00:00:01
welcome to the best interest podcast where we believe Benjamin Franklin's advice that an investment in knowledge
00:00:08
pays the best interest both in finances and in your life every episode teaches you personal finance and investing in
00:00:16
simple terms now here's your host Jesse Kramer hello and welcome to episode 100
00:00:23
yes episode 100 of the best interest podcast my name is Jesse Kramer today is going to be a fun a little of a pot PRI
00:00:30
episode we've got a few different things there's a reflection on the past there's
00:00:34
the forecasted and the highly anticipated branding change and a little bit of talk about why we're doing that
00:00:40
there's a shout out from previous guests you'll hear from some of the awesome
00:00:44
famous well-known intelligent guests we've had on here in the past and then I
00:00:49
asked my listeners for some of their favorite episodes from the past so we're
00:00:53
going to play some of the best Clips some of the very best clips from the best 100 episodes of the best interest
00:01:00
so far however as we start most of our episodes these days we do have a review of the week this one comes from lsse 587
00:01:08
who left us a five-star review on Apple podcasts and LSC said I love this podcast I listen to podcasts at the gym
00:01:15
and on walks Jesse makes the time fly by He Is knowledgeable and very easy to understand and I've sent him a few
00:01:21
questions via email not only has he replied back but he has incorporated my questions into his blog and podcast
00:01:27
thank you Jesse well LSC 587 thanks for the kind words shoot me an email to Jesse bestin interest. blog we'll get
00:01:34
you hooked up with a super soft bestest t-shirt and yes listeners as you will hear later today as you might already be
00:01:41
familiar with I really enjoy and I'm going to do more and more of these AMA episodes where we get interesting
00:01:49
intricate sometimes unique or kind of strange questions questions that you might not have heard before from the
00:01:55
world of financial planning questions like the ones that LSC 587 sent in and it makes for such interesting
00:02:02
content I enjoy putting them together we've gotten great feedback from our listeners on the AMA episodes and there
00:02:07
are certainly a lot more of them to come in the next 100 episodes and far beyond
00:02:12
and as I just alluded to you will hear various former guests give us some shout outs say hi in today's episode and
00:02:19
they'll let you know where you can go back and listen to them here on the podcast again a lot of really good
00:02:24
episodes in the backlog and also where you can go check them out on their own channels because I encourage you guys to
00:02:30
go far and wide and deep when it comes to educating yourselves on Personal Finance investing Financial Planning and
00:02:36
I really think that is the way to eventually formulate your own expert opinions is by hearing what a lot of
00:02:42
other people think synthesizing it figuring out how it applies to your own situation your own life and boom there
00:02:48
you have your opinion so let's start off with our first shout out here hey Jesse
00:02:53
you know what I heard you have reached 100 episodes and I know what everybody's
00:02:58
thinking man if Jesse can do it then I can do it too and you know what you probably can't because frankly the
00:03:04
average podcast lasts seven episodes and the fact that you made it to 100 well frankly all of us in the basement we're
00:03:11
high-fiving you mom has made a cake so you got to come back over and hang out with us I hung out with you on episodes
00:03:18
73 and 93 off the top of my head I think those were probably the best episodes in
00:03:24
the entire catalog of those 100 don't you think they probably probably are but
00:03:29
any anyway congratulations on 100 episodes here's to a hundred more big guy and uh we'll see you back here in
00:03:37
Mom's basement for more stacking Benjamin's fun as well thank you for those kind words Joe and now listeners
00:03:44
let's go on a little bit of a reflection on the Journey of the best interest
00:03:47
podcast and just the best interest in general and my thought immediately goes back to the Bill Gates quote most people
00:03:53
overestimate what we can do in two years but we underestimate what we can do in 10 years and 10 years ago
00:04:00
2015 Not only was the best interest not on my radar at all but I wouldn't even
00:04:06
say I knew that much about personal finance and investing in the first place but right about that time is when I got
00:04:12
hooked on this content and I read 20 or 30 books on the topic per year for a few
00:04:18
years in that 2016 2017 2018 timeline I obviously must have been a really fun guy to talk to great at parties with my
00:04:27
all all I would do in my free time was read about money but then eventually I started offering up my ideas or just
00:04:33
what I had learned to my engineering colleagues back in my old career aerospace engineering and people would
00:04:39
ask me questions about their 401k or you know I was talking about this stuff at the water cooler eventually I would
00:04:44
write my colleagues emails with these you know hopefully clear explanations on my thought process or what I was doing
00:04:51
why I was doing it what I think they might want to consider and one of those colleagues said Jesse this is basically
00:04:58
a blog post what you've just written in this email it's basically a blog post so
00:05:02
why don't you make a website a Blog and just share it with the internet and boom
00:05:06
the best interest was born the name of course coming from Ben Franklin's quote
00:05:11
an investment in knowledge pays the best interest along with this idea of wanting
00:05:15
to you know operate in the best interest of my readers and listeners and then of
00:05:20
course there's just the triple meaning if you will of here we are in this investing world and whatever we can do
00:05:25
to earn the most interest on our money is something we ought to consider so boom okay that's how the name happened
00:05:31
the best interest the best interest podcast started in 2021 and that was its own unique Journey first just learning
00:05:38
the logistics of recording and editing and Publishing this podcast on my own second getting better at talking into
00:05:45
the microphone and talking smoothly the early episodes if you don't know simply
00:05:50
aren't that good I do not encourage you to go back to those early episodes of
00:05:54
the podcast you can go back and listen if you're just curious and you want to
00:05:57
see how much it's changed over time if you start in the early episodes if that's where you started on this podcast
00:06:02
you might have not have made it to episode 100 I wouldn't blame you for turning the podcast off and in fact some
00:06:08
of you might not know this we went back in time about six months ago and re-recorded a new intro for episode one
00:06:15
that simply says hey this is an early episode of the podcast some of you might have heard of the best interest you
00:06:22
decided to go back and start at episode one because that's the way you like to
00:06:25
do things and if you did choose that you're going to realize that episode one
00:06:29
maybe in the first few dozen episodes aren't that good and you probably should
00:06:32
just skip ahead to the later episodes anyway but then there's the journey too
00:06:36
of just the content itself and me trying to figure out how I wanted to present these episodes and what I wanted to talk
00:06:42
about in these episodes you know whether it was interviews with experts or Roundtable discussions or just me going
00:06:49
solo on the microphone or asking me anything episodes over time I I think I've narrowed in on the episodes that
00:06:56
you all enjoy more just that I'm getting better and better feedback on episodes
00:07:00
that you're learning more from and also episodes that I enjoy putting together I
00:07:04
think that's an important part of the process too now what's really interesting is that the podcast
00:07:09
essentially died at one point so I said I I started in 2021 and I made 37 episodes of the podcast over the first
00:07:17
30 weeks of 2021 and then I got a little bit burnt out I I didn't love the direction that I was taking the podcast
00:07:24
in I just it was really timec consuming my heart just wasn't into it at that
00:07:28
point and so over the following 11 months I made one episode and to anyone on the outside and even to me uh living
00:07:36
in that moment the podcast was no longer a living project uh I still loved personal finance and investing and
00:07:42
financial planning I still used the blog a lot during that time I was still writing at least one sometimes two
00:07:49
articles per week and eventually I I used the blog to act as my resume to change careers right now I'm working in
00:07:56
financial planning wealth management So Not only was I creating content around these ideas but I also started helping
00:08:02
families Implement these Ideas Daily into their own lives and by the end of 2022 during the doldrum period of this
00:08:08
podcast when it really wasn't alive anymore that's when I started looking
00:08:12
around and I thought a few different things first there are quite a few podcasts out there run by financial
00:08:18
planners like me some of them are great some of them though I thought were maybe
00:08:22
a bit lacking or I thought I could do something pretty unique in this space something that not many other people are
00:08:26
doing and then the more I listened to these podcasts the more confident I began to feel in my own teaching
00:08:32
abilities we talked about this on episode 92 with Dan otter because that episode was all about teachers and 403bs
00:08:38
and what school teachers can be doing differently that both my parents were School teachers and I acted as a
00:08:44
teaching assistant throughout College I think you know whatever eight or 10 different college courses on some pretty
00:08:49
complex engineering topics and I always got good feedback on my ability to explain complex topics and so suddenly
00:08:56
the the image started to come into focus a little bit more that I could use this
00:09:00
podcast as a teaching platform I could bring on some experts who can explain their expertise I could share stories
00:09:06
and answers from within the the wealth management practice that I work at every single day ultimately a rising tide
00:09:13
lifts All Ships right I think we all do better that if I'm providing a better
00:09:17
product and you all are learning more everyone's benefiting and then if I do a
00:09:22
good enough job that good things could happen in my professional life too so putting that idea into practice starting
00:09:29
at the beginning of 2023 I began working with an outside podcast production team
00:09:34
simple pod Studio shout out to Justin and Kyle who make not only make this podcast just sound better and they save
00:09:41
me tons of time on the editing and production side but we had a simple experimental goal together of let's try
00:09:46
to publish 26 episodes every other week in 2023 every episode on time we can figure out the content itself you know
00:09:54
why am I here what am I talking about etc etc and not only did we hit that goal but then we kept the momentum
00:09:59
rolling into 2024 and now here into 2025 so episode 44 of this podcast and onward
00:10:07
has a new level of quality to it and sure enough with that consistency and that quality and that new vision for the
00:10:13
podcast a lot of you listeners have jumped on the bandwagon and and followed along two years ago when we started on
00:10:19
this this new version of the podcast I'll call it I'd be lucky if 500 people
00:10:24
tuned in every month well that number is compounding every single month right now we're on Pace as I sit here
00:10:31
and record in January we're probably going to Eclipse 7,500 listeners this month probably by the end of this year
00:10:38
we'll easily Eclipse 10,000 listeners every month that'll for all I know
00:10:41
that'll happen this spring and yes the professional benefits are occurring too
00:10:46
now I won't rehash all the details I discussed in episode 96 when it comes to
00:10:50
the overlap of my professional wealth management practice and the podcast but the summary is that some of you
00:10:57
listening are reaching out to me for professional health some of you listening are referring in your friends
00:11:01
and your family to me for professional help and when it's a good fit which certainly doesn't happen every time I
00:11:06
know that but when it's a good fit when I know that myself and my colleagues
00:11:11
here can deliver the financial planning and investing answers to you to your important questions then yeah we end up
00:11:18
working together and you get trusted advice and I get to do my job and again a rising tide lifts All Ships back in
00:11:26
2015 10 years ago none of this was even a twinkle in my eye back in December 2018 when I wrote the first blog post on
00:11:34
the best interest none of this was on my mind in February 2021 when I made the very first podcast episode I had no idea
00:11:41
I even wanted to change careers so I suppose my big takeway here combines you know the Nike idea of just do it with
00:11:49
the Bill Gates idea of most people underestimate what they can accomplish in 10 years and then I sprinkle in a
00:11:55
little bit of Bilbo baggin and Jr tolken from The Lord of the Rings where from The Hobbit where he says you know it's a
00:12:01
dangerous business froto going out your door you step onto the road and if you don't keep your feet there's no knowing
00:12:07
where you'll be swept off to so this project swept me off to here and who knows where it's going to sweep me off
00:12:14
to next but mostly thank you all for listening on a weekly basis it feels like I get to express my gratitude to
00:12:21
one of you who writes in with something heartfelt I'll say something similar
00:12:25
here which is that there's nothing quite so energizing as your emails as your
00:12:29
gratitude for my work your awesome podcast reviews whatever it may be it truly is one of the most unique feelings
00:12:35
and one of the most unique fuels that keeps me going here on this project I got this note over the holidays the the
00:12:41
2024 holiday season and I I just wanted to share it with you so so here it goes hi Jesse I just wanted to say thank you
00:12:48
so much for all the work you do with the best interest I always thought of myself
00:12:52
as someone who's bad with finances I was raised by a single mother who did not
00:12:55
have much money and growing up we were constantly being told we didn't have enough my mom has not had a full-time
00:13:00
job in years she has a lot of credit card debt I know this has had a huge influence on how I view money and
00:13:05
finances and why money makes me so incredibly anxious for the longest time I've basically ignored it and avoided
00:13:12
dealing with my finances because of this anxiety recently my therapists and I have done a lot of work on the idea that
00:13:17
gathering information and education myself about things that make me anxious is actually the best way to alleviate
00:13:24
this anxiety for the past few months I've been working hard on doing this with my personal finan and money I
00:13:30
started by listening to the how to money podcast and that's how I found you and
00:13:34
the best interest I've been listening to your podcast and reading your blog ever
00:13:37
since and it has been by far the most helpful resource for me you are a great teacher and you have simplified so many
00:13:43
things that I thought I would never understand I love that you always discuss such relevant and relatable
00:13:48
topics and do it in a way that is helpful for the average person trying to learn the basics of personal finance you
00:13:53
have no idea how much your blog and podcast have taught me and helped me face my personal finance fears your
00:13:58
education and work have made me feel so empowered and have alleviated a lot of my anxiety I cannot tell you how
00:14:03
grateful I am for your work and commitment to teaching and sharing your knowledge thank you so much I look
00:14:08
forward to continuing to learn from you so that listeners I'm not sure how to
00:14:13
describe how that note makes me feel how good it makes me feel that this note represents listeners like you and that
00:14:19
my little waves in the ocean are not only reaching your Shores but carrying an important message that helps you in
00:14:25
your lives and speaking of that I find it so cool that I can say this sentence this very sentence one time and that
00:14:32
through modern technology it will reach thousands and thousands of you at your own pace through your speakers through
00:14:37
your headphones as you drive to work as you walk your dog or cook that meal literally all over the world it is
00:14:44
awesome so from the bottom of my heart thank you for joining me on this journey hey this is Brad Barrett you can hear me
00:14:50
and Jesse back on episode 54 of the best interest podcast and you can learn more
00:14:54
about the life-changing power of financial independence by listening to my podcast choose fi that's choose like
00:15:01
make a choice fi for financial Independence hey everyone this is Nick muli you can hear Jesse and I back on
00:15:08
episode 60 of the best interest podcast and you can check out more of my work at
00:15:12
ofd dolland dat.com thank you all right so now I want to talk about a minor or maybe a major maybe maybe a really
00:15:20
important rebranding of this podcast because on one hand I love I love love love the name the best interest and I
00:15:29
know that's how many of you know of this podcast right you know the name well you
00:15:33
you share it with other people the brand has done its job and it's stuck out with
00:15:37
you but someone I I really admire in the podcasting World said something interesting to me six months ago or so
00:15:44
they said Jesse I think your content is as good as anyone out there with a finance or investing podcast it's just a
00:15:50
matter of making sure that more people actually have the chance actually have the opportunity to listen to your
00:15:57
podcast and on that front list listeners here's a little bit of of inside baseball knowledge maybe something you
00:16:02
you didn't necessarily sign up for to learn but when the title of a podcast doesn't do enough to describe the
00:16:09
content of the podcast it it can turn a lot of listeners away or people just they don't feel the need to tune in in
00:16:15
the first place and now just a few minutes ago kind of coincidentally you heard in that one listener email to me
00:16:22
she first heard of me on an episode of the podcast how to money now what a great example you know the how to money
00:16:28
guys Matt and Joel they have an awesome podcast but when you hear a podcast that's titled how to money what do you
00:16:36
think that is about that is a amazingly descriptive title for their personal finance content it it matches the
00:16:43
content perfectly now the best interest it's a great name I really like the name
00:16:48
but only after you've discovered what the podcast is about after I make you aware of the double meanings of the
00:16:54
cutesy language there and I was introduced a couple months ago to a podcast marketing expert and he said
00:17:01
that the best interest is the perfect example of what he calls a too cute title it's cute it's nice but only after
00:17:09
you understand what the podcast is actually about if you're an outsider looking in and you just saw that title
00:17:14
the best interest I'm not sure if you'd know what it was about I maybe you all
00:17:19
listening because you are investing people maybe you'd make the connection to you know the fiduciary standard the
00:17:24
best interest of a client maybe you'd make the connection to Benjamin Franklin's quote but maybe not like if
00:17:29
you were an attorney for example if you actually Google the best interest right now a lot of the top results have to do
00:17:36
with in family courts the best interest of the child of of a decision being made
00:17:41
in the best interest of the child right my point is the best interest is not an extremely descriptive title for what
00:17:48
this content what we talk about is actually about so instead that's what I needed to find a podcast title that
00:17:55
could be very descriptive of what we actually talk about here and ideally that means that the title is also very
00:18:00
searchable in podcast players on Google stuff like that and so for all those reasons the podcast title moving forward
00:18:07
is going to be less flashy but much more descriptive it's going to be personal
00:18:12
finance for long-term investors now doesn't that neatly encapsulate what we talk about here and know okay it's not
00:18:18
as cute as the best interest podcast but personal finance for longterm investors
00:18:24
I know it'll take a little while for us to get the best interest out of all our
00:18:27
brains mostly my own and so conveniently I can keep the best interest on as an official subtitle of the podcast if you
00:18:35
will so it'll still remain searchable in that way when you see this on your podcast players you're going to start
00:18:41
seeing it as personal finance for long-term investors hyphen the best interest okay it'll show up there
00:18:48
eventually I'll probably drop that subtitle because I hope there comes a point when more people know of this as
00:18:54
personal finance for long-term investors then know of it as the best interest now it's a little bit nerve-wracking for
00:19:00
sure it might be a little bit like renaming your child but I know that in a few months or a year or two I'll look
00:19:08
back at this moment in time I'll look back at this particular name change and
00:19:12
I know that it will be the right move the best interest podcast got me here it'll always be close to my heart but
00:19:18
yes starting with today's outro you will hear our new name personal finance for
00:19:23
long-term investors hey best interest listeners this is Justin Peters you can hear Jesse and I debate the golden rules
00:19:30
of personal finance back on episode 78 of the best interest podcast if you're
00:19:35
looking for more personal finance content check out my podcast the struggle is real on your favorite
00:19:40
podcast player with the rebranding behind us I want to recap some of the very best Clips some of the highlights
00:19:47
from the first 100 episodes of the best interest podcast oh sorry from personal finance for long-term investors see I
00:19:54
need to start using the right title I'll allow it for now uh long story short I
00:19:58
reached out to my newsletter subscribers in planning for this episode and ask them for their favorite episodes and
00:20:04
clips from podcast history and the top answers were relatively uniform it was pretty easy to pick out the top three so
00:20:12
first we're going to go back to episode 70 with Jeremy Schneider from personal
00:20:15
finance Club who talked about the seven sins of investing hello Millionaires and
00:20:20
future millionaires this is Jeremy Schneider you can hear Jesse and I back on episode 70 of the best interest
00:20:27
podcast and you can find my fun daily personal finance infographics on Instagram ersonal Finance Club I saw a
00:20:35
really cool post of yours it caught my eye because you called it the seven sins of investing what are those sins Jeremy
00:20:44
the seven sins of investing so I've been helping people learn about investing for
00:20:47
a long time and it's really simple as core spend lesson you make invest Buy and Hold index funds for a long period
00:20:55
of time but I always see people making these seven mistakes and let's go through quickly SIN number one is
00:21:01
holding cash in a retirement account and I I made a post once that said my nightmares are fueled by by Young
00:21:08
investors holding cash in retirement accounts because it's as insanely common
00:21:14
and insanely devastating mistake which is you open up a Roth IRA you put a bunch of money in you like put your
00:21:19
hands over your head say I have a Roth IRA I put money and I've done it I win
00:21:24
and a few years go by and you look in your Roth IRA and you put in $5,000 you again and it's there's like $52 in there
00:21:31
and you're like what's this I thought this was supposed to grow and what what
00:21:34
happened is when you put money into a retirement account or any investment account it's just cash sitting there you
00:21:41
have to take a second step which is to actually take that cash cash and purchase something with it like an index
00:21:47
fund and so if you ever look inside of your investment accounts and you see any words like cash sweep core default money
00:21:55
market anything that and there's it is a little bit confusing because they can use a bunch
00:22:00
of different words to mean the same thing but anything that sounds like cash if you see any amount of money sitting
00:22:06
there over like a dollar then you should be investing that you should take that money and go buy your fund so that's s
00:22:11
number one sin number two is picking individual stocks actually I don't know
00:22:15
if this one kind of pains me because I think choosing individual stocks has a benefit which is it it's enticing it's
00:22:23
encourages people into get people involved right and it's it's relatable
00:22:28
oh home Depot I go there all the time I should buy stock in their company it's
00:22:31
almost a little bit nostalgic like that's what our grandparents did they owned they own 10 shares of seirs robu
00:22:38
and they you know they sold it 50 years later I I consider to be a sin because it basically opens you up to risk of
00:22:45
these companies going into business without higher expected returns since we can't know ahead of time which stocks
00:22:51
going to do better when you're picking individual stocks you're adding risk
00:22:54
without getting higher expected returns and that's a bad deal in investing what's your take on individual stocks
00:23:01
yeah it's it's similar I think for the average person you are exposing yourself
00:23:05
to more errors than you would ever expose yourself to if you are owning an index fund quite simply do I think that
00:23:13
if you want to have a little bit of fun and you want to take 1% of your money and buy Burkshire hathway because you
00:23:19
like Warren Buffett I get it I'm not going to tell you that that's the optimal investing decision but I I can
00:23:25
understand that but I think the the average scenarios that you and I here Jeremy are the ones where people say
00:23:30
yeah I've got a diversified portfolio I'm onethird Apple onethird Tesla onethird
00:23:35
Nvidia huge US tech companies correct they're all very similar that's the
00:23:40
scary scenario and it's also a little scary I see on your Instagram post for
00:23:44
this SIN number two one of the companies that you highlight out of maybe 10 is my
00:23:49
beloved Kodak here in Rochester New York poor Kodak it used to be the lifel of our community had 880,000 local
00:23:56
employees out of a city I mean the population of Rochester is 250 in the city itself 250,000 about a million when
00:24:03
you do the whole metro area so if you think of a million local citizens 880,000 of them worked at Kodak in about
00:24:10
1990 that's 30 years ago today it's 1500 wow so in 30 years Kodak went from
00:24:17
880,000 employees to 1500 and the business is you know essentially went out of business stock owners who if they
00:24:23
held the whole time lost all of their money right that is one of the risks you run owning an individual stock and if we
00:24:30
took ourselves back to like 1995 or something you would have every reason to think Kodak would continue to crush it
00:24:36
for decades to come people have been taking more photos every single year photos are become becoming cheaper
00:24:42
population's growing you could make like 50 arguments why Kodak was going to
00:24:45
continue growing but the unexpected thing happens right digital photography comes out Kodak doesn't adapt whatever
00:24:52
and if you look at the biggest companies of the 90s we might see names like IBM Sears General Motors General Electric
00:24:59
and you know these all didn't go as poorly as Kodak did but they're not not
00:25:04
in the top 10 anymore right right and so when you're picking individual stocks
00:25:08
based on how they've done in fact this leads us very nicely into s number three
00:25:12
SIN number three is don't chase past performance or I guess the sin would be
00:25:17
chasing past performance because if you looked at codak stock in 1995 and said oh my gosh this stock has been crushing
00:25:24
it for 15 years I want the stock that crushes it so I to buy codc when you look backwards and buy what just did
00:25:31
well you're missing what's about to do well and so today you could make a
00:25:35
similar argument the biggest companies in the US Apple Amazon Google Facebook Microsoft Tesla you know these are
00:25:43
superstars today but if we fast forward 20 years are they going to still all be in the top 10 I can almost guarantee
00:25:49
that they all won't be in this top 10 maybe one or two will we don't know the
00:25:52
future but when you're just looking at what just recently did well you're
00:25:56
missing out on that new startup you missing out on you know the '90s we were
00:26:00
buying codec but we weren't buying Netflix or something you know the the unexpected thing that's going to do
00:26:05
really well and so don't buy your Investments based on what did well in the past buy broad index funds based on
00:26:13
what will do well what we you know to guarantee ourselves that we're going to
00:26:16
own whatever happens to do well going forward and I I agree with what you said earlier by the way which is yeah I I
00:26:21
actually have a 10% rule with 90% of your portfolio Buy and Hold index funds but with 10% go nuts if you want to buy
00:26:29
individual stocks you want to buy some crypto you want to buy some ETFs whatever go for it and I when I say ETFs
00:26:37
I mean you know like actively manag or narrow sector ETFs you know ETFs are fantastic to buy for their low cost and
00:26:44
Broad nature of the uh the index on versions but yeah don't don't be speculating with your whole portfolio
00:26:49
because if you're constantly buying what just did well you're going to miss
00:26:52
what's about to do well yeah J John Bogle famously said actually not famously said I think it's one of his
00:26:57
lesser known quotes but there's an excellent speech essay he did about it the quote is the iron rule of investing
00:27:04
is reversion to the mean it always rears its head reversion to the mean that which is high will eventually come back
00:27:10
to average that which is low will eventually come back to average and he's essentially restating your sin number
00:27:16
three there Jeremy what is sin number four yeah on that reversion of the mean right now everyone hates International
00:27:22
stocks everyone's like how' you buy International S&P 500 tech stocks that's
00:27:27
the way like those are was doing great but I'm like you know it's really hard
00:27:31
for me to push this narrative it's not popular but personally with my money I
00:27:35
have like 35 to 40% of my portfolio in non US stocks and yeah they've done poorly the last 10 years but is is the
00:27:43
next 10 years going to look like the last 10 probably not and like you said reversion of the mean I don't you know
00:27:47
it's hard to give you a very compelling argument that like the US markets not
00:27:52
going to do well and international markets are going to do well but I kind of think maybe International markets are
00:27:57
underpriced Maybe there's a little bit too much speculation built into the US
00:28:00
tech tech stocks and fast forward 10 years oh International markets have been averaging 12% a year while us has been
00:28:06
averaging seven suddenly I look pretty smart for buying International all right sorry I'm longwinded I love talking
00:28:14
about investing so number four is timing the market everyone kind of just like what I was talking about everyone loves
00:28:21
to guess what's about to happen and right now is no better example in fact 2023 is a great example which is at the
00:28:27
beginning of 2023 you could find endless headlines about the gloom and doom coming to the economy inflation
00:28:35
recession the Market's crashing we had a bad 2022 blah blah blah you know meanwhile the Market's up I think like
00:28:42
16% or something this year and so people were moving their money into Cash like oo High yeld savings accounts are paying
00:28:49
4% i g to get my 4 per. if you put your money to a high old savings count in 2023 and got 4% and not the year's not
00:28:55
even over so maybe at like 3% so far you missed you underperformed the market to
00:29:00
date by like 14% like underperforming by 14% is devastating and right and that's
00:29:07
what timing the market can do and so timing the market is any sort of decision based on what you think is
00:29:13
going to happen or what is happening move my money in move my money out move to bonds move to stocks move this move
00:29:18
that and it's a really tough pill for an investor to swall that you kind of need
00:29:22
to ignore all that it seems like and again I kind of go back to human evolution we're designed as humans to
00:29:28
react to stimulus if we hear a twig break break in the jungle a tiger might be looming and we should run but if we
00:29:36
hear a scary stock headline we shouldn't pull our money in fact like you said
00:29:41
probably the opposite you know as everyone else is running out we should probably be running in and so you kind
00:29:45
of have to ignore ignore don't don't time the market don't don't do something
00:29:50
just stand there another John Bal quote and another Shameless plug only because I I literally published it this morning
00:29:57
an article about a terrific real life stock lesson from just the last two weeks that the real world stock market
00:30:04
provided us uh against trying to time the market a lesson of just zoom out and wait for things to happen simply because
00:30:11
the market was down something like 10% from the end of July through the end of October now down 10% in three months
00:30:18
doesn't feel good nobody's having fun and it would be very human to say I'm
00:30:22
sick of this I'm going to cross my fingers sell just wait wait it out till the market recovers before I put my
00:30:30
money makes perfect makes perfect sense on the face of it and and little would that investor have known that the
00:30:37
Federal Reserve Jay Powell the chairman was about to come out and say yeah we think we're done with interest rate
00:30:43
hikes and the market popped for 6% in one week well if you sat out that week because you you were just sick of it
00:30:50
missing 6% is not as bad as the example that that you gave of of underperforming
00:30:55
by 13% but % sucks if that's what you missed out on right yeah if you're
00:31:01
waiting for the market to recover you'll miss it you know you have to you have to
00:31:05
be investing when it's down that's when you want to be buying when it's down and
00:31:08
you know that's a great example hey what's going on this is Doug Hunnington
00:31:13
and you could hear Jesse and I back on episode number 72 you could hear more of my ramblings over at the mile high five
00:31:21
podcast what's the number five Jeremy the number five is paying high fees and
00:31:27
you and I we live in a world of financial educated people but in in the real world if you walk into any Town USA
00:31:35
and ask people what they're doing oftentimes they are investing via some sort of high fee mutual fund or advisor
00:31:45
or 401k or you know and if you walk into like a strip mall financial advisor anywhere in the US they will put you
00:31:53
into some real crappy products with real high fees they won't they won't fully or
00:31:58
correctly disclose any of that and it's very hard for you to even know without
00:32:01
kind of really looking hard into where your money is going and so just as an example if you if you pay a 2% annual
00:32:08
fee and some advisor will like that's really high but I see 4% annual fees I
00:32:13
see five and six% you know loads on purchases and you know it's right very easy to find people who are in this
00:32:19
range of a 2% annual fee a 2% annual fee over the course of a 40-year investing career Cuts your investment about in
00:32:26
half so if you would have had $2 million you'd have $1 million just for that fee
00:32:31
that you're paying that adviser and a lot of people will say I don't want to
00:32:34
do it myself I want to figure it out it's not worth a million dollars to you
00:32:38
you know like the few hours it's going to take to open account and put the money in yourself I mean I'm not trying
00:32:44
to dismiss the value of an adviser but you should at least understand the impact of the fees because there may be
00:32:50
no more valuable three hours of your life financially speaking than looking into your fees and figureing out if you
00:32:57
can minimize them totally totally and and something I've I've learned in my doing this Jeremy you
00:33:02
know the best interest working with clients as well is there's such a wide range of quote unquote advice and
00:33:10
Advising and it absolutely behooves anybody out there if you're considering to getting professional financial help
00:33:17
know what you're paying for and know what you're paying because some of the
00:33:22
cases I've seen before you're talking about mutual funds with one plus percent
00:33:27
advis is charging commissions to sell them getting five to six% load fees upfront and then what does the client
00:33:34
get out of that a 30 minute phone call once a year right so you're talking about from someone whose incentive is to
00:33:40
sell not toide advice correct correct correct so you're talking if someone has
00:33:44
a $500,000 account in that case they might be paying $10,000 a year plus 5% anytime they make any trades in exchange
00:33:55
for 30 minutes of advice and talk about a raw deal so I hear you there's some
00:34:01
there's some nasty stuff out there so everybody know know what your fees are
00:34:05
and know what you're getting for them no see see if it's worthwhile we've got to
00:34:10
think long term Jeremy and that brings us to sin number six that's right SIN
00:34:14
number six is thinking short term we all know people like this who are trying to
00:34:20
get rich quick or live for the weekend or I just constantly hear from people who are I I I give them this pitch I'm
00:34:27
like hey hey few hundred bucks a month spend less than you make throw it in next fund leave it there don't touch it
00:34:32
minimize fees let it Let It Go they're like no bro I don't want to be I want to
00:34:36
be rich I when I'm old I'm like you want to be broke and you're old because
00:34:38
you're gonna be and so I think you know they're like no I'm gonna you know
00:34:42
Dogecoin is the future or no I'm gonna put it on Tesla or you know I L talked
00:34:47
to someone the other day who who had $500,000 and didn't want to get rich the
00:34:53
slow way $500,000 you put an index fund doubles every seven years you know 7 years that's 1 million 14 years that's 2
00:35:02
million 21 years that's 4 million so 21 years they'd have four million bucks
00:35:07
that's that's insane right but instead they bought some they chased P performance they picked stocks they
00:35:14
committed all the sins right they committed every sin thought thought short term how can I turn this 500,000
00:35:19
into a million in a year and that 500,000 became 100,000 they lost 80% of the value and they asked me like how do
00:35:27
I get it back I'm like if I knew how to 5x money overnight I'd be doing that all
00:35:31
day right right like and you thought you did and you learned the harder way that
00:35:34
you didn't because you you do all your money if you want to through 10% sure
00:35:37
you know if they if they took 10% 50,000 and turn that 50,000 to 5,000 then that
00:35:43
would have sucked but they'd still 450,000 growing with the market over time don't try to get rich quick and if
00:35:49
you do keep it to a you know very small portion of your portfolio right and and that example there 500,000 down to
00:35:58
100,000 based on the fact that they were coming to you with that story it sounds
00:36:02
like they suffered the permanent impairment of capital which is something that Warren Buffett would say is the
00:36:08
number one biggest risk that investors can face and and it's something that investing in a diversified Index Fund
00:36:15
you completely negate that risk save for one potential exception if you invest in
00:36:20
an index fund and an asteroid hits the world and destroys the global economy you have permanently impaired your
00:36:27
Capital that's true short of that example that the natural diversification of an index fund will prevent that fate
00:36:33
from occurring and that's talk about a terrible fate I mean going from 500,000
00:36:38
to 100,000 essentially your portfolio will be limping for the rest of your life yeah and yeah and then they asked
00:36:45
me should I keep doing this to to to win it back it's almost like turns into into
00:36:49
like gamblers mentality which is I can just win it back but we all know how that turns out for gamblers they just
00:36:56
lose more they go into debt and then you have to hit rock bomb like you know my advice was like take your 100,000 throw
00:37:02
Index Fund you just you just spent $400,000 on education it was an expensive lesson but better than lose
00:37:09
100,000 and you lost all better than going to debt trying to win back right so it's it's a tough bu to SL though
00:37:15
right so our listeners they're not going to commit that sin they are going to be
00:37:19
slow and steady investors they're also not going to commit SIN number seven which is it is the most deadly sin maybe
00:37:25
you know I said one was maybe the worst but this one is even worse than number one so number seven is not investing
00:37:30
early and often I kind of gave you an example earlier in the show where I said if you invest 250 bucks a year for 10
00:37:38
years you have like 3,000 bucks because you didn't invest very often you only
00:37:43
invested for 10 years that's enough but if you invest 250 bucks for 40 years
00:37:48
you'll have never done worse than a million dollars and so everything else we talked about the fees the performance
00:37:54
the stock picking the you know everything all the sins they are irrelevant if you're not putting money
00:38:00
in you know if you could if you're the optimal perfect investor every fee every
00:38:05
every tax break everything right and then you're putting in a hundred bucks a
00:38:08
year doesn't matter you might as well not even do it almost you know but if you are just a mediocre investor and
00:38:14
you're picking some random stocks and some random mutual funds and getting some random taxes on them but you're
00:38:20
putting in a thousand bucks a month you're going to be extremely wealthy and
00:38:23
so I think some people get so academic about it they forget what matters most which is just how much money put in
00:38:29
that's how you get rich hey best interest listeners this is Joel arzgard from the how to money podcast you can
00:38:35
hear Jesse and I back on episode 59 of the best interest podcast massive congrats to one of the best fellas in
00:38:43
the personal finance podcasting space Jesse here's to hundreds of more Killer
00:38:48
episodes to come my friend okay always good to hear Jeremy and what he has to say now for our second clip this one
00:38:55
goes back to a more recent episode episode 96 which I hope will go down as an altimer as an evergreen episode that
00:39:02
really covers two important ideas the first one is why we lean towards indexing in the first place and you know
00:39:11
not just because everyone says so I mean that's one thing but I really wanted to
00:39:15
open up the hood and explain to you the the actual rationale the logic for indexing or diversifying at the very
00:39:23
least as opposed to trying to pick a winning stock or as opposed to hoping that someone can pick a winning stock
00:39:29
for you and the other thing we talked about in episode 96 is the idea behind timing the market right why timing the
00:39:36
market tends to be so hard again not just because everyone says so I know there are a lot of there are a lot of
00:39:41
sayings out there right time in the market versus timing the market that's great that's fine but why can we explain
00:39:49
why it makes sense to try to not time the market so inspired by a terrific listener question we recorded episode 9
00:39:58
and now I want to uh play to you one of the best clips from that episode hey money nerds this is Paula from a Ford
00:40:05
anything you can hear Jesse and I back on episode 75 and learn more about strategic splurging over at afford
00:40:13
anything.com where we believe in saying yes to the best and no to the rest cuz your wallet can handle anything but just
00:40:21
not all at once I want to explain the concepts around timing the market this explanation will include little sidebars
00:40:28
like lump sum investing dollar cost averaging the PE Ratio or the cape ratio so going back to Lynn's question Lyn's
00:40:35
original question it makes so much sense right with the market at all-time highs
00:40:39
right now like it is here on December 12th of 2024 why is right now a good time to invest right surely we should be
00:40:46
buying low and selling high but you want me to buy High you want me to buy at an
00:40:50
all-time high okay first I want to explain the cape ratio Cape cyclically adjusted price to earnings it's very
00:40:57
much related to the price to earnings ratio which I think we touched on before it's a way of measuring what stocks are
00:41:02
selling for their price against how well those companies are doing financially their earnings and the cape ratio is
00:41:09
smooth out over time to account for inflation that's the cyclically adjusted
00:41:14
part of it cap cyclically adjusted price to earnings ratio now logically speaking
00:41:19
Lynn has a pretty good point here we know that the S&P 500 price is at an all-time high and we know that price is
00:41:25
one of the great equalizers in determining if an investment is good or not right our Honda Civic example or the
00:41:30
hamburger example are Burgers good yeah hamburgers are good would I pay $100 for
00:41:35
a hamburger no I wouldn't price matters okay quality is one thing but price is
00:41:40
important too historically the S&P 500 Cape ratio oscillates between 10 and 25
00:41:46
and generally though not always the lower the PE the better the forward-looking investment opportunity
00:41:53
that makes intuitive sense or at least I think it should the lower the price that
00:41:57
I'm purchasing my investment the better my long-term returns will be but does
00:42:01
that mean that we should avoid investing in any sort of stock market altogether simply because the PE the price of
00:42:08
earnings or the cape ratio is high the answer there is no not really just because the cape ratio is high it still
00:42:15
might be smart to invest and we're going to link something in the show notes an
00:42:18
article I wrote called timing the future Market Cape versus future returns and in
00:42:24
that article you'll see some pretty interesting graphs that I put together where we could point to plenty of times
00:42:29
where the cape ratio was 25 or 30 very much on the high end and the future inflation adjusted 10 year returns or 20
00:42:36
or 30 year returns were a perfectly normal and acceptable five six seven 8% just because the cape ratio is high
00:42:44
there is no Golden Rule stating that you must avoid investing for reference right
00:42:49
now as of this recording the cape ratio is at 38 which is very very high by historical standards and again going
00:42:56
back to Lyn's point if I'm paying a very very high price for the stock market
00:43:01
compared to historical standards surely that can't be a good thing surely I must
00:43:05
be spending $100,000 on a Honda Civic right now well I hear you Lynn now the cape ratio hasn't been below 25 since
00:43:14
the year 2014 and that has some people seriously concerned are we in this massive 10-year bubble of high
00:43:21
valuations and at some point is that bubble going to pop maybe I might not know enough to have an answer that
00:43:26
question question but I do know the counterargument here I think it makes a lot of sense and I'm going to try to lay
00:43:32
it out Simply 100 years ago the American economy was pretty Hands-On manufacturing production factories
00:43:38
buildings stuff that is expensive to make and expensive to scale meaning if Ford let's say Ford wanted to double its
00:43:45
car creation capacity it had to buy new land and build new factories and train new people and put in new assembly lines
00:43:53
and all of that is really expensive for a company to do and It ultimately eats into that company's earnings and growth
00:43:59
in other words it was really hard for those kind of companies to rapidly expand their profit margins but today
00:44:06
many of our biggest companies work much differently than that if Microsoft wants
00:44:11
to sell 20% more office licenses they don't need any additional Capital overhead to do so they just sell more
00:44:18
licenses many companies in today's digital age they work the same or at least very similar ways to Microsoft
00:44:25
right they don't have these massive Capital re requirements to grow like the
00:44:28
ones that existed 30 or 50 or 100 years ago and as such those companies can grow
00:44:32
their earnings much faster than historical standards and if that's true maybe I am perfectly okay to pay a 38
00:44:39
times Cape ratio today because I believe the earnings portion of that equation is
00:44:43
likely to rapidly increase in the coming years turning today's price into quite
00:44:48
the bargain the point being that while the cape Ratio or the PE Ratio is generally helpful it's not necessarily
00:44:54
smart to believe that the PE ratios of the 19 50s ought to instruct how we invest today and then going back to the
00:45:01
main point of today just because a PE ratio is high we can still have strong long-term future returns going forward
00:45:08
it's hard to time the stock market based on PE ratio alone instead there a couple
00:45:13
simple tried andr techniques when it comes to investing your money into the stock market probably some things that
00:45:18
you might have heard of before to start I want to tell you a story from 2022 which was in the middle of a bad year
00:45:23
for both stocks and bonds and those kind of bare markets they make you question should I just wait for the bottom before
00:45:29
I invest and reader of the blog pson he wrote in during that year and he said Jesse I'm not tempted to sell anything
00:45:35
in my 401k or Roth IRA but I don't know why I should continue buying at least
00:45:39
not at this point with the market doing what it's doing it's not going up
00:45:42
anytime soon can I contribute money to those accounts as cash and then wait to invest once the market hits its bottom
00:45:49
it was a great question and yeah you could try pson you know that's what I responded to him but I don't think he
00:45:54
should and there are a few reasons why and these reasons apply to you listening today because timing the market in the
00:45:59
way that pulson suggested first it barely affects your future portfolio second it's really hard to execute well
00:46:07
and third it makes your life demonstrably worse along the way hey there friends this is Andy Hill you can
00:46:13
hear Jesse and I back on episodes 66 and 84 of the best interest podcast feeling
00:46:19
very grateful that Jesse asked me back twice and you can check out more family financial Independence tips over at my
00:46:27
podcast marriage kidsand money and on our website marriage kidsand money.com so here's a story of three hypothetical
00:46:35
fictional investors mostly they're identical investors we've got normal Nick we've got good timing Gary we have
00:46:41
bad timing bill normal Nick good timing Gary bad timing Bill all three investors
00:46:46
started their investing in 1985 when they were 22 years old they're now 59 and they're approaching retirement and
00:46:52
some other facts about them all three of them use the S&P 500 index funds for
00:46:56
their stock inv Ms all three invested $200 a month in 1985 and then increased their contributions by 5% per year until
00:47:03
today so now they invest around $1,200 a month and all three invest via dollar cost averaging we'll dive into that term
00:47:11
in a couple minutes the point being is they invest whether the markets are high they invest whether the markets are low
00:47:16
and they buy in between as well except for one time now during the great financial crisis that threw a small
00:47:22
wrench into their plans Nick normal Nick well he stayed the course and continued
00:47:27
his monthly contributions but Bill and Gary they wanted to try something different good time and Gary with his
00:47:32
good timing he managed to time the market perfectly he stopped investing just like Paulson wants to with the
00:47:38
question that inspired this article Gary stopped investing at the market top in 2007 he saved all his cash he then
00:47:45
perfectly timed the market bottom in March of 2009 deploying all of his cash into the stock market so he timed the
00:47:51
market to Perfection twice he stopped investing at the perfect top and then he began in investing again at the perfect
00:47:58
bottom bad timing Bill also timed the market top with Gary but when the true bottom hit in March 2009 bill was
00:48:05
convinced that there was more room to drop so as the market recovered Bill waited and waited and waited he thought
00:48:10
a new bottom would eventually come so he didn't deploy his cash until 2013 when
00:48:14
the market price had fully recovered to 2007 levels and his wise wife screamed at him to get back into the market now
00:48:21
fast forward I wrote this article in 2022 how different were Nicks and Garry's and Bill's portfolio at that
00:48:27
point well Gary was best after all he timed the market perfectly twice and he had $1.46 million bill was worst after
00:48:35
all he missed many buying opportunities for about five years but he had $1.38 million and then Nick was right in the
00:48:41
middle at .42 million so again Gary with the best perfect timing 1.46 bill with the worst $1.38 and nicked in the middle
00:48:52
at 1.42 the perfect Market timing around 2008 which was a huge crisis right that
00:48:58
got Gary a 3% Edge over normal Nick and Bill messed up big time yet Gary only has a 6% Edge over him in the long run
00:49:08
Gary's perfect Market timing wasn't actually that important now notably though Bill and Gary when they chose to
00:49:15
time the market they didn't sell any of their old Investments all they did was
00:49:19
choose not to buy new Investments if they had sold their old Investments though and then re-bought later our
00:49:25
conclusion would be much different bill would have lost another 20% of his total
00:49:30
portfolio as of today despite perfectly timing the market top okay he sold at the perfect time but because he didn't
00:49:38
buy back in until it was three or four years too late his portfolio would be down about 20% today and Gary who was
00:49:45
perfect twice at the top at the bottom his portfolio would be about 50% higher today so it just goes to show if you're
00:49:52
only perfect once with Market timing you could be down 20% like bad timing bill you have to be
00:49:59
perfect twice like Gary to actually be up a large amount and that begs a question do you feel that lucky
00:50:06
personally I like where normal Nick is at he didn't worry at all about timing
00:50:10
the market zero skill zero luck and also zero stress he just kept on buying and he's in a great place this is a scenario
00:50:17
where the juice simply isn't worth the squeeze the squeeze again is double Perfection you have to be right twice if
00:50:24
you manage to be right the first time see ing your buys before the market bottom you'll likely be plagued by bad
00:50:30
timing bills issue when the market is at Peak pessimism right when the market is
00:50:35
truly at the bottom that's Peak pessimism do you have the skill and the knowledge and the balls of steel to
00:50:40
deploy your money into that market or are you a dumb wouldbe Market timer like the rest of us are and then what's the
00:50:47
juice you get for that squeeze well it's a 3% boost on your final portfolio or
00:50:52
maybe this time will be different maybe you'll get a five or six or a 7% boost
00:50:56
on your final portfolio and while your money is out of the market sitting on the sidelines what will you be thinking
00:51:02
are you just going to be chilled out and relaxed with ice in your veins or are you going to be a nervous wreck worried
00:51:07
about when to get back into the market not only can this squeeze cost you money but its psychological cost is
00:51:13
unavoidable Gary sure he gained 3% but he also gained some white hair he was out of the market for 18 months 18
00:51:20
months is a really long time are you willing to wait 6 12 18 24 months or more for a bare Market to end
00:51:27
now personally I'm not trying to time the market over that period of time I don't want to sit on my thumbs and hope
00:51:33
that I time it perfectly who knows how long it'll take for us to return to all-time highs when the next bare Market
00:51:39
hits I don't want to test my skill with timing the market I don't want to test
00:51:43
my blood pressure by staying out of the market so that story introduces an idea dollar cost averaging many of us are
00:51:50
doing it without even realizing it that term interestingly it it kind of has two
00:51:54
definitions though they're somewhat related the first definition of dollar cost averaging is to make a series of
00:51:59
investing contributions on regular intervals such as the way that many of us might contribute to our 401K accounts
00:52:05
every two weeks $500 comes out of my paycheck into my 401k and it's invested
00:52:09
into a Target date fund that's dollar cost averaging now the second definition
00:52:13
though it involves starting with a large sum of money and then making the decision to deploy that money into an
00:52:19
investment over a specific period of time now that in my opinion is a great idea for Lynn to consider today rather
00:52:26
than dumping 100% of her new investable money into the S&P 500 today perhaps she
00:52:32
decides to contribute 10% of that money every single month for the next 10 months that way if the market does tank
00:52:38
in February or whatever some of her money will benefit from that future price drop now both of those definitions
00:52:45
of dollar cost averaging share in common the idea that you're buying assets regardless of price that you're willing
00:52:52
to accept that sometimes you might buy High other times you might buy low and in the long run it's all going to
00:52:57
average out either way you are not timing the market that all said we should cover an interesting piece of
00:53:03
math and a term called lump sump investing in short if we look back on Market history would we be better off
00:53:09
taking that Lin approach of 10 deposits over 10 months or should we invest it all at once as soon as possible looking
00:53:16
back in history about 34s of the time you would have wished you made the lump sum investment upfront that should make
00:53:22
sense I think because if we look at Market history we can easily see that it has a terrific habit of going up over
00:53:28
time as such any sort of waiting to invest that we do well historically it's
00:53:33
worked against us the market goes up and if we're waiting it's going up away from
00:53:37
us in general if I knew that regret was not a human emotion I would always always always recommend that people
00:53:44
invest their money in a lump sum as soon as possible but regret is a human emotion and we must be aware of that
00:53:50
fact and it feels pretty bad to lump suum your investment today only for the market to go down next week therefore if
00:53:57
you're worried about investing Everything at Once then dollar cost averaging can be your friend allowing
00:54:02
you to slowly but surely get your money into the market over time depending on your level of hesitancy you could dollar
00:54:07
cost average for months or even years so that's how and why we should continue
00:54:12
investing even during frothy markets like this one because we don't know whether it's a bubble that's about to
00:54:17
pop or simply another stair higher on a long staircase that could go on for years or decades into the future hello
00:54:23
everyone this is Steve atock you could hear Jesse and I back on episode 91 of the best interest podcast check out my
00:54:30
book millionaire habits for everything you need to know about how millionaires build wealth and keep wealth available
00:54:37
on Amazon borders Barnes & Noble and other book sellers okay and for the final clip today we're going to go back
00:54:44
to episode 81 that was the very first AMA episode I did and just to highlight some of the awesome AMA questions I've
00:54:51
gotten in the past year or so I wanted to share with you this question and answer where a listener wrote in and
00:54:57
they basically said Jesse my portfolio has been doing great it's also 100% invested in the S&P 500 so can you
00:55:05
please try your best to talk me off this ledge why am I doing something wrong why
00:55:10
do I need to diversify at all why do I need other asset classes why do I need other types of stocks when just look at
00:55:18
my track record the S&P 500 is doing just fine it's an awesome question and I
00:55:22
hope what I provided was a great answer to that question hey wise listeners this
00:55:27
is Dan otter you can hear Jesse and I back on episode 92 of the best interest podcast and check out more teacher
00:55:37
retirement plan talk at the teach and retire Rich Podcast and on the website 403b wise.org G says I'm close to 100%
00:55:49
large cap stocks in my portfolio and it's worked great for me for quite a few
00:55:54
years now as time has gone by I sold more and more of my small cap my midcap my International and I've gone all in on
00:56:01
large cap stocks and it's working it's hard for me to see why this isn't a good
00:56:06
strategy going forward I'm close to retirement but why should I change so G thanks for the question since you and I
00:56:14
went back and forth via email about this and I know a little bit about ug I'm
00:56:18
going to use a unique Western New York analogy as part of my answer so imagine I replaced the words large cap stocks in
00:56:24
your question with Kodak and uh let's say it's 1985 so you're a person in 1985
00:56:29
and you say I'm close in my portfolio to being 100% in Kodak stock and it's
00:56:33
worked great for me for quite a few years now as time has gone by I've sold more and more of my other companies my
00:56:39
small midcap my International companies my International stocks and I've gone
00:56:42
all in on Kodak and it's working it's hard for me to see why this isn't a good
00:56:47
strategy going forward now my example sounds a little bit crazy I know because we're smart investors here we would
00:56:53
never go 100% into one single company and of course I've intentionally cherry-picked a company that we all know
00:57:00
went bankrupt but some of the underlying principles of why that codc statement is
00:57:04
kind of crazy should ring true for your portfolio G maybe not to the same degree
00:57:10
but the same underlying principles are there you are going further and further into one single asset class large cap
00:57:17
stocks so there's no bonds in your portfolio despite approaching retirement granted I know as we discussed G and and
00:57:24
the listeners don't know this G will be receiving a pension of some sort and
00:57:28
it's worth knowing that a pension serves as fixed income which should lessen G's
00:57:33
need for any Bonds in their portfolio but it's still it's worth a second look
00:57:38
to understand I mean you have no other diversifying assets outside of large cap stocks you're all in on the US there's
00:57:45
no Geographic diversification there's no International stocks for example if you
00:57:49
look at Market history and and when you look at what someone might consider a diversified or balanced portfolio a lot
00:57:54
of times you're going to see something along the lines of a 7030 portfolio in
00:57:58
the stock portion meaning 70% US Stocks 30% International stocks maybe 6535 maybe even 6040 60% US Stocks 40%
00:58:09
International stocks and one of the reasons why is because when you zoom out which we need to do here when you zoom
00:58:14
out over Market history you would see that the best risk adjusted Returns come from that mix of us and international
00:58:22
stocks somewhere between 6040 and 7030 another thing is that you're all in large cap stocks
00:58:28
you know no small caps no uh mediumsized companies just the few hundred biggest US companies and nothing else now it's
00:58:36
far far far from the worst asset allocation I've ever seen But I do really think it needs some polishing
00:58:43
some pretty important polishing we cannot and we should not say that the recent past has been this one specific
00:58:50
way and therefore I'm going to assume that the future will be that exact same
00:58:54
way or using specifics here you know the recent past has been most beneficial for
00:58:59
investors in 100% large cap stocks and therefore the future will also be most beneficial for investors in large cap
00:59:06
stocks it could be that way but I highly highly doubt it and I don't only doubt
00:59:11
it because it's you know it's not like there's some randomization here that
00:59:15
it's like oh you rolled double sixes now and what are the odds you rolled double
00:59:18
sixes again that's not it at all and yes we do need to accept that fact that we
00:59:22
can't predict the future and we need to accept that fact especially in investing
00:59:26
that the past does not dictate the future but there's something even more important G and I want to impart John
00:59:33
bogle's famous what he calls the iron rule of investing and the iron rule of
00:59:37
investing is reversion to the mean reversion to the mean mean meaning average reversion meaning in time all
00:59:45
things tend to track back to the average in investing no asset class can outperform forever that's a big part of
00:59:53
what John ble was saying asset classes they could outper perform for a year for a few years maybe even for a decade but
00:59:59
the asset classes that tend to outperform for a decade well they tend to underperform the next decade and in
01:00:05
the long run an asset class that has a similar risk profile to one another so say domestic stocks and international
01:00:11
stocks they're both equities they have a relatively similar risk profile to one
01:00:15
another they will tend to have a similar reward profile to one another in the long run meaning when their reward
01:00:21
profiles fall out of sync for a certain period of time eventually they will likely revert and we're coming off a
01:00:28
period to G's defense from 2009 to basically today May of 2024 where US Stocks have been crushing International
01:00:38
stocks specifically us large cap stocks the S&P 500 has been one of if not the
01:00:43
best performing Equity asset classes for the last 15 years and that's terrific
01:00:49
but what John ble has preached to us and John Bogle is not the only one I mean most people who who talk about
01:00:54
diversification would agree with this idea the idea is that nothing can outperform forever I think I used that
01:01:00
that term before and the fact that large cap stocks have been so good for the past 15 years I don't think we should
01:01:07
abandon them all together because we can't predict the future but it also doesn't mean that we should put all of
01:01:12
our chips into large cap stocks in fact if anything it might be time to dial down that risk diversification is the
01:01:19
way we don't know what the best performing asset classes are going to be in the next six months the next six
01:01:25
years the next 60 years we're not exactly sure but eventually all asset classes revert back to the mean at least
01:01:32
they have so far in history again hard to tell what the future will hold but this is where some basic financial
01:01:38
planning comes into play for G now I would start G by developing your net worth statement maybe you've already
01:01:44
done that and a 10-year projected cash flow maybe you've already done that that
01:01:48
cash flow would if I were looking at it it would help me understand what your outbound cash needs are from your
01:01:53
portfolio in the short term you know the next couple years the medium- term and eventually in the long term and I'd want
01:01:59
to understand questions about what you want to do with your money over the rest of your life and even what you hope to
01:02:04
do with your money after you pass away now all of those types of input would then allow us to to back into a more
01:02:10
appropriate asset class for you it might involve different asset classes of of equities right diversifying into
01:02:17
different midcap small cap International those kind of things it might involve some bonds for some fixed income it
01:02:23
might involve some Alternatives real estate what ever it may be without knowing too much more of your your story
01:02:29
G I am pretty hesitant to to suggest something like 100% large cap S&P 500 stocks I understand how well it has
01:02:38
worked for you for the past 15 years or however long that's been your portfolio
01:02:42
design and one of the most challenging things in investing is this thought process that occurs when something goes
01:02:48
really really well for us in investing and we go oh we figured it out let's put
01:02:52
more of our chips into that specific bet oh amazing the S&P 500 has done so well
01:02:57
for me I'm going to put more there and more there and more there and if there's
01:03:01
anything we can learn from investing history from Market history from the wisest people involved in investing that
01:03:08
can be a dangerous game Warren Buffett's pretty good at it Warren Buffett is very
01:03:12
famous for saying when you find a good investment you go all in but what Warren Buffett is doing the way that he's able
01:03:18
to analyze and understand the models of specific businesses right Warren Buffett's very much a person who invests
01:03:25
in specific businesses and his analysis techniques and his patience and his mindset his temperament is what makes
01:03:32
him really unique he's not the only one right many there are many individual
01:03:35
investors out there who have found great success with similar tactics no offense
01:03:40
to anybody out there listening one thing that those investors aren't doing is
01:03:44
writing in DIY emails to a podcast saying hey I've got all my chips on this bet tell me why I'm wrong the idea is if
01:03:52
you're here listening if you're like me which is you're kind of a diyer maybe
01:03:56
you've got that little extra expertise diversification is your friend it reduces the range of potential outcomes
01:04:04
that you have and that that's really big when it comes to financial planning if
01:04:07
you've already won the game so to speak if you've put yourself in this great
01:04:11
position in terms of your asset size as you go into retirement and all you want to do is is live that successful
01:04:16
retirement you don't have to worry too much about whether your portfolio is way
01:04:20
up or way down you need to reduce your range of potential outcomes and the way you do that is through divers I
01:04:25
ification the S&P 500 and maybe this will be my last point cuz I know I'm
01:04:29
kind of beating it to death but the S&P 500 is very capable of losing 20 to 40%
01:04:35
over a couple years it's also very capable of going up 20 to 40% over a couple years but one thing I would hate
01:04:40
to see happen to you g is to see this sudden shocking reversion to the mean over the next six or 12 or 18 months
01:04:49
where the S&P 500 essentially starts to underperform the rest of the world where
01:04:54
stocks drastic underperform bonds and you're sitting there 100% into the S&P
01:05:00
500 and maybe you lose 30% of your net worth over the next 18 months if you hold for the long run maybe most of that
01:05:08
30% drop Will recover but it's going to be pretty hard mentally to live through
01:05:13
that and it's going to be pretty hard mentally to live through that knowing that you could have been in a little bit
01:05:17
more of a balanced place so anyway that is the argument that's one of many arguments for a little bit of
01:05:23
diversification a little bit of balance remembering John bogle's lesson of reversion to the mean G since I know
01:05:29
that we've had a conversation before by all means feel free to reach out to me
01:05:33
and and we can discuss it again but I hope that answer helps you think about what you should be doing moving forward
01:05:39
hey listeners this is Brian faly you can hear Jesse and I back on episode 74 of the best interest podcast and check out
01:05:46
more of my financial education content at long-term mindset. and with that listeners I want
01:05:52
to uh thank you all that's all I've got here for episode 100 100 of personal
01:05:57
finance for long-term investors or is it episode one of personal finance for long-term investors no I think it's
01:06:02
episode 100 but I want to thank you all I want to thank first off all my guests wonderful guests that we had on the
01:06:08
first 99 or 100 episodes of the best interest podcast and I'm hoping many of
01:06:14
them will come back for the next hundred episodes of personal finance for long-term investors I wouldn't do this
01:06:20
without you listeners thank you listeners again for 100 great episodes and hey here's to 100 more episodes I
01:06:27
hope you will join us I hope you will continue to tune in and share and learn here on Personal Finance for long-term
01:06:34
investors thanks for tuning in to this episode of personal finance for long-term investors if you have a
01:06:40
question for Jesse to answer on a future episode send him an email over at his Blog the best interest his email address
01:06:47
is Jesse bestter interest. blog again that's Jesse bestter interest. blog did
01:06:54
you enjoy the show subscribe rate and review the podcast wherever you listen this helps others find the show and
01:07:00
invest in knowledge themselves and we really appreciate it we'll catch you on
01:07:04
the next episode of personal finance for long-term investors personal finance for
01:07:09
long-term investors is a personal podcast meant for education and entertainment it should not be taken as
01:07:15
Financial advice and it's not prescriptive of your financial situation