Isaac Newton Lost 80% of His Fortune in a Bubble — What That Teaches Every Investor (SB1856)

Isaac Newton was one of the smartest humans who ever lived. He also bought into the South Sea Bubble, sold for a profit, watched it keep climbing, bought back in out of pure FOMO, and rode it all the way down to an 80% loss that haunted him until he died. Ben Carlson, co-host of the Animal Spirits podcast and one of the sharpest minds at Ritholtz Wealth Management, joins Joe and Anna to walk through centuries of market history — bubbles, crashes, and the psychology that makes smart people do dumb things with money. Anna also helps a Stacker named Louie untangle his 401(k) sources and figure out whether it’s finally time to bring in a professional.

What You’ll Walk Away With

• Why Isaac Newton’s South Sea Bubble loss still ranks among history’s most instructive investing failures — and why it had nothing to do with intelligence
• Ben’s framework for why risk means something completely different depending on where you are in your life cycle — and why a market crash genuinely doesn’t matter the same way to a 25-year-old and a 55-year-old
• The wrong lesson an entire generation learned from 2008 — and why everyone preparing for the last crisis missed the next seventeen years of bull market
• Why Japan’s three-decade stock market bubble is the best real-world case for diversification — and why it doesn’t translate as cleanly to the US as people assume
• The behavioral reason complex investment strategies are easy to sell and nearly impossible to hold through a downturn — while simple strategies survive the pain
• Why Ben’s firm discovered that the hardest financial transition isn’t saving for retirement — it’s actually learning to spend the money once you get there
• The Beanie Babies divorce court story that perfectly captures what every bubble looks like from the outside
• Anna and OG’s take on Louie’s four-source 401(k): why it’s simpler to manage than it looks, and why “move everything to Roth” is the wrong instinct for most DIY investors
• The Roth conversion icing-on-the-cake strategy: how to use pre-tax and Roth buckets together to manage your tax bracket year by year in retirement
• Why one financial pro has a surprisingly negative take on HSAs at death — and the timing problem that makes spending one down in retirement genuinely tricky

Why This Matters Now

Every market cycle feels unprecedented while you’re living through it. Understanding the actual constant — human psychology, not headlines — is the difference between riding out volatility and becoming a cautionary tale, smart as you might be.

From the Basement

Ben Carlson joins Joe and Anna to walk through centuries of bubbles, crashes, and the psychological wiring that makes both geniuses and ordinary investors do the same dumb things. Doug arrives with Statue of Liberty trivia tied to America’s upcoming 250th anniversary. A Stacker calling himself Louie — and getting Anna instead of OG, much to his surprise — asks for help simplifying his 401(k) and figuring out his Roth conversion strategy, and gets a reminder that he’s already doing better than he thinks.

Resources Mentioned

Stacking Benjamins Community — stackingbenjamins.com/basement

Risk and Reward: How to Handle Market Volatility and Build Long-Term Wealth by Ben Carlson — available wherever books are sold

Animal Spirits podcast — Ben Carlson and Michael Batnick; available wherever you listen to podcasts

Ritholtz Wealth Management — referenced for prior guests Barry Ritholtz, Josh Brown, and Nick Maggiulli

Where Are the Customers’ Yachts? by Fred Schwed — referenced for the famous quote on the emotional experience of losing money

Paul Merriman’s research on asset allocation — paulmerriman.com

Stacking Benjamins Vault — stackingbenjamins.com/vault

Stacking Benjamins Newsletter (The 201) — stackingbenjamins.com/201

Stacking Benjamins voicemail line — stackingbenjamins.com/yelldownstairs

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Better call Saul…Sehy and OG

He’s done the hard part and built a seven-figure nest egg. Now a 58-year-old Stacker wants to know whether the multiple buckets inside his 401(k) are creating unnecessary complexity, how Roth conversions should factor into his retirement plan, and when it makes sense to bring in a financial pro.

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Doug’s Trivia

• When the Statue of Liberty arrived in New York Harbor in 1885, the city nearly sent the gift back to France because it couldn’t afford one critical accessory. What was it?

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Want more than just the show notes? How about our newsletter with STACKS of related, deeper links?

• Check out The 201, our email that comes with every Monday and Wednesday episode, PLUS a list of more than 19 of the top money lessons Joe’s learned over his own life about money. From credit to cash reserves, and insurance to investing, we’ll tackle all of these. Head to StackingBenjamins.com/the201 to sign up (it’s free and we will never give away your email to others).

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Other Mentions

• Ritholtz | Home
• Where Are the Customers’ Yachts?: or A Good Hard Look at Wall Street (Wiley Investment Classics)

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Join Us Friday!

Tune in on Friday when we dive into what are some that they’ve had to un-learn? We’ll ask our roundtable for their thoughts so you can build your habits better and stronger!

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Written by: Kevin Bailey

Miss our last show? Listen here: AI Agents Want to Trade Your Stocks and Shop With Your Credit Card — Here’s Why That’s a Problem (SB1855)

Episode transcript

[00:00:00] opener: Can you fly this plane and land it? 

[00:00:03] Joe: Surely you can’t be serious. 

[00:00:05] opener: I am serious, and don’t call me Shirley

[00:00:13] Doug: And from Joe’s mom’s basement, it’s The Stacking Benjamins Show

[00:00:27] Doug: Joe’s mom’s neighbor, Doug. And what can we learn about risk and reward by looking back in history? Turns out, a ton. And we’ll prove it today by dissecting markets good, bad, and ugly with the co-host of the Animal Spirits podcast, Ben Carlson. Plus, we’ll answer a question from one stacker who thought, “You know, I better call Saul.”

[00:00:48] Doug: C. Hi and Anna. Our stacker is prepping for retirement and is wondering about his investment strategy. We’ll help him and you make tweaks. And of course, there will be zero tweaks necessary to my incredible trivia question. You’re perfectly poised to answer it correctly. And now two people who are just happy for air conditioning in the basement, it’s Joe and Anna La-la-la-la-la.

[00:01:18] Joe: Hey there, Stackers. Happy Wednesday. I am Joe Saul-Sehy. And, and across the card table from me, Anna LL- Uh, how many Ls are in your name, Anna? I think seven based on the way you’ve done- Yes … 

[00:01:29] Anna: Well- Six sevens … and I… 

[00:01:31] Doug: Oh, she did it. We walked right 

[00:01:34] Anna: into that. That’s why the kids aren’t saying it anymore. You 

[00:01:39] Joe: c- you can’t tell Anna has kids, can you, Doug?

[00:01:42] Joe: Anna ruined it 

[00:01:42] Doug: for everybody. 

[00:01:43] Joe: All that six, seven language. Anna, super happy you’re here with us today. Having a great Wednesday. 

[00:01:50] Anna: Thanks for having me. 

[00:01:51] Joe: We’re gonna have a great time ’cause Ben Carlson joins us today as well. He’s upstairs talking to Mom. We’re gonna talk about history and the stock market.

[00:02:00] Joe: When you look back historically, Anna, at the stock market and some of the bubbles and some of the downturns, like do you have a certain era that you most get interested in? 

[00:02:12] Anna: I feel like it’s really what’s in my own lifetime. So 2007, 2008, like that whole time period, and then after that, the growth after that, what has happened, and then a little bit of like what’s happened in the last five years.

[00:02:30] Anna: Not that there’s been any sort of like recessions going on, I think that’s what you guys are diving into, but also just like major dips that we’ve had and, and all of that. It’s just very applicable to my life and also a lot of my clients’ lives. Like stuff that’s happened before that, most of my clients might not even really have a lot of actual experience with.

[00:02:52] Joe: Yeah, that’s why I like going through some of those times. Mm-hmm. Like the, you know, I wasn’t investing in 1987 during that downturn, but talking to my father-in-law about his investments during that time and how he lost a bunch of money by trading on the wrong day and not understanding how a mutual fund worked.

[00:03:08] Anna: Yeah. It’s really interesting. 

[00:03:09] Joe: Yeah, the gold run up in the ’70s. I also found inflation in the ’70s, all that stuff. So Ben is definitely a student of all that. We’re super excited he’s on the show. You know, our friend, uh, Paul Merriman was talking to me a couple weeks ago and said, “Have you read Ben Carlson’s book?”

[00:03:25] Joe: I said, “Oh, not only that, Paul, he’s coming down to Mom’s Basement.” He’s like, “Fantastic.” So Ben Carlson, if you don’t know who he is, he’s one of the great minds at Ritholtz Wealth Management, one of the premier wealth management firms in the country. Of course, we’ve not only had Barry Ritholtz on talking about the worst ways to invest.

[00:03:42] Joe: That was a fun interview. We also had his CEO and gentleman you see on CNBC a ton, Downtown Josh Brown, has been on. Of course, Nick Maggiulli has been on. So I feel like w- we’re getting all the Ritholtz guys on. And why Ben is the fourth one, beyond me, but Ben is definitely a student of history, a guy with a lot of knowledge in a lot of different investing areas, one of the smartest minds on or off Wall Street, and so he’s gonna join us right as soon as we get through this break.

[00:04:13] Joe: ‘Cause we have a couple of sponsors who help us keep on making this free for you and bringing great minds like Ben Carlson to the show. We’re gonna hear from them, and then Ben Carlson coming down to Mom’s Basement to talk about periods of high risk and high reward in the financial markets.

[00:04:41] Joe: And I’m super happy this gentleman’s here, the co-host of the Animal Spirits podcast, Ben Carlson. Finally, we’ve got him in the basement. How are you, man? 

[00:04:48] Ben: Good to be here. 

[00:04:49] Joe: I have been a fan of your work for a long time, and I’m wondering about this. You know, you and I have been investors for a long time. I started my career in the early ’90s, and I feel like investing used to be you buy some mutual funds, kind of ignore your statements, and you accidentally become rich, right?

[00:05:08] Joe: Now it feels like I need six monitors, I have to have a dopamine addiction, a Discord server run by a 19-year-old named something like Crypto Lobster. Has investing become psychologically harder, or are we addicted to this constant stream of more information and we just feel like we need that hit every three seconds, Ben?

[00:05:28] Ben: I think it has become harder to… The proverbial thing that, like, the plaque that they give you when you graduate in wealth management, whatever your job is, you’re a financial advisor, here. The first thing you say is, “Ignore the noise,” right? That’s the thing that they teach you. It’s a great slogan, and it’s useless today, because there’s a fire hose of information coming at us, and we have these little glass supercomputers in our pockets that are constantly alerting us to what’s going on.

[00:05:51] Ben: And so it’s impossible to ignore what’s going on around you because you’re seeing it on an instantaneous basis, the good, the bad, the ugly, all of it. And I think right now is like the greatest time ever to be an individual investor in terms of like the, the strategies that are out there available for you, the low cost, all that stuff.

[00:06:09] Ben: Like when I went to buy my first Vanguard mutual fund 20 years ago, they were like, “Oh, great. The minimum’s $3,000.” And I was like, “I don’t have $3,000.” Like, 

[00:06:17] Joe: wait, what? Yeah, right, right. 

[00:06:19] Ben: Now fractional shares, and there’s no minimums, and there’s no costs to trade and all these things, and that is great. But the double-edged sword side of that is now like you’re constantly always tempted to do something, and you talk about the dopamine hit.

[00:06:32] Ben: Like, you wanna put your hands on the steering wheel to do something, and it’s easier than ever to do something these days. 

[00:06:38] Joe: How much do these new apps scare you too, Ben? I mean, I saw a TikTok video the other day and this guy said, “Hey, if I wanted to make a bunch of money, I’d take men in their early 20s.

[00:06:49] Joe: I would put a phone in their hand with a cool app where they can trade on a daily basis with zero friction before their prefrontal cortex is completely formed. And just when they’re getting those first paychecks, I’m gonna take it away on a daily basis.” Like, I feel like these Kalshi apps and the other craziness makes the noise even harder to get away from.

[00:07:08] Ben: Yes. My hope is that people will learn, and they’ll learn when they have not a lot of money to put at stake. You’re paying your tuition to the market gods or whatever, and you wanna do that when you’re young, not when you’re old and have a more mature portfolio. So I think a lot of young people go through that regardless of it.

[00:07:22] Ben: But yeah, it’s harder than ever to understand, you know, the line is blurring between investing and speculation, and it’s easier to speculate now on everything essentially. So yes, I do worry about that. On the other hand, I think a lot more young people are involved in the markets and try to… kind of understanding what risk is.

[00:07:39] Ben: And you know, people who got involved in crypto early have lived through like four 70 or 80% crashes. I actually think that’s a positive that since most of them are young people because they’re learning what it’s like to deal with that pain and volatility. I do think that there are like positives and negatives about the current situation.

[00:07:55] Joe: Like low-cost mistakes when you first start out. 

[00:07:58] Ben: Yes. And the other side of it is there are a lot of people who are just putting a bunch of their money into target date funds in a 401, and then they have like a Robinhood account with 10% of their money that they’re going crazy with. I used to be a staunch, “No, we don’t do that.

[00:08:11] Ben: Everything has to be, you know, fall in line, follow the rules.” But I actually think from a behavioral perspective if, if that’s what most people are doing, they’re taking 5 or 10% of their money and they’re speculating their faces off- I’m okay with it if it allows you to leave the other 90, 95% of your account alone.

[00:08:28] Ben: But obviously we know that there are people who have personalities that will get addicted and take this too far, and unfortunately for them, it’s easier to be addicted these days to this stuff. 

[00:08:38] Joe: I like that way of fighting this urge though, because, you know, I’ve been doing this a long time, and I still have that urge.

[00:08:43] Joe: Like I’m a raccoon in my Schwab account hitting w- you know, like the raccoon in the trash can, just like, “Come on, let’s see how it changed from five minutes ago.” And I’ve been doing this forever, and I still do it. So minimizing the damage by making it just a small portion of my portfolio is a little bit, I think, of note myself.

[00:09:00] Joe: You know, people say they want stock market returns, but what a lot of people I think really want is stock market returns without feeling uncomfortable. Why do people think they can tolerate volatility until volatility actually shows up? 

[00:09:18] Ben: Yes. I, I think you look back at the line that goes sort of from the bottom left to the upper right, and you go, “Oh, okay.

[00:09:23] Ben: I want that.” Right? “That looks great.” But you look at the little squiggles, and they don’t look so bad until you’re living with them. I think the hard part is knowing how you’re going to react because I’ve seen people say, “Hey, let’s just do a paper portfolio” when you first start out. Well, you can get to know what it’s like to invest, but it’s hard to understand what it’s like to actually lose money.

[00:09:43] Ben: Fred Schwed wrote this classic book, Where Are The Customers’ Yachts? I think probably arguably one of the greatest titles ever for an investment book. And he said, “Of all of life’s rich emotional experiences, the full flavor of losing important money cannot be conveyed by literature.” He says, “You cannot convey to an inexperienced girl what it is truly like to be a wife and a mother.

[00:09:59] Ben: There are certain things that cannot be adequately explained to a virgin by words or pictures.” Sometimes you have to live these things. And yeah, they let people get away with a lot more stuff back then apparently. Right. 

[00:10:08] caller: I guess so. 

[00:10:10] Ben: But you have to kind of experience it yourself and know, you know, what it’s like.

[00:10:14] Ben: Some people are able to withstand it, and some people cannot, and some people tap out. I think you said, like, knowing yourself, that’s kind of what it all comes down to, is some people have the ability to sit on their hands when the market falls 30 or 40 or 50%, and some people just do not. 

[00:10:29] Joe: What I like about this project that you’re working on now, Ben, is the fact that I feel like you, you’re also a little bit of the airplane pilot, where you can show us, even if I’m in my 20s, I can look and see what things have happened.

[00:10:40] Joe: Even if I didn’t live through it, I didn’t feel the emotions, you can still look at it. Like a great phrase you use is that the stock market’s lumpy. And you know, we see that line that goes up and to the right, and we think, “Okay, that’s the way it’s gonna be when I first start out.” And you point out very clearly that no, no, no, no, no, man, these are gonna come in bumps.

[00:10:58] Joe: These are not gonna be even stairs. What do you write, like seven inches apart? These stairsteps, some are gonna be huge, and some are gonna go down. It’s gonna be a crazy ride. 

[00:11:07] Ben: When I first joined the finance industry, I had zero experience investing. I wasn’t one of those people who, like, grew up reading the Wall Street Journal or the Barrons with my dad on the weekend or something, you know?

[00:11:16] Ben: I got thrown into it, and I was like, “Oh, man. I don’t know anything.” It’s gonna take me a while to gain experience and gain wisdom, so what do I do? I have to study history. That’s why I write so much about history in my book and on my blogs because I do think it’s helpful to understand how things can change over time but also how they can stay the same.

[00:11:32] Ben: And I think that’s the point of studying history is, like, oh, okay. I know this time right now seems totally unprecedented, but every other time in history did, too. The one constant in all market cycles is human nature, and that’s the thing that’s never gonna change. 

[00:11:46] Joe: You’re always gonna have somebody say, “This time’s different,” or it was different in Japan, right?

[00:11:50] Joe: You gotta read Ben’s book to get that little joke. Take me inside a real crash moment. You go through many of the crashes through time. Take me through a real crash moment. 

[00:11:58] Ben: You know, the first one I lived through was just the great financial crisis. I joined a new job managing a large investment fund for a nonprofit in July of 2007.

[00:12:08] Ben: My wife and I got married, went on our honeymoon, got back the day after my honeymoon, we started at this new job July of 2007. Like, within the first few weeks of my job, credit markets started blowing up and hedge funds are blowing up left and right. And then, you know, Bear Stearns goes under, and then Lehman goes under, and then AIG has to be saved, and all this stuff happens.

[00:12:26] Ben: And I’m, you know, I’m in my mid-20s watching this all transpire. The good thing for me is I didn’t have a lot of money in the market at the time, so I’m funneling money in. And it’s funny because it was so bad, people thought the financial system was gonna just collapse. And we had a call with a hedge fund manager on a Friday, and he said, “Go to the bank right now.

[00:12:43] Ben: Take out all the cash you can ’cause on Monday-” Oh my God … “the banks, the banks might not open.” And it’s funny, me being this young, naive person, no huge responsibilities in the world, just didn’t have my first mortgage yet. Wife and I had just got married, no kids. I’m thinking, “This is awesome. This is… I’m, like, living through history right now.”

[00:13:00] Ben: And one of my colleagues who’s in his 40s, and he’s got a mortgage and he’s got kids, and he says, “Ben, take all your 401money, your new contributions, and put it into a money market fund because the financial markets are not gonna work anymore.” And I said, “Okay, maybe that’s advice for you who are trying to survive, but for me, I’m probably never gonna see lower stock prices than this in my life.

[00:13:18] Ben: And if I do see lower stock prices than this and the market goes to zero, no one has to worry about their investments ’cause the world’s gonna just fall apart.” Just living through that time for me was very instructive ’cause I put together all the stuff that I’ve been reading in history and I was like, “Oh, I’m living through a historical moment right now.

[00:13:34] Ben: How do people react?” And seeing how people reacted to that was really instructive for me in terms of understanding how those emotions, like, how the true loss of a lot of money, how it can impact people. 

[00:13:46] Joe: And how it differs based on how close to the goal you are. You’re a long ways away from your goal.

[00:13:51] Joe: You’re like, “Wow, this is history.” Dude with a mortgage much closer to the goal, it hurts. 

[00:13:56] Ben: Yeah, I, I say that in the book that risk means different things to different people at different points of their life cycle. When you are young, your biggest asset is human capital. You don’t have any financial assets yet barely.

[00:14:06] Ben: If you have $10,000 in the market and it falls by half, you have $5,000 now. It’s not gonna put you in the poor house. But if you’re someone with a million dollar portfolio and the market falls 50% and you’re approaching retirement and now you have $500,000, you wanna jump out the window. So the bear market is way more risky for someone who’s in retirement or approaching retirement than it is for a young person.

[00:14:27] Ben: The risks are totally different depending on where you are in your life cycle. 

[00:14:30] Joe: Going back to the financial media discussion, I remember having lived through that myself, Ben, that hearing the contradictory things before Bear Stearns went under. I just remember so many pundits saying, “There’s no way Bear Stearns would go under.”

[00:14:43] Joe: Like, that ain’t gonna happen. Lehman Bro- who’s gonna let Lehman Brothers go under? And then when those pillars fell, it really was a shock to the system because so many people were saying the opposite. You didn’t know who to believe. 

[00:14:53] Ben: And it’s funny because most of the time I’m the guy who kind of poo-poos the big re- when people say like, “Hey, this is gonna be a risk.

[00:14:58] Ben: The market is gonna crash,” I’m the guy who says, “You know what? No, come on. The market’s not always gonna crash. You can’t spend 95% of your time worrying about stuff that happens like 2% of the time. Let’s be realistic here.” But sometimes really bad stuff can happen. That period was a reminder to me that, oh my gosh, I mean, the stock market fell almost 60%.

[00:15:15] Ben: These institutions that had been around for 150 years were going under left and right. Uh, there’s bailouts. And so living through that also was a good reminder that even though over the long term I think you can just ignore most of the stuff that goes on, sometimes this stuff really does matter, and you’re gonna be put to the test and, like, your intestinal fortitude, it’s like, all right, this is like a real exam.

[00:15:34] Ben: Buckle up. 

[00:15:35] Joe: You saw some people learn great lessons during that crisis and during other crisis, but as you know and you illustrate, people sometimes learn the wrong lessons, Ben. For that particular crisis, 2008, what were some of the wrong lessons you saw some investors learn? 

[00:15:50] Ben: So I saw a lot of people come out of that crisis and just go into the fetal position, like, “Okay, that crash happened.

[00:15:57] Ben: How do we prepare for the next time it happens?” We lived through, like, this once in a lifetime crash, and the funny thing is, is after people read The Big Short and The Greatest Trade Ever, those books about, you know, sh- shorting the subprime market, that was literally a once in a lifetime trade. People said, “How do I do that again?”

[00:16:11] Ben: Right? “Let’s do that again.” And no, you kinda missed the point. And so the wrong lesson people learned was that everyone was preparing, like, what’s the next black swan gonna be, and how do we hedge all of our downside volatility? And it’s like, no, no, no, no, that just happened. People were fighting the last war, and no one was preparing for what if the actual, the next surprise is to the upside?

[00:16:30] Ben: And we’re in a bull market. And I never in a million years would’ve predicted that 17 years later the bull market would still be going on. You know, we’ve had some setbacks along the way. No one was making the case, “Hey, by the way, by 2026 the market’s just gonna keep going up and up and up.” And then people were worried about double-dip recessions and the European Union falling apart, and all these scary things, and we’re never gonna grow out of this, and the unemployment rate’s never gonna come down.

[00:16:52] Ben: All these things. It was a crazy time. So I think you have to, like, there’s volatility to the upside too, and you have to kinda plan for both of those things. 

[00:17:00] Joe: Speaking of people wanting it to happen again, even me, Ben. An ETF I still have since when I watched The Big Short, it is one of my dumb positions I keep around because of the fact that I, I want to experience this psychology with a small amount of money.

[00:17:15] Joe: I bought a water ETF immediately. I don’t remember if you… You remember at the end of the movie, they’re like, “Water’s gonna be the next thing.” And water still has been the next thing. But my water ETF versus had I just invested in the market. 

[00:17:28] Ben: Water. That’s, I forgot about that. You know what, you know what my water hedge is?

[00:17:31] Ben: I live by the Great Lakes. And, uh, we control, I think, 80% of the fresh water in America, and so that’s, that’s my water hedge. How’s that? 

[00:17:38] Joe: Perfect. Are you still in Grand Rapids? 

[00:17:40] Ben: Yes, I am. 

[00:17:41] Joe: Oh. I did not know that. We spoke, uh, before we hit record, and, o- of course, I grew up in Kalamazoo, so I’m headed your way, by the way, to Lansing.

[00:17:50] Ben: Fellow, fellow Flower State people. 

[00:17:51] Joe: Yeah. Absolutely. Let’s go on. You talked about bubbles. Let’s talk about bubbles, because there’s this weird psychology that you get into around bubbles that I also find interesting. Like, every bubble sounds stupid afterwards, right? But at the time it sounds like, “No, no, no, this is the future.”

[00:18:09] Joe: And I remember, you know, fairly early in my career, you know, 1998, 1999, I remember, Ben, people going, “No, the numbers don’t matter anymore. You don’t understand. This is true growth. We don’t need profits.” And I remember some of my favorite growth managers saying, “This is crazy. You always need profits.” Of course, guess what happened?

[00:18:27] Joe: It ended up being crazy. But what investing craze, looking back, felt the dumbest in real time, but people completely believed it? 

[00:18:37] Ben: I say in the book that, like, you have to have this, like, willful suspension of disbelief. That’s how bubbles happen. The Onion had this, the chart headline that said, like, “Recession-plagued nation demands new bubble to invest in.”

[00:18:47] Ben: That’s kind of, like, what we do. I think, honestly, I think one of my favorite ones… I mean, in, in recent years we, you know, we had the meme stock bubble in 2021. That was not that long ago. Think about all the stuff people have invested in this dec- just this decade. NFTs were a thing. Remember people were buying digital real estate?

[00:19:02] Joe: Yeah. Yeah, yeah. 

[00:19:03] Ben: And, like, these Ethereum rocks for, what, $2 million because of all the crypto wealth. 

[00:19:07] Joe: Even the metaverse that just collapsed. Yes, the 

[00:19:09] Ben: metaverse. I think my favorite historical one is probably Beanie Babies, I think. There’s this infamous picture of husband and a wife getting a divorce in court, and there’s a huge pile of Beanie Babies on the ground, and the judge is helping them sort through who gets which Beanie Baby in the divorce.

[00:19:24] Ben: That was a pretty massive bubble. The great thing about that is that it just always seems to happen. It’s not on, like, a set schedule, but we just can’t help ourselves. The pendulum has to swing from one side to the other, and we always get way too excited about these things. And of course, that’s what everyone is trying to figure out now.

[00:19:39] Ben: Like, is AI a bubble, right? ‘Cause it has all the, the signs. And there’s the old quote that, like, those who fail to study history are doomed to repeat it or whatever. But I think there’s also people who, like, study history too closely, and then they think it’s gonna, you know, rhyme exactly, and I think that’s another thing I learned from history, is that it doesn’t necessarily allow you to forecast what’s gonna happen in the future exactly.

[00:20:00] Ben: Because most of the stuff that, you know, we kind of update our prior knowledge, and people get better and smarter, and most of the risks are things that you don’t see coming, not the thing that everyone sees coming. So I actually have a hard time. I, I can see all the corollaries between AI and the railroad bubble, and the dot-com bubble and all these things, and I still, like, have to slow myself down.

[00:20:18] Ben: I’m like, “Dude, you don’t know for sure with these things.” That’s the hard part. Everyone knows when you’re in a financial crisis. No one really knows when you’re in a bubble or not. 

[00:20:27] Joe: It’s interesting too, and as you’re talking, I’m thinking about, you know, internet 1.0 was all about the internet. I gotta get in on this internet thing.

[00:20:34] Joe: But truly, the internet became useful when you saw companies like Procter & Gamble, how they were able to use the internet, right? To just speed up their delivery systems. AI, to me, seems to be a little bit of the same, Ben, where we’re in this first hot, you know, wow, I want, I need AI. But I think maybe the magic is truly, and if we find a use case for AI, where do you actually come down on AI?

[00:20:54] Joe: Do you think this is a big old bubble we’re in, or are we gonna have another shoe that drops that’s 2.0? 

[00:21:00] Ben: Well, the crazy thing about the .com bubble, and you said, like, the use cases, everything people wanted and more out of the 1990s internet, like, we got it, right? If you’d have told people back then, “Hey, in a few years we’re gonna have movies that are streaming straight to your TV through fiber optic cables, and you’re gonna be able to upload any video you want to a network that anyone can place it on there if they’d like.

[00:21:19] Ben: You’re gonna be listening to stuff through your phone and your…” All these things, like, oh my gosh, that’s like the nirvana we predicted. We just had to go through the .com bubble to get there. It had to pop first, and then a few years later, every, the speed caught up and we could do all this stuff. So it wouldn’t shock me if AI’s the same way.

[00:21:34] Ben: Like, it’s going to work, but we’re gonna go to excesses first and the market’s probably gonna fall over, and then we’re gonna have to come back again, and that wouldn’t surprise me. The, I think the thing that’s different, that .com bubble blew up and the Nasdaq fell, like, 80%. 

[00:21:47] Joe: It was horrible. 

[00:21:48] Ben: Took about 12 years to break even.

[00:21:49] Ben: So people forget that, like, it seems like it’s so easy to invest in tech stocks today. It was, like, Great Depression level crash in the Nasdaq after the .com bubble. I think markets are just speeding up so much more these days. My thesis is that if it’s gonna happen, something would just happen faster. We just like to kind of rip the Band-Aid off now and just go.

[00:22:07] Ben: If you think about how quick that COVID crash was, right? And how quickly it came back. You have all these, like, V-shaped rallies in the stock market. It just seems to me like something, if it’s gonna happen, investors will just price it in a lot faster and we’ll move on quicker. 

[00:22:20] Joe: I haven’t seen all the uproar, speaking of bubbles, around SPACs lately.

[00:22:24] Joe: I feel like SPACs just quietly went away into this good night. Is that really what happened? Just was a thing, no longer a thing. 

[00:22:32] Ben: They all just lost so much money that they had to kind of, yes, just slowly back away and pretend it… They did the Homer Simpson meme into the bush. 

[00:22:38] Joe: Yeah You write about Japan’s bubble area, and I remember the time investing when Japanese stocks just did nothing for well over a decade, did absolutely nothing.

[00:22:50] Joe: What did Japan teach you about human behavior? 

[00:22:53] Ben: It’s funny ’cause if you study the Japanese culture, they’re completely different than us. They’re w- far more conservative people. They don’t let their emotions go to the extremes like we do. We just can’t help ourselves, so every, I don’t know, seven or eight years, we have, like, a mini bubble or a big bubble.

[00:23:08] Ben: It’s part of our, like, nature of taking risks. Japan is not like that. They don’t have as much, like, new business formation. They have all these companies that have… and businesses that have been around for, like, 50, 100, sometimes 500 years. The whole way that the system works there is different. So when they had the 1980s bubble, it was kind of a surprise to everyone there because they’re like, “No, this isn’t what we do.

[00:23:27] Ben: We don’t do this.” And that made the dot-com bubble look like, you know, a walk in the park. 

[00:23:32] Joe: Yeah, right. 

[00:23:32] Ben: Massive. And it was a real estate bubble, and it was a stock market bubble, and you’re right, the Japanese stock market was underwater for, like, 30 years coming out of that. Didn’t break new highs again till 2024.

[00:23:42] Joe: It had to feel like if you lived in Japan, Ben, there was just nowhere to run. There was nowhere to run. 

[00:23:47] Ben: Yes. The funny thing is is that, and there hasn’t been really a definitive account of this, not like there was breadlines in Japan or anything like that, right? People kind of just increased their savings rates.

[00:23:56] Ben: They invested it in bonds as well, and not just stocks, and they kind of figured it out. And, you know, Japan is doing fine these days. I mean, if that happened here, it would probably be anarchy, right? If we had a 30-year bear market in stocks or something. I don’t know what we’d do ’cause the stock market is so important to us as a country.

[00:24:11] Ben: I think the biggest lesson from Japan, and people always try to throw that in my face when it comes to long-term investing. “Well, yeah, sure. You’re a long-term buy and hold guy. Everything looks great if you look at the US. What about Japan and a place like that?” I think the biggest lesson there is just, beyond the behavioral stuff, is just the importance of diversification And if you do have all your eggs in one basket, if it’s one country or one region of the world or one strategy, whatever it is, there’s a possibility that bad things could happen for a long time.

[00:24:36] Ben: And diversification is not gonna save you over days, months, or even years, but, like, these extended cycles, that’s where I think diversification earns its keep in your portfolio. 

[00:24:47] Joe: Are there correlations today in the US? What where we’re at today feels like Japan or doesn’t feel anything like it? 

[00:24:54] Ben: Probably just the price perspective.

[00:24:56] Ben: That’s part of it. A- I mean, Japan was in another stratosphere. I say in the book I think it was the biggest bubble of all time. But again, it was real estate and stock market. It does feel like that is something these days where the prices of everything just keep going higher, right? The prices of stocks are going up, the price of housing is going up, and you probably feel like if you didn’t get in, you know, before this boom took off, you feel kinda left behind.

[00:25:18] Ben: That’s probably part of it, too, is like, man, bad timing or bad luck or just the place I was at in my life, I wasn’t able to buy a house in time and now I’m left behind. I, I think f- the feeling of being left out, that FOMO- Yeah … I think that’s the biggest thing. Obviously, that was a big part of what was going on in Japan.

[00:25:33] Ben: I think that’s something that’s going on here, too. 

[00:25:35] Joe: Is that why we’re so addicted to predictions, by the way, is this FOMO feeling, I wanna make sure I don’t get left behind? 

[00:25:41] Ben: Yes. I also think that w- 2008 created this generation of people who wanted to be top callers and bottom pickers, right? And because they made movies out of these people.

[00:25:51] Ben: I like to say that I think Michael Lewis might have lost more people money than anyone coming out of the 2008 crisis through no fault of his own just ’cause people wanted to be the next big short caller. 

[00:26:00] Joe: I’m thinking about Abby Joseph Cohen at Goldman Sachs who had a couple phenomenal calls and then continually played the card over and over that she’d had those couple phenomenal calls for a long, long time.

[00:26:11] Ben: It’s been almost 20 years and you still see person that predicted 2008 crisis is worried about this now. Like, people are still dining off of that. And I think a lot of people got so caught off sides by the 2008 crisis that they go, “I’m not gonna let that happen again. I’m not gonna be, like, considered a cheerleader this time, and I have to be the person that’s a contrarian.”

[00:26:28] Ben: And the funny thing is the contrarian person is looked at as being smarter than the person who just kind of goes along for the ride. If you’ve been invested in index funds or taken any part in the stock market for the past 10 or 15 years and just said, “You know what? I’m just gonna ride it as long as it goes,” and you’ve done phenomenally well.

[00:26:44] Ben: But the person who was pointing out problems along the way and calling for a crash every year and saying there’s gonna be a recession, they were almost looked at as being smarter because it’s like, “No, this person is talking about the risks. Like, they’re the one who’s doing it.” So I think people who stick with this stuff don’t get as much credit as they should because it, it feels like an easy ride when you look back, you know, with the benefit of hindsight.

[00:27:03] Ben: It really hasn’t been. There’s been a lot of stuff that’s happened, and people have been trying to get you out of the market for the entire bull market on the way up as well. 

[00:27:10] Joe: We joke actively here about Robert Kiyosaki calling 40 of the last two downturns, so he’s got a long career of doing that. We talked about downs.

[00:27:21] Joe: We talked about bubbles. We talked about these long periods of time in Japan. I wanna go to one of what I think is your favorite areas. Heck, on your new book you’ve got Morgan Housel on the cover, which is psychology, right? The psychology around money. And as you know, it gets really weird fast. Like, surgeons, CEOs, engineers, people who can literally split atoms suddenly become these rabid…

[00:27:43] Joe: Go back to raccoons, right? Raccoons searching through the trash or run through the casino. What’s the smartest person you’ve ever seen make a terrible financial decision? 

[00:27:53] Ben: There is this thing where, like, doctors and lawyers and engineers, people who are very highly educated, they assume that that intelligence translates automatically into the markets.

[00:28:01] Ben: And I think there’s this thinking because of other areas in life where if you try harder and you put work in, that you’ll get better at that. You’ll improve. You know, you study harder in school, your grades will get up. You put in the time at the gym, you eat right, like, your health will improve. But it doesn’t work like that in the market always.

[00:28:17] Ben: Like, just because you try harder and you do more doesn’t increase your results. I think my favorite historical example, Isaac Newton is arguably one of the top… I don’t know. He’s in the top 10 potentially smartest people of all time. The guy did so much, and you read into what he did, it’s kind of insane.

[00:28:32] Ben: He got caught up in the South Sea bubble. You know, he made some money, and he sold it, he took his profits, and then he saw the market kept going up and up and up, and that was one of the biggest bubbles of all time. If you look at, like, there’s some people have recreated the stock market going back to, like, the year 1600, which obviously take it for a grain of salt.

[00:28:46] Ben: But it goes so far back that the South Sea bubble actually, like, looks like a blip on the map. Like, the 1987 crash is a blip down, the South Sea bubble is kind of a blip up. It was, it was such a big bubble. And Newton bought back in after he sold and rode it all the way up and then rode it all the way down and lost, like, 80% of his money.

[00:29:02] Ben: To the day he died, it just ate at him because he couldn’t believe, like, how can a person as smart as me get caught up in something like this? And it was the, again, the FOMO thing and the, the human emotion side of it. People always ask me, like, “What’s the biggest risk when it comes to, like, behaviorally?

[00:29:16] Ben: What is it?” And the answer is that there is no one behavior risk. It’s kind of knowing yourself and, like, what’s the lesser version of you? ‘Cause for some people, the risk is they don’t wanna take any risk, and the market will get away from them. They miss out on huge gains. For other people, it’s they take way too much risk, right?

[00:29:32] Ben: And that’s so… So I think it really comes down to understanding, like, what’s your blind spot? And how do you fix that for yourself? 

[00:29:39] Joe: It’s funny, we were talking recently to the authors of a great new book called Stock Market Maestros. We’re talking about the biggest thing that the top people do in investing, and you see this all the time among pros, Ben.

[00:29:52] Joe: They’re constantly looking for their blind spot. They’re constantly going, “What is my Achilles heel?” And I think a great discussion between that interview and this one is just this importance then, I would think, of an investor policy statement solves a lot of these ills. 

[00:30:07] Ben: Yes, it is crazy how writing stuff down in the moment so that you can go back and look at it later.

[00:30:12] Ben: Like, okay, what are the goals that we have, and let’s remind ourselves of that. But also, what are the reasons that we made these decisions in the first place? And that way you, you’re not so outcome oriented. After the fact, you go, “Oh my gosh, this was a terrible investment because it lost money.” It’s like, no, when we knew all the information at the time, we made the right decision.

[00:30:28] Ben: It just so happened that the markets went a- against us. You know, and I, I agree, writing down your decisions, why you’re doing something, what your goals are, what your time horizon is, that kind of stuff, it really is helpful because we all have faulty memories about the past, about why we did something and why we didn’t do something.

[00:30:43] Ben: And I do think one of the big problems, especially for smart people, is, like, overconfidence in thinking. So I think i- if you write stuff down, you can go back and go, “Oh, man, I was wildly off,” but at least, like, I made good decisions. I think that’s the thing for most people, is just making high probability decisions over and over again with the understanding that no one has a batting average of 1,000, and you’re never gonna be right all the time, and that’s okay.

[00:31:05] Joe: Heard this, uh, great interview with one of the creators of the great restaurant in Chicago, Alinea, and, uh, they were discussing that even in the restaurant industry, just thinking about what’s the high probability decision and about how that transcends financial markets, being an entrepreneur, all these different things.

[00:31:21] Joe: At Ritholtz, you guys work with wealthy people, and I’m wondering what’s a rich person problem that middle class people would never expect? Like, they would think that the rich people have already solved this issue. 

[00:31:33] Ben: Oh, perfect. This is something that completely shocked me. So I came from, like, the nonprofit world into wealth management when I joined Reholds.

[00:31:38] Ben: This is about 10 or 11 years ago. 

[00:31:40] Joe: Yeah. 

[00:31:40] Ben: And our head of wealth management, Chris Venn, told me… He’s one of our advisors. He said, “One of the biggest problems in the years ahead is going to be getting rich people who have saved their whole life to spend their money.” And I said, “You’re insane. What are you talking about?

[00:31:53] Ben: We love to spend money in this country. It’s what we’re good at.” And he said, “You don’t realize, a lot of the people come to us are very highly educated in finance, but they’ve been saving their money for 30, 40 years, building their nest egg, right? They have great habits. Then they come to us, and guess what?

[00:32:07] Ben: Turning it on and turning around the other way and pivoting to spending is really, really hard, because you’ve built these habits of saving.” 

[00:32:14] Joe: Those same habits that were working for them are now working directly against them. 

[00:32:18] Ben: Yes, exactly. So you’ve delayed gratification. Now you can’t force yourself to do it.

[00:32:22] Ben: And most people would say, “First world problem. Too bad.” It’s true. The question for us is, like, why did you save this money in the first place? And that’s the hard part, is people, they don’t really know. They just… It’s financial freedom, or it’s, “I wanna sleep at night,” and, “I wanna take care of my family.” But they don’t ever define, okay, but what actually would make you happy with this money?

[00:32:41] Ben: Is it traveling more? Is it buying a vacation home? For some people, is it, you know, giving money away? Maybe you’re charitably inclined. Or it’s giving money to your kids to help them or something. But most people have never really thought through. When you ask people, “What do you wanna do in retirement?”

[00:32:52] Ben: It’s kind of like, “Well, I just wanna do whatever I want.” “Okay, what do you wanna do?” “I don’t know.” They haven’t really thought through it, and that’s what you have to try to help people define, like, what do you wanna prioritize with your money so you actually can get some utility out of it? 

[00:33:03] Joe: And if you’re solving for happiness, I mean, what a crappy way to solve for more happiness than, “I just wanna do whatever I want.”

[00:33:08] Ben: Right. Yes, ’cause then what? There’s… The thing is, especially in a world with, like, no barriers in the stock market, and AI is gonna break down the barriers of knowledge, like, you have to have some limitations. And having, like, guidelines and limitations on yourself and having, like, a ceiling on something, like some filters in place.

[00:33:24] Ben: These are the things I’m gonna invest in, but th- these are the things I absolutely will not invest in. These are the things I’m gonna spend money on. These are the things I will never spend money on. I think if you give yourself some rules to live by, that’s the way that you can kind of figure out how to live within s- some sort of guardrails.

[00:33:38] Ben: And most people, if you, if you take the guardrails out completely, then it’s just chaos. 

[00:33:43] Joe: It’s so interesting talking through the psychology of an investor and how that psychology has to almost mature through your life, you know? You go through these different emotions where a different psychological piece of you is different, that you really need in your 20s is something different that you need to grab onto in your 50s.

[00:34:00] Joe: I wanna begin putting all this together because after all the bubbles, crashes, fears, panic, predictions, nonsense, the frustrating thing that I always get from you is that the answer is still basically be patient- And don’t be an idiot, right? So if complexity just feels smarter to our human brain, why is it that simplicity, Ben, simplicity is what usually wins the day?

[00:34:30] Ben: Here’s the thing that I learned from investing in complex strategies with these, like, you know, billion-dollar nonprofit funds that I used to work for. A complex strategy, it’s way easier from a sales pitch perspective. It’s way easier to sell. It’s way easier to buy, right? Like, “Oh my gosh, this has to be good.

[00:34:45] Ben: Look at how complex and crazy it is.” But it’s a lot harder to rebalance into the pain. Like, when it goes wrong, and everything you invest in will go wrong at some point. Nothing out-performs forever, nothing performs well forever. Can you rebalance into the pain? I think that’s where simple wins, because if you have a simple strategy that you know and understand, “This is what I invest in, this is why I own it,” I think if you have that knowledge, it’s much easier to go, “You know what?

[00:35:10] Ben: This isn’t working right now, but I’m willing to hold it,” or, “I’m willing to put more money into it because it’s a simple strategy that makes sense to me, and I know if I own a stock market index fund that costs two or three basis points, the stock market is not going to zero, and I’m okay putting money in even when it’s down.”

[00:35:27] Ben: And I think if you’re in a more complex strategy, it’s much harder to understand it. I make the claim all the time. I’ve seen plenty of hedge funds over the years shut down because the hedge fund manager wants to spend more time with their family or they’re getting a divorce. If you invest in an index fund, guess what?

[00:35:41] Ben: Never gonna close down because it has to spend more time with its family. The index fund does not go through a, a lengthy divorce. 

[00:35:47] Joe: BlackRock’s not gonna divorce tomorrow. 

[00:35:49] Ben: Yeah. That simplification piece is like you take away all that other noise that can be a problem that you didn’t even plan for. 

[00:35:57] Joe: Okay, so then I was gonna stop there, but I think the obvious follow-up that everybody’s screaming at their devices.

[00:36:03] Joe: So then emotionally, Ben, you’re putting together this map of what emotionally what a successful investor looks like. What goes into that, the psychological makeup of a successful investor? ‘Cause I think what you’re saying is it’s not so much IQ, spreadsheets, stock picking. There’s a bunch of other stuff that makes us successful.

[00:36:20] Ben: Yeah. Temperament is obviously a big one. I also think getting back to just knowing yourself. I used to be of the mindset that, like, there is one single way to invest. This is how you should invest, put your money in this, leave it alone. But I don’t think that anymore, because I think that there are different ways to be successful.

[00:36:34] Ben: There’s a few ways to be unsuccessful as an investor, right? The, the mistakes are pretty common across every investor and every investment strategy, but I think there’s many paths to success as investors. I’ve met people who are real estate investors. I’ve met people who invest in startups and private equity and these different things.

[00:36:50] Ben: I’ve met people who are stock pickers and people who are index fund investors and Bogleheads. There’s a lot of different ways to be successful. So I think you just have to understand, like, what works for you, and the biggest problem I see for most people these days is over-optimizing. The idea that perfect is the enemy of good is a problem for a lot of people.

[00:37:06] Ben: There’s never gonna be a perfect portfolio except for the benefit of hindsight. So you have to kind of figure out a strategy that works for you, and then stick with it come hell or high water because I think the good strategy you can stick with is way better than the perfect strategy that you can’t stick with.

[00:37:21] Joe: Man, one thing I love about your work and appreciate so much is this idea of lowering the emotional temperature around money. You’re reminding people that you don’t have to win every day. You don’t have to optimize every single little thing. Which when I moved over to financial media 16 years ago is exactly what drives me crazy about the DIY investor, who thinks that they have to optimize every little thing to win.

[00:37:45] Joe: It drives me crazy. So let me get this straight. You spent years studying market crashes, bubbles, panic, human stupidity, fear, greed, and emotional survival, and somehow, Ben, somehow you turned all this research into a beach read for this summer? 

[00:38:02] Ben: That’s what I was going for, yes. Yes. Bring it on the beach.

[00:38:05] Ben: Bring it on the boat with you. Listen, there’s a lot of charts in there, so it’s a fast read. 

[00:38:08] Joe: It is a fast read, and it’s so interesting walking through history. The book is called Risk and Reward, which honestly to me sounds less like an investing book, more like a Liam Neeson movie, Ben. Maybe Liam Neeson will be the actor when you sell the movie rights.

[00:38:22] Joe: You think about that? 

[00:38:23] Ben: I could see that, yeah. He’s got a specific set of skills just like me. 

[00:38:27] Joe: Available everywhere, right? 

[00:38:28] Ben: Yep. 

[00:38:28] Joe: Thanks for mentoring our stackers today. I super appreciate the time, and it was great finally meeting you. 

[00:38:33] Ben: Thanks for having me on. 

[00:38:35] bumper: Hi, I’m David Stein. When I’m not talking to other people about money on Money for the Rest of Us, I’m stacking Benjamins.

[00:38:46] Doug: Hey there, Stackers. I’m Joe’s mom’s neighbor, Doug, and as we march toward the big 250th celebration of America’s independence, let’s chat about gifting and parties. Well, back in 1885, a huge party gift from France arrived in New York Harbor, Lady Liberty. Seriously, one time I brought some White Claw to Joe’s mom’s poker night, and you should see how popular I was.

[00:39:09] Doug: Imagine if I brought 151-foot high woman wearing a robe and carrying a torch. That’d make a statement, huh? And you know how you want the perfect accessory for the party? Maybe a nice cellphone case or the perfect watch. This gift was nearly returned even though it was free, because New York didn’t have the money for what accessory?

[00:39:32] Doug: I’ll be back right after I go ask Joe’s mom if this huge comb Joe’s mom got back in the ’80s is coming back into style. Seriously, how cool would I look with that accessory poking out of the back of my super tight jeans down at The Sizzler?

[00:39:56] Doug: Hey there, Stackers. I’m frequent comer and guy who’s all about the accessories, Joe’s mom’s neighbor, Doug. The city of New York nearly created the biggest faux pas when they thought about returning the Statue of Liberty to France. It was given for free, and was so good the French even made a copy of it so they could have one in Paris as well.

[00:40:17] Doug: It was the hit gift of the summer. But New York couldn’t come up with the Benjamins for what accessory? It wasn’t a cellphone case, the perfect clutch. Nope, Lady Liberty needed the 1885 version of platform shoes, a base. Finally, it was publisher Joseph Pulitzer of the New York World who started a donation drive that drew more than 120,000 contributors, most of whom gave less than a dollar, and raised over $102,000 for what is now the coolest accessory in New York Harbor.

[00:40:55] Doug: And now, speaking of cool, how about Anna Alam, and, you know, Joe. Yeah, he’s here too. 

[00:41:01] Joe: Nice. Thank you, Doug. Thank you very much. Anna, it’s interesting, all of Ben’s commentary interesting, Beanie Babies being the hot thing in the 1990s. But especially 2007, 2008, ’cause you brought this up beforehand. Mm-hmm. But his take that he had nothing in the stock market, so he was like, “Wow, this is cool,” versus his boss, who was, “Wow, I’m screwed.”

[00:41:28] Joe: Yeah. Like, it all depends on how much skin you have in the game at the time. 

[00:41:31] Anna: We talk about this a lot when we try to understand a client’s risk level, and how this is a time period that we might discuss. Like, how did you react during this time? You have to take it with a grain of salt, because it, if it was someone who had just come out of college at that time, then maybe, maybe they had a hard time finding a job and it affects their perception of being able to find a new job or something like that.

[00:41:58] Anna: But they didn’t have a lot of experience with actual investments in it, or they didn’t have a, a mortgage at the time. They didn’t have dependents at the time. Like, so it is very interesting how, if you have somebody who was in their maybe 40s or 50s at the time, and what their experience was during that, was a lot different than someone who did also experience it, but maybe was 25 to 30 and didn’t have a, as much in the market at, at the time.

[00:42:22] Anna: Or they did, but it just didn’t mean as much when it went down. 

[00:42:25] Joe: It is interesting that proximity, proximity to using the money is kind of a buffer in your risk tolerance level. Like, you know, you can have a higher risk tolerance because I’ve got 40 years between me and using this particular dollar. 

[00:42:41] Anna: It feels so far away.

[00:42:43] Anna: It feels like it’s not actually gonna happen for you when you actually need to use it. So like, you’re almost disassociated with that account- 

[00:42:51] Joe: Big thanks again to Ben for stopping by. Hey, you know what? Some stacker just said, “I better call Saul.” C. Hi and Anna, in this segment of the show, man, we haven’t done one of these in a little while- Mm-hmm

[00:43:03] Joe: we shine a light on 

[00:43:04] Doug: a stacker- They didn’t realize, when they said, “I better call Saul,” so they didn’t realize they were getting a bonus of getting Anna instead of OG. Yeah. Like, they thought they were just calling Saul-Sehy and OG, and man, did they just g- they were like the 1000th customer walking into the, like the first Walmart or something.

[00:43:21] Joe: Upgrade. 

[00:43:22] Anna: Super 

[00:43:22] Joe: lucky. Yucky upgrade. 

[00:43:23] Anna: Yeah. 

[00:43:25] Joe: So if you have a question, stackingbenjamins.com/yelldownstairs. And you know what? For being brave and calling in and asking your question on a podcast like this one, we also send you some Stacking Benjamins merchandise. How about that? We send you a cool Stacking Benjamins T-shirt like the one Doug’s wearing, uh, right now.

[00:43:44] Joe: So let’s say hi to a gentleman who is anonymous. You know, Anna, we, we name all of our callers, so we’ve gotta name Mr. Anonymous. What do you think we call him? 

[00:43:58] Anna: Let’s call him Louie, after my dog who’s sitting right next to me. 

[00:44:05] Doug: We’re g- So now we know your password to everything. Thanks, Anna. I 

[00:44:07] Anna: know. 

[00:44:10] Doug: All right.

[00:44:11] Doug: Hey, Louie 

[00:44:14] caller: Hi Joe, OG and Doug. I’m 58 years old with a Vanguard 401worth about a million and a half, a third of which is in a Roth bucket, as I flipped over to doing that several years ago. The other two-thirds is traditional tax deferred, but split into what shows as different sources. Uh, an initial rollover from my previous employer, which is about 40%, my employer match, which is about 20%, and the other 5% is under company base.

[00:44:38] caller: I’m not quite sure where that came from, but I’m not asking either. My question is essentially from a simplicity standpoint, if those three are all tax-deferred accounts anyway, can or should I somehow combine those? And are there any advantages or disadvantages of doing so? Uh, or does that even matter?

[00:44:54] caller: And should I just think about having tax-deferred versus tax-free accounts? I currently split my contributions between Vanguard’s Total Stock Market Index Fund and the international version, 80/20, and I’ve been meaning to push it to the efficient frontier, but when I look at my account summary and already see four sources times two funds, I wonder if I’ll just be multiplying and complicating things if I further diversify.

[00:45:16] caller: And if I want to initiate Roth conversions in the future, um, how do I manage that across those different sources, or should I even care about that? In general, I’ve been pretty confident in my DIY skills to date, but wonder if it’s finally time for me to engage a professional financial advisor, uh, I can discuss such questions and concerns with.

[00:45:33] caller: So, thanks for your no-nonsense wisdom insights. 

[00:45:36] Joe: Louie, thanks a ton for the message. And by the way, nice job of saving. I also like the fact, uh, you know, you and OG a few weeks ago talked about the tax triangle, and so he’s got money in the tax-free portion and money in the pre-tax portion, so I like where you’re going there as well, Louie, so I think that’s, that’s good stuff.

[00:45:56] Joe: I guess the first thing, and, uh, let’s peel this like an onion. Let’s, let’s peel this just a little piece at a time because there’s a lot to unpack here. Mm-hmm. But I think the first thing we should unpack is the idea of these accounts being separate because, Louie, I’ve seen a lot of 401s. I understand seeing where the money came from, but in terms of the money being commingled- I don’t often see it, see it the way that you’re describing.

[00:46:24] Joe: Sometimes I see the rollover 401as, as a separate entity, and I’ll see the vesting schedule associated with the match, but I don’t see those as separate dollars. So the fact that he’s got four separate accounts here is confusing to me, Anna. 

[00:46:42] Anna: I have seen it where they do break it down between rollover employee contributions, employer contributions, Roth contributions, ’cause- Where, 

[00:46:53] Joe: where you have those as different investment pies, different pots?

[00:46:57] Anna: Where you can see the overall balance under one account number. So again, it’s not like these are separate accounts, it’s just that you’re able to see it broken down, so that I don’t know if you wanted to keep track of, like, your rollover assets. Like, I, I, I don’t remember where, uh, maybe it was at Fidelity or something that I actually saw this broken down for a client.

[00:47:17] Anna: There is not a possibility to… Like, he was asking, “Can we combine these together? Can we combine the pre-tax options into one?” I’ve never seen it where there’s, like, an option where you can actually move those into one category, but it shouldn’t be giving you issues. At least I… When I’ve seen the investment aspect of that side, and I’m helping clients with, like, i- investing the Roth versus the, the pre-tax, you should be able to, “Hey, I’m gonna apply this investment strategy across every bucket.”

[00:47:51] Anna: So e- especially with Vanguard, I don’t know the, the nitty-gritty, it depends on your employer, but you should be able to simplify it by selecting all and doing the same investment strategy across them all, just to keep it easy for yourself. Now, you don’t have to do it that way. There are advantages to, like, breaking it up into different buckets between Roth and pre-tax, not between the little subcategories within pre-tax.

[00:48:16] Anna: But that’s what I’ve seen personally. 

[00:48:18] Joe: Yeah, and I don’t think that it makes it more complicated to go ahead and get more scientific. You mentioned the efficient frontier, and the thing I like about using a tool like the efficient frontier is the fact that you’re looking at your own timeframe until you use the money.

[00:48:38] Joe: Because when you’re applying the efficient frontier, if you’re doing it correctly, what you’re doing is you’re looking at over X timeframe, what investments historically would have gotten me there best. And so then I’m starting to break down when do I need the dollar, which I think investing based on when you’re gonna need the money, for me, is a great way to invest.

[00:48:56] Joe: Because you’re gonna respect that growing season, you’re gonna leave the money invested, you’re gonna understand why you own the thing that you own. You’re gonna hold it. You’re gonna stay diversified. You’re not gonna do silly things when the market gets all silly. So I like that, but Anna, there also is something to be said of, “I’m gonna use this money first.

[00:49:14] Joe: I’m gonna use this money second. I’m gonna use this money third.” So even taking advantage of the fact that he has these different accounts maybe to look at how much money do I need for X season of life, and I’m gonna use this as maybe my shorter term allocation, this other piece as my long-term allocation.

[00:49:31] Joe: Do you like that? 

[00:49:32] Anna: That’s a good way to put it. It doesn’t sound… It sounds like he’d have to change his investment strategy to get to that point, because right now he’s just using the two funds. This is where potentially a financial advisor could help, because if you set this up, you are now monitoring this, like, kind of complex strategy and keeping track of that.

[00:49:58] Anna: And no, it just sounds like I’m, like, plugging myself, but 

[00:50:00] Joe: No, but let’s talk about that, because I actually don’t like the fact that it’s just the investing strategy, it can be a little more complicated. That part, the advisor doesn’t really interest me. It’s fine. It’s good. You can do that. They’ve… Somebody like Anna or OG have done that over and over and over and over and over.

[00:50:16] Joe: You know, when I was an advisor, I did it over and over and over. So can we do it more quickly? Do we know it’s more scientific? Do we know how to use these different tools? Yes, yes, yes, yes, yes. It’s done competently, professionally, and in my practice, collaboratively, so that you knew why we were doing it. I wasn’t just taking it and running with it, ’cause if I got hit by a bus, then you’re not any better off.

[00:50:36] Joe: You got all this stuff that your advisor was managing. But I think using advisor for asset management makes me roll my eyes a little bit. Mm-hmm. What doesn’t make me roll my eyes is when you talk about, like, the tax strategy, and should I be doing something about that, and thinking about, do I spend this bucket first, this one second, this one third?

[00:50:53] Joe: And we’re looking at how we’re withdrawing money and comparing it to some of life’s changes that are coming up, like Medicare decisions, and the specter of something like IRMAA, this potential, quote, “tax” on your Medicare. So I think looking at how these things all dovetail, to your point, Anna, is where I get excited about collaborating with a pro.

[00:51:15] Anna: Yeah. OG and I talked about this in our basics segment, specifically when you bring up Roth conversions, because all the other stuff, like you have to take distri- if you have a level of expenses that you have to take distributions on, like, you’re gonna have to do that. And yeah, there’s probably a better way to do it.

[00:51:32] Anna: But when we’re adding Roth conversions in, which is an optional thing to do, we do not wanna be making mistakes that are gonna then have a downhill effect on everything else, like you mentioned with IRMAA and tax brackets and all that kind of stuff. And that stuff’s complicated. Like, we are using multiple software platforms.

[00:51:50] Anna: There’s multiple people involved in making that decision. In my opinion, it is not necessarily a basics thing to be doing on your own and making that decision by yourself. 

[00:52:02] Joe: Yeah, and the game that you’re, you’re playing here, Louis, is different than what I see a lot of DIY investors think that they’re playing.

[00:52:09] Joe: What I see on the DIY stage is a lot of investors who think that you should move all of your money to a Roth position. I don’t think that’s necessary. I think you already have a nice portfolio in Roth, and if we can play the tax bracket game, we can play the I’m gonna accept more tax this year, less tax next year, depending on what else is going on in your life.

[00:52:31] Joe: We need the Roth portion so that we can use it like icing on the cake in different years. Mm-hmm. As an example, you’re trying to live in the middle of one tax bracket, and we wanna lower the tax. We may take out of that pre-tax bucket everything up to the beginning of that bracket, take it out of pre-tax, and then anything in that top bracket, take out of the Roth.

[00:52:53] Joe: So some years that might be a lot of money, other years that might not be much. Now, in other years when you’re talking about tax on Medicare and other things, then we can, uh, you know, use it for that. But I often see, yeah, and people think, “Man, I gotta get everything over to Roth.” I don’t think you gotta get every dollar over to the Roth.

[00:53:09] Anna: No. It’s a balancing act to make that decision. If you come into retirement with already some assets sitting in Roth, you’re already winning. And what I also wanna say to Louis is, like, you’re already doing an amazing job at this, and by doing all these other things that we’re talking about, like changing the asset location or doing Roth conversions, this is all optimization.

[00:53:32] Anna: Like, you’ve already gotten so far, and you’re already doing such a good job that this extra stuff is, like you said, the icing on the cake- 

[00:53:42] Joe: Yeah … 

[00:53:42] Anna: with this. 

[00:53:43] Joe: I do think being more technical, Louis, with your asset allocation over and above VTSAX and some international will pay huge dividends, especially when you’re drawing down.

[00:53:53] Joe: And then, uh, well, even as you’re, even as you’re adding. I mean, go look at Paul Merriman’s work at, uh, paulmerriman.com and you’ll see just how getting a little more scientific pays huge. Doesn’t pay little dollars. Pays huge dollars versus a, a fairly not, not so robust, I almost said sloppy allocation. And, and I think VTSAX is sloppy.

[00:54:15] Joe: I don’t know that 80/20 is sloppy, but I think that VTSAX is just a sloppy index ’cause you’re just buying a little bit of everything. Mm-hmm. And by the way, if you’re in your 20s and you’re just starting out, and you’re going, “Oh, Joe can’t stand the total stock market index,” I love the total stock market index when you’re starting out.

[00:54:32] Joe: Mm-hmm. It’s beauti- It’s a great… Don’t worry about what to invest in. Buy a little bit of everything, but when you get around $100,000, I think it becomes important to, uh, to look for, for a more scientific approach. I wanna add something else to this that Louis didn’t ask us about, Anna, but that I found really fascinating, which was Beth Pinsker was on last week talking about taking care of her mom’s money.

[00:54:57] Joe: I just read a Beth Pinsker piece, and maybe I gotta have Beth back on about this. The HSA, and people talk about your tax triangle and people saving money, HSA is something that money nerds love to put money in and love to invest. Beth had a pretty hot take, which was the HSA’s the last place you wanna have money when you die because I don’t think a lot of people know this.

[00:55:27] Joe: That money’s all taxable to your beneficiary. 

[00:55:30] Doug: Wow. 

[00:55:30] Joe: I think a lot of people are gonna be wowed by that, and she’s like, “I don’t love the HSA.” Like, she’s the first pro I’ve talked to- Yeah … who doesn’t love the HSA. 

[00:55:41] Anna: That’s so interesting. Uh, uh, I didn’t really think about that much. I honestly don’t have a lot of people who have, like, super large HSA balances going into retirement, but it’s something to consider when doing distributions then.

[00:55:53] Anna: Okay, you have a large HSA. Let’s actually pull- Use it … from that before… Yeah, let’s get this down to zero. W- 

[00:56:00] Doug: how complicated, though… I mean, you … At that stage in your life, you need a lot of medical care, and it seems like that would be the time- Mm-hmm … when you absolutely want to have built up a pretty large balance so that you can- To save for, 

[00:56:13] Joe: yeah

[00:56:14] Doug: to save for when you’re 76 and you need this major procedure, and then you need another one, or you need some high-cost medications like a year or two later. Like, that seems really challenging to figure out, “Okay, you know what? Now I’m gonna, now that I’m 82, I’m gonna get rid of most of it because I’m about to die, and I don’t want my, my beneficiaries to deal with the tax aspect of it.”

[00:56:36] Doug: That sounds really challenging to time. 

[00:56:38] Joe: Yeah, just think about it. You don’t know… I mean, we don’t know when we’re gonna go, so how do you- Mm-hmm … time out spending that HSA down? 

[00:56:44] Anna: Well, and you can spend it down earlier than s- 80s and 70s because you can actually pull from it when you’re 65. Is it 65? 

[00:56:54] Joe: 65. 

[00:56:55] Anna: 65.

[00:56:56] Anna: Yeah. For non-medical expenses. So you could use it like your IRA at that point. It is getting taxed, but it’s not penalized. 

[00:57:02] Joe: Yeah. 

[00:57:03] Doug: Like car repairs. We’ve covered this extensively- No … on the show. 

[00:57:05] Joe: He, he gets H Y S A and HSA mistaken. 

[00:57:10] Anna: High-yield savings account? 

[00:57:11] Joe: For people who have no idea. 

[00:57:12] Doug: Same, same. I mean, it’s, it’s really regional whether or not you include the Y or not in the acronym.

[00:57:19] Anna: I have not run into this issue before. 

[00:57:23] Joe: Only one person gets those mixed up. Yeah. Uh, Louis wondering how the heck I, I got off on that, but I was just thinking tax triangle, and I thought, “Wow, I just read about this. We’ll have Beth back on to talk more about that.” 

[00:57:34] Anna: That’s a good point, though. Yeah. ‘

[00:57:35] Joe: Cause I know people get FOMO about the HSA- 

[00:57:39] Anna: Mm-hmm

[00:57:39] Joe: if they don’t have it, money nerds especially, and she’s like, “You don’t need to feel any FOMO.” 

[00:57:44] Anna: Mm-hmm. 

[00:57:44] Joe: Gonna be just fine. 

[00:57:45] Doug: Yeah. Well, I’m just kind of surprised that Louis is even having to contemplate retirement when he shouldn’t have been working at all. I mean, the guy invented the crab Louis salad. You c- like, the residuals from that should just be pouring in.

[00:57:57] Doug: He doesn’t, shouldn’t have any money problems. To think about He’s 

[00:58:00] Joe: like, Louis again is like, “Wait, how did my name even become Louis?” 

[00:58:02] Anna: Yeah, he’s like, he’s like, “My name’s Eric.” 

[00:58:06] Joe: Right. Louis, the legend lives on apparently. Yeah. Doug, normally at this point in the show, we mosey out to the back porch, and, uh, today we’re gonna mosey right through the back porch and wave goodbye.

[00:58:19] Joe: Big thanks to Ben Carlson for stopping by. Doug, you’ve got our top three takeaways. What would those be today, my friend? 

[00:58:26] Doug: Well, Joe, first, take some advice from Ben Carlson. If you don’t follow history, you’re more likely to make mistakes others have already solved. Look to the past for ideas to handle today’s investing decisions.

[00:58:39] Doug: Second, most of us think about how we’ll save for retirement. Use tools like the tax triangle to help you figure out answers to more complex ideas, such as how you’ll take out money to spend later. But the big lesson, headed to Joe’s mom’s poker night? Remember to wear that long-sleeve shirt so you can carry a couple of extra cards in your sleeve.

[00:59:01] Doug: What, you think I’m cheating? Have you played cards with Joe’s mom? Cheating is table stakes. She’s the first person ever to score seven aces in a five-card stud. I mean, come on. Thanks to Ben Carlson for joining us today. Be sure to pick up a copy of his new book, Risk and Reward: How to Handle Market Volatility and Build Long-Term Wealth, anywhere the finest books are sold.

[00:59:25] Doug: Don’t worry, we’ll include links in our show notes at stackingbenjamins.com. This show is the property of SP Podcast LLC, copyright 2026, and is created by Joe Saul-Sehy. You’ll find out about our awesome team at stackingbenjamins.com, along with the show notes and how you can find us on YouTube and all the usual social media spots.

[00:59:48] Doug: Come say hello. And oh yeah, before I go, not only should you not take advice from these nerds, don’t take advice from people you don’t know. This show is for entertainment purposes only. Before making any financial decisions, speak with a real financial advisor. I’m Joe’s mom’s neighbor, Doug, and we’ll see you next time back here at The Stacking Benjamins Show.