Financial Advice: You Get What You DON'T Pay For

Before we get going, I just wanted to call out that we have started a Facebook group as a way to better engage with and learn from our audience. If you're interested in joining this closed group, just search for new retirement in Facebook and then on the left hand side you're going to see groups at the bottom. If you click that, you'll see our group and you can request to join it. We're kind of slowly spinning this up, but we want to use it as a way to kind of get questions from users and learn from them as well. Thanks. Welcome to the six Podcast for New Retirement. Today we're going to be talking with Alan Roth from Colorado Springs, Colorado about why and how he believes most investors can do much better by keeping it simple and managing expenses, 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. Alan runs WealthLogic, which is an hourly only financial planning firm and you can read more about him@daretobedull.com he's been working in the investment world where he's got over 25 years of corporate finance experience and he served as the corporate finance officer of two multi billion dollar dollar companies and consulted with many others while he worked at McKinsey & Co. And he's also been quoted in many publications including the Wall Street Journal, Money Magazine, the New York Times, and Dow Jones marketwatch. He's also appeared on a number of radio and TV shows. So welcome Alan. I'm glad you could join.

Us. Thank you Steve. It's a pleasure to be.

Here. So I'm just going to jump in with a quick softball question. I was reading about you and I saw that you you had your dachshund win a plaque for being one of America's top financial planners. Can you give us the backstory on.

That? Sure. If you come into my office, you'll see a nice looking plaque from the Consumers Research Council of America as one of America's top financial planners. Made out to my dog Max Tailwagger, and it's kind of funny, but also a bit sad. I wrote about it. Forbes wrote about it. There are so many fake awards out there that all you have to do is write a check or in this case give a credit card number and it's to build credibility inside. So people think that, wow, I'm dealing with one of the top people when all you really have to do is write A checkout. Now, to be fair, Max also got an award from one of America's top financial advisors, from Doctors, from Medical Economics magazine. Only my editor didn't pay the money for him to actually get the listing, which really hurt his self.

Worth. Nice. That's awesome. I'm glad he's such an accomplished dachshund. So I'd love to hear a little bit more about your career trajectory and how you decided to get into financial planning after your long corporate career in corporate.

Finance. Sure. And you know, I wish I could say there was a master plan, but, you know, a lot of it is just luck. I did my undergrad in accounting and did two years of public accounting. It seemed like 20, but it was only two. And I realized I was the worst CPA in America. So then I went to grad school at Kellogg, at Northwestern to get my MBA to learn how to be a great investor. And along came Burton Malkiel's random walk down Wall street that said you can't do it. So I figured I better figure something else out. So I did consulting with McKinsey & Co. And 20 years of corporate finance. I had good times. I worked for some really good companies and really good people, but it wasn't my natural habitat. I am not the most politically astute person in the world. So after my son was born, when I was 40 years old, I hit my midlife crisis and I got off the bandwagon and decided I wanted to do something different. And financial planning, was.

It nice? Yeah. I know you've got some pretty strong beliefs about kind of the right way to do planning, and I'd love to hear from you kind of what those core beliefs are kind of about how you approach investing and.

Wealth management. Well, first of all, we give up most of our real return in the way of fees. And what matters is our real return. If we earn 10% and there's 12% inflation, we've lost spending power. So you interviewed one of my favorite people, William Bernstein, a bit ago, and he mentioned 2 to 3% might be the average real growth of a portfolio. So if you're giving away 1 to 2% in fees, you're giving away most of your return, so you really get what you don't pay for. In actuality, whenever I do benchmarking, probably 90% of the time, I find that a portfolio has underperformed the low cost index funds by more than costs would have predicted. We have mental models that we follow without realizing. You get what you pay for, follow your instincts, buy good Companies big, nice, safe blue chips like Eastman Kodak and General Motors or more recently Georgia. So a lot of these mental models that work so well in life fail us miserably when it comes to investing. Keep it simple, stupid. Something that cuts beyond investing. Whenever I make things complex, I usually live to regret it. It's hard to keep things simple. And then finally there's some low hanging fruit that people can pick such as, you know, leaving hundreds of thousands of dollars in a bank earning 0.01% where your money doubles in 6400 and some odd years. So those are certain beliefs. Investing itself is simple. Taxes maybe aren't, but.

Investing is. So, you know, as an advisor, where do you think you add the most value.

For people? Well, you know, several things. One, I tell them that I don't know the future. In fact, I charge people $450 an hour to tell them I don't know the future. And it's not a very good feeling, but it's incredibly valuable. So what I do is I help somebody design a portfolio that meets their willingness and need to take risks. It's not going to beat the market, it's going to earn the market return minus some very small amounts of fees. Try to set it up in a very tax efficient way. And by the way, the new portfolio is the easy part. The complexities of getting out of the old portfolio, you know, what taxes are due, AMT fees, etc. That's the hard part. Helping them understand where they are in terms of reaching financial independence, AKA retirement, safe spin rates. Looking at do they have the proper amount of insurance and typically when the clients come to me, they have too much insurance, they're insuring for something that they can't afford to lose and they ought to self insure. And then finally, even though I'm not an attorney, making sure that they have their estate plans.

In order. Well, I know for a lot of our users, tax efficiency, especially around drawing down their assets, is really top of mind. And I think the math around drawdown, it is so much more complex because you've got all these moving parts, you've got all these existing assets and you've got various sources of income like Social Security and different things you could, could tap into. And you have to be really thoughtful about how do you take these things down and how do you position your assets. Could you elaborate a little bit more? I know you're very focused on keeping things simple. Could you elaborate a little bit more about how you think about that? I know also in earlier Discussion. You kind of mentioned that related to that. You have some thoughts about how smart beta factor investing hasn't really worked very well over the last.

Several years? Yeah, the latter question, maybe three, four, five years ago I couldn't be at a conference and go more than five minutes without hearing the term smart beta. Smart beta are factor tilted rather than owning the entire market by market cap, where Apple, let's say, would be the largest, Google, Exxon, et cetera, those would be the largest holdings factor tilting towards small cap, towards value, towards momentum. I think there are now hundreds of different factors that have been discovered. And lo and behold, whenever money pours into any one part of the market, there is a high probability that underperformance is going to happen because it drives the value up, which makes future returns.

More difficult. Back to kind of your model and your kind of hourly approach to this. I know that you're obviously an opinionated person and I was reading about some of the stuff that's been written about you or some of the interviews you've done. And I know that you're not always the most popular or at least you don't always have the most popular opinions out there. I know at one point you butted heads with an SEC enforcement director who I think now has gone on to work at a big wealth management company. Can you share a couple stories about what you've run into and kind of why you butt heads in some cases with some existing kind of traditional players in.

The market? Well, I'm not a fan of our regulators in general. I've written pieces. Is the SEC chair too cozy with Wall Street? I've written a piece for the Wall Street Journal when the CFP board found that a planner with fiduciary duty who double dipped in selling an annuity 5.29%. The facts were so ugly that both the insurance company and the broker dealer paid the client back plus 6% interest for many years. But yet the CFP board found no conflict with the fiduciary standard. So I don't think our regulators are doing right. An example that you mentioned on the former chief enforcement officer of the SEC who was at the time general counsel for bank of America, which owned Merrill lynch, had done some really ugly things to a client of mine. And the point is it's a revolving door. If you want to be a leader at a regulator and then have the future after regulations after working for the regulator, you can't be too mean to Wall Street. You're going to need a job from them. So I Wish our regulators would change a bit. I think there's got to be some sort of reward for causing change rather than how long you're at the.

Regulator, right? Yeah, unfortunately, I think that's kind of just how it works right now across the board between, you know, with this revolving door between kind of the private sector and the regulators. But yeah, it's something to definitely try to shine a light on. And you know, I think on our side, you know, we definitely are focused on trying to remain independent and be an independent voice out there. And I think that's important for, you know, every service provider out there and player in.

The industry. Totally agree. And by the way, you know, the best protection is not the regulator is making sure that you understand the advice you're getting and that you. It's simple because the more complex the product, the worse it typically is. And as I say, if you don't understand your investment strategy, or even if you can't explain your investment strategy to any 8 year old, you're probably doing something.

Very wrong. Yeah, I think that's a great point. I mean, you know, we definitely believe it starts with education. And you know, people have to, you know, understand their own finances, be able to make informed choices. We're also just, as a quick aside, you and I met at the Next Generation Personal Finance conference a couple weeks ago here in San Francisco, which was about trying to bring personal finance education into middle schools and high schools as a standard approach across.

The country. Yeah. What an incredible organization that is. Tim Ranzetta doing good for a lot of people on something that is sorely needed, teaching finance to.

Young people. Yeah, it's amazing that it's not kind of required education for everyone, considering the level of student debt that people are taking on, you know, the credit card balances that people are carrying around. And you know, it's, it's, it's not like a standard thing that's taught. I mean, when I was in high school, I think they taught home economics and they did. Part of that was like showing us how to balance a checkbook. But that was basically it. And it doesn't seem like it's gotten a whole lot better, you know, in the ensuing 20, 20.

Plus.

Years. So. So anyway, hopefully it gets better. Yeah, just real quick. I mean, one thing that jumped out at me was there's currently, you know, there's roughly $8 trillion in IRAs. So that's $8,000 billion dollars. And you know, let's just say the FEES are roughly 100 basis points across advice and Fund fees and stuff like that. You know, that's $80 billion in fees. I mean that's just a tremendous amount of money. I mean it really is amazing how much money is going into fees every year. And I was wondering if you had a take, I'd love to get your perspective on where are those fees going and how you think that might change.

Going forward. Well, I think fees have come down and a lot of it was our Supreme Court actually had a unanimous decision that trustees of corporate 401k plans. I had a fiduciary duty, whatever that term fiduciary means. And lo and behold a lot of companies have been leaving the more expensive insurance providers and going to the Vanguards fidelities, TD Ameritrades. So fees have gone down tremendously. But I would characterize it as fees are now less bad than they used to be. There's still plenty of room to.

Go. Yeah. You know, back to your practice. I think it's pretty interesting that you only do it on an hourly basis. I mean pretty much most advisors historically have been taking kind of a AUM kind of assets under management percent of assets kind of model. Now there's, you're seeing different kinds. You know, there's hourly, sometimes there's flat fee or there's, you're seeing I think some compression in the percent of assets that people are charging. But I just love to hear your take on kind of like the hourly only. And why you, why you chose.

That model. Well, you know, I look at every profession on earth is fee for service and even the oldest profession on earth is fee for service. So I certainly agree with you that you know, commission based product sales bad. But I'm not sure that it's any worse than capturing assets so that one can continue to charge an ongoing stream on it. I didn't earn the money that my clients have. I don't feel I have a right to continue to charge them from their money. If they ask me today what the market is going to do tomorrow or the rest of this year, I'm going to answer I don't know or give them probabilities, you know, three years from now, I would give them the exact same answer. So again, once a plan is designed, the hard work is getting them out of where they are into the new plan. It's pretty simple to give rules going forward so they don't even have to keep paying me on an hourly basis. My goal is to do a one time plan and get fired. Or like any doctor, lawyer, accountant, if something changes in the client's life, they can come back.

To me. Right. So you feel like your model's most closely aligned with what, you know, with the consumer and their needs and how you create value, which is, I agree, there's a ton of value in planning and kind of historically that's been kind of like a lost leader. The advisor does it, you know, for nothing, essentially, and then charges, you know, makes their money back over the life of the relationship, which in many cases is, you know, decades long, where they're getting a strip of, you know, earnings essentially, or a strip of the returns that the.

Portfolio produces. Yeah. And it's a model. And by the way, I will freely admit, if paying my son's college tuition were dependent upon me charging you one and a half percent or selling you an annuity, I would probably do it and think I was a force for good. So, you know, after 20, 25 years of corporate finance and living fairly frugally, I had the freedom to charge any model that I.

Wanted to. Right. Yeah. I mean, look, I think that in general, advisors add a lot of value and for many folks, they add a ton of value. I think the world's going to go to a place where there's just going to be a lot more transparency and I think informed choice by consumers where they'll be able to see hourly, or if it's transaction based or if it's 8% of assets. But you'll see probably more compression around that idea of percent of assets, but we'll see how.

It unfolds. Yeah, I hope you're right. I still think transparency is incredibly lacking in.

My industry. Yep. Well, well, we shall see. I mean, I think that there's, there's, I mean, you know, we definitely see more and more companies out here that are, you know, Silicon Valley in general is going after Fintech and, or, sorry, through Fintech is going after financial services. And I think that, you know, you'll, you'll start to see that, that pressure come to bear. So, you know, just like Amazon is for better or for worse, you know, trying to deliver a very different experience around retail and in some cases causing casualties in the kind of.

Traditional retail. Yeah, you're absolutely right. And by the way, my biggest surprise in my years of financial planning is a pleasant surprise. I've been indexing for a long, long time. 30 plus years, still a lot. I wasn't one of the first adopters when Jack Bogle came out with the S&P 500 index fund, but I never would have dreamed indexing would have become as popular as it. And I think that's a.

Wonderful thing. Yep. Yeah, I think the idea of kind of low cost passive investing, just trying to capture the return is, you know, it's, that idea is spreading like wildfire. And you know what's happening. Vanguard is and their intake of assets of, you know, billion dollars a day is reflecting that. All right, so, you know, would love to, you know, to talk a little bit more about kind of like, you know, what is a typical client engagement look like for you? Is there, is there kind of a process that they go through and you know, just to kind of hear.

From you? Yeah, the process is relatively simple. First of all, they have to fill out a profile from the website and send it in because I can't really tell whether I can help them or not. And my practice isn't soliciting clients. I've been fortunate for a long time to have a wait list of clients. So they submit the profile and there's no confidential information as far as anything that could be stolen for identity theft. I don't need account numbers, I don't need Social Security numbers, but I need to see where they are, what their goals are. And then I have a 20 minute phone conversation with them where I can go through and see whether or not there might be a fit for a client. And my hourly fee is fairly high. So unfortunately I can't help clients with less than a million or two in general. And then once we go through that and they are a potential fit, then I'll give them a range of roughly how many hours and it's typically between 12 and 20, but it can be as low as 8 and higher than 80 on very complex large accounts. And then they think about it, they can't accept that day. I read and went to a class once about how obtaining a new client don't give them time to think, make them sign the document day one. And I decided that I want to do the opposite of that model. Give them some time to think about it. It's an incredibly important decision. Then if they accept going forward, I prepare the agreement again, it's strictly hourly. Schedule a start date, give them a not so fun data request and then we build the plan, implement the plan and give them rules going forward and they.

Fire me. Nice. And how quickly do you usually get through that engagement? Is it like within three months.

Or something? Yeah, my wait list can be anywhere between, you know, a month to three months once it gets longer to then three months. I typically put on my website, don't submit a plan until I get caught up. But once I start the engagement, it's typically about a two.

Week process. Nice. And then they kind of, once it's implemented, it's kind of mostly on autopilot or they're monitoring. Or do you monitor it.

At all? They monitor it. They can come back to me. But again, I would argue my average client probably knows more about investing than the vast majority of.

Investment advisors. In some ways it sounds like you provide this objective set of eyes, like a coach looking at their situation, trying to identify big opportunities and, and helping them to kind of get set up properly. And then once they're set up, they're kind of off and going on.

Their own. Exactly. My wife calls me the most argumentative person on the planet and I prove her right daily. So I push back on where they are in their portfolios and what needs changing, et cetera. But they have to come to me understanding that they want the diversification, that they want low fees and tax efficiency and the like. When I started my practice, clients would come to me saying they're beating the market and I would say, let me see, I do some benchmarking and then I would show them. Today I'm getting worried enough that so many people are in indexing. When people come to me saying they're beating the market, I say, good for them, keep doing it. Keep.

Market sufficient. Yeah, exactly. So we got some questions from people in our Facebook group and would love to get your take on kind of what you think a safe drawdown.

Rate is. Yeah, I'm a whole lot more conservative than most people. I do the same Monte Carlo simulations that others do. But I wrote a piece back in 2010 after reading so many pieces that Monte Carlo simulation had failed in 2008 and 2009 because it was such a long tail, unusual event, the financial crisis. And it was barely a two standard deviation, which should happen once out of every 20 years. It wasn't that rare. It was the assumptions that go into the Monte Carlo simulation that were garbage, garbage in, garbage out. So I think a safe spin rate of, let's say a 50, 50 portfolio and only for 25 years is about 3.5%. So that means $35,000 for a million dollar portfolio increasing with inflation. And that gives you a 90% chance of success. If you want to change that to 35 years, my modeling shows it drops to just under 70% success. And if clients tell me I'm being too conservative, I tell them I would rather them come back to me. In 10 years saying I have too much money, what do I do? Than I'm out of money, what do I do? One's an easier problem.

To solve. Right? For people that are on the early, that are just retiring, say that there's somebody 60 years old, would you have them be in a higher percentage of equities and then dial that down over time or just start them at.

50 50? Absolutely not. Well, the 5050 was an example. That doesn't mean everyone in retirement should be 50 50. But yeah, I read the work by Kitces and Wade Pfau, who I think are wonderful people. But I completely disagree with starting conservative and getting more aggressive later on for a couple of different reasons. One, mathematically it was correct, but it assumes you die at a certain year. In other words, if you're doing a 30 year plan and you've lived to age 29 of those years, don't count on dying the next year. And two, behaviorally it's so hard to get people to rebalance, to stick to an asset allocation, getting them to increase their equity. It isn't going.

To happen. Any thoughts on sequence of return risk and how to.

Manage that? Yeah, I've read lots of articles on managing it and they all basically rely on the fact that you're going to cut spending when stocks go down and then never recover. There is no way to really manage sequence of return risk other than continuing to rebalance. And you can cut your spending temporarily until things recover. But your biggest risk, there's no doubt about it, your biggest risk is in the first few years.

After retirement. Given that one way to hedge your income need is to use annuities. But I know there's definitely lots of bad kinds of annuities out there. But do you ever consider using annuities out there like fixed immediate annuities or.

Longevity insurance? Yeah, I mean, first of all, you can't buy an annuity anymore outside of Social Security that's inflation adjusted going forward. The fact that buying a fixed annuity eliminates longevity risk is baloney. What you're really doing on buying a fixed annuity is buying a bond, a corporate bond. It's not even backed by the US Government with a duration for the rest of your life at a time when nominal rates are near an all time low. So yes, the annuity that I use all the time is telling people, and it's probably at least 98% of people that come to me, is to delay Social Security. And what I say is go ahead and spend that money that you would have been able to spend at age 62, 66, etc. And what you're really doing is, is taking that money and buying an inflation adjusted annuity backed by the US government that you'll then turn on at age 70. Typically in the vast majority of the cases, as long as one person in the couple is in good health, delaying Social Security is the right way to go. And then also, if you can afford to delay Social Security, it means you're probably in a higher economic situation than most people. And the data is compelling that wealthier people live a lot longer. So what that means is if you can delay Social Security, you're probably going to live longer than average and should.

Delay it. Right? Yeah, I know. We wrote an article about how kind of, at least for married couples, kind of the single best thing they can usually do is have the highest income earner defer.

Until 70. Yeah, there were some great strategies like double dipping a while ago. You could actually, if you took Social Security, pay it back and then reset it a month later. But those, those rules.

Went away. Yeah, it's great to get your take on kind of like essentially the inflation risk that people face because many people don't think about it like, oh, 30 years out, what is the purchasing power going to be of my savings and how do I make sure that it stays with, or how do I hedge against that.

Inflation risk? Yeah, I mean, if you have 2% inflation versus 6% inflation over 30 years, I mean, that has a dramatic impact of what that annuity is actually going.

To buy. Yeah, that's a great point. Do any of your customers ever consider home equity? Do they ever downsize or anything like that, or do they usually not.

Include that? Well, you know, my average client I'm not particularly proud of that is fairly wealthy, so that they don't have to downsize whether or not they should downsize. If you think of what money is, and you interviewed, I think the world's expert on money and happiness, Jonathan Clements, is, you know, money is out there to fund your life, to do whatever gives your life meaning, etc. So should you downsize and move to a less expensive part of the country, will you be happy? Is very important in that I do consider the one asset that I consider in addition to the portfolio on a safe spin rate is the house, because it's the one thing people can typically enjoy and in the long run goes up. Maybe not as up as much as stocks after you take into account all the maintenance, insurance, et cetera, but later on in life you can either downsize or rent or take out a reverse mortgage and tap some of.

The equity. Yep, yep, I think that's right. You know, one thing that a lot of our users ask about is like, you know, what are things I need to watch out for? And one of the things I saw you write about that was kind of like a. An issue even for you is kind of the high cost of health insurance. Could you talk about that a.

Little bit? Yeah, this was kind of venting my past life. I was director of financial planning for Kaiser Permanente and then the division of Anthem. So healthcare is near and dear to me, but we spend. And this was more of a venting exercise when I wrote about it, but we spend twice the amount of any other country per capita on health care, and we live in a global economy where we have to compete with other countries and such. And I would have guessed, and I'm totally wrong, that health care would have collapsed before we hit the amount that we are spending now. And again, I was wrong. So we've got to figure out some way to change this. And the implication to financial planning is when somebody tells me that they're going to spend more in the first several years of retirement than the last several years because they won't be traveling and the like. I point out that that might be true, but Medicare is in worse shape than Social Security and there's always the possibility that it becomes means tested going forward. But healthcare is a big problem in this country and unfortunately our politicians don't seem to want to.

Solve it. Yeah, I think I read that we were on track to where healthcare was going to become 40% of our GDP, of our national or sorry, at least our spending. And you know, I think that is obviously unsustainable. So we'll see. What do they say? Something that can't exist, won't, or can't persist, won't. So hopefully that gets solved. You know, I want to move on to your book here that you wrote for or I guess sorry for your son. How a second grader Beats Wall Street Golden Rules Any Investor Can Learn. Could you give us a quick recap of what you cover there and kind of anything that we haven't covered.

So far? Yeah. As I was raising my son, I was realizing just general life lessons I was teaching him, like, don't put all your eggs in one bas. Don't lend stuff to someone who's not going to return. It was what people were violating all the time when it came to investing. And when my son was eight he had an incredible advantage over adults because, number one, money didn't mean anything to him. So he didn't practice the ritual of buying after stocks went up and panicking and selling after they plunged. He wasn't watching Kramer. He had huge advantages over other people. So it was just the simplicity of investing and how building a portfolio with three or five funds, a total us, a total international, and a total bond could beat the vast majority of all other portfolios because it had a huge lead in the way of lower fees. So it was a book about simplicity. And now my son's a sophomore in college, money starting to mean more to him, so he's losing some of his advantage. And the older we get, by the way, the less we have in the way of human capital and the more we have in the way of investment capital. So when that investment capital plunges, when stocks plunge, the pain is a whole lot more and it's a lot harder to run.

A portfolio. I think that's pretty interesting that you kind of looked at it through the eyes of your young son. I think it's a great way to kind of imagine the world. And I look forward to reading it. I mean, it's interesting you cover some of the same things we talked about with Bill Bernstein, which is, you know what? Investing can be really simple. You can have a very simple three or four part portfolio, save and invest, kind of ignore the noise and the media out there. And when you're younger, just work, save, invest, ignore it when you get older and you have to kind of start relying more on your savings, you do have to be more thoughtful and manage risk more actively. Well, maybe not more, actually, but position yourself better. But that works. That's like the thing that's proven.

To work. Yeah. Dow Jones actually made up eight lazy portfolios. Paul Ferrell and the second grader is one of the lazy portfolios, along with Bill Bernstein's. And the second grader portfolio is the simplest of them all and also in.

First place. Nice. Actually, on that note, I think we should talk quickly about the stock market game, because I know that was a topic that came up during the Next Generation Personal Finance conference, and I know you have strong views about it and would love to get your quick take.

On it. Yeah, well, the stock market game is a game sponsored by the financial services industry where over a period of a few weeks, you pick stocks and whoever does the baskets, a nice trip to Washington and Wards and all of that stuff. And unfortunately, all that does is teach speculation, since there's upside for winning and no downside for losing. So obviously the way to go is to buy the fewest amounts of most volatile stocks you possibly can. So that teaches speculation. And the two outcomes are both going to be bad. Either the student does really well and thinks of themselves as brilliant or does very poorly and says, investing is really hard, I don't want to invest. Or better yet, I should pay a broker to do the investing for me. Both of those outcomes are wrong and bad. My son has had to play that game in elementary school and high school and now.

In college. Nice. Dotto's over here, our sound engineer kind of bouncing around. He's in high school, a senior. He's played.

This game. I've played it this year. It was actually horrible because I saw the second effect among all of my peers, which is everyone got very scared because everyone invested in the things that they know, like big companies like AT&T and stuff. And I don't know if you know about this, but AT&T dropped right about when we started playing and everyone invested in that and everyone got very scared because logically, when stock market goes down, you want to try to sell when that's really not what you're supposed to do. Of course, yes, but this game taught them that that's what you're supposed to do because that's the only thing they know how to do. So it's reinforcing the bad habits and it's.

Not helping. Well, I think you're raising. Interesting point. So you only have a very limited amount of time to win this game. So you take on risky bets. If they go bad, you want to get rid of them as soon as possible because you want to try and preserve, not incur too many losses. So you're right. It's interesting. You're raising another point that it's bad on.

Another level. Yeah, but I mean, if you built a portfolio of three index funds, you have a 0% chance.

Of winning.

That's right. Yeah, but that is the better investing strategy, the long term.

Investing strategy. Right. Well, so on the one hand I think it's good because obviously a lot of kids are engaged in it and seeing the mechanics. But some of the lessons are. Many of the lessons that it's teaching because of how the game is run are the wrong kinds.

Of lessons. Unfortunately, I think the bad way outweighs the good. There is some good in it, but the bad is far larger, in.

My opinion. All right, well, I know you have your own ideas about how to fix it, but we'll preserve that discussion for another.

Podcast.

Maybe. Okay. So unless you want to dive into it, if you want to discuss it, I'm happy to have that discussion. Now. I don't.

Want to. Well, just real briefly, I mean, it would be wonderful if there were a way to compress time, whereas each day would be a year. And then use a Monte Carlo simulation to. To show what happens over time and can you beat the market versus the index fund, et cetera, and then have consequences. Those who do good or great get pizza, sit in the front of the class. Those that do poorly are in the back of the class, don't get any food, which is the consequences for being a.

Bad investor. Yeah, I think the idea of compressing time is a really good one because then you're able to represent kind of more of a full life cycle. The, the artificial, you know, or the short period of time that the kids play, play the game for does cause a big part of the. The kind of bad behavior or reinforces those bad.

Bad lessons. But there is an issue in that. Then you lose the abstraction of them being real companies with real life effects that affect the company. Right. Because then you're playing with just random stuff with the Monte Carlo method. Then I think the students would just lose interest because everything's meaningless. Because it's not real companies, it's not real people affecting the stock market.

It's randomness. Yeah. I think it would be less real. That doesn't mean you can't take a company and run it through a Monte Carlo simulation and say, hey, AT&T didn't do so well as new technologies came out there. I mean, who would have dreamed Eastman Kodak? And, you know, there was an old saying, you guys may be too young, but, you know, so goes gm, goes America. Thank gosh, that wasn't true, you know, because the new gm, by the way, or you know, the original shareholders got wiped out. But I agree, it would not be.

As real. Well, it's something to work on. Maybe we can. I'm sure we can come up with some ideas to make that better. So I'd like to move on a little bit to kind of get your take on behavioral finance, because I know you're one of the experts in the field and you've kind of on your site, you list off a number of them and I'd love to just get your take on what you see. The, the behavioral finance effects are on people investing and how it changes.

Their behavior. Sure. When I got my MBA in 1982, I was trained in traditional economics, Supply Curve, demand curve, price, quantity and all that assumed that we were logical, rational beings working to maximize our utility, not impacted by the herd, no fear and greed. And to this day that's hindsight bias. I don't know how I could have fallen for that hook, line and sinker. We are emotional beings. We are not mathematical beings. We make mistakes all the time. There's a reason why probably physicians make the worst investors and men are worse investors than women. Because of our overconfidence, optimism. We only see ads for winning funds, not losing funds. They only advertise their winners, et cetera. Have you ever seen a new fund being launched that didn't work on a back tested basis? You know, in the world of big data, it's pretty easy to do some data mining and find patterns out of randomness and give explanations for why they work going forward. Do you want to hear some more.

Of these? No, this is, this is good. I mean, do you see those, you know, these kinds of issues with the clients who serve all.

The time? I not only see them with clients, I see them with myself. I have to ignore all of those instincts. It's not such an easy thing to do. I have not outgrown these instincts. And you know, I will also tell you that I've worked with some of the leaders in the world of behavioral finance and you know, understanding them in theory and practicing them are two.

Different things. Yeah, I think this is an example of where it's great to have a third, you know, like an external third, you know, third party that helps you, you know, manage your money because, you know, Morgan Housel Raises, raises point. It's, you know, just the fact that it's not you, it's somebody else taking a look at your situation and isn't so tied up in, you know, in the, you know, how you earned it and the outcome of growing it or having it.

Go down. I can't predict markets, but it's actually fairly easy to predict human behavior and that is that we are, as Dan Ariella would put it in his book, predictably irrational. Markets go up. We typically get greedy and buy, then they plunge. We don't say we're panicking selling, we say we're going to get more defensive until things stabilize. But that's panicking and selling. So going against the herd is a very, very difficult thing to do. Especially when money starts meaning more to you, but is.

Very valuable. Yep, totally. So would love to get, you know, any kind of top kind of investing thoughts or quotes that come to mind. I know You've got some on your site, but, you know, kind of like rules of thumb that.

You have. Well, in terms of, like, best advice or just in terms of. I mean, the two people that really changed my life on investing. It was Burton Malkiel's random walk down Wall street, you know, taught me back then the futility of trying to beat the market. And then Jack Bogle, the founder of Vanguard, Got me into indexing a long, long time ago. Unfortunately, I wasn't smart enough to start my indexing with Vanguard, but that's another story. There are lots of just wonderful writers out there. Jonathan Clements, the humble Dollar, who you've interviewed, and William Bernstein, I can't get enough of his stuff. Jason Zweig at the Wall Street Journal, who he. And Jonathan I blame most for getting me into writing. The Oblivious Investor by Mike Piper is wonderful. Vanguard has a new podcast, the Planner and the Geek. Joel Dixon and Maria Bruno, wonderful people. So I wish I had more time to listen to podcasts and read, but unfortunately, I don't as much as.

I should. Yeah, I think that's the one challenge when you're delivering the service directly yourself, which is obviously highly impactful. The scarce resources, your time. And that's part of the reason. That's the main reason your rate is so high. But it's good. You're providing a lot of value for folks. I know. I saw on your site this quote, you get what you don't pay for by John Bogle, which I thought was a. A great saying. And also you have Warren Buffett. Investors should remember that excitement and expenses are their enemies, which I think is something to remember, especially with kind of, you know, the bitcoin stuff that's been happening, you know, and also with the volatility that we've been seeing recently.

Out there. Yeah. Although I might argue the volatility we're seeing more recently is more normal. It was last year, the complete lack of volatility that was so abnormal. So maybe we're anchored to what happened last year. So suddenly this year we view as volatile. Gee, the market, doesn't it always go up? It's gone up for nine years in a row. Why wouldn't it go up.

This year? That's right. Whenever I start hearing that, I used to hear that about California real estate, dot com, bubble stocks. It's like it only goes up as soon as you start hearing that Bitcoin. It's like time to make sure you're not invested in those assets or decrease your exposure to any of Those assets. Okay, so we're almost done here. I would love to find out who does your pr, because you're in all these magazines and you're in all of these sites. Is it just you or do you have an agent.

Or something? That's my advantage. I have no PR agent. I think I have a different viewpoint. And quite frankly, the hourly model allows me to have a different viewpoint, and therefore, that, you know, those different viewpoints allow me to get published. And not only that, but get paid.

To write. Nice. That's awesome. Well, I think. I think this is great. We've covered a lot of stuff. Do you have any questions for me? Anything else you or anything else you want to cover on.

Your side? Well, you know, I don't feel very good that I'm only helping the wealthier get richer. How did you decide to. You're helping people of all different backgrounds, all different economic groups. How did you get into doing. I envy you. I wish I.

Were you. Well, we'll see. We'll see if it works out. Yeah, you know, so this company started because, you know, my mom came to my brother and I, and she needed some help, financial help, and guidance around her own retirement. And we looked around to try and get her some help from advisors, but couldn't really find anyone that was a good fit for her and looked at it holistically. So we ended up doing it ourselves with spreadsheets. And then we realized after helping her that, you know, and looking at the demographics of 75 million baby boomers, that, you know, there's a lot of people that.

Need.

Help. And. And previously, I mean, I've always worked in kind of software and technology, and I've also worked in financial services. So I did a company before. It was about the transition to higher education, making the process of researching, inquiring, and getting into college easier. I did that during the first.com bubble, although we were around before that, although we kind of got swept up in a little bit. So I had that experience and then decided that, you know what, this is a similar thing. There's a lot of people that are going to transition to retirement. It's really complicated. It's not all put together in a nice way, and people need help kind of making good decisions, and they need to have groups that they can trust and also just be educated so they can make informed decisions on their own and manage their resources as efficiently as they can. So we thought there was an opportunity, and we've, you know, we're kind of approaching it in a way in a software kind of digital first way, so we can help as many people as possible. But we. And we also want to have kind of very transparent pricing that is, you know, free software. We'll have a paid version of the software that's rolling out very soon. We are going to. We're looking at packaging up kind of hourly advice with it, you know, either ourselves or potentially with, you know, partners or, you know, advisors like yourself. And just, you know, full disclosure, Alan and I have no relationship, you know, financial relationship or anything here, but, you know, just giving that access to a range of services and trying to do it in a very.

Scalable way. I think that's terrific. You're helping a lot of people and, you know, to have more freedom, be able to retire earlier and do whatever gives their life meaning. So that. That's.

A wonderful. Well, hopefully it works out. We'll see. But, you know, appreciate having you on the show. And what's been amazing in this podcast thing is that some of these episodes are getting 10,000 plus downloads. And so, hey, at 450 bucks an hour, if 10,000 people listen in, you're providing $4.5 million of value.

Out there. You mean I don't get paid for this? That was a joke. We have no.

Financial relationship. Hopefully we're helping the world out there. Alan, thanks for being on our show. Dotto, thanks 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 they can make the most of their money and time. We offer a powerful retirement planning tool and educational content that you can access@newretirement.com and we've been recognized as Best of the web by groups like the American association of.