if you're different from average, that's where you could

811
00:42:10,400 --> 00:42:13,520
Speaker 3: be in a different portfolio that is not a total

812
00:42:13,560 --> 00:42:16,120
Speaker 3: market index fund portfolio. But that's where it gets a

813
00:42:16,120 --> 00:42:18,520
Speaker 3: little bit complicated, where it's like, Okay, if you're not

814
00:42:18,640 --> 00:42:23,120
Speaker 3: exposed to the same non portfolio risks as the average investor.

815
00:42:23,680 --> 00:42:27,600
Speaker 3: So say you've got safer human capital or more of

816
00:42:27,640 --> 00:42:30,520
Speaker 3: your wealth in financial assets and not exposed to non

817
00:42:30,520 --> 00:42:34,080
Speaker 3: portfolio risks, then you can maybe take a little bit

818
00:42:34,120 --> 00:42:38,040
Speaker 3: more risk in your portfolio than the average investor, which

819
00:42:38,120 --> 00:42:40,880
Speaker 3: might mean tilting toward riskier parts of the market. I

820
00:42:40,960 --> 00:42:42,640
Speaker 3: kind of mentioned that are alluded to it when I

821
00:42:42,640 --> 00:42:44,920
Speaker 3: was talking about private equity as well. If you look

822
00:42:44,920 --> 00:42:47,240
Speaker 3: at all the stocks in the market, there are stocks

823
00:42:47,239 --> 00:42:50,720
Speaker 3: that are riskier and have higher expected returns and stocks

824
00:42:50,719 --> 00:42:53,440
Speaker 3: that are safer and have lower expected returns. When you

825
00:42:53,480 --> 00:42:56,320
Speaker 3: own the market, you own all of those things, typically

826
00:42:56,360 --> 00:42:58,319
Speaker 3: more of the safer stocks because they tend to be

827
00:42:58,400 --> 00:43:02,000
Speaker 3: more valuable. But if you want to be or if

828
00:43:02,040 --> 00:43:05,040
Speaker 3: you're in a position where you can be different from

829
00:43:05,040 --> 00:43:07,640
Speaker 3: the market portfolio, then you can tilt towards some of

830
00:43:07,680 --> 00:43:12,120
Speaker 3: those riskier stocks to hopefully increase your expected returns. How

831
00:43:12,160 --> 00:43:13,759
Speaker 3: to do that and which stocks are tilt toward and

832
00:43:13,760 --> 00:43:15,880
Speaker 3: all that kind of stuff that it gets super nerdy,

833
00:43:15,920 --> 00:43:19,040
Speaker 3: super fast, and I think for most people, like we

834
00:43:19,120 --> 00:43:21,560
Speaker 3: talk about this quite a bit on our podcast, but

835
00:43:21,600 --> 00:43:24,760
Speaker 3: for most people, like for most people listening, it's probably

836
00:43:25,160 --> 00:43:28,719
Speaker 3: too nerdy and it probably complicates things more more than

837
00:43:28,719 --> 00:43:29,439
Speaker 3: it's actually worth.

838
00:43:30,040 --> 00:43:31,880
Speaker 1: What are your thoughts on Target day funds? Is like

839
00:43:31,880 --> 00:43:36,480
Speaker 1: a one stop shop investment choice. They become more popular.

840
00:43:36,520 --> 00:43:39,319
Speaker 1: We're seeing more people funnel assets and to those saying,

841
00:43:39,480 --> 00:43:41,320
Speaker 1: I think I'm going to retire in probably like twenty sixty,

842
00:43:41,400 --> 00:43:45,439
Speaker 1: maybe I'll just one hundred percent shovel my money every

843
00:43:45,480 --> 00:43:48,399
Speaker 1: paycheck into one of those with fang Garter for Delhi

844
00:43:48,480 --> 00:43:49,800
Speaker 1: or something that's low cost.

845
00:43:50,000 --> 00:43:50,919
Speaker 2: How do you feel about those?

846
00:43:51,320 --> 00:43:54,040
Speaker 3: Yeah, So if it's a good, low cost target date fund,

847
00:43:54,120 --> 00:43:56,080
Speaker 3: I think that there are much worse things that you

848
00:43:56,080 --> 00:44:02,840
Speaker 3: could invest in. I don't think they're optimal. Unfortunately, if

849
00:44:02,880 --> 00:44:04,400
Speaker 3: that's what you're going to invest in, you're never going

850
00:44:04,440 --> 00:44:07,160
Speaker 3: to think about it, and that's going to keep you invested.

851
00:44:07,239 --> 00:44:10,280
Speaker 3: That's great. If it makes you behave well, that's great.

852
00:44:10,760 --> 00:44:15,000
Speaker 3: But there's a decent amount of research showing that they're

853
00:44:15,080 --> 00:44:17,920
Speaker 3: probably not optimal for long term investors. They're probably not

854
00:44:18,080 --> 00:44:22,480
Speaker 3: taking enough equity risk, which kind of like we talked

855
00:44:22,480 --> 00:44:24,680
Speaker 3: about earlier with a financial advisor convincing you to take

856
00:44:24,680 --> 00:44:27,920
Speaker 3: a little bit more equity risk. If a target day

857
00:44:27,920 --> 00:44:31,319
Speaker 3: fund results in you taking less equity risk than maybe

858
00:44:31,320 --> 00:44:34,040
Speaker 3: you should have or could have, the cost of that

859
00:44:34,120 --> 00:44:36,719
Speaker 3: in the long run can be significant. It could be

860
00:44:36,719 --> 00:44:37,239
Speaker 3: really really Is.

861
00:44:37,560 --> 00:44:41,080
Speaker 1: That particularly true for investors in those first the first

862
00:44:41,080 --> 00:44:44,680
Speaker 1: decade or two, like in your twenties and thirties. Is

863
00:44:44,719 --> 00:44:48,480
Speaker 1: it that there's too much bond exposure for younger investors

864
00:44:48,480 --> 00:44:49,520
Speaker 1: inside of those target date funds.

865
00:44:49,600 --> 00:44:51,640
Speaker 3: It's not even just in the first ten or twenty years.

866
00:44:51,840 --> 00:44:53,920
Speaker 3: The whole glide path. It continues to get more and

867
00:44:53,960 --> 00:44:56,520
Speaker 3: more conservative with a higher allocation to bonds over time,

868
00:44:57,440 --> 00:44:59,640
Speaker 3: and the cost of that, even for a retiree can

869
00:44:59,640 --> 00:45:02,000
Speaker 3: be pretty significantly. You have to remember a retiree, a

870
00:45:02,000 --> 00:45:05,800
Speaker 3: typical retiree has twenty or more years to live in

871
00:45:05,960 --> 00:45:11,640
Speaker 3: retirement and over horizons like that. Stocks, while they're more volatile,

872
00:45:12,440 --> 00:45:17,000
Speaker 3: they historically at least have not been They've been really

873
00:45:17,000 --> 00:45:19,960
Speaker 3: good at maintaining purchasing power, and bonds have, even though

874
00:45:20,000 --> 00:45:24,200
Speaker 3: they're less volatile, been less good at maintaining purchasing power.

875
00:45:24,880 --> 00:45:28,080
Speaker 3: So that's why I guess the main issue with target

876
00:45:28,160 --> 00:45:31,880
Speaker 3: date funds is you probably could have higher expective returns

877
00:45:31,920 --> 00:45:34,520
Speaker 3: and a better expected outcome all the way through retirement

878
00:45:34,960 --> 00:45:37,520
Speaker 3: by taking a little bit more risk than what a

879
00:45:37,560 --> 00:45:43,280
Speaker 3: target date fund would prescribe. However, if it's like you're

880
00:45:44,040 --> 00:45:45,879
Speaker 3: you don't like thinking about this stuff, which probably isn't

881
00:45:45,880 --> 00:45:48,400
Speaker 3: true for people listening to this podcast, but if you

882
00:45:48,480 --> 00:45:50,399
Speaker 3: really just want to invest in something and never thinking

883
00:45:50,440 --> 00:45:53,200
Speaker 3: about it again, and I think this is an important

884
00:45:53,200 --> 00:45:56,400
Speaker 3: and the idea of the target date glide path is

885
00:45:56,480 --> 00:45:59,040
Speaker 3: comforting to you because you feel like whatever it's going

886
00:45:59,040 --> 00:46:01,319
Speaker 3: to adjust as needed over time, therefore you don't have

887
00:46:01,360 --> 00:46:03,319
Speaker 3: to think about it. There's a lot of value in that,

888
00:46:04,000 --> 00:46:06,440
Speaker 3: So I think there could be better allocations, but behaviorally,

889
00:46:06,480 --> 00:46:07,720
Speaker 3: I think they're incredible tools.

890
00:46:08,440 --> 00:46:10,560
Speaker 1: Speaking of behavior, there's the question that comes up all

891
00:46:10,600 --> 00:46:13,000
Speaker 1: the time when someone's trying to make progress with their investments,

892
00:46:13,040 --> 00:46:14,560
Speaker 1: but they're also trying to do other good things with

893
00:46:14,600 --> 00:46:14,960
Speaker 1: their money.

894
00:46:15,000 --> 00:46:16,080
Speaker 2: Pay off debt.

895
00:46:16,200 --> 00:46:18,880
Speaker 1: Let's say, how do you think about that perpetual question

896
00:46:19,040 --> 00:46:23,080
Speaker 1: of paying off debt versus investing more. It's obviously pretty

897
00:46:23,160 --> 00:46:26,160
Speaker 1: clear cut if you've got high interest rate credit card debt,

898
00:46:26,280 --> 00:46:28,960
Speaker 1: but it's less clear cut when you were talking about, oh,

899
00:46:29,000 --> 00:46:30,719
Speaker 1: I've got my student loan it's at six and a

900
00:46:30,760 --> 00:46:34,200
Speaker 1: half percent, or Yeah, how do you help clients and

901
00:46:34,480 --> 00:46:36,000
Speaker 1: people think through that conundrum?

902
00:46:36,200 --> 00:46:38,200
Speaker 3: Yeah, I think a lot of it's behavioral because we

903
00:46:38,200 --> 00:46:40,600
Speaker 3: can go and model out, you know, this is the

904
00:46:40,640 --> 00:46:43,360
Speaker 3: optimal debt paydown strategy that's going to maximize your wealth.

905
00:46:43,920 --> 00:46:45,839
Speaker 3: But usually when we do that, people will say, nah,

906
00:46:45,920 --> 00:46:47,680
Speaker 3: I don't want to pay it off, or they'll say no,

907
00:46:47,800 --> 00:46:49,120
Speaker 3: I really don't like debt. I just want to pay

908
00:46:49,160 --> 00:46:51,400
Speaker 3: it off as soon as possible. So I think when

909
00:46:51,440 --> 00:46:54,600
Speaker 3: you're on that the cases where you're kind of on

910
00:46:54,640 --> 00:46:58,320
Speaker 3: the verge where it really makes obvious economic sense, or

911
00:46:58,880 --> 00:47:01,359
Speaker 3: where you're in a position where it's could or could

912
00:47:01,400 --> 00:47:04,560
Speaker 3: not make perfect economic sense to pay off debt, I

913
00:47:04,560 --> 00:47:07,440
Speaker 3: think a lot of it comes down to behavior and preferences.

914
00:47:07,440 --> 00:47:09,960
Speaker 3: Where some people just really don't like having debt, they

915
00:47:09,960 --> 00:47:12,360
Speaker 3: should pay it off. Some people are totally comfortable with it,

916
00:47:12,400 --> 00:47:15,200
Speaker 3: and if it's economically beneficial to keep it, they should

917
00:47:15,200 --> 00:47:17,640
Speaker 3: probably keep it. But it's again super individual and more

918
00:47:17,680 --> 00:47:20,799
Speaker 3: based on I think preferences than economics. At that point, what.

919
00:47:20,760 --> 00:47:24,160
Speaker 1: Would you say is maybe the simple, simplest but most

920
00:47:24,400 --> 00:47:28,480
Speaker 1: underappreciated habit that leads to better financial outcomes for people.

921
00:47:29,120 --> 00:47:32,359
Speaker 3: Yeah, so, I you know, on the assumption that you've

922
00:47:32,360 --> 00:47:36,560
Speaker 3: set up your investment strategy in something that's good, and

923
00:47:36,600 --> 00:47:39,200
Speaker 3: I know good is hard to define, but you know,

924
00:47:39,360 --> 00:47:41,800
Speaker 3: say it's a portfolio of low cost index funds, and

925
00:47:41,800 --> 00:47:44,000
Speaker 3: maybe it's a target date fund. Whatever, it's a good,

926
00:47:44,040 --> 00:47:46,480
Speaker 3: low cost, evidence based strategy that you are comfortable with

927
00:47:47,280 --> 00:47:50,080
Speaker 3: once that is set up. I don't know if it's

928
00:47:50,080 --> 00:47:52,279
Speaker 3: a habit or an anti habit, but not looking at

929
00:47:52,280 --> 00:47:55,239
Speaker 3: your investments, not checking them every day, is a really

930
00:47:55,280 --> 00:48:01,120
Speaker 3: really important behavior for investors to practice. There is evidence

931
00:48:01,160 --> 00:48:05,160
Speaker 3: that more frequent checking leads people to take less risk,

932
00:48:06,600 --> 00:48:10,279
Speaker 3: which is not great. Like it's maybe important to mention

933
00:48:10,360 --> 00:48:13,320
Speaker 3: that risk is in investing. Taking the right kinds of

934
00:48:13,400 --> 00:48:15,839
Speaker 3: risk is a good thing. Taking the wrong kinds of risk,

935
00:48:15,840 --> 00:48:18,400
Speaker 3: which I would say, like picking an individual stock or

936
00:48:18,440 --> 00:48:21,600
Speaker 3: picking one cryptotoken, that's the wrong kind of risk. Taking

937
00:48:21,600 --> 00:48:23,799
Speaker 3: the risk of the stock market and investing in a

938
00:48:23,800 --> 00:48:26,160
Speaker 3: diversified portfolio of stocks that is a good risk. You

939
00:48:26,200 --> 00:48:29,160
Speaker 3: want to take that to build wealth in the long run.

940
00:48:29,760 --> 00:48:32,319
Speaker 3: People who check their portfolios more frequently will tend to

941
00:48:32,320 --> 00:48:35,120
Speaker 3: take less of those good kinds of risks because they're

942
00:48:35,120 --> 00:48:36,840
Speaker 3: a little bit more nervous.

943
00:48:37,440 --> 00:48:39,080
Speaker 2: Yea, so that's a big one.

944
00:48:39,239 --> 00:48:42,520
Speaker 1: All right, last question, humans were emotional beings. I I

945
00:48:42,520 --> 00:48:45,080
Speaker 1: am thrilled, Like I love emotion right, crying in a

946
00:48:45,080 --> 00:48:48,880
Speaker 1: good movie, this time of year, getting together family and friends, laughter, Like,

947
00:48:48,920 --> 00:48:52,200
Speaker 1: emotions are wonderful. Your podcast is called Rational Reminder. You're

948
00:48:52,280 --> 00:48:58,000
Speaker 1: keen on rational thinking. What role should or should emotions

949
00:48:58,000 --> 00:49:01,359
Speaker 1: play in our investing habits, or or like should they

950
00:49:01,360 --> 00:49:02,319
Speaker 1: even play a role at all?

951
00:49:02,960 --> 00:49:05,279
Speaker 3: Yeah? So I don't think you can ignore your emotions.

952
00:49:05,320 --> 00:49:07,440
Speaker 3: Like I just talked about the debt preferences thing. Some

953
00:49:07,440 --> 00:49:10,879
Speaker 3: people have strong feelings about debt and they should use

954
00:49:10,920 --> 00:49:13,080
Speaker 3: that as a guide when they're making a decision. But

955
00:49:13,160 --> 00:49:14,799
Speaker 3: I also don't think that you can let you let

956
00:49:14,840 --> 00:49:17,520
Speaker 3: your decision. Your emotions make your decisions for you. So

957
00:49:17,560 --> 00:49:20,239
Speaker 3: you can't ignore them, but they can't dictate your decisions either.

958
00:49:20,680 --> 00:49:23,040
Speaker 3: The reason that we called our podcast the Rational Reminder

959
00:49:23,400 --> 00:49:27,520
Speaker 3: is that we wanted to be explaining what a rational

960
00:49:27,560 --> 00:49:30,760
Speaker 3: person would do, basically, like what is the economically optimal

961
00:49:30,800 --> 00:49:34,080
Speaker 3: thing for someone to do in a certain situation. Once

962
00:49:34,120 --> 00:49:36,480
Speaker 3: you understand that, I think you can make an informed

963
00:49:36,560 --> 00:49:39,840
Speaker 3: decision based on your feelings about what you want to do,

964
00:49:40,280 --> 00:49:42,239
Speaker 3: but you need to understand the trade off that you're

965
00:49:42,239 --> 00:49:44,080
Speaker 3: making in order to make a good decision. If you

966
00:49:44,080 --> 00:49:46,279
Speaker 3: don't understand the trade off, the economic trade off that

967
00:49:46,320 --> 00:49:49,600
Speaker 3: you're making, and purely make decisions based on feelings, I

968
00:49:49,640 --> 00:49:51,680
Speaker 3: think that can lead to bad outcomes.

969
00:49:52,440 --> 00:49:54,920
Speaker 1: Ben Felix, this has been awesome conversation. Thanks for joining me.

970
00:49:54,960 --> 00:49:57,840
Speaker 1: Where can my listeners find out more about you and

971
00:49:57,880 --> 00:49:58,480
Speaker 1: your podcast?

972
00:49:58,760 --> 00:50:01,839
Speaker 3: I probably just a Google search or of whatever, an

973
00:50:01,880 --> 00:50:04,840
Speaker 3: AI search at this point. I guess my name Ben Felix,

974
00:50:04,920 --> 00:50:08,440
Speaker 3: and you'll find my podcast my YouTube channel. I'm on

975
00:50:08,480 --> 00:50:10,320
Speaker 3: other social media too, but those are the main ones.

976
00:50:10,520 --> 00:50:11,799
Speaker 1: All right. We'll link to it all in the show

977
00:50:11,800 --> 00:50:13,440
Speaker 1: notes up on our side as well. Ben, thanks so

978
00:50:13,520 --> 00:50:14,399
Speaker 1: much for taking the time.

979
00:50:14,560 --> 00:50:15,640
Speaker 3: Thanks so much for the invitation.

980
00:50:16,520 --> 00:50:23,040
Speaker 1: Okay, Wow, talking with Ben Felix is it's amazing the

981
00:50:23,080 --> 00:50:28,040
Speaker 1: reference material he has stored in his brain, different studies

982
00:50:28,320 --> 00:50:32,080
Speaker 1: about investments or the impact of financial advisors, even the

983
00:50:32,120 --> 00:50:33,920
Speaker 1: Vaguard study I brought up and he's like, yeah, that's

984
00:50:33,960 --> 00:50:37,360
Speaker 1: not my favorite, And so just the amount of knowledge

985
00:50:37,400 --> 00:50:40,560
Speaker 1: he has in the way he's able to disseminate it

986
00:50:41,000 --> 00:50:45,920
Speaker 1: to normal folks is impressive, so was so glad to

987
00:50:45,920 --> 00:50:48,759
Speaker 1: have him on in his podcast. Really, in the work

988
00:50:48,800 --> 00:50:51,920
Speaker 1: he does, it gets down into the nitty gritty. So

989
00:50:51,920 --> 00:50:53,840
Speaker 1: if you're the kind of person who's like, how to

990
00:50:53,880 --> 00:50:55,959
Speaker 1: money feels like one oh one to me, I'm ready

991
00:50:56,000 --> 00:50:59,240
Speaker 1: for three oh one. Well, Ben's podcast is YouTube channel

992
00:50:59,360 --> 00:51:03,040
Speaker 1: is well well worth digging into. Just a treasure trove

993
00:51:03,320 --> 00:51:08,680
Speaker 1: of intelligence help you understand investing at a much deeper level. Man,

994
00:51:08,760 --> 00:51:11,799
Speaker 1: My big takeaway from this one was I like what

995
00:51:11,800 --> 00:51:15,000
Speaker 1: he said the anti habit of not checking your portfolio,

996
00:51:15,440 --> 00:51:17,560
Speaker 1: And it's one of those things like as you start

997
00:51:17,600 --> 00:51:21,400
Speaker 1: to invest more and you feel like you're doing the

998
00:51:21,480 --> 00:51:24,880
Speaker 1: right thing and you're excited to check on your progress. Well,

999
00:51:25,200 --> 00:51:27,680
Speaker 1: the more you log in, the more likely you are

1000
00:51:28,040 --> 00:51:31,680
Speaker 1: to make changes or to maybe feel like you can

1001
00:51:31,719 --> 00:51:33,680
Speaker 1: rest on your laurels. I mean, there's all sorts of

1002
00:51:33,800 --> 00:51:38,759
Speaker 1: reactions you can have from checking your portfolio that many

1003
00:51:38,760 --> 00:51:41,920
Speaker 1: of them which are not helpful. And probably maybe it's

1004
00:51:41,920 --> 00:51:44,680
Speaker 1: a good idea, and now's a great time to set

1005
00:51:44,960 --> 00:51:48,600
Speaker 1: a calendar reminder right to check in once every six months,

1006
00:51:49,239 --> 00:51:52,319
Speaker 1: and maybe the goal is every time you check in

1007
00:51:52,320 --> 00:51:55,479
Speaker 1: on your portfolio, you're ramping up your contribution amount, whether

1008
00:51:55,520 --> 00:51:58,160
Speaker 1: that's like adding a little bit to your monthly roth

1009
00:51:58,200 --> 00:52:01,920
Speaker 1: IRA contribution or you're ramping up your four one K

1010
00:52:02,000 --> 00:52:05,319
Speaker 1: contribution by one percentage point or something like that. I

1011
00:52:05,360 --> 00:52:07,640
Speaker 1: don't know exactly how you want to do it, but

1012
00:52:08,400 --> 00:52:10,520
Speaker 1: I love the idea of having a calendar reminder so

1013
00:52:10,600 --> 00:52:12,680
Speaker 1: that it's never on your brain, like maybe I should

1014
00:52:12,719 --> 00:52:14,919
Speaker 1: just jump in there and check out my investments, what's

1015
00:52:14,920 --> 00:52:17,520
Speaker 1: going on? Or I feel like the market was rippen

1016
00:52:17,640 --> 00:52:20,040
Speaker 1: last week, let me see where I'm at, or market

1017
00:52:20,120 --> 00:52:22,760
Speaker 1: wasn't doing so great, wonder how much money I lost,

1018
00:52:22,960 --> 00:52:30,279
Speaker 1: and just avoiding that sort of emotional response, or like

1019
00:52:30,760 --> 00:52:32,799
Speaker 1: you think, you know, logging in more often is going

1020
00:52:32,840 --> 00:52:36,200
Speaker 1: to create more emotional responses. And what Ben is preaching,

1021
00:52:36,480 --> 00:52:39,319
Speaker 1: what he's all about, is for all of us not

1022
00:52:39,680 --> 00:52:45,560
Speaker 1: disclcluding emotion from how we invest including it in the

1023
00:52:45,600 --> 00:52:48,160
Speaker 1: proper way, but thinking about, well, what would.

1024
00:52:47,920 --> 00:52:49,080
Speaker 2: The rational approach here be?

1025
00:52:49,600 --> 00:52:52,960
Speaker 1: And I do think the rational approach, or what's going

1026
00:52:53,000 --> 00:52:56,280
Speaker 1: to help us stay rational for longer is just putting

1027
00:52:56,320 --> 00:52:59,480
Speaker 1: those numbers in front of our face less being pleasantly

1028
00:52:59,600 --> 00:53:02,239
Speaker 1: surprised the next time we log in that not only

1029
00:53:02,280 --> 00:53:05,960
Speaker 1: have our contributions, but also market returns have increased our

1030
00:53:06,000 --> 00:53:08,040
Speaker 1: net worth and it's a wonderful thing to see. But

1031
00:53:08,120 --> 00:53:10,359
Speaker 1: I do think having our finger on the pulse all

1032
00:53:10,400 --> 00:53:14,759
Speaker 1: the time can lead to some potential bad decisions. And

1033
00:53:16,239 --> 00:53:18,920
Speaker 1: that's something that's really important. When we're talking about, you know,

1034
00:53:19,480 --> 00:53:21,919
Speaker 1: being an investor and staying in it for the long haul.

1035
00:53:22,760 --> 00:53:24,879
Speaker 1: That's going to be a really it's going to allow

1036
00:53:24,960 --> 00:53:26,680
Speaker 1: us to do that in a crucial way. So I

1037
00:53:26,680 --> 00:53:30,239
Speaker 1: hope you found this podcast helpful. I hope it allows

1038
00:53:30,360 --> 00:53:35,040
Speaker 1: you to think about your own investing and how you

1039
00:53:35,080 --> 00:53:37,759
Speaker 1: plan on handling the bumps in the road that are

1040
00:53:37,800 --> 00:53:41,359
Speaker 1: sure to come. Whether that looks like hiring advisor because

1041
00:53:41,400 --> 00:53:43,680
Speaker 1: you realize, oh man, that sounds like that's what I need.

1042
00:53:43,719 --> 00:53:46,399
Speaker 1: I need somebody to kind of hold my hand because

1043
00:53:46,440 --> 00:53:48,360
Speaker 1: I don't think I would be able to stomach a

1044
00:53:48,440 --> 00:53:51,480
Speaker 1: massive portfolio drop, or whether you're like, no, that means

1045
00:53:51,520 --> 00:53:56,960
Speaker 1: I need to put my investing thesis down on paper

1046
00:53:57,360 --> 00:53:58,960
Speaker 1: and I need to post it somewhere in my house

1047
00:53:58,960 --> 00:54:01,680
Speaker 1: so that I know why I'm investing, what I'm investing for,

1048
00:54:02,120 --> 00:54:04,920
Speaker 1: and then I'm staying the course even when things do

1049
00:54:05,000 --> 00:54:06,160
Speaker 1: get difficult.

1050
00:54:05,960 --> 00:54:06,560
Speaker 2: And by the way.

1051
00:54:06,600 --> 00:54:09,839
Speaker 1: If you are looking for an advisor, howdomoney dot com

1052
00:54:09,840 --> 00:54:12,719
Speaker 1: slash advisor is a great place to turn. Thanks, as

1053
00:54:12,760 --> 00:54:15,719
Speaker 1: always for joining me on today's episode. We'll see you

1054
00:54:15,719 --> 00:54:19,040
Speaker 1: back here on Friday for a fresh Friday flight. Until

1055
00:54:19,080 --> 00:54:20,479
Speaker 1: next time, best friend Out,