5 Hurdles Between You & Your Retirement

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Welcome to the fifth podcast for New Retirement. Today we're going to be talking with Bill Bernstein from Portland, Oregon about the five hurdles between you and a financially secure retirement, which aligns with the two main themes of our podcast, making the most of your money and time. Our goal is to help people who are planning for retirement or financial independence with financial insights, stories and ideas for making the most of their lives. Bill is a retired neurologist and best selling author who has written six books around the themes of investing, asset allocation, history, and trade. Some of them include the four Pillars of Investing, the Investor's Manifesto, and if youf can, which is a short booklet that I just finished reading and we're going to be talking about today. We got to Bill because a recent guest, Jonathan Clements from the Wall Street Journal, suggests that we have Bill on since he's an expert on investing, risk premiums, behavioral finance, and market history. All right, so Bill, welcome to the show. I appreciate your time here. Before we get started, I just want to let you know that when I'm not writing financial planning software, I'm studying to be a brain surgeon. Bad joke.

People come at me in the opposite direction. They ask me, how hard is it to do finance? Isn't it difficult? And I say, well, yes, it is difficult, but it's not brain surgery.

Nice.

In spite of the fact I'm really not a brain surgeon. I'm a medical neurologist. So we kind of do the same things that neurosurgeons do, but we treat people medically and we don't use too many scalpels.

Nice. I'd just love to hear more about your career trajectory and how you got interested in investing when you started out as a neurologist.

Okay. Well, I live in a country that doesn't have a functioning social welfare system, so I was forced to save and invest for my own retirement. And I approached it the way that I thought that any person with scientific training would do, which was I read the peer Reviewed literature, the basic texts, I collected data, I built models. And when I was done with all that, I realized that I had accomplished something or put something together that other small investors would find useful. This sort of thing is now very commonly available, but when I started doing it almost 25 years ago, or 25 years ago, actually, it really, it wasn't commonly available. So now we're not talking about the mid-1990s portfolio models. Data series just weren't available to the ordinary investor. So what I did was I made that in the models and how I interpreted the models available to the general public in the form of a website and what 10 years later got to be called a blog and then later on in books as well.

Nice. And like from all your work in the space and you know, kind of how would you summarize your point of view on investing?

Well, I think that markets are basically efficient. You can find certainly holes in market efficiency. It's a model. The efficient market hypothesis is a model. It's not reality, but it's darn close to reality. And the important thing to realize is, is that there's very little evidence of the persistence of performance or in other words, skill in investing. And further, that the average investor, whether it's a small investor or whether it's an institutional investor, can only earn the market return on average minus their expenses. So the key thing is to minimize your expenses. And you do that by investing passively. And the longer that you do it, the statistics work out that the more and more people you will wind up besting on a day to day basis, an indexer or a passive investor on average winds up at around the 50th percentile. But by the time you get out to 30 or 40 years, which hopefully is your investment horizon, you're probably somewhere out around the 90th and the 95th percentile of investors. And that's good enough for me.

This is basically modern portfolio theory in a nutshell. Don't try to get alpha to beat the market, but essentially try to just invest alongside the market and capture the returns over a long period of time.

It's a little different than modern portfolio theory. Modern portfolio theory is a theory of how you put together different assets, whereas the efficient market hypothesis is really what we're talking about here. The idea that no one person has an informational advantage over the market.

Right, right, got it. So, you know, in some of reading some of your stuff, a big theme is, you know, trying to keep it simple but recognizing that it's not always easy. Even Though the kind of the main idea around getting to a successful outcome is simple. It's just somewhat hard to do, like losing weight. I think you've kind of used that analogy before.

Yeah, that's precisely correct. And finance is a curious field because, for example, if you're a practicing medical doctor, there are certain basic things that you need to master. You need to master anatomy and physiology and pathology and pharmacology before you can even begin to approach patients at the bedside. Just so simply you can execute the craft competently. Finance is different. I could write on a box top a very successful investment strategy which would be simply to put a third of your money each into an index of U.S. stocks, foreign stocks and U.S. bonds. And that's going to do extremely well. You need, though, to learn the basic science of finance. And we'll get to that, I suppose, in a bit. Not in order to execute the craft so much as just to keep your discipline. Okay. And the analogy that I like to use is with learning to fly an aircraft. When you learn to fly, what you're basically learning to do is suppress all of your most basic survival instincts and behave and respond in a very counterintuitive manner. And. And you need this knowledge base, the science of finance, so you don't do stupid things when the chips are down.

Right? Yeah, no, it was really interesting reading kind of if youf can, that booklet that you put together. It was super helpful. You know, basically there's five hurdles in it that you mentioned that say, look, this is what stands between kind of an average person and successfully executing the strategy you just outlined, which is essentially save 15% of your salary and invest it across these three buckets of assets and rebalance annually and do that for 30 or 40 years and then you'll. 90% of the time you're going to beat most of the market and have a successful outcome. So, yeah, I'd love to kind of get your take on what those five hurdles are and we can kind of dive in each one as we go through it.

Well, sure. The very first hurdle is that you simply have to be able to save. All right, Your name can be Warren Buffett, and if you are not able to save, your investing ability is not going to do you any good. We live in this very corrosive consumer environment where you're not successful unless you're wearing brand name clothes and driving an expensive car and living in a McMansion that is a prescription for financial failure. Sort of. The metaphor I like to use is that a BMW is not A motor vehicle. It is an IQ test in terms of ability to save and to have a decent retirement. And of course, I'm not just talking about BMWs, I'm talking about all expensive consumer purchases. And then once you're able to save, then there are four bits of knowledge, or four areas of knowledge you have to acquire. And it's what I wrote about in one of my books called the Four Pillars of Investing. And the four pillars beyond simply being able to save are number one, investment theory. So it's understanding the efficient market hypothesis. It's understanding, even more importantly than that, the connection between risk and return, and then finally understanding how that plays out in, in the real world. The second pillar, that is, I guess the third hurdle, if you will, is knowing the history of finance and knowing economic history. And that gives you a certain knowledge base that enables you to weather the really bad parts of the market. We'll get to how theory and history interact because they interact in a very, very important way. The fourth hurdle, the third pillar, if you will, is the psychology of investing and particularly human overconfidence. Not simply overconfidence in your own ability to invest, but also overconfidence about your risk tolerance. There are a lot of people out there, especially in today's market, who think they're long term investors and they can happily invest at 100% in stocks. And there were a lot of people who thought that in 1998 and in 2005 as well. And then two or three years later they found out that it wasn't true. They weren't quite as risk tolerant as they thought they were. And then finally the very last hurdle, the fourth pillar, if you will, is learning about the investment business and learning about all of the potholes that are out there and how to avoid the potholes, because there are a lot of potholes out there having to do with the investment industry that you have to learn to avoid.

Yeah, totally agree with that. I mean there's definitely, I think in financial services in general, there's just historically been a ton of misalignment and lack of transparency about how people are paid, how much they're paid. And now it's becoming a lot clearer. Of those of those five hurdles, which one do you think is there a single biggest one that jumps out at you as like, this is the biggest risk for the average investor and planner?

I think that there's just so many of them. I think it's all of a piece and I think they all interact together. But if I had to pick one out, it would certainly be overconfidence, overconfidence in people's ability to invest and overconfidence in your ability to tolerate risk. I recently came back from a conference for medical doctors about not just investing, but also about lifestyle and practice issues. And physicians are notoriously awful investors. And the reason why they're primary reason, I think why they're awful investors is, is that they don't take investing seriously. Certainly they don't take it as seriously as an academic subject as they take medicine. And they're just grossly overconfident in their ability. Surgeons in particular can be particularly bad investors because they tend to be extremely overconfident. And you know what I like to tell a mixed audience of physicians is that while testosterone does wonderful things for muscle mass, it doesn't do much for judgment. And that's why women investors are in general better investors than men are because they're just not that overconfident.

Right. Yeah, that's pretty interesting. So yeah, it's interesting hearing you talk about these things. We were just having a laugh over here because when we're setting up, Dada was saying that his dream car is a BMW M3. So he's getting a good lesson right now that he needs to be thoughtful about what he does.

Think again.

Yeah, that's pretty interesting. So around the theory of investing, just quick question for you. How would you define risk?

Well, there are two ways to define risk. One is at a practical level. You know, we evolved on the plains of eastern Africa and southern Africa to live in a split second lightning decision environment. And honestly, really reacting almost on a second to second basis because that's how you survive in a state of nature. So we experience risk in our guts and on a second to second or in the financial markets on a day to day basis. I mean, there are people during bear markets who get what's called tickeritis or just hitting the refresh button on their screen, watching their wealth melt away and they can't stop doing that. So that's short term risk. And that's a risk that I call shallow risk. Because 99 times out of 100, losing several percent of your net worth in a given day or losing 50% of your net worth over the course of a year, which can certainly happen if you're fully invested in the stock market is generally a temporary thing. It doesn't feel that way when it's happening. But history tells us that 99 times out of 100, not 100 times out of 100, that's what happens. But I define risk in terms of longer term consumption and this is a very sort of ethereal way of defining risk. But I think it's a much more practical way of defining risk, which is it's simply risking dying poor. In other words, it's not saving enough money and not having a high enough return to sustain yourself when you stop working or no longer able to work. So you're looking at things in the markets that will completely destroy the return of an asset class for a generation or more. And that doesn't happen very often, but it does happen and it happens very rarely with stocks. It's certainly happened in Japan over the past 28 years, ever since 1990. And it can also happen with bonds if you get hyper inflation. So that's why you diversify. You diversify so that you've always got some asset class and a good chunk of it that will survive that. And so I tend to think of risk in a much longer term perspective. And that's got nothing to do with day to day volatility, which is how the academics measure risk. And I think most people measure risk at a gut level.

Yeah, no, I think it's a great perspective. I mean, I remember talking to Zvi Bodhi about this, who's an economist from Boston University, and he's like, the whole point of investing is to maintain essentially the same standard of living throughout your entire life cycle. You want to save when you're making money from your human capital and your work. You want to invest that appropriately over the long period of time and make sure you achieve a large enough portfolio that you can generate enough income for the amount of time that you need it in retirement, which could be 20, 30 years to maintain the same quality of life. And so managing across that, I think.

That'S a fine idea in theory, but it basically ignores hedonic adaptation. If you maintain an even standard of living from the time you're 20 until the time you're 70 or 80, you're not going to think that life is very much fun. Okay? You're going to have the same car and the same house and the same style of living and you won't see any improvement. And you will get very quickly acclimated to a good standard of living, to a high standard of living early. It's not a healthy thing to have happen to you. It's, you know, it's something, the theory that he's talking about is something called consumption smoothing. Okay, so maybe you even borrow money when you're young. So you can live in a nice house when you're young, and you can still live in a nice house when you're old as well, because then you're earning more money and you can pay your younger self back by doing that. But the problem is, if you get used to driving a nice car and living in a 4,000 square foot house when you're 25, when you're 65, you're not going to be very happy driving that same kind of car and living in the same 4,000 square foot house. All right. Because we hedonically adapt. I think personally that it is much healthier to deprive yourself a little bit materially when you're younger. And then, you know, when you get to be a little wealthier when you're older, you just hug yourself at how lucky you are. I mean, when I was, you know, young, I stayed at the cheapest hotels. I would crash with friends, didn't eat out very often. And now, you know, when I'm much older, I stay in nice hotels. I eat out in nice restaurants all the time. Occasionally I even fly business class. And gosh, every time I do, I hug myself. You know, if I had gotten, if I, if I'd gotten used to that when I was 25, I wouldn't enjoy it as much now.

Right? That's interesting. You know, it's like there's a thing here where more and more people are kind of doing intermittent fasting, you know, and you just, you try to deprive yourself, you know, in different ways during your, you know, during the week or maybe during your life. Like on my side, I've been recently driving. I mean, so I actually am guilty. I, I recently got a new used car, but I had driven my old car, which was a BMW, by the way, but I drove it into the ground. Well, I drove it for 11 years and I had it all paid off and everything else. And, you know, ultimately the power steering died. And I'm like driving around this thing and just trying to appreciate actually that I shouldn't take everything for granted. But it was, it was a good reminder. But now I do try to be thoughtful about, like, what I spend my money on. And if I, I felt like I did need a better car that was a little bit safer, but I didn't want to buy, like a new car. I think I'm done buying new cars forever. I'm sure I'm done buying new cars forever. Yeah.

There's good neuropsych research that basically pretty much demonstrates that material goods don't really produce a great deal of happiness. And you know, stop me if you've heard if John Clements has already, Jonathan Clements has already done this riff for you during the last podcast, but he does a little riff where he goes through buying a new car. You drive it off the lot and it smells great and it feels wonderful. And then a week later or two weeks later, you get the first scratch in the windshield and then you have a fender bender at six months. And then at two or three years, the car starts having mechanical problems and suddenly you realize that you wished you hadn't bought the thing. Whereas what really imparts well being is material experience is experience. So if you're going to spend your money on something, you're probably better off spending it on travel and dinners out and especially spending time with friends and family than you will buying the fanciest car or the fanciest phone or the biggest house.

Yeah, totally agree with that. And we talked a little bit about that and it's definitely a theme that's coming up. I mean, I've, I've been talking to more and more people that are financially independent or are on the path to that and you know, definitely experiences over things I think is, you know, a common theme. And I think that message is getting out, getting out to a lot of people. I mean, one, one also, one interesting thing before we move on is on consumption smoothing and kind of life cycle finance. And I saw some research from Michael Kitces that shows that like, essentially people spend 1% less on a real basis in expenses per year once they're into retirement. So, you know, every 10 years it kind of drops down about 10%. Have you seen that with you and your friends since you're, you know, in kind of the retirement phase of your life?

Thank God, not yet, but, but I can see, I can see that it will happen to me. You know, the older, the older you get, the more your health issues tend to impinge upon your, your life. Thank God it hasn't happened to me yet. But, but, you know, the older you get, the less you, the less you get out and so the less money you spend. So I certainly, you know, I certainly agree with Mike that, you know, probably your prime, your prime time for spending should be your first decade or decade and a half after retirement.

Yep. Okay, interesting. So, hey, just real quick on risk and kind of the equity risk premium. I know, you know, you know a lot about that. And you know, when I was kind of reading through some of your work in advance of this, you know, there's you kind of say, look, there's risky assets and then there's riskless assets. And I think you know, my take is from reading your stuff and feel free to correct me, but you know, for risky assets you might expect 2 to 4% real return plus 2% inflation. And you know, which actually doesn't seem like it's super high given the potential volatility that you could experience there. And I was wondering if you can elaborate your view on risky versus riskless and what you can expect just to give people some perspective.

Well, all right, this isn't rocket science. I mean, first of all you have to ask what is a riskless asset? And this gets to a question you asked me several minutes ago, which is what do I think is risk? Theoretically on a short term basis, the riskless asset is a T bill because you know exactly what return you're going to get. There's no credit, there's almost no credit risk and there's almost no interest rate risk. But if you're investing for consumption 10 years or 30 years from now, a T bill certainly isn't riskless because you can have low interest rates, you've got reinvestment risk t bills for 20 or 30 year retirement horizon, if you're looking at defeating your expenses 20 or 30 years from now is a very risky asset. Opposite of that on the fixed income side is a tips, a Treasury inflation protected security. If you're trying to defeat your consumption 20 or 30 years from now, then there's one riskless asset which is a 20 or 30 year tips. Because you know that when that TIPS matures you are going to have inflation, inflation adjusted principal back plus you're going to earn some interest along the way and hopefully increasing amount of interest. And yet on a day to day or a month to month basis, a long term TIPS is a very risky asset. During the financial crisis the 30 year tips wasn't trading, at least there wasn't anything at that maturity trading. But if there had been a long TIPS during the financial crisis, it would have lost about 25% of its value. But over the 30 year horizon that you own it, it is a riskless asset. In terms of your consumption 30 years over the horizon. It's interesting what you call a risky or a riskless asset. The place where I would start is halfway in between those two which is say a five year tips. Right now the five year tips is yielding about 55 or 60 basis points. That's what you can expect is about a half a percent real return. Stocks Again, it's not that hard. The real dividend growth rate is somewhere around a percent and a half. It might be larger than that now that companies are buying back shares, but I think a percent and a half is a good conservative estimate. And stocks are yielding now about 1.7%. So you add those two numbers together and you get something over a 3% real return. So again, this isn't rocket science. You got about a half a percent on riskless assets and you got 3% on equities. So a mixed portfolio is going to get, if you're lucky, about 2%. And that's before expenses.

Yeah, this is why expenses matter so much. Right. So that's pretty interesting. And then I think what people have to get comfortable with is the volatility that they'll experience with risky assets and being able to weather the downturn. Right. And that's I think the really the hard part for any investor. It's like, hey, if I might see a 20 or 25% or in worst case like a 50% drawdown for some period of time, can I stomach that volatility and weather the storm until it comes back? I mean, basically you have to be able to ignore that. And that is a really hard question to answer until you experience it with a lot of money.

Exactly. Now the other question is to what is the risk of stocks? Again, to me that's a stupid question. Without qualifying in terms of the life cycle of the investor, if you are a 20 year old person with a lot of human capital or a 25 year old person with a lot of human capital and no investment capital, then stocks are not risky at all. In fact, if you're a young saver, you should get down on your knees and pray for horrible stock market returns and horrible stock market volatility so you can acquire your shares very cheaply for when you are much older. Now, at the opposite side of that spectrum, at the opposite end of the spectrum is somebody like me for whom stocks are Three Mile island toxic. Because if I'm burning 5% of my portfolio and I get a 10 year total return of minus 50%, my money is pretty much all gone. And the market may turn around with a vengeance after 10 years. But, but by then it's too late for me because most of my money is, if not almost all of my money is gone. So circling back to the young person, you might say, well, the young person should invest 100% in stocks. In other words, put 100% of their money, every single pay period into the stock market, and that is theoretically correct. The only problem is there are very few sentient beings in this quadrant of the galaxy that can tolerate 100% stocks. It's suboptimal if you're a young person to invest in a lot of bonds. But a suboptimal strategy that you can execute is better than an optimal strategy you can execute.

That's interesting for yourself. How has your portfolio changed as you've headed into retirement? I guess you've tilt it to be a lot more fixed income.

Well, yes and no. There comes a point where if you're lucky, and I don't want to tip my hand too much about myself personally, but there comes a point where you can actually have so much in assets, it really doesn't matter what you invest in. When I think of saving for retirement or saving, or I should say for an older person, I think in terms of two buckets. One is the liability matching portfolio. So that's the money that you need, the assets that you need to defeat your basic levy expenses so you don't wind up pushing a shopping cart under a bridge. Typically for a person who needs $40,000 a year to live over and above their Social Security, which is the typical retired successfully, you need 40,000 a year and you need about 25 years of expenses. So that's a million bucks. Once you have more than a million bucks, then assets in excess of that really, they're not your assets. They're really assets are going to go to your heirs and your charities and hopefully a bit to Uncle Sam as well, because I tend to be pretty patriotic about paying taxes. If you're a person who's got a very low burn rate who say, has 50 or 80 years of living expenses saved up, it almost doesn't matter how you invest. Theoretically, the person who's got a burn rate of 1% can invest 100% in stocks, because after all, we're going to get 1.6% out of the dividends. And dividends rarely fall by that much, even during a crisis. I think during the Great Depression, they temporarily fell in real terms by about 50%. During the global financial crisis, they fell very briefly by about 23%. Again, theoretically, just like there's a young person who can invest 100% in stocks and probably should, there are some geezers out there who can invest 100% stocks and just spend the dividends. But once again, the number of people who number of old people who have that much assets and who have that much risk tolerance together, that then that little corner The Venn diagram is vanishingly small.

Right, right. And I think another way you could do this is you could say, all right, if I have enough assets where I can invest them in a very low risk way and maybe in a fixed income way that covers my minimum expenses, I can do that. And then if I have excess assets, I could invest those in a very risky way for the future or my future heirs.

Yeah. And there's nothing that stops you from taking some of that risk portfolio that's for your heirs and stealing it away from them and flying first class every now and then.

Yeah. Especially if you have some really good years in the market. All right, awesome. For an average investor. We talked a little bit before the show. I think you were saying target date funds are actually a good thing for many folks. And I was wondering if you could elaborate a little bit more on kind of why you think that and maybe some of the. We talked a little bit about Vanguard and dfa. Why you think those particular providers are good?

Well, I don't think they're a good product. I think they're a great product, a fabulous product if they're done executed in a passive, low cost manner. So you just mentioned two companies, the sec. I think probably I'm not paranoid enough to believe the SEC is listening in on this and listening to every word I say, but if someone from the SEC was listening to me and they got out of the wrong side of the bed that morning and they heard me mention the name of one of the two companies that you just mentioned and mention their target funds, they probably wouldn't be happy. So I'm glad you mentioned them, not me. There are other investment companies also that offer products that are passive and very, very low cost. And the reason why target date funds are so wonderful when they're done well is they basically take away all the effort and all the autonomy from investing. You just put your money every month, you don't even do anything. It just by default goes into the target date fund. Hopefully you've set it and a nice big fat portion of your salary and then you don't ever look at your statements. And then 30 years later you have an enormous pot of money and you can retire successfully. Now, if you don't have a good target date fund, then you're going to do something that was like the portfolio that described earlier, which is some mix of US Total Stock Market, foreign Total Stock Market and US Bonds. But the problem with doing that is you have to monitor it. You've got to monitor. You've Got to rebalance once a year. What I like to say is that a portfolio is like a bar of soap, a bar of wet soap. The more frequently you touch it, the less of it there is. And that's the beautiful thing about a target date fund. It's a bar of soap you never ever have to touch.

Right. And I think you mentioned that like the big, we talked about costs earlier, especially when you're kind of looking at, you know, you know, a 2%, you know, average real rate of return that's pretty low. That, you know, keeping costs low and is super important. And so what's your rule of thumb is like 17 basis points or less, is that right?

Yes, 17 basis points. Because one of the companies that you mentioned has an average expense ratio of 16 basis points. So 17 basis points is where I like to put the bar.

Nice. That's awesome. You know, I want to make one quick aside here just because I had an interesting conversation and I'm not trying to contradict you, but I had done some work in a previous project with Bob Merton, so he the Nobel prize winner. And for whatever reason I reached out to him and actually got him on the phone last week and you know, we were talking and I was actually asking him about his view of target day funds and he said actually he doesn't love them all the time because he doesn't think they're targeted enough for every user. Now he may be thinking of wealthier users, but his perspective was they're good but not necessarily perfect. Anyway.

Well, as we're both aware, he has designed a whole series of target date funds for one of the companies that you mentioned. And I think their design is superb. Because what this particular family of funds, I won't mention their name because you already mentioned it. What they've done is instead of just using a bond, a total bond market type portfolio, which is what most target dates funds do, they use depending upon the age and the target date. They use a mix of short and long term tips and also even short term, just nominal reserves. And if you do that judiciously, that is even a better way of doing it than a target date fund.

Yep. Nice. Well, I appreciate the color there. It's super helpful. And the reminder on kind of keeping fees low and then, you know, for people that don't necessarily have the, you know. Well, let me ask this another way. Do you think that there's ever a case where people should use advisors? When do you think they would come in handy?

Well, sure. I mean, I once wrote a piece where I calculated what percentage of the population was able to invest on their own for retirement. And I came up with a very low number because using the four pillars approach, you have to have the mathematical horsepower to handle the theory and run the spreadsheets. You have to have the historical interest to learn the history. You have to have the right amount of discipline, you have to win the psychological game. And finally, you have to also be able to avoid the blandishments of the investment industry. And you look at that and you need all four of parts of that skill set. The number of people who have all four base parts of that skill set, I think is vanishingly small. Now the question is, do investment advisors do any better than that? And the answer is I think they do a little better, but not much. And of course the risk with hiring an advisor is you may wind up with somebody who doesn't know their butt from a hot rock. Which describes all too many financial advisors, I'm afraid. So if you really have no idea what you're doing, yes, you should probably hire an advisor. How do you hire one? The acid test that I would use is I would bring a 3 fund, Simpleton's portfolio with the three again indexes of foreign stocks, US stocks and US bonds, and take that portfolio to the advisor and ask him or her what they think of the portfolio. If they start waving their hands and saying they can do better because they know how to pick stocks and time the market, I would make 180 degree back turn and run as fast as as you can away from that person. If the person basically says, yeah, this is a pretty good portfolio, I might tweak it this way or that way, but I'm going to keep costs low and invest passively. Then you're probably in better hands.

Yeah, I think that for a lot of people the coaching and getting just a third party. So let's assume we can find an expert advisor that acts as a fiduciary. I think if they can help you over the behavioral challenges and the psychology of it, they can add value. And for a lot of users, I think that that is a big challenge.

Yeah, it's interesting. I mean, a friend of mine who also writes finance, a guy by name, Alan Roth, who is quite smart and writes very well and actually writes quite a lot out in the financial press, did a study in which he looked at advisor behavior at a large custodian that will go unnamed. And what he found was that advisors in general were every bit as bad as small investors in buying high and selling low.

Sure. They're subject to the same emotional pulls of fear and greed that everybody else is.

Well, it's not just that. It's also that they really can't do anything their clients don't want you to do. So if you're an advisor and you have undisciplined clients, you're going to be forced to be undisciplined too. You can only when the client calls you up at 2am in the morning on March 3, 2009 and tells you to sell everything, you have to sell everything.

Okay, so let's. I just want to move on and ask a couple questions that I've heard from our users. So I was talking to one user and they said, you know, this is a person in their 60s. And they said, look, you know, I'm in my 60s. I've hundreds of thousands of dollars saved up, but it's mostly in cash. And I've been that way since the last crash, you know, and what should I do? Because I don't think they had enough money. They didn't have enough money to feel confident about fully funding their retirement, but they also had less time because they were a little bit older.

Yeah, I'm going to sound kind of insensitive and cruel, I suppose, but when someone tells you that, what they're effectively telling you is that they're extremely undisciplined and they can't execute a strategy. And that's the kind of person who probably does need an advisor. If you sold out in 2007 or 2008 and you've been in cash ever since, you've got a very seriously flawed process and you probably won't be managing your own money.

Yeah, well, I think that it's actually a bigger problem than many people acknowledge. I mean, we wrote an article, I'll point to it in the show notes afterwards, but that there was some research done recently that showed like 58% of retirement savings was in cash recently. It's a huge percentage out there. I think there's a lot more people walking around with cash than a minute.

Well, but that's the nature of the security markets. In other words, you shouldn't be surprised that 58% of retirement assets are in cash or in bonds, because that's about what the financial markets look like. The market basket of securities is probably fairly close to 50, 50. So you can't fault people, the average person, when the average person by definition, has to own the market portfolio.

Yeah, that's interesting. So another question was, you know, how do people Know, is there. Do you have any rules of thumb for people, for people to know when they have saved enough and they can, you know, take a step back from working?

Well, yeah, I mean, what I. The concept that I use is, is. Is what I call residual living expenses. And so that's, you know, the example that I gave earlier is the person who's got $70,000 worth of consumption needs per year, including taxes, and who gets 30,000 from Social Security. Okay, that person needs $40,000 a year and enough. Your number, in other words, is very roughly 25 times that. So it's that person. It's a million bucks. There are people out there who've got big fat pensions, they've been in the military, they've worked in private enterprise, and their living expenses are very modest, and they can live entirely on their pension and their Social Security money. Well, that person has already made their money. They can have zero personal money saved up and they've still made their number because they don't have any consumption needs beyond they have zero residual living expenses, in effect.

Yep, that's a great way to look at it.

They better have some emergency money saved up. But, you know, you don't need a lot of money for that.

Yeah. So another thing that we see a lot out there is people are kind of saying, well, you know, I'm at the tail end of my career. I happen to be making a lot of money right now. Should I. Should I work one more year, you know, or should I stop now even though I've got enough? What would you tell that person?

Oh, that's an imponderable question because there's too many variables. If you like your job, that's one thing. If you despise your job and you just cannot wait to get out, that tells you to wait your decision making in another direction, more towards quitting. So I guess the answer is it all depends upon how much you hate your job.

That's an interesting way to look at it. What's the best investing advice you've read or gotten? Somehow.

You know, save as much as you can and don't stop doing it until you die. I think that's pretty good advice. You know, you can, you know, the more you know. And the other, it's not really investment advice. It's really more life advice, which is that money doesn't buy things, it buys time. All right? And, you know, it buys you the time to go and do what you really feel like doing. So, you know, at one extreme, if you're the kind of person like myself who just loves what they do, who wakes up in the morning and can't wait to get whatever it is that I'm doing to make money. But I would do it even if I wasn't making money. Probably that's one way of looking at things. If on the other hand, you despise what you do, then you should not be spending money on things. You should be saving as much as you can so you can get out of that job that you hate as soon as you can.

Yep, that's interesting. I mean, one thing that I've been thinking a lot about is in terms of what we're doing as a business, we're really trying to help people get to a place of financial confidence and ideally financial independence so that they can do what they want with their lives, pursue their passions and basically unlock their human capital. One thing I'm going to actually blog about soon is just I've met more and more people that are financially independent and they're definitely how they look at the world and how they spend their time is very different than people who work and it's pretty refreshing. So we're trying to help people kind of get more people get to that space in their lives.

Yeah. And then the question of how much you depend upon your work to pay your living expenses also enters in to your psychological well being. If you're living paycheck to paycheck and you have to work to make that paycheck every single month, for that matter, every single year, you are going to look at your job very differently than the person who can retire anytime they want and can take that same job and take it or leave it. That second person is going to be a lot happier and probably enjoy their work more than the person who absolutely has to work to pay their living expenses every week.

Yeah, it's pretty interesting. This actually leads into my next question for you, which is I was going to ask you about kind of your big influencers, but one person you mentioned before and who I've been following is this guy, Jim Dahl, the white coat investor guy. And so he's a physician and just reading what he does, obviously he spent a lot of time becoming a physician, but he really loves kind of being a personal finance educator. And you can see he puts so much time and energy into it and he's created all this great content and, and I think he's a kind of interesting illustration. I mean, I haven't met him personally, but he's an interesting illustration of someone who has, you know, Got this personal passion and he. And which has allowed him to kind of become more independent from the work that he does, which he still finds important. But, you know, he doesn't rely on, you know, being a doctor to sustain himself. And he lives his life probably a more independent way than many people. But you've met him, so I'd love to get your color on that.

You've nailed him. I can't say that I know him well, but I've spent time with him, and he absolutely exudes joie de vivre. He loves everything he does, except maybe emergency medicine. I'm not sure about that. But he loves writing and blogging about finance. He loves mentoring physicians about not just finance, but about how to approach their lives and their life choices. And, you know, you watch him interact at one of these conferences or you talk to him in person, and you can see that this is a man who truly loves what he does.

Yeah. So important. You know, if you really love your work, then it's not really, you know, it's not really a job, but it's, you know, your calling, I guess. So. Anyone else that comes to mind that you think our audience would enjoy following or learning about?

Oh, well, you know, really different people respond differently to different agents. I just love talking to really, really smart people. So you've already had Jonathan Clements on the show. Another person who's basically who took over Jonathan's job when he left the Wall street journal in 2008 is Jason Zweig, who is not just a brilliant writer about investing, but he's also very good with neuropsych and about human behavior. So I can't. It's hard to get enough of both of these. These fellows. Oh, you know who else? I can never remember his name, even though I can see him plain as day. Ben Carlson is another person who has a blog who it's very worth reading. He blogs almost every single day. I don't know how he does it. He always has something interesting to say as well. So I guess those would be the three people who I read the most and I find the most interesting in finance.

Nice. Well, I appreciate that. We'll hopefully at some point get Jason Sweig and Ben Carlson on here. We actually had Morgan Housel last week. His podcast will be going up and he mentioned Ben as well. So we had a little discussion about some. The future of financial planning and retirement planning.

So Anyway, there's a fourth name. I mean, Housel. Mr. Housel is also quite impressive.

Yeah, he's a very bright guy. Any podcasts that you really enjoy?

Oh, my God, there's not enough time in the day. Probably the biggest one is Planet Money. The only time in my life when I felt like the dumbest person in the room was when I attended one of their editorial meetings. I just think they're absolutely brilliant. The indicator is also pretty good, which is a spin off. The Economist podcast is also excellent. It's not one podcast, of course, it's a series of podcasts. And then in finance and economics, the. Of course there's econ talk, which gets to be very wonky. And then the general podcasts I just love listening to are on. The media is superb. And of course, the New Yorker podcasts can't be beat as well. Yeah, I mean, there are a few people in this world that I truly envy, but one of them is Barry Ritholtz, who also runs an excellent podcast called Masters in Business. And Barry's podcast is successful enough that he can basically get anybody on the show. All right, if he wants Bob Shiller on the show. Bob Shiller's on the show. He wants Michael Lewis on the show. Michael Lewis is on the show. And simply being able to spend an hour of your time every week talking to the most interesting people you can think of has got to be one of the world's best jobs.

Totally. Yeah. It's been pretty interesting. So, yeah, Barry Ritholtz is. Is on the list. We'll see if I'm going to go try to go to that. They have a. They have a conference call coming up. This evidence based investing conference that I haven't been to yet, but looks really good. It has, actually. It looks like a lot of the people that, you know, we've talked about go to this thing and hope maybe I'll get to meet him. But you, you know, just one aside here that's been interesting for me is, you know, the more you're like a lot of these people that you think are unapproachable or unreachable, if you're willing to pick up the phone and just reach out to them. In many cases, if they like you and they think what you're doing is interesting and helpful to the world, they will give you the time of day, which has been good to see.

Yeah. There are few things that are less stressful than spending an hour in front of your iPad Skyping with somebody about finance. I mean, most, no matter how famous you are and no matter how hard to get you are, most people don't mind doing that. They find that enjoyable and relaxing.

Yeah, I think this medium is. It's pretty amazing because you're having this discussion. You have to be thoughtful about what you're going to talk about, but you definitely get unique perspectives and the way the content is created or kind of like how the information comes out so dynamic and kind of what you touch on can move around a lot. It's a pretty interesting medium, and that probably why it's exploding. I mean, I'm listening to a lot more podcasts, and I think worldwide. Obviously, it's jumping up a ton.

Yeah. I mean, I'll tell you a funny podcast story is I was having dinner with a bunch of people who work for the State Department who were doing economics, and one of the fellows was talking about one interesting issue after another, and it was apparent to me that they were from one of three sources, either from Planet Money or from the Economist or from Econ Talk. And so I sort of looked at him and I smiled and I said, I learned more from listening to podcasts than I do from reading the economic literature. And he sort of looked at me and then did sort of a theatrical whipping his head around twice, put his fingers to his lips and went, shh.

Nice. That's funny. All right, well, look, Bill, I really appreciate your time. Thanks for being on our show. Dado, I wanted to thank you for being our sound engineer. Anyone listening? Thanks for listening. Hopefully you found this useful. Our goal at New Retirement is to help anyone plan and manage their retirement so that they can make the most of their money and time. We offer a powerful retirement planning tool and educational content that you can access at newretirement. Com. And we've been recognized as Best of the web by groups like the American association of Individual Investors.