Is the battle between index funds and actively managed funds finally over? Total assets invested in index funds and ETFs recently passed assets invested in active funds for the first time ever. But is going all index funds the right move for you? Joining us is CFP and President of Bone Fide Wealth, Douglas Boneparth. Also joining us is Crystal Hammond, host of our sister show, Stacking Deeds. And finally joining us from his bunker deep under Los Angeles is the creator of the award-winning blog lenpenzo.com, Len Penzo.
We dive into the difference between active and passive funds, break down the history of each, and pontificate on where we think the investment world is heading. Plus, what are the risks of cap-weighted index funds?
In the second half of the show, sponsored by DepositAccounts.com, we dive into the industry secrets and their smoke-and-mirrors tricks.
Be sure to stick around for our ongoing year-long trivia competition. Doug brings us some diminutive French leader-themed trivia. You won’t want to miss it!
Deeper dives with curated links, topics, and discussions are in our newsletter, The 201, available at https://www.StackingBenjamins.com/201
Enjoy!
Watch On Our YouTube Channel:
Our Topic: Active vs. passive investing
Index Funds Have Officially Won (Morningstar)
How much room is there for active management? (InvestmentNews)
It’s Nvidia’s Stock Market. You Choose How to Live in It (Wall Street Journal)
Is Your 401(k) Destroying Capitalism? (Wall Street Journal)
During our conversation you’ll hear us mention:
- Thrift Savings Plan
- Sector investing
- Cost advantage of passive funds
- Historical performance comparison of active and passive funds
- In what areas actively managed funds may have an edge over index funds
- The shift in advisors favoring passive funds
- Hidden incentives some brokers have for pushing certain products
- Fiduciary standard
- How to protect yourself from hidden interests
- Performance drag of active funds
- The role of value-added financial advice
- Why the move to passive isn’t taking off
- ETF tax-efficiency advantage over mutual funds
- Actively-traded ETFs
- Investing according to your personal needs and situation
- True financial advisors vs. salespeople
- Industry buzzwords
- Red flags to look for in salespeople
- Risks of cap-weighted index funds
- Risks of selecting your own individual investments
- Differences between investment management and financial planning
Our Contributors
A big thanks to our contributors! You can check out more links for our guests below.
Doug Boneparth
Another thanks to Douglas Boneparth for joining our contributors this week! Learn more about Douglas by visiting Bone Fide Wealth: NYC Financial Advisor | Wealth Management Planner.
Len Penzo
Visit Len Penzo dot Com for the off-beat personal finance blog for responsible people.
Follow Len on Twitter: @LenPenzo
Crystal Hammond
Hear more from Crystal on our sister show all about real estate investing, Stacking Deeds.
Doug’s Game Show Trivia
- If every inch of Napoleon’s height equaled a dollar, how many dollars tall was the emperor?
DepositAccounts
Thanks to DepositAccounts.com for sponsoring Stacking Benjamins. DepositsAccounts.com is the #1 place to go when you’re looking to see if your rate is the BEST rate on savings, CDs, money markets, and even checking accounts! Check out ALL of the rates ranked from best to worst (and see the national averages) at DepositAccounts.com.
Mentioned in today’s show
Join Us on Monday!
Tune in on Monday when a guest comes down to the basement to share some lesser-known facts about planning, investing, and your world: we welcome the guy who wrote a financial planning book with Tony Robbins, owner of the Kansas City Royals AND the man behind Creative Planning, Peter Mallouk.
Miss our last show? Check it out here: Career Forward: Shine at Work by Focusing on What Matters (SB1492).
Written by: Kevin Bailey
Episode transcript
Look, this is Hot Ray Symmetrical book Stacking. Just like the Philadelphia man’s turbulence of 1947. You’re right. No human being would stack books like this. Listen, you smell something.
Live from Joe’s mom’s basement. It’s the Stacking Benjamin Show.
I am Joe’s mom’s neighbor Doug, and today you’ll learn why passive index funds have clearly won the investing game with the president of Bonafide wealth. Doug Bonaparte Plus it’s the Empress of the Stacking Universe, crystal Hammond. And finally the star of last year’s film. Napoleon. It’s Waki Down.
Nevermind. It’s a different guy in a funny hat. It’s just Len Penso, but that’s not all. Halfway through the show, I’ll share my short trivia question. And now the guy who’s not afraid to invade your ears with a. Small but determined army. It’s the emperor of all things personal finance. Joe, Saul Sea. Hi.
Hey everybody, and happy weekend. We’re so glad you’re here. Sit back, relax, put your feet up because we’re about to have an hour of financial nerdery. Welcome to another episode of the Stacking Benjamins Show, brought to you on Fridays by State Farm. State Farm agents are small business owners too, so they know how to help you choose personalized policies that fit your needs like a good neighbor.
State Farm is there. Talk to your local agent today. We’re not just gonna talk to our local agent. We’re gonna talk to the people at this round table. ’cause man, do we have the uber nerds with us today? We’re gonna have some super fun, but let’s start off with my co-host. On our sister show, the Stacking Deeds Show.
Crystal Hammond’s here. How are you? Great. How are you? So is a nerdery. I’ll raise you. A strategery. Is that how we’re gonna outward each other today?
Strategery and Nerdery? I would love
to. And then Lynn, are you, is it cold in your house? You’re making me hot. I think I need to turn on the fan.
Lynn makes everybody
hot.
That’s true. That’s true. It, it’s California and it, you know, once the temperature dips below 65 here, it’s freezing. It’s ice age out here, so. Wow. It’s 64 right now. It’s
ice age. That’s horrible. I feel, I feel so bad being from Michigan 64. You must be. Oh, I can’t imagine. And uh, by the way, you had the squirrel cam, you sent us something from the squirrel cam a little bit bigger than average squirrel on your squirrel cam Len.
Yeah, well
it was squirrel cam after dark, so that was a possum, that’s what I showed. Although, uh. Doug thought it was a grizzly bear, but you were close Doug? Not
quite well based on the, where that camera was set up, that thing was huge. I was terrified.
By the way, when you said squirrel cam after dark, it sounded like lens only Squirrels account.
Like he’s, he’s got this other thing going on. You know? That’s
a good idea. That’s a really good idea. I might wanna have to consider
that. Yeah. Uh, squirrel’s gone Wild is Lynn’s next video.
Hey, real quick, you know, you’re talking about Uber nerds. I, I did, uh, send out from my IQ test, uh, and, and I got the results back.
Oh. Unfortunately they were negative.
Oh, so
whoops. Hold on. Run button there. It’s my God. Had to find it. Why? Nice job,
Glen. Why? And you know, I prepare every, every time we record, I have to brace my, it’s like doing a polar PL for me. When Len starts to do his intro, I’m just sitting here gritting my teeth, just waiting like how bad’s it gonna be to comes?
Oh God. It was as bad as I thought.
I thought
the delivery on that was. Quick and to the point. Doug. Mm-Hmm. You’ve been chastising me about
it. Even the East German judge gave you a seven lens, so you were good. Oh, thank you. Thank you. Yeah. So wondering what the hell he’s doing? He’s doing here. Uch. We financial planner and big guy on x slash Twitter.
Doug Bonaparte this year. How are you man?
I am good. Overwhelmed every day with life, but in a good way. We got, we got kids running around and, and businesses being run and, oh, you know who someone should have told me this is what knocking 40 was gonna feel like. Child a youngin. You guys remember that? You guys remember putting a form front, the other side in front a
long time ago.
He’s been here six minutes and he already called us old guys. Len.
I know.
And he did it with a smile
too. Yes. Okay. I saw Dougie rolling your eyes when you heard Lynn complaining about life in the sixties. ’cause you’re over there in the uh, New York area. Slightly colder. Little
bit. Yeah, the sixties. I thought that there wasn’t a reference to his age.
That was the temperature. Oh yeah. I’m Florida, man. I was lamenting about seasonal depression because it’s cold and it’s rainy and it’s gray, and I just want like my whole. My whole day is set up by whether or not at this point, if the sky is blue, like I’m not even in, are we above or below 40 degrees? I’m like, is the sky blue?
I’ll take, I’ll take the dopamine that comes with a blue sky, but we’re almost there, you know, March, I. Critter saw a shadow for whatever that means. And, and we’re gonna, we’re gonna get there soon. We’re gonna get to the warm days soon.
Well, today is a bright spot in your life, Doug. ’cause you’re here with us.
True.
This is very true. Of course. Forward to this for weeks Now, when you reached out to say, Hey, you wanna, you wanna come back on? I, I said no. I mean, I said yes. I would love nothing more than to join all of you, uh, and talk about my favorite subject, personal
finance. Well, and then we sent you the contract.
What’d you think about the contract we sent you? Well, the
best part about that
is, but did you read the second
addendum? I have the lawyers take care of that. And by lawyers, I mean my wife.
You said your wife being the lawyer in the family. We had to stop you right there.
Doug. Yeah. Yeah.
You knew it was dangerous just to continue talking to me at that point.
Absolutely don’t want to get the lawyers involved. No Doug Beth joining us. Len Penso. Crystal Hammond neighbor Doug. We’re gonna talk about passive versus active investments and a big change in the market. So let’s go.
Our piece today, I first saw a few weeks ago in Morningstar, and this is written by John, uh Eller. John Wright’s index funds have officially won. What is he talking about? Well, he says The inevitable has at last arrived in January for the first time. Passively managed funds, control more assets. And did their actively managed competitors.
This count includes both traditional mutual funds and exchange traded funds. The revolution occurred only gradually. August, 1976, Vanguard introduced the first publicly available index fund. Wells Fargo, by the way, had already beaten them to the punch. Uh, we actually did a whole story on, on this previously that will link to in the show notes page.
But, and the story by the way, is pretty funny. I don’t know if you guys know this, but John Vogel actually wrote a white paper that said that he thought index funds and passively managed investing was a stunt that nobody should do. And, and then he became the grandfather of index investing once he figured out that he could make some money, uh, maybe changing that opinion.
But not only has he long since thought that. Passive investing is a great idea, but so have apparently investors. So Crystal, let’s start with you. Do you pay a lot of attention to active versus passive funds in, in your investment? Because really on this panel, you represent, I guess the every woman, right?
You’re not doing this professionally like Doug is, and you’re not somebody that’s at a blog on topics like this for a long time, but you’re somebody that’s actively investing. Are you concerned about active versus passive?
Um, I choose Coke or Pepsi. I don’t know. What, what was the question again?
Is this a Pepsi? I thought this was a Pepsi challenge. I actually, so as a federal government employee, I let the TSP do my work. I trusted to. Get me where I need to go in the next, what, what do I have, like 12 years left, um, until I retire. But there are people that actively trade the TSP, there’s a whole group dedicated to it, and they tell you what funds to switch in and out of.
I’m not doing that. I’ve got parties to attend and I have, you know, TV to watch who has time to do that every single, you know, month or week. Like they even sometimes daily change their allocations. And me, I just have the, the l whatever, target date fund, and then I just log in to check the balance and my, what do they, my ROR, my personal rate of return.
And then I, I sleep well at
night. And those are passively managed funds that you’re in. Hmm. In the thrift savings plan. Who knew? Who knew? You do know Len, active versus passive. In your personal life, do you use an active strategy or a passive or a combination of both? I use a
combination of both. And I, before I go further on that, I was shocked that.
It only recently, the passive overcame the active. I mean, that to me, I thought passive surpassed active a long time ago. I’m just shocked that it’s taken this long for the passive to surpass the active. But I do a, a mix. I tend to use the active managed funds and I don’t do it. Uh, I mean, I, I managers do it for, um, a certain sector that I invest in that I am not an expert in by any means.
And so I prefer to let an expert actually manage those funds for me. But the index funds I do myself because they’re so broad, it doesn’t take as much effort or research on my part too. So I feel safer with the passive funds. But like I said, if there’s something that you’re not, if you’re in a very narrow niche as, uh, in certain areas, I think it’s toed benefit to go with the, uh, actively managed fund, give it to professionals who know the sector that.
That you want to invest in.
I find that interesting as a subtopic, why you would have that narrow sector in the first place, but that’s a whole different discussion. But Doug, I came to you last for a reason. I wanted to, crystal doesn’t do this professionally. Mm-Hmm. Len does it, but is covering a lot of other things.
Consumer finance, you’re talking about this kind of stuff every day with clients. Yeah. I think Len brings up a great point in our world, right? Financial media world for the past 10 to 15 years, it seems like this is a ship that sailed a long time ago. Why is it 2024? And we’re finally getting to this point.
Yeah. Because the actively managed world and mutual fund world has just been so dominant and so huge. It doesn’t surprise me. It doesn’t surprise me. It took this long. I, I, I agree with the article that, you know, the inevitability of getting to this point was on the horizon. The popularity of passive investments in index funds has been growing and growing to the point of, you know, some hyperbolic move into where we are right now, but don’t sleep on.
Just how absolutely massive and also the start that actively managed funds have had. They’ve been around a long time. I mean, go back decades upon decades, I would marvel in how, from a relative standpoint, how quickly it actually has taken over, given it’s really been since the nineties, since we’ve really seen ETFs and index funds become popular.
So it’s had a huge headstart. The flows into active management have been large. And also don’t forget. You got very large financial institutions pushing these products that charge a higher expense. The ins like, you know, who’s in Munger, like, show me the incentive, right? So the incentive for the, you know, ironically the Wells Fargo of the world, what pick any, I’m not gonna pick on anyone.
Pick, pick any institution really. You know, when you look at the expense ratio and what they take on actively managed funds versus their passive counterparts. I mean, they’re in the business of making money guys, so, Mm-Hmm. That’s what they wanna see their wholesalers put in the hands, put in the hands of investors and advisors.
But performance is an interesting thing, you know, when you can’t beat the market consistently, which really no one can do. And I know there’s exceptions of course, but no one can consistently beat the market. And you’re gonna ask yourself, why am I paying 50 basis points or a hundred or 200 basis points?
Mm-Hmm. Over what I could get out of a passage strategy. I’m just not gonna do it. So there, there obviously was a flippant in there and yeah, access to information, you know, and the internet and being able to actually see this stuff as a, as a lay person kind of has taken over. There’s my
answer. No, and there’s a ton to unpack there.
The first one, yeah, I thought that I didn’t do it the beginning. We probably should have done Doug and I’ll stick with you for a second. There’s a percentage of our stacker universe that’s like, I don’t even know the difference between passive and active. Like what the hell are you even talking about?
Why is this a deal? Can you explain what’s a passive investment versus an active investment? Yeah,
sure. So let’s go the other way around. An active investment would be a manager, someone who’s in charge of running a particular portfolio, attempting to do one thing, beat the market they’re trying to trade, get in and out of various positions in companies.
Usually there’s an objective here, like we’re going only to invest in large US companies and try and perform as best as they can. And typically beat in that case, something like the s and p 500. So you’re paying a manager to try and beat the market that’s. The most simplistic version of that, whereas passive’s the exact, exact opposite here, you’re, you’re not trying to beat anything, you’re just trying to participate in the market.
So if the objective was to invest in the largest US companies out there, you would simply go by the s and p 500. And every major asset manager and fund provider has an s and p 500 fund you can invest in. You’re essentially paying a very nominal fee for that. In some cases, no fee. There was just recently, a few years ago, fidelity rolled out there zero, absolutely cost free suite of index funds.
So, uh, there’s your active verse, passive explanation or 1 0 1
explainer. Thank you so much for that. And, and by the way, just one thing on my end because I know it’s gonna come up later. Some of these actively managed funds, Doug are not trying to be to market. They’re trying to achieve a, just a very concrete result.
They just have a, this is what I’m trying to achieve and right, we’re gonna go get that. Like, I dunno, somebody showed me one of these crappy long short funds last week and I was just, I wanted to strangle a person that owned it ’cause I couldn’t figure out why they own that. But yeah, usually we’re trying to beat up on a market which brings up this next point.
And I wanna pivot from, and I’ll, I’ll link to all of these in our show notes, page stackers Stacking Benjamins dot com. You truly don’t need to read these pieces. In fact, this next piece, our panel head, uh, from. Investment news and investment news is an industry rag for investment advisors. They had a question that I just saw, and it’s perfect timing for this, uh, discussion.
How much room is there for ma active management? They ask and, and what’s interesting to me is they say that, uh, exchange traded funds are outselling mutual funds right now. Lots of money coming out of actively managed mutual funds when it comes to advisors. 40% of advisors, which is a huge change from five years ago, are looking at passive only strategies.
And I’m wondering, Doug, and again, I’m gonna start with you this time and we’ll go backwards, but, but why are advisors so slow to adopt a passive strategy when, you know, to our points earlier, it appears that passive seems to be where the ball’s headed. Yeah,
there’s a number of reasons why that could be.
I guess some of the more benign reasons are what their clients are currently positioned in. I mean, you, you, you can go back far enough to find plenty of advisors still operating under like this old brokerage model where what they’ve put their clients in are loaded mutual funds, various share classes, and the cost of switching and realizing capital gains or the rights of accumulation.
So the more you buy of these funds, the cheaper it has become to purchase them. They might just be locked in here. And trying to find a cost justified solution to get out of those active strategies into passive strategies might not be worth the tax bite, might not be worth the accumulation that they have.
That makes sense to me. Yeah. But that’s a very, how the sausage is made, look inside the industry and, and it’s, it’s a good point. The other thing could be, again, incentives. I mean, I’ll get really under the hood here. We, you have relationships between financial advisors and asset management shops and wholesalers and actual loyalty.
And you’ll read this in a dvs, you’ll, you’ll see that there are various incentives between broker dealers and mutual fund companies, uh, to use particular products. Not necessarily the best Look in some cases when you really look at conflicts of interest here, you know, not every financial advisor is a fiduciary, and I would argue most aren’t.
And that’s perhaps an issue, uh, as to why you don’t see this rapid adoption into passive strategies. Those are probably, in my mind, the two biggest reasons why you don’t see that happening. So legacy business and incentives, you know, that aren’t the incentives for the client, you know, that are incentives for either a broker dealer or an advisor and the relationship that they have with a various fund company.
Again, one a little bit more benign than the other here. Sure. You know, but you know, to talk my own book I, I’m viewing this like, look, if we can’t beat the market, what my shop is probably 95 to 99% passive. Right? I just look at the statistics. If we can’t consistently beat. Benchmarks. If managers are historically underperforming, why on earth would we want to increase our expense budget?
You know, for a client on something that traditionally can’t be won, right? We’d wanna save them that I don’t have any incentive to do anything but the right thing. It doesn’t affect my compensation or scorecard. And that’s how you have fee only fiduciary advisors, probably being the ones that are nine outta 10 times, gonna be running mostly passive portfolios.
It’s actually funny, this piece even dives into that Doug that says that as more advisors leave big firms to go to be independent advisors, yeah. More money goes passive because to your point, they don’t care anymore. Those relationships don’t, you know, they’re gone aren’t what they’re worried
about. Yeah, yeah.
I mean it gets, it gets a little dirty in that, you know, we’re even talking transaction charges and ticket charges for buying and selling various instruments, right? So in this case, mutual funds or even ETFs, but mostly around the mutual fund stuff. I mean, you have advisors in these legacy businesses sticking with like these loaded chairs when it’s so much.
More tax efficient and uh, more efficient to trade and get in and out of stuff using ETFs. You still have, you know, most of the world using funds, you know, mutual funds and not ETFs. Forget like that. There’s actively managed ETFs now. Cool. Okay. There’s always gonna be the product ification of the industry, but there you have it.
I mean, I’m, I’m glad that article points that out because that that’s right there, the link between the two. Yeah. And once you are free of the shackles of the parent company that has been overseeing you all these years, you see advisors instantly, instantly then go to ETFs and passive funds to save ex and, and it’s a great value add.
Like, hi client. Yeah. You know, we’re, we now don’t have any conflicts of interest. How would you like to save 1% in expenses? And it doesn’t do any drag to, you know, the advisor’s comp. They’re gonna be like, yeah, that’s a no brainer. Let’s do that. And it actually creates a much better dynamic when it comes to the investment relationship and in my view, a superior portfolio being built.
Joe Doug used a new phrase there that I, I haven’t heard before in the financial world. I might need him to clarify it a little bit. He said product defecation.
What? What, what does that mean? I think it was product defecation. Oh
yeah, I heard that incorrectly,
apparently. Okay. Yes. I think that was, I think Doug, that was your own interpretation.
Good one.
But
mpu
Well, but I do like that as a tool because this, this almost sounds like doctors pushing, you know, like prescriptions that they get a big kickback for. Like how would a, a lay person protect herself, him or herself from that? And I like how you said, you can say, you know, how would you like to save 1% by switching to this fund?
So is that what we should be asking our financial advisors? Hey, if I’m looking to save money, how do I help you? Help me?
Yeah. I mean, go to your financial advisor and ask. Why is being positioned in actively managed mutual funds in my best interest relative to being positioned in passive funds? Can you show me any meaningful data to support and can you show me some data or information to support that?
Right? Mm-Hmm. So instantly, I mean you could say design, how would my portfolio and whatever allocation it’s in have done if we just use like core ETFs, like the plain vanilla, if we just indexed, right, replace that large cap equity fund, you know, with a manager charging 1%, trying to beat the s and p 500 and put me, what if that was in the s and p 500?
Take my mid cap fund and go stick that into a mid cap core ETF. Same with small cap, same with international or emerging markets. I give some credence on bond funds. This is actually where, depending on what strategy I’m looking at, I might go and take an active stance. So like Len said, like maybe when you’re getting sector specific, I mean, as an advisor we can have preferences.
Like if I’m navigating municipal bonds. I might want someone with actual experience in that space, particular to a state like New York Municipal Bonds or New Jersey. But you know, depending on how you construct a portfolio, you could go passive there as well. It’s not like there aren’t any, you know, New York or New Jersey municipal bond ETFs either ask the advisor, Hey, like, how would we have done.
Hmm. I mean, I
mean, it just comes down to really if the active fund can be shown to consistently beat the index fund by, if the fee for the active fund is 1%, which is probably more than that, if it’s, you know, one point a half or 2%, you know, if it’s consistently beating the index fund by 2%, then it’s worth it.
And now in a bull market. It’s kind of hard to do that I think. I mean it’s just so much easier and to, to just go with the index fund and
ride the wave. But there’s, but there’s also another lie that I know during my career and it still has not been proven untrue. I was told over and over early in my career that, you know, active wins in down markets and man, I don’t know, during my career I saw plenty of active managers getting their ass handed to them during the down market, worse than the index did.
So I think part of it’s the way that we see active managers incentivize, they get incentivized really to not miss it by a lot. And because of that, they’re not gonna take big bets to try to do better by a long
shot. I think that’s interesting Joe. ’cause just my theory, ’cause I don’t know, but my theory was always been in a bull market, an index fund.
Makes more sense and in a bear market, the active fund. But that’s interesting to know that, that you’ve seen active managers do worse than, you know, an index fund and when the market’s going down. That’s kind of scary. Actually, I, I don’t think they’d be in business very long either, if that kept up, right.
Well, they would have
a lawsuit. I mean, if they don’t follow the prospectus, they have a lawsuit. So the idea that a fund manager can miraculously make decisions they wouldn’t make in a upmarket, make them differently in a down market is baloney. ’cause you’ve got all these lawyers looking over their shoulder going, I’m gonna sue you.
And they have, if they do anything different, then, then what it says inside the prospectus. Uh, now if it goes right, is anybody really gonna sue them? But if it goes wrong, and I don’t think that any company, fidelity, Vanguard, Oppenheimer, Franklin Templeton, whoever wants that lawsuit hanging over their head.
Oh, I, I, I think,
yeah. Doug. Yeah. So here’s me playing the devil’s advocate on this. If you had. Yourself or your advisor had put you in, you know, the appropriate. Risk adjusted portfolio that was right for you and was engaging in financial planning and really did a good job of servicing you and making sure you were consistently, and you are a consistent and disciplined investor over a very long period of time, and they were using actively managed funds to accomplish this.
And you reached your financial goals and your portfolio compounded. And you know, again, back to reaching your goals, you were able to, let’s say, get to retirement, right? Or financial independence soundly because you followed that advice and you used those products. Are you really gonna say to yourself, man, I wish I was in, you know, passive investments this whole time and I wish my portfolio was using iShares instead of BlackRock’s, actively managed fund.
Probably not. I think, you know, at the end of the day with personal finance, if you’re a. Able to be consistent and you’re able to be disciplined and stick to your investment strategy, not shoot your own foot off. When things get crazy and wild, you probably find yourself with a positive outcome. You know?
Then you, you go Monday morning, quarterback the situation and be like, huh, yeah. You could always say, I would’ve retired with. Two and a half instead of $2 million had I, you know, saved that expense. And that’s real money. But that’s only in hindsight. But I think where people really kind of get hosed, if you will, is when there’s no planning, when there’s no, you know, advice being given and you’re simply working with an investment advisor who wants to stick you in a certain family of funds to go get their commission at worst or go collect their, you know, asset management fee at best.
And, you know, is, is kind of just trying to do their best, I guess, you know. Mm-Hmm. In, in a way. And that’s, that’s kind of loosey goosey, that’s not financial planning, that’s just investment advisory. And so many advisors out there just being like, this is the way I run money. This is the way we’re gonna do it.
These are the fun families I use, and they have great relationships and money gets sticky. Right. And it’s not until the oh, eights and the 2020, the March 2020s when they got a little too creative, or they got a little too sexy. And they had too much, you know, in the wrong fund, that finally an investor or client says, ah, man, I need to switch this up.
I wanna drive to the Northeast and give you a hug, man, because the number of people I’ve known that have reached their goal using suboptimal funds, but doing something beats the hell out of the number of people that have had the most tax efficient stuff and didn’t do crap with it. It’s so absolutely frustrating.
Yeah, because, because I think we focus on the wrong thing. We don’t focus on behavior. In the second half, we’re going to talk actually more about, uh, some of the smoke and mirrors going on here is we use some of these terms like exchange traded funds to do things that, uh, maybe might or might not be good for us.
And also recent Wall Street Journal pieces really call into question is our passive investing stuff really good for us right now? But before we get to that, we have at the middle point of each show a trivia competition. If you’re new to Stacking Benjamins between our three frequent contributors. Our partner, og, who’s not here this week.
So Doug, you will be Team og and Mr. Lin Penso and Paula Pant and, uh, crystal. You’re playing Team Paul Pant this week. Doug being the only one of the three of you that hasn’t done our trivia competition before. We’ve got good news and bad news for you, man. You want the good news or the bad news? Bad news?
Well, the bad news is OG had like a what? Doug? A two year winning streak. Three year winning streak. Len, has he ever lost? He had a two.
Oh no, I won the first two years. Oh yeah,
Len won the first two years. I’m not gonna let you get away with that Doug. And then OG won the next two years and, uh, but, but Len has four so far this year.
Wow. OG has two and good news for you, crystal. Paula’s not in last place. Paula so brilliant at everything except our trivia challenge. She’s usually perennially in last place and now she’s tied with og. But because OG beat her last year. Len will guess First Doug, you’re gonna guess second. And uh, crystal, you get to guess third.
Yay. We mentioned a guy that wears funny hats. We have a guy with a similar name here, so we thought it was a good time for, well, some trivia that you’ll understand why we, why we did it. We dug Bonaparte here. We had to have some Bonaparte trivia. Oh goodness.
Hey there, stackers. I’m Joe’s mom’s neighbor, Doug. You never know it because, well, I’m so humble, but I’m actually a distant relative of Napoleon Bonaparte. Not to be confused with today’s guest, Doug Bonaparte. We’ll be glad to know he and I aren’t related, although I didn’t find out I was related to Napoleon Bonaparte until I was a teenager.
In history class, we were studying that period in history when it was all the rage to revolt against your government. And each of us was assigned a different historical figure to do a term paper on since, uh, you know, I was the smartest kid in my class and probably my grader, you know, even the whole school.
Sure. My, yeah, right. My teacher chose Napoleon for me. She wouldn’t say it, but I know my teacher wanted to show me off to the principal probably to help her get a raise. To my surprise, when my mom saw me working on it, she commented on my uncanny resemblance to Napoleon. At first, I thought she was remarking on her perfect blend of.
Stateliness laid back charm, but I soon put the pieces together. He was French. Pretty sure Doug is a French name. Well, it’s probably Lay Doug over there or something weird, but, and like Napoleon, I also took an ill-advised trip to Moscow. That didn’t turn out well, but that’s a story for another day. Once you put it all together, it makes sense.
So today’s trivia question is if every inch of Napoleon’s height equaled a dollar, how many dollars tall was the emperor? I’ll be back right after I see if any restaurants offer discounts for descendants of
emperors.
I’m sure there’s a long list, Doug, long, long list of those. So how many dollars tall if every inch that Napoleon was or equal? A dollar. How many dollars tall? Mr. Penso?
This is another math problem. This we had one. This is, this is getting a little ridiculous here with these math problems. Uh, let’s see.
Napoleon, you’d think it’s a math related show. Yeah, you would think that. Weird.
You know what’s interesting? My dad, when I was growing up, he always told me he, he was Napoleon Bonaparte in the past life. He was serious. He really thought he was Napoleon. So, uh, but that’s just, that’s an aside. Let’s see.
Well, one one inch for every height that Napoleon is, so, gosh, I dunno how many dollars are in an inch.
No,
no, no. Wait. That’s backwards. I’m gonna
help you out on this one.
Figure out how tall he was. If there was a buck for every inch of that height. That’s how many dollars tall he is.
Come
back to
him. Wait, if there was a
buck for every
what inch Les Convert aide to inches.
And just say that number of dollars versus inches and you
got it there. You. Oh, that’s it. Oh. So I don’t have to know how many, oh, that’s it. You just
need,
that’s it. What you thinking foot? That’s, that’s all, that’s right. That’s, its,
that’s all I have to know is how many inches tall Napoleon Bonaparte is.
Right? That’s, that’s it. And then that’s just convert that interest to dollar? Yes. Oh, okay. Well then that’s simple. Grandpa Lamb gets confused. Yeah. Well, you, you know what? You, that other one where you were having us calculate interest in on the Gilligans Island that was really
out there. Oh, that’s funny.
Okay. I will say, I’m gonna say 60
$60
Doug. Um, gonna go with $66.
$66. So Len thinks he’s five feet tall. You’re thinking, you’re thinking he’s five six. Yeah.
Crystal,
I was trying to gather some context clues. I’m really good at context. Clueing. Uh, ’cause Napoleon complex. What does that mean? Does it mean short, short person?
Alpha is short. Think it short. Haha. So he had to have been shorted in five feet. I was gonna guess the 60. So I’m gonna go with 59. Haha. Who didn’t see that coming crisis, right?
Who did not see that coming? Lynn? That’s the gift that keeps giving when you go
first. Yes. We finally have a win. I’m just gonna,
yeah.
Well I got sandwiched last time that that really, that hurt that. And I did all the math in that and I got sandwiched.
This is better. So, uh, a crystal’s at four foot 11 lends it, uh, five feet. Dugs it. Five, six. We’ll see who’s right. We’ll be right back. All right. Uh, Len, you kick this thing off by saying that he is $60 tall.
How you feeling about that one? You know, I don’t
know. I know he was short, so I, I, you know, that’s why I went with five feet. I, I don’t know how short he was. Was he less than five
feet? I guess he could be. Why, why do you know? Why do you know he was short?
I just read it somewhere that he was short and, and like Crystal said that you do have the Napoleon complex.
I know that has to do with being short, but I know he was, he was
very short Doug having a name like Bona Harth. I’m wondering if you may have studied this
topic. Oh, when everybody and their mother asks you if you’re related to Napoleon Bonaparte, you know the Express, if I had a nickel every time, I’d be a billion.
I’d must know at this point, you, you better know a thing about Napoleon if you are going to have the last name Bonaparte. So. Surprisingly, I do know quite a bit about Napoleon and Oh, it’s
just like, I feel the same way. Doug, I
think, I think we’ll find out that I do. I’m, I’m confident, if not arrogant like an emperor.
Wow. Oh wow.
We’re gonna call it the Bonaparte complex
on this one. I’m also six foot one, so like not anywhere near this, uh, alleged shortness that was
Napoleon. I feel the same, by the way, when people ask me if I’m related to those other salsi highs, I’m like, yes, of course. Uh, all the other ones. Yeah. And Crystal, who is clearly the owner of, of Hammond, Indiana, right?
Oh, I wish. Yeah. And Crystal City here in uh, and Crystal City,
Virginia.
Yeah. Yes. You’ll take ’em both. Crystal. You feeling good after that? That confident. Stuff that came out of, uh,
Doug’s mouth. I know, but then was it a trick if he said he knows a lot? Does Napoleon complex mean you’re, you’re tall? I don’t
know.
Napoleon complex means you’re confident.
Yeah. Doug is exuding confidence despite, you can, you can
see,
so the insured, he may know, but he’s tall.
Well,
only one guy’s got the answer. It’s neighbor Doug Doug, who’s, who’s winning this thing.
Hey there,
stackers. I’m natural born leader and Texarkana High School. Smartest freshman. Joe’s mom’s neighbor, Doug Bonaparte. We moan Cherry
during the height of his fame. I think it’s, I think it’s, look at the spelling. Doug. I think it’s ey. Ey. It’s
ey Ey,
yeah.
Lay Doug. Yes. Ey Mon Cherry. Yeah. I got it. I nailed it.
Yeah, there it is. Oh goodness. Napoleon was known to dress in disguise and roam the streets of Paris. Quizzing the electorate on what they thought of the emperor. God, I should do that. That’s a great idea. Anyway, today’s question was if every inch of Napoleon’s height equaled a dollar, how many dollars tall was the emperor?
The answer with a notoriously small stature that gave birth to the term Napoleon Complex Doug Bonaparte, uh, sorry. I mean, Napoleon Bonaparte was actually a little taller than the legend suggests. Ah, in France, by their measuring standards of the day, he was listed at five foot two inches. But if you convert that to the current worldwide standard, he stood at a mirror, five foot wait.
I’m not gonna give you the rest of that. I will tell you that he was seven inches taller than what Crystal guessed. He was six inches taller than what Len guessed. He was zero inches taller than what? Doug. Bonaparte. His namesake gu ’cause he was five foot six inches tall by regular measurement standards.
Geez. He shoulda listened to his mother when she told him to
finish his vegetables. I thought
this was the old standards. That’s what you were going
by, wasn’t it? Sure. Len. Len, you’re that old to where you would’ve once in your life operated on it. Absolutely. Wow.
Well, they changed it when Len was 12, so,
which just dawned on me, Joe, when I heard the other Doug give his answer was that we picked the one question that he sure as hell knew the answer to right away, because this dude has been teased about this his entire life.
Well,
yeah, we might have pandered to the guest a little
too much. He knows Napoleon’s height more than he knows his own anniversary.
Probably. Probably. No, we won’t quiz him on that. Yes. No, for Heather, she’s listening. No, definitely not Time for the second half of our discussion. By the way. Congratulations, Doug.
Nice job. All right. Yeah. Uh, second half of our, he does owe you, uh, second half of our discussion’s brought to you by deposit accounts.com, letting you know what happens when you go to deposit accounts.com. Yep.
Mic drop. And that’s it. Head to deposit accounts.com right to Len, uh, to find out exactly why you go to deposit accounts.com. I hope everybody does that. You find out that, uh, on their front page, you can compare more than 275,000 deposit rates from over 11,000 banks of credit unions, all for free. As an example, we’re recording this a little early, but the average national average savings rate 0.52%, but if you were in one of the top 1% of those 275,000 rates, 4.92.
And that’s, that’s down by the way, we were just over five a couple weeks ago. CD rates at 5.55 if you’re in the top 1% checking account, uh, money markets. They compare all the rates, all the fees. Head to deposit accounts.com to compare, ditch, switch and save. I knew that all, that’s it. He knew all that already.
So we talked about why this move to passive is not, uh, maybe taking off. And, uh, Doug gave us some, some good reasons. Len, I wanna start with you on this one because another piece of this is while money’s going into exchange traded funds, and you heard Doug earlier, Len, talking about how exchange traded funds more efficient than mutual funds are.
They’re the newer product. Clearly mutual funds from an earlier age, exchange traded funds really meant to do, in a lot of ways the same thing, but just better, right? Because more modern, uh, way to diversify. Yeah. But a piece of this says there’s also a bunch of money going into actively traded, exchange traded funds, which makes me believe, Len, that maybe some of the stuff Doug’s talking about around relationships and around higher fees, like maybe we can disguise that by just telling you over and over Mr.
Penso, that you’ve got an exchange traded fund, you should be happy. ’cause that’s where the world’s going.
Well, I guess, but you know what, what, what comes out to me at the end of the day is what the results are, right? Mm-Hmm. I mean, you can, we can make claims which one’s better, but you don’t know until you’ve held that fund for a year and you’ve seen the performance maybe for a couple years, give it a, a little extra time.
But I mean, the results speak for themselves. So who’s to say what’s better except you and what you invest in and what your performance is. And, and I would react accordingly based on your results. Um, everybody’s different. Everybody’s investing in different things and different mixes and different allocations for their portfolio.
So it’s, everything’s gonna be different. There’s no right answer. It’s. Uh, you know, you have to look at your own results, your own investment results, evaluate those results, and then react accordingly to that.
It’s spoken like an engineer, Len. Yeah. As if you might have played one of those for a while. Uh, crystal though.
Well, I agree. There’s, there’s probably no right one size fits all answer. There are wrong answers and I think what we see sometimes are people. Pretending they’re advisors who are really salespeople who hide behind some of these sexy terms, right? They have maybe a term where they say one thing and they mean something else.
I’m wondering if you have maybe been caught up before in some of these mind games that, uh, salespeople play?
Well,
funny story about real estate. We had a friend who, um, we got invited to dinner to hear a spiel. Yeah, I think we’ve all been here dinner, you know, where, where I’m going with this and this, this, I’m not gonna call him an idiot.
You know, he or she may be listening, but they said, yeah, I’m gonna dabble into real estate. I’m gonna buy me a timeshare. And I’m like, that’s not real estate. And so there are people who think getting a timeshare is, you know, their entry, their low barrier entry into real estate investing. And that’s one of the biggest myths.
There is, but at least I got
free
dinner. Hope they don’t even always call it a timeshare crystal. Oh, if they don’t want you to your timeshare, they’ll say fractional ownership program. Right?
Yep. And see buzzwords. And then he also didn’t understand much. So you, we know our friends bless their hearts and when they’re using terminology that you know, they don’t understand, you just go for your free dinner.
Have seconds if they’ll let you have a Ziploc bag to take leftovers and get outta there with your pocketbook
intact. Len, this, this kind of feels to me like a len penso.com piece, like top 10 buzzwords made to confuse you. Are there any times, Len, that you’ve either been caught up in this or had somebody tried to pull the wool over your eyes with some of this verbiage?
Well, let’s see. One I did. Okay. So once I do get caught up in something, just, I mean. I, I got caught up in the Amway, somebody when I was younger. Mm-Hmm. Got me to a, an Amway Con. It’s not a convention, I guess it’s a, you know, you go to the hotel and they’ve rented a conference room and, and they have people coming in with their testimonials and how they’re making all the money.
And, and I, at the time when I was young, I was like, Hey, this is kind of cool. I can make money. But the more I thought about it, you know, I decided not to do it. But Was that multi-level marketing, I guess they call it, right? Yeah. Or something like that? Mm-Hmm. Kind of just a fancy word for pyramid scheme. I did do a timeshare.
I went to a timeshare presentation once I did it willingly knowing that I wasn’t going to buy it because they were offering me You were getting a free trip? No, well close. They were offering me like 50,000 points for, this was for a, a hotel chain, and they were offering me 50,000 points on top of my hotel points.
So I said, Hey, I’ll, I’ll go and sit for an hour and a half and, and listen for 50. So I did it willingly knowing that I wasn’t going to do it. But let me tell you, they fought hard. I mean. It was not a pleasant experience for me at the end before they let me walk outta that place. They were, they were, even though I was steadfast No, no, no.
They were pushing me hard and kind of to earn a field trip
to, yeah. Yes. I did have to earn it. It, it was
paid. I wouldn’t do it again. Actually, to be honest with you, it wasn’t worth it.
But I think of things like, you know, uh, lifetime guaranteed income, you know, when they’re really saying annuity. And I know sometimes annuities get a really bad rap when it truly is annuities with a lot of bells and whistles that are a problem.
Um, I think sometimes for longevity, it, it, it can be great, but, but they just won’t say the word. Or, you know, uh, wealth without Wall Street. I like that one. Uh, uh, where you bank on yourself, which is, I’m gonna buy a whole life insurance policy, right. Is truly what they’re saying in that piece. I get frustrated with all this Doug, I’m gonna come back to you because.
A piece in the Wall Street Journal by Jason Zweig talking about how NVIDIA’s done a tear just on a total tear and making tons of money. In fact, in fact, what’s funny is that I love this piece. He says, if you invested a thousand dollars in Nvidia at the beginning of this year, it’d be worth more than $75 million right now.
And then he says, I’m kidding, of course. But it feels that way, right? Yeah. It feels like I’m missing out on these things. But there is a problem here, Doug, which is when we look at things like the s and p 500, your, a lot of advisors will tell you don’t have more than 5% of your portfolio in an individual stock.
Then it becomes a little bit too risky. So you’ve got more than 5% of your portfolio maybe in Microsoft, depending on what it’s, it’s it is where when this comes out, maybe in Microsoft, maybe in Apple, maybe in Nvidia, is indexing more risky right now than we think it is because there’s a few investments at the top that are driving a lot of results.
Yeah, that’s a really good question, but let’s reframe it. You know, if you’re going to be investing for a long period of time, let’s say, excuse me, over a multi-decade period, we can go back and see who the top components have been in the SP 500 and it, it hasn’t been Nvidia oa. NVIDIA’s just recently made its way to the top, having gone super parabolic here.
I think it’s the fifth or sixth largest component now. You know, Microsoft’s been in, in the mix. Apple’s been in the mix, but it’s not to say they’re gonna stay there in the top. Now having said that, these multi-trillion dollar companies now, or trillion plus companies, seem to be way, way far ahead of, you know, other components in there.
And they look like they might have some staying power here, but I really don’t view, you know, having. A cap weighted index is that much riskier, by the way. How would you, you know? All right, so let’s say you went for an equal, uh, cap weighted, you know, s and p 500 fund. Which are you happy right now? Uh, relative to, you know, whether or not you had just bought the s and p 500?
Probably not. Probably not. You maybe would’ve been happy. Or in 2022 in a bad year. Right. Um, uh, we can fact check me on that one. I wonder if the equal weight, I’m pretty sure the equal weighted index did, did better, but I would think so. Yeah, I would think so too. But no, I, I just really don’t think if you’re holding for a long period of time, you know, things change.
You know, this is, this is dynamic. You might be indexing today, but like the 500 shifts around quite frequently. So in 10 years from now, or in 15 years from now, who are the top? Components going to be. Um, I’m feverishly trying to find out what it was 20 years ago. I know there’s a specific table or graph I’m looking for here.
’cause I find it super, it’s just the components also
Doug. I mean, like if you look at the Dao right? If you go back 50 years, the DAO 50 years ago, I, I, I don’t know what it is, but I’ll bet you more than half the components of the DAO today. Were not in the DAO 50 years
ago. Look at GE as like a perennial example of this.
Like, when’s the last time you even heard GE as like any kind of performer here, or I, or like the IBMs of the world. These, these things have real, you know, these, these used to be the bellwethers, you know, these were the bells of the ball. And now, you know, they’re, they’re hardly mentioned at all. You have Apple, Microsoft, you know, meta well, some companies
are gone, right?
I wasn’t Sears. Mm-Hmm. A, a component of the DAO at one time. Sears Roebuck maybe.
I’m sure it must have been.
And it’s what company’s gone, right?
Yeah. Pretty much
crystal during this discussion. I’m thinking about just the fact of should we know a little more about what’s under the hood or should we just let it work?
Its magic, and I’m kind of, of of two minds here. I mean, I’m, on one hand I feel like if you look under the hood and you raise the alarm bell like I just did, you, you, you might jump off a strategy that works and, and to Doug’s point and lens point, things change over time and if you just stick with the index, it’ll do what the index does.
But when you don’t know, you’re taking a certain amount of risk. That also kind of bothers me as it does. Another Wall Street Journal piece I’ll link to here by Spencer Jacob talks about how, you know, your average target date fund investor has no idea what they’re invested in. They get put in automatically by their company and when they get to retirement, they have no strategy of what to do with it once they are trying to take income from it.
I know if you’re using the L fund, you’re using a lifestyle type fund. Mm-Hmm. I mean, does that make you think maybe I should look under the hood more?
Well, they do have options. ’cause I do remember one year saying, okay, I’m gonna take it into my own hands. And I tanked and I was like, see, I just should have kept it where it was and not touched anything.
Such a great blessing. And they do these, you know, retirement seminars after you’ve been, um, in the office for 15 years. You, you get to attend this seminar. But, uh, there’s a lot to say about how knowledgeable the people that are leading these seminars, but one of the, the key things like Doug said before about the oh eights, you know, in certain years when people were in these target date funds and they had no business in those funds.
So it does pay to have your own education. Because if I’m five years out of retirement, I don’t care how well the stock market is doing. Yeah. I should not have, you know, my money in stocks, my retirement, my nest egg. I should not have that in stocks. And you mean individual stocks? These blind. Right. Yeah.
But even the fund, the fund, ’cause there’s a G fund that’s only the, the bonds, government bonds. So it gradually gets you into the G fund. But I don’t wanna depend on that fund. I wanna make sure that it, it’s happening. I don’t wanna blindly trust it. And that’s what we’re doing with our target date funds.
So I’m gonna keep it in there. Want,
I don’t want a
lot of my money in the G Fund ever, ever, ever, ever. But that’s a different, different day. But
close to retirement, if you’re five years out, you want, you know, no news is good news kind of investment. That’s, that’s my understanding and that’s what I learned not from being in the, my company offered retirement account.
That’s, you know, from listening to these kind of podcasts and you know, being in the personal finance space, that’s how I know
better.
Well, Len, and where do you come down? I mean, crystal says we should not really look under the hood as much as kind of know what’s going on in the zeitgeist. Uh, how about for you
zeitgeist?
Well, I, I was just looking at some numbers here for, for, remember, I, I, I said I, I have a little bit of everything. I, I do a little. When in the investing world, I do index funds, I do actively managed funds and I dabble around myself where I take some funds. I do my own management of individual stocks. So I’m gonna give you the sector that I was talking about before.
It’s very risky. The reason I go into the actively management managed fund is because it’s extremely risky. It’s very technical. I don’t. No anything about, it’s the mining sector. It’s very risky. You can lose a lot of money very fast if you don’t know what you’re doing. So that’s why I have an actively management fund.
So I’m gonna give you right now my, my year to date results for my index fund that I have my actively managed fund and me playing with 10% of the funds that I’ve put into the actively management funds. But it’s just, it’s like me playing playing manager. And this is why I don’t do this. I’m down 35% myself picking individual stocks.
This, this year I’m down 35%. You imagine if I
try doing by low Len,
buy and low. Well, that’s right. But I mean, do you imagine if I put my whole, my whole portfolio and I decided to do lose a third of it, the actively managed fund, and right now, the, the, the mining sector’s been beat up. It is as low as it’s ever.
It’s just nobody wants it. It’s unloved. The actively managed fund is down 20%. This, this is a manager picking individual stocks doing this, and I’m paying one in the mining sector, in the mining, and I’m paying him 1% per year on a, a pretty good chunk of change. Okay. Which ain’t now since it’s down 20%.
And then the index fund, which I do myself, just an index fund that I, in the mining sector, that’s down 10%. So those are your numbers basically minus 10, minus 20, minus 35. The index fund, even in the down market, is better than the ACT active manager, and it’s way better. Than what I was doing playing cowboy, playing investment cowboy.
Hmm. So there you go. I I, I’ve just invalidated my own thoughts on, remember I said I thought in the bear market the index fund would not,
and Yeah. Oh, I just, good
point. I just, you know, it’s short. This is only in a three month period. Four month period. But hey, you know, there you go.
And I’ve heard that for a long time, Len.
And it, it plays out much more like you’re talking about than we think it does over and over and over. I mean, this, this myth that the active management’s gonna win in a down year is difficult. Doug, where do you come down between your clients looking under the hood and or just knowing the overall strategy?
Like I said
earlier, we’re primarily a a passive shop. I, I really, again, look at the statistics, I don’t believe active management’s gonna outperform passive strategies and the index over the long term. I wanna compress fees as much as possible. I just don’t think that’s where I wanna, you know, my clients spending their, their money and their expense.
I’d rather them get good financial advice and financial planning from us and learn all the ways that they can be consistent and disciplined when it comes to investing. You know, when things get crazy, both good and bad, that’s really where we shine as professionals. We’re a professional expectation setters.
We have to make sure that our clients don’t make mistakes due to their own behavior. That’s really where we have the most value. So I just never believed that. Picking stocks or guessing which sectors or which slant, whether it’s value versus growth, is gonna do the best. I, I just don’t think that’s a winning game to play when I do know that controlling behavior over the long term, it is a winning game here.
And again, like I said earlier, that’s not to say there aren’t areas I do believe in less efficient markets. A professional who really understands the space, you know, I think they can do a good job there. If you have hundreds to thousands of analysts covering large cap stocks or a specific sector, what are the odds?
You know, one of them is gonna be like, I know something. All the others don’t, you know, probably not great. What if there’s only 6, 7, 8, a couple dozen people covering a specific space there? It seems to me a little more likely that one might be doing a little bit better research than the other. So there could be an edge there, but this is really few and far between, you know, and it’s very, very client specific with how we think about actually using active management.
And by the way, there’s always a little bit of active management going on. Even when you’re using passive investments, you still need to create an allocation particular, you know, that’s designed around that client. I’ll give you a great example. I took the Fed at their word before they started increasing rates that they were going to raise rates, right?
You hear the expression, don’t fight the fed. So we look to clients, particularly in this case, older clients who have more exposure to fixed income to bonds. And you say to yourself, huh, you know, if you’re passively investing in let’s say a GG or just the Barclays aggregator or the US Bond Index, and you got the Fed saying, we’re gonna raise rates consistently to fight inflation, you’re looking at your bond portfolio, you’re like, I’m pretty long duration here.
That’s the measure of the sensitivity of interest rates to bond prices. And you need to know, I’m getting technical here, but you need to know it’s an inverse relationship. If you are literally hearing the chairman say, we’re gonna raise rates and you’re long on bonds, you got long duration, maybe you make an adjustment there.
All right. Maybe you go shorter duration and you say, or you move a portion of that bond portfolio to something short. We, we took the fed out their word and it paid off. Mm-Hmm. But here’s the thing about active management. It’s not that you gotta be right once. You gotta be right twice,
right? ’cause then you gotta move.
You gotta move back.
Now you gotta move back. And luckily we did well enough on that to be perhaps early in getting back, you gave yourself a, a greater margin to, to get it right twice. And it’s not. Very comfortable stuff for someone who’s as passive as me. But there are times in which your research knowledge and understanding of things come into play and you make a call like that.
And luckily, you know, for, for the clients of the firm, it worked out well. Um, and the Fed ended up raising what, 11 consecutive times there. So if you were Mm-Hmm. If fewer were long bond, you got caught up in 2022 with the worst year for fixed income in a century.
I love that. ’cause there, there were maybe in my 16 year career, there were maybe, I’m gonna say five times Doug, that I was like, this just seems to be the world’s most obvious call.
And then you really do have to question yourself. ’cause to your point, it’s not about being right that first time. It is, it is. Are we, are we willing to stake, you know, our client’s money, not even our money on it. And so, uh, but, but think about how rare that is. If it’s that few times over that long of a period.
Yeah. Super rare. It was again, I mean, when it was the worst bond market in a century. And that’s not even, that’s not hyperbole. That’s the real statistics. So yeah, that’s not gonna come around very often, if at all. We’ll be lucky to see something like that, you know, a handful of times in our
lives. Yeah.
Amen. Hmm. I think it’s a great place to leave it guys. We’ll link to all these pieces on our show notes at Stacking Benjamins dot com. Great discussion about active versus passive investing, and I think I. Uh, for people that don’t know a lot about this, I think it’s a great primer to begin digging in more.
Let’s find out what’s happening, where each of you are, and, uh, we’ll have our guest of honor go last. Let’s start with my co-host over on Stacking deeds. Crystal, we’ve had some fun over there lately. Can you wanna go over a guest or two that we’re, we’re gonna be shining a light on
Well, yeah.
Testing? No.
Yeah. Coming up is Dave Lineer. He goes over the basics, but I really, really love how he broke it down. Like he, he goes into like contractors, he goes into like, there’s some lines that I plan on using in my, going forwards with my big construction project. So I love a lot of the tips that he gave the systems.
Like, I’m serious, like I can’t wait to. To put all this into play. I am just waiting on zoning. Can someone speed up the zoning office in Chicago? Please? If
we could get somebody in that zoning department to move on. Crystal’s. Crystal’s
zone. Ken Griffin couldn’t even get their zoning department to move.
He left town. I don’t think you’re gonna do it Crystal.
Well, she’s, she’s Crystal Hammond. Come on. True, true. Yeah. Yeah, exactly. There’s that, and that’s on our Stacking Deeds podcast. We’re also talking to the. Uh, Crick who are husband and wife team who do Oh, yes. Airbnbs, yes, they do short-term rentals. So short-term rental, landscape changing.
So for people wanting more on that, we’re talking about that. Mr. Penso, what’s [email protected]. Um, you know, this week,
a reminder every weekend on Saturdays we do our weekly financial roundup. It’s more macroeconomics, but, uh, it’s always the best in the news of the week. Uh, the best tweets that I find and the best memes that are, are related, and it’s a fun, fun little time.
I will say Doug, uh, I actually featured one of your great tweets, uh, last week’s, uh, edition. I’ll just read it here because I thought it was so clever. Do it. It’s, uh, he, he said due to inflation, February now has 29 days. I thought that was fantastic. So we put that in there and one, and one of his, uh, followers said, March is gonna be 45 days long if we don’t get this figured out.
So anyways, that’s the kind of stuff you get, but good stuff from Doug. Excellent
follow, by the way, Doug, he is funny. Yeah, agree. He’s funny. Thanks guys.
Doug, uh, thank you so much for, thank you for joining us, man. It’s been too long, but Yeah. But, but, but what are you guys working on? And people wanna get ahold of you.
How do they find you besides following your cleverness on, uh, Twitter slash x?
Yeah, yeah, it’s always a good time over on x the platform, formerly known as Twitter. Um, same handle all over the place. You can follow me, uh, anywhere you like. Really it’s at Doug Bonaparte and when you do follow me, you’ll, you’ll get that sweet link tree in the bio and you can find your way to all the cool stuff we’re working on.
The main project right now is my wife and I are working on our second book. Cool. Yeah. Yeah. Guys, you know, I, I almost tongue in cheek say, don’t write a book. No, seriously. It’s a fantastic project. We’re writing about love and money and the power dynamics between couples when it comes to this topic.
Something that really hasn’t been written before. Our goal is to be able to have couples literally be able to communicate around. Money. We, we don’t do a good job at that because it’s so much about our identity. So we’re working on that. We’re not gonna see that till late 2025 at the rate we’re going here.
Uh, but in the meantime, if you like talking about things having to do with relationship and money, we have an awesome newsletter called the Joint Account, which every week we’ve been writing about. I’ll handle q and a reader questions about how to handle certain things. And Heather, they’re the brilliant writer she is, is going deep on these concepts around relationships and money.
That’s over on Beehive. Make sure you subscribe.
I thought the joint account was about marijuana this whole time.
That’s my sonna not, not
my beehive. Turns out I was completely wrong. We’ll link to, uh, that in our show notes page. Guys, thanks all three of you for joining us. This was a great discussion.
Doug, uh, what should be on our to list today, man? So, what’s
stacked up on our to-do list for today? First, take some advice from our guest, Doug Bonaparte. Maybe some of the push toward actively manage ETFs is because the large institutions offering them or making money from management fees. If your advisor is recommending you, add one to your portfolio.
Ask them why is being positioned in actively managed funds in my best interest. Second, take a note from Len Penso. If you’re comparing an active ETF to a passive ETF, take a look at the historical performance while past performance doesn’t indicate future success, yada, yada, yada. It’s a decent clue to whether or not the management fees are worth it.
But what’s the biggest to do? I’m gonna open an ancestry.com account so I can find out what other famous French people I’m related to based on personality alone. I bet it’s either like Joan of Arc or Peppy Lapu, or maybe that great French writer named what, what was it? Solitaire? Something like that.
Thanks to Doug Bonaparte for joining us today. You can find more about Doug at bonafide wealth.com. We’ll also include links in our show notes at Stacking Benjamins dot com. Thanks to Crystal Hammond for hanging out with us today. You’ll find her fabulous podcast, Stacking deeds, wherever you listen to finer podcasts.
And thanks to Len Penso for joining us today. You can find [email protected] slash. Mining maybe.
The show is the Property of SP podcasts, LLC, copyright 2024, and is created by Joe Sulci High. Our producer is Karen Repine. This show is written by Lisa Curry, who’s also the host of the Long Story Long podcast. With help from me, Joe Kate Yakin, Karen Repine, and Doc G from the Earn and Invest podcast, Kevin Bailey helps us take a deeper dive into all the topics covered on each episode in our newsletter called the 2 0 1.
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