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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special guest.

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Speaker 1: His name is fran Ken Irie and he is the

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Speaker 1: head of portfolio Construction at Vanguard Group, managing a modest

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Speaker 1: five point something trillion dollars. He has an absolutely fascinating

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Speaker 1: career and the work he's done at Vanguard on a

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Speaker 1: concept called Advisors Alpha is absolutely essential and part of

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Speaker 1: the single largest trends UH in investment management today, which

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Speaker 1: has to do with the shift from transactional brokerage type

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Speaker 1: investments two more UM fee only long term asset allocation

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Speaker 1: from advisors. This is one of the single biggest trends

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Speaker 1: in investing and has seen literally trillions of dollars shift UH.

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Speaker 1: This is a big part of the shift from active

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Speaker 1: to passive, from transactional UM to long term. And if

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Speaker 1: you are an advisor, if you work in the industry,

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Speaker 1: or if you're just simply UM, if you're just simply

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Speaker 1: an investor who is interested in learning what's going on

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Speaker 1: in the world of investment management, you're going to find

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Speaker 1: this conversation to be absolutely fascinating. So, with no further ado,

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Speaker 1: my conversation with Vanguards Franken I Re. This is Master's

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Speaker 1: in Business with Barry Ridholts on Boomberg Radio. My special

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Speaker 1: guest this week is fran Kinnary. He is the global

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Speaker 1: head of Portfolio Construction at the Vanguard Group, which manages

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Speaker 1: over five trillion. That's trillion with a T five trillion dollars.

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Speaker 1: He's a principal in the Investment Strategy Group, where as

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Speaker 1: an m BE a slash chartered financial analyst, he helps

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Speaker 1: to develop Vanguard's investment philosophy, methodology, and portfolio construction strategies.

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Speaker 1: At Vanguard, he helped to create the firm's investment counseling

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Speaker 1: and research departments, it's asset management services, and the Vanguard

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Speaker 1: Advisory Services. But perhaps he is best known for creating

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Speaker 1: the concept of advisor's Alpha. Fran Kinnary, Welcome to Bloomberg.

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Speaker 1: Thank you so much, Barry. It's great to be here.

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Speaker 1: I've been a big fan of your show and so

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Speaker 1: just a pleasure to be here. I um I have

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Speaker 1: had as a guest on the show just about all

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Speaker 1: of your CEO s since the firm began. I have

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Speaker 1: to track down the new guy. He's he's been elusive,

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Speaker 1: but I will eventually. He's been busy, I can imagine.

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Speaker 1: So so let's start a little bit with with some background.

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Speaker 1: I hear that index funds are are a bubbler. Are

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Speaker 1: you guys at Vanguard about to crash the economy? Yeah,

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Speaker 1: that's an interesting one. The the author I guess of

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Speaker 1: the or the creator of the big short came out recently,

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Speaker 1: and I know your team covered at Josh covering it

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Speaker 1: as well, and I think people, you know, I have

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Speaker 1: to really take a step back when I see stories

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Speaker 1: like this. There's a lot of confusion even on index

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Speaker 1: and active and I think people don't even understand. As

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Speaker 1: long as they've been around, they're still very confused. So

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Speaker 1: so let's delve into the details, explain the broad difference

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Speaker 1: and why it matters. Yeah, first off, I think people

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Speaker 1: confused this idea of you know, indexing maybe surpassing active management, right,

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Speaker 1: so in the US, and you actually just did that,

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Speaker 1: did that exactly, But I think people forget that that's

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Speaker 1: forty ACT funds, forty ACT being mutual funds and e

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Speaker 1: t f s, and that is a very small part

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Speaker 1: of the capital market structure. So what is not included

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Speaker 1: under the forty Act, separate accounts, institutional investors, sovereign wealth funds.

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Speaker 1: So actually the mutual fund and ETFs are somewhere between

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Speaker 1: thirty and thirty five percent. So if you do that math,

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Speaker 1: index equities on the U S side is somewhere around

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Speaker 1: so still relatively small. Indexing passive investing much more than

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Speaker 1: active investing exactly. And I think the other big confusion

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Speaker 1: is that people think that indexing moves price. If there's

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Speaker 1: only two active managers. Let's say it's you and I Berry,

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Speaker 1: and you and I are playing golf and we're not

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Speaker 1: at our trading desk, the index doesn't move, so the

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Speaker 1: index is taking their direction. They index will replicate active managers.

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Speaker 1: So this idea that indexing is driving price or price discovery,

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Speaker 1: if there were only two active managers and they decided

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Speaker 1: to take the day off, the index wouldn't move. There

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Speaker 1: would be no index trading. That's that's interesting. So as

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Speaker 1: long as we're we're talking about this bubble. Over the

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Speaker 1: past couple of years, i've heard indexing is a threat

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Speaker 1: to the economy. Is an American, it's Marxist. It seems

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Speaker 1: like a lot of people are flailing and Jack Bogel

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Speaker 1: very famously said when Vanguard first rolled out their initial

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Speaker 1: index funds, they were accused of being un American. Yeah,

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Speaker 1: and I think some of the assaults that you're hearing

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Speaker 1: is back to incentives, right, and and um, you know,

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Speaker 1: Charlie Munger famously said that his whole life he believed

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Speaker 1: that of what people say or do is due to incentives,

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Speaker 1: and his whole life he underestimated incentives. Uh So, I

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Speaker 1: think there's a large crowd that would love to talk

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Speaker 1: about this indexing bubble or all the negatives of indexing.

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Speaker 1: You have to look at the incentives there. The bottom

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Speaker 1: line is indexing is broadly diversified, low cost exposure, and

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Speaker 1: probably one of the greatest things that have happened to

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Speaker 1: investors in the last fifty years. So so you suggesting

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Speaker 1: that the people who are critics of indexing are the

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Speaker 1: ones who are seeing outflows and losing market share? Is

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Speaker 1: is that how cynical you are? Yeah? I think when

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Speaker 1: you your your survival and uh, you know, depends on it,

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Speaker 1: you'll say whatever makes that right. The famous Upton Sinclair quote.

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Speaker 1: So you've been at Vanguard since nineteen seventy seven, what

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Speaker 1: path took you there. What what was your first role

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Speaker 1: at the Vanguard Group. Well, I'm not that old, Barry.

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Speaker 1: I joined in nineteen nineties seven, is that? What did

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Speaker 1: I say? I said seventy seven you you were going

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Speaker 1: into high school? Yes, exactly, exactly, So I joined in

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Speaker 1: nineteen ninety seven. By the way, Vanguard's only been around

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Speaker 1: with what's in seventy four? So so ninety seven, Yes,

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Speaker 1: so nineteen ninety seven I joined Vanguard. UM. The backstory

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Speaker 1: is like yourself, I was at a registered investment advisory firm.

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Speaker 1: Back at that time. We had a billion dollars, which

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Speaker 1: was was quite large. We were a multi family office

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Speaker 1: and institutional advisory firm. To be fair, in nineteen ninety seven,

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Speaker 1: a billion dollars was a lot of money. Now it's

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Speaker 1: walking around money exactly. So it seems with six trillion

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Speaker 1: and five trillion and just crazy a UM numbers exactly

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Speaker 1: and so UM. I was a big fan and studied

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Speaker 1: Vanguard from AFAR, from my prior firm, and I ended

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Speaker 1: up at Vanguard because our r I a business, got

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Speaker 1: rolled up into a you know, they were going through

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Speaker 1: a roll up stage and roll up being other big

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Speaker 1: advisory shops bringing other advisors together. I had about a

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Speaker 1: year to figure out whether I was gonna stay or

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Speaker 1: move somewhere, and I just was. I was a c

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Speaker 1: f A and I happened to be at a CFA

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Speaker 1: event and Vanguard was entering the advice business. And so

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Speaker 1: a lot of people know about Vanguard's advice today and

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Speaker 1: they may think it's new, but I was, you know,

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Speaker 1: at the very very early beginning of Vanguard's starting advice,

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Speaker 1: and my role was to develop the investment methodology we

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Speaker 1: used in our advice services. So so let's talk a

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Speaker 1: little bit about that. Vanguard has been a giant advocate

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Speaker 1: of the sixty forty portfolio. Equity bonds advisors embrace that,

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Speaker 1: uh in giant numbers. Uh. Is the sixty forty portfolio

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Speaker 1: still a desired sort of miss Yeah. I think some context,

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Speaker 1: they're just like we we started with the context on indexing.

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Speaker 1: The context is, I think Vanguard believes in broadly diverse

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Speaker 1: fight portfolios, low cost, whether it's active or passive, because

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Speaker 1: we actually believe in active. You're almost two trillion and active,

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Speaker 1: that's right, And so I think the sixty forty gets

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Speaker 1: thrown out there, you know, um as a starting point.

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Speaker 1: But we we believe that the asset allocation should reflect

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Speaker 1: the client's goals and objectives. So we have clients, uh,

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Speaker 1: for example, our target retirement funds, it's a glide pass.

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Speaker 1: It starts out nine ten and gets all the way

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Speaker 1: down to thirty seventy and otherwise, as you get older,

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Speaker 1: you assume less risk with equities and more stability with bonds. Absolutely,

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Speaker 1: So the sixty forty, while you know, that's one spot

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Speaker 1: on that frontier, I think the main part is having

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Speaker 1: an asset allocation and investment policy. You know that you're

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Speaker 1: navigating back to, so you're rebalancing to that, being broadly

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Speaker 1: diversified and either having high talent and low costs. That

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Speaker 1: would be our formula for success for an investor. Whether

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Speaker 1: it's sixty forty or forty sixty UM doesn't really matter. Um,

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Speaker 1: But yeah, the sixty tends to be that starting point

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Speaker 1: for many investors, and a lot of the institutional funds, endowments,

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Speaker 1: foundations were that for a very long time. Quite fascinating.

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Speaker 1: So let's talk a little bit about Advisor's alpha. Um,

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Speaker 1: your team effectively created this concept in two thousand and one.

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Speaker 1: Let's define it. What is Advisor's alpha? Yeah, so advisor's alpha,

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Speaker 1: as you mentioned, we created in two thousand and one,

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Speaker 1: and it really changed the value proposition or the framework

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Speaker 1: of what it means to you know, why hire an advisor?

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Speaker 1: And um my prior role, I was an advisor, and

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Speaker 1: I think our value proposition was probably similar to most

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Speaker 1: and that was a myopic value proposition. Hire me and

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Speaker 1: I'll outperform a policy portfolio whatever. That's the traditional chasing

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Speaker 1: alpha wool Street pursue the hot hands will beat the market, right,

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Speaker 1: and so whether you do that through security selection, market timing,

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Speaker 1: fund selection, the value proposition for a long time and

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Speaker 1: the advice community was outperform a policy portfolio, and and

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Speaker 1: none of the data supported anybody's ability or at least

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Speaker 1: the vast majority of investors and fund manager's ability to

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Speaker 1: do that consistently over time. Yeah, and think about what

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Speaker 1: a high hurdle that is if if you're charging you know,

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Speaker 1: let's say one percent in a fee based uh an arrangement,

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Speaker 1: and then you now so not only that, you have

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Speaker 1: to outperform by one percent plus any product fee. So

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Speaker 1: that's a really tough hurdle. So it's a value proposition

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Speaker 1: that you're setting up. You know, you own your value

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Speaker 1: proposition as the advisor, and you're telling your client, you know,

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Speaker 1: judge me on this, and you're you know, you're really

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Speaker 1: handicapping yourself. And that's what led to a lot of churn,

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Speaker 1: a lot of churn over and unhappy clients. So we

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Speaker 1: kind of broadened the value proposition. So Advisor's alpha, you know,

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Speaker 1: is a much more holistic value proposition. It still has

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Speaker 1: investment management if you believe that that is a you know,

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Speaker 1: skill you want to do. But what about financial planning,

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Speaker 1: tax planning, wealth planning, saving planning, retirement income? How do

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Speaker 1: I get a paycheck to me? And then behavioral coaching

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Speaker 1: also the service model. I work with a lot of

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Speaker 1: investors that are very busy, you know, they could be

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Speaker 1: a doctor, a lawyer, an entrepreneur, and they don't want

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Speaker 1: to you know, come home at the end of the

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Speaker 1: day and manage their assets. So a service model, you know,

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Speaker 1: I came up with the acronym t W A you know,

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Speaker 1: client may not have the time, willingness or ability to

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Speaker 1: do it on their own. And for most of those clients,

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Speaker 1: it's worth you know, the hundred basis points of advice.

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Speaker 1: So you you mentioned, um, something that reminds me of

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Speaker 1: the Vanguard concept of total return. I want to explain

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Speaker 1: what that is because most people think total return, they

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Speaker 1: think capital appreciation plus diven ends. But Vanguard has a

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Speaker 1: slightly different definition. Yeah, our our turtle return is um.

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Speaker 1: I think a lot of people try to engineer a return.

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Speaker 1: And what I mean by that is, let's take this

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Speaker 1: low yield environment and they think that they you know,

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Speaker 1: they may need five or six percent for their spending,

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Speaker 1: so they kind of start with widow is my liability stream?

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Speaker 1: And we see this a lot in the institutional space

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Speaker 1: with endowments and foundations. Um or they have a five

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Speaker 1: percent bogy. If they want to stay completely, they must

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Speaker 1: spend five percent otherwise they're risk losing their texas and

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Speaker 1: status exactly. And we're a client who's in retirement. Had

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Speaker 1: earth client who's in retirement, Let's say they want to

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Speaker 1: spend the four percent rule. How do you know that

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Speaker 1: works for you know, if you look at a bond chart.

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Speaker 1: The sixties, seventies, eighties, and nineties, interest rates were above

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Speaker 1: the spend rate, so you could have you canna have

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Speaker 1: a fixed income portfolio and it was quite easy. But

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Speaker 1: now you have dividend yields it on the equity market

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Speaker 1: of let's say one eight, one nine, and the bond

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Speaker 1: marketed somewhere like two. So how do you get to

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Speaker 1: a spending policy of four or five percent? Uh and

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Speaker 1: them together? Well, you see people taking risks. They go

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Speaker 1: out on the yield carve, they high yield junk bonds.

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Speaker 1: You see a lot of duration doesn't work, doesn't work

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Speaker 1: inverted yield care of going out duration art. Yeah, and

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Speaker 1: you see a lot of these that's there's nothing. This

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Speaker 1: is not an anti alternative investment or private investment conversation,

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Speaker 1: but you know, you you see people going in reaching

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Speaker 1: for you know, alpha that may or may not be there.

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Speaker 1: But well, when you say may or may not be there,

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Speaker 1: the data is pretty overwhelming that for the most part,

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Speaker 1: it's not there. And and a lot of people who

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Speaker 1: dabble alternatives seem to my joke has come for the

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Speaker 1: high fees, stay for the under performance. But that has

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Speaker 1: not been the solution. That has not been the magic bullet,

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Speaker 1: especially for pension funds that have pushed in giant numbers

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Speaker 1: into private equity and hedge funds and venture capital. It's

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Speaker 1: like everything else, a winner take all. There's a handful

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Speaker 1: of You know, if you can't get into renaissances, medallion

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Speaker 1: funds or d E shaw, the odds are you're not

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Speaker 1: going to do as well as a simple sixty. Yeah,

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Speaker 1: and I think that goes even for liquid space, right, So,

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Speaker 1: and I still think that this gets back to the

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Speaker 1: marketplace being very sophisticated but maybe not understanding the math.

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Speaker 1: And then and then math is and most of your

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Speaker 1: listeners will probably be familiar with zero sum game, which

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Speaker 1: means that if you and I are counterparties, one of

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Speaker 1: us is going to win on that trade and one

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Speaker 1: is gonna lose. So on average active management, whether they

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Speaker 1: be liquid or ill liquid or alternatives or traditional, it's

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Speaker 1: going to be impossible at the fiftie percentile and zero

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Speaker 1: some game to win that doesn't. But but I think

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Speaker 1: what misses that is someone is on the right side

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Speaker 1: of that distribution. Someone is winning. And so you know,

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Speaker 1: if you can find talent, you mentioned a few vanguards,

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Speaker 1: active funds have actually done very well. So if you

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Speaker 1: have good talent and you have your costs below your talent,

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Speaker 1: which is a key component of total return total return,

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Speaker 1: then you know, so we're we're in the total return

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Speaker 1: or outcomes. You know, we we believe that what's the

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Speaker 1: most important thing is what our client outcomes. And so

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Speaker 1: what I mean by that it doesn't have to be

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Speaker 1: all index or that alternatives are bad or you know,

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Speaker 1: private investments are bad. What you really want to end

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Speaker 1: up with is is my talent greater than my friction?

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Speaker 1: And if that works, then there's a real strong case

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Speaker 1: for active and a strong case for privates and alternatives. Um,

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Speaker 1: the question is do you have access to that? Right?

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Speaker 1: Not everyone is going to have access to world class

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Speaker 1: talent and they just need a couple of billion dollars

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Speaker 1: and you're in yeah, or you work with you work

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Speaker 1: with a professional fiduciary, so you could work with you know,

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Speaker 1: not not to say you could work with someone like

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Speaker 1: Vanguard that actually can you know, find great managers, get

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Speaker 1: access to great managers and deliver outcomes that are superior

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Speaker 1: even though the cost structure is above an index cost structure.

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Speaker 1: Let me give you a quote from one of your

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Speaker 1: research papers that I found interesting. Left alone investors often

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Speaker 1: make choices that impair the returns jeopardize their ability to

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Speaker 1: fund their long term objectives. Many are influenced by capital

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Speaker 1: market performance and This is often evident in market cash flows,

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Speaker 1: mirroring what appears to be emotional responses fear or agreed

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Speaker 1: rather than rational ones. Explain the idea of behavioral coaching

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Speaker 1: and what that means. Yeah, so behavioral coaching is one

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Speaker 1: of the key pillars of Advisor's alpha. And what we

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Speaker 1: mean by that is investing is emotional right, and we

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Speaker 1: know that, you know, you have to be, you know,

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Speaker 1: in a decision state where your emotions are calm, and

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Speaker 1: you know it's hard to stay calm. Let's go back

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Speaker 1: to the global financial crisis, oh eight oh nine. It's

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Speaker 1: hard to stay calm when you've lost you know, forty

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Speaker 1: of your value of your equities. And what you're asking

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Speaker 1: the investor to do is it, let's just take a

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Speaker 1: two million dollar portfolio, a million in stocks, a million

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Speaker 1: in bonds. Your million in stocks now is five hundred thousand,

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Speaker 1: and you're asking without an advisor, You're you're saying, I'm

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Speaker 1: going to sell two and fifty thousand of bonds that

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Speaker 1: are actually doing quite well in GFC and add to

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Speaker 1: this stock portfolio. So now I have seven fifty seven

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Speaker 1: fifty right to rebalance that. And when I've studied cash

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Speaker 1: flow at Vanguard for my twenty plus years. And what

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Speaker 1: we see is that you know, investors especially in the extreme.

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Speaker 1: So you go back to that O eight oh nine environment,

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Speaker 1: there was huge outflows of equities in the money market,

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Speaker 1: and so investors were not rebalancing on their own. And

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Speaker 1: so working with a behavioral coach who's going to help

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Speaker 1: you through the emotions to stay committed to your policy,

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Speaker 1: we think and had a tremendous amount of out and

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Speaker 1: I I personally noticed the outflows going just reaching their

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Speaker 1: plateau that February March oh nine the worst possible time

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Speaker 1: for it, right at the bottom. You know, we study

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Speaker 1: that right and and and equities went pre GFC. So

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Speaker 1: if you go back to you know O seven, pre GFC,

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Speaker 1: equities were at about sixty eight percent on the household

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Speaker 1: balance sheet, and that means that you know, the thirty

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Speaker 1: two was in more risk off assets. At the bottom

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Speaker 1: you mentioned February of oh nine, equities dropped the thirty

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Speaker 1: six percent. So I call this the most hated bull

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Speaker 1: market of all time because this bull market was very

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Speaker 1: front end loaded, meaning a lot of the returns came

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Speaker 1: out of March O nine. In that very first and

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Speaker 1: investors only had thirty And so if you look about

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Speaker 1: the I R R, the compound that returned that goes

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Speaker 1: to an investor, the behavioral gap, you know that. You know,

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Speaker 1: we we talk a lot about Advisor's outfit. It's you know,

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Speaker 1: one to two percent, it's episodic. But investors, you know,

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Speaker 1: tend not to do the right thing at the right

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Speaker 1: time for sure. Let's talk a little bit about UM

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Speaker 1: Vanguard Group, which does things quite a bit differently than

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Speaker 1: the rest of Wall Street. Here's another quote of yours.

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Speaker 1: What Vanguard really believes in is high talent and low cost.

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Speaker 1: Aren't those two things contradictory? Aren't we taught? Hey, if

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Speaker 1: you want the best, you're gonna have to pay up

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Speaker 1: for it. How do you combine low costs with high talent? Yeah, well,

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Speaker 1: the asset management business is one of the more scalable

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Speaker 1: businesses out there, right, and so UM, what we've been

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Speaker 1: meaning by scalable meaning it doesn't take a whole lot

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Speaker 1: more to manage a billion dollars than it does to

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Speaker 1: manage it depends on the strategy. But yes, that's exactly right.

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Speaker 1: So you know, if if I'm managing a billion dollars,

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Speaker 1: versus a million dollars. My cost should not be my

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Speaker 1: marginal contents. My marginal costs should shrink, right if we

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Speaker 1: and so what we've been able to do at Vanguard,

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Speaker 1: I think the most important thing is to take a

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Speaker 1: giant step back is you know, when Jack Bogel started

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Speaker 1: the Vanguard Group, it was a mutual mutual fund. And

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Speaker 1: what that means is that we are owned by our investors.

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Speaker 1: And so there's different ways that you can set up

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Speaker 1: an organization. You can be public public equity, where the

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Speaker 1: public shareholders you know, get the the p and L.

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Speaker 1: You could be a private partnership where the partners get

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Speaker 1: the excess P n L. What Vanguard does and sometimes

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Speaker 1: people think at Vanguard is a nonprofit, but we are

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Speaker 1: actually fiercely for profit. Everything we do is try to

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Speaker 1: maximize our profit. It's what we do with the profit.

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Speaker 1: We end up giving it back to our sharehold it's

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Speaker 1: our owners, So the owners of our funds through lower

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Speaker 1: costs in the future, and so we pass along the

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Speaker 1: you know, the P and L access back to our investors,

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Speaker 1: either in the form of lower costs coming out of

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Speaker 1: that or higher service levels. Uh and that so that

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Speaker 1: gives us that advantage relatives to some of our competitors.

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Speaker 1: I think people confuse unfair advantage, and it is an

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Speaker 1: unfair advantage with an illegal advantage. It's a perfectly legal advantage.

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Speaker 1: Any other mutual fund could have set up this way,

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Speaker 1: they chose not to. That's exactly right, I mean. So,

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Speaker 1: and and again everyone has to pick their ownership structure.

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Speaker 1: We're not here to say that public is wrong or

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Speaker 1: private right. They're just different, right. And so we are

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Speaker 1: owned by our investors, and you kind of think about

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Speaker 1: one master as opposed to multiple masters, and so that

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Speaker 1: allows us, UM, you know, to kind of pass back

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Speaker 1: through where you can actually your original question of how

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Speaker 1: can you have high towent and low cost, Well A,

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Speaker 1: we have our ownership ructure and be we pass along

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Speaker 1: scale back to our investors. We also think our brand

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Speaker 1: is very attractive. So what I mean by that is

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Speaker 1: we're able to attract world class active managers who want

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Speaker 1: to work with us because they know just the brand

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Speaker 1: to be, you know, working with Vanguard. But they also

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Speaker 1: know we're very patient with our active managers. UM. And

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Speaker 1: so if you actually want to be a pure asset

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Speaker 1: manager and let you know, Vanguard take the client servicing

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Speaker 1: and the distribution. It's a it's an arrangement that works

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Speaker 1: very well and it's probably one of the reasons why

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Speaker 1: we're so successful and active managers. So so let's let's

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Speaker 1: focus a little more on the active management you rolled out.

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Speaker 1: You Vanguard rolled out a group of quantitative funds not

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Speaker 1: too long ago. I don't want to call them smart data,

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Speaker 1: but a fundamental factor based set of funds. UM. The

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Speaker 1: one thing there's really hasn't been a big push into yet,

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Speaker 1: but I've heard rumors of is an E s G

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Speaker 1: type of fund. I know, you the foot see in

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Speaker 1: the UK the Footsie E s G funds. Where else

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Speaker 1: is Vanguard gonna go with some of these active UM funds?

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Speaker 1: And and what are the areas that have done very

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Speaker 1: well under active at Vanguard? Yeah, so the areas have

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Speaker 1: done very well for us is is UM you know,

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Speaker 1: the full suite first off, So a lot of people

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Speaker 1: don't know, but we are one of the largest managers

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Speaker 1: in tax exempt so municipal bond funds, so high net

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Speaker 1: worth clients that might be at your practice. UM. You know,

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Speaker 1: we're like world class in tax exempt fixed income and

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Speaker 1: also taxable fixed income. On the active side. So you

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Speaker 1: on the MUNI, So let's talk about that because it's

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Speaker 1: so attractive in a low um yield environment because post

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Speaker 1: tax makes a big difference, or or um tax equivalent

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Speaker 1: yield makes a huge difference. Is this on a national basis?

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Speaker 1: Is it a state by state basis? How do you

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Speaker 1: put these together? Yeah, So we have a full suite

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Speaker 1: of of tax exem bond funds UM. You know, we

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Speaker 1: have as you mentioned, we have multi state, so you

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Speaker 1: would own the US in a multi state way, but

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Speaker 1: we also have single state where there's actually a higher

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Speaker 1: state tax like New York it's quite high. So we

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Speaker 1: offer both. We offer a lot of things in active

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Speaker 1: and passive because we have an e t F on

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Speaker 1: the tax exempt as well. But our active funds on

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Speaker 1: the fixed income side, both tax exempt and taxable, have

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Speaker 1: done quite well. You also talked about some of our

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Speaker 1: factor funds. Uh. You know, I've I've been an author

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Speaker 1: of a lot of papers on smart beta and so

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Speaker 1: we were really just critical of the term. We didn't

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Speaker 1: think it was smart or it was beta UM. And

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Speaker 1: we were kind of, you know, early in kind of

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Speaker 1: being critical of the narrative, you know, because you know,

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Speaker 1: but we believe that there's factors, you know, if you

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Speaker 1: think about a factor, the value factor, momentum factor, that

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Speaker 1: actually have a different risk and return stream, and they

427
00:23:48,359 --> 00:23:51,320
Speaker 1: have some premiums to them, and you can even kind

428
00:23:51,320 --> 00:23:54,119
Speaker 1: of think about why those premiums would exist. Some of

429
00:23:54,160 --> 00:23:56,800
Speaker 1: them could be behavioral, some of them could be um

430
00:23:56,920 --> 00:23:59,840
Speaker 1: just back to misunderstanding the risk. So we do have

431
00:24:00,000 --> 00:24:03,720
Speaker 1: a series of quant factor funds out there, and and

432
00:24:04,160 --> 00:24:07,119
Speaker 1: and a whole list of traditional bottom up funds that

433
00:24:07,359 --> 00:24:09,960
Speaker 1: that you're probably familiar with. The Vanguard has offered for many,

434
00:24:10,000 --> 00:24:14,280
Speaker 1: many years. You mentioned earlier target date funds UM, which

435
00:24:14,400 --> 00:24:16,640
Speaker 1: used to get kind of a bad rap, but they

436
00:24:16,800 --> 00:24:20,800
Speaker 1: have for the most part become the default setting for

437
00:24:21,320 --> 00:24:24,240
Speaker 1: four oh one K plans. If you don't pick something,

438
00:24:24,400 --> 00:24:26,639
Speaker 1: you tend to go right into a target date funds.

439
00:24:27,200 --> 00:24:30,920
Speaker 1: These have done pretty well over the past decade. Tell

440
00:24:31,040 --> 00:24:33,760
Speaker 1: us a little bit about the Vanguard target date funds,

441
00:24:34,000 --> 00:24:37,040
Speaker 1: because I think these are attracting a whole lot more

442
00:24:37,160 --> 00:24:40,920
Speaker 1: money every month. Yeah, I mean, outside of the invention

443
00:24:41,000 --> 00:24:43,879
Speaker 1: of index funds, I think target retirement funds, you know,

444
00:24:44,000 --> 00:24:47,520
Speaker 1: will go down as one of the more helpful innovations

445
00:24:48,119 --> 00:24:51,879
Speaker 1: for the average person trying to save for retirement. And

446
00:24:52,080 --> 00:24:55,360
Speaker 1: if you go back before target retirement funds, the four

447
00:24:55,400 --> 00:24:58,040
Speaker 1: oh one K space, which is where most of these

448
00:24:58,080 --> 00:25:01,600
Speaker 1: are used. Um, let's say I'm starting day one at Vanguard.

449
00:25:01,880 --> 00:25:04,520
Speaker 1: I would get a brochure about all the Vanguard funds,

450
00:25:04,600 --> 00:25:06,800
Speaker 1: and I had to make these decisions for myself. As

451
00:25:06,920 --> 00:25:09,320
Speaker 1: as an employee. You start you feel out, here's my

452
00:25:09,400 --> 00:25:14,240
Speaker 1: healthcare choice, here's my ten or W two tax choice.

453
00:25:14,600 --> 00:25:16,199
Speaker 1: And now I got a deploy money in my form

454
00:25:16,359 --> 00:25:18,760
Speaker 1: on K exactly. And so here's a hundred funds like

455
00:25:19,000 --> 00:25:20,720
Speaker 1: you know that you have to select from. And we

456
00:25:20,880 --> 00:25:23,879
Speaker 1: call that unbundled, meaning that think about going into a

457
00:25:24,040 --> 00:25:26,440
Speaker 1: restaurant and you're at the buffet and you now have

458
00:25:26,560 --> 00:25:29,280
Speaker 1: to pick it. You know, they're everything overwhelmed with choice.

459
00:25:29,760 --> 00:25:32,719
Speaker 1: And we talked earlier about investor behavior. What you probably

460
00:25:32,800 --> 00:25:35,600
Speaker 1: saw most often his investors buying the things that had

461
00:25:35,640 --> 00:25:41,119
Speaker 1: great five and tenure returns. And so investors month or

462
00:25:41,200 --> 00:25:44,199
Speaker 1: quarter was whatever the flavor of the month was. Everybody closing.

463
00:25:44,280 --> 00:25:46,800
Speaker 1: And so that's a hard thing for the average investor

464
00:25:46,840 --> 00:25:51,000
Speaker 1: to be successful. Target retirement funds now are the default option,

465
00:25:51,119 --> 00:25:54,359
Speaker 1: as you mentioned, where you it's a basket of multi

466
00:25:54,440 --> 00:25:59,080
Speaker 1: asset class funds, so stocks, bonds. So in order to

467
00:25:59,320 --> 00:26:02,000
Speaker 1: talk about van Guards target retirement funds, you virtually own

468
00:26:02,119 --> 00:26:05,479
Speaker 1: the world. You own, you know over ten thousand US

469
00:26:05,800 --> 00:26:09,080
Speaker 1: you know non U s stocks, three thousand US stocks.

470
00:26:09,119 --> 00:26:12,240
Speaker 1: You own the global equity and fixed income, and it

471
00:26:12,320 --> 00:26:17,280
Speaker 1: stays rebalanced automatically throughout your life up until your retirement automatically,

472
00:26:17,359 --> 00:26:19,640
Speaker 1: and it glides down in risk. And so you think

473
00:26:19,640 --> 00:26:22,320
Speaker 1: about it's starting out. If if I'll use my son,

474
00:26:23,480 --> 00:26:27,000
Speaker 1: my son just graduated from Bucknell, he joins the workforce,

475
00:26:27,080 --> 00:26:31,120
Speaker 1: he starts out, and he glides gradually down through time,

476
00:26:31,200 --> 00:26:34,000
Speaker 1: and on his last day of work it'll be thirty seventy.

477
00:26:34,160 --> 00:26:37,200
Speaker 1: So here's the question about that that I'm I'm intrigued by.

478
00:26:38,040 --> 00:26:42,240
Speaker 1: People are living much longer. They need to have, I

479
00:26:42,400 --> 00:26:46,240
Speaker 1: suspect additional risk assets in order to carry them through

480
00:26:46,320 --> 00:26:48,400
Speaker 1: their entire lifespan so they don't run out of money.

481
00:26:48,840 --> 00:26:53,960
Speaker 1: Howard target date funds dealing with the rising longevity stats

482
00:26:54,119 --> 00:26:59,120
Speaker 1: amongst forget your son, someone who's sixty eight next week,

483
00:27:00,040 --> 00:27:02,760
Speaker 1: probably he is gonna live twenty five plus years, assuming

484
00:27:02,800 --> 00:27:06,679
Speaker 1: they're healthy at retirement. It used to be that, all right,

485
00:27:06,800 --> 00:27:09,719
Speaker 1: the average lifespan with seventy two seventy four, we need

486
00:27:09,800 --> 00:27:12,040
Speaker 1: just five years. Now you need twenty five years. How

487
00:27:12,119 --> 00:27:14,760
Speaker 1: do target dates adjust to that? Yeah, so we uh

488
00:27:15,000 --> 00:27:18,520
Speaker 1: do a lot of modeling on you know, sufficiency, Will

489
00:27:18,600 --> 00:27:22,639
Speaker 1: this meet sufficiency savings on a life horizon of a

490
00:27:22,760 --> 00:27:25,600
Speaker 1: hundred you know, if not more in years? And so

491
00:27:25,720 --> 00:27:28,960
Speaker 1: at thirty seventy you think about thirty stock seventy percent

492
00:27:29,119 --> 00:27:32,720
Speaker 1: bonds um in most environments is gonna, you know, give

493
00:27:32,760 --> 00:27:36,280
Speaker 1: you a real return over inflation that's going to last you.

494
00:27:36,920 --> 00:27:38,600
Speaker 1: Number one and number two, this is not meant to

495
00:27:38,640 --> 00:27:41,760
Speaker 1: be a percent. Most clients are people that use them

496
00:27:42,160 --> 00:27:45,080
Speaker 1: will have Social Security, at least they have it today,

497
00:27:45,160 --> 00:27:47,040
Speaker 1: and we hope that they'll have it tomorrow. That's a

498
00:27:47,080 --> 00:27:49,640
Speaker 1: different topic for a different day. But I think that's

499
00:27:49,720 --> 00:27:52,520
Speaker 1: career suicide for any petition wants to vote against that,

500
00:27:53,000 --> 00:27:58,160
Speaker 1: because because the retired they vote exactly the young kids today,

501
00:27:58,640 --> 00:28:00,640
Speaker 1: they're voting more than they used to, but they're still

502
00:28:00,760 --> 00:28:04,639
Speaker 1: far below their numbers. So I can't imagine anyone is

503
00:28:04,680 --> 00:28:07,320
Speaker 1: foolish enough to, yeah, let's get rid of Social Security.

504
00:28:07,440 --> 00:28:11,720
Speaker 1: That's just political career suicide. Yes, I totally agree, And

505
00:28:11,840 --> 00:28:14,040
Speaker 1: and so I think the thirty seventy we we will

506
00:28:14,080 --> 00:28:16,920
Speaker 1: continue to challenge that. So to your point, maybe if

507
00:28:17,080 --> 00:28:19,280
Speaker 1: investors start living to a hundred and ten or a

508
00:28:19,359 --> 00:28:21,879
Speaker 1: hundred and twenty, we're not We're not fixed to that

509
00:28:22,080 --> 00:28:25,400
Speaker 1: final allocation. We tested every year, and we tested very thoroughly.

510
00:28:26,119 --> 00:28:28,080
Speaker 1: But if we were hypothetically that's how you wanted to

511
00:28:28,160 --> 00:28:31,440
Speaker 1: take more risk, you know you risk is kind of

512
00:28:31,720 --> 00:28:36,359
Speaker 1: a trade off of longevity risk versus capital, you know, depreciation.

513
00:28:36,800 --> 00:28:38,520
Speaker 1: So if you get O eight oh nine and your

514
00:28:39,880 --> 00:28:43,600
Speaker 1: versus you know, value at risk is gonna be much,

515
00:28:43,640 --> 00:28:46,000
Speaker 1: so you're you're trading one risk for the other. Makes

516
00:28:46,080 --> 00:28:51,040
Speaker 1: perfect sense. Let's talk a little bit about bonds. We

517
00:28:51,120 --> 00:28:56,080
Speaker 1: were discussing target date funds earlier. What does an investor

518
00:28:56,160 --> 00:29:00,400
Speaker 1: who's looking for yield do in the carrent environment? Interest

519
00:29:00,520 --> 00:29:05,320
Speaker 1: rates are relatively low, inflation is relatively low, valuations on

520
00:29:05,400 --> 00:29:09,640
Speaker 1: the equity side are relatively high. What's an investor to do? Yeah,

521
00:29:09,640 --> 00:29:11,320
Speaker 1: I think what an investor should do is, you know,

522
00:29:11,640 --> 00:29:14,760
Speaker 1: really think about and you asked me earlier on total return,

523
00:29:14,960 --> 00:29:19,000
Speaker 1: is don't think about the individual components of your portfolio.

524
00:29:19,120 --> 00:29:21,960
Speaker 1: So don't look at bonds and isolation of stocks or

525
00:29:22,000 --> 00:29:25,400
Speaker 1: stocks and isolation of bonds, because what you see is

526
00:29:25,480 --> 00:29:28,320
Speaker 1: some bonds, if you're reaching for yield, it could have

527
00:29:28,680 --> 00:29:31,600
Speaker 1: equity like beta to it. For example, if you're going

528
00:29:31,680 --> 00:29:35,360
Speaker 1: into high yield bonds or emerging market bonds and the

529
00:29:35,440 --> 00:29:38,360
Speaker 1: equity market we're to have a sell off, they're gonna

530
00:29:38,400 --> 00:29:41,720
Speaker 1: have equity correlation to it. So you know, you really

531
00:29:41,760 --> 00:29:43,440
Speaker 1: want to be careful if you were to do that,

532
00:29:43,600 --> 00:29:47,640
Speaker 1: because you know, for most investors, bonds are the diversifire

533
00:29:47,720 --> 00:29:50,400
Speaker 1: to your equity risk. And we see that time and

534
00:29:50,480 --> 00:29:52,320
Speaker 1: time again, and we saw it a No. Eight oh nine,

535
00:29:52,440 --> 00:29:55,200
Speaker 1: We saw it into the Internet tech bubble, We saw

536
00:29:55,240 --> 00:29:56,800
Speaker 1: it in December of eight team where we had that

537
00:29:56,880 --> 00:30:00,120
Speaker 1: little mini sell off where bonds have very nice our

538
00:30:00,160 --> 00:30:04,479
Speaker 1: relation properties, meaning that they they serve really well when

539
00:30:04,560 --> 00:30:07,520
Speaker 1: equities are doing poorly. And so, but if you have

540
00:30:07,760 --> 00:30:11,680
Speaker 1: ballast during a ballast or in a downturn in most environments,

541
00:30:11,680 --> 00:30:14,040
Speaker 1: I don't want to say all environments, but certainly in

542
00:30:14,160 --> 00:30:18,600
Speaker 1: all environments, if you increase the risk of your bond portfolio,

543
00:30:18,680 --> 00:30:21,320
Speaker 1: it's gonna look more and more like equities. So let's

544
00:30:21,400 --> 00:30:24,560
Speaker 1: talk a little bit about all right, So that's credit risk.

545
00:30:25,040 --> 00:30:29,280
Speaker 1: What about duration, and what about um other bonds like

546
00:30:29,520 --> 00:30:33,600
Speaker 1: tips that are index to inflation. Yeah, duration is kind

547
00:30:33,600 --> 00:30:36,360
Speaker 1: of a It's another one of those tricky areas because

548
00:30:36,440 --> 00:30:39,320
Speaker 1: I think what most people don't feel to understand is

549
00:30:39,400 --> 00:30:42,400
Speaker 1: these risks are trade off risks. So if you wanted

550
00:30:42,440 --> 00:30:46,320
Speaker 1: to increase duration, let's just say increase duration, you're taking

551
00:30:46,400 --> 00:30:48,560
Speaker 1: on interest rate risk, right, So if I went from

552
00:30:48,600 --> 00:30:51,880
Speaker 1: a five duration to attend and interest rates go up,

553
00:30:51,920 --> 00:30:53,760
Speaker 1: I'm gonna lose twice the amount of money because I

554
00:30:53,760 --> 00:30:56,280
Speaker 1: went from a five duration to attend. But if you're

555
00:30:56,360 --> 00:31:00,760
Speaker 1: using duration in hope that if the equities go down

556
00:31:01,440 --> 00:31:04,520
Speaker 1: and bonds are the ballast, you would double your returns

557
00:31:04,680 --> 00:31:08,040
Speaker 1: in equity contagion in that environment. So it's really what

558
00:31:08,240 --> 00:31:10,920
Speaker 1: is the role of a bond portfolio. So, you know,

559
00:31:11,000 --> 00:31:15,160
Speaker 1: there are some institutional investors, some pretty sophisticated investors that

560
00:31:15,320 --> 00:31:18,520
Speaker 1: have length and duration because they really want the bonds

561
00:31:18,600 --> 00:31:22,720
Speaker 1: to have that high you know, negative correlation and positive

562
00:31:22,760 --> 00:31:25,560
Speaker 1: offset to equities. But we are taking on his interest

563
00:31:25,640 --> 00:31:28,040
Speaker 1: rate risks. So it is hard to you know, kind

564
00:31:28,080 --> 00:31:30,320
Speaker 1: of think about these risks and and make sure that

565
00:31:30,320 --> 00:31:33,280
Speaker 1: you're talking about the tradeoffs. So so let's talk about

566
00:31:33,320 --> 00:31:36,360
Speaker 1: another trade off. We we in the United States pretty

567
00:31:36,440 --> 00:31:39,480
Speaker 1: much have the highest yields in the developed world. But

568
00:31:39,600 --> 00:31:42,400
Speaker 1: we look at Japan negative interest rates, we look at

569
00:31:42,440 --> 00:31:44,880
Speaker 1: Germany negative interest rates, we look at a lot of

570
00:31:44,960 --> 00:31:49,280
Speaker 1: Europe negative interest rates. First, is that possibly going to

571
00:31:49,400 --> 00:31:53,640
Speaker 1: come here? On? Second? What can an an investor do

572
00:31:54,040 --> 00:31:56,920
Speaker 1: if they don't want to pay for the privilege of

573
00:31:57,320 --> 00:32:01,080
Speaker 1: owning bonds? Yeah? I mean, you know what you mentioned

574
00:32:01,200 --> 00:32:02,920
Speaker 1: is true, and it's hard to believe that, you know,

575
00:32:03,000 --> 00:32:06,720
Speaker 1: the US market being you know, actually offering some pretty

576
00:32:06,760 --> 00:32:10,240
Speaker 1: good yields relative to some of the other high quality

577
00:32:10,400 --> 00:32:13,600
Speaker 1: developed sovereigns that are out there. Um. So I just

578
00:32:13,640 --> 00:32:17,160
Speaker 1: would caution everyone, you know, regardless of how low rates go,

579
00:32:17,400 --> 00:32:20,240
Speaker 1: even if they go to zero or negative, what is

580
00:32:20,360 --> 00:32:23,200
Speaker 1: the role of bonds and a portfolio? Um, if it

581
00:32:23,400 --> 00:32:26,160
Speaker 1: is the ballast of the portfolio, then trying not to

582
00:32:26,360 --> 00:32:28,920
Speaker 1: stretch for yield, you know, kind of take with the

583
00:32:29,040 --> 00:32:32,520
Speaker 1: market gives you. Anytime we see people trying to engineer

584
00:32:32,600 --> 00:32:35,160
Speaker 1: returns that the market isn't giving you, that's usually when

585
00:32:35,160 --> 00:32:37,000
Speaker 1: they get themselves in trouble. Well, it worked out so

586
00:32:37,080 --> 00:32:39,680
Speaker 1: well in oh eight or nine yields? What what what

587
00:32:39,800 --> 00:32:44,680
Speaker 1: could possibly I remember hearing salespeople pitch me on safest

588
00:32:44,760 --> 00:32:47,520
Speaker 1: treasuries but paying two hundred fifty to three hundred basis

589
00:32:47,600 --> 00:32:51,840
Speaker 1: point more. Well, someone's either gonna win a Nobel prize

590
00:32:51,920 --> 00:32:54,480
Speaker 1: or go to jail. There's nothing in between, right, It's

591
00:32:54,960 --> 00:32:59,080
Speaker 1: you've just changed the fundamental rules of economics. The only

592
00:32:59,120 --> 00:33:01,600
Speaker 1: problem is no one went to jail. So I was

593
00:33:01,840 --> 00:33:05,960
Speaker 1: not fully uh correct about that. So taking what the

594
00:33:06,080 --> 00:33:10,000
Speaker 1: market gives you as opposed to reaching for yields, what

595
00:33:10,120 --> 00:33:14,480
Speaker 1: does that do to that draw down calculus we talked

596
00:33:14,480 --> 00:33:17,760
Speaker 1: about for people in retirement who need to take money

597
00:33:17,840 --> 00:33:20,480
Speaker 1: out of their portfolio to live on. Yeah, And I

598
00:33:20,560 --> 00:33:23,000
Speaker 1: think education, and I think also the role of the advisor.

599
00:33:23,040 --> 00:33:25,800
Speaker 1: The advisor is doing a great job educating their clients.

600
00:33:26,080 --> 00:33:28,600
Speaker 1: The way I've always looked at total return is it's

601
00:33:28,600 --> 00:33:32,640
Speaker 1: a partnership between the capital markets and the investor in themselves.

602
00:33:32,720 --> 00:33:35,120
Speaker 1: And what I mean by that is, for a lot

603
00:33:35,240 --> 00:33:38,280
Speaker 1: of periods, the capital markets did all the heavy lifting.

604
00:33:38,720 --> 00:33:41,840
Speaker 1: The individual didn't need necessarily to save as much. And

605
00:33:41,920 --> 00:33:44,320
Speaker 1: so if you're thinking about this partnership of how much

606
00:33:44,400 --> 00:33:47,400
Speaker 1: the capital markets is going to contribute to your total

607
00:33:47,480 --> 00:33:50,040
Speaker 1: return versus how much you personally are going to contribute.

608
00:33:50,480 --> 00:33:52,840
Speaker 1: If we are in a muted return environment, which I

609
00:33:52,920 --> 00:33:56,440
Speaker 1: think is pretty much consensus. It's certainly Vanguard's outlook to

610
00:33:56,520 --> 00:33:59,200
Speaker 1: have a muted return, then the partnership is going to

611
00:33:59,280 --> 00:34:03,560
Speaker 1: have to come more from saving more, spending less, and

612
00:34:03,840 --> 00:34:06,080
Speaker 1: making sure that you're doing your end of the bargain

613
00:34:06,200 --> 00:34:10,040
Speaker 1: as the saver worked longer, or if not, just expect

614
00:34:10,120 --> 00:34:14,440
Speaker 1: a lower retirement income stream in retirement. So I think

615
00:34:14,520 --> 00:34:20,000
Speaker 1: investors may not have realized how lucky they were in

616
00:34:20,239 --> 00:34:24,040
Speaker 1: the second half of the twentieth century. That was a

617
00:34:24,120 --> 00:34:27,560
Speaker 1: fantastic period of time. If you were fortunate enough to

618
00:34:27,640 --> 00:34:31,719
Speaker 1: be born, pick a decade, the thirties, forties, fifties, the

619
00:34:31,800 --> 00:34:35,360
Speaker 1: next fifty years of your investing returns have been spectacular.

620
00:34:36,120 --> 00:34:38,600
Speaker 1: We're not likely to see that over the next twenty

621
00:34:38,680 --> 00:34:41,279
Speaker 1: plus years or so, are we absolutely not. I mean,

622
00:34:41,560 --> 00:34:45,560
Speaker 1: even from eighty two to the stock market was up

623
00:34:45,640 --> 00:34:48,799
Speaker 1: eighteen compounded annually. In the bomb market was up about

624
00:34:48,880 --> 00:34:51,960
Speaker 1: ten eighteen percent a year, eighteen percent a year. I

625
00:34:52,040 --> 00:34:54,480
Speaker 1: know the Dow went up about a thousand points a

626
00:34:54,560 --> 00:34:57,040
Speaker 1: thousand percent over that time. So you think about a

627
00:34:57,120 --> 00:35:00,200
Speaker 1: balanced investor over that time and use the demograph. Think

628
00:35:00,239 --> 00:35:01,799
Speaker 1: of being born in the thirties. If you were at

629
00:35:01,840 --> 00:35:04,920
Speaker 1: your peak earning or near near retirement, and you were

630
00:35:04,920 --> 00:35:08,359
Speaker 1: able to get fourteen percent from a balanced portfolio, I'll

631
00:35:08,400 --> 00:35:11,279
Speaker 1: take it. I'll take it right now. And but I

632
00:35:11,360 --> 00:35:13,360
Speaker 1: think one another thing is people have to understand is

633
00:35:13,440 --> 00:35:16,360
Speaker 1: if you are saving to eventually spend it or gift it,

634
00:35:16,719 --> 00:35:19,640
Speaker 1: you have to think about real returns, meaning after test,

635
00:35:20,200 --> 00:35:23,520
Speaker 1: after tax, and after inflation. Okay, so in that environment

636
00:35:23,600 --> 00:35:25,560
Speaker 1: with I my my my mom is always saying, oh,

637
00:35:25,560 --> 00:35:27,080
Speaker 1: I want to go back to those days where CDs

638
00:35:27,120 --> 00:35:30,880
Speaker 1: were eighteen percent, And I say, mom, interest, you know

639
00:35:31,080 --> 00:35:33,719
Speaker 1: inflation was fift so you've got three nets. So I

640
00:35:33,800 --> 00:35:36,520
Speaker 1: think you know, in this environment, you also have to

641
00:35:36,600 --> 00:35:39,440
Speaker 1: understand that inflation is quite loss. So it's a little misleading.

642
00:35:39,600 --> 00:35:43,399
Speaker 1: It is. It was better then, but once you're back

643
00:35:43,440 --> 00:35:47,080
Speaker 1: on inflation, it wasn't as it looks much better than

644
00:35:47,160 --> 00:35:50,720
Speaker 1: it was. It was still better, but not as overwhelmingly

645
00:35:51,080 --> 00:35:53,560
Speaker 1: better than today. Is that the implication that's right. Let's

646
00:35:53,560 --> 00:35:56,520
Speaker 1: say that the stock market gets you five to seven

647
00:35:56,600 --> 00:35:58,920
Speaker 1: percent hypothetically, and don't go by the first half of

648
00:35:58,960 --> 00:36:02,759
Speaker 1: this year, we're up twenty. But you look at the

649
00:36:02,960 --> 00:36:05,160
Speaker 1: that's year to day. You look the previous twelve to

650
00:36:05,239 --> 00:36:09,680
Speaker 1: eighteen months, it's essentially flat. Right, So so five to

651
00:36:09,800 --> 00:36:12,640
Speaker 1: seven percent going forward? Is that a reasonable expected return?

652
00:36:12,719 --> 00:36:15,280
Speaker 1: I think if you were think about a ten year horizon,

653
00:36:15,600 --> 00:36:17,759
Speaker 1: and and then if you say you're sixty forty or

654
00:36:17,880 --> 00:36:20,320
Speaker 1: you know, we can pick whatever ratio you want stock

655
00:36:20,400 --> 00:36:23,600
Speaker 1: bonds two to three on bonds um you know, all

656
00:36:23,600 --> 00:36:26,120
Speaker 1: of a sudden to balance portfolio is probably closer to

657
00:36:26,239 --> 00:36:29,480
Speaker 1: four percent, right. Net of inflation, you mean, well it's

658
00:36:29,600 --> 00:36:31,840
Speaker 1: probably nominal. And then if you add any one and

659
00:36:31,880 --> 00:36:35,279
Speaker 1: a half to to inflation, your your real returns two

660
00:36:35,360 --> 00:36:37,480
Speaker 1: to three percent. Two to three percent. That seems light.

661
00:36:37,560 --> 00:36:40,200
Speaker 1: Where the periods we were talking about before, for someone

662
00:36:40,480 --> 00:36:42,960
Speaker 1: born in the thirties and the forties was probably five

663
00:36:43,040 --> 00:36:45,520
Speaker 1: to seven perk. Wow, that's a big difference. So and

664
00:36:45,640 --> 00:36:47,920
Speaker 1: that's gonna really then what is the education coming out

665
00:36:47,960 --> 00:36:50,359
Speaker 1: of that? You can't choose when you were born, right,

666
00:36:50,480 --> 00:36:53,080
Speaker 1: So this idea of taking with the market will give you, Uh,

667
00:36:53,160 --> 00:36:55,920
Speaker 1: the person today who's going to look at the future

668
00:36:56,040 --> 00:36:58,839
Speaker 1: with reality that it is, they're gonna have to save

669
00:36:58,880 --> 00:37:01,000
Speaker 1: a little bit more back to our you know, talk

670
00:37:01,040 --> 00:37:03,919
Speaker 1: about target retirement funds. We do think with auto and roll,

671
00:37:04,160 --> 00:37:08,759
Speaker 1: Auto Save, Auto Escalate and companies matching during a much

672
00:37:08,840 --> 00:37:12,200
Speaker 1: better position to maybe generate those kind of returns on

673
00:37:12,320 --> 00:37:15,800
Speaker 1: their own behavior and and to take the behavior component

674
00:37:15,920 --> 00:37:19,320
Speaker 1: and bring it back to advisors Alpha. We seem to

675
00:37:19,440 --> 00:37:24,200
Speaker 1: be much smarter these days about understanding our own emotions,

676
00:37:24,239 --> 00:37:27,520
Speaker 1: our own biases, and why investors are typically their own

677
00:37:27,560 --> 00:37:32,560
Speaker 1: worst enemies. And this is anecdotal, but my observations are

678
00:37:33,080 --> 00:37:35,960
Speaker 1: people seem to be doing a better job of not

679
00:37:36,400 --> 00:37:38,480
Speaker 1: blowing themselves up the way they did so much in

680
00:37:38,520 --> 00:37:41,320
Speaker 1: the nineties and two thousands. They still messed up in

681
00:37:41,360 --> 00:37:43,120
Speaker 1: O nine and we we saw a lot of people

682
00:37:43,200 --> 00:37:47,560
Speaker 1: dragging their feet in to get back into the markets.

683
00:37:47,960 --> 00:37:51,359
Speaker 1: But on average, is it fair to say people seem

684
00:37:51,400 --> 00:37:54,080
Speaker 1: to be a little smarter about their own behavior and

685
00:37:54,160 --> 00:37:57,239
Speaker 1: how it impacts investing. Yeah, you're exactly right. So we

686
00:37:57,400 --> 00:37:59,800
Speaker 1: I mean the Advisor's Alpha work that my team and

687
00:38:00,040 --> 00:38:03,160
Speaker 1: I work on and created. We created the Vanguard Wrists Pedometer,

688
00:38:03,640 --> 00:38:07,240
Speaker 1: and the Vanguard Wrists pometer looks at cash flow through time,

689
00:38:07,719 --> 00:38:10,160
Speaker 1: and so what we actually have seen is that throughout

690
00:38:10,280 --> 00:38:13,800
Speaker 1: most of history, investors would be known as momentum investors,

691
00:38:13,920 --> 00:38:18,120
Speaker 1: meaning whatever category or sector was doing well, that's where

692
00:38:18,200 --> 00:38:20,719
Speaker 1: all the flows went. The hot hand. You're talking about

693
00:38:20,760 --> 00:38:24,000
Speaker 1: fun flows two different funds to not only the funds,

694
00:38:24,040 --> 00:38:28,040
Speaker 1: but the categories let's say growth, value, US non US,

695
00:38:28,120 --> 00:38:31,120
Speaker 1: emerging stocks, and bonds. And that was a theme that

696
00:38:31,320 --> 00:38:33,520
Speaker 1: was pretty much as you know, you know, the sun

697
00:38:33,640 --> 00:38:36,320
Speaker 1: coming up, you know tomorrow. That was the church of

698
00:38:36,400 --> 00:38:38,520
Speaker 1: what's working now, the church of what's working now. And

699
00:38:38,560 --> 00:38:40,120
Speaker 1: so investors were, you know, whether you want to use

700
00:38:40,160 --> 00:38:43,799
Speaker 1: pro cyclical or momentum based wherever the wherever the hot

701
00:38:43,880 --> 00:38:45,960
Speaker 1: hand was or the asset class, that's where the flows

702
00:38:46,000 --> 00:38:49,680
Speaker 1: have gone. The last five to six years. We've seen behavior,

703
00:38:49,760 --> 00:38:52,520
Speaker 1: believe it or not, contrary into that, which is which

704
00:38:52,600 --> 00:38:54,279
Speaker 1: is hard to think about. So right now you think

705
00:38:54,280 --> 00:38:57,960
Speaker 1: about you know, the top performing category in the US

706
00:38:58,080 --> 00:39:00,400
Speaker 1: is large cap growth. It's actually one of the bottom

707
00:39:00,480 --> 00:39:03,480
Speaker 1: cash flow categories really, so if it's not going into

708
00:39:03,560 --> 00:39:06,600
Speaker 1: large cap growth, it's going into value. In small well,

709
00:39:06,600 --> 00:39:08,880
Speaker 1: it was actually going into fixed thing like so who

710
00:39:08,920 --> 00:39:10,719
Speaker 1: would have ever, I would have never thought in my

711
00:39:10,880 --> 00:39:12,759
Speaker 1: career that would be in one of the largest and

712
00:39:12,960 --> 00:39:18,279
Speaker 1: longest bull markets in equities trail in six months and

713
00:39:18,360 --> 00:39:21,000
Speaker 1: you have negative equity flow year to day, you know,

714
00:39:21,239 --> 00:39:23,719
Speaker 1: in equities year to date August and all the money

715
00:39:23,760 --> 00:39:26,200
Speaker 1: going in the fixed income. That's a big contrarian play.

716
00:39:26,320 --> 00:39:28,840
Speaker 1: And and to me, that's a complement to the education

717
00:39:29,040 --> 00:39:32,160
Speaker 1: to the advisor community. To back to target retirement funds,

718
00:39:32,560 --> 00:39:35,000
Speaker 1: I think what is really changed is it went from

719
00:39:35,040 --> 00:39:38,520
Speaker 1: a fun picker world where people were picking stocks and

720
00:39:38,640 --> 00:39:42,120
Speaker 1: building a portfolio bottom up to a top down way.

721
00:39:42,239 --> 00:39:45,680
Speaker 1: Meaning yeah, you know, so, whether it's whether it's you know,

722
00:39:46,120 --> 00:39:50,440
Speaker 1: target retirement funds, advisors such as your, your firm, UM

723
00:39:50,680 --> 00:39:53,239
Speaker 1: and the firms out there, the amount of money that

724
00:39:53,320 --> 00:39:57,760
Speaker 1: are in the systematic auto rebalance programs et F models

725
00:39:58,200 --> 00:40:01,000
Speaker 1: that by definition, if stocks are they're gonna sell stocks

726
00:40:01,040 --> 00:40:03,640
Speaker 1: and put him in bonds. And isn't isn't there a

727
00:40:03,719 --> 00:40:06,240
Speaker 1: ton of UM research and data And I'm trying to remember,

728
00:40:06,400 --> 00:40:10,440
Speaker 1: was you or your firm or another firm that basically

729
00:40:11,200 --> 00:40:15,279
Speaker 1: had reached the conclusion that stock picking, as much fun

730
00:40:15,360 --> 00:40:20,000
Speaker 1: and interest as it can be, the asset allocation decision

731
00:40:20,120 --> 00:40:23,879
Speaker 1: is far more impactful to the portfolio returns over time. Yeah,

732
00:40:23,920 --> 00:40:26,200
Speaker 1: And so going all the way back to Brinson, you know,

733
00:40:26,280 --> 00:40:28,959
Speaker 1: so Brinson has covered this work. Jankee has covered this work.

734
00:40:29,239 --> 00:40:32,120
Speaker 1: Me and my team actually covered the Brinson Jankee debate,

735
00:40:32,800 --> 00:40:34,600
Speaker 1: which is really about how much of the return is

736
00:40:34,640 --> 00:40:38,280
Speaker 1: coming from policy acid allocation versus security selection and timing

737
00:40:38,840 --> 00:40:42,400
Speaker 1: and and so both both of the arguments are right, right, So,

738
00:40:42,840 --> 00:40:46,360
Speaker 1: and this is where context is important. If you're sixty forty, Barry,

739
00:40:46,760 --> 00:40:49,680
Speaker 1: but you only have two stocks, and I'm sixty forty

740
00:40:49,840 --> 00:40:51,920
Speaker 1: and I have two stocks, but those stocks are different

741
00:40:52,200 --> 00:40:55,320
Speaker 1: than security selection, dry the policy doesn't quite matter. But

742
00:40:55,360 --> 00:40:59,640
Speaker 1: when we're sixty forty, you're sixty broad indexes and but

743
00:41:00,000 --> 00:41:01,920
Speaker 1: just wanted to give a context when when you're talking

744
00:41:01,920 --> 00:41:10,160
Speaker 1: about broadly diversified portfolios, the allocation drives everything. Timing decisions

745
00:41:10,200 --> 00:41:14,200
Speaker 1: in which mutual fund or securities you selected get almost

746
00:41:14,280 --> 00:41:17,280
Speaker 1: to be you know, decimal places relative to the policy portfolio.

747
00:41:17,440 --> 00:41:18,759
Speaker 1: Can you stick around a little bit. I have a

748
00:41:18,840 --> 00:41:20,840
Speaker 1: ton more questions for you. I'd love to I love this.

749
00:41:22,120 --> 00:41:24,759
Speaker 1: We have been speaking with fran Canary. He is the

750
00:41:24,800 --> 00:41:28,720
Speaker 1: head of Global UH portfolio Construction at the Vanguard Group.

751
00:41:29,280 --> 00:41:32,120
Speaker 1: If you enjoy this conversation, well, be sure and come

752
00:41:32,160 --> 00:41:34,839
Speaker 1: back for the podcast extras where we keep the tape

753
00:41:34,920 --> 00:41:39,279
Speaker 1: rolling and continue discussing all things asset allocation. You can

754
00:41:39,360 --> 00:41:44,240
Speaker 1: find that at Apple iTunes, Google podcast, Stitcher, Spotify, wherever

755
00:41:44,360 --> 00:41:48,400
Speaker 1: you're funding, podcasts are sold. We love your comments, feedback

756
00:41:48,440 --> 00:41:50,839
Speaker 1: and suggestions. You can write to us at m IB

757
00:41:51,080 --> 00:41:54,600
Speaker 1: podcast at Bloomberg dot net. Give us a lovely review

758
00:41:54,760 --> 00:41:58,200
Speaker 1: at Apple iTunes. You can check out my weekly column

759
00:41:58,280 --> 00:42:00,759
Speaker 1: at Bloomberg dot com, or are signed up from my

760
00:42:00,920 --> 00:42:04,080
Speaker 1: daily reads at revolts dot com. Follow me on Twitter

761
00:42:04,239 --> 00:42:08,440
Speaker 1: at ridolts. You might guess I'm Barry Results. You're listening

762
00:42:08,480 --> 00:42:15,680
Speaker 1: to Masters in Business on Bloomberg Radio. Welcome to the podcast, Fran.

763
00:42:15,800 --> 00:42:18,239
Speaker 1: Thank you so much for doing this. You and I

764
00:42:18,400 --> 00:42:22,080
Speaker 1: have met on on several occasions previously, and I've been

765
00:42:22,120 --> 00:42:25,360
Speaker 1: a fan of your work, and obviously I am a

766
00:42:25,719 --> 00:42:28,759
Speaker 1: fan of Vanguard for a long time. But I've been

767
00:42:28,800 --> 00:42:30,560
Speaker 1: meaning to sit down with you for forever, and I'm

768
00:42:30,600 --> 00:42:34,880
Speaker 1: glad we finally got you into New York from from Pennsylvania.

769
00:42:35,640 --> 00:42:38,520
Speaker 1: I have a ton of questions I didn't get to

770
00:42:38,719 --> 00:42:42,000
Speaker 1: during the pod during the broadcast portion, um, but the

771
00:42:42,080 --> 00:42:43,680
Speaker 1: first one is a little funny, and I have to

772
00:42:43,760 --> 00:42:47,040
Speaker 1: ask you about this because it's such a ridiculous statistic

773
00:42:47,760 --> 00:42:50,600
Speaker 1: I either heard or read somewhere it's one of these

774
00:42:50,680 --> 00:42:56,360
Speaker 1: like urban legends. Vanguard has nine percent of the certified

775
00:42:56,440 --> 00:42:59,960
Speaker 1: financial planners in the state of Pennsylvania. Is that remote

776
00:43:00,080 --> 00:43:02,960
Speaker 1: lead possible? Is that true? It's it's probably. I can't

777
00:43:03,000 --> 00:43:04,800
Speaker 1: confirm the exact number, but I would imagine we have

778
00:43:04,880 --> 00:43:08,799
Speaker 1: a high percentage, So, you know, I think that's probably true. Again,

779
00:43:08,840 --> 00:43:11,080
Speaker 1: I think context is in order. We're probably one of

780
00:43:11,160 --> 00:43:16,239
Speaker 1: the largest employers in that area and and financial services,

781
00:43:16,719 --> 00:43:19,800
Speaker 1: so we're likely to have maybecent of the c f

782
00:43:19,920 --> 00:43:23,720
Speaker 1: as in the community, and maybe even of the phone

783
00:43:23,800 --> 00:43:27,719
Speaker 1: representatives and financial services. So I think it's our size, UM.

784
00:43:27,800 --> 00:43:30,520
Speaker 1: And it's also our dedication to advice and why we

785
00:43:30,600 --> 00:43:33,400
Speaker 1: think advice really matters, and our commitment to it, you know,

786
00:43:33,560 --> 00:43:36,560
Speaker 1: having professional advice. UM. Let's talk a little bit about

787
00:43:36,600 --> 00:43:41,480
Speaker 1: that advice, because there's some really interesting um debates back

788
00:43:41,560 --> 00:43:45,600
Speaker 1: and forth with that. Who needs a financial advisor? So

789
00:43:45,760 --> 00:43:49,279
Speaker 1: I get this question all the time, and my answer is, well,

790
00:43:49,320 --> 00:43:51,360
Speaker 1: if you could do it yourself, do it yourself. But

791
00:43:52,120 --> 00:43:54,560
Speaker 1: you have to be disciplined, you have to know yourself,

792
00:43:54,719 --> 00:43:56,840
Speaker 1: you have to manage your own behavior, and you have

793
00:43:56,920 --> 00:43:58,800
Speaker 1: to put a little time and elbow grease in. But

794
00:43:58,920 --> 00:44:03,040
Speaker 1: it's not hard stuable. Um. But not everybody seems to

795
00:44:03,120 --> 00:44:06,600
Speaker 1: be able to manage yourselves. So the question is who

796
00:44:06,760 --> 00:44:11,719
Speaker 1: should have an advisor? Um? Out of out of people

797
00:44:11,760 --> 00:44:14,640
Speaker 1: who have been self directed and are not happy with

798
00:44:14,920 --> 00:44:17,680
Speaker 1: with what it's taking, how do you decide who should

799
00:44:18,280 --> 00:44:20,360
Speaker 1: really be working with an advisor and who should be

800
00:44:20,440 --> 00:44:22,800
Speaker 1: doing this themselves? Yeah, I mean, and not to be

801
00:44:22,880 --> 00:44:24,880
Speaker 1: too curt with it, but I do think if you're human,

802
00:44:25,760 --> 00:44:29,520
Speaker 1: because of emotion, you probably most the vast majority of

803
00:44:29,680 --> 00:44:32,959
Speaker 1: clients would be well served working with an advisor. Really,

804
00:44:33,040 --> 00:44:34,960
Speaker 1: that's a bit when you say vast majority, that's a

805
00:44:35,000 --> 00:44:37,239
Speaker 1: bigger number than I was expecting from you. And I

806
00:44:37,400 --> 00:44:41,040
Speaker 1: don't mean to tee up softballs, but you're you're answering

807
00:44:41,120 --> 00:44:44,200
Speaker 1: this in a way that was different than than I expected. Yeah,

808
00:44:44,200 --> 00:44:45,879
Speaker 1: I mean, I'll give you a great, great little story

809
00:44:45,960 --> 00:44:48,879
Speaker 1: of my brother and hopefully he doesn't listen to the show,

810
00:44:48,960 --> 00:44:51,320
Speaker 1: but I'll throw one of the smartest individuals I know.

811
00:44:51,600 --> 00:44:54,400
Speaker 1: He's head of medicine at PEN so you know Columbia

812
00:44:54,520 --> 00:44:57,839
Speaker 1: Med School, Pen Med School, just very very smart. Yeah,

813
00:44:58,440 --> 00:45:00,400
Speaker 1: ten years ago he calls me up and you know,

814
00:45:00,760 --> 00:45:03,080
Speaker 1: ten years ago, like the middle, and he calls me,

815
00:45:03,160 --> 00:45:05,080
Speaker 1: he says, he like, I'm I'm like literally the worst

816
00:45:05,160 --> 00:45:08,560
Speaker 1: investor ever. I study this. I put so much time

817
00:45:08,640 --> 00:45:11,600
Speaker 1: into it. Vanguard has the you know, his four oh

818
00:45:11,640 --> 00:45:13,719
Speaker 1: one K. So he's in the right place, he's in

819
00:45:13,760 --> 00:45:17,320
Speaker 1: the right funds, right place. But he himself, who studies it,

820
00:45:17,800 --> 00:45:20,960
Speaker 1: is shooting himself in the foot because he studies this

821
00:45:21,200 --> 00:45:24,000
Speaker 1: analytically like he would study anything else you would study

822
00:45:24,040 --> 00:45:26,680
Speaker 1: in school. And what we know, um I wrote a

823
00:45:26,719 --> 00:45:29,880
Speaker 1: paper several years ago about decision making right, and so

824
00:45:30,239 --> 00:45:34,439
Speaker 1: decision making there's a lot of credibility on persistence, meaning

825
00:45:34,480 --> 00:45:37,480
Speaker 1: that what you know, if you top doctors, top hotels,

826
00:45:37,600 --> 00:45:41,600
Speaker 1: top restaurants tend to stay top the investment market, you know,

827
00:45:41,800 --> 00:45:46,040
Speaker 1: asset classes, strategies, there is not that same persistence, right.

828
00:45:46,280 --> 00:45:49,800
Speaker 1: You see almost some some reversion and no patterns to it.

829
00:45:50,120 --> 00:45:53,680
Speaker 1: And so most investors, whether you know it, is a

830
00:45:53,880 --> 00:45:56,880
Speaker 1: rare person that who in two thousand and eight, two

831
00:45:56,920 --> 00:45:59,840
Speaker 1: thousand and nine, you know, back to my analogy earlier,

832
00:46:00,200 --> 00:46:03,640
Speaker 1: a million in stocks, a million in bonds. Investor, you

833
00:46:03,800 --> 00:46:08,360
Speaker 1: just lost five hundred thousand dollars in stocks, and you're

834
00:46:08,360 --> 00:46:10,920
Speaker 1: gonna sell bonds that are actually doing well and by

835
00:46:11,040 --> 00:46:13,960
Speaker 1: two or fifty thousand dollars in February about now that

836
00:46:14,080 --> 00:46:16,960
Speaker 1: there there are obviously some investors who can do that,

837
00:46:17,600 --> 00:46:20,240
Speaker 1: or maybe some investors will use a single fund solution.

838
00:46:20,320 --> 00:46:22,800
Speaker 1: We talked about target retirement funds or balanced funds to

839
00:46:22,880 --> 00:46:25,080
Speaker 1: do it for you. But if a lot of investors

840
00:46:25,480 --> 00:46:28,560
Speaker 1: would be, you know, benefit from working with an advisor

841
00:46:28,960 --> 00:46:31,360
Speaker 1: to not only help them with emotions, but you know

842
00:46:31,520 --> 00:46:37,040
Speaker 1: retirement income, uh, tax planning, you know, generational planning. So

843
00:46:37,160 --> 00:46:39,279
Speaker 1: I think it's more than most people would think. So

844
00:46:39,480 --> 00:46:42,680
Speaker 1: your brother doctor, you're saying, doctor, and he's with an advisor.

845
00:46:42,840 --> 00:46:46,399
Speaker 1: So so my experience with doctors, and I'm gonna say

846
00:46:46,480 --> 00:46:50,120
Speaker 1: this very specifically so you can send your angry emails

847
00:46:50,160 --> 00:46:53,640
Speaker 1: to me, I have found that doctors are exceedingly bright.

848
00:46:54,320 --> 00:46:57,839
Speaker 1: They've been very studious their whole life, and they are

849
00:46:58,000 --> 00:47:02,520
Speaker 1: genuinely surprised when all that intelligence and all that studying

850
00:47:03,000 --> 00:47:07,320
Speaker 1: does not readily translate to investing, and they find it

851
00:47:07,400 --> 00:47:12,920
Speaker 1: to be very frustrating. Um. And I've actually said to doctors, listen,

852
00:47:13,000 --> 00:47:15,120
Speaker 1: I have to cut the conversation showed. I'm going to

853
00:47:15,200 --> 00:47:17,800
Speaker 1: Wikipedia to learn how to take out a gall bladder

854
00:47:17,840 --> 00:47:20,720
Speaker 1: and I have surgery this afternoon, and ha ha, it's funny,

855
00:47:21,200 --> 00:47:25,080
Speaker 1: But the reality is, Okay, this is in brain surgery,

856
00:47:25,640 --> 00:47:27,960
Speaker 1: but it's not the sort of thing that you could

857
00:47:28,200 --> 00:47:33,840
Speaker 1: do casually and very often. Because doctors are so successful

858
00:47:33,880 --> 00:47:36,719
Speaker 1: and they're so smart, and they've done so well educationally,

859
00:47:37,880 --> 00:47:41,280
Speaker 1: there is a lack of Hey, maybe this is harder

860
00:47:41,360 --> 00:47:44,719
Speaker 1: than I think. Am I overstating this? Absolutely? And I

861
00:47:44,800 --> 00:47:47,120
Speaker 1: and I follow all the behavioral literature and all the

862
00:47:47,160 --> 00:47:49,840
Speaker 1: behavioral finance stuff, and sometimes I think it's quite critical

863
00:47:50,360 --> 00:47:53,000
Speaker 1: on investors. But I actually reframed that. I actually think,

864
00:47:53,600 --> 00:47:57,960
Speaker 1: how would you How would any other intellectual person decide

865
00:47:58,000 --> 00:48:00,760
Speaker 1: to put their money in the worst performing asset class?

866
00:48:01,160 --> 00:48:04,560
Speaker 1: And that's what rebalancing is. Mathematicians maybe, but every who

867
00:48:04,640 --> 00:48:08,360
Speaker 1: understand mean reversion, but everybody else are horrified. Yeah, And

868
00:48:08,600 --> 00:48:12,279
Speaker 1: so I think, you know, outside of your own personal health, verry,

869
00:48:12,320 --> 00:48:14,880
Speaker 1: think about what's the most important you have health, you know,

870
00:48:15,000 --> 00:48:17,680
Speaker 1: your family, and then your wealth, right, and so you know,

871
00:48:17,800 --> 00:48:20,759
Speaker 1: wealth destruction or wealth in the moment, it's not just

872
00:48:20,880 --> 00:48:23,239
Speaker 1: on the downside. Look at all the mistakes people made

873
00:48:23,280 --> 00:48:27,800
Speaker 1: in in the internet technic. You know, we you know

874
00:48:27,960 --> 00:48:30,840
Speaker 1: we we talked about how changing cash flow. Never in

875
00:48:30,920 --> 00:48:32,919
Speaker 1: the history of the markets that we have five years

876
00:48:32,960 --> 00:48:35,239
Speaker 1: in a row with twenty percent returns. It was it

877
00:48:35,400 --> 00:48:40,520
Speaker 1: was just and we had negative bond flows. All the

878
00:48:40,600 --> 00:48:42,759
Speaker 1: money was going into stocks. So you know, I think

879
00:48:43,160 --> 00:48:45,759
Speaker 1: which by the way, you were about halfway through a

880
00:48:46,000 --> 00:48:49,680
Speaker 1: multi decade bond bull market that for big periods of

881
00:48:49,760 --> 00:48:53,000
Speaker 1: time significantly outperformed equities. Yeah. So, and so I do

882
00:48:53,160 --> 00:48:55,960
Speaker 1: believe that the vast majority of clients would benefit from advice.

883
00:48:56,040 --> 00:49:00,319
Speaker 1: The good news is, you know, the the access to advice. Um,

884
00:49:00,480 --> 00:49:02,880
Speaker 1: you know, ten years ago, fifteen years ago, access to

885
00:49:03,160 --> 00:49:06,520
Speaker 1: high quality advice was pretty limited, right, You needed maybe

886
00:49:06,640 --> 00:49:09,680
Speaker 1: a million or two to get access to world class

887
00:49:09,680 --> 00:49:13,000
Speaker 1: advisors such as yourself. But you know, as technology has

888
00:49:13,040 --> 00:49:15,800
Speaker 1: come around, I know, your firm is you know, offering

889
00:49:15,880 --> 00:49:18,120
Speaker 1: different solutions. It doesn't have to be high touch, it

890
00:49:18,200 --> 00:49:22,000
Speaker 1: could be more tech automated advice. So advice is now

891
00:49:22,200 --> 00:49:25,520
Speaker 1: becoming much more tech enabled. And so the ability to

892
00:49:25,600 --> 00:49:28,640
Speaker 1: get advice for a fifty thou dollar or ten thousand

893
00:49:28,640 --> 00:49:31,560
Speaker 1: dollar investor is here, and the cost have calmed down

894
00:49:31,640 --> 00:49:34,160
Speaker 1: on that. So I think, you know, given that change,

895
00:49:34,600 --> 00:49:38,200
Speaker 1: you know, a huge opportunity for self directed investors to

896
00:49:38,320 --> 00:49:41,960
Speaker 1: use advice. So one of the things that you mentioned earlier,

897
00:49:42,160 --> 00:49:46,360
Speaker 1: I wanna just address when we talk about things like

898
00:49:46,719 --> 00:49:52,080
Speaker 1: generational wealth transfer, or state planning or more complicated tax planning,

899
00:49:52,239 --> 00:49:55,400
Speaker 1: or or even a sale of a business, you're paying

900
00:49:55,520 --> 00:49:58,480
Speaker 1: for that when you're paying an advisor. I'll use the

901
00:49:58,600 --> 00:50:01,960
Speaker 1: one percent fee because that's pretty standard these days. But

902
00:50:02,440 --> 00:50:06,040
Speaker 1: if you're a hundred thousand or even half a million

903
00:50:06,120 --> 00:50:10,640
Speaker 1: dollar UM portfolio and you don't need all those extra services,

904
00:50:11,480 --> 00:50:14,040
Speaker 1: why pay the one percent or more? You're better off

905
00:50:14,120 --> 00:50:17,040
Speaker 1: in if you can work with the CFP will help

906
00:50:17,120 --> 00:50:19,920
Speaker 1: you do the planning, but automade as much of that

907
00:50:20,080 --> 00:50:23,400
Speaker 1: technology and the fee is half or less. Why wouldn't

908
00:50:23,400 --> 00:50:26,080
Speaker 1: you do that? Why should you pay for you know,

909
00:50:26,680 --> 00:50:29,600
Speaker 1: advice on setting up a philanthropic trust if you're not

910
00:50:29,680 --> 00:50:33,400
Speaker 1: going to do that. People sort of forget that that

911
00:50:33,600 --> 00:50:35,879
Speaker 1: this can be a little ala carte and you don't

912
00:50:35,920 --> 00:50:37,560
Speaker 1: need to pay for everything if you're not going to

913
00:50:37,719 --> 00:50:39,800
Speaker 1: use it. Totally agree, and that's why I think, you know,

914
00:50:39,880 --> 00:50:44,320
Speaker 1: this is really the golden opportunity for investors because you know,

915
00:50:44,440 --> 00:50:47,160
Speaker 1: we talked about access in the past. It was really

916
00:50:47,280 --> 00:50:50,759
Speaker 1: a reserved space for clients of the ultra high net

917
00:50:50,800 --> 00:50:54,040
Speaker 1: worth and the institutional marketplace, and they had a very

918
00:50:54,120 --> 00:50:56,480
Speaker 1: high touch and the and they probably advisors added a

919
00:50:56,560 --> 00:50:58,440
Speaker 1: lot of value from some of the things you mentioned

920
00:50:58,480 --> 00:51:01,800
Speaker 1: of succession planning, making sure your will and your state

921
00:51:01,920 --> 00:51:05,239
Speaker 1: is in good order, all of those things. But now

922
00:51:05,400 --> 00:51:08,800
Speaker 1: for the average individual that doesn't have all those needs,

923
00:51:09,160 --> 00:51:11,640
Speaker 1: you know, advices here for the masses, and I think

924
00:51:11,680 --> 00:51:13,600
Speaker 1: it's a very good value for those who want to,

925
00:51:13,680 --> 00:51:17,000
Speaker 1: you know, employee an advisor, whether it be tech enabled

926
00:51:17,120 --> 00:51:20,279
Speaker 1: or a hybrid. So one of the questions, speaking of technology,

927
00:51:20,440 --> 00:51:23,239
Speaker 1: I didn't ask you about UM. One of the new

928
00:51:23,320 --> 00:51:28,200
Speaker 1: technologies that have been rising is direct indexing, where instead

929
00:51:28,239 --> 00:51:31,080
Speaker 1: of owning an et F for a mutual funds UM,

930
00:51:31,400 --> 00:51:35,440
Speaker 1: you own the entire index, but in individual stocks. And

931
00:51:35,560 --> 00:51:39,439
Speaker 1: this seems to come up when someone has a concentrated

932
00:51:39,520 --> 00:51:43,120
Speaker 1: risk in a given space or a given uh. So, hypothetically,

933
00:51:43,239 --> 00:51:46,799
Speaker 1: you're an employee of Apple and of your net worth

934
00:51:46,920 --> 00:51:49,080
Speaker 1: is an Apple stock, do you really need more Apple

935
00:51:49,200 --> 00:51:52,439
Speaker 1: in in your index? With a direct index, you could

936
00:51:52,800 --> 00:51:55,319
Speaker 1: tune down Apple or any of the other tech names

937
00:51:55,360 --> 00:51:58,759
Speaker 1: similar to that. Have you has Vanguard looked at this

938
00:51:58,920 --> 00:52:01,160
Speaker 1: and what are the thoughts about this? Yeah, I mean

939
00:52:01,239 --> 00:52:03,319
Speaker 1: we've looked at it a lot. There's other reasons too.

940
00:52:03,400 --> 00:52:05,799
Speaker 1: You mentioned the single stock risk like Apple, there's been

941
00:52:05,880 --> 00:52:09,080
Speaker 1: some people believe that it's more tax efficient other people

942
00:52:09,160 --> 00:52:12,200
Speaker 1: that may. Um, you want to think about excluding certain

943
00:52:12,280 --> 00:52:15,560
Speaker 1: sectors of the the s G side, the socially responsible side.

944
00:52:15,640 --> 00:52:18,799
Speaker 1: You can be a little more granular, and you can

945
00:52:18,920 --> 00:52:21,040
Speaker 1: with broad indexes. Right, Um, you know a couple of

946
00:52:21,040 --> 00:52:23,160
Speaker 1: things I would say, One is what is the costs

947
00:52:23,400 --> 00:52:25,239
Speaker 1: you know, if you know, if if you can get

948
00:52:25,280 --> 00:52:27,680
Speaker 1: an index a broadly base. So let's take the Apple

949
00:52:27,719 --> 00:52:31,360
Speaker 1: example of you know, I'm employee of Apple, Apple my portfolio.

950
00:52:31,480 --> 00:52:33,359
Speaker 1: Do I really want more Apple? Well, if I were

951
00:52:33,400 --> 00:52:36,200
Speaker 1: to just buy the total Vanguard US stock market my

952
00:52:36,280 --> 00:52:39,040
Speaker 1: position and Apple is only adding another two and a

953
00:52:39,080 --> 00:52:41,600
Speaker 1: half three or three and alp percent, And do I

954
00:52:41,680 --> 00:52:43,880
Speaker 1: want more of it? No? But that's like a pretty

955
00:52:43,960 --> 00:52:46,520
Speaker 1: small amount. And I guess it would really be what

956
00:52:46,640 --> 00:52:49,759
Speaker 1: is the cost differential to do self directed indexing? And

957
00:52:49,840 --> 00:52:52,120
Speaker 1: then how do I keep that rebalanced through time? Right?

958
00:52:52,200 --> 00:52:55,360
Speaker 1: Because the grain news about an in an open index

959
00:52:55,480 --> 00:52:58,600
Speaker 1: fund is we can use other investors cash flow in

960
00:52:58,760 --> 00:53:02,239
Speaker 1: and out to keep that portfolio rebalanced. The minute you're

961
00:53:02,280 --> 00:53:06,759
Speaker 1: now creating a separately managed direct index, the markets moving

962
00:53:06,800 --> 00:53:09,560
Speaker 1: all over, you may have cash coming and going. It's

963
00:53:09,640 --> 00:53:12,440
Speaker 1: it becomes much more complicated, and that's where you lose

964
00:53:12,480 --> 00:53:14,960
Speaker 1: all some of the tax. This idea that's more tax efficient,

965
00:53:15,440 --> 00:53:17,440
Speaker 1: you know, we've done some work on that, actually is

966
00:53:17,560 --> 00:53:19,879
Speaker 1: it would actually be a little less tax efficient because

967
00:53:19,920 --> 00:53:22,520
Speaker 1: you get locked up in your basis and the market

968
00:53:22,560 --> 00:53:26,040
Speaker 1: moves away from you. So indexing has been extremely tax efficient.

969
00:53:26,719 --> 00:53:29,640
Speaker 1: Tfs have been extremely tax efficient. So a lot of

970
00:53:29,719 --> 00:53:33,000
Speaker 1: the direct indexing, you know, things we hear out there

971
00:53:33,000 --> 00:53:36,719
Speaker 1: are very niche or actually they're actually not correct. Uh.

972
00:53:36,840 --> 00:53:40,120
Speaker 1: And since you're talking about tax efficiency, I have to

973
00:53:40,200 --> 00:53:42,520
Speaker 1: talk about one of my favorite stories of this year

974
00:53:42,560 --> 00:53:47,360
Speaker 1: because it's just so um wild and unexpected, and that's

975
00:53:47,560 --> 00:53:53,239
Speaker 1: the Vanguard patent on making mutual funds almost as tax

976
00:53:53,320 --> 00:53:56,440
Speaker 1: efficient as e t f s. And a little background

977
00:53:56,560 --> 00:53:59,200
Speaker 1: for people who may not follow this sort of art

978
00:53:59,760 --> 00:54:04,120
Speaker 1: caning tax stuff. The huge advantage of ETFs is that

979
00:54:04,280 --> 00:54:08,239
Speaker 1: there incredibly tax efficient. If other people buy or sell

980
00:54:08,719 --> 00:54:11,319
Speaker 1: holdings within e t F, it doesn't matter. It's only

981
00:54:11,400 --> 00:54:14,560
Speaker 1: when the investor sells that e t F that there's

982
00:54:14,560 --> 00:54:18,000
Speaker 1: a potential tax event. But you can own a forty

983
00:54:18,040 --> 00:54:20,359
Speaker 1: Act fund, you can own a mutual funds and if

984
00:54:20,480 --> 00:54:23,759
Speaker 1: within that fund there are takeovers or cells or whatever

985
00:54:23,840 --> 00:54:27,680
Speaker 1: else happens where there's a capital gain that passes straight

986
00:54:27,800 --> 00:54:32,320
Speaker 1: through to the investor. Vanguard I want to say this

987
00:54:32,480 --> 00:54:35,040
Speaker 1: was early two thousand's we just heard about it recently

988
00:54:35,239 --> 00:54:38,600
Speaker 1: or mid two thousands came up with an idea that

989
00:54:38,760 --> 00:54:42,240
Speaker 1: allowed e t fs to effectively be a different class

990
00:54:42,320 --> 00:54:46,760
Speaker 1: share clash of mutual funds and are able to share

991
00:54:46,920 --> 00:54:50,200
Speaker 1: that tax efficiency between e t f s and mutual

992
00:54:50,200 --> 00:54:52,680
Speaker 1: fund Am I am I doing that justice? Or if

993
00:54:52,680 --> 00:54:54,719
Speaker 1: I mangled that compared? I mean, you know a couple

994
00:54:54,719 --> 00:54:57,239
Speaker 1: of things on that is um So why indexing in

995
00:54:57,360 --> 00:55:00,239
Speaker 1: general is very tax efficient doesn't really necessarily have to

996
00:55:00,280 --> 00:55:04,239
Speaker 1: do with its structure or our patent because others you know,

997
00:55:04,600 --> 00:55:07,279
Speaker 1: any e TF so I think what the you know

998
00:55:07,760 --> 00:55:10,120
Speaker 1: what happens with an index fund is that you know

999
00:55:10,560 --> 00:55:13,799
Speaker 1: adds and first off, it's broad indexing, right because there's

1000
00:55:13,840 --> 00:55:15,759
Speaker 1: not a lot of ads in deletes, and when you

1001
00:55:15,800 --> 00:55:19,520
Speaker 1: are getting deleted, you're almost getting delisted unless there's a

1002
00:55:19,600 --> 00:55:23,360
Speaker 1: merger or and that's usually what you see some capital

1003
00:55:23,440 --> 00:55:25,360
Speaker 1: and that's where you see some capital gains. But so

1004
00:55:25,440 --> 00:55:28,319
Speaker 1: those are more of the rare instances. You know, where

1005
00:55:28,400 --> 00:55:32,440
Speaker 1: you see more inefficiencies would be you know, the the

1006
00:55:32,640 --> 00:55:35,080
Speaker 1: niche sector E t F s or t know, so

1007
00:55:35,520 --> 00:55:39,239
Speaker 1: there you have graduations and that's why active sometimes meaning

1008
00:55:39,360 --> 00:55:41,600
Speaker 1: they go from small kept to MidCap on midcapt to

1009
00:55:41,680 --> 00:55:45,160
Speaker 1: lunch growth of value and stuff like that. And that's

1010
00:55:45,160 --> 00:55:49,160
Speaker 1: where even active has some tax inefficiencies relative index because

1011
00:55:49,400 --> 00:55:53,000
Speaker 1: if I no longer like stock A, I don't necessarily

1012
00:55:53,080 --> 00:55:55,040
Speaker 1: care what my cap gain is because I've also have

1013
00:55:55,160 --> 00:55:58,439
Speaker 1: tax exempt I've tax exempt clients. I'm really just trying

1014
00:55:58,480 --> 00:56:03,280
Speaker 1: to add excess returns, not necessarily thinking about a taxable

1015
00:56:03,400 --> 00:56:06,560
Speaker 1: entity that they don't. Most active funds are not really

1016
00:56:06,640 --> 00:56:09,759
Speaker 1: focused on tax efficient exactly. And so why indexing is

1017
00:56:09,800 --> 00:56:12,600
Speaker 1: so tax efficient in general is because they own a

1018
00:56:12,800 --> 00:56:16,359
Speaker 1: market and the ads and deletes are quite small only

1019
00:56:16,480 --> 00:56:19,480
Speaker 1: do to this merger. So that's where indexing an e

1020
00:56:19,600 --> 00:56:22,200
Speaker 1: t fs, whether they're in mutual fund form or in

1021
00:56:22,320 --> 00:56:24,120
Speaker 1: e t F have been very tax efficient over the

1022
00:56:24,200 --> 00:56:29,319
Speaker 1: last patents specifically, so no matter what company you buy

1023
00:56:29,320 --> 00:56:32,719
Speaker 1: an ETF funds, you're an e t F from You're

1024
00:56:32,760 --> 00:56:37,000
Speaker 1: not going to generate an unintentional UH tax consequence merely

1025
00:56:37,120 --> 00:56:39,239
Speaker 1: by owning it. It's only when you sell it. But

1026
00:56:39,400 --> 00:56:46,919
Speaker 1: mutual funds have that. Your unique patent allows mutual fund

1027
00:56:47,040 --> 00:56:54,040
Speaker 1: holders in taxable accounts to effectively reduce their tax basis dramatically. Right,

1028
00:56:54,120 --> 00:56:56,600
Speaker 1: it's a share class of the funds, so they you know,

1029
00:56:56,640 --> 00:56:59,400
Speaker 1: they would end up sharing in you know in that

1030
00:56:59,520 --> 00:57:01,120
Speaker 1: because it's a the e t F is a share

1031
00:57:01,200 --> 00:57:05,080
Speaker 1: class off of the mutual fund. So so because of that,

1032
00:57:07,080 --> 00:57:10,520
Speaker 1: somehow the tax savings from within the e t F

1033
00:57:11,400 --> 00:57:14,279
Speaker 1: managed to work backwards to the mutual fund. Is that fair?

1034
00:57:14,440 --> 00:57:16,439
Speaker 1: And vice and vice versa. Right, So the mutual fund.

1035
00:57:16,440 --> 00:57:18,160
Speaker 1: When an e t F starts with no assets, the

1036
00:57:18,200 --> 00:57:19,840
Speaker 1: mutual fund, you know, so it's it's it's so you

1037
00:57:19,960 --> 00:57:23,360
Speaker 1: immediately get a track record, you immediately get some real assets.

1038
00:57:23,440 --> 00:57:25,600
Speaker 1: So you're not launching any t F, which seems to

1039
00:57:25,640 --> 00:57:27,280
Speaker 1: be a problem with the t F. You're not launching

1040
00:57:27,320 --> 00:57:29,920
Speaker 1: it with no track record and no assets. So right

1041
00:57:30,000 --> 00:57:34,160
Speaker 1: away Van guard ETFs. And this is a fairly unique structure,

1042
00:57:34,640 --> 00:57:37,240
Speaker 1: making e t f s not a standalone but a

1043
00:57:37,600 --> 00:57:43,680
Speaker 1: share class of a core portfolio or a model portfolio. Um,

1044
00:57:44,080 --> 00:57:46,760
Speaker 1: but it's the tax efficiency that reverts back to the

1045
00:57:46,840 --> 00:57:51,200
Speaker 1: mutual fund that's really somewhat unique. Also it is and

1046
00:57:51,600 --> 00:57:55,640
Speaker 1: uh that patent expires this year next year soon yeah

1047
00:57:55,760 --> 00:57:59,520
Speaker 1: soon yea. So should we expect to see more tax

1048
00:57:59,600 --> 00:58:03,440
Speaker 1: efficient sees at other mutual funds or other companies um,

1049
00:58:03,800 --> 00:58:06,760
Speaker 1: either looking to do this themselves or license it from you. Yeah.

1050
00:58:06,760 --> 00:58:08,560
Speaker 1: I think back to our early conversation. I think the

1051
00:58:08,680 --> 00:58:10,960
Speaker 1: reason why indexing and e t s are so tax

1052
00:58:11,000 --> 00:58:14,200
Speaker 1: efficient is back to the original structure of owning everything

1053
00:58:14,320 --> 00:58:16,760
Speaker 1: without a lot of ads and deletes. What you're talking

1054
00:58:16,800 --> 00:58:21,160
Speaker 1: about is is a very very very small advantage. So

1055
00:58:21,240 --> 00:58:24,800
Speaker 1: I don't I don't see it changing much. The landscape

1056
00:58:25,480 --> 00:58:30,280
Speaker 1: of helping or hurting either complex, you know, the industry.

1057
00:58:30,320 --> 00:58:32,280
Speaker 1: And I just thought it was so fascinating such a

1058
00:58:32,680 --> 00:58:38,680
Speaker 1: and that came from um, you're now retired c I O, right,

1059
00:58:38,840 --> 00:58:40,760
Speaker 1: and and that was really very I thought it was

1060
00:58:40,800 --> 00:58:45,240
Speaker 1: a very clever uh idea. UM, what about alternatives to

1061
00:58:45,480 --> 00:58:49,560
Speaker 1: assets under management fees a u M fees, things like

1062
00:58:49,840 --> 00:58:53,439
Speaker 1: flat fees or hourly fees. How do you guys look

1063
00:58:53,520 --> 00:58:57,840
Speaker 1: at that trend within the advisor space. Yeah, I mean

1064
00:58:57,880 --> 00:59:00,560
Speaker 1: we always hear a lot of talk about at fee

1065
00:59:00,720 --> 00:59:04,240
Speaker 1: or hourly fee. Um, we haven't seen it grow much.

1066
00:59:04,600 --> 00:59:07,080
Speaker 1: It's hard to scale. It's it's hard to scale. And

1067
00:59:07,160 --> 00:59:11,320
Speaker 1: I also think that advisors earned their you know, money episodically.

1068
00:59:11,520 --> 00:59:13,960
Speaker 1: And what I mean, here's what here's here's an example

1069
00:59:14,000 --> 00:59:18,000
Speaker 1: of oh nine. Right. That's why I show this in

1070
00:59:18,080 --> 00:59:20,840
Speaker 1: the advisor's alpha paper that if you were you know,

1071
00:59:21,320 --> 00:59:25,240
Speaker 1: sixty forty and you were unable to keep your investor,

1072
00:59:25,400 --> 00:59:26,760
Speaker 1: you know, I called you up. I was a client

1073
00:59:26,840 --> 00:59:29,920
Speaker 1: of Redhole, hypothetically, and I'm sixty forty and I call

1074
00:59:30,000 --> 00:59:31,280
Speaker 1: you up and I'm like, you know, Barry, I just

1075
00:59:31,360 --> 00:59:34,400
Speaker 1: can't take it anymore. I just lost and you weren't

1076
00:59:34,440 --> 00:59:36,800
Speaker 1: able to influence and convince me to stay. And I

1077
00:59:36,880 --> 00:59:38,600
Speaker 1: went to money market. I went all out, and a

1078
00:59:38,680 --> 00:59:41,080
Speaker 1: lot of clients did that. We saw, you know, money

1079
00:59:41,160 --> 00:59:44,960
Speaker 1: markets reach about fifty percent on household balance sheets in

1080
00:59:45,000 --> 00:59:49,960
Speaker 1: February oh nine, that's across the entire all investors in

1081
00:59:50,320 --> 00:59:53,560
Speaker 1: forty act funds. So and then if I just had

1082
00:59:53,600 --> 00:59:56,040
Speaker 1: stayed in that position. Now this is a hypothetical situation,

1083
00:59:56,160 --> 00:59:59,360
Speaker 1: but if it did happen, you know, the returns differential

1084
00:59:59,480 --> 01:00:04,200
Speaker 1: between doing that you keeping me sixty's it's it's a

1085
01:00:04,320 --> 01:00:06,320
Speaker 1: it's about a hundred percent. You would have earned a

1086
01:00:06,400 --> 01:00:10,000
Speaker 1: hundred years versus your one percent fee in one phone call.

1087
01:00:10,800 --> 01:00:13,600
Speaker 1: So I do believe that the fee, you know, or

1088
01:00:13,760 --> 01:00:15,680
Speaker 1: is it? Let's say, if you have a million dollars

1089
01:00:15,840 --> 01:00:18,320
Speaker 1: with one percent, that's ten thousand dollars a year. Are

1090
01:00:18,360 --> 01:00:22,120
Speaker 1: you earning ten thousand dollars every single year? You know? Maybe?

1091
01:00:22,280 --> 01:00:25,640
Speaker 1: Maybe not. Depends on what you do. It's episodic and

1092
01:00:25,720 --> 01:00:28,680
Speaker 1: it comes in huge waves. You know. It's funny. I

1093
01:00:28,920 --> 01:00:33,959
Speaker 1: was getting emails in eleven by started to trickle down,

1094
01:00:34,600 --> 01:00:36,600
Speaker 1: but it was I've been reading you forever. I followed

1095
01:00:36,640 --> 01:00:38,440
Speaker 1: you out on the market and oh eight, But when

1096
01:00:38,480 --> 01:00:40,720
Speaker 1: you jump back into O nine, I thought you were crazy.

1097
01:00:40,800 --> 01:00:42,880
Speaker 1: And now I'm paralyzed. I don't know what to do

1098
01:00:43,400 --> 01:00:46,600
Speaker 1: and I've missed fifty six gains. What do I do?

1099
01:00:47,280 --> 01:00:50,600
Speaker 1: And you can't. Even though the math is just put

1100
01:00:50,640 --> 01:00:53,760
Speaker 1: the whole thing in as a lump sum, people can't

1101
01:00:53,760 --> 01:00:56,800
Speaker 1: do that emotionally. Hey, break it up into four quarters,

1102
01:00:57,040 --> 01:00:59,280
Speaker 1: scale your wing in over a year, and then just

1103
01:00:59,400 --> 01:01:03,280
Speaker 1: continue contributions after that. It's the only advice I found

1104
01:01:03,320 --> 01:01:07,360
Speaker 1: that works for people, because there's still suffering from PTSD

1105
01:01:08,120 --> 01:01:11,920
Speaker 1: post financial crisis. What did you guys see after the

1106
01:01:12,000 --> 01:01:14,880
Speaker 1: crisis from people? Yeah, I mean the good news is

1107
01:01:15,000 --> 01:01:17,280
Speaker 1: at Vanguard. You know a lot of investors read our

1108
01:01:17,400 --> 01:01:20,280
Speaker 1: education and back to the role of an educator or

1109
01:01:20,320 --> 01:01:23,200
Speaker 1: the role of advice. So our behavior at at at

1110
01:01:23,240 --> 01:01:26,800
Speaker 1: Vanguard was certainly not We weren't We weren't seeing huge

1111
01:01:26,840 --> 01:01:28,560
Speaker 1: flows into equities and out of balands, but it was

1112
01:01:28,640 --> 01:01:31,240
Speaker 1: much more balanced, much more muted relative that we saw

1113
01:01:31,280 --> 01:01:33,520
Speaker 1: in the industry. Let let me interrupt you right here

1114
01:01:33,520 --> 01:01:36,640
Speaker 1: because I have to share a story from your former

1115
01:01:36,720 --> 01:01:41,440
Speaker 1: CEO and chairman, Bill McNab who word got back to

1116
01:01:41,600 --> 01:01:46,080
Speaker 1: him that employees were nervous about getting fired and that

1117
01:01:46,320 --> 01:01:50,400
Speaker 1: nervousness was being communicated to clients and send out a

1118
01:01:50,480 --> 01:01:55,040
Speaker 1: missive nobody's getting fired. Everybody's job is safe. Your job

1119
01:01:55,360 --> 01:01:57,680
Speaker 1: is now is when you earn your money. Your job

1120
01:01:57,760 --> 01:02:00,400
Speaker 1: is to keep clients informed and have be and let

1121
01:02:00,480 --> 01:02:03,320
Speaker 1: them know this tool will pass. And that turned out

1122
01:02:03,360 --> 01:02:08,000
Speaker 1: to be a key turning point in Vanguard attracting a

1123
01:02:08,840 --> 01:02:11,560
Speaker 1: ton of assets. Yeah, I think we've always kind of

1124
01:02:11,720 --> 01:02:15,080
Speaker 1: had that, you know, you know, stewardship, you know, is

1125
01:02:15,120 --> 01:02:17,840
Speaker 1: the word of you know, we've been through many cycles

1126
01:02:18,080 --> 01:02:20,920
Speaker 1: at Vanguard, you know UM, and so I think you know,

1127
01:02:21,640 --> 01:02:24,320
Speaker 1: every cycle is different. But again, if if you like

1128
01:02:24,520 --> 01:02:26,480
Speaker 1: stocks and O seven, it was hard not to like

1129
01:02:26,640 --> 01:02:29,120
Speaker 1: stocks and O nine and so you know, the theme

1130
01:02:29,200 --> 01:02:31,560
Speaker 1: of staying the course and rebalance I think was a

1131
01:02:31,760 --> 01:02:35,040
Speaker 1: very very good advice for investors who followed that. And

1132
01:02:35,360 --> 01:02:38,120
Speaker 1: and before we get to my speed round questions, Uh,

1133
01:02:38,280 --> 01:02:40,880
Speaker 1: the last question I have to ask you. You mentioned

1134
01:02:41,600 --> 01:02:46,920
Speaker 1: UM technology sort of implying about robo advisors. What is

1135
01:02:46,960 --> 01:02:52,040
Speaker 1: it that human advisors can do that computers can't. Yeah,

1136
01:02:52,080 --> 01:02:55,760
Speaker 1: I still think this debate on robo versus hybrid versus

1137
01:02:55,880 --> 01:02:59,760
Speaker 1: high end service UM gets again. Maybe i'll context. I'm

1138
01:02:59,800 --> 01:03:03,920
Speaker 1: a believer of you know, what does the client want? Right?

1139
01:03:04,680 --> 01:03:07,920
Speaker 1: And I used my son and my brother already in

1140
01:03:08,200 --> 01:03:11,400
Speaker 1: in this story. My son has a cell phone, but

1141
01:03:11,520 --> 01:03:14,160
Speaker 1: he never talks on it. He's he's all into the apps,

1142
01:03:14,280 --> 01:03:17,680
Speaker 1: and he might, you know, be more comfortable in a

1143
01:03:17,880 --> 01:03:21,400
Speaker 1: robo automated digital advice than actually coming in and sitting

1144
01:03:21,440 --> 01:03:24,760
Speaker 1: down with you or Josh, right, my brother, who's you know,

1145
01:03:24,960 --> 01:03:27,560
Speaker 1: our age. You know, he's used to probably wanting to

1146
01:03:27,640 --> 01:03:30,440
Speaker 1: sit face to face and have a coach help him

1147
01:03:30,520 --> 01:03:33,520
Speaker 1: through things on a couch or in a conference room

1148
01:03:33,600 --> 01:03:35,640
Speaker 1: and talk through that. So, you know, I think it

1149
01:03:35,760 --> 01:03:39,320
Speaker 1: really gets back to what is the investor's experience? What

1150
01:03:39,480 --> 01:03:42,160
Speaker 1: do they want? Do they want a digital offer meaning

1151
01:03:42,280 --> 01:03:45,200
Speaker 1: all robo. Do they want to work with a CFP

1152
01:03:45,440 --> 01:03:47,200
Speaker 1: or a c f A or do they want to

1153
01:03:47,240 --> 01:03:50,080
Speaker 1: have a very high touch engagement? And so I think

1154
01:03:50,120 --> 01:03:53,080
Speaker 1: the great news is is now investors have choice and

1155
01:03:53,320 --> 01:03:55,960
Speaker 1: there's not that one is better or or it's really

1156
01:03:56,040 --> 01:03:57,760
Speaker 1: what does the client want and how do they want

1157
01:03:57,800 --> 01:04:00,120
Speaker 1: to engage in your services? As the key point, do

1158
01:04:00,240 --> 01:04:05,640
Speaker 1: you think it's segmented? You're implying it's segmented almost generationally,

1159
01:04:05,800 --> 01:04:09,240
Speaker 1: if you're over sixty, you want one experience, If you're

1160
01:04:09,360 --> 01:04:12,240
Speaker 1: forty to sixty, it's something else. And then there's a

1161
01:04:12,360 --> 01:04:16,520
Speaker 1: very different group of investors under forty. Is that a

1162
01:04:16,600 --> 01:04:19,320
Speaker 1: fair way to break that up? And do they really

1163
01:04:19,400 --> 01:04:22,840
Speaker 1: want very different things? Ultimately it's probably a stereotype, but

1164
01:04:22,960 --> 01:04:26,280
Speaker 1: it probably does you know, you know, holds to some extent.

1165
01:04:26,360 --> 01:04:28,400
Speaker 1: If you didn't grow up with technology, or you didn't

1166
01:04:28,400 --> 01:04:31,880
Speaker 1: grow up with you know, taking advice from you know,

1167
01:04:32,080 --> 01:04:34,680
Speaker 1: an app, then maybe you're less inclined that if you

1168
01:04:34,720 --> 01:04:36,720
Speaker 1: actually grew up in that environment. So I think it's

1169
01:04:36,760 --> 01:04:40,120
Speaker 1: a it's it's an over generalization. So will there be

1170
01:04:40,840 --> 01:04:43,840
Speaker 1: a demographic that is in retirement in their seventies and

1171
01:04:43,920 --> 01:04:47,080
Speaker 1: eighties that are very comfortable using digital Absolutely? And are

1172
01:04:47,160 --> 01:04:51,120
Speaker 1: there millennials, um who would real more than want to

1173
01:04:51,240 --> 01:04:53,919
Speaker 1: sit down face to face and work with a human. Absolutely.

1174
01:04:54,160 --> 01:04:55,840
Speaker 1: But on average, I think it's kind of what you're

1175
01:04:55,960 --> 01:04:58,240
Speaker 1: used to and what you grew up with that will

1176
01:04:58,280 --> 01:05:02,080
Speaker 1: probably have a big pull. Who will select what quite

1177
01:05:02,160 --> 01:05:05,400
Speaker 1: quite fascinating. I know I don't have you forever, So

1178
01:05:05,720 --> 01:05:08,720
Speaker 1: let me get to some of my favorite questions that

1179
01:05:08,880 --> 01:05:13,640
Speaker 1: I asked all of my guests. Tell us the first

1180
01:05:13,720 --> 01:05:17,439
Speaker 1: car you ever owned? Year making model my first car,

1181
01:05:17,640 --> 01:05:20,400
Speaker 1: and it wasn't a classic yet it was? It was.

1182
01:05:20,440 --> 01:05:24,200
Speaker 1: It was a nineteen sixty seven Mustang Um. But you

1183
01:05:24,240 --> 01:05:26,080
Speaker 1: know at the time that was you know, I bought

1184
01:05:26,120 --> 01:05:28,760
Speaker 1: it for under a thousand dollars with my landscaping money,

1185
01:05:28,840 --> 01:05:31,600
Speaker 1: and yeah, it was you know, had I known what

1186
01:05:31,640 --> 01:05:34,640
Speaker 1: would eventually come to be. It wasn't a GT. Three

1187
01:05:34,720 --> 01:05:37,320
Speaker 1: fifty or a five hundred. It was just a standard,

1188
01:05:37,400 --> 01:05:41,080
Speaker 1: just a straight fastback fast back. Those are still handsome cars,

1189
01:05:42,040 --> 01:05:44,640
Speaker 1: and you can now get them with seven hundred horsepower

1190
01:05:45,040 --> 01:05:48,040
Speaker 1: if you want, um and a live rear axle as

1191
01:05:48,080 --> 01:05:51,760
Speaker 1: opposed to those old truck Your car had effectively a

1192
01:05:52,280 --> 01:05:54,800
Speaker 1: solid truck axle on the back. Yes it did, so

1193
01:05:54,960 --> 01:05:57,280
Speaker 1: that was a but it was a very handsome car.

1194
01:05:57,440 --> 01:06:01,200
Speaker 1: I know you've seen the movie Bullet right solutely repeatedly

1195
01:06:01,480 --> 01:06:05,400
Speaker 1: that was That was effectively your car. Um. What's the

1196
01:06:05,480 --> 01:06:09,400
Speaker 1: most important thing that people at Vanguard don't know about you?

1197
01:06:09,920 --> 01:06:11,720
Speaker 1: I think the most important thing that people may not

1198
01:06:11,880 --> 01:06:14,479
Speaker 1: know is being a Vanguard and and and really working

1199
01:06:14,560 --> 01:06:16,160
Speaker 1: very I mean, I think I'm the luckiest person a

1200
01:06:16,240 --> 01:06:18,400
Speaker 1: Vanguard is. I got to work really closely with all

1201
01:06:18,480 --> 01:06:21,560
Speaker 1: four CEOs, so I got started with both. I started

1202
01:06:21,600 --> 01:06:24,040
Speaker 1: with Bogel and we had a friendship up until his

1203
01:06:24,160 --> 01:06:27,120
Speaker 1: passing away. We would have lunch. Jack Brennan and I

1204
01:06:27,680 --> 01:06:30,120
Speaker 1: worked with father very very closely. You know a lot

1205
01:06:30,160 --> 01:06:32,600
Speaker 1: of people don't really understand that. You know, Jack bog

1206
01:06:32,600 --> 01:06:34,800
Speaker 1: will start a Vanguard, but Jack Brennan a lot of

1207
01:06:34,880 --> 01:06:37,880
Speaker 1: the things that are driving Vanguard to an outcomes for

1208
01:06:37,960 --> 01:06:43,280
Speaker 1: clients today. Jack Brennan started target retirement funds, ETFs advice.

1209
01:06:43,880 --> 01:06:45,920
Speaker 1: Uh So Jack Brennan, you know and I were you know,

1210
01:06:46,040 --> 01:06:49,120
Speaker 1: extremely close. Uh you know, you know, a mentor in

1211
01:06:49,240 --> 01:06:51,680
Speaker 1: some respects Bill and Tim. I worked very closely with

1212
01:06:51,760 --> 01:06:54,959
Speaker 1: Tim long before he was CEO. Uh So I've worked

1213
01:06:55,120 --> 01:06:56,680
Speaker 1: you know, so I feel I'm one of the luckiest things.

1214
01:06:57,000 --> 01:06:59,000
Speaker 1: And being close with Vanguard. I think a lot of

1215
01:06:59,040 --> 01:07:01,680
Speaker 1: people think that, you know, Fran is an index guy,

1216
01:07:01,760 --> 01:07:04,320
Speaker 1: of which I am, but I actually started out inactive

1217
01:07:04,360 --> 01:07:06,240
Speaker 1: and I'm a big believer in active. We already talked

1218
01:07:06,240 --> 01:07:08,840
Speaker 1: about zero sum game. So I think it gets back

1219
01:07:08,920 --> 01:07:11,800
Speaker 1: to talent and costs. And so I started out as

1220
01:07:11,880 --> 01:07:14,200
Speaker 1: a you know, a bottom up stock picker at a

1221
01:07:14,280 --> 01:07:17,040
Speaker 1: deep value firm. And so that's kind of my roots

1222
01:07:17,120 --> 01:07:18,840
Speaker 1: in my training is you know, how do you tear

1223
01:07:18,880 --> 01:07:21,760
Speaker 1: a company apart and find out what it's intrinsic value is?

1224
01:07:22,440 --> 01:07:24,880
Speaker 1: So coming from Vanguard, who's known for indexing, I think

1225
01:07:24,960 --> 01:07:28,120
Speaker 1: most people don't know that my training, my formal training

1226
01:07:28,200 --> 01:07:30,960
Speaker 1: was an active management. And I don't want to digress

1227
01:07:31,040 --> 01:07:33,720
Speaker 1: too much to Tim Buckley, but he's got a fascinating

1228
01:07:33,800 --> 01:07:40,320
Speaker 1: career path at Vanguard started as uh Jack Bogel's intern.

1229
01:07:40,520 --> 01:07:43,040
Speaker 1: Is that a fair way to Jack Bogel's assistant, right,

1230
01:07:43,280 --> 01:07:47,280
Speaker 1: and then worked his way through both technology and CEE I.

1231
01:07:47,400 --> 01:07:51,760
Speaker 1: Oh that's a really interesting career path to CEO. Well yeah, so, um,

1232
01:07:51,880 --> 01:07:54,760
Speaker 1: you know, so Tim and I worked together very closely,

1233
01:07:54,920 --> 01:07:57,960
Speaker 1: so Jack Bogel's assistant. Then he was in the I

1234
01:07:58,120 --> 01:08:00,480
Speaker 1: T and then became the chief and CEE I O

1235
01:08:00,600 --> 01:08:04,320
Speaker 1: Chief Investment officer. Uh. Then actually ran our whole retail

1236
01:08:04,520 --> 01:08:07,280
Speaker 1: and as it really has a big hand in our advice.

1237
01:08:07,720 --> 01:08:09,920
Speaker 1: You know, you know, you know, Tim's hand and our

1238
01:08:09,960 --> 01:08:13,120
Speaker 1: advice offer. His hands are all over that and his

1239
01:08:13,280 --> 01:08:16,960
Speaker 1: vision to see advice. Then became the c i O. Um,

1240
01:08:17,040 --> 01:08:18,960
Speaker 1: and now he's the CEO. One of the smartest you

1241
01:08:19,000 --> 01:08:21,240
Speaker 1: know him, Jack Brennan and Tim are probably to the

1242
01:08:21,320 --> 01:08:23,280
Speaker 1: smartest people I've ever been blessed to be around. You

1243
01:08:23,640 --> 01:08:27,439
Speaker 1: mentioned Brennan, you mentioned Buckley, any other men mentors you

1244
01:08:27,520 --> 01:08:30,400
Speaker 1: want to bring up? So my my career, Uh, well, first,

1245
01:08:30,479 --> 01:08:32,200
Speaker 1: my parents, you know, my parents say, I think, you know,

1246
01:08:32,320 --> 01:08:35,920
Speaker 1: really gave my brother and I an unbelievable head start

1247
01:08:36,040 --> 01:08:38,519
Speaker 1: and and that we came from pretty modest means, but

1248
01:08:38,640 --> 01:08:42,439
Speaker 1: they really stressed education. Um, and so I would be

1249
01:08:42,479 --> 01:08:46,639
Speaker 1: remissed without talking about them, Um, my kids. I've learned

1250
01:08:46,680 --> 01:08:49,519
Speaker 1: as much from my five kids is probably pretty much anybody,

1251
01:08:50,000 --> 01:08:52,599
Speaker 1: just the good nature and humility of them. And then

1252
01:08:52,680 --> 01:08:55,080
Speaker 1: maybe my first boss. My first boss coming out of

1253
01:08:55,400 --> 01:08:58,680
Speaker 1: business school was Terry Gabrielle. He's the individual who ran

1254
01:08:58,800 --> 01:09:01,479
Speaker 1: the billion dollar Are I a firm? Uh? There was?

1255
01:09:01,520 --> 01:09:04,320
Speaker 1: Executive Investment Advisors was the name of our firm? What

1256
01:09:04,479 --> 01:09:10,280
Speaker 1: about investors who influenced your approach to analyzing companies and

1257
01:09:10,360 --> 01:09:14,599
Speaker 1: thinking about portfolio construction. Yes, on the valuation side, Um,

1258
01:09:14,880 --> 01:09:17,840
Speaker 1: certainly Graham, DoD You've read all the work on Graham

1259
01:09:17,880 --> 01:09:21,640
Speaker 1: and Dodd, Mario Gabelly, you know it, you know so

1260
01:09:22,000 --> 01:09:25,519
Speaker 1: again being a you know deep value uh, Monger, Buffett.

1261
01:09:25,640 --> 01:09:28,400
Speaker 1: So I think of them really on the valuation side

1262
01:09:28,439 --> 01:09:30,720
Speaker 1: of the house. But then on the behavioral side, you know,

1263
01:09:31,000 --> 01:09:35,799
Speaker 1: Conoman Diversky fail or uh, just huge you know readers

1264
01:09:35,880 --> 01:09:38,840
Speaker 1: and consumers of all the work that they've done. Quite

1265
01:09:38,920 --> 01:09:41,920
Speaker 1: quite interesting. Let's talk about books. What are some of

1266
01:09:42,000 --> 01:09:46,240
Speaker 1: the books you enjoy reading? Finance, nonfinance, fiction, nonfiction? What

1267
01:09:46,439 --> 01:09:48,559
Speaker 1: what do you like to read? Yeah, I would say

1268
01:09:48,840 --> 01:09:53,000
Speaker 1: Fooled by Randomness by talib probably for sure, probably my

1269
01:09:53,200 --> 01:09:56,600
Speaker 1: most favorite Uh. But then back to you know Tversky,

1270
01:09:56,760 --> 01:09:59,320
Speaker 1: so you know, Judgment under Uncertainty. They're one of the

1271
01:09:59,520 --> 01:10:04,040
Speaker 1: very early least books twos when they wrote that book. Uh,

1272
01:10:04,520 --> 01:10:08,760
Speaker 1: Annie Duke, Um, thinking and thinking in bets um, you know,

1273
01:10:08,880 --> 01:10:11,560
Speaker 1: just an incredible way to think about resulting. You know,

1274
01:10:11,720 --> 01:10:14,439
Speaker 1: I'm a big believer, you know before she actually framed

1275
01:10:14,479 --> 01:10:15,960
Speaker 1: it in that way of thinking about what is your

1276
01:10:16,080 --> 01:10:20,280
Speaker 1: process and does your process seems sound? And then you know,

1277
01:10:20,920 --> 01:10:23,800
Speaker 1: not necessarily resulting or always thinking about you know, was

1278
01:10:23,840 --> 01:10:26,879
Speaker 1: your decision right and changing your process. If your process

1279
01:10:27,000 --> 01:10:29,680
Speaker 1: is right, you're gonna get your results that you know.

1280
01:10:29,840 --> 01:10:33,960
Speaker 1: It's not a probabis probabilistic approach, and that means sometimes

1281
01:10:33,960 --> 01:10:36,400
Speaker 1: you're gonna do the right thing and lose exactly. So

1282
01:10:36,479 --> 01:10:39,080
Speaker 1: those would be you know, what I've read, you know consistently.

1283
01:10:39,240 --> 01:10:41,000
Speaker 1: You know, I'm a consumer of reading books over and

1284
01:10:41,080 --> 01:10:43,680
Speaker 1: over again. So those are books I probably have read,

1285
01:10:43,760 --> 01:10:47,320
Speaker 1: you know, multiple multiple times. Quite interesting, tell us about

1286
01:10:47,320 --> 01:10:51,800
Speaker 1: the time you've failed and what you learned from the experience. Yeah. So, Um,

1287
01:10:51,920 --> 01:10:55,400
Speaker 1: I'm a huge music buff um. I love going to

1288
01:10:55,479 --> 01:10:58,880
Speaker 1: live events and as a teenager, I I so wanted

1289
01:10:59,000 --> 01:11:02,759
Speaker 1: to have a career in music. So I took guitar lessons.

1290
01:11:02,880 --> 01:11:06,679
Speaker 1: You know, I was the one who didn't fail, you know, easily.

1291
01:11:07,280 --> 01:11:09,760
Speaker 1: I failed a lot, but not easily, And so I

1292
01:11:09,960 --> 01:11:12,439
Speaker 1: kept trying and kept trying for years. I just did

1293
01:11:12,560 --> 01:11:15,640
Speaker 1: not have the music gene. I think I have the

1294
01:11:15,760 --> 01:11:21,479
Speaker 1: music ear so I I I can identify maybe talent early.

1295
01:11:21,600 --> 01:11:24,240
Speaker 1: But I just as hard as I tried. So the

1296
01:11:24,360 --> 01:11:26,960
Speaker 1: idea of grit and persistence. Uh you know, I I

1297
01:11:27,479 --> 01:11:30,280
Speaker 1: really tried my hardest, but I just missed the musical gene.

1298
01:11:30,920 --> 01:11:33,479
Speaker 1: The um you mentioned you and I have something in common.

1299
01:11:33,560 --> 01:11:35,519
Speaker 1: You go to a lot of shows. What have you

1300
01:11:35,600 --> 01:11:38,559
Speaker 1: seen recently? I go to a ton of live music events.

1301
01:11:38,680 --> 01:11:42,519
Speaker 1: I have a very eclectic so most you may not

1302
01:11:42,680 --> 01:11:48,800
Speaker 1: even know of. Uh so camp okay, hop along? So

1303
01:11:49,240 --> 01:11:51,720
Speaker 1: now you're way out there. Yeah. So I mean I'm

1304
01:11:52,400 --> 01:11:55,760
Speaker 1: next country or no, it's a progressive. So I'm a

1305
01:11:55,920 --> 01:12:00,600
Speaker 1: mix of indie rock progressive. But I I see, you know,

1306
01:12:00,760 --> 01:12:04,080
Speaker 1: I've been to fifty cent eminem to seeing Adele's opening act,

1307
01:12:04,600 --> 01:12:06,400
Speaker 1: so I saw. I was lucky enough to see Adele

1308
01:12:06,439 --> 01:12:08,759
Speaker 1: before anyone knew who she was and a small arena

1309
01:12:08,880 --> 01:12:13,000
Speaker 1: two thousand people. Um, so I probably go to twenty

1310
01:12:13,439 --> 01:12:16,519
Speaker 1: live concert events. And I'm also a big live sporting

1311
01:12:16,560 --> 01:12:21,200
Speaker 1: event person. Uh, you know, mostly Philadelphia fan, but so

1312
01:12:21,280 --> 01:12:25,400
Speaker 1: I love live events. The I just the Sunday before

1313
01:12:25,439 --> 01:12:28,479
Speaker 1: we recorded this, I just saw The Who as part

1314
01:12:28,560 --> 01:12:33,080
Speaker 1: of their their farewell tour. But it's nice being in

1315
01:12:33,400 --> 01:12:36,920
Speaker 1: or near a big city because everybody eventually passes through Philadelphia,

1316
01:12:36,960 --> 01:12:40,400
Speaker 1: everybody eventually passes through New York. You could go to

1317
01:12:40,479 --> 01:12:43,000
Speaker 1: a different show every single night and not see the

1318
01:12:43,040 --> 01:12:45,920
Speaker 1: same band twice. Absolutely, and then more close to New

1319
01:12:46,000 --> 01:12:47,800
Speaker 1: York too. I'm only an hour train ride, so I

1320
01:12:47,880 --> 01:12:49,840
Speaker 1: get into New York quite often as well. What do

1321
01:12:49,920 --> 01:12:51,360
Speaker 1: you what do you do for fun? You mentioned you

1322
01:12:51,439 --> 01:12:53,240
Speaker 1: go to live shows? What else do you do? Ye?

1323
01:12:53,360 --> 01:12:56,240
Speaker 1: So live shows and then five kids? My my, my

1324
01:12:56,400 --> 01:12:58,960
Speaker 1: five kids are you know? And and to me it

1325
01:12:59,080 --> 01:13:01,040
Speaker 1: is a hobby, you know, going to all their sporting

1326
01:13:01,080 --> 01:13:05,000
Speaker 1: events and their extracurricular events. I'm also a big workout person,

1327
01:13:05,200 --> 01:13:07,639
Speaker 1: so you know, I've always been into you know, weight

1328
01:13:07,760 --> 01:13:11,720
Speaker 1: training and running and anything outdoors. Uh, you know, to me,

1329
01:13:11,880 --> 01:13:16,720
Speaker 1: that's my hobbies. What do you most optimistic and pessimistic

1330
01:13:16,880 --> 01:13:21,600
Speaker 1: about within our industry? I'm very optimistic about the continued

1331
01:13:21,840 --> 01:13:26,040
Speaker 1: democratization uh for investors. And what I mean by that is,

1332
01:13:26,120 --> 01:13:28,439
Speaker 1: you know, ten twenty years ago we talked a lot

1333
01:13:28,479 --> 01:13:32,040
Speaker 1: about access. You really needed to be a large institution

1334
01:13:32,320 --> 01:13:35,000
Speaker 1: or a very high net worth to get world class

1335
01:13:35,120 --> 01:13:39,160
Speaker 1: investments and world class advice, and so I'm very optimistic

1336
01:13:39,680 --> 01:13:43,360
Speaker 1: for end investors to get world class outcomes. And so

1337
01:13:43,840 --> 01:13:46,280
Speaker 1: you know, whether it's you've seen, you know, pricing go

1338
01:13:46,520 --> 01:13:50,440
Speaker 1: from bitass spreads of halves and quarters to decimals, Commissions

1339
01:13:50,479 --> 01:13:54,360
Speaker 1: go down, product go down, advice minimums go down, so

1340
01:13:54,880 --> 01:13:57,240
Speaker 1: you know, to me, it's all about the end investor.

1341
01:13:57,400 --> 01:14:00,280
Speaker 1: I always wanted to do investments, and I also wanted

1342
01:14:00,320 --> 01:14:02,639
Speaker 1: to be helping my clients, and so I am very

1343
01:14:02,720 --> 01:14:07,400
Speaker 1: optimistic about the continued democratization of giving investors a fairer

1344
01:14:07,479 --> 01:14:10,360
Speaker 1: and fairer shake to get world class outcomes. So if

1345
01:14:10,360 --> 01:14:12,880
Speaker 1: a recent college graduate came to you and said they

1346
01:14:12,920 --> 01:14:16,760
Speaker 1: were interested in a career in asset management, what sort

1347
01:14:16,800 --> 01:14:19,040
Speaker 1: of advice would you give them? Yeah, I would say,

1348
01:14:19,160 --> 01:14:22,200
Speaker 1: you know, it's hard not to see what technology and

1349
01:14:22,360 --> 01:14:26,000
Speaker 1: machine learning and AI are doing to asset management, and

1350
01:14:26,120 --> 01:14:28,960
Speaker 1: so maybe getting a little bit out or less in

1351
01:14:29,080 --> 01:14:31,320
Speaker 1: the stem or I Q and more into the EQ

1352
01:14:31,600 --> 01:14:33,559
Speaker 1: side because I think that, you know, what is going

1353
01:14:33,600 --> 01:14:37,600
Speaker 1: to be left standing is behavioral coaching and relating to

1354
01:14:37,760 --> 01:14:40,360
Speaker 1: clients and working with clients, which is a different skill

1355
01:14:40,439 --> 01:14:43,160
Speaker 1: set than sitting at a terminal and trying to figure

1356
01:14:43,160 --> 01:14:45,320
Speaker 1: out that I buy stock X or Y or z.

1357
01:14:45,960 --> 01:14:47,720
Speaker 1: So I think there's gonna be, you know, somewhat of

1358
01:14:47,760 --> 01:14:50,439
Speaker 1: a shift from I Q to EQ UH in the

1359
01:14:50,520 --> 01:14:53,559
Speaker 1: space so viral millennial or talking to my son who's

1360
01:14:53,600 --> 01:14:55,960
Speaker 1: trying to enter the space, I was talking about making

1361
01:14:55,960 --> 01:14:59,280
Speaker 1: sure these world class and relationship management on the EQ

1362
01:15:00,240 --> 01:15:03,200
Speaker 1: persuasion and influence side as much as he is on

1363
01:15:03,280 --> 01:15:06,719
Speaker 1: the math and analytical and technology side. Quite quite interesting.

1364
01:15:07,280 --> 01:15:10,000
Speaker 1: UM and our final question, what do you know about

1365
01:15:10,080 --> 01:15:13,200
Speaker 1: the world of investing today that you wish you knew

1366
01:15:13,520 --> 01:15:16,679
Speaker 1: thirty years ago when you were first getting started. Yeah,

1367
01:15:16,760 --> 01:15:18,880
Speaker 1: I would say that the market does not know or

1368
01:15:19,040 --> 01:15:23,280
Speaker 1: care what my valuation. If a fair value is um,

1369
01:15:23,400 --> 01:15:25,160
Speaker 1: you know, I remember my first job, would say the

1370
01:15:25,200 --> 01:15:27,639
Speaker 1: fair value of this company. It's selling below book value,

1371
01:15:27,680 --> 01:15:30,479
Speaker 1: it's selling below cash value. And it's kind of Kansas

1372
01:15:30,520 --> 01:15:32,800
Speaker 1: quote that you know, the the market can stay irrational

1373
01:15:32,880 --> 01:15:35,439
Speaker 1: or longer than you can stay solvent and there's never

1374
01:15:35,560 --> 01:15:38,040
Speaker 1: a truer quote than that, right, So, you know, the

1375
01:15:38,120 --> 01:15:42,320
Speaker 1: market doesn't know care what my valuation or my assumption is.

1376
01:15:42,439 --> 01:15:44,400
Speaker 1: The market is gonna do what it's gonna do. And

1377
01:15:44,479 --> 01:15:47,080
Speaker 1: I think, you know, having that sense of humility, um,

1378
01:15:47,160 --> 01:15:49,640
Speaker 1: I think it would. You know, I probably wasn't as

1379
01:15:49,880 --> 01:15:52,040
Speaker 1: humble and human. You have it as much humility in

1380
01:15:52,120 --> 01:15:54,240
Speaker 1: my earlier days and I have today. You know, it's

1381
01:15:54,240 --> 01:15:56,280
Speaker 1: funny you say that I used to hear early in

1382
01:15:56,360 --> 01:15:59,920
Speaker 1: my career a variation on that, which is the mark.

1383
01:16:00,040 --> 01:16:02,840
Speaker 1: It doesn't care what you paid for that stock really,

1384
01:16:03,120 --> 01:16:06,040
Speaker 1: so valuation or even what you paid, it's not relevant.

1385
01:16:06,040 --> 01:16:08,439
Speaker 1: It's gonna do what it's gonna do. Your little purchase

1386
01:16:08,560 --> 01:16:12,559
Speaker 1: is not reliant. Yeah, the market doesn't know your right exactly. Hey,

1387
01:16:12,800 --> 01:16:16,240
Speaker 1: fran this has been absolutely fascinating. Thank you for being

1388
01:16:16,680 --> 01:16:19,720
Speaker 1: so generous with your time. We have been speaking with

1389
01:16:19,840 --> 01:16:23,960
Speaker 1: fran Can I re H, head of Global Portfolio Construction

1390
01:16:24,160 --> 01:16:31,040
Speaker 1: for Vanguard Group in Malvern, Pennsylvania, which manages a small

1391
01:16:31,400 --> 01:16:35,320
Speaker 1: five trillion dollars. If you enjoyed this conversation, well, look

1392
01:16:35,400 --> 01:16:38,040
Speaker 1: up an intro down an inch on Apple iTunes and

1393
01:16:38,160 --> 01:16:40,560
Speaker 1: you could see any of the other two hundred and

1394
01:16:40,720 --> 01:16:46,040
Speaker 1: fifty eight or so previous conversations we've had. We love

1395
01:16:46,120 --> 01:16:50,439
Speaker 1: your comments, feedback and suggestions right to us at m

1396
01:16:50,520 --> 01:16:53,599
Speaker 1: IB podcast at Bloomberg dot net. Give us a review

1397
01:16:53,760 --> 01:16:57,000
Speaker 1: on Apple iTunes. I would be remiss if I did

1398
01:16:57,080 --> 01:17:00,280
Speaker 1: not thank the crack staff that helps put these conversations

1399
01:17:00,320 --> 01:17:03,799
Speaker 1: together each week. Michael bat Nick is my head of research.

1400
01:17:04,120 --> 01:17:08,519
Speaker 1: Attica val Brunn is our project manager. Michael Boyle is

1401
01:17:08,560 --> 01:17:12,799
Speaker 1: my producer. I'm Barry Retolts. You've been listening to Masters

1402
01:17:12,840 --> 01:17:14,719
Speaker 1: in Business from Bloomberg Radio