00:00:00
Welcome to personal finance for
00:00:02
long-term investors, where we believe
00:00:04
Benjamin Franklin's advice that an
00:00:06
investment in knowledge pays the best
00:00:08
interest both in finances and in your
00:00:10
life. Every episode teaches you personal
00:00:13
finance and long-term investing in
00:00:15
simple terms. Now, here's your host,
00:00:18
Jesse Kramer. Hello and welcome to
00:00:20
episode 112 of Personal Finance for
00:00:22
Long-Term Investors. My name is Jesse
00:00:24
Kramer. By day, I work for a fiduciary
00:00:26
wealth management firm helping clients
00:00:27
all over the country. For more details,
00:00:29
you can go to bestinterest.blog/work
00:00:32
and the link is in the show notes. And
00:00:33
by night, I write a blog called the best
00:00:35
interest. And I podcast here on personal
00:00:37
finance for long-term investors. I help
00:00:39
busy professionals and retirees avoid
00:00:41
costly mistakes and grow their wealth.
00:00:43
And I do so by simplifying complex ideas
00:00:45
about personal finance from investing to
00:00:48
taxes to retirement and beyond. And
00:00:50
today I'm really excited because Peter
00:00:52
Lazerof is back and will be joining me.
00:00:54
Peter is the chief investment officer at
00:00:56
Plan Corp and he's the host of the
00:00:58
long-term investor podcast. Peter is
00:01:01
routinely recognized for simplifying
00:01:02
complex investing and planning issues
00:01:04
for clients and for listeners. He's been
00:01:06
repeatedly named a top 100 US financial
00:01:09
adviser by Investopedia. He's always a
00:01:11
great resource for teaching people about
00:01:13
investing. And you'll see that today
00:01:14
simply through the frameworks and
00:01:16
explanation that he provides. Peter
00:01:18
first joined me back on episode 77 of
00:01:20
this podcast. Go ahead and listen to
00:01:22
that one. And now he's back for round
00:01:23
two today. As usual, before Peter joins
00:01:26
us, I want to do a quick review of the
00:01:27
week. A little bit of drama because this
00:01:29
is a three-star review, not a five-star
00:01:31
review. But listen, critical feedback is
00:01:33
awesome. So, please bring on the
00:01:35
feedback. And if I don't deserve five
00:01:36
stars, that's okay. There's a chance
00:01:38
that MJV92314
00:01:41
might have fat fingered the wrong number
00:01:42
of stars, or he or she might just be a
00:01:45
good critic. So, the three-star review,
00:01:48
clear, straightforward personal finance
00:01:50
info. Thank you, Jesse, for your
00:01:51
excellent podcast. I just discovered it
00:01:53
and I've listened to about five
00:01:54
episodes. I appreciate that you don't
00:01:56
have chitchat and superfluous dialogue
00:01:58
about your dog, your breakfast, or
00:02:00
anything that's not related to your
00:02:01
topic. You have no fake or forced
00:02:03
laughter during dialogue with your
00:02:04
guests.
00:02:06
That's a good one. You have no unrelated
00:02:08
banter with your guests. Your excellent
00:02:10
speaking skills. Thank you for not
00:02:11
excessively saying like, sort of, or
00:02:13
kind of. I will say now I'm a little
00:02:15
self-conscious about that. And you keep
00:02:16
it clean. Cursing adds nothing to an
00:02:18
informative topic. Iinging agree with
00:02:20
you. Your topics are timely,
00:02:22
informative, and helpful. I appreciate
00:02:24
you keeping the conversation focused.
00:02:26
Thank you. Well, you're very welcome,
00:02:28
MJV. And listen, if your stars are
00:02:30
precious to you, and you only save your
00:02:32
five-star reviews for that one ina
00:02:33
million podcast, no worries. Your
00:02:35
written review was very kind. I'm
00:02:37
happily going to send you a super soft
00:02:38
t-shirt. Drop me an email to
00:02:40
jessebinterest.blog
00:02:42
and I will get you hooked up with that
00:02:43
t-shirt. That mother t-shirt. And
00:02:46
listeners, if you have questions I can
00:02:47
answer, especially for a future AMA
00:02:49
episode and ask me anything episode,
00:02:51
send those questions to Jesse at
00:02:52
bestinterest.blog. Before Peter joins
00:02:55
us, I want to read a couple fun articles
00:02:56
to you that are going to be somewhat
00:02:58
related to what Peter and I talked
00:02:59
about. The first one I wrote recently in
00:03:02
March, March of 2025, and it's called,
00:03:04
"Are you not entertained?" Do you know
00:03:06
that scene in Gladiator where Russell
00:03:08
Crow's character Maximus, he yells to
00:03:10
the crowd? He says,
00:03:11
>> "Are you not entertained?" I'm more
00:03:12
interested in Maximus's next line,
00:03:14
though, cuz he asks, "Is this not why
00:03:16
you were here?" If you don't remember
00:03:18
the movie, maybe you haven't seen it.
00:03:20
Gladiator. Maximus of Russell Crowe.
00:03:22
It's one of his initial forays when he
00:03:24
gets thrown into the arena and he has to
00:03:26
battle as a gladiator for the first
00:03:27
time. And the audience certainly came
00:03:29
there to see some violence and some
00:03:30
death. And specifically, the plan was
00:03:32
for a bunch of local gladiators, heavily
00:03:34
armored, fully armed, to kill off some
00:03:36
foreign slaves, including Maximus. But
00:03:39
because Maximus is the protagonist andor
00:03:42
because he's a highly trained Roman
00:03:43
legionnaire, he turns the tables on the
00:03:45
local gladiators, he kills all of them
00:03:47
single-handedly. And the crowd is really
00:03:50
caught off guard cuz they did not come
00:03:51
to see that kind of a turnaround. And
00:03:53
they go silent and that cues up the
00:03:55
immortal lines from Maximus, "Are you
00:03:58
not entertained? Is this not why you are
00:04:00
here?" Maximus also throws his sword at
00:04:03
the box seats, which is a real power
00:04:04
move. But the point is, the audience
00:04:06
came to see violence and death. They
00:04:08
just hadn't expected it could be
00:04:09
delivered in quite that way. And that
00:04:11
frustrates Maximus. Did they expect
00:04:13
every slave just to get slaughtered
00:04:14
without fighting back? What terrible
00:04:16
expectations. Does a chef expect a
00:04:18
Michelin star without some burns or some
00:04:20
knife slips? No. Does a traveler expect
00:04:22
every eye-opening experience without a
00:04:24
single delayed flight? No. And does the
00:04:27
long-term investor expect their
00:04:29
portfolio to compound for decades
00:04:31
without times like the tariff tantrum
00:04:33
that we had here in 2025? I say no. I
00:04:37
get it though. Loss aversion is real. It
00:04:39
impacts all of us. It's natural to feel
00:04:41
anxious when markets react to world
00:04:43
events, to wars, to politics, to
00:04:46
tariffs. But it's crucial to recognize
00:04:48
that those external shocks have always
00:04:49
been part of investing history. We've
00:04:51
had world wars and pandemics and oil
00:04:54
crises and banking explosions, inflation
00:04:56
run a muck, etc., etc. And yet, here we
00:04:59
are. The nature of long-term investing
00:05:01
is one of volatility, of ups and downs.
00:05:03
And the ups are easy. They are great.
00:05:05
The downs if we're not careful can be
00:05:07
really challenging and you might have
00:05:09
felt that challenge here in 2025. That
00:05:12
volatility though that is a feature not
00:05:14
a bug. Again that is a feature not a
00:05:16
bug. We want to see volatility. We want
00:05:19
risk to be involved in our investing at
00:05:21
least in some part of our investing
00:05:23
endeavor because without that risk there
00:05:25
is no compensatory reward. There's no
00:05:28
point to investing in the first place
00:05:30
without risk. Is that not why you are
00:05:32
here Maximus? Right. having a little bit
00:05:34
of risk. That is why we are here. Yet
00:05:37
often people get stressed or scared or
00:05:39
they make drastic changes in their
00:05:41
portfolio when faced with volatility.
00:05:43
Such a reaction is this glaring red
00:05:46
light to me that suggests that the
00:05:48
investor's expectations were not
00:05:49
adequately set. If your monkey brain is
00:05:52
screaming, get off this roller coaster
00:05:54
when you have a little bit of
00:05:55
volatility, we need to ask, why did you
00:05:57
get on that roller coaster in the first
00:05:59
place? Were you expecting a smooth ride?
00:06:01
Such investments do exist perfectly
00:06:04
smooth, but there's no real upside to
00:06:06
them. There's no real reward. It's hard
00:06:08
to set new investing expectations in the
00:06:11
middle of market chaos. Just as teaching
00:06:14
fire safety while the smoke alarm is
00:06:16
going off, that's pretty hard, too.
00:06:18
Instead, we run real fire drills during
00:06:21
the safe times to ingrain the
00:06:24
appropriate reactions in everybody. We
00:06:26
don't run fire drills in the middle of a
00:06:27
fire. We run them during the safe times
00:06:30
to ingrain the appropriate reaction and
00:06:32
approach. And similarly, we should be
00:06:34
setting investing expectations during
00:06:36
the calm or positive market times to
00:06:39
ingrain how we should be reacting. Now,
00:06:41
I know this episode's going to come out
00:06:42
in July and right now I'm speaking to
00:06:44
you in about mid June, but we've fully
00:06:47
recovered from the volatility of April.
00:06:50
So, if April scared you, I hope you
00:06:53
didn't try to reset things in the middle
00:06:55
of the fire drill of April. But now that
00:06:57
things have gotten back to a calm or
00:06:59
even a positive market, now might be the
00:07:02
time to think about how you reacted. And
00:07:04
if you reacted in a pretty negative way,
00:07:06
now that it's calm, you might want to
00:07:08
run a fire drill now and determine if
00:07:11
you need to reset your investing
00:07:13
expectations. You don't have that luxury
00:07:15
in the middle of a fire drill. If the
00:07:18
next time you find yourself in a fire
00:07:19
drill and and one of the the second
00:07:20
article I I read today will be about
00:07:22
that, but the next time you find
00:07:23
yourself in the middle of a fire, I
00:07:25
should say, in the middle of volatility,
00:07:26
in the middle of panic, a few things
00:07:29
that I called back in April, I called
00:07:31
them the midfire fire drill. A few
00:07:34
reminders, if you will. The first one,
00:07:36
markets don't go up in a straight line.
00:07:37
They never have, and they never will.
00:07:39
Volatility is the price of admission for
00:07:41
long-term returns. If you're feeling
00:07:43
uneasy, you need to remind yourself this
00:07:45
is why investors get rewarded over time
00:07:47
because they endure these kinds of ups
00:07:50
and downs. This is why you're here and
00:07:52
you must endure, too. The second
00:07:54
reminder, this is why we diversify.
00:07:56
Stocks aren't enough. Bonds play a role.
00:07:58
International stocks are crushing it
00:08:00
this year. Real estate alternatives can
00:08:02
have a place in your portfolio, too. The
00:08:04
third reminder, you need to zoom out.
00:08:06
Short-term swings can feel dramatic, but
00:08:08
the market has consistently trended
00:08:10
upward over decades. If you pull up a
00:08:12
multi-deade chart of the S&P 500, the
00:08:15
former dips, the former crashes, the
00:08:17
former outright panics now seem kind of
00:08:19
small in comparison. Every single one of
00:08:22
them felt scary at the time. Yet over
00:08:24
time, the market has recovered and moved
00:08:26
higher. The fourth reminder, focus on
00:08:28
what you can control. You can control
00:08:30
your time horizon. You can control your
00:08:32
behavior. The quote that I like, it's
00:08:34
more of a philosophical quote, is you
00:08:36
can't control the waves, but you can
00:08:39
learn to swim. and we all need to learn
00:08:40
how to swim. And the fifth reminder,
00:08:42
remember your financial plan. Why did
00:08:44
you invest in the first place? What do
00:08:46
you own and why do you own it? A
00:08:48
well-thoughtout investment plan accounts
00:08:50
for volatility before it happens. If you
00:08:53
don't have a plan, now is a great time
00:08:54
to create one. Ideally, one that helps
00:08:56
you stick with it when things feel
00:08:57
uncertain. The world is a volatile
00:08:59
place, and when things get volatile out
00:09:01
there, and by there, I mean like outside
00:09:03
the markets in the real world, when
00:09:04
things get volatile out there, I too
00:09:06
grow concerned. But when the market gets
00:09:08
topsyturvy, I say to my inner maximus,
00:09:11
yes, this is why I am here. And the
00:09:14
second thing I want to read to you
00:09:15
today, listeners, inspired by a cool
00:09:17
Jason Zwag Wall Street Journal article
00:09:19
from a few years ago. This is the
00:09:21
beginning of 2022 where like the worst
00:09:23
of kind of the co not only the co market
00:09:26
panic, but a lot of the worst of the co
00:09:28
pandemic was over with. But 2022 was
00:09:31
also the start of this interest rate
00:09:33
shock and and markets were kind of doing
00:09:35
some wild things starting at the
00:09:36
beginning of 2022. And so inspired by
00:09:38
Jason Zwig, I wrote myself a letter for
00:09:41
when my portfolio crashes. And the
00:09:43
article I called it break glass in case
00:09:45
of market crash. And literally it's a
00:09:48
letter that I wrote to myself. Jesse,
00:09:50
you knew what you were getting into. You
00:09:52
knew this could happen. And it's okay
00:09:54
that it did happen. Your goals are big
00:09:56
and your timeline is long. That's why
00:09:58
you signed up for this risk-heavy
00:10:00
portfolio. 60% of your assets are in the
00:10:02
stock market and you knew the stock
00:10:04
market could get cut in half. It's
00:10:05
dropped like that before and surely it
00:10:07
will again. You knew the recent market
00:10:09
felt pretty frothy, especially after the
00:10:12
COVID related stimulus. But you also
00:10:14
knew that selling your stock position
00:10:15
would have been short-sighted. Rather
00:10:17
than sell, you've been rebalancing every
00:10:19
6 months. You've been selling overpriced
00:10:21
assets and buying underpriced assets.
00:10:23
That's the smart thing to do. You knew
00:10:25
that bonds were in a tough place to park
00:10:27
your money. Yields were pretty low.
00:10:28
That's why your allocation varied
00:10:30
between 10% and 15% in bonds, but you
00:10:33
also knew that all asset classes eb and
00:10:36
flow over years and decades, just like a
00:10:38
good quilt chart would show us. Your
00:10:39
bonds aren't there to make you rich.
00:10:41
They provided some diversification and a
00:10:43
pool from which you can rebalance. You
00:10:45
knew cryptocurrency could be a giant
00:10:47
bubble, but you also convinced yourself
00:10:48
that blockchain technology might have
00:10:50
something to it. You balanced these
00:10:52
opposing views by following John Bogle's
00:10:54
famous advice to limit your sandbox, to
00:10:57
limit your play money to less than 5% of
00:10:59
your portfolio. You chose a percentage
00:11:01
even lower than that. And you split that
00:11:03
tiny fraction between Bitcoin and
00:11:05
Ethereum, which okay, at the time were
00:11:07
considered the two powerhouse
00:11:09
cryptocurrencies. I guess the idea is if
00:11:11
you're going to drink moonshine, you
00:11:12
should drink the good stuff, but you
00:11:13
should definitely take a small sip. And
00:11:15
quick aside, listeners, if you're paying
00:11:17
attention at home and adding up my
00:11:18
portfolio percentages, you'll realize
00:11:20
I'm not even at 80% yet. The difference
00:11:23
is because when I wrote this article,
00:11:25
rather than only focusing on my
00:11:27
portfolio, I also added in the value of
00:11:29
our primary home as part of our net
00:11:31
worth, and that's the other 20 to 25%.
00:11:35
Okay, back to the letter. You designed
00:11:37
this portfolio with intention, and this
00:11:38
outcome, a crash, was always one
00:11:41
potential outcome of that design. And so
00:11:43
the market crashed and you feel bad.
00:11:45
What you shouldn't do is suffer the
00:11:47
malady of resultsoriented thinking.
00:11:50
Saying told you so isn't justified here.
00:11:53
You did your research. You followed
00:11:55
mostly best practices. Maybe
00:11:56
cryptocurrency is the outlier there. And
00:11:58
you executed a plan that you believed
00:12:00
in. You made a smart bet with good odds
00:12:02
and the dice haven't rolled in your
00:12:04
favor recently. Does that mean it was a
00:12:06
dumb bet? No, it doesn't. As Annie Duke
00:12:08
writes in the book, Thinking and Bets,
00:12:10
thinking in bets starts with recognizing
00:12:12
that there are exactly two things that
00:12:14
determine how our lives turn out. The
00:12:16
quality of our decisions and luck.
00:12:18
Learning to recognize the difference
00:12:19
between the two is what thinking in bets
00:12:21
is all about. In your case, Jesse, the
00:12:24
right choice led to a bad outcome. The
00:12:26
next part is painful. You've got to make
00:12:29
the right choice again, even knowing it
00:12:31
didn't work out perfectly the first
00:12:33
time. That right next choice is to
00:12:36
continue learning, to implement lessons
00:12:38
learned, to continue rebalancing your
00:12:39
portfolio, and most likely to continue
00:12:42
holding the same asset classes as
00:12:44
before. The one exception would be if
00:12:46
crypto turns out to be a complete fraud,
00:12:48
you should probably just stick to more
00:12:49
traditional asset classes. In other
00:12:51
words, stick to your guns with a small
00:12:54
aotment for adjustment. Is that
00:12:56
insanity? Are you suffering that trope
00:12:58
of insanity is repeating the same
00:13:00
actions while hoping for a different
00:13:01
outcome? I say no. When the poker player
00:13:04
goes allin with a pair of aces, we don't
00:13:06
scold her for losing on an unlucky flop.
00:13:09
We commend her for making the right
00:13:11
decision with the information she had.
00:13:13
We recognize the role of bad luck in
00:13:15
that outcome. This untimely market crash
00:13:18
is the same. It sucks. It doesn't feel
00:13:19
great. But go back and reread Bogle,
00:13:22
reread Burton Malke, reread your
00:13:24
foundational books. You played your hand
00:13:26
well. This bad luck was always a
00:13:29
potential outcome. As insane as it
00:13:31
sounds, you've got to stay the course.
00:13:33
Good luck, dude. I'm pulling for you,
00:13:35
obviously. And that's my letter. And if
00:13:37
you haven't written a letter to yourself
00:13:39
in case of market crash, if you haven't
00:13:41
explained to yourself why you own what
00:13:43
you own, and if you haven't explained to
00:13:45
yourself what your range of potential
00:13:47
outcomes could be, both in the short
00:13:49
term, the midterm, and the long term,
00:13:51
that might be a pretty interesting
00:13:52
exercise for you to do. Here's a quick
00:13:55
ad, and then we'll get back to the show.
00:13:56
I love getting your questions and some
00:13:58
of you ask me questions about the wealth
00:14:00
management firm I work for in Rochester,
00:14:02
New York. Others ask about the Best
00:14:03
Interest blog and this podcast, Personal
00:14:05
Finance for Long-Term Investors, which
00:14:06
operate without advertising, without
00:14:08
pushy sales, and with no payw walls. How
00:14:10
can the blog and podcast stay afloat
00:14:12
without me dumping my own money into it?
00:14:14
Well, to answer both those questions, I
00:14:15
want to point you to episode 78 of
00:14:17
Personal Finance for Long-Term
00:14:19
Investors. I intentionally recorded
00:14:20
episode 78 to shine light on those
00:14:22
topics and inform you how you are
00:14:24
actually helping and can continue
00:14:25
helping these projects carry forward. So
00:14:28
if you've ever been curious about the
00:14:29
business of my blog and podcast or if
00:14:31
you're curious about my day job in
00:14:32
wealth management, please check out
00:14:34
episode 78 and let me know what you
00:14:36
think. And now without further ado, I
00:14:38
want to welcome Peter Lazro on to the
00:14:40
podcast. Again, Peter is the chief
00:14:41
investment officer at Plan Corp, which
00:14:43
is a independent registered investment
00:14:45
adviser out of uh St. Louis and he's
00:14:48
just got a great knack for simplifying
00:14:49
the complex investing and financial
00:14:51
planning issues. I mean, similar to
00:14:52
stuff that I talk about. I really look
00:14:53
at Peter as a as as a great peer,
00:14:55
probably a peer who's, you know, 10
00:14:57
years ahead of me career-wise and
00:14:58
someone I I aspire to cuz I think what
00:15:00
he's doing is awesome. Just a great
00:15:02
resource for teaching people about
00:15:03
investing. And I think you'll see that
00:15:05
today through the the frameworks and the
00:15:06
explanations he provides. So again, here
00:15:09
is Peter Lazeroth.
00:15:15
Peter, you know, it's messy out there,
00:15:17
man. Uh, we've had an interesting year
00:15:19
so far. We're recording in mid June.
00:15:21
This will probably publish in mid July.
00:15:24
We started on some highs. Boom. April
00:15:27
hit. We had some lows. Now, maybe we're
00:15:29
we're back towards highs. But still, uh,
00:15:31
you know, one thing I'm struck with is
00:15:33
there's this big difference between
00:15:34
short-term signals and long-term
00:15:36
direction when it comes to investing.
00:15:39
I'd love to maybe start with just how
00:15:40
have you felt and what are some of your
00:15:42
thoughts about how 2025 has been so far?
00:15:44
>> Well, first of all, Jesse, thanks for
00:15:46
having me on the show. And actually,
00:15:48
since I know you don't use video, but I
00:15:50
can see in the background this giant box
00:15:52
behind me. You know how 2025 is going?
00:15:54
It's going great cuz I'm cleaning out
00:15:56
old stuff. And there's actually a box of
00:15:58
books of making money simple. So, my
00:16:00
first book came out in 2019, making
00:16:02
money simple. And I was just telling you
00:16:04
before the show that I'm putting the
00:16:06
finishing touches on my next book which
00:16:08
is called The Perfect Portfolio. But
00:16:10
when I was on last year, your audience
00:16:12
reached out. They were fantastic. And so
00:16:13
what I am going to do is if your
00:16:14
audience goes to peter
00:16:16
lazar.com/freebook.
00:16:20
I'm pausing. I think it's free book, not
00:16:21
book. We'll put a link in the show
00:16:23
notes. I'm going to send you one of
00:16:24
those books that's sitting behind me.
00:16:25
There's a box of them. I think there's
00:16:26
like 32 per box. Somebody pulled them
00:16:28
up. The postage date on them is
00:16:30
September of 2020. So they've been
00:16:32
sitting in storage. Nobody knows where
00:16:33
they came from. I didn't tell you that I
00:16:36
was going to self-promote and drop that,
00:16:37
but now that I see it in my camera view,
00:16:39
you ask, "How is 2025 going?" Man, think
00:16:42
about being a long-term investor is that
00:16:44
when you go into a year, clients are
00:16:47
always talking about a few things. And
00:16:50
tariffs were certainly on people's mind.
00:16:52
you know, the election results have just
00:16:54
come in and I would say in any
00:16:56
presidential election, my experience has
00:16:59
been that half of people are very upset
00:17:02
and half of people are happy. And I
00:17:05
think a lot of people who were upset
00:17:06
were saying the market is going to
00:17:08
crash. I don't like some of the policies
00:17:10
and things that are being said on the
00:17:11
campaign trail. And lo and behold, I
00:17:14
mean, I wouldn't call a 20% drop a
00:17:16
crash, but we had a near 20% pullback.
00:17:19
And you have people who feel validated.
00:17:21
And I can't tell you how many times in
00:17:23
my career I've put up slides showing
00:17:26
that who is president does not impact
00:17:28
the stock market or a political party
00:17:30
does not impact the stock market. So one
00:17:32
frustrating part about 2025 is me now
00:17:35
realizing in about 3 years when we have
00:17:37
our next election that when I put up
00:17:39
those charts people are going to say
00:17:40
well what about the tariffs that that
00:17:42
Trump put out there that did happen. I
00:17:44
suppose that validated but as you
00:17:46
mentioned we're already back. It's a
00:17:48
great reminder that the market is going
00:17:52
to fall 10% 20% with a pretty
00:17:55
surprisingly large frequency and the
00:17:58
story is always going to be different.
00:18:01
But the most important thing that I was
00:18:03
talking to clients about and talking to
00:18:04
employees and friends and family is
00:18:07
earnings. And like yes, in the case of
00:18:09
tariffs, which by the way, by the time
00:18:11
that this airs, that 90-day pause will
00:18:14
be close to expiring. And so there'll
00:18:16
probably be more headlines related to
00:18:18
it.
00:18:19
>> Here's the thing is no matter what the
00:18:20
tariffs are, do you think McDonald's is
00:18:22
going to try to sell us cheeseburgers or
00:18:24
Coca-Cola is going to try to sell us
00:18:26
Coke or that Ford's going to try to sell
00:18:28
us cars? No. They're going to try to
00:18:30
sell as much of their product no matter
00:18:32
what. Will there be more obstacles? Have
00:18:35
the rules to the game changed? It's like
00:18:37
if we got out a board of monopoly and
00:18:39
we've been playing by the same rules
00:18:41
that monopoly has always existed with
00:18:44
and suddenly we change some rules, it's
00:18:45
going to change your strategy a little
00:18:47
bit. But when you invest in the stock
00:18:48
market, you are betting that CEOs like
00:18:51
money and that shareholders will demand
00:18:53
that CEOs maximize their value. So 2025
00:18:56
has been like a full long-term market
00:18:59
lesson all wrapped up into six months.
00:19:02
It'll be really interesting to see what
00:19:03
goes on with tariffs, what goes on with
00:19:05
the spending bill. Yeah. I mean, that
00:19:08
was a really long answer to your
00:19:09
question. So, let me let me take a
00:19:10
breath here. What what are you thinking?
00:19:12
>> It's a good answer. And in fact, I want
00:19:14
to play devil's advocate here on behalf
00:19:15
of the listeners, but also Pete, I mean
00:19:18
on behalf of client conversations that
00:19:20
you and I both have. Maybe someone's
00:19:22
listening right now and go, okay, we
00:19:23
don't know what'll happen over the next
00:19:25
month between when we're recording and
00:19:27
publishing, but let's say the S&P stays
00:19:29
about where it is right now, which is
00:19:31
close to all-time highs. Essentially, we
00:19:33
we haven't really lost any ground on the
00:19:35
year. But imagine someone says, "I hear
00:19:38
what you're saying, Peter. McDonald's
00:19:40
will keep on trying to sell
00:19:41
cheeseburgers, but we saw something this
00:19:43
year where one politician was able to
00:19:47
push some policy forward and then pull
00:19:49
it back and then kind of push it forward
00:19:51
and pull it back and just whipssaw the
00:19:53
stock market and that has fundamentally
00:19:55
shaken my faith in long-term investing.
00:20:00
Is there any merit to that argument or
00:20:01
just what's your response there?
00:20:03
>> I think there's merit to that feeling.
00:20:06
The feeling is valid. feeling concerned,
00:20:09
feeling worried, feeling uncertain, all
00:20:11
valid, all normal. Nothing wrong with
00:20:15
that. When you take a step back and you
00:20:17
think about why we invest in the first
00:20:19
place, I always go back to really the
00:20:21
first principle level is we invest
00:20:24
because we're trying to grow our savings
00:20:26
faster than the rate of inflation
00:20:28
without taking undue risk. And so like
00:20:31
what is undue risk? Well, yes, there is
00:20:34
risk in that that concern and that
00:20:37
feeling that one individual specifically
00:20:40
is exerting a lot of influence over the
00:20:42
short-term fluctuations of the market.
00:20:44
There is a risk that the market will
00:20:47
fall 10% roughly on average every 12
00:20:50
months because that's what it's done
00:20:51
historically and fall 20% every 3 to
00:20:54
four years on average because that's
00:20:55
historically what it's done and fall 30%
00:20:58
or more about once a decade on average
00:21:00
because again that's historically what
00:21:02
it's done. I generally think that when
00:21:04
I'm investing in stocks I'm going to
00:21:06
assume that we're going to have
00:21:08
downturns with a similar magnitude and
00:21:11
frequency as we have in the past. And so
00:21:13
to me, that's not an undue risk. That is
00:21:16
risk. And it is okay to be uncomfortable
00:21:19
with risk. It's okay to be even more
00:21:21
than uncomfortable to be afraid. I think
00:21:23
that's why some people hire an adviser.
00:21:26
I feel like I operate with robotlike
00:21:29
execution with clients. But even on
00:21:31
myself, I don't. And let me give you an
00:21:32
example, Jesse. So during this downturn,
00:21:36
>> I don't have a lot of cash. I don't keep
00:21:38
a ton of cash on hand. You know, my
00:21:39
biggest asset is the firm that I'm a
00:21:41
part owner of, Plan Corp.
00:21:43
>> I fund all my retirement accounts. I
00:21:45
fund my health savings account. And so,
00:21:47
the best thing I could come up with was
00:21:49
directing my entire paycheck to my 401k.
00:21:53
So, basically like speed funding my 401k
00:21:55
while the market was down. And
00:21:57
typically, I wait to fund my HSA until
00:22:00
December, like when I get my year-end
00:22:01
bonus and I have a little bit more cash.
00:22:03
But basically, I just took all my
00:22:04
paychecks and just put them right into
00:22:05
the market. When you do it in a 401k, as
00:22:08
your listeners and you and everybody
00:22:09
probably knows, it goes right into the
00:22:11
market. My HSA had to make a couple
00:22:13
stops. And Jesse, it's we're recording
00:22:16
this on June 10th. The cash in my HSA is
00:22:19
still not invested. I am human like all
00:22:22
of the rest of you. And all of the
00:22:25
systems that I have in place for myself
00:22:26
that generally mean that money is
00:22:28
getting invested right away don't apply
00:22:31
to my HSA. in part because of like the
00:22:33
way the account's set up and in part
00:22:35
because it requires me to click a
00:22:36
button. Now, is it because I'm afraid?
00:22:39
No. If if I'm being perfectly honest, I
00:22:41
saw a little spike and in my head I
00:22:43
said, "Well, surely, you know, most bare
00:22:46
markets don't resolve themselves this
00:22:47
quickly and here it didn't." Now, what
00:22:50
am I waiting for this? I've not publicly
00:22:52
shared this story. I guess by December
00:22:54
when I normally would have made the
00:22:55
contribution, I will definitely do it by
00:22:56
then. Maybe I'll do it right when we get
00:22:58
off the call. In fact, mark my words,
00:23:01
I'm going to do it right when we get off
00:23:03
the call. My 2025 investment will get
00:23:05
invested. So, by the time you were
00:23:07
listening to this, dear listener in the
00:23:09
audience, um it will be done. But my
00:23:11
point kind of going all the way back to
00:23:13
your concern was I think it's valid. It
00:23:15
is very human. We all feel it. And when
00:23:17
people like you and I are telling you
00:23:19
what's best, you know, what we have set
00:23:21
up for both your clients, what we have
00:23:23
set up for my clients is to do it
00:23:26
without emotion and to do it without
00:23:28
human judgment and follow processes and
00:23:32
financial theory because the long term
00:23:34
those things turn to work work out
00:23:35
pretty well. But the problem with the
00:23:37
long term is that it is an eternity to
00:23:39
live through in the moment. And so for
00:23:41
the people who still feel uncertain and
00:23:43
shaken about what has happened and what
00:23:46
might happen, I will again reiterate for
00:23:49
the third fourth time in the past five
00:23:51
minutes totally normal. Just remember
00:23:53
why is it that we invest and what is a a
00:23:56
risk that you get compensated for and
00:23:57
what's a risk that you don't you don't
00:23:59
get compensated for trying to time the
00:24:01
market. You don't get compensated
00:24:02
systematically at least for trying to
00:24:05
pick exactly the right security. So,
00:24:07
even though I poorly timed the market
00:24:08
here, I'm going to go buy the single
00:24:10
fund that I own that's 100% stocks,
00:24:12
globally diversified, I will make no
00:24:14
choices other than what my predetermined
00:24:17
plan is. And you go forward that way.
00:24:19
And it can be one of the crazy things is
00:24:22
you look back at every drop and it seems
00:24:24
like an obvious opportunity in
00:24:26
hindsight, but it's always seems like a
00:24:29
risk in the moment. And so find a way to
00:24:31
turn what feels like a risk into an
00:24:33
opportunity. Cuz I can assure you that
00:24:35
when you look at one of those long-term
00:24:37
charts that goes up and to the right and
00:24:38
has all the headlines, this is just
00:24:40
going to be one of those headlines that
00:24:42
shows up on the on the chart of
00:24:43
long-term returns despite all of these
00:24:46
headlines. This is going to be on that
00:24:48
chart. You just wait it. Give us a year
00:24:50
so there's enough room on the chart to
00:24:52
include it and it'll be in every history
00:24:54
book like that.
00:24:55
>> You touched on a few things there,
00:24:56
Peter. Well, first off, I want to say
00:24:57
that your your quote that part of our
00:24:59
job and part of any investor's job is to
00:25:02
grow their assets faster than inflation
00:25:05
without undue risk. I'll be honest, I've
00:25:07
stolen that one from you before and used
00:25:08
it. That is a fantastic explanation of
00:25:11
the reason why we're all here in the
00:25:12
first place. It's not to become
00:25:14
gajillionaires and die at top the
00:25:16
greatest pile of gold that we can. It's
00:25:19
to simply grow our assets faster than
00:25:20
rel uh inflation, but also keeping risk
00:25:23
in mind, which which is huge. I want to
00:25:25
dive more into behavior because to me
00:25:28
when I've seen what's happened so far
00:25:30
this year, one of the biggest risks we
00:25:32
all face as individuals is that risk of
00:25:35
overreacting. It's that risk of
00:25:37
mistaking volatility for some sort of
00:25:39
signal that we need to change our plan.
00:25:42
And I'm pretty sure, correct me if I'm
00:25:44
wrong here, I think I listened to a
00:25:46
podcast episode that you put out earlier
00:25:48
this year where you said something akin
00:25:50
of like there are some times actually
00:25:52
where you suffer volatility maybe for
00:25:55
the first time as an investor or the
00:25:57
first time as a retiree, your account,
00:25:59
your portfolio really takes that first
00:26:01
big drop and you learn that maybe your
00:26:04
risk appetite isn't quite what it is and
00:26:07
changing your portfolio actually is the
00:26:09
right thing to do. It just so happens
00:26:11
that it was also the right thing to do
00:26:13
before the volatility hit. You just
00:26:15
didn't realize it. C can you dive into
00:26:16
that logic a little bit?
00:26:18
>> Yeah, it's interesting and I don't think
00:26:20
it's something that I would have said at
00:26:24
the start of my career nearly two
00:26:26
decades ago when my only education was
00:26:29
really that from a textbook. In reality,
00:26:32
when you're dealing with humans, you
00:26:34
can't take the human nature out of
00:26:35
humans. And you know, I think a lot of
00:26:38
times as we work with clients, it's not
00:26:41
just to be a robot fact machine. I mean,
00:26:43
in many instances, we have the unique
00:26:45
privilege to listen like a therapist and
00:26:48
ask questions and dig deeper. What I've
00:26:51
come to learn as a result of that is
00:26:54
nobody really has a problem with the
00:26:57
volatility itself, with the down market.
00:27:00
you we'll sign an investment policy
00:27:01
statement before we invest a client's
00:27:04
assets just like any other good adviser
00:27:05
will do and you'll say hey the portfolio
00:27:08
the worst 12 months it's had like if you
00:27:10
had a million would you be comfortable
00:27:12
losing $360,000 of it or whatever you're
00:27:15
like yeah of course I really think
00:27:17
people believe that and that's how we
00:27:19
set that stock bond mix but what I've
00:27:21
come to learn is that while people can
00:27:23
handle the volatility they can't
00:27:25
necessarily handle the narrative and I
00:27:27
think that's a very different piece of
00:27:29
the pie that has given me a different
00:27:33
appreciation for what my job is as like
00:27:35
your portfolio sherpa. You know, I'm not
00:27:37
just here choosing investments. I'm
00:27:39
going to give you the I'm going to think
00:27:40
a lot about the experience of investing.
00:27:43
And if that means that we didn't dress
00:27:45
you warm enough for the winter, we're
00:27:47
going to get you an extra layer of
00:27:49
coats, which in this case, I guess, are
00:27:51
bonds. I don't know, this is off the
00:27:52
cuff here. Or if you're too hot, you
00:27:54
know, we get you some swim trunks. In a
00:27:56
perfect world, the market's down and you
00:27:59
find out that you're too conservative.
00:28:01
That like you're in your 70s and you
00:28:03
have more money than you're going to
00:28:04
need and so you're going to more closely
00:28:06
align your portfolio with the time
00:28:08
horizon of those who are set to inherit
00:28:10
it and you get more aggressive in a
00:28:12
downturn. But if you're approaching
00:28:14
retirement or having just entered
00:28:16
retirement and you realize that you
00:28:19
can't handle the downturn, yeah, it's
00:28:21
not ideal to sell while markets are
00:28:25
down, but it is much better to adjust an
00:28:28
allocation a little bit than to go to
00:28:30
allcash. There is no doubt that getting
00:28:32
entirely out of the market is the wrong
00:28:34
move. Naturally when people want to make
00:28:37
such a move I remember in the years 2007
00:28:40
2008 2009
00:28:42
that was a very common conversation I
00:28:45
want to get out of the market everything
00:28:47
is going down everything's going down in
00:28:50
flames and we used to call them jumpers
00:28:53
like they're jumping out of the market
00:28:54
not jumping off a bill but call them
00:28:56
jumpers and like I was working in an
00:28:58
office that had no individual offices we
00:29:00
were in a totally open floor work like
00:29:02
all the founders and partners of the
00:29:03
firm were dispersed equally among us and
00:29:05
so you could hear all the client calls
00:29:07
and that to me was like a very different
00:29:10
vibe like trying to make sure you don't
00:29:12
get all the way out of the market
00:29:13
whereas if somebody's a 60% stock
00:29:15
portfolio and they want to go to 50/50
00:29:18
in the grand scheme of things it's not
00:29:19
that big a deal if it will help you
00:29:21
sleep at night it's not that big a deal
00:29:23
and I'm going to reluctantly say oh by
00:29:26
the way if you really want to make a
00:29:27
change that's going to make a real
00:29:28
difference in the long term should
00:29:30
probably make a move by more than 10%
00:29:32
but I don't know that off that that's
00:29:34
necessarily really what I want to see
00:29:35
people do. I just I recognize that 10
00:29:37
percentage point changes aren't going to
00:29:39
really change your trajectory that much.
00:29:41
And so, as a result, if it's really
00:29:42
going to help you sleep at night, that's
00:29:44
fine. What I like to do in those
00:29:46
instances is document it really for the
00:29:49
benefit of the client. So, if you think
00:29:51
like the best traders in the world, and
00:29:53
we're definitely not traders, but they
00:29:54
keep journals. They have their reasoning
00:29:56
why, like what would make them change
00:29:58
their mind and just like create an
00:30:00
archive of like, hey, this is what I
00:30:01
heard during our conversation and why
00:30:03
you want to make this move. And the
00:30:05
reason you do this is because if it fast
00:30:07
forward 6 months or 6 years and the
00:30:10
sentiment's totally flipped, you we have
00:30:12
to make sure that we have a a clear road
00:30:14
map of why we got to where we were for
00:30:16
making these changes. You can you're
00:30:18
allowed to make changes with your
00:30:19
portfolio. The you know in a perfect
00:30:21
world you pick one strategy and one
00:30:24
allocation you stick with it for as long
00:30:25
as possible. But at the end of the day
00:30:27
if you can afford to make that change
00:30:29
Yeah, you're right. I think I've I've
00:30:30
become a little more lenient in my
00:30:33
sentiment around that issue.
00:30:35
>> Yeah, you reminded me right there.
00:30:36
There's this uh Cliff Asna story that
00:30:39
maybe you've heard before where I think
00:30:41
it's his aunt or his great aunt. I think
00:30:43
she like lives in Australia, but she
00:30:45
travels back and forth to I believe it's
00:30:47
the USA pretty often. And she knew that.
00:30:49
Cliff asked us, if listeners, if you're
00:30:51
not familiar, he's a hedge fund guy,
00:30:53
right? And so she would ask Cliff, she's
00:30:55
like, "Hey, I know you do these currency
00:30:57
trades or whatever it is you do. When's
00:30:59
the right time in any given year when I
00:31:01
need to move my Australian dollars to US
00:31:04
and US to Australian?" And for years and
00:31:06
years and years, Cliff was like, "I
00:31:07
can't tell you that. Like, I can't zoom
00:31:09
into it this specific day." And she
00:31:12
interpreted that as like you're just
00:31:13
withholding information from me. Like
00:31:15
you know the answer but you're
00:31:16
withholding from me. And so eventually
00:31:18
he said he kind of got this better EQ
00:31:21
emotional intelligence. And he'd say
00:31:22
like you know what Aunt Cindy next
00:31:24
Wednesday you should do it next
00:31:25
Wednesday because she got the narrative
00:31:28
that she wanted which was she was
00:31:29
getting expert advice. And Cliff
00:31:31
realized it's all just arbitrary anyway.
00:31:34
So telling her next Wednesday isn't any
00:31:36
worse than telling her I don't know. And
00:31:39
there's a similar, not maybe exactly the
00:31:41
same, but there's a similar idea that
00:31:43
you just described there, Peter, which
00:31:44
is, you know what, if someone is 6040
00:31:47
right now, they feel like they have too
00:31:48
much risk and they want to go, you know,
00:31:51
going 5545 or 50/50 makes them feel
00:31:54
better for the rest of the year. Now,
00:31:57
okay, all else equal, it's probably not
00:31:59
a coin flip. I would rather they stay
00:32:00
6040 if that's better for their plan.
00:32:03
But if it does help them sleep at night,
00:32:05
it's close to being a coin flip and I'm
00:32:07
okay with that change and it's a lot
00:32:09
better than than saying, you know, a
00:32:11
month later, screw you, Jesse. You told
00:32:13
me I can't change and now I'm going all
00:32:14
cash like sayanara. It's a much better
00:32:17
outcome. So, it is there is this
00:32:18
interesting gray area. I also wanted to
00:32:20
touch on the narratives idea a little
00:32:22
bit more because one hard thing that I
00:32:25
find Peter is I'm certainly not a fake
00:32:28
news kind of conspiracy they're all
00:32:30
lying to us person but at the same time
00:32:32
I do realize that if we consume too much
00:32:36
news whether that's cable news or just
00:32:38
reading you know Google algorithm
00:32:40
feeding you the news that you're already
00:32:42
reading it is easy to convince yourself
00:32:45
that the narratives will start driving
00:32:47
your portfolio decisions and So, one of
00:32:49
my struggles or just one of the hard
00:32:51
parts I find about answering reader or
00:32:53
listener questions or answering client
00:32:55
questions is when they say, "But haven't
00:32:57
you been paying attention to the news?
00:32:59
You know, everything is going badly."
00:33:01
And that's been the case. It was the
00:33:02
case when President Biden was in office
00:33:04
and some people were saying everything
00:33:06
is going badly. And now it's the case
00:33:08
when President Trump is in office and
00:33:09
everything. And it really is largely
00:33:11
narrative driven. So, yeah. again. I
00:33:13
mean, maybe I'm I'm beating a dead horse
00:33:14
here, but what do you say to the the
00:33:17
client who's addicted to the news and is
00:33:18
telling you that you're wrong about the
00:33:20
world?
00:33:21
>> Yeah, I experience those same
00:33:23
conversations. And I try my best to
00:33:27
always anytime the conversation comes up
00:33:29
with a concern, the first question I ask
00:33:31
is, "How do you think that impacts
00:33:33
earnings?" Because at the end of the
00:33:34
day, the stock market tracks earnings so
00:33:38
closely, like shockingly closely. I
00:33:40
mentioned working on this book. I have a
00:33:42
whole chapter. It's become such an
00:33:44
important idea to me that it's almost an
00:33:45
entire chapter and there's some charts
00:33:47
in there that you'll be able to see like
00:33:48
how closely it's all tracked. And the
00:33:51
economy and the stock market are not the
00:33:53
same thing because the economy, they're
00:33:56
real people losing their jobs. Kid
00:33:58
businesses, they have access to sell to
00:34:01
the whole world. Now, are things worse
00:34:04
because of a set of policies than they
00:34:06
would have been otherwise? Perhaps. I
00:34:08
think that's a logical concern. But does
00:34:10
that mean that earnings won't continue?
00:34:13
Let me put this a different way. So I
00:34:15
own, you know, stake of the business
00:34:17
that I'm in. I'm not selling my business
00:34:20
because of the way the world is going.
00:34:21
We're trying to figure out as a business
00:34:23
how to earn as much money as possible.
00:34:25
All of my clients who are business
00:34:26
owners are doing the same thing. You
00:34:28
know, there is no policy. The front end
00:34:30
of my career was mostly with doctors. Uh
00:34:32
when I came to Plane Corporate, I
00:34:33
introduced a lot of business owners into
00:34:35
like the type of people I worked with.
00:34:36
Mhm.
00:34:37
>> And I've never ever ever met a business
00:34:40
owner who says, "I'm going to just sell
00:34:42
my business because, you know, the
00:34:44
economy is terrible. I'm just going to
00:34:45
sell my business." What is it that we
00:34:48
all think we're doing in stocks? We own
00:34:50
businesses. And that's where it's a
00:34:52
narrative correction. What's so
00:34:54
interesting is so many times people give
00:34:55
me all these reasons that things are
00:34:57
bad. I'm like that those are all facts,
00:34:59
but they're not necessarily relevant.
00:35:02
That actually comes up with the
00:35:03
investment case for a lot of things.
00:35:05
Like we don't have to go down a huge
00:35:06
rabbit hole, but like one topic that I
00:35:09
really struggle with, for example, are
00:35:10
private investments. Like maybe they're
00:35:13
useful. If they're free, I'm all in, but
00:35:16
I don't think they're necessary. And
00:35:17
like the primary narrative for using
00:35:19
them are all facts.
00:35:20
>> I'm just not sure they're relevant. When
00:35:23
you come to things on policy or the
00:35:25
economy, all facts, all something that I
00:35:27
think might impact you in real life. I
00:35:30
think especially in the last six months,
00:35:32
you know, the thing I've kind of been
00:35:34
reflecting on is, hey, this is the sort
00:35:35
of thing that's going to affect our
00:35:37
everyday lives, but it's, you know,
00:35:39
long-term not really going to affect the
00:35:42
way that businesses in the sense that
00:35:44
they try to make as much money as they
00:35:46
possibly can. If we get to a point where
00:35:48
businesses stop trying to make money,
00:35:50
that is a massive problem. I don't
00:35:53
really see that happening. If the US
00:35:56
consumer, they say, "Well, they have to
00:35:57
sell to the US consumer." If the
00:35:59
consumer is worse off, you're like,
00:36:00
"Well, they might be worse off, but
00:36:02
maybe they're going to go sell more in a
00:36:03
different country." Well, aren't those
00:36:05
earnings less because of all the
00:36:06
tariffs? Maybe. Yeah, but they're still
00:36:08
going to try to make as much money as
00:36:10
they can. And this is not the first
00:36:13
obstacle that businesses have faced. And
00:36:15
so, I think kind of going back to like
00:36:17
these narratives of the economy is
00:36:19
looking bad. And look to be clear
00:36:20
actually the economy is showing some
00:36:22
like mild signs of strain. What does
00:36:25
that mean?
00:36:27
Nobody really knows because some
00:36:28
economic data doesn't read out the same
00:36:30
way it used to. It all goes back to
00:36:32
earnings. And that doesn't mean that you
00:36:34
can't have temporary declines in
00:36:36
earnings. But generally speaking, as
00:36:39
long as you think companies will keep
00:36:40
trying to make money, earnings have
00:36:42
historically grown more than inflation.
00:36:45
Well, that's because when there's
00:36:46
inflation, the businesses pass on the
00:36:48
price increases and then boom, you got
00:36:50
higher earnings. Well, then it's a
00:36:52
matter of well, some companies earn more
00:36:55
than others because new markets are
00:36:56
created. Think of like Nvidia. So, AI
00:36:59
like the chips that are needed to run AI
00:37:02
programming,
00:37:04
those were a market for the last like 10
00:37:06
years, but boy did they become an
00:37:08
important market in the last year or
00:37:09
two. And what's pretty crazy about the
00:37:12
stock market is less than like 5% of
00:37:14
stocks drive all the returns basically
00:37:17
in any given year. And so it's not that
00:37:19
every company is going to do needs to do
00:37:22
well. And maybe that's something I
00:37:23
should have uh led with. You get me
00:37:25
talking talking long enough. I'll get to
00:37:26
the points eventually, but let's just go
00:37:28
strictly with tariffs. There will be
00:37:30
winners and there will be losers.
00:37:32
>> But the winners might win so big that
00:37:34
the losers it doesn't really matter. you
00:37:36
know, they might more than make up the
00:37:38
earnings lost from some of the smaller
00:37:40
companies. And oh, by the way, like some
00:37:42
of these losers in the total stock
00:37:44
market make up like less than a tenth of
00:37:46
a percent of it. So, it's not to say
00:37:47
there won't be winners and losers. It's
00:37:49
not to say that there won't be winners
00:37:50
and losers in the real economy. And
00:37:53
those are real concerns. And I feel
00:37:55
really bad for a lot of people who this
00:37:57
impacts. And I'm going to say this, I
00:37:59
hope the audience doesn't take it the
00:38:01
wrong way. I mean, one of the things
00:38:02
about the policies recently as well as
00:38:05
all of the policies since the great
00:38:06
financial crisis are that if you are an
00:38:09
owner of financial assets, you're
00:38:11
probably in pretty good position. So,
00:38:14
does that mean it widens the inequality
00:38:16
gap? I'm not an expert in this space,
00:38:18
but my intuition would be yes.
00:38:20
>> Mhm.
00:38:20
>> If you're worried about being able to
00:38:22
meet your own financial goals, I would
00:38:24
say that as long as you're a holder,
00:38:26
because again, we're just trying to
00:38:27
outpace inflation here. That's the first
00:38:28
principle why we're investing. If you
00:38:30
have financial assets, a lot of these
00:38:32
things are, you know, maybe your assets
00:38:34
won't grow 15% a year like they did for
00:38:36
a while there. That was unusual. That
00:38:38
was not normal. But, but yeah, you're
00:38:40
probably going to be okay long term.
00:38:43
>> That's always an interesting one to
00:38:44
touch on, Peter. I've struggled with it
00:38:46
as a content creator over time, whether
00:38:47
it's writing or podcasting, where we do
00:38:50
notice things where we say, "Boy, this
00:38:53
particular tax law is probably going to
00:38:55
benefit, you know, it might make wealth
00:38:57
inequality worse." Or there are some
00:38:59
things I know in like the financial
00:39:01
independence movement where you say
00:39:02
like, "Wait, you could retire with
00:39:04
millions of dollars, artificially, show
00:39:06
very little income, and get totally free
00:39:08
healthcare." I mean, the answer is yes,
00:39:10
you can. It's difficult for us in our
00:39:12
positions to fundamentally change
00:39:15
policy. If someone wanted to ask us,
00:39:17
we're free to give our opinions there
00:39:19
and say, "Yeah, and these policies
00:39:20
aren't necessarily fair." But at the
00:39:21
same time, if our job here is to give
00:39:23
the best advice we can to the
00:39:25
individuals listening, yeah, there
00:39:27
there's something to be said where
00:39:29
people who own incomeroucing assets have
00:39:31
tended to benefit from that ownership
00:39:34
potentially to a disproportionate
00:39:36
amount. Okay. But still, you're better
00:39:38
off owning them than not. Maybe we'll
00:39:40
leave the uh philosophical discussion to
00:39:42
a to another podcast or another episode.
00:39:44
Here's a quick ad and then we'll get
00:39:46
back to the show. Every week I send a
00:39:48
quick free email to thousands of readers
00:39:50
that shares three simple things. One, my
00:39:53
new articles and podcasts. Two, the best
00:39:56
financial content of the week from all
00:39:58
over the internet. And three, a
00:40:01
financial chart that explains some
00:40:02
important concept in the news that week.
00:40:05
It's a great primer to boost your
00:40:07
financial knowhow. But Jesse, I don't
00:40:09
want another email.
00:40:11
>> Well, this might not be for you, but I
00:40:13
do hear you, which is why I make it very
00:40:15
short, sweet, and full of only the
00:40:17
essentials. A whopping 66% of
00:40:20
subscribers read my email at least once
00:40:22
a month. They're enjoying it, and maybe
00:40:24
you will, too. You can subscribe for
00:40:27
free on the homepage at
00:40:28
bestinterest.blog.
00:40:30
Again, that's a free no strings attached
00:40:32
subscription at bestinterest.blog.
00:40:35
On the topic of recession, the one thing
00:40:37
I wanted to touch on with you, and
00:40:38
again, neither you nor I are PhD
00:40:41
economists. You might have you, you must
00:40:43
>> No, no, no. Definitely not PhD. I got a
00:40:45
major in economics, but I don't think
00:40:47
that even makes me remotely an
00:40:49
economist.
00:40:50
>> But at least you
00:40:51
>> That makes me a college graduate. Yes.
00:40:53
You you can speak to this question
00:40:54
probably better than I can though which
00:40:56
is I think some people very through
00:40:59
through lucky circumstance last week I
00:41:01
got quoted in the in the Wall Street
00:41:03
Journal which was wow big big honor and
00:41:06
the article right the article was about
00:41:07
recessions and the fact that millennials
00:41:10
might be as you alluded to some of the
00:41:12
data is looking a little weak and
00:41:14
millennials might start living through
00:41:16
what's our third recession the first one
00:41:18
being the great financial crisis which
00:41:20
was like potentially one of the worst
00:41:22
recessions the world's ever seen. The
00:41:24
second one being CO which reminded us
00:41:26
that right anything can happen and and
00:41:27
pandemics are real and now a third one
00:41:30
might might begin. But the question I
00:41:33
have for you is does every recession
00:41:35
have to be a great financial crisis or
00:41:38
come along with something like a global
00:41:39
pandemic or is it possible to have a
00:41:42
more vanilla recession?
00:41:44
>> Well, it's a great question. It's one of
00:41:47
the reasons that a deep understanding of
00:41:51
history, economic and market and
00:41:53
financial history can be so helpful to
00:41:55
so many adviserss and even individuals
00:41:58
who have lived through these periods
00:42:00
either were at a point in their lives
00:42:01
where they had less money and didn't
00:42:03
care or they've forgotten or they never
00:42:07
really realized what was happening in
00:42:08
the first place. And so recessions take
00:42:12
on all shapes and sizes. And there can
00:42:14
also, just for the record, a recession
00:42:16
doesn't mean that there's a bare market
00:42:17
in stocks. And a bare market in stocks
00:42:19
doesn't mean that there's a recession.
00:42:21
They often a bare market tends to
00:42:23
precede a recession. But like 2022 is a
00:42:26
great example. Had a bare market in
00:42:27
stocks, no recession alongside with it.
00:42:30
You kind of had this intermittent
00:42:32
weakness in different sectors of the
00:42:34
economy. There was a really good term
00:42:35
for it that's escaping me at the moment,
00:42:37
but that's okay. So, I think a recession
00:42:39
doesn't have to be a crisis. Recession
00:42:42
to me I think if you're going to try to
00:42:45
simply categorize it you think job loss.
00:42:48
So recession you're typically going to
00:42:50
see a lot of job loss that can bring
00:42:53
some real life implications and really
00:42:55
shape what your world view is. So if you
00:42:58
are you mentioned a millennial if this
00:43:00
is your third recession and you lost
00:43:01
your job in each one of them you're
00:43:03
going to be really afraid of recession.
00:43:05
If you're a millennial who did not lose
00:43:07
their job in any of the recessions and
00:43:09
maybe even got to invest
00:43:11
opportunistically, you're also going to
00:43:13
view recessions in a very different
00:43:14
light.
00:43:15
>> I think when you are thinking about
00:43:18
recessions, to me, it's less about your
00:43:20
portfolio and more about your balance
00:43:22
sheet. And I tend to think of the two
00:43:25
things differently myself in part
00:43:27
because my portfolio is so boring. I
00:43:28
mean, I I already kind of referred to
00:43:30
it. I own one fund that's 100% stocks. I
00:43:33
don't have any taxable dollars. is just
00:43:35
my business. One day I aspire to have
00:43:37
taxable dollars again. But you know, in
00:43:39
general, my balance sheet has different
00:43:41
risks in a recession than my portfolio
00:43:43
does. My portfolio is all retirement
00:43:46
accounts at this point. So I don't need
00:43:48
the money. I'm 40 years old. Let's say I
00:43:51
don't need it for 20 to 30 years. A
00:43:53
recession has zero impact on my
00:43:55
portfolio. A recession on my balance
00:43:57
sheet is a little different. I have some
00:43:59
leverage tied to the commercial loan for
00:44:01
the business that I own. my cash levels
00:44:04
like my business is kind of tied to the
00:44:06
stock market. So if the stock market's
00:44:08
down, my income's down and my cash
00:44:09
levels are low and like suddenly I have
00:44:11
to think about balance sheet management
00:44:13
a little bit more. I'm just kind of
00:44:15
talking about my own situation, but if
00:44:17
you're listening to this, think about
00:44:19
your balance sheet. Think about the cash
00:44:20
that's on it. Think about the long-term
00:44:22
liabilities, whether it's a mortgage or
00:44:24
student debt or some kind of commercial
00:44:26
loan. Think about your portfolio, both
00:44:29
retirement assets and otherwise, and how
00:44:31
would a recession, how would a change in
00:44:33
your income stream impact your balance
00:44:35
sheet? And I think, you know, if you're
00:44:37
near retirement, it could a lot. And I
00:44:39
think that's a very valid concern. I
00:44:42
won't make it sound too draconian, but
00:44:43
like a less than ideal scenario for
00:44:45
somebody about to retire is that the
00:44:47
first year that they're in retirement,
00:44:48
there's a down market. It's not the best
00:44:50
thing to have happen because you have to
00:44:52
withdraw for your portfolio and you do
00:44:54
permanently impair the portfolio's
00:44:56
earning potential by doing that.
00:44:58
>> So what you might do if you're going
00:45:00
into retirement is start building up a
00:45:02
cash reserve so that if there is a
00:45:05
recession one, it won't delay your
00:45:07
retirement. So I've seen that happen
00:45:08
before where people are like going to
00:45:10
retire in a given year and then there's
00:45:12
a recession so they hold off retirement
00:45:14
for another 6 to 12 months. Well, like
00:45:16
look, you don't get to push out your
00:45:17
life expectancy to 6 12 months. So, I
00:45:20
view that as not good financial
00:45:21
planning. I view that as a missed
00:45:23
opportunity. And so, like having the
00:45:25
cash to live through your first
00:45:26
recession without needing to draw
00:45:28
through your portfolio is a really good
00:45:30
preparation point. Doesn't have to be
00:45:32
something that's built overnight, but I
00:45:34
mean, it could depending on the way that
00:45:35
you retire. If you have pensions, you
00:45:38
know, you're a little more recession
00:45:39
proof. If you're below the age of 50,
00:45:42
your portfolio is probably recession
00:45:44
proof. And when I say recession proof,
00:45:45
not that it's immune to losses, but like
00:45:47
you really don't need to worry about it.
00:45:48
And so again, kind of going full circle
00:45:50
back to my original statement, I tend to
00:45:52
think more about how would a recession
00:45:55
imp impact my balance sheet than my
00:45:57
portfolio. And if you are retired, I
00:45:59
think the same is true. Like yes, you
00:46:01
should have a portfolio that is built
00:46:04
that assumes that you're going to have
00:46:05
downturns again with a similar magnitude
00:46:07
and frequency as as you've had in the
00:46:09
past. And so you've tested it in a Monte
00:46:11
Carlo analysis that shows yes, I can
00:46:13
make this withdrawal in a down market.
00:46:16
You should be good. Now it's just a
00:46:17
matter of managing the rest of your
00:46:18
life. You don't have to wor about worry
00:46:19
about losing your job in retirement
00:46:21
because you don't have a job. Do you
00:46:23
have to worry about your kids losing a
00:46:24
job and how you might respond if they
00:46:26
do? These are the things that I would be
00:46:28
talking about more so than is my stock
00:46:31
bond allocation right? Should I have
00:46:32
more international instead of more US?
00:46:34
You know, do I need to make changes to
00:46:37
where my cash is held, etc. I want to
00:46:39
touch on one of those things you said
00:46:40
right there, but real quick, you did
00:46:42
mention the sequence of returns risk.
00:46:43
So, listeners, I want to point you to uh
00:46:46
back on episode 87, we had a deep dive
00:46:48
on the sequence of returns risk that's
00:46:50
worth checking out. But right there,
00:46:52
Peter, you just mentioned, you know, one
00:46:53
of the questions you might ask is,
00:46:54
should you think about your
00:46:56
international versus domestic holdings?
00:46:58
The last question I want to pepper you
00:47:00
with today as far as 2025 so far has
00:47:02
been this uh interesting at least
00:47:05
shortterm maybe it'll stay short-term
00:47:08
change in international versus domestic
00:47:11
stock returns. What have you seen out
00:47:13
there? What kind of conversations have
00:47:14
have you had? I know I I've had some
00:47:16
going back to the the news narratives.
00:47:19
I've had some people who especially in
00:47:20
the downturn of April said, "Well, let's
00:47:23
just go 100% international now." So, I
00:47:25
thought that was a fun conversation to
00:47:26
have. But yeah, what do you see out
00:47:28
there? Uh what a reversal from like the
00:47:30
past 15 years. So for context, I started
00:47:32
my career in the summer of 2007 and
00:47:35
basically every year through the
00:47:37
financial crisis into like 2011 2012
00:47:40
when the US debt was downgraded by S&P
00:47:42
for the first time, everyone was
00:47:44
obsessed with owning more China. People
00:47:47
did not want to own US. US was the
00:47:49
worst. We should own all international,
00:47:51
more international. You know, the past
00:47:54
10, 15 years, people have said why do we
00:47:56
own international? we should only own
00:47:58
US. And Jesse, I had my first
00:48:00
conversation with a client a few weeks
00:48:02
ago saying, I want to shift from the US
00:48:05
to international. So, it's finally
00:48:06
happening. We're finally here. I'm
00:48:08
thinking, gosh, I can't wait till
00:48:09
international outperforms so that I can
00:48:11
stop having this conversation. But silly
00:48:14
me, I forgot that then people just want
00:48:15
whatever's outperforming. And I'm not
00:48:17
making fun of anyone listening who feels
00:48:19
that way. I mean, it's this is just our
00:48:20
job. It's hard not to laugh at it. And I
00:48:23
think in general, let's go to the simple
00:48:26
why do we own international? There can
00:48:28
be different reasons. I'll tell you why
00:48:29
I own it, Jesse, is I own it for
00:48:31
diversification. I don't own it
00:48:33
necessarily for higher returns. What is
00:48:37
good about diversification
00:48:38
mathematically is if we have two
00:48:40
portfolios with the same return and one
00:48:42
is has lower volatility and one has
00:48:45
higher volatility. The one with lower
00:48:47
volatility is going to compound at a
00:48:49
better rate and as a result have a
00:48:51
higher compound return and that's like
00:48:53
your real life money. You want high
00:48:55
compound returns. Your average return
00:48:57
that you see you know on morning star of
00:48:59
a fund doesn't really matter what did it
00:49:00
compound at. So if the two returns are
00:49:03
the same but one is lower volatility,
00:49:04
you want the lower volatility one. And
00:49:06
that's what diversification does. Now in
00:49:09
reality, you do give up a little bit of
00:49:12
return by owning a global portfolio
00:49:14
versus just an all US portfolio, but the
00:49:18
corresponding reduction in volatility is
00:49:21
great enough that that compound return
00:49:23
is attractive enough to diversify. So
00:49:26
today when people are thinking about
00:49:29
like should I switch from one to the
00:49:30
other you're kind of remembering why you
00:49:32
do it and the research will show that
00:49:35
you get that diversification benefit
00:49:37
that reduction in volatility benefit
00:49:40
from owning anywhere between 20 and 50%
00:49:43
non- US stocks. The problem with the
00:49:46
research is nobody knows what the magic
00:49:47
number is.
00:49:48
>> And so I would tell you you pick a
00:49:51
number and you just stick with it. Like
00:49:53
if I were a gambling man and I had my
00:49:55
gun to a head and I had to bet what's
00:49:57
going to have higher returns over the
00:49:58
next 10 years, US or international, I'd
00:50:00
say international. But you know what? I
00:50:02
would have said that each of the last
00:50:03
like four or five years, too, and been
00:50:05
wrong. And so I'm a really big proponent
00:50:08
of pick a percentage and stick with it.
00:50:11
Now, let me share one other quick
00:50:12
narrative because I know we're running
00:50:13
long and I apologize. I'm a wordy guy. I
00:50:16
remember being at my former firm. The
00:50:18
year is 2011 and we're looking at the
00:50:21
return data set and from like the Msei
00:50:24
data starts in 1970 and so like 1970
00:50:26
through 2011 the returns of an all US
00:50:29
portfolio were identical to the returns
00:50:31
of a global portfolio. And so we
00:50:33
increased our international allocation
00:50:36
and all the reasons showed that we
00:50:39
should do it at the time. But then you
00:50:41
fast forward and wow did we make a bad
00:50:42
decision. And actually a friend of mine
00:50:45
who has a similar role at a firm similar
00:50:47
size as us did the complete opposite
00:50:49
this year. You know they had been
00:50:50
overweight international for so long cuz
00:50:52
the valuations suggest much like I just
00:50:54
said that international should
00:50:56
outperform. They had been overweight
00:50:57
international forever and then they
00:50:59
switched to overweight US at the
00:51:01
beginning of this year like the exact
00:51:02
wrong timing.
00:51:03
>> So you find a percentage between 20 and
00:51:06
50% of your portfolio and don't change
00:51:09
it. We happen to be at 30%. Why are we
00:51:12
at 30%. I'll be honest, Jesse. This firm
00:51:14
was started over 40 years ago. I don't
00:51:16
know why we did it, but I'm in charge
00:51:17
and we're not changing it. Is there data
00:51:19
that could make me change my mind? Of
00:51:21
course. You give me 200 more years worth
00:51:23
of data, which I know I can't have, but
00:51:24
like let's say I somehow magically
00:51:26
could. I'm open to changing my mind, but
00:51:29
I think I've now watched too many
00:51:31
instances of the timing getting wrong.
00:51:32
We already know that we can't predict
00:51:34
the future. Why would this situation be
00:51:36
any different? And so if you're sitting
00:51:38
in your globally diversified portfolio
00:51:40
thinking that you want to move more
00:51:41
intern into international or even go all
00:51:44
international,
00:51:45
even if you're right, you're going to
00:51:47
have to figure out when to switch back.
00:51:48
And chances are you're going to be
00:51:50
wrong. Not because I'm making a
00:51:51
prediction, but just because like we are
00:51:53
all terrible at timing the market.
00:51:55
>> Peter, you are always a treasure trove
00:51:58
of good investing thoughts and that
00:51:59
answer is just another example of that.
00:52:02
Two vital questions for you. one being
00:52:05
let's let the listeners know where they
00:52:06
can listen to you on a more consistent
00:52:08
basis, but then the second one being
00:52:10
remind us a little bit about the
00:52:12
timeline and the topic of your book that
00:52:14
you're working on right now.
00:52:15
>> Okay. Well, yeah, thanks for the
00:52:17
invitation to to share. So, my podcast
00:52:20
is called the long-term investor. So,
00:52:22
you can go to the long-term.com or you
00:52:24
can search the long-term investor in
00:52:26
your podcast app. I did double check the
00:52:28
URL I shared earlier if you would like a
00:52:30
free copy of the book. I don't have
00:52:32
unlimited, but I am looking at a box
00:52:34
right now of like 30ome. You can go to
00:52:36
peterlazeroff.com/freebook.
00:52:39
The new book, oh my god, I'm going to
00:52:41
give you another URL. The new book you
00:52:43
can learn about by going to, drum roll,
00:52:46
the perfect portfoliobook.com.
00:52:49
It is due out, I think, in July of 2026.
00:52:53
But that last URL I shared, if you sign
00:52:55
up for that, you are not on my normal
00:52:57
email list. You're going to get early
00:52:59
access to chapters. You are going to get
00:53:00
some special offers for like signed
00:53:02
books. There's going to be some
00:53:04
subscriber only webinars and whatever
00:53:06
else my marketing person comes up with
00:53:07
between now and then. I'm going to do a
00:53:09
lot of behind the scenes stuff so you
00:53:10
can get a sense. I know when you sign up
00:53:12
for the newsletter like the outline of
00:53:14
the book is the third like you get three
00:53:16
automatic emails over 3 days and then
00:53:18
you get on a regular update. But you get
00:53:20
an excerpt from a chapter pretty quickly
00:53:22
and you get the outline of the book and
00:53:24
I'm going to share chapters as you know
00:53:26
in full when they're truly like
00:53:28
publisher approved and done. And so,
00:53:30
yeah, would really appreciate anybody
00:53:31
checking that out and follow along. And,
00:53:33
you know, just like on this podcast, you
00:53:35
comment, you subscribe, you like, you
00:53:37
follow. Those are like what help other
00:53:38
people who are passionate about these
00:53:40
topics like you. You're listening to us
00:53:42
right now. It means you're passionate
00:53:44
about this. When you review like Jesse's
00:53:47
podcast or you review my podcast, it
00:53:49
helps other people like you find us. So,
00:53:51
we both appreciate when you do that.
00:53:53
>> 100%. That's totally true. Well, Peter,
00:53:55
thank you again for stopping by.
00:53:56
Personal Finance for Long-Term
00:53:58
Investors.
00:53:59
>> Yeah, Jesse, thanks for having me.
00:54:00
>> Thanks for tuning in to this episode of
00:54:02
Personal Finance for Long-Term
00:54:04
Investors. If you have a question for
00:54:06
Jesse to answer on a future episode,
00:54:08
send him an email over at his blog, The
00:54:10
Bestinest. His email address is
00:54:12
00:54:15
Again, that's jessevestinterest.blog.
00:54:19
Did you enjoy the show? Subscribe, rate,
00:54:21
and review the podcast wherever you
00:54:23
listen. This helps others find the show
00:54:25
and invest in knowledge themselves, and
00:54:28
we really appreciate it. We'll catch you
00:54:30
on the next episode of Personal Finance
00:54:32
for Long-Term Investors. Personal
00:54:34
Finance for Long-Term Investors is a
00:54:36
personal podcast meant for education and
00:54:38
entertainment. It should not be taken as
00:54:40
financial advice and it's not
00:54:42
prescriptive of your financial
00:54:43
situation.
