"Bogleheads on Investing" podcast transcripts are becoming available

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
Rick Ferri
Posts: 9318
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

"Bogleheads on Investing" podcast transcripts are becoming available

Post by Rick Ferri »

I am excited to announce that Bogleheads on Investing podcast transcripts are now becoming available.

Episode #1 with Mr. Bogle and Episode #12 with Larry Swedroe are finished.

https://boglecenter.net/bogleheads-on-i ... anscripts/

More to come!

It was a time-consuming process for the dedicated Bogleheads who did all this work. A big THANK YOU to everyone involved!

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
Fallible
Posts: 7821
Joined: Fri Nov 27, 2009 4:44 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Fallible »

Rick Ferri wrote: Wed Oct 23, 2019 11:29 am I am excited to announce that Bogleheads on Investing podcast transcripts are now becoming available.

Episode #1 with Mr. Bogle and Episode #12 with Larry Swedroe are finished.

https://boglecenter.net/bogleheads-on-i ... anscripts/

More to come!

It was a time-consuming process for the dedicated Bogleheads who did all this work. A big THANK YOU to everyone involved!
Rick
Good news, and adding my thanks to those who are making these transcripts possible.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
User avatar
Cubicle
Posts: 946
Joined: Sun Sep 22, 2019 1:43 am

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Cubicle »

Thank you! I can read much faster than listen. This will be great.
"Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓
User avatar
abuss368
Posts: 25031
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by abuss368 »

Many thanks to the Bogleheads involved.
John C. Bogle: “Simplicity is the master key to financial success."
Broken Man 1999
Posts: 6423
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, near Champa Bay !

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Broken Man 1999 »

Rick Ferri wrote: Wed Oct 23, 2019 11:29 am I am excited to announce that Bogleheads on Investing podcast transcripts are now becoming available.

Episode #1 with Mr. Bogle and Episode #12 with Larry Swedroe are finished.

https://boglecenter.net/bogleheads-on-i ... anscripts/

More to come!

It was a time-consuming process for the dedicated Bogleheads who did all this work. A big THANK YOU to everyone involved!

Rick Ferri
Thanks for your efforts, Rick, and thanks to those who made the transcripts possible.

Whatever the reason, I assimilate info easier via the written word. Now my plans will be to read the transcript, then watch the podcast.

The efforts of all involved are greatly appreciated! :thumbsup :thumbsup

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
User avatar
Random Musings
Posts: 6005
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Random Musings »

Really enjoyed the two transcripts so far. Thanks to everyone involved!

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
User avatar
whodidntante
Posts: 9973
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by whodidntante »

I think it's been 20 years since I saw an under-construction shovel guy on a web page. :happy
User avatar
patriciamgr2
Posts: 828
Joined: Mon Nov 19, 2007 3:06 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by patriciamgr2 »

Thank You!
User avatar
goingup
Posts: 4155
Joined: Tue Jan 26, 2010 1:02 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by goingup »

This is great! I've listened to many of the podcasts and find myself wanting to revisit things Christina Benz and Alan Roth said, but haven't wanted to re-listen. Thanks! I look forward to reading these valuable interviews.
User avatar
Johnnie
Posts: 571
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Johnnie »

Terrific, and much obliged to all who helped. I just read the Larry Swedroe edition - very stimulating.
"I know nothing."
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

I do not have sound, so I cannot verify via the podcast, but here is a cleaned-up transcript of Episode 19 with Dr. Jim Dahle. If anyone would clean it up further via the recorded audio, we can add it to the completed transcript file and publish it. Here is the transcript in its current draft form.


Rick Ferri: Welcome to Bogleheads on Investing podcast number 19. Today my special guest is Dr. Jim Dahle, The White Coat Investor. Jim is an author, entrepreneur, blogger, speaker, dad, and full time physician. He's a busy guy.

My name is Rick Ferri, and I'm the host of Bogleheads on Investing. This podcast, as with all podcasts, are sponsored by the John C Bogle Center for Financial Literacy, a 501(c)(3) corporation. Each month we have a special guest. This month we have Dr. Jim Dahle, the White Coat Investor. I've known Jim for many years and watched him grow from a few small posts on the Bogleheads forum, up to a multi million dollar enterprise. He's done a fantastic job. He's written a couple of books, he's running conferences, and he's still working as a full time
emergency room physician. With no further ado, let me introduce Dr. Jim Dahle.

Rick Ferri: Welcome, doctor.

Jim Dahle: Thank you. And please, don't call me doc. Just call me Jim.

Rick Ferri: Okay. You and I have known each other for quite some time. If I recall, we first met face to face at a Bogleheads meeting. And I think it might have been San Diego. Do you recall that?

Jim Dahle: It was probably in Texas. Oh, when-- it was Fort Worth in 2008 because
that was the first one I went to.

Rick Ferri: And you were just a couple of years out of residency. In fact, you
were still in the military at that time, if I recall.

Jim Dahle: Yes, I was. I was still in the Air Force. I was right in the middle of my service, there are my four years of active duty. I think I had recently returned from a deployment to the Middle East.

Rick Ferri: How did you go from college to medical school to the military and, and
then what happened after that. Give us the whole picture.

Jim Dahle: Sure. I grew up in Alaska, middle class family. My father was an engineer and my mother stayed at home. Had five siblings. And we were never going hungry. But we certainly didn't have a lot of wealth. But again, you know, it wasn't a hand to mouth existence by any means. Went away to college, knowing that my parents would not be able to support me in college. I knew I was paying for it on my own. And so I went from Alaska, where I grew up to Utah, where I went to Brigham Young University. And my interest at that time was all science. My major was molecular biology. Almost all the classes I took were science. I took nothing in finance or business, graduated and of course got into medical school: the University of Utah.

I spent the next four years there. I got married between college and medical school. And we had no kids. While I was in medical school, my wife got a master's degree. During those years, worked in a physical therapy clinic, also taught some ski lessons. And then I matched into emergency medicine residency at the University of Arizona down in Tucson. And so we moved down there for a three year emergency medicine residency.

From that point, I had a military commitment. The military paid for my medical school. So instead of money loans, I had time loans I owed them for years of active duty. And the Air Force stationed me in Virginia, Langley Air Force Base.The Air Force needed me there for a team that they deployed from time to time. And so I deployed to the Middle East, spent about five months in Qatar, Qatar, depending on how you want to pronounce that, and then had a shorter deployment to Chile.

So I really kind of lucked out. A lot of people during my time period from 2006 to 2010, when I was on active duty, were getting deployed for six out of every twenty months in the Air Force; for nine months at a time in the Navy; for fifteen months at a time in the Army. And I really only spent about six months total deployed out of four years. So I kind of got lucky that way with the deployments.

And then at that point decided we wanted to go live someplace with mountains. One of the things that bothered me the most being in the military was they tell you where you're going to live. And it turned out I did not live like living in Virginia very much with no mountains. So I started looking for a job in places with mountains. I looked at Anchorage and Portland and Reno and Boise and Salt Lake and Denver and ended up with a job in Salt Lake and I've been here ever since.

Rick Ferri: I have to say that if anybody from Virginia was listening, I disagree with Jim there, there are mountains. But you got to go very far west to see them.

Jim Dahle: Yes, there definitely are mountains out there. But it's hard after living in places like Utah and Alaska to see them as the same type of mountains for sure. Fair enough. You know, about how halfway through residency I kind of got sick of feeling ripped off. At that point, I realized I'd been ripped off by an insurance agent, by a financial advisor, by a recruiter, by a lender, a couple of times by a realtor. And I just realized if I didn't start learning some of this financial stuff, this was just gonna be a pattern throughout my whole life. And it was getting old. So I decided I would go across the street from where we were living to a used bookstore, and I started reading books. And I read a lot of terrible financial books, but I found a few gems. And I realized that the good books were all saying the same thing. And so I moved my money away from the commissioned financial advisor I had to Vanguard and started investing in index funds at Vanguard like the good books tell you to do, and then stumbled a few months later on the Vanguard Diehards forum at Morningstar.

Rick Ferri: You first found out about the Bogleheads through Morningstar, but then the
forum shifted off of Morningstar and it went to its own website at Bogleheads.org.

Jim Dahle: I can remember the post that got me to sign up and back at that time
people might not know this. You had to pay money to use the [Morningstar] forum you
had to pay $5 to join the forum and the post that convinced me to pay my $5 and become a Boglehead, make my first post, was called something like, You might be a Boglehead if… And over the course of several years, some while I was in residency, not as much obviously because I was busy, but particularly while I was in the military, I made a lot of posts on the Bogleheads forum. At one point, I think I was the eighth most prolific poster there. You know, in the beginning, like I think like most people that come there, I was asking questions and getting answers and learning things and making tweaks to my portfolio and, you know, making improvements in my tax situation. I was learning.

But as the years went by, I realized I was doing a lot more teaching than learning and I, every time I'd find a doc, I was like, man, they got the same questions as the last Doc, same question, same situations over and over and over again. And that wasn't the only financial forum I was on. I was on a student doctor network forum, in a forum called Sermo. And it was kind of the same story there. And I got sick of typing the same things over and over again into the internet.

And so I decided, well, I'll just start a blog. And then every time I see these same 50 questions that every doctor has come up, I'm just going to post a link to the blog post that answers the question, they'll get a lot better answer and I don't have to type the same thing over and over again. And that was a major motivation behind me starting The White Coat Investor back in 2011, which we've done pretty well financially as well.

I said,”Well, I've spent an awful lot of time online and not be making any money doing it. So let's start this thing as a business and see if we can actually make some money.” Unfortunately, the problem is you can't post links to a for profit business, or at least you're not supposed to, on the Bogleheads forum. And so one of the main points for me starting the stupid thing, you know, to be able to not type the same thing into the internet over and over again, became outlawed, you know, within a year or so of me starting the website and putting ads up on it. And so unfortunately that that was the case.

Rick Ferri: And it still is, by the way.
Jim Dahle: Yeah, still is for sure. Yeah. In fact, I've had a few interactions with you know, boglehead regulars and moderators over the years and we've gotten very explicit as far as allowed and what is not allowed.Occasionally I've stepped over the line. I think I even had a short banning. I think I had a two week ban at one point for something I said. I can't remember what it was, well, it was just barely over the line. And so whatever you know, in moderation is good. Without moderation you end up with a forum that reads like, you know,underneath every single article on CNN, I've been banned.

Rick Ferri: Yeah, I think I was banned for about a month for something. I'd said something or did something and upset somebody and I got banned too. So maybe you haven't been banned then it really not trying for sure. All right, well, so this whole website that you created, eventually, you decided to write a book. I recall sitting down with you in Dallas and talking with you about the book. I think you were getting ready to write it at the time.

JIm Dahle: Well, it was interesting. I have to give Mike Piper, The Oblivious
Investor some credit for this book. You know, one of the things about the website. When I started, obviously, there was almost nobody else doing anything similar, and certainly nobody doing it as much as I was, in promoting as much as I was, on the website. And it was growing rapidly in 2011, 2012, 2013. Doctors were going “wow, here it is, this is what I've been looking for.”

But what I didn't really know was how to run an online business. I really wasn't very good at it. And in fact, I told myself and I can't figure out a way to make $1,000 a month from this thing within two years. I'm gonna drop it, I'm gonna go do something else, you know, real estate side gig or something like that. I just barely made that goal. At two years. I was making about $1,000 a month. So I decided, Well, I better take this more seriously, I better figure out this online business stuff.

And I decided to go to a conference called FinCon. And at that conference, one of the
sections was a panel on how to write a book. Mike Piper was one of the people on the panel, and as you know, his entire business is selling his books. And so at that point he had self-published several books and was essentially an expert in the process. And so I realized, you know, what, what my readers have been telling me; that I should write a book for years is absolutely right. I should go write it.

And so a week or two later, I was driving to Denver with my wife, we were going out there for a wedding. And I wrote most of the White Coat Investor: A Doctor's Guide to Personal Finance and Investing in route to Denver. She drove and I typed, and certainly the skeleton, if not, the vast majority of the chapters in the book were written on that drive between Salt Lake and Denver. It then took three or four months to figure out all the other parts to writing and publishing a book.

You know, Amazon makes it relatively easy to publish a book if you want to. But be really pretty, it's not nearly as good of a place to go. But if you actually want to make significant money off a book, because the publisher, when you publish a book in the traditional way, keeps a big chunk of what the book makes. If you actually want to keep the big chunk yourself, self-publishing is definitely the way to go. The problem is, you also have to be the self-marketer. So if you're not going to get out there and market your own book, it's not a great route to go.

But certainly the book has been well received. It's interesting when you publish a book you are instantly looked at as an authority. And so it led to lots of other invitations to write for other publications, to speak etc. And it's been a fun journey to see a lot of people that wouldn't read a blog, or wouldn't listen to a podcast, but will read a book, pick it up and really get the message.

Rick Ferri: Now, you know, I've written several books, the first one I wrote, self-published and I didn't have very good luck because immediately after I self-published the book I had ordered like 3000 books. I put it with a distributor and within a month a distributor went into chapter eleven, chapter seven. Oh, geez. Yeah. So, this truck backs up to my driveway and dumps off 3000 books which I had a load of in my basement. Nobody knew who I was, and those books set in my basement for probably three or four years before I finally got them distributed. If you want to actually make money on a book, self -publishing, it is the way to go. However, you need a platform by which to promote it. Absolutely. You know, you had the platform. So you went that route. And that then also drew in more readers. You ended up doing a second book.

Jim Dahle: That's right. I just published a second book about a year ago. This one grew out of an email course. I found a lot of people were coming to my blog and they were lost right at that point. They had years and years of blog posts and couldn't tell what was most important, what was not as important. That no framework to place the information into. And so I put together an email course. When you signed up for my newsletter, my monthly newsletter, you got a series of twelve emails, you'd get one a week for twelve weeks. And each one would come with a task. For example, the first one was go get yourself some disability insurance.

And so that was the framework for the second book. The second book, each chapter was one of those emails, essentially. It turned out not to be quite as easy to convert them from emails to book chapters as I originally thought it would be. But basically, fluffed up each of those book chapters, added some anecdotes from readers, and turned those emails into the second book, essentially. Which is kind of a step-by-step nuts and bolts, here's what you need to do to take care of business. Whereas I think the first book was a little bit more inspiration, and less nuts and bolts compared to the second one.

Rick Ferri: So the title of the first book was the White Coat Investor. And the
title of the second book was called Financial Bootcamp, with the foreword by Jonathan Clements, who I had on as a guest. Also, by the way, also had Mike Piper around as a guest. So you're hitting all of the right people. In Financial Bootcamp, you talk about the twelve step approach to bring your finances up to speed. And I do give you a lot of credit. Right at the beginning, the very first thing that you put in chapter one is disability insurance. And then chapter two is life insurance. You know, a lot of people that I speak with, they have that is like number eleven, twelve, or maybe not even on the list. And I give you a lot of credit for putting that number one and two.

Jim Dahle: Yeah, I think it's important because you always run into doctors that
get disabled or even died during residency before they even get started investing. And until you're kind of in a position to do so, you have no business whatsoever paying a bunch of attention to your asset allocation. You got to take care of the basics first.

Rick Ferri: A lot of people don't know how much disability insurance they should
have. Do you have some sort of rule of thumb? What do you suggest?

Jim Dahle: Well, I think the first thing you need to know is how much you're spending. Because certainly your disability insurance benefit has to cover that, at least in order for you to keep the same lifestyle if you become disabled. But what a lot of people don't realize is disability Insurance only pays until you're 65 or 67. And so after that point, if you don't have anything saved up for retirement, you're going to be all on Social Security. And so I tell people that you need to have enough of a disability insurance benefit to not only maintain your lifestyle, but also enough to save for retirement. The nice thing about it is because you generally are paying for at least individual disability insurance policies with post tax dollars, the benefit is also post tax. And so you don't need to have enough to cover your entire gross income by any means. But you need enough to cover what you're spending and enough additionally, to save for retirement and meet your goals. So for a typical physician, I would suspect most of them have a monthly benefit of something like $10,000 to $15,000 a month.

Rick Ferri: And life insurance is somewhat the same calculation correct. To determine how much a physician would need in life insurance, if it's a family, and it's a husband and wife, and just one of them is a physician, you have a recommended amount of life insurance if they're sort of the breadwinner of the family.

Jim Dahle: Yeah, and that sort of situation need a lot of life insurance, it's going to be a seven figure amount, probably something between one and five million. Now, it's going to vary depending on what you want the life insurance to actually do. If you're the only breadwinner in the family and you want your family to have the exact same lifestyle with or without you, you need to have enough in there to pay off the mortgage, to pay for college to you know, create a nest egg at your death for your spouse to live the rest of their life essentially. And so that's going to be in the higher kind of numbers three, four, or five million kind of number.

On the other hand, if your goal is to just provide enough for your spouse until the kids are out of the house, or give your spouse a few years to transition back into the workforce and maybe pay off the mortgage; you might have a little bit smaller amount. I think there are very few attending positions that should have less than a million dollars if they're the only breadwinner in the family.

Now, you're under some other situations where you got two dogs married to each other. And, you know, they might actually function as each other's life insurance in some ways. And so I think it's okay to to have less insurance, and maybe if you want to roll the dice a little bit, to not have insurance at all. but of course, that that doesn't insure against the possibility of both of you being wiped out at once, if you have children.

Rick Ferri: One of the insurances that I talk a lot about with my clients is an umbrella policy, once you start to accumulate wealth, especially if you start accumulating wealth outside of tax sheltered retirement plans or accumulating wealth outside of your home, it could be attached by creditors. What are you recommending for an umbrella policy?

Jim Dahle: You know, it's interesting, everybody wants a formula for umbrella insurance, like some multiple of your net worth, for instance, and I don't think that's necessarily helpful. And the reason why is the amount you want is a little bit more than the biggest judgment that will ever be taken out against you during your life. And you simply have no idea what that is going to be until that incident occurs, if that occurs. And so I think the main thing you want to do is kind of the same approach, you take the malpractice insurance. You want a big, big policy that will not only pay for a robust defense because the insurance company has a lot of money on the line, but there will also be enough money that if you settle something at policy limits, that person will feel satisfied, and their attorney will not feel a need to come after your personal assets.

So in general, again, I think that's a seven figure number, something between one and five million. And the good news is it is dramatically cheaper than malpractice. I might be
paying $16,000 a year for malpractice insurance. But my umbrella policy for twice as much might only be $300 or $400 a year. And so I think it's pretty wise to raise up those liability limits on your auto policy and on your homeowners policy and stack a nice big fat umbrella. On top of it, it's really not that much money. And I think it's important coverage to have. But a lot of people don't realize is about 80% of the claims on those umbrella policies are auto related. So that is your big risk, is that you run over somebody that makes a lot of money and drives a nice Tesla, or you know, your sixteen year old runs over somebody's kid or something like that. Those are your big liability risks. Not so much the person tripping and falling on the sidewalk in front of your house.

Rick Ferri: One area you spent a lot of time on is student loans, which is a big
interest for a lot of people.

Jim Dahle: Yeah, for sure. The student loan crisis is a big deal. You can tell just from looking at what our politicians are talking about these days. It really is the elephant in the room of certainly young physicians. About 75% of physicians graduate from medical school with student loans. It averages about $200,000 for MDs, $250,000 for DEOs. It's about $270,000 per dentist these days. And then that will usually go up during residency, before they even get a chance to start paying them off. They're higher than that. And I've run into doc's, lots of doc's with $400,000, $500,000, $600,000 in student loans. My record is about 1.1 million.

Rick Ferri: How did somebody accumulate 1.1 million?

Jim Dahle: Well, the amazing thing is this is a doc who came out of undergrad without any student loans at all, then went to USC for dental school, followed by orthodontics residency, also at USC, so it's a relatively high cost of living area, very expensive school, and then he let it ride for a few years at 7 or 8%. And so the interesting thing about dental residency as opposed to medical residency is medical residency pays you a salary. It's only 50 or $60,000 a year, but it's a salary. Whereas you go to a lot of dental specialties and you go to a dental residency and you're still paying tuition. And so it's like going to three more years of medical or dental school in a lot of ways. And of course, all the old bones are continuing to compound interest. And so it can grow pretty quickly. And then if you ignore it afterward, you don't refinance it. Boy, it's not that hard to get over a million dollars.

Rick Ferri: How do you pay a $1.1 million school loan? I must be tough. A little bit.

Jim Dahle: Yeah, I don't think you do. I mean, the plan of this doctor, and he was on the front page of The Wall Street Journal for it a year or two ago. His plan is to rent it out for 25 years and take advantage of the income driven repayment programs forgiveness. So you make payments for 25 years and the rest is forgiven. The issue is you get the tax bomb from that forgiveness. So you have to be saving up on the side to pay the tax bomb. And and by the time that runs out for 25 years, he's probably going to have an $800,000 plus tax bill due from it. So I hope he's saving for that.

Rick Ferri: All this has to be done even before you start thinking about investing and where are you going to put your money and how are you going to save it. But at some point you're living below your means, you're making money. You want to start putting money away. What do you start? What do you tell people, this is where you begin.

Jim Dahle: I think the place to begin, and a mistake a lot of investors make is they try to begin with the individual investments. But the place to begin is with your goals. And if you talk to most financial advisors, they'll tell you, they spend a great deal of time trying to get their clients to determine and say what their actual goals are. Because once you have a goal, it simply becomes a math problem. But until you have a goal everything is so vague, it's hard to make any sort of recommendations about what accounts to use, what asset allocation to use, what investments to select. So I think you start with your goals first.

And then you choose what accounts you're going to use to invest for those goals. For example, if you're a physician and you are saving for retirement, you're probably going to be using a 401k of some type, maybe a defined benefit cash balance plan, a personal budget backdoor Roth IRA, maybe a spousal backdoor Roth IRA, and maybe a regular old non-qualified taxable brokerage account.

And so once you determine those accounts that you're going to invest in, the next thing you need to come up with is some sort of a reasonable asset allocation or mix of your investments, you know, and that's likely some combination of stocks and bonds and real estate. And once you have that plan written out, picking the investments is actually the easiest part. But that is where people tend to go to first. They go, “Should I invest in this fund?” And without knowing what their goals are, what accounts they're in, or what their desired asset allocation is, that question can't really be answered effectively at all.

Rick Ferri: Because you're a Boglehead. I have to believe you're a bit into index funds, and this is what your philosophy is.

Jim Dahle: I'm absolutely a huge fan of index funds and I have to credit you, Rick,
for a lot of my investing philosophy. Quite honestly, I read several of your books early on and they had a big influence, I think on my asset allocation originally, and so thank you for that. I think there are a lot of Bogleheads that owe you a great, a great debt for your writings in that regard. All About Asset Allocation was a particularly useful book to me. You know, it's not the newest book these days, but when I started investing, it was fairly new and very, very useful.

Rick Ferri: So thanks for reminding me that I need to update it ,at least on my bucket list to do.

Jim Dahle: But yes, I invest in index funds. I basically don't use actively managed funds at all. I don't pick stocks. I don't invest in individual bonds. When I am investing in publicly traded securities, I'm basically 100% index funds. So yes, I think that's the best way to get exposure to an asset class. Eliminates a lot of risks. You're no longer running manager risk. You don't have this underperformance risk, you're always going to get the market return in that particular market. And you're going to keep your costs very, very low. It's going to be very, very tax efficient. And the nice thing about it is you don't feel like you have to watch it. You know, I don't even have to look at my investments. You know when the market goes up or down to know what I'm up or down because I know more or less what the market has done. And so I think index funds are great.

Rick Ferri: I had Paul Merriman on as a guest recently, and he was talking with me
about a conversation he had with Jack Bogle and what Jack Bogle said to him, I thought was very enlightening. Of course, a lot of things Jack Bogle said, were very enlightening. But you know, Paul is what we call the slice and dice guy, he likes to go to the four corners of the markets and do value, growth small, large, so forth, and put all these things together in a portfolio. And Jack listens to Paul and then he said,”The problem with that, the problem with doing that slice and dice and type of an account is that people will accept the return of the market. So if the market goes down 10% and their stocks go down 10% because they're in an index fund, just flat out straight market funds, that people will accept that.”

And you just said that. So that's what just reminded me of something. But Jack told, Paul that if your account goes down 15% but the markets only down 10% people won't accept that. And they'll eventually leave that strategy. And when they do, they basically locked in their underperformance. And so this is the problem. I thought it was interesting that you basically said the same thing. You don't even have to look at your portfolio, the markets down you know, your down, no big deal. But if you were doing active management, or you were doing some sort of a slice and dice portfolio, you're going to want to know, well, where am I? And that alone you going there looking at that and finding out that you're actually performing less than the market could cause you to capitulate on your strategy and that will lock in your underperformance. So I thought it was just interesting. What you said just fell right in line with what Jack Bogle had told Paul Merriman.

Jim Dahle: Yeah, let's talk about that for a minute. Because I probably find myself somewhere between the total market purists and the crazy asset, class junkie, slice and dice. There's like Paul Merriman, I'm probably somewhere in the middle. I do have a small value tilt in my portfolio. Over the last decade that has not paid off. There's no doubt about it. And the question you were left with, after that decade of underperformance is, is that because the small value factor isn't real, that it was just a product of data mining, of using retrospective data? Or is this just one of the periods of inevitable underperformance that you would expect with tilting your portfolio to something like that? And of course, I'm sticking with him so I obviously believe the latter,but it's entirely possible that it is the former.

People talk about evidence based investing and looking at what has worked in the past. And the problem is we don't have a lot of data. You know, we've only got one hundred years of decent data, maybe another hundred years of okay, data. And the problem is it's such a complex system. This isn't physics, investing is not physics, there are no guarantees that small and value stocks or whatever tilt you want, momentum stocks, or whatever, is going to work out over your 30 to 60 year investment horizon.

And so in some ways, you are making a little bit of a bet doing that. But I do believe the risk story behind small and value stocks, I think in the long run, I'm probably going to be rewarded for that. But I think it's really important not to tilt your portfolio more than you believe. Because the worst thing you can do is you know, stick with a small value tilt for instance for ten years, and then bail on it just in time for small value stocks to outperform the market. You got to stick with the plan in the long run. If this sort of factor tilt is going to work, it's only going to work in the very long run.

Rick Ferri: I call it a lifelong investment strategy. If you're going to go down that path of saying, I'm willing to take more risk with small cap value, because I want to potentially get a higher rate of return, it's not something that you can just do.for a few years. You have to make it a career, like a marriage. I mean, you're marrying it for absolutely the rest of your life. I will say also that I agree with you on the idea of evidence based investing. Smart beta, strategic beta, all of these very scientific sounding ways of investing have made it appear as though this stuff is certain, when it is not a certainty, it is a risk. And if you're going to go down this path, you have to realize that it is a risk and you may not be rewarded. But you, no matter what happens, you have to stick with it for the long term. And if you're not going to stick with it for the long term, then don't do it to begin with. You absolutely total stock market, US total international, bond fund and your public markets and be done with it.

Jim Dahle: Absolutely. I agree with that. If you cannot stick with the long term,
you are far better off with even something more simple, maybe even a target retirement type fund. The other thing a lot of the slice and dicers don't realize until they've been running a slice and dice portfolio for a number of years, especially if they're like the typical physician and they have their assets spread across six or eight or more different accounts is this is a management nightmare. To have ten asset classes spread across eight accounts. I mean it is you've got a seriously complex spreadsheet just to rebalance your portfolio. And and that's going to cost you some time, maybe some errors, maybe some tracking error. And there's some additional expenses, you know, buying and selling across all of those accounts, especially if they are in a taxable account. And so don't underestimate just how much work it's going to be to manage a really complex portfolio going forward.

Rick Ferri: I do want to get into one area, though, that you have a big interest
in and I can tell by going to your website, and just looking at your sponsors and your advertisers. It's real estate, I find it interesting that you are a proponent and a pretty pretty big proponent of doing real estate. So could you get into this in quite a bit of detail, if you can of how do you view it? How do you get into it? Why should people if they're going to get into it, do it the way that you're talking about on your website?

Jim Dahle: Sure. Well, let's talk about real estate and there's obviously a lot of different ways to do it if you want to do it. But the first thing I think that is worth saying is what drove me to start looking a little more closely at real estate in the first place. Now my investing background is kind of Bogleheadish. You know, it came from books like yours like those of Larry Swedroe, those of Jack Bogle and William Bernstein and a lot of time spent on the Bogleheads forum. My background in investing is certainly mutual fund and index fund, in particular, based.

But I kept running into these people who had built substantial wealth, substantial passive income and had substantial success investing in real estate in various different ways. And I said, You know what, this is not a flash in the pan. This is not Bitcoin. These are serious investors who are taking this seriously who are managing risk and who are having good returns and who are finding success and they have 80% or more of their portfolio invested in real estate.

And so I thought, well, let's look at it a little bit more closely and real estate has a few big advantages. The first is that the returns are both high and relatively less correlated with the stock market. And which is exactly what you want when you're adding an asset class to your portfolio, it's great to have something that doesn't have any correlation to your portfolio. But if it's Beanie Babies, and there's no actual long term return, that's not actually going to help all that much. You need high returns and low correlation with your stocks. And so real estate meets that requirement.

Another exciting thing about real estate is the fact that it is much easier to leverage safely than a stock portfolio. You know, as you know, if you decide to invest on margin, you can only invest so much. If the market really tanks you're going to get a margin call and you're gonna have to come up with cash at the worst possible moment. But when you're leveraging real estate, you're often doing it with a fixed mortgage that might go out ten, fifteen, thirty years, which gives you time to ride out any inevitable downturns so long as the property Is cash flowing. So that leverage, I think is a big advantage. Another big advantage is depreciation. And a lot of people don't understand just how valuable of an advantage that is. The idea is as you carry this investment through the years, you're getting income from it. But most or even all of that income is sheltered by depreciation. And then so over the years, five,ten,fifteen,twenty years, you're depreciating this property. And then instead of selling it and having to to recapture that depreciation, even though you're able to recapture it a lesser at a lower tax rate, instead of recapturing that, you exchange the property. you know, it's the classic monopoly thing. You go from houses to hotels, you exchange the property and then that depreciation isn't recaptured at all. It's basically moved into the next property. And so you exchange, exchange, exchange, exchange, die. And at the end, your heirs get the step up and basis at death, and nobody ever recaptures that depreciation. And so that's a really big tax benefit.

One of the big downsides of mutual funds is they don't pass through a lot of the tax benefits that I would love to see them pass through. You know, it just doesn't happen because of the way they are structured. And so those are, I think the big poles with real estate.

The question then becomes, well, how do you invest in it? And what most people think about is they think about buying the property down the street. They think about buying a single family home, managing it, getting tenants in there taking care of the tenants, 3 am toilet calls, you know, evicting the tenants when the tenant stopped paying rent, and it sounds like a big headache. It sounds like a second job. And so people go, I don't want a second job. I'll just stick with mutual funds.

What they don't realize, especially for an accredited investor, is there are other options. You know, you can look at two options if you're a non accredited investor. The two options are basically buy single family homes or duplexes, manage them yourself or hire a manager. And on the other end of the spectrum, just going to the publicly traded markets. Buying a real estate index trust index fund. Very passive, you don't get all the benefits, real estate, you know, for example, you don't get the depreciation passing through etc. It's not very tax efficient, it tends to go up and down with the market a lot more than individually held real estate. But it's very hassle free.

So if you put that on one side of the spectrum, and you put these single family homes on the other side of the spectrum, you start asking yourself, Well, what is there in between? And there's a number of things that are in between. They're generally only available to accredited investors. They tend to be syndications or funds, which basically buy multiple syndications. So by syndication, I mean that you get together with 20 or 50 or 100 other investors and you buy an apartment complex, maybe it's 300 doors and the apartment complex. You're never gonna have enough money to buy this $20 million apartment complex by yourself. But if you pool your money together with one hundred other investors, you know, just like in a mutual fund, you can go in and you can buy this apartment complex. You get some efficiencies of scale there, rather than trying to buy two or three single family homes, you get, you're bringing in enough money there to pay for a professional manager and you still get the depreciation.

Other benefits pass through to you. And once you select the syndication is essentially passive, you know, just like an index fund would be that you're just getting mailbox money every quarter or every six months or whatever the deal is with the syndication. The downside, of course, is that there are significant level of fees, you know, the people running the syndication are not going to do this for free. And they're gonna charge some of those fees whether the syndication or the fund does well or not. And then some are typically performance based. And then of course, the other big downside is these investments are not liquid, you cannot go and sell these any given day in the markets. Once you invest, you are basically stuck for two, five, maybe ten years in this investment. And so I think you probably get paid a little bit of an illiquidity premium for doing that, but I can't prove it. And if you're giving up your liquidity for no additional premium, that might not be that smart of a move. So you need to limit it to enough of your portfolio that you're okay being low being illiquid on that.

Rick Ferri: You talked about having these limited partnerships in an account. Do
you find that they're better in a tax deferred account or taxable account?

Jim Dahle: In general, the equity syndications I like having in a taxable account, and the reason why is if you put them in a self directed IRA, you end up with an unrelated business tax. And so this EBIT tax that affects and now you can get out of that in a self directed 401k. But most people if they're trying to put these things into a, into a tax protected account, they're doing it in a self directed IRA or self directed Roth IRA. And so the equity deals I kind of prefer in a taxable account.

But other deals are actually debt deals. For example, if you go to a private lending fund, and you give them $50,000, or $100,000, or $250,000, and they are using that, they pulled it with a bunch of other investors, and they're using that to lend to developers, you know, people that are basically taking out these short term loans, six month loans, twelve month loans, these people borrowing the money might be paying 10% or 12%, plus a couple of points on the money. And then of course, this fund has got 50 or 100 different loans in it. But then basically, all of this income is taxable at your ordinary income tax rate every year. And so it's not a very tax efficient investment. So if you're investing in the debt fund or a debt deal, that's probably a pretty good thing to put inside a self directed IRA, or a self directed 401k just because it's not very tax efficient.

Rick Ferri: Most IRAs and 401k's do not allow these type of investments. How do you get get around that?

Jim Dahle: Well, you not gonna be able to go to Vanguard or Fidelity or Schwab and open up your typical IRA and be able to invest in these sorts of investments. You have to go to a smaller shop that basically offers a self-directed IRA, or self-directed individual 401k. These are checkbook IRAs, where basically it forms an LLC, with a bank account. And you can write checks out of the bank accounts. So anytime you invest in something, you write the check out of this bank account inside the LLC that's owned by the IRA. And when it pays off income, it goes back into that bank account that's owned by the LLC that is owned by the IRA. And so obviously, this can't be a summer home that you're going to live in, that's not permitted. And you can't take the money out and spend it, that's an IRA withdrawal. So you're gonna end up you know, paying taxes and penalties if you take the money out of there, at least while you're in the accumulation stage. So you have to be very careful to keep it separate if you're going to do that sort of thing.

But there are plenty of people that have Self Directed IRAs, the fees are a little bit higher than you're gonna pay at Vanguard. For example, you go open a Roth IRA at Vanguard, there's basically no fees other than the expense ratio on the mutual funds. But if you go to one of these shops, it might cost you $500 to open the fund, and you might be paying something like $125 a year to keep that self directed IRA open. So these are definitely coming down. There's a lot more of these around than there used to be. But there's no doubt that it costs a little bit more to invest this way. And you've got to make sure that it is worth it to you to have the additional diversification and to have, you know, the potentially higher returns.

Whether that's actually the case or not, it's hard to tell because there is no Morningstar for these investments. You know, there's no Jack Bogle database, Common Sense on Mutual Funds, that has looked at all of these. And so in a lot of ways, it's a little bit similar to being out there trying to choose the winners and avoid the losers, which as we've seen with picking stocks, in particular is a very difficult thing to do.

Rick Ferri: So that is actually my last question on real estate. And that has to do with how many of these deals do you want to do? I'm thinking,okay, if I want to put $250,000 into these real estate, limited partnerships, personally, I would say, what's the minimum, as in 20,000? If it's $25,000, I want to buy ten, ten different, is that right?

Jim Dahle: Well, that's exactly the issue as the minimums tend to price a lot of people out. And so if your nest egg is $500,000, I mean, you probably shouldn't be investing in these things at all, because they're almost never met, and have minimums less than $25,000. Those minimums are often $25,000, $50,000 sometimes $100,000. The really high end ones are sometimes $250,000 or a million dollars apiece. And they often require you to be a qualified purchaser, which is even more than just being an accredited investor. And so you have to, you know, be realistic about that. If you want to be diversified, you're not going to put you know, 40% of your portfolio into one limited partnership.

You know, for example, my portfolio calls for having 5% of my money in these private lending funds. And so, you know, if you're gonna have 5% of your money in a fund, and you want to have at least you know, three of them or so, so you're at least somewhat diversified there, then you're obviously going to have a portfolio that is substantially sized, you know, because if you only have a million dollar portfolio, 5% of that is only $50,000. If these things all at $50,000, minimums, you're not gonna be able to be diversified in that asset class. And so I think there's some wisdom in avoiding this until you have a portfolio of a certain size, not necessarily because you have to invest differently at a large portfolio size, but simply because you have to have something that big in order to maintain a reasonable level of diversification.

Rick Ferri: So Jim, just to put a cap on this real estate, now that you've mentioned different ways and what you can invest in real estate through REITS, through debt funds, through private, limited partnerships that invest in apartments and so forth? Could you tell us about your own portfolio, how much you have allocated and how its allocated?

JIm Dahle: Sure, absolutely. So my portfolio is still 85% index funds. So it's 60% stock; 40% of the portfolio is in US stock, a total stock market fund and a small value fund; 20% of the portfolio is in international stocks, basically the total international stock market fund and the international small fund, they're at Vanguard. And then I've got 20% in bonds. I use the TSP G fund for most of them, but I've got a few, some money in the Vanguard Intermediate Muni Bond Index Fund, and then 10% of my portfolio in a TIPs fund. And then the last20% is in real estate. So 5% of that is in the Vanguard Real Estate Investment Trust Index Fund. And then the last 15% is in these kind of private investments that I've talked about about: 5% in debt funds and 10% in equity deals, whether they're individual syndications or private funds, that are basically, you know, eight or ten or fifteen syndications rolled up into one big fund.

Rick Ferri: You know, Jim, we hear a lot about the FIRE movement, financial independence, retire early. Everything you write about the twelve step program and everything is what in the FIRE movement. Do you consider yourself part of this movement?

Jim Dahle: You know, I don't think I'm actually part of the movement. I'm technically financially independent. I don't need to work for money at this point. But obviously, I'm not only working I'm doing two jobs. You know, I'm running the White Coat Investor and I'm still practicing medicine. And so the retire early part doesn't quite fit me. I think I'd probably be bored if I wasn't working at all. Although I have lots of outside interests. Mostly, I just feel really passionately about what I'm doing both at the hospital and in helping high income professionals like physicians and dentists and attorneys, etc. To get a fair shake on Wall Street. And so I don't know that it fits me so much. But certainly the principles are all the same. I mean, FIRE is really just a matter of saving up twenty to thirty times your annual living expenses and then realizing you don't have to work for money. Now you might still work for money, but you don't have to work for money and that's really all FIRE is. That said, I think a lot of people that are into FIRE might just need a different job. A job they feel more passionately about that, you know, is more fun. I meet a lot of burned out doc's and you know, what if they would just cut back to full time even, you know, because so many more working more than full time, they just cut back to full time. They would remind themselves of the joy they found in their career in the first place and why they spent their entire 20s training to do it.

And so I think there's a lot of people that are you know, maybe not In jobs, they enjoy that if they could just find out what they want to do for their life, they might realize that it actually does come with a paycheck. And that's okay. So I don't know that I'm a specific, you know, FIREgroupie, by any means. I understand the principles. I think it's useful. But it just would seem sad to me to punch out of out of, you know, the workforce at 35 and spend the rest of my time rock climbing and traveling around the world. What I suspect would happen is I'd be back by 40, trying to do something that I found meaning in with the life but the nice thing about being financially independent, is you can choose something that you find meaningful that doesn't come with a paycheck or doesn't come with much of a paycheck. And so I think it would be good if more people understood the principles of FIRE, even if they choose not to necessarily retire early.

Rick Ferri: Jim, every time I have a guest on the show, I'll post who that cast is going to be a couple of weeks. Prior to the interview and the Bogleheads on Bogleheads org will come up and ask their questions that they would like me to ask you in the other guests. So the the following questions I'm going to ask you came from the Bogleheads forum. Of course one of them has a near and dear to my heart. And so I'm going to ask the question, what's a fair fee to pay an advisor for both the asset under management model and under the hourly fee model. Now be careful because you know, when I'm an hourly fee advisor.

Jim Dahle: Yeah, I think the general advice for somebody who wants to hire somebody to do both financial planning and asset management Is that a fair price is a four figure amount per year, somewhere between $1000 and $10,000. If you are paying more than $10,000 a year, I can almost surely find you an advisor who will do at least as good of a job for less money, but whether that is charged as an asset under management fee, an annual retainer or an hourly rate I am not as particular on. So long as you do the math each year. The problem is some people don't do the math each year when you have $100,000 portfolio, paying 1% a year is a screaming deal. When you have a million dollar portfolio, it's not nearly as good of a deal when you have a $5 million portfolio you're being ripped off. And so you've got to do the math each year.

And compare that to what you could get it for as a flat fee or as an hourly rate. Certainly there is more of a push in the last few years to move from assets under management fees toward hourly rates or toward, you know, a set annual fee for asset management or for creation of a financial plan. And I think that's a good thing. I think having more options there is very, very helpful. And I think that you know, we're going to see a lot more financial advisors under that model, maybe being a little bit more transparent and encouraging people to actually understand what they're paying and fees. So a lot of people these days are really anti AUM. I don't think we necessarily have to be anti AUM. But the problem is a lot of charging advisors do not scale back those fees as the portfolio grows nearly as fast as they should. And so at that point, as your portfolio grows, you've either got to be able to negotiate that rate down, or you got to start looking for another advisor because it just doesn't make any sense to be paying 30, 40, $50,000 a year in advisory fees as that portfolio grows.

Rick Ferri: AUM, itself isn't inherently a bad way to charge. It's just that it has to be aligned with the amount of work the advisor is actually doing. And as you said, $400,000 it is aligned, but when you get up to a million dollar accounting, you're paying $10,000. It's no longer in alignment. It doesn't take any more time to manage a million dollar portfolio than it does a $100,000 portfolio. Its just that the fee is 10 times more. But let me agree. Let me get to another issue here. It has to do with robo advisors. I'm talking about Wealthfront, Betterment, and you know a number of others. How do you feel about these Robo platforms where you just send them money and they invest in a series of ETFs and do rebalancing and tax management and everything else?

Jim Dahle: I think they're great for a few reasons. First, they kind of put some
downward pressure on advisory fees on asset management fees. You know, when somebody says, “Well, I can go to Betterment for 0.30, or whatever they're charging right now, and you want to charge me 0.80, what are you doing, that's better than what Betterment is doing.” So I like that aspect of it.

The problem is, I don't think these are very practical for very many physicians. And the reason why is they generally don't do your 401k or other employer plans. So they'll do your taxable account. They'll do your IRA or Roth IRA, but they generally won't do your 401k, etc. And so that leaves you in a position of what am I going to do with the 401k?

And you either have to learn to do it yourself. Which brings on the question, well, if you
can do the 401k yourself, why can't you do the IRA yourself? Or you hire an advisor, which brings on the question, if you need an advisor for your 401k, why don't you just having that advisor manage the entire portfolio. And so I think that's actually a pretty small niche of people for whom a robo advisor is the right solution.

The other issue I think people run into, particularly in a taxable account, is they might have these rather complex portfolios, and they're usually low cost, and they're usually reasonable, but they're fairly complex. And so all of a sudden, you've been in this robo advisor account for two or three years, it's made some money so you have some capital gains in there, and you decide you don't want to do that anymore. But now you've got 15 different holdings to unwind. You know, because that's how the robo advisor has been managing it. Between all the tax loss harvesting and, and trying to be diversified and trying to be complex enough to earn their fee. You know, and so I think people run into a few problems like that if their goal was only to use the robo advisor for a couple of years and then either go to a regular advisor, or do it on their own. I think in a lot of ways people would be better off just choosing a life strategy or target retirement fund for those years when a robo advisor is the right thing for them to do.

Rick Ferri: I think you're absolutely right about robo advisors in tax deferred accounts where when you decide to leave the robo advisor and go do something else. After a while, you could sell all those securities and not have to worry about taxes but I just looked at one of the robo advisors. Did a portfolio for a client of mine 40 different forms zero 40 different ETFs in a taxable account. I mean, it is so convoluted and so confused and this was a well known robo advisor and this is not, you know, an obscure one. And as you're doing this tax loss harvesting, and, you know, taking losses here or taking losses there and swapping from these funds to those funds, in a taxable account, it becomes a growing furball. And if you try to get out of it, it's just a mess and you really lose track of what this thing is. So I'm all for the robos and IRA accounts, and SEP IRA, Simple IRAs, things like that. But when it comes to a taxable account, I just prefer a total stock market index fund, total international index fund, leave it at that, do all the other stuff in tax deferred accounts. My data?

Jim Dahle: Yeah, I think there's a lot of wisdom there. And in fact, if you look what's actually in my taxable account, its total stock market, total international stock market, municipal bond fund and some real estate holdings.

Rick Ferri: Well, let's get into the last Boglehead question before we wrap up. And it has to do with investments for the future and particularly cyber currencies. Do you see a future for this?

Jim Dahle: Wow, my crystal ball is cloudy as always. I thought it was fascinating to watch the Bitcoin bubble a year ago or so. I mean, it was a classic mania. But instead of it happening over a few years, or at least a few months, it happened over a few weeks. It was like something out of all these financial history books you've been reading over the years, but you got to watch it in real life. As all of a sudden the nurses at the hospital and the housekeeper's were talking about their Bitcoin and it went very rapidly up to 20,000 a Bitcoin and then collapsed and lost,I don't know what it was, 75-80% of its value over a matter of a couple of weeks. You know, I thought it was really fascinating to watch.

I don't think it's a good investment. It doesn't have a place at all in my portfolio. It's entirely a speculative instrument, and I try to avoid putting serious money into speculative instruments like that. I like things that, you know, are actually productive assets, like stocks in profitable companies, and real estate that pays rent, and, you know, and interest bearing investments like bonds, etc.rather than just pure speculative investments like gold and Bitcoin and Beanie Babies. And so it doesn't really have a place in my portfolio.
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Concluding portion:

Rick Ferri: So we got a big conference coming up. And it also you've got an online
course that people can take. I watched the preview, it looks very interesting. It's about the twelve step program. So just tell us a couple more of these other things that you're expanding into.

Jim Dahle: Sure. Well, my idea is just to get the same information into whatever
format people prefer, if they read blogs, that's great. If they like forums, you know, we've got a forum. They like Facebook groups, we've got that, podcast if you like listening to podcasts, you name it.

But the conference, this will be our second one. It's going to be in Las Vegas, and I thank you for being willing to come out and speak at it. We've got almost 800 people coming. Most of them are physicians and dentists. And it's called the Physician Wellness and Financial Literacy Conference. And it qualifies for some continuing medical education credit, mostly the wellness stuff, not so much the financial stuff. But it's a great three day rendezvous, where you can come and talk to people about money, a subject that maybe there's nobody else in your life that has a similar situation that you can talk to about money. You hear from some of the best speakers out there.

We always have a sweet swag bag, our swag bag this year has six or seven books in it. And so you leave with plenty to read on the plane home, which by itself would provide a fantastic education to an investor, even if nothing, even if you do nothing but show up. Pick up the swag bag and read the books. And so we're excited for that.

The other thing you asked about was the online course. And I came up with the online course because I found a need for people that wanted to be do it your selfers, but weren't quite ready to do it. And so, you know, there wasn't a lot In the space between sending them to an advisor, full service advisor that might charge him several thousand dollars a year, versus telling them go ask some questions on a forum and read some books at the library. But this, the idea here is to help somebody put together a written investment plan by themselves that they understand and that they can follow.

And so it takes them step by step through how to write a financial plan. And it's about eight hours of videos of my voice over, over screencasts, you know, slides and that sort of thing. Each section has a quiz, there's a pre exam and a post exam to show you how much you learned during the time period. And the idea is that at the end, you come out with a written investing plan, a written financial plan for your student loans, your insurance, your investments, etc, that you can follow to investment success. I call that fire your financial advisor, which didn't make a lot of the financial advisors who advertise on my site happy, but the truth is the whole first module is how to interact with a financial advisor. A lot of people take that course and just say, you know what, this isn't for me. But now I'm much better prepared to select and work with my financial advisor and I'm perfectly fine with that. I think that's a good use for the course as well.

Rick Ferri: Sounds like all great stuff. Jim, thank you so much for your time today. And we're all looking forward to great things ahead.

Jim Dahle: Awesome. Thank you for having me on.

Rick Ferri: This concludes the 19th episode of Bogleheads on Investing. I'm your host Rick Ferri. Join us each month to hear a new special guest. In the meantime, visit Bogleheads.org and the Bogleheads wiki, participate in the forum, and help others find the forum. Thanks for listening.


Google drive spreadsheet

thanks,
Last edited by Barry Barnitz on Fri Mar 05, 2021 10:03 am, edited 1 time in total.
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
Dottie57
Posts: 10113
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Dottie57 »

Thanks to those who did the transcribing! I don’t like listening all that much. Having a transcript will be a great addition!
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have polished up the Jim Dahle, episode 19 transcript: Bogleheads on Investing-Episode 019 transcript.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Topic Author
Rick Ferri
Posts: 9318
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Rick Ferri »

I'm often asked why podcasts are not immediately transcribed after each recording? The answer is cost and time.

I published every podcast from start to finish on my own, and I've personally paid for all expenses over the past two years as a donation to the Bogle Center.. Every episode takes many hours of time. I have to find guests, prepare questions, record the interview, edit, edit, and re-edit, then publish and promote. I simply do not have the time or resources to create an accompanying transcript.

It would be very helpful if one or two volunteers stepped forward to transcribe and edit the podcasts in a timely manner. This is a big commitment, but we are a community, dedicated to a mission.

Rick Ferri
Your Host
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi all:

Here is another initial editing of a podcast transcript, again without an audio check. This is Podcast number 008 with Allan Roth. Once again, a more thorough edit would provide a workable transcript for publication: Episode 008 Allan Roth .

---------------

Rick Ferri: Welcome to Bogleheads on Investing episode number eight. In this episode I'll be talking with Allan Roth. Allan is a nationally known personal finance speaker, writer and the founder of Wealth Logic, an hourly- based investment advisor and financial planning firm..

Hello everyone my name is Rick Ferri and I'm the host of Bogleheads on Investing where each month I interview a new guest about different areas of personal finance. My guest this month is Allan Roth, the founder of Wealth Logic, an hourly-based investment advisor and financial planning firm. Allan is a nationally known writer and speaker on personal finance. Over his career he's been the chief financial officer of two multi-billion dollar corporations and consulted with many other corporations while at McKinsey and Company.

He also taught investments and behavioral finance at the University of Denver Colorado College and the University of Colorado. Allan received his MBA from Northwestern University Kellogg School of Management. He is a CPA and a certified financial planner. His book, How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn has been a best-seller. He's also written for AARP, The Wall Street Journal Financial Planning magazine and has appeared on numerous TV and radio shows. Allan's professional goal is never to be confused with Jim Cramer .

With no further ado let's get Alan Roth on the line. Hi Allan how are you?

Allan Roth: Good I rec. Thanks for having me on.

Rick Ferri: I really appreciate you joining us on Bogleheads on Investing and today we're going to talk about a couple of main topics. The first thing that we're going to talk about is the general advisor industry which you've been in for a while. The second thing we're going to talk about our individual questions about investments per se. So we'll be talking about municipal bonds and insurance and so forth as an investment. So let me go ahead and get into this.

There are so many people out there calling themselves financial advisors. Could you tell us what a financial adviser is.

Allan Roth: Well it's really easy to get licensed to call yourself a financial advisor. The series 65 exam is not exactly rocket science. It's even easier to get an insurance license, where you can call yourself as an initial advisor financial planner. But the quality of financial advice varies all over the map from purely sales oriented to advice only model.

Rick Ferri: Well I've got some data here that I want to go over with you because I think it's interesting. There really are three basic broad categories of advisors and they would be:here are IA’s or registered investment advisors; brokers who work in the brokerage firms and probably have a series 7 exam which is the brokerage exam; and then there are insurance salespeople. Would you agree that those are the three broad categories?

Allan Roth: Yeah, I think so.That's a pretty good way to characterize it. So let's not get into how many people fit in each category and I just looked up this data. By far the biggest category are the brokers and according to FINRA in 2019, basically the end of February, there were 629,862 registered brokers who were working in 3,667 registered brokerage firms. So that's a pretty big number. By the way that's down a little bit from 2007, down about 45,000 from 2007. So we've lost brokers since the financial crisis .

Insurance salespeople; this was a little bit tougher, and there might be some overlap here too because a lot of brokers have their insurance licenses. But insurance sales representatives-- 489,880 insurance salespeople out there.

Let's look at the investment advisor space. These are the people who are doing assets under management or hourly and some of these might also be selling insurance and some of these might also be what we call dual registered, which is brokers plus assets under management. Anyway, the number of our IA’s is 30,266. Eight thousand of those are dual registered as brokers and investment advisors, which leaves a little over twenty thousand basically fee only advisors who are just collecting fees. So when I add up all of these and I take into consideration some overlap it becomes a number of about 1 million people out there calling themselves financial advisors.

Rick Ferri: A lot of financial advisors out there. Like you said, there's overlap between the three. You can be all three at once so you can't just assume that all brokers are evil and all our IA’s are good. I've seen some very good brokers sell some low-cost, you know, index fund portfolios and some so-called fiduciary RIA’s sell product that, I'm not kidding, had over a five percent annual fee.

Allan Roth: Yeah I've seen a lot of that too. They even get on the internet. You can find people that are charging just for a simple money managed account, you know one and a half percent per year. Even up to-- somebody showed me one that was two and a half percent per year. So it can be quite high, and that doesn't include the cost of the funds themselves, or whether or not the advisors are trying to do active management or trying to, you know, outperform the market. Yet there's this belief that fee-only means there's no conflicts of interest, and let's face it anytime a dollar changes hands including my hourly model, there are conflicts of interest, and the best regulator out there is the consumer. Make sure that you understand it. Simplicity almost always trumps complexity with one exception being taxes.

Rick Ferri: Let's get into the conflicts of interest. Let's start out with the commission model first, where an advisor is paid a commission to put their clients into certain products, and depending on which product they put their client into, they'll get a higher fee or a higher commission or a lower fee or lower commission. Let's talk about commissions and what is the benefit of using an advisor who does commission. And what are the disadvantages of using advisors that do commission.

Allan Roth: Well, let me first say as an hourly advisor I've got bias, and on all of my answers, so I want to just disclose that. Commission not only, you know, how much will they get paid in commission, but will they get that vacation at the Broadmoor resort, other things that are driving why they're selling what they're selling.

So the pros are that typically it's a one-time fee and quite frankly many times I see, you know, AUM charging more than people would be paying under a commission model. But you know obviously they sell what they're being paid to sell and it's the least transparent. You can't find out how much the person is getting for selling that product.The tax laws, recent tax law changes have actually changed a few things. If you're paying commission now that actually comes out of the amount that you're paying for the product and so when you sell whatever it is you sell you're not paying taxes on the commission part so it's actually a more tax advantaged way of doing it.

Rick Ferri: Well hey. I'll say - another way. If you bought something like American Funds and you had a million dollars- I'm not advocating American funds, but if you had a million dollars and you invested them through a broker in just American funds, I believe that there's no commission to buy American funds and the broker gets a quarter of a percent 12b-1 fee which comes off the top on an annual basis. Well you're not paying taxes on that 0.25%, so it comes out pre-tax, comes out of your returns.

Allan Roth: Yeah you're absolutely right. I totally agree with that. The new tax law has made commissions more tax efficient. Yeah that's interesting. Advisers will complain profusely about anybody who gets a commission and yet now the AUM fee is not as not as tax efficient. I agree with that.

Rick Ferri: Now let's go to the next way in which advisors get paid which is percent of assets where some people call this fee-only. What are the benefits of paying an advisor for percent of assets and what is the disadvantage.

Allan Roth: Well fee only includes assets under management, the ongoing percentage and hourly as well. But the AUM in particular. The assets under management, you have a million dollars, I charge you 1%. That's, you know, ten thousand dollars a year. The pros are that the advisor doesn't get paid to sell a particular product and in this regard, far more transparency because you can see what the adviser is taking out of your portfolio. But you actually have to go and look. Many people I speak to don't know how much they're paying on the AUM.

The cons are that they're paid to capture your assets. Are they really going to tell you to pay your mortgage down. And talking about the new tax law, the majority of people aren't getting a tax deduction on the entire amount of the interest they're paying on their mortgage. So they're paid to capture assets. They're paid to overcomplicate things because if the advisor gives you just a handful of funds and doesn't make changes on an ongoing basis the client is going to say, why am I paying for it.

Rick Ferri: So the cons are the over complication, capture assets and constantly making changes. I'm going to throw another one out there. I think that doing an all-in fee, it's not quite a wrap fee according to the SEC definition, but when you add in financial planning to portfolio management and you're charging for financial planning based on the amount of money somebody has with you, the person who has $2,000,000 is paying twice as much for financial planning as the person who has $1,000,000, but they're getting the same service.

Well not only that, but you know oftentimes I'll have clients with- they've just sold their business- they've got tens of millions of dollars, all in cash so that's a relatively simple plan to do. You know other times I have people that come to me with you know $100,000 and three different annuities and I can't help them on a cost-efficient basis. So the amount of financial planning really isn't correlated all that well to the size of the portfolio.

Allan Roth: And I agree. So my view has been that you should pay for portfolio management some low fee, if that's what you want, ongoing portfolio management. And everything other than that: financial planning, estate planning, some sort of tax planning, insurance planning and everything else should be separate, should be a separate billing function based on the amount of time it takes to help a client. That's my belief.


Rick Ferri: Yeah I totally agree with you. The one exception would be as a financial planner I'm not licensed to do estate planning. I'm not an attorney so I work with the client’s attorney to make sure that my plan is consistent with their estate plan. You don't do tax returns either, correct.

Allan Roth: I am a CPA but, yes, I do not do tax returns. So those two things would be outsourced. Somebody else would do them. I am licensed. Well a lot of what I do is tax related, looking at what are the tax implications of moving the portfolio to somethingmore tax efficient etcetera. What are the taxes that are going to have to be paid versus the benefits going forward.

Rick Ferri: Let's go to the third model which is hourly, which is also called advise-only. And that's what you've been doing for some time. Personally, that's what I'm going to be doing, starting now launching my new firm. And thank you for your help, by the way, in giving me some guidance on how to do that. But the hourly model; the benefits and the disadvantages.

Allan Roth: Well you know I obviously am very biased and I'm thrilled by the way that you're going into the hourly model. You know I argue that every profession on earth-sorry for this really bad joke- but even the oldest profession on earth is fee for service.

Rick Ferri: Did you come up with that?

Allan Roth: I think I did. I'm not positive. Okay all right giving advice and not having a way to profit from advice in my opinion lowers, not eliminates, but lowers the conflicts of interest. You know I can recommend any product anywhere, paying down the mortgage, a CD at a particular bank with an easy early withdrawal penalty etcetera. So I love it from that respect.

Cons are there still an incentive to overcomplicate, to make sure that the client has some dependency. The adviser can say I think I know what sectors are going to outperform, or what the market is going to do, so we need to meet quarterly, etcetera, to keep billing fees. Many say that it's easy to pad our fees, but I would argue that's just completely fraud. So fraud can be done in any of the three models.

Rick Ferri: What else do you have for us.

Allan Roth: Well again any time $1 changes hands there's there's conflicts of interest. So make sure that when you meet with the advisor you understand what it is they're wanting to do. You agree with it. It’s that simple: that you understand what the total fees are. That you can explain it to any eight-year-old. Be your best regulator, that's my advice.

One last thing I think is a pro to the hour advice only model is that it's the most painful and pain is good. When I say painful, the client gets an invoice. They have to make a payment, write out a check, do a bill pay or something like that so they know what they're paying. And that pain is a good thing so they understand what they're paying. Again, so many clients don't know what they're paying in the way of commission or even the AUM. So transparency in paying is good.

Rick Ferri: Wouldn't that they'll prevent somebody from calling you if they really needed to. In other words if you know, like a lawyer or someone, if you pick up the phone, every time I pick up the phone and call you I know I'm gonna have to pay something. So that might be a deterrent for me to actually call when I should.

Allan Roth: Absolutely. The same thing can happen if you're having a medical issue but don't go to see the doctor. So you just have to make sure that the advice you're giving is worthwhile and you know, my own particular model is my agreements give the client the right to cancel invoice on anything they don't think they've received value from.

The first time I met John Bogle roughly 16-17 years ago. He told me a story that resonated with me. The advisor meets with a client and the client wants a new portfolio. The advisor designs the simple,low-cost balanced portfolio and the client goes away. Next year the client comes and says well take a look at my portfolio. What should I do? And the advisor says, nothing. The year after that same thing happens, and year after that. The client finally says, “Why am I paying you, you're telling me to do nothing.” And the advisor answers, “To make sure you don't do something.” And that kind of resonated with me and my hourly model. That once she designed the plan, sticking to the plan and doing nothing is the right way to go.

Rick Ferri: So what you're saying is the advisors who are charging 1% and doing both money management and financial planning, the financial planning portion is really done in the first year. Why are they continuing to charge 1% per year every single year after that.

Allan Roth: Exactly.

Rick Ferri: I want to ask a couple of questions about fees because I've been doing a lot of debating on Twitter with other advisors about this 1% AUM fee, and on average when you look at all the data from various places, if a client has 1 million dollars the average fee AUM fee to manage that portfolio and provide some financial planning or maybe not provide financial planning, just to manage the portfolio is 1 percent. So a million dollar portfolio would be ten thousand dollars and I argue about this. I say, “Well why would you pay ten thousand dollars to have a portfolio managed?” My gosh you can go to Betterment or you could go to Vanguard and have it managed with a professional for just a fraction of that and the advisors who are charging one percent come back and say well we add value.

But what I don't understand though is how much does an actual financial plan cost. I look at some data from Michael Kitces and it's got a very in-depth study about the cost of financial planning, how financial planners get paid. And generally he says that the typical financial plan runs anywhere between 10 and 20 hours, so call it 15, and the typical financial planner gets paid, if you can break it down to an hourly basis, two hundred to two hundred and fifty dollars an hour. So net the average median financial full-blown financial plan is around $3,500 .

This is just a middle-of-the-road number and I know that varies widely from one side to the other. So the advisor who is charging a two million dollar client almost 1%, just call it 0.9, it's charging the client 18,000 dollars, and if the financial plan cost 3,500 the client is paying 15,000 dollars a year to have their two million dollar portfolio managed, which to me as a former portfolio manager seems extremely high. So I don't understand how the 1% AUM wrap fee, if you will, works out. when the cost of financial planning, and it's usually just a one-time cost, correct, is really not that high.

Allan Roth: You just hit on something. It's a one-time cost, so yeah, you're right. I would guess my average plan is around 15 hours or so. I'm more expensive than that 250 but once the plan is done and we move towards simplicity, that there's some pretty easy rules to give clients on how to manage their own portfolio and rarely do things change that much in one year. Occasionally somebody sells their business or something like that and the plan needs to be updated. But it's pretty much a one-time plan. I tell all my clients my goal is after the engagement, to be fired, and I'm proud whenever the client at the end of the plan says, this is great, you're fired.


A plan can be simple or very complex depending upon what situation the client is in, but then once the plan is done there's simple rules going forward because I really know that I don't know what the markets are going to do, or anything like that. If the market plunges and they want me to charge them an hour to tell them to stick to the plan and rebalance and buy now, that stocks are on sale. I'll do what it allows, use their money, but I would do it.

Rick Ferri: You know not everybody can afford financial planning, right. I mean if you've got a million dollar portfolio or two million you probably can afford a financial plan but there are some alternatives now for people who don't have a lot of money. Not only are there companies like Vanguard and Betterment and now Schwab charging relatively low fees but there are hourly planners out there who will help people. Correct?

Allen Roth: Yeah absolutely, and probably the best group of hourly planners I know are with Sheryl Garrett, and the Garrett Planning Network.They really try to help the middle market and are terrific advisors. I'm not a member of the Garrett Network but think very highly of Sheryl Garrett and her network. I have known Sheryl for many years and they do a great job. Now some of them do manage money, I understand, but I think the focus of that organization is on hourly.

I know that if you're going to hire a financial planner you need to really ask them, even if they're in the Garrett Network. You really need to ask them,”how do you get paid and what their business model is”. No absolutely, no matter what model you're using, I think the most important question is how much am I paying in total fees because you mentioned that 1% AUM. Say they put you in other funds that have another, let's say 0.5% in average fees, and what really matters is one’s real return, how much you're making after inflation. So if let's say a balanced portfolio might beat inflation by 3%. If you're paying 1.50% in total fees, I don't care whether it's hourly, commission, AUM, the fund fees, you're giving away half of your real return, your real growth.

Rick Ferri: I want to ask you about these robo-advisors. I mentioned them a minute ago.

Allan Roth: Well, Betterment, and Vanguard is sort of a robo-advisor, and now Schwab is charging just a flat fee.They just came out last week and said that their fee is going to be $30 a month for portfolio management and financial planning, basically unlimited financial planning.

Rick Ferri: Who do you think these services are designed for. I mean how deep did they get on the financial planning side for the low fee.

Allan Roth: Well you know any time fees go down it's a wonderful thing. Don't forget Schwab has had the Intelligent Portfolio, the zero fee, but of course, there have fees in other areas as well. So anytime fees go down I think it is a wonderful thing. In terms of the financial planning that they're giving. Quite frankly I don't know exactly what they're giving.

Rick Ferri:I know that there are some conflicts. I've written even where I disagree with Vanguard on again, on paying down that mortgage and such, so you know all advice has some bias, but a good financial plan and a low fee is a wonderful thing. I'm a big fan of robo-advisors.I think software can manage portfolios better than people. There's a lot of data to show that advisors were very heavily in stocks at the market high in ‘07 and turned to cash in the market in ‘09. Software is going to do the opposite, it is going to stick to the asset allocation and rebalance. So I think it's absolutely a wonderful thing.

Allan Roth: But it's also kind of a cookie cutter approach. Rarely do I have a client come to me that doesn't have a portfolio already with huge tax ramifications of getting out so it doesn't fit into a cookie cutter sort of portfolio that robo-advisors typically use. I agree with that if everything was tax-free it would be easy and you could easily just move people around, but the real problems are working around the tax issues.

Rick Ferri: I certainly could not turn my portfolio over to a robo-advisor because I would have huge tax ramifications for mistakes that I've made earlier on. For the fact that there weren't total stock index funds when I started investing and the like.

So I'm going to question a little bit off topic but you know balanced funds seem to do a lot of the work of a robo-advisor, like Vanguard LifeStrategy funds or Vanguard Balanced Index Fund. And I know that Ishares--also Blackrock also has Ishares that are doing balanced type investing. What do you think of just using a balanced fund to do everything, probably the best robo-advisor out there if it's ultra-low fee?

Allan Roth: Again the target-date retirement funds as long as they're very, very low cost are great. Robo-advisors that do all of that for you, the one thing you don't get is the asset location. I've always argued that investing is simple. I never argued that taxes were. What I do for my clients, is try to put certain assets like fixed income things that are taxed at higher rates in the tax deferred accounts and very tax-efficient investments like total stock index funds in the taxable account. So you do lose that tax efficiency by going to a one fund sort of solution with the target date or a balanced fund, but there are tax efficient balanced funds.

Rick Ferri: Yeah that's true. They're not putting assets in the right tax wrapper. They may not generate as much in the way of taxes but the fixed income for clients that are in a high income bracket, you know that's much better located in the tax deferred accounts because if you have stocks in the tax deferred accounts what you're doing is eventually creating what would have been a long-term capital gain and you can defer that on a tax index but then. You're in control of the capital gain so you're converting it to ordinary income when you have to start taking it out, either to live on or for the required minimum distributions.

Allan Roth: Got it, and when I was at an ETF conference about a month ago and the big thing that they started talking about there was this thing called direct indexing and and what direct indexing is is you give a money manager, call it a million dollars and they buy all 500 stocks on the S&P 500 with that million dollars fractional share well they might do some sampling and buy two hundred and fifty stocks and then they'll selectively sell-off individual stocks when there's a loss to generate a tax loss and then they might replace that with another stock that is not part of the 250 or they might wait 30 days and rebuy the stock and avoid tax washes, whatever their particular strategy is. But the idea is that you can generate a lot of tax losses and if you happen to have a big taxable gain in a low-cost base of security or some other reason it's going to give you a big tax gain this is a way of offsetting some of those taxes. I look at it skeptically, but what are your views on direct indexing.

Rick Ferri: Yet Wealthfront was the first robo-advisor that I saw doing it and I wrote about it and I think that it's a wonderful thing, but the tax alpha is the call that is really overstated. So what happens, assuming that the market moves up over the long run, the amount of tax losses generated go down year after year and there's very little tax gain going forward. But the problem with this is that the fees stay forever. The complexities stay forever, but the tax benefit goes down. And don't forget the tax benefit is just a deferral because if you eventually sell them you're going to have to pay that very large capital gain because you're left with the stocks that had the biggest winners .

Allan Roth:So it is good I am for it. I typically will have a client do that if let's say they want to donate some money a few years from now to a charity, to a donor-advised fund. So they could put a hundred, two hundred thousand dollars in there, get the tax losses, be left with some stocks that have very large gains, and then donate it to a charity.

The other option is they can always just take over the several hundred stocks that are left in the direct indexing and stop the fees, but then you're left with the complexity of a portfolio with hundreds of stocks. Over time you don't have the tax losses to use but you're left with all these stocks and you have to pay fees on it if you want somebody to continue to manage it.

Rick Ferri: I was talking with some people in the industry though. Maybe there's a way to take those 250 to 500 stocks and convert it to ETF shares. Hasn't happened yet but I'm talking with various people in the industry and it sure would be great if you could take those 250 to 500 individual stocks turn them into State Street or Vanguard or someone and get issued shares of an ETF of an S&P 500 fund. The cost basis of your shares would be the cost basis of the aggregate cost basis of the stocks that you have, but at least it could make it easier and make it more now you'd only have one security now instead of 250 to 500, and the IRS isn't missing out on anything here.

Allan Roth: So maybe perhaps somebody will figure out how to do that, and what to me would make this direct indexing a little bit more palatable than currently. What happens at the end of it all. I'd be a little surprised I hadn't heard of that. By the way, but yes I'm left with,you know, 280 stocks. I don't think the IRS is going to let me convert that to something that has all 500 without paying taxes on it. That would be my hunch. But I had not heard of that idea before.

Rick Ferri: Yeah and it's just an idea. and it's just again you're not getting away with not paying taxes because your cost basis on the ETF, years that you were issued would be the total aggregate cost basis of the stocks that you currently held so, you know, I've talked with numerous people in the industry about this idea. I think if that actually occurred, if you were able to actually do that at the end of this in direct indexing then it would make that whole concept much more popular, and I think it would be a trillion dollar industry but you know that getting that was just an idea and it's not there yet.

So before we move on to the next topic, you are an hourly adviser. I have become an hourly advisor. So I can guess that's a trend of at least one. Do you think that this hourly model will continue to grow, or do you think that the AUM model will continue to grow or maybe some other model like retainers or subscription-based is another model that might grow. What do you think the advisor industry and fees are going?

Allan Roth: Roughly, I think it was a year and a half, two years ago, I interviewed Bill McNab when he was CEO of Vanguard. I asked him a question, will hourly take over and I agree with his answer that it won't. It took a long, long time for people to move from the commission model to the more popular AUM model. Now or what's growing in popularity and it would be a very long time before hourly would take over. I also think that people like paying in a painless sort of way and the AUM model is a whole lot less painful than the hourly model. So yeah I don't think that the hourly, I think it's going to gain in traction, but I think it will be the minority model for probably the rest of my life.

Rick Ferri: What do you think about subscription base which is another way of billing.
You've got financial planners out there that are charging between let's say 150 to 300 dollars per month. You think it's good.

Allan Roth: The problem that I have with that is the complexities vary all over the map and it's the same sort of thing, that a good financial plan is lasting with rules going forward, and not the need to keep paying.

Rick Ferri:Let me ask a question. I'll get back to something I asked before about the difference between managing money, you know, an advisor who is managing money, and advisors who are doing just financial planning and just advice, and then there are the ones who do both. What is your view of a fair fee for just the money management side, the percentage of the population who are delegators and they don't want to manage their own portfolios.They want somebody else to do the tax loss harvesting, do the tax management.They want to be able to call somebody up and say send me a check for $10,000 or whatever, do the tax allocation and you know maintain the portfolio. So what do you think a fair fee is for the adviser who's going to do that?

Allan Roth:: I'd say no more than 0.30 percent which is what Vanguard charges on their Personal Advisory Services. Yes if somebody doesn't want to think about it, doesn't want to do anything then yeah an hourly planner is not the right choice. An AUM planner is the better choice, and again keeping fees ultra-low, either through a robo-advisor that has you know, the financial planning built-in, or a Vanguard Personal Advisory Service which is a hybrid robo model.

Rick Ferri:I would argue fees have to stay very, very low. A lot of advisors I think kind of take shortcuts when trying to get people to invest with them and I was in the advisory business for thirty years; now ten years as a broker and then twenty years with an AUM company that managed investment portfolios, and only now I'm going into hourly because they don't have that company anymore.

You know a lot of advisors use these risk tolerance question and Monte Carlo simulation models and a lot of these things that make it sound so sophisticated and scientific as how they go about creating a portfolio and managing that portfolio. What do you think about all of these questionnaires and Monte Carlo simulation.

Allan Roth: I've written a couple pieces on the risk of taking risk profile questionnaires. You know did Monte Carlo simulations fail. .And first of all on the questionnaires, typically when I take one, I get that I should be somewhere between 70% and 90% in stocks, and what they're doing is measuring my willingness to take risk at that moment, and after ten years of a bull market we all think we have a very high willingness to take risk.

And then stocks plunge and suddenly that willingness to take risk goes away. And in the second, the biggest problem with these things is they don't measure one's need to take risk. You know, as our friend William Bernstein puts it when you've won the game quit playing.That doesn't mean 0% stocks, but take risk off the table. So they don't measure that. So in spite of being told I should be 70 to 90% in stocks, I'm 45% in stocks and not about to change.

Regarding Monte Carlo simulation I'm a big believer in Monte Carlo simulation, which actually came from firm McKinsey and Company that I worked for a couple of decades or so ago. But the problem with Monte Carlo simulation are assumptions and by the way a Monte Carlo simulation is a model that runs a thousand or more iterations of what asset classes might do and calculates the probabilities that you'll have enough to live out in retirement.

Like any model that happens to be good, and I argue Monte Carlo simulation did not sail in 2008-2009, it was the assumptions that went into the Monte Carlo simulation of incredibly high returns, very low volatility because the planner is going to get out of the market all sorts of false assumptions that went in there. So Monte Carlo simulations are good, but the assumptions have to be very real.

Rick Ferri: I don't use a questionnaire either and a lot of these canned programs that financial planners use that have Monte Carlo simulations in it have a lot of garbage going in on the inside. They really do, so the advisor really needs to understand the dynamics of Monte Carlo simulation and make their own assumptions and make them realistic on the front end so they can get something useful on the back end. But I don't think that occurs nine out of ten times.

Allan Roth: Probably ninety nine out of a hundred. I've looked at several different financial planning pieces of software and ultimately decide I'm doing my own financial planning and not using any of their software.

Rick Ferri: I want to now turn to some investment questions that were posed on the Bogleheads forum specifically for you because you've written about and talked about various asset classes and I want to go over some of those asset classes or investments with you so you could give us your current views. Let's start with municipal bonds. What are your views on the state of the municipal bond market and if someone was to be a municipal bond investor what would you recommend?

Allan Roth:. First of all, never buy the muni bonds directly. The bid-ask spreads of muni bonds can easily be in the one to three percent category. The largest spread I've ever seen was ten point two five percent and my client by the way happened to be an attorney with the Securities and Exchange Commission in Washington DC had no clue about that. And then on individual muni bonds even in Vanguard statements, if you look at the yield, that yield includes the amortization of premium which is really paying back your own principal.

So if you're going to buy a muni bond I would buy an ultra low-cost muni bond fund like the Vanguard Intermediate term exempt fund. With that said I own a little bit of it. I do not let my clients put more than 20% of their fixed income in that fund and the reason is that even after a ten-year bull stock market, municipalities and states, their pensions still have, according to Moody, 1.6 trillion dollars worth of unfunded pension liabilities and their actuarial assumptions are about a seven, seven and a half percent return, which I think are aggressive. So that if stocks don't do very well over the next decade, and especially if stocks decline over the next decade as baby boomers retire, there's going to be a lot of stress on those municipalities and there could be some systemic default. A new correlation with stocks that has never happened before. So I'm okay with low-cost muni bond funds to a limited degree. Munis represent about 10% of investment grade bonds, and I don't let my clients go more than twice that allocation to 20% .

Rick Ferri: Okay, next question. International bonds and international bond funds. What are your current views on adding these to a portfolio?

Allan Roth: I think they're okay. I generally don't recommend them. I own a tiny little bit myself. When Vanguard launched its international bond index fund they asked me to write about it. I did and I kind of gave it a ho-hum recommendation. First of all, never buy an expensive international fund and never buy an unhedged international bond fund. An unhedged international bond fund is going to behave very much like a foreign currency fund. But the problem with the Vanguard fund, although it's very good and it's the best international bond fund out there, is that it's more expensive and it doesn't include the cost of the currency hedging.

And you know, I understand their argument that international bonds are the single largest of the four categories: US stocks, international stocks, US bonds, international bonds, and I'm a believer in diversification. But let's face it, if the US government goes out of business, and the US government issues the vast majority of the investment-grade bonds, then all of our portfolios will fail. So I think there's less importance there. But if somebody wants the international bond fund, the Vanguard one, I'm fine with them keeping it or buying some.

Rick Ferri: I think you and I have similar views on the fund. It's like if you already have it, if you want it, fine. But it's not something I would recommend in a portfolio.But if you have it or you want it, you know it's okay. Next question and this is going to be your favorite one I think. Equity index annuities, you're a big fan I hear.

Allan Roth: Oh yes, yes all the other side of the market, no downside risk. Yeah, I've written about these extensively and you have to give them the smell test. How can somebody give you the upside of the market, no downside risk. You reverse engineer it. You look at the portfolio of the insurance company offering it and you can see that they're 80 to 90 percent in bonds, you know intended 20% in stocks and real estate,other investments that you could have bought directly. So you know what you're doing is buying the portfolio and directly paying the agent who's making 10% when you buy the product. Making money for the insurance company, covering their overheads etcetera. You know, it's not going to deliver what it says.There all sorts of tricks caps, the S&P 500 Index stripped of dividends.

You know, one I just saw was sold at a much higher rate but they had subsequently, after the client bought it, lowered the maximum return to 4%, so they're going to earn somewhere between zero and four percent the money's locked up. They're going to get less than what they could have gotten on buying a treasury fund. Not a good deal.

Rich Ferri: So basically what you're saying it doesn't pass what you call your reasonableness test. What is your reasonableness test. It's reverse engineering, it's, I call it the smell test. How are they going to deliver what they're promising to you? How do they make money off of it? How can they own a BA mostly bond and a little stock portfolio, give you all the upside of the market, no downside risk? You know reverse-engineer it. What's in it for them. They're not doing it because they're charitable organizations trying to make you rich. It's like the call that you get trying to sell you the oil well partnership that has never had a dry well in their twenty years. Why the heck are they calling you. I wouldn't occur in investors want to beginning in. Common sense is not all that common. The last thing about the smell test is, you know not always, but roughly 99% of the time that I've heard something that just sounds too good to be true, it usually is. But not all insurance type products for investing are bad. Let's take a single premium immediate annuity. There's been a lot of good things written about some people using those. Would you agree?

Allan Roth: Yeah. I think it's certainly the best of all the insurance company annuities.That's when let's say you pay a million dollars and the insurance company turns around and they say they're paying you 66,000 dollars a year in income for the rest of your life. So it's not a bad product. But it's not income if you think about. If you do the math that million dollars /60,000 dollars example, it's not income because you have to live over 16 years just to get your principal back.

Number two it typically doesn't have an inflation adjustment. There's only one company that I know of that does, and that's Principal, and of course that really lowers the amount that you get paid. So if you're doing a SPIA that pays a flat amount you're getting less and less spending power every year. But it's certainly not a horrible investment.

And into annuities I often recommend are number one, delaying Social Security. That's the best deferred annuity on the planet because it's a government sponsored inflation adjusted annuity. And then second, roughly 75% of the time I do an analysis of somebody that is retiring with a pension, it comes out better to take the payment than to take the lump sum and roll it over to the IRA. And when you think about both of those examples no commissions are being paid, no insurance company is making a profit and covering their overhead, so those are probably the best two annuities on the planet

Rick Ferri: A good answer,Allan, thanks. And by the way, I did interview Mike Piper for Bogleheads on Investing and he took it all up talked all about of the benefits of delaying Social Security. There was a great podcast Allan. I had one Boglehead who is in the Thrift Savings Plan, which is the government plan like a 401k for government employees in the military. He's going to be retiring soon and wants to know your thoughts about leaving the money in the plan rather than taking it out or rolling it into an IRA.

Allan Roth: Yeah well let me say I've been on Federal News Radio many times and you know once I joked will somebody hire me into a government agency pay me $1 give me enough time to roll my IRAs into the Thrift Savings Plan and then you can fire me. It is that good. I wish I had access to the Thrift Savings Plan. I love the simplicity. I love the ultra-low cost. But really what I love the most is the G fund. That's a bond issued by the Treasury only for US government employees and what it does is gives you an intermediate term bond rate without the downside. If interest rates go up it's a stable value sort of thing and because a tax deferred account is the perfect place to hold bonds and that's a superior bond you know I love it. I wish I had access to it so hopefully that answers the question. Don't take your money out probably does it.

And I always wondered why other governments don't copy the Thrift Savings Plan with their own 403-b plans. I mean in their 403-b plans I've seen some of the most horrible investment choices, such high-cost. I wish some of these trustees on these 403-b plans for for medical professionals and for teachers would just look at the federal government's Thrift Savings Plan and copy it and save their participants ungodly amounts of money over time. Well when I help a client company set up a 401k or move a 401k, I tried to design it after the Thrift Savings Plan, but I don't have access to a G fund type of security .

Rick Ferri: Okay, got it. I've got a question now from a Boglehead who has been listening to you and reading your stuff and things are great and he wants to get into the industry. So if somebody out there decides they want to do the right thing for clients and they like what they're hearing on these podcasts, and they want to get into the industry. Would you recommend they do that? What advice would you give somebody who makes a kind of a mid-career change to get into the financial advisory industry?

Allan Roth: Yeah that's a tough question. I got into the hourly business only after a couple of decades of corporate finance and living frugally. So I didn't need to make a whole lot of money my first year. And in my first year, by the way, my total revenue was $500. So probably, if they've got a family, kids into college etcetera. The best advice is to go to work for an AUM financial advisor, kind of learn the business, and then decide whether or not they want to go out your own.

Rick Ferri: As you know, I'm an advocate of the hourly model, but it's very hard for somebody who needs to make a living to just start a practice on the hourly model. I started in the Berkeley rich world for ten years to learn the business and that's where I received my CFA Charter and ended up getting a Masters of Science in finance, and then I left after ten years of learning the industry and getting my education, to go out and start my own company managing money for 20 years. Now I'm going out and doing hourly, so I agree with you that doing hourly is very difficult if you're just going to go out of the block. Just getting in the industry and doing something else to get some experience is generally going to be helpful.

Allan Roth: Yeah, and incentives matter by the way. If paying my kids college tuition were dependent upon me selling you that annuity in your IRA with all the upside of the market, no downside risk I would do it. I would think I'm a force for good and I would think that you and Allan just don't understand it. I'm sorry when stocks plunged, hell.

Rick Ferri: Let me ask you one final question. Could you give us your list of what investors should be looking for when they go to hire an advisor.

Allan Roth: You know, meet with the advisor, see what it is they're offering to do for you. If they're telling you they're going to beat the market run. But meet with the advisor, listen to him or her. What they're saying. Are they trying to move you from complexity to simplicity. That's a good thing. A good advisor can help you build the right asset allocation for the amount of risk that you want to take.They can help you maximize diversification, minimize the fees. They can provide discipline to stay the course, and as I think I mentioned, advisors as a whole time markets probably as poorly as individuals, if not worse .I've always said that investing is simple. I never said taxes were. So maximize that tax efficiency.Help you on retirement planning,which assets to spend first.

Quite frankly, in retirement if you delay Social Security, which is typically the thing to do. Mike Piper's Open Social Security Calculator is absolutely wonderful. Then they can sell stocks with the long-term capital gain. It is zero percent tax rate. Things like that help them understand risk management. Argue, a good advisor needs to argue with you and push back when they don't agree with you. So those are things that a good advisor can do. So meet with the advisor, see what it is they're suggesting to do, and then always ask what are the total fees that I'll be paying. And just one last thing. The advisor you're thinking of hiring needs to be willing to be the bad guy to help you get you out of where you are, because sometimes firms don't like losing money and there needs to be a lot of push back to get them to move forward.

Rick Ferri: That's great advice Allan.Thank you for being on Bogleheads on Investing today. We really appreciate you giving us your insights. It's been a wonderful talk. Good luck with your practice.

Allan Roth: Thank you, Rick.

Rick Ferri: This concludes the eighth episode of Bogleheads on Investing. I'm your host Rick Ferri. Join us each month to hear a new special guest. In the meantime visit Bogleheads.org. and the Bogleheads wiki, participate in the forum and help others find the forum .Thanks for listening.
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

The following transcript, outside of needing audio verification, has a few obscure words and brief passages that need clarifying. These brief elements are highlighted by red lettering in the document. We need volunteers to help proofread and emend the following transcript:

Bogleheads on Investing Podcast Episode 006 with Dan Egan.

Your assistance will be greatly appreciated.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
sycamore
Posts: 2508
Joined: Tue May 08, 2018 12:06 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by sycamore »

Barry Barnitz wrote: Sun Mar 07, 2021 6:54 pm Hi:

The following transcript, outside of needing audio verification, has a few obscure words and brief passages that need clarifying. These brief elements are highlighted by red lettering in the document. We need volunteers to help proofread and emend the following transcript:

Bogleheads on Investing Podcast Episode 006 with Dan Egan.

Your assistance will be greatly appreciated.

regards,
FYI, I'm working on clarifying the parts in red lettering...
sycamore
Posts: 2508
Joined: Tue May 08, 2018 12:06 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by sycamore »

Barry Barnitz wrote: Sun Mar 07, 2021 6:54 pm Hi:

The following transcript, outside of needing audio verification, has a few obscure words and brief passages that need clarifying. These brief elements are highlighted by red lettering in the document. We need volunteers to help proofread and emend the following transcript:

Bogleheads on Investing Podcast Episode 006 with Dan Egan.

Your assistance will be greatly appreciated.

regards,
Below are corrections for the red lettered elements. I use asterisks to indicate the correct words.

4:34 to improve *upon a few of these things*.

15:51 we use broad archetypal *variables* like age

26:30 how it dovetails *with advisors*

31:41 *The other element of it - and we start with it - we have a really good kind of, like, wise* set of goals

38:15 more of a CSP engagement [NOTE: "CSP" is transcribed correctly but I don't know what it's an acronym for]

42:20 NOTE: The transcription has Rick starting with "And I would want to, you know, like know that I'm going to get paid, not only for like, knowing the financial planning details, but actually helping the client execute on those plans."
but that whole sentence actually is from Dan. It should go after Dan saying "...in their client's success."

42:31 Yeah I don't know how the *SEC - the Securities and Exchange Commission -* is going to feel about that


Dumb question: how do I go about editing it? Okay to edit the google doc as-is or does it need to be shared?
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi Sycamore:

Thanks! Feel free to edit the transcript, particularly if you can check it by audio verification. I do not have audio. I have corrected the transcript with your clarifying edits. Note that without audio, I have to guess transitions between speakers.

In general, we are operating not on a 100% accurate transcription, rather we tend to make minor emendations to improve readability. For example, removing audio mannerisms (such as a plethora of ahs, uhms, you knows, like) and make some grammar adjustments (plurals, verb agreement) when this clarifies a written text.

Once a transcript reasonably passes audio verification, we publish it on the Bogle Center site. We have a total of 19 raw transcripts. We have 7 completed transcripts, plus Larry Siegel provided us with a transcript of his podcast interview.

Here is a worksheet: Podcast volunteer transcriptors worksheet showing progress to date.



--Barry
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
Fallible
Posts: 7821
Joined: Fri Nov 27, 2009 4:44 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Fallible »

I've enjoyed the podcasts, but have always preferred transcripts over audio. My thanks to Barry Barnitz and all who have worked hard to provide these transcripts. The transcription process, like investing, may seem simple, but it is not easy.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Here is a first pass transcript of Episode 003 with Jonathan Clements. The accent from across the pond can be tricky. I have highlighted some words and passages in red. Speaker transitions may also need editing. And since I have no audio, this needs to checked and validated by hearing the podcast. The google docs transcroption version is here.

Episode 003 with Jonathan Clements

[Music]
[Applause]
[Music]

Rick Ferri: Welcome everyone to the third episode of Bogleheads on Investing. In this episode we will be speaking with Jonathan Clements, founder and editor of Humble Dollar. He's also the author of several investing books and a former Wall Street Journal personal financial columnist.

[Applause]
[Music]

Rick Ferri: Hi everyone my name is Rick Ferri and I'm the host of Bogleheads on Investing. This program is brought to you by the John C. Bogle Center for Financial Literacy a 501(c)(3) corporation. Today my special guest is Jonathan Clements the founder and editor of Humble Dollar. He's also the author of eight personal finance books, including How to Think About Money and his newest book, From Here to Financial Happiness. Jonathan also sits on the advisory board and investment committee of Creative Planning, one of the country's largest independent financial advisors. None of them was born in London, England and graduated from Cambridge University before coming to New York. In 1986 his first job was covering mutual funds for Forbes magazine and then he went to work for The Wall Street Journal. He worked at the Journal for almost twenty years, wrote over 1,000 columns for the Journal and The Wall Street Journal Sunday edition. He also worked for six years at Citigroup where he was the director of financial education for Citi Personal Wealth Management, before returning to the Journal for an additional fifteen months stint as a columnist. Today I'll be talking with Jonathan about his career and his new book, From Here to Financial Happiness, plus a lot of other interesting topics that we'll get into.

Right now let me introduce Jonathan Clements. Welcome Jonathan

Jonathan Clements: Rick thanks so much for having me on your show I really appreciate it.

Rick Ferri: Jonathan you've got an interesting background You've worked at some of the big financial media companies including Forbes and the Wall Street Journal for 20 years It didn't take you long. It doesn't seem that you were immediately started looking at what makes performance of mutual funds tick, and what makes the performance of accounts tick, and it seemed like you caught on right away in your writing to this idea that the Bogleheads believed, low fees and indexing. Can you talk about when you first started as a financial writer. But what that process was that got you to that point so quickly.

Jonathan Clements: So as you can probably tell from the funny accent curricula, I wasn't born in the US. I was born in England and I had most of my education there and when I got out of university I started working in the UK, and I very quickly discovered that the standard of living for financial journalists, particularly young financial journalists, in London totally sucked and so I decided that, you know, I wanted to
ownership and upgrade ,so I moved to New York and I got a job as a fact checker of Forbes magazine which was the lowest form of life. And the goal as a fact checker was to get yourself promoted and the way I got myself promoted was stock writing about mutual funds. And after almost two years of Forbes I was promoted to a staff writer and given the job of writing. So for every issue about mutual funds and the standard way at Forbes to write about funds was to do these fund manager profiles. Fly to Boston; fly out to Los Angeles; sit down with a money manager, have him or her
describe their investment philosophy and usually they'd give you three or four or five stock picks you would describe in that particular article and what quickly became apparent to me was that, you know,most of these guys who I considered to be top fund managers because that's why I was interviewing them, more often than not they, their moment of glory faded. The past performance was definitely no guide to future results.

I got hired away by the Wall Street Journal in early 1990 to write about mutual funds for them and I continue to see the same phenomenon. So you went there and you actually met with these top money managers, these top mutual fund managers and you were looking at the performance and having this discussion and you're realizing then very soon after that that it was then the performance started to go down.

Rick Ferri: You said their glory faded years afterwards.

Jonathan Clements: You know these fund managers who had been at the top of their game when I spoke to them often knew the reason was interviewing them was because they had been identified as being top managers and what you know, it's called the Forbes honor roll. You know they had good performance in up markets and down markets. They seem like consistent winners. More often than not, you know, those that hot performance didn't last, and, and we know that right. I mean we know past performances are no guide to future results, and so the question arises, “Well what is a guide to future result?” And it's the researchers conclusion, the best predictor of future performance isn't past performance, the best predictor of future performance is low costs.If you want a manager who's really brilliant you want to find a manager who is smart enough to get hired by a fund company with low annual expenses because that's what's going to give them a performance edge.

Rick Ferri: I want to go back though to that one point about the glory faded. So you're seeing this time and time again, where the glory faded of the top managers that you went out to interview. You must at some point in your mind, did you come up with reasons why the glory faded. I mean what was it that you found that caused the outperforming managers to underperform. Going forward was there something about just the dynamics of the mutual fund industry as a whole?

Jonathan Clements: Well I think a couple of things go on. Obviously we have this issue with successful managers tend to attract assets and the more assets amanager is overseeing the harder it is for him or her to continue the good performance.

But also the reason that managers tend to stand out is because they are in a sense cheating within their style box. If you have a good period for growth stocks the value managers that look good are those who sneak a few growth stops into their portfolio so you have this value manager that's done well. And a period for growth stocks you say okay this is a guy who really knows his stuff. He's been able to pick superior stocks and shine in a period when his investment’s out of favor. But of course what happens when styles for at Aten, when value stocks come into favor, the guy who's been cheating, who's been sneaking some growth stocks into his portfolio suddenly finds it hard to keep up with the other value managers because he's not a true value investor.

I saw that repeatedly in the managers I looked at. I'd be trying to benchmark funds and compare them to their peers and figure fund would look good even if you know his or her style was out of favor. But then when the stunner returns the favor they were out of step because they owned the wrong sort of pull throws and I think a lot of that cheating goes on and that's a lot of a reason why we think managers are good and it just turns out they weren't true.True to their mandate. So at some point you came to the epiphany or the “aha” moment that you maybe forget about active management and we're just going to use index funds.

Rick Ferri: When did that occur?

Jonathan Clements: It would have been in the early 1990s. At that point there weren't a whole lot of index funds out there. But those do were out there were regularly performing better than the typical actively managed fund, so they were competing against and, you know, wasn't just that you know. I started writing about this stuff. It was also that I started investing my money in these funds. You know I became a big believer, and in indexing particularly, you know, in an index fund if they were offered by Vanguard. And the good performance of those funds coupled with me personally benefiting with what helped to cement my view that chasing actively managed funds, they're trying to actively manage your portfolio, is really a fool's errand.

Rick Ferri: And the early ‘90s you went to the Wall Street Journal and you picked up the Getting Going column.

Jonathan Clements: 1994. The Wall Street Journal, which at the time had very few, had no columnist outside of the editorial page. The managing editor announced that he was willing to experiment with columns within the news pages, and you know being you know, uppity 31 year old raised my hand and said a cola might you know I'd like to have one of those. And shockingly really the journal gave me a column at age 31.

So in 1994 it was the end of the year I started writing. This column was dubbed Getting Going, and I did it for another thirteen and a half years. Write in that column both the regular Wall Street Journal and also, once it was launched, for Wall Street Journal Sunday.

Rick Ferri:
The first time you actually wrote about index funds in the Getting Going column, do you remember approximately what year that was, and was it part of the sort of Getting Going philosophy from the start.

Jonathan Clements: I would have been writing about index funds even before the Getting Going column was launched in 1994, but precisely when I couldn't tell you Rick.

Rick Ferri: Did you get any blowback from the Journal because they're all, is a lot of advertisers in the Journal. I mean these mutual fund companies advertise in the Wall Street Journal and when you start talking about, you know, indexing and low fees and you know, how that is the reason why index funds outperform most active managers. And you started talking about active managers.Did you get a talking-to by anyone or were you allowed to pretty much say what you wanted?

Jonathan Clements: I gotta tell you right back in the 1990s, indeed throughout my period of the Journal, from a point of view of advertisers being allowed to influence the copy that appeared in the news pages. It was verboten. In fact advertising reps to the Wall Street Journal could be fired for calling up a reporter. On a few occasions I was called by one of the advertising guys and asked to speak at some particular event. And whenever they called the only called officer, they cleared with their boss and they called very tentatively. It was,really it was a magnificent organization from that point of view I can't swear that it's like that today, but back then, you know, there was a church and state separation between the news department and the advertising department

But it, I know that I've spoken with a lot of other journalists over my time and it's not that way at a lot of publications. I mean that that Chinese wall if you will has got a lot of holes in it, and I couldn't believe that and, you know, there were occasion executives would come in and complain about my coverage. I remember one particular meeting there were if some guy who came in from Merrill Lynch to complain about my commentary on actively managed funds and there was a big meeting in the main news conference room on the ninth floor of the Journal building and I was down there and there's some other people were down there and the managing editor was down there. The guy from Merrill Lynch spoke his piece and then I responded, and as I, we walked out after the meeting the managing editor sidled up to me and he whispered in my ear “He didn't lay a punch on you.”

There,that was, that was pretty much the attitude of the Journal. You know they were gonna, you know unless you, unless you were making factual errors, you know they were gonna defend you to the hilt. But again I can't say whether it's that way today you know.

Rick Ferri: I understand thank you. It wasn't only mutual funds. I mean the way I met you where you were taking investment advisors to tasks as well. And that's how you first, you and I first talked. I think it was in 2001, because I had started the company and I was charging low advisory fees and I think you were really onto this idea of you know, what is that 1% AUM fee buying you. And she caught on to that very quickly as well.

Jonathan Clements: Well generally I would say that the world of investing has become much friendlier to the average investor over the course of my career. But you think about all the things that have happened. You know we've seen the collapse of brokerage commissions, we've seen tighter bid-ask spreads. We've seen this proliferation of low-cost index funds and we've seen a total change in the advisory model. So that while there are still financial advisors out there who are charging 1% and simply, you know, giving you a bunch of expensive mutual funds, that is less and less the case.

You know people are paying 1%, they're often getting a very low cost portfolio, and they're getting help with their broader financial eyes. So they're getting help not just with the choice of stocks and bonds and which funds they're gonna buy and so on, but they're also getting help with a financial plan, they're getting help with our estate plan, and help with tax management, help with insurance. I mean today for that 1%, if you're with the right feeling a financial advisor, you're getting much more than you would have got twenty years ago. And of course, you know, as we know, you can go if all you want is portfolio management, you can you can go out and you can get portfolio management for 25 basis points these days. And you'll get a portfolio for that 25 basis points that is as good as the portfolio you would have got twenty years ago, probably better in fact and be paying 1% back then.

And there are a lot of other models that have come out too like flat fee portfolio models, subscription-based organizations like XY planning, and then hourly fee advisors as well. So it seems like it's much more diverse way in which you can pay for this advice rather than just AUM and I think one of the benefits of this is the tutor you go back twenty years and people really believe that you know if you went to Merrill Lynch, if you went to Morgan Stanley, you were somehow investing with the best and the brightest. I think the messages got through that going to the big wirehouse. is these big brokerage firms is actually bad for your financial health. And you're all better off, you know, looking elsewhere to some of these smaller financial planning outfits, looking to the robo-advisors, trying out an hourly planner. And it's that the stranglehold of the big brokerage firms had on the way, you know, advised clients manage their money is over and that is definitely a plus.

Rick Ferri: So let's talk about the brokerage firms and such because both of us worked for Citigroup for a while. You changed jobs and you actually went over to what I call the dark side. I was on the dark side so I'm just saying that facetiously. You went to work for Citigroup and it, almost at the time when you did that there was some of us who have been following you were kind of questioning, scratching our head saying you, you wrote about these companies for four years and now you're going to work for one. I mean was that an experiment or could you tell us about that.

Jonathan Clements: Sure back in 2008 I was pretty burned out on writing the column. I've been doing it for thirteen and a half years and I was casting around for something new to do and I didn't want to become an editor of the Journal. I didn't really want to start writing about something else. So I would add a total change, and I was approached by Citigroup to be involved in a financial startup that they were working on. And financial start up was this.Their plan was to create an advisory service for the everyday American that would deliver financial advice in return for a flat monthly fee.

And so I joined City in April of 2008 and and that's indeed what we worked on. We were working on this black tea advisory program.They actually launched a pilot version of it in January 2009. If people remember what things were like in January in 2009. There was a worse time to launch a new financial advisory service I'm not sure when it would have been. I mean January 2009 and probably wasn't quite as bad as 1932 but we were at the height of the financial crisis and this thing went nowhere. You know in the months that followed every Citigroup was in turmoil. Smith Barney was sold off. This startup I was working on fell apart and Citigroup had to make a call.

They needed some sort of advisory offering for you know regular retail investors with Smith Barney gone. What they decided was they were going to take this startup that you know I was involved in the time was called my thigh and then what was left which was the bank based brokers. This for us together and said figure out, we hope, what you want to do.

They brought in a woman called Debbie McQuoddy who'd been at Schwab and had overseen their RIA business, and Debbie announced that what you wanted was all these bank base brokers to become fee-only financial advisors and you know this innovative group of people from who are part of the startup we're sort of put in charge of this group of bank based brokers and if you max might imagine it was complete well that's alright but that is indeed sort of what happened. And that's how I ended up going from being part of the startup to being you know as I like to put it in this of the main street in the mainstream of Citibank. You know I stayed on because they were having this experiment, you know, trying to turn these bank-based brokers into the only financial advisors and it work to a degree. But just from a purely, from an economics point of view and and you'll probably appreciate this, Rick, I mean to go from charging commissions every time you buy and sell, you know you might be getting a four or five percent commission on a product sell to charging one percent a year. What you effectively do is you give up right away three quarters of your year annual revenue and so this business went from being profitable to be an extremely unprofitable. Still after a year or so of this there was yet another u-turn and they move towards a seeing commissioned model but they still continue to try to favor the fee-based business, so I serve I hung on there. I actually ended up spending six years at Citigroup. Towards the end I had got to the point where I had enough money that, you know, I didn't sort of salary I was owning there, and just decided I was sick of dealing with lawyers and dealing, sick of dealing with compliance people. So I quit.

Rick Ferri: And you went back to the Wall Street Journal for a little while.

Jonathan Clements: I went back to the Wall Street Journal and I had to say, even though I can't claim that I didn't much good when I was on the dark side, I'm so glad I did it. I learned a lot about the business that I never would have learned purely being on the outside. I mean once, as you know yourself Rick, once you've been on the inside you see how it works, it you know, you understand much better the culture of these institutions and why they do the screwed up things that they do for the benefit of the shareholders, whatever it is. It is for the benefit of the everyday investor who walks into the bank branch. Well not that but not for that. I haven't heard that one yet but that's what the most ami, but it's not what I what I saw anyway.

Rick Ferri: So you went to the Wall Street Journal and you were there for about a year and a half, and then you decided to go out on your own and start your own business, The Humble Dollar in 2017, which is a great blog and a lot of good advice there. And you continue to author books.In fact you wrote How to Think About Money, and you're, also your latest book, From Here to Financial Happiness. Can you talk about the transition to starting your own business and going from a paycheck, if you will, to starting from scratch and seeing how it goes.

Jonathan Clements: So I wouldn't claim that I've been the most courageous person in the world. At least not courageous financially. So I wouldn't have ended up in the position I am now as I depended on the income I earn today in order to you know, to cover the bills.That it's essentially, you know, this is my retirement job. It just happens I'm working harder than ever. If I know that goes, if the books don't sell and the website doesn't make any money, it's okay. Nobody's good, nobody's gonna starve tonight. So I do this more than anything at this point, have a sense of public service. I know this stuff backwards and forwards. I love writing about it and I love being part of the conversation. And that's what the books and the website allow me to do.

Rick Ferri: Well I read From Here to Financial Happiness recently. Thank you for sending me the copy. I appreciate that. In typical Boglehead fashion if I can get a free book of course I'll get one for free, and I I did here so thank you. I started reading the book, and a few weeks ago, and the subtitle is: Enrich Your Life in Just 77 Days, and it occurred to me, as I was reading the book, I need a much longer than 77 days to enrich my life.The book is only, let me see how many pages it is. It's got 77 chapters, it's 240 pages roughly. But as I began to work through the book, and it's not just a book, it's a workbook and a book. And looking day 1, day 2, day 3, day 4. There are some of these days where I was reading about, where my god, I mean I had to put the. book down I mean I literally had to say, I really have to think about that. That's gonna take a long time for me to process.

What, what you just wrote now, some of the days went by pretty easy, but some of them were much more difficult. In fact, it was I found it aggravating in some ways to have to think about some of the things you wrote about in the book. But as I kept on going through it,I realized it was a method to the madness, and then I read about why you did it this way, why you wrote the book this way. Could you talk about that. you're thinking of how you put this book together as opposed to all your other books.


Jonathan Clements: The book grew out of a couple of different things I've been thinking about and one of the ones ways I describe the book to people is that I like to think that it's the conversation that you should be having with a really good financial advisor. A really good financial advisor isn't going to be purely concerned with making sure that you end up with the right mutual funds. A really good financial advisor should be trying to figure out you know what it is that you really want from your financial life. You know what's going to improve it today. What's going to make you happy in the future. What are the goals that truly care about, not simply that you want to retire, but what sort of retirement you want. What is it you're gonna do with this last twenty or thirty years of your life. So a good financial advisor is gonna figure out that stuff, and then he or she is gonna help you figure out how to get there, and it's not just about building the right portfolio. And there's so much more to managing money than having those six or seven mutual funds. You need to figure out your estate planning, you need to figure out whether you should be paying down your debt faster than it is required. You need to be figuring out insurance. You need to be figuring out what's their house you can afford to buy. You know what you should be doing with your cars. All of this stuff is part of building a robust financial life and that's what the seventy seven days are about. It's about figuring out where you stand. What you want and how you're going to get there, and the premise is that you know you can do it with these seventy seven steps. The seventy seven steps are a mix. Some days it is about information gathering. Some days it's about teasing out what you want. Some days it's giving you a brief financial lesson about some topic that I think is crucial to understanding money, and some days it's setting up specific steps they ought to take.

Rick Ferri: The book gets deep into call it behavioral finance without calling it behavioral finance. What I find is that you're able to describe things in laymen terms without having to put a hundred footnotes in there and the reference is to you know behavioral finance studies and such. But you're able to take a lot of the biases and behavioral finance things that we know in academia and you're able to very efficiently and very cleanly use it to describe what people should do or shouldn't do, or at least get people to think about their behavior and how their behavior affects their finances. And that's what I found very interesting about the book. Most of the time when you read a book like this you're constantly seeing footnote,footnote,footnote,footnote, footnote. You know this study, that study, this study, that study. You've avoided all of that in the book and I commend you for that. I think that's great. But this is a very well researched and very well-written book that accomplishes just so much, and I think you really hit what you were trying to do here with this book.

Jonathan Clements: Well in many ways Rick, and thank you for your kind words, but in many ways you the book is is a product of the decades I spent you know thinking about money and one of the challenges of writing regularly about money is the basics R&D; pretty basic you know the basics of putting together a portfolio, of figuring out how much insurance you need, what you need to do in terms of estate planning, you know paying down debt and so on.This stuff is really not that complicated and if you're gonna survive as a financial writer you need to have some intellectual curiosity and start to delve into other areas of finance. And I've been the beneficiary, at least in terms of my longevity as a financial writer, of some of the great research that has come out of academia. The research on behavioral finance, on neuroeconomics, on evolutionary psychology, on money and happiness. All of these four areas have produced incredible insights that are so useful to us as managers of our own money. And I've had and really the pleasure of swimming in this research for the past 20 plus years and so, well the book reflects that research. It's not like I sat down and read it, although you know in the year running up to the book's publication, I have been absorbing this for years and years and it's sort of become part of the way I think about money. I'm not an original thinker but you know I am pretty good at synthesizing what's out there and that's what that book represents.

Rick Ferri: There's a few things you wrote in here which caught my attention very quickly. You have these great little quotes at the end of every chapter is but it's not this is what you've learned in this chapter it's,it's a saying or it's something that you put together, and I want to read you one of them because I found that very interesting. It's actually from day forty four. You've said, if our net worth was displayed on our foreheads for all to see libraries would be mobbed and used cars would be status symbols, and it took me a second to think about that.

Saying libraries would be mobbed and used cars would be status symbol as well. Of course, yeah, I started thinking about it saying sure, you, you wouldn't buy a book you'd go to the library, get one for free, and you wouldn't buy a new car you'd go out and buy a used car, and that would be a status symbol because what would be on your forehead is a big number. You're probably the most influential books I think that any of us have read over the past twenty years is The Millionaire Next Door, and this notion that it's not the money that you see, it's the money that you don't see, right.

Jonathan Clements: It's, it's the the millionaire next door living in the modest term, wearing clothes from JC Penney, and driving the second-hand car. That the millionaire, the millionaire isn't you know, the big house with his or her European sedan and the beautifully landscaped lawn. That's, that's not money, that's money that is gone. There's money that is spent. And yet the money that is still there often isn't visible. You see this on the Bogleheads forum. The book, that forum isn't just about low-cost investing it's about having sensible habits when it comes to spending money. I think this is one of the reasons why you see so much overlap between the Bogleheads and what's become a very hot topic in recent months, which is the FIRE movement, you know financial independence retire early. That frugality cuts not just across investing but across our entire financial life and being frugal about how we handle our money is the key to wealth. And that's why I came up with that we all knew how much everybody was worth, and you saw somebody driving a BMW with a negative net worth you just laugh out loud.

Rick Ferri: I’II get it that's true, because was on their forehead. We don't get the chance to laugh of them. Great, yeah that's perfect, that's great. And you in fact, you followed up with that and another day, day fifty-two. You talked about want to hurt your happiness by a big house involving lots of upkeep, and a long commute. Yeah I think a lot of us have, are guilty of that. You know, as soon as you buy the big house you're now, you've got big bills to keep it up and it might be nice to show off for a while, but after a while people stop coming and you just have bigger bills. You had one more thing in here I want to talk about and that is something you wrote on day seventy, which talked about limiting yourself to one financial advisor, one mag, and one brokerage firm or mutual fund family. And I want to talk about that because it always comes up on the Bogleheads where people say oh I have three or four banks because I want to diversify. I have two or three different advisors because I want to diversify. I don't want to keep all my money at one particular firm, call it Vanguard or Schwab or TD or wherever. I want to diversify because what happens if one of those companies go under. You're actually saying no don't worry about that here.

So in terms of what I call naive diversification, multiple financial advisors, multiple banks,multiple mutual fund companies, multiple brokerage firms, yeah I don't see that there is much benefit to this, with one narrow exception. I mean I do appreciate that you know there is this FDIC limit of two hundred and fifty thousand, and if you have a ton of money in the bank in order to make sure that you're covered by that two hundred and fifty, you know you may need to use multiple banks.

But other than that, I mean why would you use two financial advisors. What you're going to end up probably is two portfolios that have massive amounts of overlap, for which you're paying excessive cost. You know you're not getting anything, any added value if you can't find one financial advisor who's doing the job. To you, you know you've got a big problem.

I'm simulator You go to a brokerage firm, you're getting diversification not from the brokerage firm but from the investments that you buy. If you have ten different ETs that's your diversification. The fact, though they're all held at one brokerage firm is of no import. It's not like the brokerage firm is, you know, gonna go under and suddenly all your assets are gone. I mean those assets are held by a separate custodian. You have no reason to worry about that.

Difficult ditto for using multiple mutual fund companies. I mean I don't see any point in that. You know you can have all your mutual funds at one company. Each fund is a separate company. Each of those investments is held by separate, by a, by the outside custodian. There should be no extra risk involved.

It's, it's true it is that way. But some people still have this belief that they need to be diversified amongst where they keep their money and I'm glad you wrote that in the book because just not true. I personally have all my money at Vanguard and I don't have any reason to put it anywhere else. Even if I wanted to buy an exchange-traded fund that was traded by iShares I could buy it through Vanguard, so I don't need to have multiple custodians. Now if somebody has a 401k of course they have to have the money in that 401k, but once they retire they can roll that into an IRA account at the one custodian that they choose, and I'm not saying Vanguard's the place. It could be Schwab, it could be wherever, but why complicate it. Why have a number ofaccounts at a number of custodians. That not only does it make it complicated for you the investor, but if you should happen to pass away it becomes ten times more complicated for the person who has to pick all this up.

Jonathan Clements: Yeah. No absolutely. I mean I do as you do Rick, I have all of my investment dollars, thank God, and in fact this may surprise people, I don't own any ETs, I just purely mutual funds. And the goal is simplicity here. You know when I pass away, you know my kids should be able to settle my, my estate in a couple hours.

Rick Ferri: Yeah I think that that's the whole idea of simplicity is the next phase of what's going on with financial writers. I mean know personally, me, I'm-- I just launched a binder website, Core Four Investing, and it's all about being simple and simplicity. And so I think that the next phase, at least baby boomers like me need to make things much more simple, need to make their portfolio simple, or need to make their estate simpler. Need to, need not to have five different IRA rollover accounts. You know if you're not going to go back to work put them all together into one. There's no reason to have five anymore. And if you have 401ks all over the place from different jobs, you don't need that, bring them all together into one IRA.,make it simple. So I think simplicity and how we manage our money is important and not just for us, but for the future generations.

Jonathan Clements: And I would just add the corollary to that, which is that Wall Street battles this notion fiercely.They want investors to believe that there is some correlation between sophistication, complexity, and investment returns and this simply isn't the case. I know so many high net worth individuals who end up in complicated investment products because they think they're getting something special and they are. What they're getting is a complicated investment product. There's an excuse for charging high fees.If you want to be truly sophisticated you should have a simple portfolio.

Rick Ferri: Very well put. Let's get back to one more item before I come to questions by the Bogleheads forum, Yout talked about FIRE, financial independent and retire early. This is getting to be quite a phenomenon especially among Millennials and first of all, could you elaborate a little bit more on what FIRE is, and then talk more about your viewpoint of these different facets of FIRE.

Jonathan Clelments: So the financial independence retire early movement is really about the extremely frugal early in your career, quickly buying yourself some financial freedom, so that, you know, you can potentially retire at a roughly early age. Now, you know, let's unpack that a little bit. When we talk about retirement it's really not about retiring in the sense of, you know, you're going to go and live in Florida and spend your, all your days doing nothing. It's really about buying yourself the freedom suspend your doing what you love most. You know for many people this idea of being frugal, buying yourself financial freedom quickly and then you know using that freedom to spend your days doing what you love. Then Lucia has been around for many decades. I mean actually drove a lot of my financial behavior. I was a prodigious saver when I was in my 20s and 30s and that's what allows me today not to worry about earning a paycheck. What the financial independence retire early movement, the FIRE movement has done is its conceptualized in a single word, FIRE, and it became a rallying cry for a certain group of devotees. But ,you know it's, it's not that different for anything that we've known before. It's simply that it has coalesced around this one phrase and it has become something of a movement. I think it's to be applauded. I mean in a country where far too many people save way too little, the idea that you're celebrating people who are being smart about their money and saving diligently. What's wrong with that. Not a thing. And purling that there are big companies out there are being formed and have been around now for a while, companies like Betterment, where they're teaching young people right from the beginning, use low-cost index funds, don't try to beat the market, just put a simple portfolio together of low-cost index funds. They're granted, the using ETFs because their their custody in the assets at a brokerage firm but I always applauded companies like Wealthfront and Betterment and other robo- advisors because they're teaching young people right from the beginning and don't bother trying to beat the market, just have a consistent investment strategy, a consistent saving strategy, just put the money away. It's all part of the same movement and I think it's all very good.

Rick Ferri: Yeah, I think anything that focuses on holding down costs, whether it's you know the costs and your day-to-day living, the costs in your investment portfolio, the cost of your insurance, the cost to put together your estate plan, as long as you're being smart in the choices you make. What's wrong with that. You know the less money that goes to these, you know financial service providers, the small money that ends up in your pocket.In the last part of the interview today I'm going to go to the Bogleheads forum. I asked the Bogleheads on bogleheads.org to come up with some questions for you and a lot of people had a lot of great comments for you, saying how they followed you for years and it gave you a lot of kudos, but there were a few questions so I'm going to go through a few of those questions now and, you know, sort of wrap them off one, two, three, four. So here was the first question and this was by Rosemary11. She asked you; actually she asked you three questions. so I'll - one, two, three and then you can put them all together if you'd like.

I am in retirement. What is an acceptable asset allocation in retirement? So that was her first question, what is an acceptable asset allocation of retirement. Her second one was, What international allocation? I think she's talking about stocks as a percentage of the asset allocation, and thirdly, What is the safe withdrawal rate in a retirement. So some three broad general questions and one, two, three. if you can hit them.

Jonathan Clements: So in terms of the right asset allocation that's got to vary for one person to the next. You know much depends on how much of your expenses are going to be covered by Social Security. It's going to depend on whether you have a traditional cut employer pension. It also might depend on whether you have anything else that's generating income, for instance for rental real estate. You know there's a rule of thumb. You know 50 to 60 percent in stocks is probably a reasonable target. Whether I would say a sort of upper limit on that is you should know exactly where you're gonna get your next five years of portfolio withdrawals from and that money at a minimum should be invested in something conservative: CDs short-term bonds a high-yield savings accounts, some something like that.

So to get your third question, Rick, you know if you're using the 4% withdrawal rate, which I think is a fine number, at a bare minimum you should have at least 20% of your portfolio in cash or near cash investments so that you can cover those next five years of portfolio withdrawals, Now that suggested potentially you could at 80 percent in stock. I think that's way too much I would probably go for 50 or 60 percent in stocks at a minimum you want that 20 percent or 5 years of four percent withdrawal rates stacked in cash or cash like investments so that you're covered in case the market goes down steeply.

In terms of the second question about international allocation on a stock portfolio, my view on this is shifted over the years and personally I now had a market weighted portfolio when it comes to stocks, which means actually that I have half my money in US stocks and half of my money in foreign stocks. And I done that for one simple reason which is Who am I to think that I know better than all other investors. Collectively, all other investors worldwide collectively believe that half a global stock market value is in the US and half is outside the US. Shouldn't I, as a hardcore indexer replicate that.

Those percentages the can be add and that is of course you know you are introducing a fair amount of currency risk into a portfolio. If you're uncomfortable with that the grip currency risk I would say either hold less in international stocks or potentially seek out a fund that hedges its currency exposure but as things then I'm not sure of a fund that would give you low-cost foreign stock exposure with a currency hedge.

Rick Ferri: Well thank you Jonathan, that was a good answer. Let me go to another question which is something to do with what you just talked about so we can hit this one - this is from CW radio, who asks as a safety-first investor that is in retirement. What investment should I put my safe money in and I think you already touched on this with the 20%, but I think he looking for SPIA, which is a single premium insurance annuity, a bond ladder, TIPSs, and so forth. He's asking if these are also acceptable places to put safe money.

Jonathan Clements: I think all of those are acceptable places to put safe money. If you're gonna buy an immediate annuity I would buy from more than one insurance company and I would buy from insurance companies with a high rating for financial strength. An immediate fixed annuity is a great way to hedge longevity risk and ensure that you have a stable stream of monthly income you just don't want to get it derailed because you buy from a single shaky insurance company, and the insurance company goes goes under.

In terms of the bond portfolio I've always stated you're taking risk on the stock side of a folio and playing it safe with bonds. In my own portfolio I own pretty much a sort of 50/50 splits the bond portfolio between inflation index Treasury bonds and high quality short term corporates, but you know if you want to go for added, you know safety, you might add in a mix of high quality short term Treasuries as well,rather than taking the credit risk that comes even with high quality corporates.

Rick Ferri: This is from a poster by the name of beanie. Says, Jonathan Clements used to recommend putting fifteen to twenty percent of one's stock allocation in diversifiers such as merger- arbitrage funds, commodity funds, gold funds and REITs. I haven't seen him talking about this in a long time,maybe ten years or more. Have his views changed, if so why.

Jonathan Clements: So I never recommended as much as 20%. I do remember writing a column for The Wall Street Journal when people were all hot and bothered about alternative investments and this was a question I was getting a lot and I did indeed say that, you know if you really want alternatives exposure in your portfolio I could see allocating 10% of a portfolio in no more than two alternative investments, and in terms of alternative investments it was the list that you recommended, real estate investment trust, gold stocks, commodity funds, and precious metals funds. I mean, I still think that you know, that's a reasonable allocation. I have to say dope if you like merger- arbitrage funds because they involved active management and I have soured on commodities funds as those become more actually traded. It's gone from being a market where companies and farmers hedge to being a market dominated by investors. The historic impressive returns from the commodity indexes hasn't been replicated and in all like it will not be replicated so I'm not that crazy about commodities. Tons you know I still have a soft spot for gold stock funds and I still have a soft spot for real estate investment trusts but I probably wouldn't put more than a couple percent of a portfolio in each.

Rick Ferri: Well what if nobody did any of that and just bought the three fund portfolio. I think three fund portfolio is a great portfolio to own.

Jonathan Clements: I'm you and I have had this discussion. Rick you know people tend to mess around way too much with their portfolios.I think I've done too much of that myself over the years. If you simply buy the three fund portfolio: total US market, total international and total bond, I think that that's a great mix.

I mean you may even want to consider the two fund portfolio. You know you can now go to Vanguard and buy the total world index fund, add the total bond market fund onto that and you could have an incredibly diversified portfolio with an asset allocation of your choice with just two mutual funds. Incredible. It wasn't that way years ago though things have gotten so much better in indexing space where you can really reduce the number of holdings that you need nowadays to be diversified globally. It's really gotten a lot better and the fees have come down so much. I mean that total world index fund I believe has something in the range of 8,000 stocks in that fund. You know for a three thousand dollar investment, or you can buy the ETF and invest even less. You can buy a portfolio with eight thousand different stocks in it. Think about that. I mean that is a da
machine. Today the everyday investor with ten or twenty thousand dollars in debt can build a portfolio that many institutional investors two decades ago would have died to have. It would be lower cost and better diversified. It's astonishing what ordinary investors can do with their money today, really astonishing.

Rick Ferri: So the last question has to do with buying happiness. This is from tom10 and I'm gonna just paraphrase what he's saying. You've always talked about, and one of the things that make you unique, is the spending side of happiness. If spending
actually makes people happy. So he was wondering about your thoughts on spending. No, we talked an awful lot about investing and saving, but he wants to know specifically your thoughts about spending and how to spend correctly to make you happier.

Jonathan Clements: As I've written in numerous places I believe that money can buy happiness in three ways. First you know money can buy happiness simply by eliminating financial worries. I mean so many people in America pursue happiness of the shopping mall, rack up the credit cards and end up miserable because they leave themselves in a financially perilous state and whatever they managed to buy, them all is no solace when they wake in the middle of night worrying about what happened if they lose their job or how are they going to pay the credit card bill. So simply being smart about money, having little money in the bank, saving for the future, avoiding debt except for mortgage debt, that alone is gonna buy you substantial happiness. So that's the first way that money can buy happiness.

Second, you know money can buy happiness if you can reach the point where you can spend your days doing what you love. There is few things in life that bring greater happiness and working hard as something you care passionately about so if you can get yourself to that point, you know like the FIRE people talk about. Where you don't need a regular paycheck, or you need a much smaller paycheck and you can spend your days doing what you love, that is the second way that money can buy happiness.

But the third way and this is probably what the question is getting at is I believe thethird way that money can buy happiness is we can use it to create special times with friends and and family and there are a couple of different elements to this. I mean first you know we know that spending time with friends and family gives an enormous boost to happiness. A research suggests that that is indeed the case. In fact the research suggests that having a robust network of friends and family not only makes you happier but it also gives a boost to have to longevity equal in effect to not smoking. So having a robust network of families, there's nothing good for happiness but it's also good for your health.

So in terms of using money what you want to do is spend it not on material goods which are often enjoyed on your own, but on experiences. You know taking the family on vacation, organizing the family reunion, going out to dinner with friends, going to the theater with a colleague. Those experiences enjoyed with friends and family can give a big boost to happiness. But there's another element to this, which is if you really want to get a lot of happiness out of your spend on experiences with friends and family you should arrange these things far ahead of time so that you have a long period of eager anticipation that way. You'll get a lot more happiness out of dollars you're about to spend and you should make sure that you keep mementos to remind you of the event in question. When you go on vacation you should take photographs and then you should put them up around your house so that the months afterwards you can think, wow that was such a great trip, I had such a good time. And here every day when I walk to the living room is that photograph that reminds me of what a special time in my life that was. so that in terms of actually spending money would be my number one tip.

Rick Ferri: Well that's great. Jonathan I want to thank you so much. You've made us all very happy by being on our program today. Well good luck with the book and again the name of your new book is From Here to Financial Happiness: Enrich Your Life in Just 77 Days. Jonathan thank you so much for being our guest on Bogleheads on Investing

Jonathan Clements: Oh, thanks so much to Rick. It's been a pleasure talking to you.

Rick Ferri: This concludes the third episode of Bogleheads on Investing. I'm your host Rick Ferri. Join us each month to hear a new special guest. in the meantime visit bogleheads.org and the Bogleheads wiki, participate in the forum and help others find the forum. Thanks for listening.

[Music]
[Applause]
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Miriam2
Posts: 3479
Joined: Fri Nov 14, 2014 11:51 am

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Miriam2 »

Barry Barnitz wrote: Hi Sycamore:

Thanks! Feel free to edit the transcript, particularly if you can check it by audio verification. I do not have audio. I have corrected the transcript with your clarifying edits. Note that without audio, I have to guess transitions between speakers.

In general, we are operating not on a 100% accurate transcription, rather we tend to make minor emendations to improve readability. For example, removing audio mannerisms (such as a plethora of ahs, uhms, you knows, like) and make some grammar adjustments (plurals, verb agreement) when this clarifies a written text.

Once a transcript reasonably passes audio verification, we publish it on the Bogle Center site. We have a total of 19 raw transcripts. We have 7 completed transcripts, plus Larry Siegel provided us with a transcript of his podcast interview.
The fastest and most accurate way to prepare a transcript from a recording is to use a certified court reporter, especially one who is used to transcribing oral testimony and oral recordings into written transcripts in criminal court cases. Not that Rick Ferri does criminal cases :shock: but a criminal court reporter must be as accurate as possible in transcribing oral to writing, so they are very good. Some also use an electronic system for their first draft, then they fine tune the accuracy of the transcript by hand. Many will take on outside work. Won't be free, but it will be very accurate and fast.
sycamore
Posts: 2508
Joined: Tue May 08, 2018 12:06 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by sycamore »

Barry Barnitz wrote: Tue Mar 09, 2021 3:15 pm Here is a first pass transcript of Episode 003 with Jonathan Clements...
I listened all the way through and made various updates to the google doc.

Starting from the very beginning I made some corrections before noticing the "[ Previous text finalized. Edit check from this point onwards]" about three pages in. Oops, sorry about that! :) However, I feel pretty good about the corrections I made.

I removed numerous "You know" but there's still plenty of them left.

The following red elements have me stumped:

15:03 "Jonathan Clements: And I think one of the benefits of this is the tutor -- you go back twenty years..."

20:53 "Rick Ferri: No, not that but - not for that. I haven't heard that one yet but that's what the most ami, but it's not what I saw..."

44:02 "... If all other investors worldwide collectively believe that half a global stock market value is in the US and half is outside the US, shouldn't I, as a hardcore indexer, replicate those percentages the can be add and that is of course you know you are introducing a fair amount of currency risk into a portfolio."
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

The following transcription is extremely rough and difficult to parse without audio confirmation. Episode 002 with Dr. David Blitzer. Here is the google drive document with the rough transcription: Episode 002 with Dr. Blitzer.

.....................

Rick Ferri: Welcome everyone to the Bogleheads on Investing Podcast, Episode number two. In this episode we have a special guest, Dr. David Blitzer, managing director and chairman of the index committee at S&P/Dow Jones indices.

[Music]

Rick Ferri: My name is Rick Ferri and I'm the host of Bogleheads on Investing, a podcast made available by the John C. Bogle Center for Financial Literacy, a 501(c)(3) corporation.

In this episode we're talking with David Blitzer, managing director and chairman of the index committee at S&P/ Dow Jones indices, who has the overall responsibility for index security selection, as well as index analysis and management.

Before Dr. Blitzer became the chairman of the index committee, he was Standard & Poor's chief economist. Dr. Blitzer can discuss many things with us about the Dow Jones Industrial Average and the S&P, which he is the head of the committee. But there's one thing he cannot discuss. He cannot tell us which stocks they are going to be selecting next for those indexes, which are highly confidential until the day that they're announced.

However, today we are going to be talking a lot about the methodology behind the selection of various stocks that go in and out of the Dow Jones Industrial Average and the S&P 500, as well as many other indexes. In addition, we'll talk about how the world has changed because of indexing. It's no longer just a benchmark--it's now an investment strategy, and that has changed the entire indexing industry.

Finally, we'll talk about how active managers are having a very difficult time beating indexes, not only in the United States but globally, and how that is expanding the use of indexing and index products.

Let's get to our podcast.With no further ado let me introduce Dr. David Blitzer of S&P/ Dow Jones indices. Good morning Dr. Blitzer.

Dr. Blitzer: Good morning. You can call me David, and it's a pleasure to be here.

Rick Ferri: OK, Thank you David. Well you have a lot of responsibilities. How many indexes are you following at S&P/Dow Jones?

I guess

02:43 to two points that background

Dr. Blitzer: To start off we talk about something like a million indices produced on a daily basis, which sounds like an incredible amount, but one has to think about how indices sort of break down into other indices. If you think about the S&P 500, which is obviously a single index, but each company in the index is categorized into a sector, like technology, and industry group, and Industry and a sub industry. And for all those categories we create other indices as well. Plus we may have a version that's equally weighted instead of weighted by market value, and so on. So the single S&P 500 by itself begets probably close to 500 indices and that's how we get to this surprisingly high number of a million.

In terms of committees we actually have about forty-five committees organized by geography. By stocks versus bonds versus commodities and that kind of thing. In some cases we run indices in cooperation with an exchange. An example would be we run indices in Canada called S&P/TSX. TSX is Toronto Stock Exchange.There's a committee for just those Canadian indices, which has people from the Toronto Stock Exchange as well as people from S&P/Dow Jones sitting on it.

I directly chair probably about 15 of the committees and I sit on most of the other ones. So it sounds like a lot of responsibility, especially since some of their biggest indexes we know of such as the S&P 500 and the Dow Jones Industrial Average are included in those.

Rick Ferri: I have a question about that. It wasn't always S&P/Dow Jones Industrial Average.
When did it start to become S&P/Dow Jones industries, as opposed to S&P indices and a separate company called Dow Jones? It must have been some sort of a merger or acquisition along the way.

Dr. Blitzer: A merger or maybe one called a combination that was completed in the second half of 2012. I was a bit of history beyond it, or behind it. To go back a ways the Dow Jones was originally owned by Dow Jones & Company, which owns the Wall Street Journal. I won't get all the dates right, but around about 2005 or 2006, News Corp., which now owns the Wall Street Journal, acquired Dow Jones & Company. And following that, News Corp. looked around and they ended up selling it to the Chicago Mercantile Exchange, which people probably know because futures on indices are traded on the Chicago Mercantile Exchange, or the CME, who rolled forward a couple years.

And the CME out in Chicago found itself running a bunch of indexes. And New Jersey had a big interest in indices also, and that is the futures on the S&P 500 traded on the Chicago Mercantile Exchange where we sometimes called the Merc. And at the same time as Cynthia was there, interest was going to go on because of the Dow Jones Industrial Average, which we knew to be a widely followed major index. And there is all of a series of discussions and arrangements, as the two firms got together and really brought a lot of complementary strengths. There were certain ideas that people at Dow had done which we wish we had done. One of the first really successful eye indices based on dividends was done by Dow, and very successful. And we've done some, but not quite as successful as that.They looked at us and we had been much more successful with big institutional investors and the 500 than they had been with the Dow, and it just made sense to put everything together. It really took a lot of discussion and so forth but on November 1, 2012, New York City was virtually flooded by a storm called Superstorm Sandy. We started doing business as one company.

Rick Ferri: Now if I recall correctly, prior to S&P and Dow Jones doing a business combination, so that your committee, or one of your committees, took over the Dow Jones Industrial Average; it was the editors of The Wall Street Journal who were picking the 30 Dow Jones stocks. Do they still have involvement in that?

Dr. Blitzer: Uh yes they do. I don't know firsthand

07:31 his here do Dow Jones Industrial Average
07:34 before 2012 Robby's like because I come from the S&P half of the result but there
07:41 were it was involvement in from the editors of The Journal and recognizing that huge long history of the Dow. It is the oldest stock index currently in existence and still being used, and so on. And the input that the Journal provided for, you know, almost 120 years. At that point we thought it was important to keep some involvement with them and so we created a committee, or maybe you can say continued an existing committee, called the Averages Committee, which handles the Dow Jones Industrial Average, the Dow Transports, and then our Utilities. And that committee has five people on it.Three representing S&P/Dow Jones Indices and two from The Wall Street Journal.

And sitting on that committee and chairing it it's not only very welcome but very good to have two people from the Journal. They bring a slightly different perspective than we do in terms of how they see the economy and the markets, and developments in the news. They're both very sharp and it's worked out very well .And I think I'm very, very pleased to not just continue the role of the Wall Street Journal editorial group but really have two very good people on the committee.

I recall a conversation we had a couple of months ago when the committee decided to take out General Electric from the Dow Jones. Appeared that it was going to be a big shock that GE was coming out of the Dow Jones Industrial Average, but it turned out that it really wasn't a big shock. People quickly accepted that she was one of the original members of the Dow and originally in 1896 it had been in the first 15 - 20 years of the Dow. It was in and out a few times but are we from there only to the mid 1920s. GE was continuously a member of the Dow Jones Industrial Average up until this year. And given the history of the company and its history with the index and so on.This is not something one does lightly. Obviously we don't take any company out, or put any company in an index like the Dow lightly, but this one gets even more consideration. He is falling on some difficult times. Various people have various explanations and so on them.

Since I'm not an analyst on GE in particular, I leave any of those details aside. But it had fallen off in difficult times and I think it's, its weaknesses were widely recognized. And even though some people wanted to pay it in but as we looked at it in an index you only have 30 names because that's the rules. We really thought we shouldn't use the name on one stock that wasn't doing that well. A lot of people didn't think it was going to do that well, and given the way the Dow is calculated wasn't having any impact on the index at all.

So it was not a difference. We got down to talk about it.and it's interesting you say that it didn't have a big impact on the Dow because the Dow Jones is an unusual index. It is weighted by the price of the stock, which is that the larger the price the more influence or impact that a change would have on the index. And this, isn't this one of the reasons why companies that have very, very large prices and the thousands of dollars may not work well in the Dow Jones 30.

That's right. be the Dow you mentioned is unusual. The only other index my dog that's done that way is the Nikkei 225 in Japan, although I'm sure there are a couple of others that haven't come across and

11:33 when we look at stocks from the Dow we'd like the ratio between the highest my
11:38 stock in the horse my stock

to be not much more than ten to one. So GE, when it came out, was probably about 12 or 13 dollars a share. The highest price talking to doubt at that point was was around $200 or more and she didn't have much impact. That $200 stock would have had, you know, 8 to 10 times the impact of GE on the value of the index and it just didn't make sense to do that, so we replaced it with a slightly higher price stock that we felt was a better representation of what was going on in the economy and the markets. And I think you know after the initial excitement war also today or two we generally applauded and and I think people are more comfortable with the Dow the way it is now than the way it was when we still had GE. At the last page let's go over to the S&P 500.

Rick Ferri: I've been in the business about 30 years and I've seen some pretty large changes to the methodology by which the S&P 500 is calculated. I believe back in the 1990s there were a couple of changes concerning I was going from a full capitalization to float capitalization methodology. And then there was a change: what stocks are actually US stocks and what stocks are non US stocks.Could you talk about some of these big major changes that have occurred in the S&P over the last, say, 25 years?

Dr. Blitzer: Okay The background of people should recognize is what color the world changes, the economy changes, the way people use indices change. And so to run an index today the way it was when, let's say in 1982 and futures trading started, would be really pretty silly and it wouldn't work that well. And then a lot of changes since then--probably the biggest change is the amount of money that tracks the S&P 500--which means it's a lot more visible and changes, changing companies, makes a bigger difference and so on than it did 30 or 40 years ago. Or something like that.

The slight change, I think, was actually in the early 2000s. The idea being that, well first the S&P had always had a rule that for stock to be in the index, or when it was added to the index, at least half of the outstanding stock should be available to the public. Let me add a company where the insiders are the founders, whatever,owned 80% of it the stock. That was nice I'm sure. They were doing very well but it wouldn't be eligible for the 500.

But even with that rule there was concern that we had some stocks that were just not very liquid and might be difficult to trade, especially in the lure of a smaller stock into the index, and as trading and as actually traded funds became bigger and bigger, those became something of an issue for a lot of people. So what we did was we went to smoke where we go through once a year the proxy statements the companies file with the SEC. And we do our best to figure out what proportion of the stock is actually in the market, and what proportion is locked up in holdings by insiders, or holdings by another company. And holdings by another company would mean if both companies are in the index and we sort of double counting things like Berkshire owns big chunks of various different large companies in the index, or where the stock is wasn't available because the founding family wasn't going to sell because they did more know.

And so we made the adjustment to be what we call for adjusting. So my company had 80% of its stock in the index, we would count that 80% to be in the market and we count that 80% on the index and we take the total shares outstanding and multiply it by 0.8 and that would be the number of shares we use for index calculation. It was a fairly big change, although if you went took the list 500 stocks he just took an average of the percentage each company stocks or shares that was available in the index I came out about 93 percent or something ,so there were a handful of companies that was fairly big change, but the vast majority it was a talking about a few percentage points change in their value as measured in the index.

The domicile, we call domicile, which is do you know this is a US company, which sounds sort of silly and obvious to most people but it got more complicated in about 2007, 2008, 2009. Two things happened. First a lot of US companies started changing their incorporation to Switzerland, Ireland, various places in the Caribbean, Bermuda. They all wanted to avoid paying US taxes. Which is again in the news in the last eurozone. And then issue the index committee is the first two or three of these came along, said you know those violate the rules because index is supposed to be US companies. It's not supposed to be Swiss companies or Irish companies or whoever, and we started telling these companies now one by one. We then very quickly heard from a lot of investors, from individual investors who said “you know I've owned the company for 40 years and now you're telling me it's not what it used to be.” Some big institutional investors who a little more vocal than the original investors possibly. So we went around listening to people and talking to people. We hold an annual meeting called an advisory panel. We invite in a lot of major institutional investors and let them tell us what they like and don't like about our disease.

And out of that came a feeling that what a US company should be is slightly different than where did you incorporate. The two key things that investors tell us about is number one, how do you report your financial results. Do you report in to the SEC as a US company? Do you file a
10k and attend to that from an investor's point of view? If you don't do that then you're not US; and second of all where these are stock trade, and there it's pretty much New York Stock Exchange and Nasdaq. Those are the two major US exchanges that get mentioned.

And our rules now say if you do those two things and if you have at least a large portion of your assets, or your employees, or your activities in the United States you’re a US company. The last rule is there are huge Chinese companies that the only place they trade is New York and Nasdaq. They report on a 10k to the SEC. But all their business activities are in China and what we don't think the US companies.

Rick Ferri: It's interesting what you said about going out to investors large institutional investors and before you make a big change to the index you actually speak with the others in the industry and you speak with large investors in the S&P 500 and you get their input into changes that you're considering before you make them, as opposed to doing it in a vacuum. Do you do that when you're looking at potentially putting a new company in, taking a new company out? Do you get input on the industry?

Dr. Blitzer: Well yeah I think we could hear the rules and regulations have been changing a lot over the years and so we should be very careful with soup you know explaining what we do and don't do. When it comes to considering adding a company/ removing company and the S&P 500, pretty much the same thing is true for any index that those discussions are absolutely confidential, and very so confidential is the only people within the S&P/Dow Jones will committed to be involved with them or those of us who work specifically on the indices and for those of us the ones working directly in the indices we cannot do anything commercial. I can't quote a price. I can't negotiate a contract. That's completely off limits and so on. So bargain moving things like adding a stock to the S&P 500, those discussions, that research, that analysis, is restricted to a very small group of people. Essentially the one sitting on the index convening that covers the index and we all talk to anybody until we publish an announcement on our website and give it to the news media, which says the company is being added and such-and-such a date, or this company being removed. So those kind of discussions, the ones that are really market brewing, we keep them under wraps.

Our discussion is much more general. Things like how would you define what company is a US company, so those we will invite comments. What we do the vast majority of times is we'll publish a letter or paper on our website and explain what the issues are and ask people to send us their comments. In fact they can go on our website and fill out the information right there and at the same time if we know of investors, whether institution or individual, who will be in, have an opinion, or very interested, we want to make sure we hear from them and we will send them an email and say we just published a consultation on this matter and we would appreciate response.

So that we do. We can with that, but even with those if we're doing a consultation on a particular question we'll ask a lot of input from people, but we're not going to tell anybody what we're going to do until we tell this to be solved for everybody. So we're very concerned that crucial information, all investors have equal access, the same time, same information and so on. And it was trying with something that's kind of remarkable ring we're going to keep it to ourselves until we tell everybody at the same time.That's the way, that's the way we run what we feel is a fair and transparent index. Is it fair to say that if a very large company comes out of the index then you're trying to find an equally sized company or something close to it like you we've talked about with the Dow Jones Industrial Average twice as far as the S&P given a cap weighted index if a hundred billion dollar cap weighted company comes out are you looking for something close to that to put in. I'm not sure they're too many hundred billion dollar companies forward around
23:14 there but not in an index actually but
23:16 he is in for the 500 there much of there
23:22 are series of rules. One we mentioned already has the US company its market value should be currently, I believe the minimum is a point eight billion dollars. At a minimum, at the time it goes in, it should be profitable, meaning by on GAAP earnings you should have made money over the last year. And that's just unusual role in the next he should be liquid and it's not liquid somebody have a hard time trading the stock on. So there's a public and a company we choose should comply and does comply with those rules and so on and all that published and I think all the US indices methodology is up on our website. Some people may tell you it's a great cure for insomnia but other people say it's actually worthwhile reading.

Rick Ferri: All right, thank you. Let's get into some big changes that have taken place in industry classifications have occurred over the last couple of years and you could probably start out with an overview of the global industry classification system dicks or standards is it, and B and what that is and then how does that all work into the S&P and and what you're doing and it's a global change, it's very large changes that have taken place. Can we talk about that?

Dr. Blitzer: GIC is the Global Industry Classification standard. It's the system for classifying companies into a sector. For example, would be technology or health care an industry group and then within that, within an industry group there'll be one or more industries, and within the industry there'll be one or more sub industries. So that at the very bottom there are around 160 sub industries, which is a pretty detailed statement as to what a company does. And classification is done potentially by looking at where the company gets its revenues. We also will look at earnings, and at times we'll look at the way the market perceives a company, and that the market sometimes sees the company is doing one thing even though it does something else. That's a little bigger GICs is an effort that maintain run jointly by S&P/ Dow Jones indices and MSCI. We've been running it together since it was created in about 1999, and on a global basis. I don't remember the exact numbers but essentially any publicly held company anywhere in the world but an investor is likely to even look at how the Kix classification secretary and issue group industry some industry somebody sort of wonders why why do you do this well the way investors think about markets and what moves markets is they like to have an idea which ones are going up and which ones are going down because it's very rare than anything everything moves together. So somebody will say the S&P 500 was up 3% last week, it was led by the technology stocks and healthcare but consumer discretionary lagged or something of that. Those are all names of the major sectors and people will then tell you what portion of the 3% was contributed by each sector so I'm going down so to reduce the 3% other ones pushed it up.

They'll look over a period of time, what's been growing fast all that kind of thing. So this year people have talked about technology stocks leading the way and so on. And the way they decide whether that's not true or not, is a look at the S&P 500 and then look at how the technology sector within it has done, and in fact we calculate the S&P 500, we calculate the technology sector is its own index and you break it up into a couple of industry groups and and industries. We calculate indices for all those as well, so you can take that data and you can see exactly what went up and what went down on the market by how much. What was pushing the market one way the other. You can look at things change over time. Did certain areas react a lot positively and negatively to changes in government policy. Just about anything. It's really the way to take the stock market and sort of peel back all the layers and understand what's going on.

Rick Ferri: So some of the major changes that you had, have occurred in the last couple of years. Real estate investment trusts or real estate was part of the financial services sector. You broke that out now and made it on its own industry group, which would include real estate investment trusts or equity. so you saw that as a significant enough part of the market now to give it its own industry classification.

Dr. Blitzer: That's right. When Nick started back in ‘99, other than a handful of real estate investment trusts, there wasn't much real estate. That's not money to begin with, and we just tucked it under financial, figured well, all that matters is what the mortgage REITs look like, so let's stick it there. Coming out of the financial crisis in 2008 -2009, well first of all everybody knew where real estate was because it had had a role in the financial crisis. But second of all, as interest rates came down and investors started looking for income, real estate and particularly REITs, became an intriguing thing. The way we reach destruction they tend to pay very, very high dividends relative to their size. They were getting one understood and indeed the that sectorwas growing, so we looked at that and we said real estate is increasingly important and maybe it should really be its own sector. Instead of ten sectors we ended up having 11 sectors.

In the process of doing that, we did do a lot of surveys, and talked to a lot of people, institutional investors, individual investors, some brokerage firms, some brokerage firms that really focus and specialized in real estate and REITs in particular. And out of that we, and in this case it's both S&P/ Dow Jones and MSCI working together, felt that real estate deserved to get a little more prominence and we sort of pulled it out from being buried in finance.

The other thing is that maybe back in 1999 real estate and financials sort of behave the same way. By the time you roll forward to the last few years they weren't behaving the same way at all, and putting them in the same sector when one would go up when one would go down one really helping anybody was trying to understand what was happening. If anything it was just muddying the waters, so we split it out.

Big change occurred here last month with telecoms and technology turning into now technology and communications. And it was a very big because now companies like Facebook, Walt Disney
30:45
alphabet which is Google. I mean some very big companies that we investors have always said well if I want to get exposure to those, into those companies, all I have to do is buy a technology index fund. That has not changed. If I wanted to buy off an industry-specific index fund to get exposure to Facebook or to Google I now need to buy something called communication services because it's not being looked at as a technology company anymore.

That's true and I guess there's the background is maybe more detailed but I think more interesting than then in the, in the real estate story first thing to say is for the S&P 500 telecom
I got down to three companies, number three wasn't very big either. So something really oughta change but in fact we had been discussing this and looking at this for three or four years going, and as we looked at it we realized that the whole span of what is technology what is communications, what's telecommunication, was undergoing a whole lot of rapid change. Give you a sense, Iphones about ten and a half years old.Eleven years ago nobody had an iPhone.It didn't exist. Nobody had a smartphone because the iPhone was essentially the first.smartphone. To go back even a few more years, certainly the beginning of the century, but probably well in the first decade, if your company had a website that was pretty high technology. Nowadays nobody will admit they did not haven't had a website forever. And how did people communicate 10-15 years ago. it was a telephone like the one we're talking on.

Our email was sort of a rarefied thing. You had to be in a university and in, you know 1995, to have email, it just didn't exist. Nobody texts anybody because nobody quite knew what that was and probably a few people still remember telegrams. So he world has really changed a whole lot.

32:52 Well I relate telegrams so water may I
32:56 watch that one or something but anyhow
32:59 Yeah we don't want to get ourselves too much as we started looking at this and we said all right, what are all these things doing and they're doing communications. Some of its sort of back and forth two-way communications. What we're doing right now some of its broadcast communications and part of communications is movies television streaming streaming anything and everything hot. Unlike in entertainment or vertically long entertainment all of that is part of communications. And on top of that companies are jumping from one part to another part to another part 18c and Verizon, one of them owns a chunk of Time Warner, the other one on Yahoo and so on. So this is all change for most people. Communicating today means reading about their cousins on Facebook or sending texts on whatsapp or on and on, and on, so it's all changed. But it's all blending into each other in terms of the way the company is operating and on that basis not only did we realize telecommunications the old definition didn't make any sense, but we really had to understand what the news nation looked like. Facebook is very much the way people communicate. And it's not to say anything improper or unkind about their technology but the real business is advertising and helping people communicate and Google is very much the same way, very real business is advertising in search advertising is the kind of communications so that's the reason for the change. Yes I admit that a few companies used in love and technology you have to look a little bit farther to find them, but I think if you asked them I looked at their financial statement you discovered they'd been in communications for the last few years and that longer.

Rick Ferri: Getting back to indexes in general. Back when I entered the business indexes like the S&P 500 were not used as a way of investing, or as a portfolio.There was one index fund from Vanguard that was out there, and which I know you probably have an interesting story about. And I'd like you to share with us if you could.

This has become a big, big business-- indexing for the purpose of investing as opposed to indexing for the purpose of benchmarking, or indexing for the purpose of economic measurement. With the advent of indexing for the purpose of investing, if it goes into a product, that has significantly changed not only your business but also the whole indexing business for all the different index providers. And could you talk about the business a little bit and how, how things have changed because indexing is now a product for investing in as opposed to just a benchmark or economic measurement.

Dr. Blitzer: Okay what indices actually started, they probably started as advertisements. I mean the best I can tell from reading the history, Dow Jones started the Industrials because they wanted to get people to buy their newspaper. And it was a feature of the newspaper to have a number that would tell you what happened in the stock market yesterday. The S&P 500 started in 1926 as something called the S&P 90. Standard and Poors, in those days there were two companies called Standard Statistics, and they were financial publishers. They published newsletters about how to invest, and that's why they started an index as well.

The first individual investor product based on indices was Vanguard’s, and you mentioned that you've interviewed Jack Bogle also. He can tell you much better than I can. First hand he'll probably tell you that they didn't have much money at the end of the first year. And everybody told him he was unamerican because they were just going be average and so on. We've got hoards of data that proves that the indices, in most quarters, in most years, outperform three fifths to two thirds of three fifths of all the active managers out there. So if being average is beating three out of five people I'll be satisfied being average.

But in terms of the business and I usually say as in people I 100 was present at the creation. It was the first index in a retail mutual fund with Vanguard. It was not the first index to have stock exchange index futures traded on it, was the first one that was successful and lasted running lengths of time with the futures at the Chicago Mercantile Exchange. It was the first index in the United States with an exchange-traded fund with the big Spyder, in about 1993, and it's very much still here ,and by most measurements it's the biggest index period. So it really has been present at the creation. It in the process, it did turn indexing into a business.

I joined us in fee, it's by dumb luck, about six weeks after futures trading in the 500 started, which also was the first year that instead of being a cost center everybody thought might actually be a profit center and indeed it's become that over time and the growth has been very strong and very nice and I think it still has a great future ahead of it. And we go through sort of different steps, and so on, quickly. At the same time the number of indices have increased the variety of indices, which really means the variety of tools from investors has grown dramatically. I think I mentioned earlier indices designed to provide dividend income which are very popular with investors. Indices to target segments of the market. You know we talked about technology stocks and so on, indices that focused on growth stocks or value stocks. Or it goes on and on so increasingly any investment strategy that somebody can think up and write down as a set of rules or set of steps, somebody else to build an index for, and provide it to many investors whose internship it makes a little complicated because now you have to write a differentiate between traditional indexes, or indexes as benchmarks and indexes as strategies investment strategies where any you know a set of rules would is all you need to create what's called an index. And including in that rules is how you weight securities, which it doesn't have to be cap weighted, it can be weighted any number of different ways as long as it follows some sort of a strategy. So it gets a little bit confusing for investors.

And we're trying to come up with a differentiation between Jack Bogle likes to call them traditional indexes. I like to call them benchmark indexes versus strategy indexes, and there's a lot of talk about how to differentiate the two. Do you have a differentiating term that they, that you use for that?

We probably don't have a term that has been widely accepted or something like that to you know break one set one one group off for another or something and inside. They get inside it gets to be too much jargon. People call mine FMC that means quote market cap which is what you call a benchmark index but if we wrote that and all the publications everybody to scratch the head. So we don't madhva Gris. There's a huge number of different indices out there and there are different building blocks in different ways. The two things this remember sort of as the basis is you've got to do two things in building a stock index. You have a way to select the stocks, you have to have a way to weight the stocks, and if you sort of stick with those looking for those two things and invest you should be able to get a sense of what's going on. You know if the selection talks about a certain industry or fair stock that has continuously paid dividends for the last 25 years. That tells you something about what kind of stocks people are looking for. And then if they look at the weighting rule they can also have some idea of what's going on.

It's a little more subtle maybe, but if you start by saying the market is market cap weighted, that's the way the market is you know it's well stocks out there together, Apple, Google ,Facebook , they're big ones, they have carry more weight in the market than some stock that by size by order number 400 down the list or number 2,000 down the list or something like that, as soon as I change that I get different results from from the market weighting if I make it equal weighting. Which is sort of easy to see: the little stocks can get more weight and the big stocks can get less weight and that'll change the results. If you want to see the impact ,we run the S&P 500 both ways. If I weigh them by the dividends they pay, I'm going to get a lot more weight, a lot more bang for the big dividend stocks and so on. It gets a lot more complicated as I go down the list, but I think you stick to weighting and selection and you'll have some idea what's going on in the market. And I should add nobody knows everything that's going on in the market so don't, don't go down that trail.l You'll never get to the end. They don't, oh that's not what they say on television. I know, but given how long I've been doing this, you've been doing this, Rick, I don't I'll let you but I learned nobody knows everything in the market, and I like indices because I'm not a great friend of picking the one stock that will go up.This year you know getting getting back on the way in which indexes are created with the selection on one side and the weighting on the other .

Rick Ferri: I don't know if you recall about ten or twelve years ago I created this thing called an index strategy box which showed the the three different basic, different buckets for selecting securities which are basically covering the market, and then screening the market; and then a quantitative method where you pick just a few stocks as a selection methodology and then on the bottom I had capitalization weighted, fundamental weighted, and then fixed weighted, and all the different indexes that were being created sort of fell into one of these boxes very nicely. It never took off but you know it's the same exact. I'm glad to hear it the same thing that you're saying now is. It really hasn't changed very much.

Dr. Blitzer: Okay yeah I remember it in general. I won't, I once I remember every box in detail got it so indexing though in the US has really seems to be the leader. You know we here in the United States have invested on now embracing indexing and I personally believe a lot of that has to do with exchange-traded funds and the ability of ETFs to reach a much broader, wider audience in the brokerage industry and in other places. But indexing, and in core type indexing portfolios which seem to be getting them the most money have really grown in the United States.

Rick Ferri: But overseas where they seem to be in some places twenty years behind the US, but they're getting there. Did you see that growth just continuing?

Dr. Blitzer: I do think the growth will continue, but I think there are some countries which you might to have an equity mentality or an equity mindset, and other ones that have much lesser than equity mindset. Certainly we do business in Canada. We do business in Australia. In both cases with the major stock exchange in each country, they are as focused on equities as the United States is.There their attention, their sophistication, their analysis, is comparable to the US and, and so on. And the UK also has a big equity mentality and so on. One of our competitors owns sort of kingpin indexing in Great Britain. We don't but we definitely are active there. But there are other countries, maybe Germany's one, that stand out. That traditionally investors invested through banks. They held a lot more fixed income or a lot more structured products. Very kind then they held equities and invested directly in stocks the way Americans traditionally do and as a result the whole pick up in ETFs and exchange-traded funds is probably a little bit slower. Hong Kong has a very active market. China has two major stock markets.

46:19 the volatility occasionally where is
46:21 everybody so no matter where they are

46:23 but there's certainly plenty of equity expansion and ETF growth in a lot of places around the world, and it seems to be universally around the world as well when you're measuring the performance of S&P/Dow Jones Indexes to active management that's a fairly universal around the world that you get this three out of five managers underperform. Your SPIVA has really grown. This SPIVA is looking at the performance between active and and your indexes and you've been doing that for now I think for 20 years. You alluded to it a little earlier. But that's also expanded. Now you're doing more and more countries and you're looking at this phenomena occurring across more countries. And did you think that might help to increase the indexes .

Yeah I think it happened when we introduced people which was an acronym for S&P index versus active. It was really to try and establish a benchmark to compare I could managers to our indices and so on. We did it in the way that we felt was fair and so on, and it's been very well received. I think the surprising part was we really thought this strictly for individual investors who didn't have access to reams of fancy institutional research. A few is in we suddenly discovered a lot of pension funds from municipalities, the police department here, and the fire department there. Their trustees were calling up and saying send me the latest SPIVA report.They were sitting down at their quarterly meeting and you know looking at managers they had hired and say why can't you do this well and so on. So it's what we throw was a low key thing for the average guy that suddenly turned out to have a lot more impact than we expected.

But I think it's good reliable data.The indices don't win every time but they do it more often than not and I guess it's playing the average user come out ahead a good business to be in we like it website.

Rick Ferri: I want to thank you so much for your time today David, and we really appreciate the call because the Bogleheads on Investing Podcast and today my special guest Dr. David Blitzer of S&P/Dow Jones Indices.Thank you David for being with us today.

Dr. Blitzer: Thank you.

Rick Ferri: This concludes the second episode of Bogleheads on Investing .
I'm your host, Rick Ferri. Join us each month to hear a new special guest. In the meantime visit Bogleheads org and the Bogleheads wiki, participate in the forum, and help others find the forum. Thanks for listening.

[Music]

[Applause]

[Music]
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi all:

Progress report: Thanks to Sycamore and Neurosphere, we have managed to finalize and publish two podcast transcripts:
We now have nine of the nineteen available transcripts finalized and published. See our Podcast volunteer transcriptors worksheet for our current status.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
sycamore
Posts: 2508
Joined: Tue May 08, 2018 12:06 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by sycamore »

Barry Barnitz wrote: Mon Mar 08, 2021 10:36 pm Hi Sycamore:

Thanks! Feel free to edit the transcript, particularly if you can check it by audio verification. I do not have audio. I have corrected the transcript with your clarifying edits. Note that without audio, I have to guess transitions between speakers.

In general, we are operating not on a 100% accurate transcription, rather we tend to make minor emendations to improve readability. For example, removing audio mannerisms (such as a plethora of ahs, uhms, you knows, like) and make some grammar adjustments (plurals, verb agreement) when this clarifies a written text.

Once a transcript reasonably passes audio verification, we publish it on the Bogle Center site. We have a total of 19 raw transcripts. We have 7 completed transcripts, plus Larry Siegel provided us with a transcript of his podcast interview.

Here is a worksheet: Podcast volunteer transcriptors worksheet showing progress to date.



--Barry
FYI, I've been listening to whole episode. Made corrections up through 36:22, will finish the rest later.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi all:

We have completed and published the transcript for Episode 06 with Dan Egan. Here is the link to the transcript: regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

The following is a first draft transcription of Episode 018 with Paul Merriman. The transcription needs to be verified by checking the audio. The raw text in the late 50 minutes is difficult to parse.

Here is the link to the google doc draft: Bogleheads 018 transcript- Paul Merriman

Transcript

[Music]

Rick Ferri: Welcome to Bogleheads on Investing, episode number 18. Today I have a special guest, Paul Merriman. Paul is an author, speaker, philanthropist, a fifty year veteran of the investment industry, and a former guest on Louis Rukeyer's Wall Street Week.

[Music]

My name is Rick Ferri, and I'm the host of Bogleheads on Investing. This episode, as with all episodes, is brought to you by the John C Bogle Center for Financial Literacy, a 501(c)(3) corporation.Today my guest is Paul Merriman. Paul is a Renaissance man. He started out
in the investment industry in the 1960s as a broker, right out of college. He has run manufacturing plants, he has been successful in his own investment management firm, and now he's a successful philanthropist and educator, particularly interested in educating young people. With no further ado let me introduce Paul Merriman. Welcome to Bogleheads on Investing Paul.

Paul Merriman: Well it's great to be with you Rick. I mean that. I've been waiting years to have a chance to talk to the Bogleheads.

Rick Ferri: When I told the Bogleheads on the Bogleheads forum that you were going to be my next guest, it immediately lit up and I got all kinds of questions. For, you know, most of them, investment questions of course, strategy questions. Before we get to that, can you tell us something about yourself.. Who is Paul Merriman?

Paul Merriman: Well Rick, I'm a very old man who started working when he was very young and could never stop working; and it rarely had to do with money, although if you do good work for people you do okay financially, I think. And so I had the good fortune at age 40 to be able to do what those FIRE people are working to do, and that is to retire at a young age. But retire certainly didn't mean to quit working.

What it really meant was instead of educating and then managing money I could just spend all that time educating. I was in the investment advisory business for 30 years.

[Music]

During the week when the market was open and markets were going up and down it was always uncomfortable. I was always, had a certain amount of anxiety because what that market did was going to impact the people I was working for, and on weekends I felt so at ease with the world. And then I retired in 2012 and started my foundation and started to educate and write and do videos and podcasts and I never had that same sense of responsibility. So I have a good time seven days a week now. It's better than two days.

Rick Ferri: So you are all about education.

Paul Merriman: Now I am dedicated to helping investors young and old. I go from high school all the way up to retired people. Figure out how to do better with their investments.

Rick Ferri: Well Paul you and I have a similar background in many ways. You actually worked as a broker for a major Wall Street firm back in the 1960s. Can you tell us about that experience and how that shaped you for what you did later on.

Paul Merriman: Well I I did start young. In fact I started in the industry at a time when they first started hiring young people. Before then they wanted people to be in their late ‘20s or their ‘30s, but they were hiring college graduates and training them at the New York Institute of Finance. I don't know if you went there Rick but it was a sales course.

Rick Ferri: I know. I went through the broker boot camp at Kidder Peabody actually.

Paul Merriman: Oh yeah, when Harris Upham, which became part of Smith Barney, and I learned quickly that the conflicts of interest in that industry are so great that I just could not live with those conflicts of interest. And so I was a broker for less than three years and went to do other things because I really couldn't live with what they were asking me to do; and I was working for a great firm in many ways, but I still didn't like that conflict of interest.

And many years later when I'm 40 I have a chance to get back into it.So, but I love the business, I love helping people, and it's just nice to be able to recommend a no-load mutual fund instead of a mutual fund that charges eight and a half percent. It's nice to be able to recommend an index fund instead of an actively managed fund. You know those kind of things weren't around in the mid-60s. The index fund and no-load funds like we have today-- whole different world.

Rick Ferri: Absolutely, completely agree. That was just getting started when I went into the industry. It, so it has been a real benefit and things have really changed quite a bit. Um we can talk about how the industry has changed so much during, well, the... the 50 years that you've been in it, if you will.

But you actually left the finance industry and you went into manufacturing and you became the President and the Chairman of a manufacturing company up in the Pacific Northwest. I mean could you tell us a little bit about that experience.

Paul Merriman: Well it really wasn't about manufacturing for me. I had guided some people to invest in a company I was-- I did not have much money--but enough that I felt responsible for them. And the company was going to go bankrupt and I knew nothing about manufacturing, but I had a good relationship with some people in the brokerage industry, so the company invited me. I offered to do it without any compensation.

Rick Ferri: Paul, that almost sounds like a Warren Buffett story in many ways. You had guided investors to this particular company that was going bankrupt and then you stepped in.

Paul Merriman: Well I would hesitate to compare the size of this company with a story about Warren Buffett. But in a way, yes. I mean these people were-- many of them were friends--and as it turned out the man who was running the company before I run it did not have a trusting relationship with the bank. And the reason I got in was because a friend of mine from a bank said, “This is a guy you can trust. He doesn't know anything about manufacturing but I think he'll tell you the truth.”

So I went to the people on the floor of the manufacturing company. They knew the solutions I didn't. I didn't have much choice but to listen to them and keep the creditors at bay long enough to solve the problem and keep them out of bankruptcy. And we did, and it was a very rewarding, not financially necessarily, but it was a great experience for me. It made me realize I don't want to run a manufacturing company.

So, but I also, by the way Rick, I had a jewelry making equipment and lapidary equipment supply house at one point in my career. I did a lot of the things before I was 40 and actually found a 30-year career that was absolutely the most fun I've ever had.

Rick Ferri: Well once we went into the investment industry back in 1983 I'm, I mean back then there was maybe one index fund available, but as you were saying they had the no-load fund started coming out. T. Rowe Price and a few other companies were available in no-load. So what was your strategy back then and then how did it change over the years.

Paul Merriman: Well you of course know that in 1983 we had just been through about them with 17 years of markets that went up and back down and up and back down and up and it kind of went nowhere for a long period of time and investors hadn't made much money if any because they had been whipsawed and been disappointed and concluded “I'll never invest in the market again.”

That kind of thing that turns buy and holder's into something other than a buy and holder and I happen to know something about market timing and I thought, “Well wait a minute, if somebody could help these people navigate these ups and downs in the market, maybe they could stay the course, maybe they would have the trust to wait out the declines, knowing that they wouldn't get out at the top and they wouldn't get in right at the bottom, but if they could get the majority of the move that would be a value to them and they might actually have a good long-term return.

So I became a real expert, I think, on market timing and developed a pretty good following doing that. And then in about 1993 or 1994 we had a lot of our clients who had money with us but had a lot of money and more money elsewhere and they were using buy and hold. I think they liked our firm--the way we treated them--and they asked if we could provide buy and hold as well. And in fact over the years, Rick, a lot of people ended up being half in buy and hold and half in timing, as I myself happen to be half, and yet I know from all of my experience with timing and buy and hold, that probably a good 60 percent of the folks out there learn how to be a good buy and holder. Maybe 2 percent of the folks off here compared to be a good market timer.

Rick Ferri: Because there's no question market timing emotionally, tax wise, is the, is the toughest strategy of all. But particularly emotionally. It was a different time, like you were saying. I was actually in college during the 1970s and I was taking finance courses and I remember one college professor, every time we walked in the room he said, “Here, look at interest rates, now they're at 11%”. And then the next week, “ Look at interest rates, now they're 12.”

And it was just a completely different time. Inflation was going out of control in 1980. There was high unemployment and they could, like you were saying, nobody was making any money in either the stock market or the bond markets. So stocks and bonds were highly correlated and they were both bad. Everything was bad and it had been that way for a long time and I can understand where you were coming from that the only way you could hope to make a rate of return when everything is going bad was to try to get in at a better time and try to get out at a better time and do some sort of a tactical asset allocation.

And then I can also understand that later on by the 1990s, when the market finally bottomed out and started going up, that you would also have investors who've decided they didn't want to do the tactical asset allocation, at least part of their money, they just wanted to do a buy and hold, which has worked very well also. So I can see where you're coming from. But are you still doing that? I mean do you still look at the markets and try to make a determination whether it's time to get out, it's, it's time to get in and,and if so, what is it that makes you one of the 2% that that's able to do it?

Paul Merriman: Well the old firm that I--I sold my firm in 2012--and I did not retain any ownership because I really did not want to have any conflict of interest as I moved into being an educator. But they still do both buy and hold and timing and, by the way, you have a background I know with the Dimensional Funds. We certainly never did any timing with Dimensional Funds or they would have, they would have thrown us out. We actually had a good relationship with DFA even though we also did some timing. But we use just traditional trend-following kinds of timing. What made us unique in the ’80s is we developed a strategy that focused on asset allocation plus timing, just as we did with buy and whole except you, you didn't use the timing. So we had timing with big and small, and value and growth, and US and international, and fixed income.

But the fact is that you are wrong so often with timing that investors just don't get it, I think. As my recent article focused on this idea of creating better expectations. That the expectations for timing are almost always going to be that the timer is going to get me out at the top and get me in at the bottom and I'm going to make money when the market goes down even though it may only be money market returns. But it's never that easy, and you know that it isn't that easy with buy and hold.

Well at least I'm not making any kind of a decision. I'm not hanging my hat,if you will, on my ability to get people in and out of various times. I know how difficult that is because I when I first came in the industry I didn't use active managers who made or break me, you know, on their decisions. It was I hung my hat on their ability to outperform and when they didn't, I lost clients. One of the reasons I went to buy, hold, rebalance of just index funds is because I didn't want to lose clients.

Rick Ferri: You know,I wanted to be able to control what I could control and I was never good at market timing. You know, it's so hard. You might be able to pick it right when to get out but now you got a ticket right when to get back in. So, so difficult. But when it's all automatic...


Paul Merriman: Rick it isn't difficult; and when you tell people that you're going to probably lose money on half of the trades and that you're many times you're going to get back into the market that is priced higher than you last got out. They, when they go through that boot camp, they come away thinking, “Oh this guy, he knows what he's doing”.

No, no I've never known the future. I'm only really good on the past and so if you don't live up to their expectations it's hard, I think, to keep a client positioned in a strategy when there's activity and when you're wrong part of the time. I had 10% of my own portfolio in a fund that I started in 1995. It's a combination of market timing and leverage and in the last ten years, the last decade it compounded at a little better than 6%. Now how would a person feel about having spent ten years at 6% when the S&P 500 made twice that.

Well I feel just fine partly because one, I know that ten years is not a meaningful period of time. Well it is in my life, but not in the life of the market, but the previous 10 years when the S&P 500 lost 1% a year almost that fund compounded at over 18 percent a year. So the challenge for investors is to invest in a way, one that they'll stay the course, and to that whatever's being done with their money fits within whatever their personal bias might be about the market. And some people have a bias towards buy and hold, other people when you sit and talk with them, their bias is really market timing.They may tell you,”I don't believe in market timing” but their bias is to doing something when things aren't going right, as opposed to John Bogle who says, “Don't just do something, stand there.”

Yes and and I had ninety minutes with Mr. Bogle back in June of 2017 it had a lot of impact on me. But I want people to stand in the right place.That's what I'm trying to get people to do, and we're--John Bogle, god bless him-- I mean I love what he's done for the world, and my friends, and all the people that are paying less in expenses today than they used to. We had a major difference of opinion about something that I think is of the greatest importance. Oh yes, I want them to stand there, but stand in the right place.

Rick Ferri: And I want you to elaborate on that a little more because I find this very interesting. So if you could dig into that a little more. What exactly do you mean by “stand in the right place”.

Paul Merriman: Well here's what John Bogle and his Vanguard, what they recommend, and by the way everything I recommend can be done within Vanguard. It just might not--well it won't be done the same way that John Bogle and others do it for people. We don't know the future. We have faith in the future so we're always preaching at some level, but they tell people that if you put your money into the total market index then you have done the right thing.

Now I'm not suggesting you've done a bad thing. I'm not even suggesting that I think that, or that the way I'd suggest to do it will do better, because we don't know what's going to happen. But I do know this, that when we invest in the target-date fund--I love target-date funds-- and in what you end up with is a portfolio of equities that are total market: total market U.S.; total market international; and what do we get when we [use] the S&P 500 and the total market index. We get a cap weighted portfolio that means that almost all of your exposure to risk is in large cap growth.

I shouldn't say almost all, but certainly over 50 percent is in large cap growth and that's not necessarily bad but when we look at the past that the academics have recreated going back to the ‘20s, what we know is-- first thing we know--that I want to clear up-- is the return of the S&P 500 is virtually the same over the last 90 years.That the total market index is not turning out a better rate of return, or it does not create an expected higher return than the S&P 500. Oh they'll say they've got small cap and they've got value, but it's so little that those big companies that are in there, because it's cap weighted, they just walk all over the small cap companies in terms of impact on the return.

So what I advocate for is in the US market is a simple approach where you would spread the money away, not based on cap weighted but based on asset class weighted and this is not anything I ever came up with Rick. I don't think I've had an original thought in my life, but I went through the DFA process, as you did, and I think they teach you a lot of really good stuff about how investing works. And one way to improve earnings, at least looking backwards, is to rebuild the portfolio. To have some small and some value and some large cap in the US.

Now whether you add internationals or not, I'd like you to, but you don't have to, to historically get a decent rate of return. And what happens is that when you go that route, if you talk in terms of underperformance, the large cap driven index funds have produced lower rates of return over time then a combination of big, small value growth and the risk, if you look at it over time, it doesn't appear to be any more. As a matter of fact, I just did some tables that show the market broken down into decades from the ‘30s the ’40s all the way to the last ten years, and I create a look-alike, a big, small value growth versus the S&P 500 and there are times the S&P 500 is right at the bottom, or just off the bottom, of all the equity asset classes. But the combination is always just kind of floating in the middle, never gets to the top, can never get to the top because it's made up of the asset classes that one of them are going to make it to the top. So it never gets to the top, but it also doesn't get to the bottom.

So my view is people will get a better rate of return. They'll have more peace of mind and they'll retire earlier. They'll have more to leave to others. And I'm not recommending they put everything in this, but to the extent that they want equities, personally, I'd rather see them have it broadly diversified in asset classes then have it basically be one asset class. And I asked John Bogle about that,and he said where I'm wrong is that I don't understand the impact on people when they own a portfolio that has the small, and this growth, and this value, and those asset classes stink, and the S&P 500, where they should have had their money is rolling along; and on the other hand when the S&P 500 doesn't do well, nobody ever seems to go to come to the conclusion that the S&P 500's premium is gone, and it's never going to make a good return again like it did in the past. That's because people, and they don't think to throw it out of the house. Like who would a kid you didn't like anymore. It's this emotional attachment people have to that.

Rick Ferri: Well people in this country have a bias towards the S&P 500 because they’re companies they trust and what you're really talking about, well at least what you're saying that John Bogle was saying here, is not that maybe the S&P 500 ist he ultimate way to invest-- he's not saying that--what he's saying is that people will tolerate bad performance by the S&P 500 but they won't tolerate bad performance by a slice-and-dice portfolio that has these other magnified sectors.

I know you keep calling them asset classes. I have a real difficult time calling small value an asset class. I get to me the asset class is US equity, and that means everything in US equity, and small value is a style value with style size, small cap is a style if you will. So I mean so I... I have a... I... I don't consider them separate asset classes. But that's a different conversation. But anyway it sounds to me like John Bogle’s issue was that people will accept bad returns when the market is bad and probably not jump ship, but when the slice-and-dice portfolio is bad it's an active type strategy and people will jump ship, and so in the aggregate he doesn't like it. Staying in the market is really the key, and the total market fund does that for you rather than slice and dice. Is that what I hear you say?

Paul Merriman: You know something I love. No I, I understand what you're saying. But you have said something that I guess I would disagree with. I don't call it an active strategy. I really don't. I would say that the S&P 500 index-- that represents large-cap blend. Now I don't know if you'd agree with that but that's how I see it.

Rick Ferri: No, I think I agree with that.That yeah, okay, using large-cap blend-- yes I would agree with that.

Paul Merriman: If you agree with that, why couldn't you oh and that blend is made up of growth and value? Why couldn't you call a portfolio of all the large value, standing on its own, large-cap value? Why isn't that, doesn't that have the right to be an asset class just like large-cap blend or large-cap growth? And all that be all I mean.

Rick Ferri: I didn't say the S&P 500 was an asset class. It's an index of large-cap blend but I didn't call it an asset class. To me the asset class is US stocks, the entire market, that's the asset class. Now within there you could divide it up into value/growth; you could divide it into industry sectors. I mean there's a lot you can do with the asset class called US stocks. So my only question was on semantics. I mean you're referring to these things as asset classes, where it's to me the asset classes. US stocks, and these are sectors of that. That was the only difference.

Paul Merriman: And the only reason I call them asset classes--those people at DFA taught me. So I really, I see where you're coming from. I think the reason that I reject calling them the US market is because I think then a lot of people might say I want to put my money into the US market and so what it ends up following is probably the total market index.

Rick Ferri: I'd agree with that.

Paul Merriman: Yeah, and so I think it's leading them down a path that is going to hurt them and I might I say, hurt them-- I don't mean it's going to, they aren't even going to know they'd been hurt, Rick, because most people I’ve talked to, they don't know what return they've had. They know they've done fine, they've done just fine. They made good money, maybe two or three percent a year below the S&P 500. What matters to them is they're doing fine.

So I think a lot of people that are attracted-- and, by the way, the number of people who are attracted to my website-- it's in this whole scheme of things. It's a very small group of people but these are folks, many cases engineers, or you've seen that. And the Bogleheads, I'm sure half of them are engineers. I know that, but I do I do believe.

Let me just give you one more example but with Mr. Bogle,and he was so kind to me. Oh my god, he was supposed to give me 60 minutes and he gave me 90 and he answered every question I had, and he gave me advice on how to do a better job for people. But I asked him about why would a 21 year old have 10% of their portfolio in a target date fund in fixed income. What I have learned is that when you have 10% of your portfolio in fixed income, based on market returns over the last 90 plus years it will cost you 1/2 of 1% a year. Okay, I don't like that because 1/2 a percent is life-changing over a lifetime. So they're sitting with 10% in bonds and I'm thinking wait a minute I want young people when the market is in decline to have all of their money buying lower priced securities, not less. And 10%, what is 10%. It's not going to turn a bear market into something that is much better than what 90% mean a hundred percent would be. It's almost meaningless.

But here was his response, and it's a good one. What we're trying to do is train them to understand there's a process that includes over your lifetime a gentle increase in exposure to fixed income and so they are showing them how that works. and I'm thinking to myself, okay that's great, but what would an education do for these people. What if they understood that they aren't going to protect themselves very much but it's going to cost them. Find lots of good stuff when the markets down and dirty and etc

You know the rest of that story. And yet they do that to make that fund, something people can last a lifetime with it. I don't argue that they may get there but I think with some small changes it could make a huge difference in what somebody has when they retire, how much they live on in retirement, and how much they leave to others and I'll be dead and buried before I know how it worked out. I'm just hoping somebody will come to my grave and put a lot.

Rick Ferri: Well okay. So the big difference it appears between a three-fund Boglehead portfolio which is the total, just buy and hold the US total stock market, do you the international total market and the total bond fund. Oh all right, just do any bond index fund or a CD ladder for that. I mean it's a three-fund portfolio in what you advocate is twofold. It appears number one, you treat the various styles of large, small, value and small cap value as different asset classes and to have an allocation to basically those asset classes. And yes, the second thing is that you also advocate an element of market timing to this.

And by the way, I'm going to jump a little bit around here. I'm gonna jump to the Boglehead questions because when I put your --when I announced to the Bogleheads that you were going to be my next guest-- like I said, it lit up, and had all kinds of questions. So I mean one of them asks very specifically about market timing. They were, and this is what he asks, “What do you expect the benefit of your portfolio market timing would be compared to buy hold and rebalance?” And that another person asked very similarly, “What is the exact buy and sell signals that somebody would use for your market timing portion?”

So I want to get into this idea that you brought up earlier about being in the right track and about people who may believe, as you said, when you sit down and you actually talk with them, they believe there is some way in which they could benefit.

Paul Merriman: Well to begin with, what I believe starts with my fear of the market. I believe that it's highly likely that in my lifetime, which isn't all that much longer, that I will live through a catastrophic event. Now when I was young that didn't matter. I didn't have anything, but now I do, and I have always, in fact it's hurt me financially by a lot. I've always been too conservative because I've been afraid of a market collapse like we had in ‘29 the late ‘30s and so with that in mind I'm uncomfortable having too much in equities without some sort of an exit strategy, and it's just that simple.

I'm afraid now in my buy-and-hold portion and that's half of my portfolio. I'm half in stocks, half in bonds; I'm half in the U.S., in the half that stocks; I'm half in international; I'm half in small; I'm half in large. I'm basically a little more than half in value and a little less than half in growth. It's like I don't believe in anything. But in essence I believe in everything. I'm trying to get the exposure to the market where I've got massive diversification-- and by the way investors, if they don't know it, should know it. According to the academic studies, the more diversified we are the likelihood is we'll get a higher return, not as not a lower return.

You asked about the timing portion of my portfolio. I'm not 50/50 stocks and bonds. I'm 70% stocks and 30% bonds. Why more stocks there? Because when you use timing and you sit out part of the time in money market funds you have at that point, when you're sitting in cash, you have less volatility than a person who buys and holds equities. So in 1987, and everybody in this industry goes back to some time when they looked really good. But in 1987 we had all of our clients money out of the market about a month before the market crashed in October, and it made me. For them I was a hero. You're famous. II got on Wall Street, you know, and and you know something ,everybody wanted to make a big deal out of it. And I said, “Wait a minute, I didn't call the market. I happened to be out of the market when it collapsed. There is a difference. But people are always looking for gurus. There are no gurus, but the trend-following systems you could use. You could use a 100-day moving average; you could use a 150-day moving average. Then it doesn't have to be something complex. You just need something that forces you to get in and to get out. And yes, you'll go through whipsaws etc., but here's the part I think is fascinating. The standard deviation of a 70/30 with market timing, 70% equities/ 30% fixed income is virtually the same as a 50/50 buy and hold. Almost exactly the same standard deviation and the returns are very similar as well. Now, do they go up and down together? No. And in 2008 an all equity portfolio with these simple trend following systems that the company used, after fees they lost 18% or 15%. It was a relatively small amount.

And in 1987 I had accounts, actual accounts that were up over 50%. That's the good news. And then everybody rushed. In fact, after that weekend, that was on Wall Street Week, or that weekend actually we got four hundred phone calls at my office. Looking for, theoretically, our help. I mean we were not prepared. But the fact is the following year our returns were mediocre.

Rick Ferri: Right, and by the way, you and I know something a lot of other people may not know and that is a portfolio from ‘95 to ‘99 properly diversified: big, small-value, growth US, international, compounded at 11 percent, while the S&P 500 compounded over 28 percent. That's the way it is now. It's also the way that it occurred in the last five years if you look at 2014 going forward till today.

So the market timing strategy that you employ is relatively simple. It's a moving average, 100 to 150 days. Something, what you're saying now. I want to go back to one point before I get off the market. Almost a hundred percent of their money in the market but so when it comes to market timing, there you mentioned that young people, when the market goes down, they should just work and put more money in the market. So when you're talking about market timing are you speaking about everybody. Go ahead people, old people.

Paul Merriman: Okay that's what I was getting at. Old people like me, and you, well you're older than me. Yeah a lot, yes it is for it's for people where preservation is important. But having said that, as critical as I was of the target date fund at age 20, sitting on 10% in fixed income, I've met lots of 20 year olds and 25 year olds who have all of their money in fixed income because they are afraid of stocks, and I'm begging them just put 20-30 percent in equities. Let me show you. I've got my favorite table called, fine-tuning your asset allocation, and it shows these different combinations of stocks and bonds over the last 50 years and what you see is if you just have 20% in equities it'll kick your return up by about one and a half percent a year. If you can get up to thirty percent you might even kick your return up... I'm sorry it raised it about one percent a year. If you go to thirty it raises it to about one point five or so. Depends on what asset class you use in the equity portion. But I want those young people who are scared to death of the market to just take a little risk. I don't want them to have as much money as the target date fund represents because it's going to end up scaring them out.

Rick Ferri: Okay let's go ahead and move on to the second phase of that which we've done, the market timing thing. You've differentiated how young people should invest versus old people.

Paul Merriman: Yeah.

Rick Ferri: Well now we need to look at the other side really where I think most of the questions from the Bogleheads have come in and it is with your ten-fund portfolio and now you're new two-fund portfolio, and, and so this is actually, if you don't mind me saying, are using this phrase, the slice and dice of what you do and what you really believe in. Number one could you talk about the ten-fund portfolio and the complexity of it, and then move then into the two-fund portfolio and how that resolves the complexity problem.

Paul Merriman: You betcha. So this started maybe fifteen plus years ago, that I created something I got from DFA, by the way what I call the ultimate buy and hold strategy, and I was quick to say that it wasn't unnecessarily anybody else's ultimate buy and hold, but it was the best that I could find without placing any big bets .So what I did with a portfolio that's a hundred percent in the S&P 500. Then all I do is I take 10% of that money and I put it into large cap value, and what happens is you make a little more money. And then I go the next route next step and I put in 10% of small-cap blend make a little more money. By the way that little more money is sometimes only one or two tenths of a percent. Then I take another step and I take out
another 10% from the S&P 500 and put it in small cap value. No big bets, no big bets. Then I take 10% and I put it in REITs. Now I have 50% in this combination of five different equity asset classes; 50% in the S&P 500. I think people would be probably just happy as could be right there if they stopped, because they would have made an appreciable increase in their return. And I tell young people a half a percent more over your lifetime is truly a life changer, so if you just did that you'd have made a big difference historically.

Don't feel about the future but historically you would.

Okay but I keep going because I do want internationals in the portfolio. There obviously are times I wish I didn't have internationals in the portfolio, but I believe that that diversification is what a person should do if they really want to diversify properly. So I take another 10% and go into large cap land internationally and then ten in large cap value, and ten in small cap land and ten in small cap value and then the last 10 goes into emerging markets. So I have a lot of really risky investments in that portfolio and that is what my retirement looks like in terms of equity.

I do exactly that 10% each in those 10 asset classes but the bottom line is for people who are really do it yourselfers trying to rebalance 10 different equity asset classes can be something they can't figure out, and when I was a money manager we had a firm that's what we did we did it for them. But Chris Patterson did this analysis of all the ETF's and he came up with the best large-cap plan, the best large-cap value every one of those ten equity asset classes. He made a recommendation. My belief is,and you probably know this, but supposedly Schwab is going to be trading ETFs with partial shares One Schwab is able to trade partial shares with ETFs, or their clients are. Then there's no reason why they can't let people build a portfolio and have them automatically rebalanced.

Rick Ferri: Moving along then to the two fund portfolio which I find to be really interesting. So you solve the problem of complexity with a two fund portfolio.

Paul Merriman
: Well the challenge, and this was, by the way, partly motivated by my meeting with John Bogle because he basically said,“Paul you're you're a nice guy.” He had been on our radio show for years so he knew us and he knew that we were trying to help people. He said, “But you've got it wrong. What you're doing with 10 funds is- it's just too complex for people and they aren't going to do it.”

And so Chris Patterson, donating his valuable time as a volunteer to our foundation along with Daryl Balls, another systems analyst smart guy, you know, that really understands computer work, have put together this strategy. And what Chris came up with is the key to treating the extra fund, the second fund in a similar fashion as you would with a target date fund, because if you put, for example, 20% in a small cap value and 80% in a target date fund and you don't ever reduce the exposure in the small cap value fund you could end up with 50% of your money in small-cap value at age 65.

Yeah, so what and we really want young people to be exposed to small cap value and then to reduce that exposure as they get older. And what Chris came up with is so simple. You multiply your age, of 20 let's say by 1.5. Now you've got 30. That is the amount that you would put into the small to the target date fund, the rest you put into small cap value to be aggressive.

Rick Ferri: Okay how about large cap value instead.

Paul Merriman: We could do that as well but it would just be less aggressive. So as you age once a year, you could do it every two years and it doesn't have to be done every year. But what you're doing, by the time you're 30 you'd have 45% in the target date, 55 in the small cap value. At age 40 you got 60 and 40. At age 60 you are 90 percent in the target date fund and 10% in small cap value at age 66 you're zero in small cap value.

Rick Ferri: Oh I see. Okay I got it. It is so simple now I know what's going to happen. If anybody really thinks this is a good idea they're going to reconfigure it and make it better because the idea now is, is there a simple thing to do, but how, what formula do you use? It sounds like this strategy would work with the young person who's just getting invested in a 401-k plan where you've got maybe Vanguard target date funds or other target date funds that are available to you and you’re 25, are you saying 30 years old, you would also need to have in the 401-k a small cap value index fund. If you had those two things available and you wanted to do something more than just target date and you were more sophisticated, then you knew that you really understood what you were doing, that this would work because by the time you retire at age 66 you don't have any left
and they smoke
51:41
values just although the target date so
51:43
it does make sense from that perspective and by the way I work with a lot of people my age suggesting things for their grandkids. When there's a new grandchild I'm thinking either a hundred Missouri 365 a year for twenty-one years or three thousand dollars once. Put that in small-cap value, keep it in small cap value. When they start working and they can do an IRA take money out of this account put it in the Roth IRA and just
let it go. Keep contributing to that money is gone
52:23
and literally, literally if you took three percent off of the compound rated return of the past from small cap value you could have created twenty million in retirement income and thirty million as a gift to the heirs at age 95. Now obviously it sounds like something that you get at a County Fair, but the fact is if you get twelve percent a year. And why is twelve percent unreasonable if ten percent in the S&P 500 is reasonable. And it includes the Depression. Then why isn't twelve percent reasonable for small cap value. It is the premium for taking that risk.

Rick Ferri: I have to tell you that one of the Bogleheads suggested that I get a glass of wine and I put it in front of me and every time you say small cap value I have to take a sip so that's exactly what I did okay and I filled up a glass of, we're getting there, and I have to tell you the glass is now empty.

We've been talking for quite a while. I want to get into a few other things before we wrap it up and some of the Bogleheads are curious about just a little bit more about your life. You know one of the Bogleheads asks what is the greatest mistake that you made that you are willing to talk about; that we can all learn.

Paul Merriman: Well I don't know. Mistakes I made as an investor. I lost everything. I was conned; I shouldn't say I was conned-- I was talked into putting my original investment of a thousand dollars into a commodity trade, which I doubled in a matter of weeks--and having found out how easy that is, I took the guy's advice again and I lost it all. And so that money, if I hadn't lost it, if I had put it into small cap value there's no last thing you're going to
54:43
have to let me go back to the bar buddy
54:45
but if you had invested it rather than having it leak out the bottom in a rush out the bottom of your pail it would have meant something just somebody
54:56
And so I made a lot of mistakes like that early in my career. I invested in some small companies that had products that seemed to have some potential. Again, I try to talk young people out of doing that. Their parents say, “ I'll let them make mistakes now.” I don't want to let them make mistakes.The cost of those mistakes are way, way more than people know, and they might even get lucky and hit a good one and think they know something, and then it'll even cost them more later.

So I did those things and I think the other thing is I've never learned a mistake. I'm still struggling with, How do I not work 60 hours, love what I'm doing. Well anyway I want to go as long as I can, and that's one of the things that John Bogle did for me. He inspired me and I'll tell you where I feel my work has value. We are giving advice, very specific advice, on how to invest if you're conservative, moderate, aggressive. I don't mean I talk to you. I don't mean I review your situation. I mean we give you, if you want to learn, what we believe, and then we make it possible for you to know what to do if you believe that that's not easy for people to do.

Rick Ferri: So Paul, that gives me a great opportunity to ask you. Could you tell us about your website, and tell us about all the things you're doing; and how you educate people?

Paul Merriman: Well first of all we've got free books. Probably the best one is entitled 101 Investment Decisions Guaranteed to Change Your Financial Future. By the way, I quickly tell people I guarantee it will change. I don't know if it would be better or worse, but I think it'll be better. But it's nothing more than best practices. So that was the beginning when we started the foundation. I have portfolios there on our site for Vanguard, Fidelity, T.R. Price, and the ETF's best-in-class ETFs. We have over 400 articles and podcasts there. We have videos that we've made. We have a new book coming out in a few months. It is all about twelve million-dollar decisions, well actually half of it is about twelve million-dollar decisions, and the other half is about two funds for life because I think you can actually do those twelve things and use the two funds for life and take advantage of those what I call twelve million-dollar decisions. That book will be free to everybody who is on our email list and, by the way, if you're not on our email list and you know the book is out you'll be able to get it free. I want, I want to help as many people as I can and I love working for people. I love helping people's lives get better.

I do a lot of nonprofit work here on Bamber's Island and getting medical publications free. Medical publications into the hands of physicians in developing nations through an organization called Global Help. So I've got other things I'm working on and I just can't, I can't seem to stop.

Rick Ferri: You're doing a great job for a lot of people. You've got tremendous respect by the Bogleheads, tremendous respect from the investment community for providing information. Now everybody doesn't have to agree with you on everything.

Paul Merriman: Oh, I know that they don't.

Rick Ferri: Well Paul it's been wonderful having you on the show and I know that the listeners have all really enjoyed a lot of the conversation which we've had today. And I'm really looking forward to talking with you again.The website is Paulmerriman.com. Thank you so much for joining us today.

Paul Merriman: It's been my pleasure Rick. Thank you and all the best to all those
Bogleheads.

Rick Ferri: This concludes the 18th episode of Bogleheads on Investing. I'm your host Rick Ferri. Join us each month to hear a new special guest. In the meantime, visit Bogleheads.org and the Bogleheads wiki, participate in the forum, and help others find the forum. Thanks for listening.

[Music]
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

On May 7, 2021, we successfully completed transcribing the backlog of episodes to date (thirty three episodes).

We have set up our transcription worksheet so that transcribers can work on transcripts in 5 minute blocks, in which you verify the text via the audio. This means that you do not have to transcribe a full episode, simply leave a note showing where you start and leave off.

Once we complete an episode, we transfer and post the finished transcript on the John C. Bogle Center for Financial Literacy. For your convenience, here is your access to published transcripts: Transcripts.

regards,

edit: number of remaining unfinished transcripts
Last edited by Barry Barnitz on Fri May 07, 2021 8:20 am, edited 24 times in total.
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi all:

We have completed the transcription of Episode 008 with Allan Roth: Bogleheads on Investing – Episode 008 transcript.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 015 with Eric Balchunus.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 014 with Chris Mamula.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 010 with Robin Powell and Debbie Fuhr.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
patriciamgr2
Posts: 828
Joined: Mon Nov 19, 2007 3:06 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by patriciamgr2 »

Many thanks for all of the work being done to provide these transcripts! I am always in awe of the incredible work Bogleheads do for our community of individual investors.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 016 with Sheryl Garrett.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 018 with Paul Merriman.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 002 with Dr. David Blister.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 023 with Burton Malkiel.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 009 with Wesley Gray.

The completion of this episode means that we have now completed transcripts for the 2018 and 2019 seasons of the Bogleheads on Investing podcasts.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 026 with Morgan Housel.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 020 with Jeff Levine.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript to Episode 017 with Joe Davis.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript to Episode 022 with Ed Yardini.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
patriciamgr2
Posts: 828
Joined: Mon Nov 19, 2007 3:06 pm

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by patriciamgr2 »

Thanks so much for these transcripts!
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Last edited by Barry Barnitz on Mon May 03, 2021 2:52 pm, edited 1 time in total.
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript to Episode 024 with Wade Pfau.

regards
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 025 with Don Phillips.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
1210sda
Posts: 1862
Joined: Wed Feb 28, 2007 8:31 am

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by 1210sda »

Thank you Barry.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3306
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: "Bogleheads on Investing" podcast transcripts are becoming available

Post by Barry Barnitz »

Hi:

We have completed the transcript for Episode 027 with Cliff Asness.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
Post Reply