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Speaker 1: I'm Barry Ridults, and I'm excited to tell you about

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Speaker 1: my new podcast, At the Money. Each week, I'm going

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Speaker 1: to spend about ten minutes or so diving deep into

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Speaker 1: a specific topic that affects you and your money, acquiring it,

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Speaker 1: spending it, and most of all, investing it. We'll talk

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Speaker 1: about things like portfolio construction, why fees matter, how to

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Speaker 1: build a set of bond holdings, why it matters so

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Speaker 1: much to manage your own behavior as an investor. I've

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Speaker 1: been in this business for nearly thirty years as a

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Speaker 1: trader and a professional money manager. I run over four

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Speaker 1: billion dollars at my firm, Redults Wealth Management. These aren't

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Speaker 1: theoretical academic discussions. We're going to show you exactly what

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Speaker 1: you need to do to achieve personal financial success, whether

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Speaker 1: you're on your own or working with someone else. Strap

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Speaker 1: in for episode one of At the Money, starting right now.

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Speaker 1: We've had more than a decade long of you know,

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Speaker 1: just rising market. We said, Vanguard bonds are back, We

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Speaker 1: have real positive interest rates.

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Speaker 2: Companies that are going to be high quality and resilient.

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Speaker 1: Equity is getting cheaper, which means that really people should

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Speaker 1: be buying them. Things have literally never been better for you,

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Speaker 1: the home investor, than they are right now. Think about it.

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Speaker 1: It costs nothing to trade. Your custodial fees are practically zero.

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Speaker 1: ETF and mutual fund fees have plummeted. There's just simply

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Speaker 1: no better time in history where it costs less. There's

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Speaker 1: less friction, less ability to get a broad exposure to

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Speaker 1: the market at practically no price. Think about this. Fifty

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Speaker 1: years ago you wanted to go buy a mutual fund

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Speaker 1: that gave you global exposure, it either didn't exist or

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Speaker 1: cost you two or three percent plus an upfront load.

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Speaker 1: Now you can own the entire world for less than

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Speaker 1: a tenth of a percent. It's actically free. And I'm

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Speaker 1: gonna tell you why. Helping us unpack this issue, Eric

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Speaker 1: Balchunis is senior ETF analyst at Bloomberg Intelligence. He also

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Speaker 1: wrote a fascinating book called The Bugle Effect. So, Eric,

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Speaker 1: how great is it out there to be an investor today?

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Speaker 2: I think we're in a utopia. I think this is

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Speaker 2: as good as it ever has been. And what's beautiful

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Speaker 2: about it Now it's not just index funds or quote

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Speaker 2: market beta funds that are cheap. You've now got even

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Speaker 2: niche categories getting lower costs like bonds, you can get

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Speaker 2: a whole basket of bonds for three basis points now.

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Speaker 2: Even in like a category like junk bonds, you now

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Speaker 2: can get three basis points for a whole basket of

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Speaker 2: junk bonds. Those used to be pricey too us to

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Speaker 2: be pricey. You can also get things like smart beta,

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Speaker 2: like value growth. Those are all sub five basis points now,

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Speaker 2: so you can actually mess around with like value growth dividends.

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Speaker 2: All that stuff is now under ten. Even active active

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Speaker 2: has come over to the ETF space and a lot

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Speaker 2: of the active funds coming out now are below forty

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Speaker 2: basis points, so they're cheap and it's kind of working.

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Speaker 1: So let's talk about the overall trends. And there's a

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Speaker 1: little bit of a chicken and egg issue which came first.

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Speaker 1: So there's been a general move from active to passive.

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Speaker 1: There's been a move from high cost to low fee.

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Speaker 1: There's been a move from ongoing commission transaction base to

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Speaker 1: fee based. Wherever you look, things have been trending in

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Speaker 1: the investor's direction. Which is driving which what is the

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Speaker 1: what is the cause and what is the effect.

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Speaker 2: I wrestled with this in my book because if you

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Speaker 2: look at the percentage of advisors, they get paid as

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Speaker 2: a percentage of the client assets, which is called fee

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Speaker 2: based or fiduciary. And that's important because now the advisor

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Speaker 2: is out there looking for the cheapest funds or the

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Speaker 2: best deal for you, whereas in the past they would

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Speaker 2: essentially get what's a briber or kickback from the mutual fund. Right,

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Speaker 2: guess who paid for it, the client came out of

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Speaker 2: the client's money, that five percent load. That was clearly

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Speaker 2: not a good system, all kinds of conflicts of interest.

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Speaker 2: Let's put a little flesh on that, because I think

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Speaker 2: people don't realize what used to take place at the

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Speaker 2: big wirehouse. So it was called shelf space. And if

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Speaker 2: you wanted to sell your mutual funder ETF to the

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Speaker 2: thundering herd of thousands of brokers, no particular brokerage farm

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Speaker 2: in particular, you had to pay the company a fee

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Speaker 2: like some sodas and potato chips due to supermarkets to

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Speaker 2: be on that platform. And tell us how significant were

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Speaker 2: those fees? Twelve B one fees is that right, twelve

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Speaker 2: B one that shows up in the total expense ratio.

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Speaker 2: But the killer is loads. I mean, I know loads

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Speaker 2: have phased out, but they be five percent. I mean,

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Speaker 2: you know much return you have to get just overcome

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Speaker 2: that one shot. The expense ratio is year after year.

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Speaker 2: Then there's trading costs on top of that, so it's

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Speaker 2: about two percent plus the five percent load. In other

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Speaker 2: countries they're still doing this, by the way, but America,

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Speaker 2: the fiduciary and fee based advisor movement has gone really

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Speaker 2: hockey stick. I think right now we're about three quarters

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Speaker 2: of all the assets are managed by fee based fiduciary advisors.

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Speaker 2: A quarter still is the commission based world, but that's

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Speaker 2: again trending towards all fee based. And then the other

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Speaker 2: thing is in other countries that's much lower. So when

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Speaker 2: we study ETF and low cost adoption around the world,

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Speaker 2: it's interesting. Really two things you need to drive this.

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Speaker 2: One is a fee based advisor movement because they're tied

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Speaker 2: the hip. I don't know, it is a chicken or egg.

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Speaker 2: The more fee based advisors there are, the more money

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Speaker 2: goes into low cost than ETFs. And you also need

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Speaker 2: a population that doesn't think the government is going to

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Speaker 2: completely cover its retirement because our government pushed us into

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Speaker 2: four to one case, we had a little savvy about

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Speaker 2: friends or picking an advisor. So I give the consumer

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Speaker 2: in America a little credit here for pushing this as well.

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Speaker 2: But certainly these underlying trends are pushing the trends towards

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Speaker 2: low cost, no doubt.

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Speaker 1: So what do you think is a driver of this?

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Speaker 1: Is it the Internet? Has Wall Street become more competitive?

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Speaker 1: How much has technology driven this?

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Speaker 2: Yeah?

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Speaker 1: I mean there are a lot of possible explanations for this.

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Speaker 1: What do you think it is?

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Speaker 2: So in two thousand and eight, all this really took off,

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Speaker 2: and Michael Kitsys, who is a rates about the advisory world,

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Speaker 2: great guy blogger, he said it was the Internet that

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Speaker 2: killed the high cost active manager actually sent that theory

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Speaker 2: over to Jack Bogel and he writes back, I'd like

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Speaker 2: to think I had something to do with it, and

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Speaker 2: he did, honestly, he does say the Internet and the

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Speaker 2: spread of information. It's much easier now to see what

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Speaker 2: you're paying, what you know in these charts that show

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Speaker 2: you what you're paying and what you don't get what

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Speaker 2: you get. Also, you could read blog posts from people

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Speaker 2: who are maybe a little more pro that, and then

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Speaker 2: all seeps into the mainstream media. So I think the

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Speaker 2: Internet helped a lot. But you understand that by the

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Speaker 2: time the Internet hit, Bogel had done all the work

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Speaker 2: to get an index fund to fifteen ten basis points.

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Speaker 2: That was a struggle. It took thirty years to get there.

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Speaker 2: So when the Internet hit, Vanguard was completely ready for

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Speaker 2: that moment, and I think the combination of the two

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Speaker 2: proved to cause a sensation. And I also think when

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Speaker 2: you talk about the phebas advisors, I think some of

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Speaker 2: the movement from a commission based broker to become a

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Speaker 2: phee based advisor was born because of Vanguard. You could

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Speaker 2: not buy Vanguard if you worked at a big company,

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Speaker 2: a big bank, and you got a commission based fee

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Speaker 2: because that company, Vanguard wouldn't pay them for the shelf space.

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Speaker 2: So if you want to do that, you had to

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Speaker 2: leave that big firm and start up in RIA, which

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Speaker 2: is what you are. And those arias now make up

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Speaker 2: a bigger and bigger portion of the money. And now

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Speaker 2: the big companies, though, are actually moving more towards what

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Speaker 2: the rias did, So I almost give Vanguard a little

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Speaker 2: credit for that, because if you wanted Vanguard, you couldn't

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Speaker 2: get it where you were typically, But we look around

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Speaker 2: the world in other countries, a lot of times they

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Speaker 2: just go to the bank that their grandfather used. Then

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Speaker 2: the consumers there aren't is like heads up. Also, a

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Speaker 2: lot of the advisors still believe in active or they

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Speaker 2: get the commission. Still it's moving slower elsewhere. There's a

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Speaker 2: couple countries like US in Australia where again those two

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Speaker 2: elements are there and you see it moving pretty quickly.

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Speaker 2: But ultimately, I just believe in technology, which is the

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Speaker 2: ETF is a good technology, and I do believe in

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Speaker 2: consumers going with lower fee stuff. So those two things

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Speaker 2: ultimately are going to win out. No matter how rough

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Speaker 2: the plumbing is, ultimately it will sweep the world.

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Speaker 1: So I want to flesh this out for anybody who

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Speaker 1: is under fifty years old and is listening to this.

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Speaker 1: In the nineteen seventies, if you want to buy a

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Speaker 1: stock you had to first open a brokerage account. Then

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Speaker 1: when you were finally all that was set up, which

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Speaker 1: could take days or weeks, you had to pick up

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Speaker 1: a phone and call your stockbroker. On the phone, you

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Speaker 1: had no idea what prices were right, You had no

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Speaker 1: idea what the brokerage fees were there was a minimum

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Speaker 1: they couldn't discount below.

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Speaker 2: They were like seventy five bucks one.

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Speaker 1: Hundred and seventy five bucks. That was later. Seventy five

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Speaker 1: bucks was after what they called the Big Bang where

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Speaker 1: they deregulated and allowed them to drop trading costs to

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Speaker 1: a mere seventy five bucks. Maybe you subscribed to a

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Speaker 1: newsletter that would be mailed out to you once a month.

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Speaker 1: There was no live radio, there was no live TV.

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Speaker 1: You would get day old stock prices in the Wall

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Speaker 1: Street Journal only for the big stocks, and weekly in

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Speaker 1: barons you would get week old stock prices. And if

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Speaker 1: you subscribe to a service like Value Line, well every

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Speaker 1: quarter it would get updated. Today, none of that is true.

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Speaker 1: Do people have any idea how good they have it today?

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Speaker 2: I don't think so. And I also think this is

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Speaker 2: lost on the younger generation. I see a lot of

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Speaker 2: them like blowing off stock investing in favor of crypto

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Speaker 2: and call options on Tesla. I know they're trying to

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Speaker 2: have a good time, but you have to understand that

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Speaker 2: stocks are great. They create cash flow. People get up

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Speaker 2: and work at these companies and create value. That's what

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Speaker 2: you're investing in you are an owner of that company.

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Speaker 2: And so the idea that you can own all of

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Speaker 2: these companies in one shot for a couple basis points

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Speaker 2: fee and this company you outsource all of it. They

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Speaker 2: do everything, the dividends, the rebalancing. That is a beautiful thing.

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Speaker 2: It's almost lower fee than it should be. I mean

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Speaker 2: it really. They do a lot of work for you.

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Speaker 2: There are economies of scale. When you're black Rock running

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Speaker 2: nine trillion or Vanguard running eight trillion, you could spread

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Speaker 2: those costs around.

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Speaker 1: To a lot of investors.

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Speaker 2: And this is something that has to be brought up.

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Speaker 2: Though there are other ways they make money. And part

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Speaker 2: of what we say is in the future asset managers

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Speaker 2: need a way to subsidize their fight against Vanguard. So

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Speaker 2: like black Rock sales technology, they have institutional business because

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Speaker 2: if you're going to fight Vanguard in the terrodome, you

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Speaker 2: got to be cheap and so, but that doesn't make

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Speaker 2: much money for them. So the future of asset management's

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Speaker 2: come with these other ways to do it. So if

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Speaker 2: you're an investor, know that you might be trying to

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Speaker 2: be upsold on some certain things and that you know

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Speaker 2: it's okay. Just know about it. And the other thing

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Speaker 2: that I think you watch out for is as more

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Speaker 2: people go into a cheap core passive portfolio that might

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Speaker 2: have an all in fee for like four basis points,

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Speaker 2: and you're like, wow, I'm set. Never need to touch it.

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Speaker 2: I don't care what the market does up or down.

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Speaker 2: I got the best deal on Earth. The only thing

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Speaker 2: that I have found people doing now is they get

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Speaker 2: a little itchy. But instead of selling the core, which

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Speaker 2: is good, they keep that there. They do go and

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Speaker 2: do like some Foamo hot sauce type stuff. So we

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Speaker 2: do see flows going into like thematic ETF's crypto. But

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Speaker 2: I think if that stops you from messing with the core,

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Speaker 2: then it serves a behavioral purpose. So I'm not against

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Speaker 2: hot sauce, but I do think be careful. There's a

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Speaker 2: lot of hot sauce out there, and I would just

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Speaker 2: make sure you proportion that correctly as if it were

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Speaker 2: a meal. You don't want to spread hot sauce all

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Speaker 2: over the meal. Call that core and satellite.

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Speaker 1: Yes, as long as your core is solid, you could

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Speaker 1: have you know, moons around the planet is fine. The

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Speaker 1: other way I like to describe that is here's the

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Speaker 1: Christmas tree you want to hang some ornaments on it, fine,

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Speaker 1: but the tree has to be you know, eighty percent

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Speaker 1: of it. It shouldn't shouldn't the ornament, shouldn't knock the

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Speaker 1: tree over exactly. And to me, that's the modern portfolio,

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Speaker 1: real low cost core about eighty five percent of it,

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Speaker 1: almost like free. And then people you know, do a

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Speaker 1: couple things that decorate the tree, which cost a little more,

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Speaker 1: but overall your lower ear fee is way.

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Speaker 2: Lower than it was twenty years ago.

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Speaker 1: So here we are. We're in the golden age of investing.

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Speaker 1: Everything is awesome, and not a lot of investors appreciate it,

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Speaker 1: especially people who didn't experience what it was like in

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Speaker 1: the bed all days where you didn't know anything. Whatever

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Speaker 1: you did cost you money, Fees were hidden, costs were high,

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Speaker 1: and today it really is utopia. There's nothing to fix

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Speaker 1: other than appreciate how great it is to be an

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Speaker 1: investor in the twenty twenties, in the twenty first century,

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Speaker 1: and don't be afraid to put your money to work

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Speaker 1: in equities where they can compound for you over time.

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Speaker 1: You can listen to the Money every week finding in

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Speaker 1: our Master's and Business feed at Apple podcasts. Each week

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Speaker 1: we'll be here to discuss the issues that matter most

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Speaker 1: to you as an investor. I'm Barry Rittolts. You've been

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Speaker 1: listening to At the Money on Bloomberg Radio.