Most portfolios are built for nobody in particular. Peter Lazaroff, chief investment officer at PlanCorp and author of The Perfect Portfolio, tells Joe Saul-Sehy and OG why the right mix starts with your goals, not a list of funds. He also shares a four-question filter for deciding what earns a spot in your portfolio. Then a listener asks who to name on life insurance for his kids, and the panel disagrees sharply with the advice he got from his agent.
Veterans Day Giveaway
Enter by Friday, Nov 6 at stackingbenjamins.com/veterans for a chance to win a Solo Stove, drawn on Veterans Day. Veterans and active duty service members get three entries, and everyone else gets one. If you already get the 201, you can still enter.
What You’ll Walk Away With
- Why “perfect” is personal, and what a steak dinner on paper plates has to do with it
- The sign that a portfolio was built for nobody in particular
- Why your first stated goal is rarely your real one
- How to tell discomfort from danger when markets drop
- Why owning a loser in your portfolio means you are diversified
- The four questions that decide whether an investment earns a seat
- A quick round of “Does It Earn a Seat?” with international stocks, AI stocks, and bonds
- What belongs on a one-page investment policy statement, and why rules matter most when everything looks broken
- Why naming a guardian on life insurance and hoping the money reaches the kids can go wrong
- What a court does with money left to a minor, and how a trust changes that
Why This Matters Now
Financial news is built to make you react, and most investing success comes from avoiding mistakes. Year-end is a natural time to write the one-page plan you will follow when markets get loud. If you have kids, it is also a good time to check who is named on your beneficiary forms. The estate discussion is general education, and an estate attorney can set up the specifics for your situation.
From the Basement
Doug’s trivia asks what “alpha” means in finance, after he makes his case for being the alpha of the basement because he controls the trivia microphone and the thermostat. Joe Saul-Sehy and OG compare notes on how warm mom likes the house. Doug also gives the Bay Area another reason to write in with “San Fran.”
Resources Mentioned
Mind the Gap US 2025: Morningstar’s research on the gap between investor and fund returns
Veterans Day giveaway: enter to win a Solo Stove
The Perfect Portfolio: A Proven Guide to Smart Investing for Long-Term Success: Peter Lazaroff’s book from Harriman House
The Long Term Investor podcast: Peter’s show
Peter Lazaroff at PlanCorp: his bio and firm
Monday Mentor: Peter Lazaroff
Big thanks to Peter Lazaroff for joining us today. To learn more about Peter, visit Simple & Practical Wealth Advice | Peter Lazaroff. Grab yourself a copy of the book The Perfect Portfolio: A Proven Guide to Smart Investing for Long-Term Success
Doug’s Trivia
- What does the term alpha mean in a financial context?
Have a question for the show?
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).
Other Mentions
- Field Kit
- Celebrate Veterans Day with SB
- Benjamins After Dark – Stacking Benjamins
- Have a question? Yell it down to us! – Stacking Benjamins
Join Us Wednesday
Tune in on Wednesday, when Dr. Daniel Crosby joins us to help you conquer your emotions, outsmart your brain, and avoid costly investment mistakes.
Written by: Kevin Bailey
Miss our last show? Listen here: 8 Tricky Money Decisions: When to Cosign, Stretch, Take the Job, or Walk Away (SB1917) | Stacking Benjamins
Episode transcript
[00:00:00] opener: To Homer, the Wall Street genius. Yeah.
[00:00:04] caller: Hey, Homer, how come you got money to burn,
[00:00:06] OG: or singe anyway?
[00:00:07] Peter: Yeah, Homer, what’s your secret investment?
[00:00:09] opener: Take a guess. Uh, pumpkins? Yeah, that’s right, Barney. This year I invested in pumpkins. They’ve been going up the whole month of October, and I got a feeling they’re gonna peak right around January, and bang, that’s when I’ll cash in
[00:00:31] Doug: Live from Joe’s mom’s basement, it’s The Stacking Benjamins Show
[00:00:45] Doug: Joe’s mom’s neighbor Doug and on today’s show, how do you create your perfect portfolio? We’ll share best practices of great investors and how to think through your strategy with one of the top money managers in the US, Peter Lazaroff. Plus, we’ll answer a question from Nick, who wonders about life insurance and estate planning.
[00:01:06] Doug: How do you name your beneficiary? We’ll show Nick and you exactly what you need to know. Hint, it’s spelled D-O-U-G. And then I’ll share the biggest thing you’ll need to know, the answer to today’s money trivia question, that’s what. And now, two guys who are the answer to the trivia question, what happens when you put two guys in mom’s basement in front of microphones?
[00:01:29] Doug: It’s Joe and O, J-J-J-J-G.
[00:01:36] Joe: Hey there, Stackers. Happy Monday to you. Welcome back to the Stacking Benjamins show. I am Joe Saul-Sehy. Man, it’s a super week here in the basement, because, well, first of all, we’ve got Doug here. Doug, how you doing, man?
[00:01:48] Doug: Fantabulous, Joe. Just San Fran-tabulous
[00:01:52] Joe: today. San Fran… Just rubbing salt in the San Fran wound.
[00:01:56] Doug: Yeah.
[00:01:57] Joe: And-
[00:01:57] Doug: I don’t think, I haven’t said it enough lately, I feel like they’re healing out there, our, all of our Stackers in the Bay Area. Yes. So I just need to get, get them a little riled up again.
[00:02:07] Joe: I love the San Fran, uh, pushback that we get. Uh, and a guy we’re always pushing back on, Mr. OG, is here. How are you, man?
[00:02:15] OG: I’m good. Guess I’m out of the loop on San Francisco, but, um-
[00:02:19] Joe: Well, when- You guys
[00:02:19] OG: know that …
[00:02:20] Joe: yeah, when Doug has said San Fran in the past, we’ve got emails- Oh … from people going- Yeah, it does that … “Nobody says San Fran if you live there.” Oh, yeah, they
[00:02:26] Doug: get, they get all worked up.
[00:02:28] OG: Yeah, I gotcha. Yeah, makes sense.
[00:02:30] Joe: We’ve got a great show today, because it’s portfolio week, guys. Mm. We’re gonna help our Stackers with their portfolio. And OG, you and I have done a lot of that. We’ve had episodes on helping people with their 401, how to think about your investments lately. We’ve talked about international investing.
[00:02:45] Joe: We’ve done a lot. This week, we’re getting some help. We’re bringing in-
[00:02:48] OG: But have we actually had a perfect portfolio? That’s the question.
[00:02:52] Joe: That… Well, and that’s what we’re gonna talk about today. Peter Lazaroff is joining us on the show. And then on Wednesday, after we help you design the perfect portfolio, you know what we’re gonna do next?
[00:03:01] Joe: On Wednesday, Dr. Daniel Crosby is going to join us to talk about that big thing between your ears that keeps, that keeps getting between you and your money and makes sure you make the worst mistakes possible. He’s gonna help you stop making those mistakes that so many investors make. OG, you’ve seen the statistics about the difference between what the funds you invest in do- Yeah
[00:03:23] Joe: and what the average investor does. The difference is huge. The average investor gets horrible returns, while the stuff they invest in does really well, ’cause we can’t leave our hand out of the cookie jar.
[00:03:33] OG: Yeah. Yeah, it’s a really eye-opening statistic when you dig into that DALBAR study maybe is what you’re talking about, where, where it’s the average return is profoundly less, half maybe even, of what the overall market does.
[00:03:45] OG: You know, and I know what people are doing. There’s a handful of people that are listening to this, most people maybe that are listening to this going, “Wait, wait, wait, that’s not me.” Well, I know it’s maybe not exactly you, but there are people like you that are skewing that average, uh, quite a bit. So, um, if nothing else, learn from other people’s mistakes- That’s right
[00:04:00] OG: what not to do. You know? Like, I love learning from other people’s errors. It’s way better than my own, so.
[00:04:06] Joe: It’s far more fun than going through the pain yourself. Yes. By the way, we all have friends at work that have talked about their money, and you’re like, “What?” Maybe this is the episode, or maybe this week’s episodes are the ones to pass on to your friend at work and go, “You know what?
[00:04:19] Joe: I think it’s time for you to listen to Stacking Benjamins, because it’s, it’s gonna be-” If you’re too
[00:04:24] Doug: afraid to tell them they’re screwing it up, so
[00:04:26] Joe: let
[00:04:26] Doug: us do it.
[00:04:27] Joe: That’s right. That’s right. Yeah. We’ll take the fall, yes And by the way, if you’re the person that got referred here, welcome. We weren’t talking about you.
[00:04:34] Joe: We were talking about those other people- Well- … when we were referring to, to them. So who is Peter Lazaroff, and how is he gonna help us? Well, Peter’s been on the show before, but Peter is the chief investment officer at PlanCorp, an independent fiduciary advisory firm managing a small number. Oh, gee, just $2 or $3 in assets.
[00:04:52] Joe: Either two or three or 10 billion, with a B, dollars in assets. $10 billion.
[00:04:58] opener: Fantastic.
[00:04:59] Joe: He’s a chartered financial analyst and a certified financial planner. He has over 20 years of experience in financial services. And what… Oh, gee, what you and I both like about Peter is he takes these things that seem really complex, and he boils it down to, “You know what?
[00:05:14] Joe: Might not be as complex as you think it is.” I think it’s
[00:05:16] OG: due to his simple mind.
[00:05:21] OG: Maybe he just can’t hold complex thoughts in his brain. Maybe that’s why it just seems so simple to him. Peter and I are great friends, so I get to, uh- Yeah … jab him a little bit.
[00:05:31] Joe: I was about to explain that to our Stackers. We might know Peter personally too, so yeah. Yes. Peter Lazaroff coming up in Mom’s Basement.
[00:05:39] Joe: But before we get to that, we have just a couple sponsor breaks during the show so we can offer great guests like Peter to you for free, great commentary about your investments at no charge. So we’re gonna hear from a couple of them in the middle of Doug’s trivia halfway through today’s show. So we’re gonna hear from them, and then Peter Lazaroff joins us in Mom’s Basement, helping you design the perfect portfolio.
[00:06:03] Joe: Hey, Stackers, invest in yourself by getting our newsletter, the 201. Also, because Veterans Day is next week, we’re giving you a special Veterans Day incentive. Sign up now, and you’ll get your name in our drawing for a Solo Stove. It’s sweater weather finally in Texarkana, and you could get better with your money and, and be warm by the Solo Stove all in one.
[00:06:27] Joe: By the way, because we’re celebrating next week’s Veterans Day with this giveaway, veterans and active duty members, well, guess what, you’re gonna get three entries. So let all the veterans and active duty service members in your life know, and they get better financial tips.
[00:06:41] Joe: Stackingbenjamins.com/veterans. That’s stackingbenjamins.com/veterans gets you the 201 sign-up in our Veterans Day contest. By the way, if you already get the 201, you can still win too, so go to stackingbenjamins.com/veterans.
[00:07:03] Joe: All right, and check out this gentleman coming down to the card table. Peter Lazaroff is back. How are you, man?
[00:07:08] Peter: Joe, doing great. Thanks for having me.
[00:07:11] Joe: Well, it is fantastic that you would include us to talk about The Perfect Portfolio, because here’s the thing. It l- l- like, when I heard the name of your new project, I did two things.
[00:07:23] Joe: Number one, I was like, “Fantastic, Peter has a new project. Can’t wait to chat with him about it,” ’cause it’s always fun. But the second thing was I was like our stackers are gonna hear Perfect Portfolio, and you already know this. Like, I groaned. I went, m- our stackers are right now tuning in, and they’re like, “Peter is finally gonna tell me the exact funds I need to own.”
[00:07:46] Joe: Is that what The Perfect Portfolio is all about? You’re telling us the perfect stuff that we have to own. Tell me it’s the truth.
[00:07:52] Peter: I am sorry to disappoint, Joe. There is no universal one-size-fits-all portfolio. I do explain wh- how I invest, and there are some bonus chapters in the book, so who knows? Maybe if you go out and buy the book, download the bonus chapters-
[00:08:06] Peter: maybe it’s in there. It’s probably not. It’s definitely not. But just maybe, you never know.
[00:08:12] Joe: It’s hidden in the back.
[00:08:13] Peter: That’s right.
[00:08:14] Joe: That sounded like a good social media thing. Yeah. “Yeah, wait till you see the bonus stuff.” So you start with a great story about a steak dinner, and you’re thinking through all the steak dinners you had and which one was best.
[00:08:27] Joe: Do you mind telling that story?
[00:08:29] Peter: Yeah. You know, I’ve always thought of the perfect portfolio as, like, your perfect meal, and everyone’s gonna have a different one. Like, even if, Joe, you had said a steak dinner was your perfect meal, there was gonna be differences between yours and mine about who was there, and where you were, and how good the steak actually was itself, the quality.
[00:08:48] Peter: But as I started thinking through my perfect meal, there were some instances that came up, but the one I kept going back to was in 2010, when I had bought my first home. My wife and I had bought our first home. And when you… Everybody remembers that moment when they’re in their first house or their first apartment they’ve bought, where things are in boxes, you’re excited, you’re a little nervous that you’ve spent too much money.
[00:09:12] Peter: And here we are, I have just this piece of garbage grill that was a hand-me-down that I got after college. For some reason, we’ve decided let’s cook steaks in the backyard to celebrate our new house. We don’t even really have a refrigerator. There’s a porch light that’s sort of on, but it’s already kinda dark.
[00:09:29] Peter: And my dad’s sitting out back, you know, I think kind of having this, like, father-son moment of, like, here’s what homeownership is all about, and watching me kind of futz with the grill where, you know, one portion of the grill definitely sets everything on fire. And then you have, like, half the steak, like, cooked perfectly-
[00:09:45] Peter: the other charred to a crisp. But I think about going to the people who were there. We ate that steak off of paper plates, but it was in my first home, and that was such a magical night. My wife’s parents were around. My parents were around. We didn’t have kids yet. But the future was ahead of us, and there were so many emotions tied to that.
[00:10:04] Peter: And so I think it’s really, if you’re to think about your perfect meal, even if we had truly, like I said earlier, the same ingredients, the same… We’re gonna still react to it differently. And so I think it’s really a nice way to think about, hey, before we start talking about investment strategies and investment theory, let’s really remember that we all do have a different definition of perfect.
[00:10:26] Joe: This is why these risk tolerance quizzes that, uh, you know, you, you walk into a company, you enroll in the 401, Peter, and immediately they give you a risk tolerance quiz, and it drives me crazy ’cause we are all so different. But when you start off with… You know, for me, perfect is not the perfect ri- risk tolerance, it’s like, “What steak do I want out of life, and then how much char can I handle?”
[00:10:48] Joe: You know, you know what I mean? On that steak. It drives me nuts.
[00:10:52] Peter: Well, and by the way, whatever your perfect meal is today, it was probably different 20 years ago, and will again be different 20 years from then. I mean, I used to eat, like, four or five bowls of Cinnamon Toast Crunch or Froot Loops or, like, you name it.
[00:11:05] Peter: Like, any sugary, terrible-for-you cereal, I was just pounding bowl after bowl before bed.
[00:11:10] Joe: I loved Hamburger Helper.
[00:11:11] Peter: Oh, that is such a good one. Yes. So, like, all during the great financial crisis, I had spaghetti and Hamburger Helper for basically every meal. It was all about maxing out my 401via Hamburger Helper, and giant bags of cereal, ’cause I was still in my cereal phase- Yeah
[00:11:26] Peter: where, like, here I am in my 40s now, and, and let’s be honest, we both probably still love Hamburger Helper, but I can’t remember the last time I cooked it. And I definitely don’t eat four or five bowls of cereal anymore. Like, maybe I have one every once in a while, and so it’s, tastes change. And the perfect portfolio, it doesn’t have to be this static thing.
[00:11:44] Peter: To me, it’s more of, like, a philosophy, and a knowledge base, and a process to getting where you need to go with your investments.
[00:11:52] Joe: Let’s start diving into that philosophy, because you transition from that story, that it’s, it’s incredibly personal, into this client, Andrew, who walks in. And Andrew has a portfolio of perfectly respectable investments.
[00:12:07] Joe: Tell me about Andrew.
[00:12:09] Peter: This is somebody I worked with. I remember the file folder that he had brought in and had all his statements in there, and I kinda looked at them, and yeah, there were some individual stocks, some blue chip names, some mutual funds, but at that point in time, you know, it didn’t take me that long to glance at something and be like, “You know, this portfolio that sort of seems to be built for anyone is really built for nobody.”
[00:12:32] Peter: That’s what’s tough when you’re watching, like, mainstream financial media, is they’re giving advice to the masses, but- Andrew was not the masses. Like, he had specific goals in mind. He wasn’t, like, a super risk-tolerant person, but he also wasn’t, like, a let’s go full throttle type person. And you know, he had a really good income.
[00:12:50] Peter: He had done a great job saving, but it felt like a lot of the investments he was making were more investments he thought people wanted him to make, that if somebody were to look at his portfolio at the country club or if he got the surprise interview with the media and they saw the portfolio, then they would say, “Yeah, these are sensible investments.”
[00:13:08] Peter: But in reality, none of them were really tied to his purpose. None of them really had any connection to his why, and I think I said just that to him. Like, well, he’d said to me, “Well, these are great. They’re good for anybody.” And I was like, “Look, I mean, something that’s built for anybody is really not built for anyone truly.”
[00:13:27] Peter: So and, and it was a big moment, uh, I think for me too, just kind of realizing the way that people see their own portfolios. Some people really have a strong sense of identity in what they own, whereas others, it’s just like they’re in high school. They just wanna wear the clothing brands that everybody else has.
[00:13:44] Joe: I feel that way even about goal setting. You know, the step before you pick investments, start off with a goal, which I think is your point here. Like, good for who? Good for what goal? What are we driving toward? But even when we pick goals, I felt like when people would walk into my office, and as you know, I haven’t been a financial planner in a long time, but even back then I would try to be that guy at the deli counter where you’d hand the customer the ham and you go, “What else?”
[00:14:07] Joe: Because their first goals, Peter, often were BS. They would tell me retirement because everybody’s saving for retirement. And then they’d tell me, “I have a couple kids, so I gotta help them with college.” And I go, “Okay, what else? What else? What else?” And it was finally when I got to the one with the, “You know, I would love to have a vacation house in Northern Michigan,” like that.
[00:14:26] Joe: Mm. And you could see them just light up, and I’m like, “There we go. Now we’re there.” Is that the first question we need to ask ourself, good for who?
[00:14:33] Peter: Yeah, I think so, and, and I love the example you just gave because so often people do come in and say, like, “It’s just retirement.” But here’s the thing, I mean, retirement is so many different things to so many different people, and I think one of the aspects of investing, I- I’d be curious if you agree or not, is like when you are accumulating, the playbook is about the same for everybody.
[00:14:54] Peter: Sure. Like, it doesn’t really matter where you are in life. Like, you wanna spend less than you earn. You wanna max out your tax-deferred accounts if you can and keep costs low and really just not try to time the market. Like, those are, like, basic tenets that can get you most of the way there. But decumulation is an entirely different animal, and everybody’s goals are so different that there really isn’t a single agreed-upon playbook ’cause there’s so much nuance.
[00:15:19] Peter: And so you really do have to dive deep into, like, okay, retirement, but what really? Because as an advisor, like, we are the ghostwriters of the book that is your life. No two books are alike, and it’s just everyone’s gonna be a little bit different. Some people wanna retire in their 50s, some wanna never stop working, some wanna have multiple homes, multiple cars, lots of vacations, no vacations.
[00:15:40] Peter: Some just wanna end up with a big pile of money to give to their kids when it’s all over. There’s no right answer, but I think you really can’t invest until you understand what that purpose is. And then once you understand what that purpose is, then I think it’s a little bit about understanding, like, what your limits are
[00:15:56] Joe: Well, let’s talk about those limits because let’s assume that we built a sensible portfolio, and we can talk later about what that looks like, but now we are living with a portfolio.
[00:16:08] Joe: How much of our success is constructing the perfect portfolio, and how much is stopping ourselves from blowing it up?
[00:16:19] Peter: Look, you can’t take the human out of human nature. Let’s not pretend that we can build a portfolio that suddenly, like, we’re all perfectly behaved investors because we evolved with all these traits that just make us the worst investors.
[00:16:33] Peter: We are naturally inclined to do terrible things with our financial decisions. So the perfect portfolio really isn’t about eliminating those biases, those cognitive shortfalls. It’s really just d- designed to say, “Okay, we know we’re gonna get in our way if left to our own devices, so can we set this up in a manner where, one, we’re gonna be less likely to interrupt compound interest with our, you know, stupidity, quite frankly.
[00:16:59] Peter: And two, how can we really think through the different things that might cause us to make a mistake?” And like so you’re really gonna try to take a behavioral approach to it all, and I totally forgot what your question was now.
[00:17:13] Joe: No, it was how much of it is us getting in our own way, and I think you’re saying that is by far the bigger problem than constructing the, quote, “perfect portfolio.”
[00:17:22] Peter: Yes. There is no doubt that other than, like, high costs and maybe people trying to beat the market, our own behavior is what’s gonna trip us up. From an evolutionary standpoint, it was very beneficial. All these things that, like, kinda make us pattern recognition creatures. But from an investment perspective and a financial perspective, it’s pretty awful.
[00:17:42] Peter: Like, all our natural instincts are the worst when it comes to making good financial decisions, and in reality, like, good long-term investing is pretty boring. And so, so much, particularly if you’re interested in this topic, like, people are listening to us, Joe, they’re interested in their finances. They wanna know what to do.
[00:18:01] Peter: And if we say the only thing you get to do is sit there, well, that’s pretty boring. They’re just gonna tune out. And I’m not… Like, you and I, I think, actually, you and OG do a great job of making it entertaining and making staying still okay. But I think for most people who are consuming content regularly, that content causes you to want to react.
[00:18:19] Peter: And again, that’s just a normal tendency, and we get in our own ways. And most of investment success is just minimizing mistakes and just letting compound interest do its thing.
[00:18:28] Joe: You can tell from your show and our show just the number of downloads you get in a show that accidentally, we tried not to make the topic clickbaity, but you know what I’m talking about.
[00:18:38] Joe: When one- Speak
[00:18:39] Peter: for yourself. I clickbait all the time, guys. Go to LongtermInvestor.com. Let’s clickbait the heck out of this.
[00:18:46] Joe: It’s like, it’s just like Hamburger Helper. It tastes good going down, but there’s really nothing there. I mean, it just, no redemptive value in the end. But the ones that seem clickbait-y, you know, more people gravitate to those because they’re looking for that hidden, you know, that hidden thing, that hidden move I need to make that I’m not making when not doing anything you say is, is the right move.
[00:19:07] Joe: In fact, you cite some research on this from Morningstar. If you don’t mind, uh, walk us through the Morningstar behavior gap research
[00:19:14] Peter: I, I love the Morningstar behavior gap. Basically, it’s looking at how investors’ returns look relative to the funds that they are investing in. Not only are investors trailing the funds that they invest in themselves, which basically just means, hey, we buy and sell at the wrong times.
[00:19:33] Peter: There’s also pretty interesting data that shows, like, the type of fund that we are investing in indicates how likely we are to trail it. So if you have, like, a very broad-based diversified fund, like a target date fund, for example, the behavior gap on those is pretty low because when you look at it, it’s like, okay, yeah, it’s sort of doing its thing.
[00:19:53] Joe: Why would you second-guess it?
[00:19:55] Peter: Yeah, right. Like, it’s diversified. It has a little bit of everything. Whereas if you look at, like, small cap funds or sector funds, like, the more specific you get in the exposure, the more likely you see that behavior gap. And, and I think a lot of that is because the reason that people will get into specifically, like, industry or sector funds is ’cause they’re making a bet.
[00:20:15] Peter: They’re speculating. You know, it’s, it’s not investing, it’s speculation, and nobody wants to call it that. You know, because you have done something that we’re gonna call research, and you’ve found somebody with a narrative, and it’s concise and eloquent and highly plausible, but it’s also just, like, one of the infinite potential futures that we might live through.
[00:20:37] Peter: And it turns out, like, six months later or a year later, you’re looking at this fund. And in those infinite futures, the one that you were picturing didn’t play out, and you bail. And so the behavior gap really shows us that we’re chasing performance. Um, and it also shows us a little bit, still, like some of the traditional active management research that we’re, we’re often just paying too high in fees.
[00:20:56] Peter: And so there’s so much changing research. And Joe, when I wrote this book, a lot of the reason I was doing it was because I am a student of the investment classics. Like, I love Winning the Loser’s Game. I love A Random Walk Down Wall Street. I love The Intelligent Investor, but my goodness, those are long books.
[00:21:14] Peter: If you read any one of them, and you’re not, like, a big-time reader, it could take you more than a week. It could take you several weeks. And to read all of them is unrealistic. And so what I wanted to do here was take the big ideas, like stand on the shoulders of the giants, as they say, take those big ideas and make it happen quickly.
[00:21:34] Peter: People don’t have all day to read a book. I realize that. You know, there’s a reason people are watching us on YouTube. There’s a reason people are listening to us on the podcast. There’s a reason that people are just generally trending away from reading. And so the goal is to, like, get those big, important things and recognizing, like, only the most important things that people are going to be able to adopt.
[00:21:54] Joe: Wait a minute. Are you telling me that you didn’t go out to a cabin in the woods- by yourself and, and write the perfect portfolio? Are you telling me this is actually written, th- these are other people’s ideas synthesized? What are you talking about?
[00:22:07] Peter: Dude, I mean, I would love to take credit for, like, efficient market hypothesis, for example.
[00:22:11] Peter: But, you know, I did write a lot of the book in coffee shops in Mexico City.
[00:22:16] Joe: Oh, cool.
[00:22:16] Peter: So shout out to my friend Shane who was hosting me during that period. Yeah, I mean, you know, you wrote a book, Joe, and you just write wherever the words are willing to come out. But I think that this book is 20 years of client meetings and family and friend conversations, and boy, this was almo- if I’d tried to write this book 10 years earlier, maybe it would’ve been hard, but for the most part, you know, this is what I do every day.
[00:22:37] Peter: So it, it’s largely just centering on those big ideas and then telling the stories that I’m telling people all the time.
[00:22:43] Joe: Yeah, these are some great stories, and we talked to Austin Kleon, who wrote the great book Steal Like an Artist.
[00:22:49] Peter: Yes.
[00:22:50] Joe: And he’s like, “This idea of the cabin in the woods is BS anyway.” And, and frankly, you don’t want that.
[00:22:54] Joe: You want the synthesis of the great minds. I love this one line as we talk about blowing up your portfolio and how people do that, and as we get into betting, we bet more and more, but even when people aren’t betting, I just go back over my entire career, Peter, and I think never have I met somebody who blew up their strategy at the right time.
[00:23:18] Joe: L- like, who just decided to abandon ship at the perfect time, and they’re like, “Man, I’m glad I did that.” You’ve one line, “Don’t confuse discomfort with danger.” Let’s talk about that. When is it discomfort, and when is it danger? What’s the difference?
[00:23:36] Peter: I love that you picked out that line, by the way. Truly one of my favorites.
[00:23:41] Peter: Volatility is normal. It is in fact, it’s the cost of admission. It is the cost of the higher returns that you earn in riskier assets like stocks than what you would earn in safer assets like cash. It’s fine to be uncomfortable. It’s fine to even be scared. But if you look at market history, and chapter two just not only looks at like the crashes, but also looks at the booms, like let’s look at some of these booms that ended up not going so well.
[00:24:11] Peter: But if you look at how routine market losses are, it’s like laughably normal. And I’m gonna quote some numbers that are kind of rough around the edges, but like on average, the S&P five hundred falls ten percent every twelve months. Not like truly on a calendar schedule, but on average every twelve months.
[00:24:28] Peter: Ten percent drop, a correction. I mean, think of all the headlines and things you see around a stock market correction. It’s pretty normal. A twenty percent drop happens every three to four years. Bear market. We hear bear market. I’m actually really looking forward. Someone bought me a big bear and a big bull to go on my bookshelf behind me.
[00:24:45] Peter: I mean, in your mom’s basement. I mean, behind me. I mean, you know. So, uh, so But like a twenty percent drawdown as a bear market, that sounds scary. But twenty percent drawdowns are very normal. Now, Joe, thirty percent or greater drawdowns, that’s about once a decade. And look, those are scary. Those are less common.
[00:25:04] Peter: But we should be planning on downturns with a similar magnitude and frequency as they’ve happened in the past. And if you build a portfolio and a financial plan around that, then you no longer have to predict those downturns. You can just plan on them. And so I think a big part of like the discomfort versus danger is becoming familiar with market volatility, with market history.
[00:25:27] Peter: And here’s the thing. I think even when you get to that point, if you’re doing this on your own, and I’m not saying you shouldn’t manage your own, own investments, I’m just kind of putting this out there as a warning, is that people can get really comfortable with the numbers. But something that I’ve come to learn, I mean, I worked through the financial crisis, and I’m like, “Oh, so this is a bear market.
[00:25:45] Peter: Cool.” No, it turns out that was a pretty bad one. But like going through twenty twenty was very different. twenty twenty-two, and then there’s all these things in between. I think people are scared of the narrative that is attached to the downturn. So even if you’re comfortable with the actual percentage point or dollar amount decline, there’s this narrative of why it’s happening that might scare you.
[00:26:06] Peter: And again, we’re storytelling creatures. That is okay. But you do have to realize danger and discomfort are different things
[00:26:14] Joe: It’s interesting, we were talking to historian Joseph Moore, who wrote the great new book, How to Get Rich in American History, and you know the thing that you hear all the time, Peter, I’m sure, is this time is different, right?
[00:26:25] Joe: I mean, talk about narrative. This time is different. I said that to Joseph Moore. He’s like, “Every time is different.”
[00:26:30] Peter: That’s right.
[00:26:31] Joe: You should expect it to be different, but it doesn’t mean that the outcome to your portfolio is gonna be any different.
[00:26:35] Peter: No, and the other thing that I hear is, like, the world is different, the world is changing.
[00:26:41] Peter: Like, so if you have a strategy, and I go through, like, evidence-based strategies within the books, things that have survived multiple economic regimes. And in fact, um, Jeremy Schwartz and J- Jeremy Siegel, who wrote Stocks for the Long Run, they have this amazing long-term data set that they updated for my book, so thank you Jeremy and Jeremy.
[00:27:00] Peter: And they also break it out into, like, different periods of world history, like the agricultural area, like the Industrial Revolution era, and the modern era, and they are all very different. And so if you’re ever thinking to yourself, “Yeah, this asset allocation thing sounds good, or diversification sounds good, but the world is changing.
[00:27:19] Peter: Things are gonna be different going forward,” you are darn right. Things are gonna be different going forward, but the one thing that’s never gonna change is human behavior and the fact that most of human progress is based on the fact that we get out of bed and we want more. Maybe not everybody, but as a group, we want more, we want better.
[00:27:37] Peter: We want more. And that’s, like, when you’re making an investment in the stock market, that’s really what you’re betting on is you’re betting on the human spirit, and it’s a really, really powerful thing. And being a pessimist and betting against the human spirit is, like, a multi-century, arguably multi-millennia losing bet.
[00:27:53] Joe: But it’s also a great way for media people to make money
[00:27:56] Peter: For sure
[00:27:57] Joe: Because of the way that we’re built to what if, what if I step on it? You know, you make this great argument around diversification and proper diversification. If diversification is working right, should there always be a part of my portfolio that’s driving me nuts?
[00:28:11] Peter: Yeah, and it’s what keeps me employed. So, like, I build the portfolios at PlanCorp. Like, we manage about $10 billion for clients across the country. But once you’ve built the portfolio, and when it’s based on decades of research, there aren’t gonna be that many changes. And so really what I do then is defend the portfolio because there’s always something that is the loser.
[00:28:31] Peter: Like, if you own everything, by definition you own the loser. Now, on the plus side, that does mean you own the winner. Maybe you’d like to own more of the winner, but the winner is constantly changing. And I feel like US versus international diversification is a hot button issue. Um, I’ll actually dive into an example because at my prior firm, I remember making a decision around international investing at the beginning of 2012.
[00:28:56] Peter: And so from, like, 1970 through 2011, you’d look at… And that was the full data set that we had on the MSCI World Index at that point in time. And at that point in time, like, US international returns over the long term were about the same. Yeah. But we’d just gone through this brutal period in the 2000s where, like, the S&P 500 lost to cash.
[00:29:14] Peter: And so you’re seeing, like, oh my gosh, we should probably just have more international. And Joe, you probably remember this. Like, everybody just wanted the BRICS. They wanted Brazil, Russia, India, China. They really wanted China. They wanted emerging markets. And so the- That was
[00:29:27] Joe: the hot button then, like, the Magnificent Seven-
[00:29:29] Peter: Exactly
[00:29:30] Peter: you know. Yeah. And by the way, there’s also, like, the ugly example, like the PIGS, but we’ll only talk about the- … the happy ones. Um, but the, you know, it, but you look at that point in time where people are like, “I don’t want anything to do with the US. Obviously it’s worse. China’s where it’s at.” And if you had made that move, then you would’ve lost out or missed out on the greatest US stock bull market ever.
[00:29:50] Peter: And so I think it’s, like, one example, a simple example, and you can go bigger than that or smaller than that, where, like, things are constantly changing What the perfect portfolio does is it doesn’t pretend to know what’s gonna happen next. It does know that there will be downturns at some point. Doesn’t know when or why, but also that we’re just gonna own everything.
[00:30:10] Peter: And you can own, you don’t, that doesn’t mean you have to own index funds. I make it very clear in the book, index funds, great option, the ideal option for the average person. But there’s also other things that are also not predicting the future and are low cost and rules-based, like index funds, that, yeah, like if you own a little bit of everything, you’re gonna do fine.
[00:30:30] Peter: And at the end of the day, like the academics will tell you that the reason that we invest is to grow our savings greater than inflation, so we wanna grow them at a faster rate than inflation, without taking undue risk. And Joe, owning a loser is not an undue risk. It just means you’re diversified.
[00:30:47] Joe: But I love the idea that we began with that the perfect portfolio begins with a goal.
[00:30:52] Joe: Because if you’re investing for the goal and you have this tag toward the goal, you know, you see a lot of academics that say, “I don’t like buckets.” But man, just from a psychological perspective, and knowing that we have these biases, if I have this money tied toward the bucket and I know what the ups and downs are, I know that this is not danger, that this is discomfort, I’m much more likely to hang on.
[00:31:15] Joe: You talk a lot about guardrails with this, you know, not blowing yourself up stuff. What are your favorites? What are your favorite kind of guardrails to protect us from ourselves?
[00:31:27] Peter: All right, big red flashing lights of bias need to be pointed out that like I own an advisory firm, so when I tell you the best guardrail is to have an advisor, like look, I hear you, biased guest, biased voice.
[00:31:39] Joe: Let’s take the bias out of that. Vanguard says this.
[00:31:43] Peter: Yeah.
[00:31:43] Joe: Vanguard says have a financial advisor, so.
[00:31:45] Peter: Yeah, and you know what? People who don’t like the Vanguard study that says like advisors add, in air quotes, about 3% of return, and they put it in quotes. And so if you’re listening to us and not watching, one, you probably should watch us.
[00:31:57] Peter: We’re good-looking guys. We’re very handsome. We’re having fun. Very. You gotta see mom’s basement after all. The thing with that like about 3% is that people are like, “Ah, that’s not real.” But you know what, Joe? People don’t follow a disciplined rebalancing regimen. They don’t follow a disciplined tax loss harvesting regimen.
[00:32:15] Peter: They let their own lives get in the way of managing the portfolio because, as they should, they should be out there living their lives. Like, if you’re supposed to rebalance while you’re in some exotic vacation, let’s say you’re in Greece or Africa or something, are you really gonna get in your computer and pull out like your TI-89 or whatever these calculators are?
[00:32:32] Peter: I passed my CFA so long ago, I don’t even know what my calculator’s called anymore. It’s a TI something. But you like, realistically, the best guardrail is an advisor. Now, let’s say you’re just totally against hiring an advisor. I think that the best thing you can do guardrail-wise beyond that is writing a one-page policy What is the most important thing?
[00:32:52] Peter: Like, what is my why? And like, how do each of my investments fit with my why? You do not need to be an investment expert. If you really can’t explain anything, you’re like, “I don’t know why I own these,” well then you, you really do need help. I’m sorry. Like, you ought to go get help. It doesn’t matter if your why’s necessarily right.
[00:33:10] Peter: I’m laughing. I’m not sure that’s really true, but I think you have to be able, if you’re gonna take control of finances on your own and not use help, all it takes is a one-page document. You type it up, explain your why. It would be nice if you had a second person look at it, whether that’s a spouse or a partner or a friend or a loved one.
[00:33:27] Peter: And if they think you’re crazy, then maybe, you know… This is what an advisor does. They act as, like, an objective party. And so I think that is probably the biggest guardrail because once you have that plan in place and saying, “I’m gonna rebalance on January 1st or the first trading day of January every year,” I mean, that’s a rule that should be written down and followed religiously.
[00:33:46] Peter: Tax loss harvesting can get complicated, and I don’t wanna take up the whole episode, but, like, that should be something that’s in there. Knowing what accounts are designed for what, or if you’re using buckets, what bucket is designed for what. Those are all things that can fit on one page. It doesn’t have to be complicated.
[00:34:02] Peter: And hey, when I started writing this book, it didn’t even occur to me you could use AI to do this too. There’s really no excuse. Most people used to say like, “Oh, I can’t write a one-page policy.” Sure you can. Just talk into your iPhone and AI will do it for you. But you can still read it and make sure that it’s accurate.
[00:34:19] Joe: The big problem with that one-page document is not the one-page doc. I love the idea of having an investment policy statement that we’re gonna follow. We talked to Claire Flynn Levy and Lee Freeman-Shor, who wrote Stock Market Maestros. We have a great video, by the way, Stackers, where you can dive in with them into what makes a great investor a maestro.
[00:34:41] Joe: Claire, a- and Peter, you’ll know this, Claire, like, when we start talking about investment policy statements, she said, “You know what the problem is with most of the pros? They have an investment policy statement, and they don’t follow it.”
[00:34:53] Peter: It’s true.
[00:34:54] Joe: So it’s not about just writing it. It’s your point earlier about are you going to stick to it.
[00:34:59] Joe: Stick to your policy statement is the important part.
[00:35:02] Peter: Well, and I say it in the book, but I’m pretty sure, this is like a steal like an artist moment, where I’m pretty sure David Booth came up with this a long time ago, co-founder of Dimensional, and he just had a bestseller called Stay Calm. The perfect portfolio is the one that you can stick with forever.
[00:35:19] Peter: And I think in general, it’s not just the tickers, it’s the maintenance and the ongoing upkeep of it that’s really important.
[00:35:25] Joe: I want to, you know, we got a bunch of stackers going, “Wait a minute, d- drag me toward the perfect portfolio.” And we’ve talked about not blowing yourself up. We’ve talked about how to, how to get there, but let’s help people build this.
[00:35:37] Joe: You have a probabilistic decision protocol that you use. Four questions you should ask yourself before you put stuff into the portfolio. Can we just walk through the four of those?
[00:35:48] Peter: Yes. Think about the FDA when they’re approving drugs. They’re trying to approve a drug that, like, they recognize there’s gonna be side effects to most drugs, but the idea is that it’s gonna benefit your health more than there are negative side effects.
[00:36:00] Peter: And the same is true for investing. And so we all have the same data sets, and I’m gonna give you these four questions, and how you answer these questions is really gonna be determined on the spectrum of how worried you are about implementing a bad idea versus missing out on a good one. And Joe, in general, I am more concerned with implementing a bad idea than missing a good one, and so the bar for inclusion in my portfolio, the bar for making changes, is very, very, very high.
[00:36:27] Joe: This is very interesting. You’re more concerned, I wanna repeat that, you’re more concerned with making sure a bad idea doesn’t get in-
[00:36:33] Peter: Yes …
[00:36:34] Joe: than the other way around.
[00:36:35] Peter: Than missing out on a good one. Yeah. Because in my job, so like my job is a lot of due diligence, and there’s a lot of strategies that look great on paper, but in real life, they, they don’t always play out the same way.
[00:36:47] Joe: But I think this should be all of our jobs.
[00:36:49] Peter: Yeah. I mean, we should, like the bouncer at the club. Josh Brown always says you should be the, the bouncer at the club for your, that’s called your portfolio. I would totally go to a club called Your Portfolio, by the way. You know, I think in general, the bar is very high.
[00:37:02] Peter: You want to Think through, okay, here are these four questions. Why do I expect positive returns? So just like quick examples, I won’t go too deep on each, but for example, like why would I expect a positive return from an individual stock? Well, it has profits, or maybe it has rent or interest, like it’s a productive asset.
[00:37:21] Peter: Unlike gold, and I’m not trying to trigger anybody, which is a speculative asset. Like, you can say that it’s an inflation hedge or that it’s like a bet against the currency, but that’s still a bet, and it’s an, it’s a speculative one. It doesn’t produce income or rent. It’s not tied to any sort of like well-established risk premium.
[00:37:37] Peter: So the first question you ask yourself is-
[00:37:39] Joe: Crypto …
[00:37:39] Peter: why do I expect positive returns?
[00:37:41] Joe: Yeah.
[00:37:42] Peter: The second question is, does this improve your portfolio’s outcomes? And honestly, Joe, I think this is pretty straightforward. Like, the only reason you would add something to your portfolio is it’s gonna enhance return or improve diversification.
[00:37:56] Peter: Now, I’m gonna say maybe the wonkiest thing I’m gonna say, and then I’m gonna come back above water, but like to make a statistically significant inference on return, you need like forty years of data. And the data, like to make a robust like inference to say, “Yes, this is gonna improve return.” Good example would have been that international example I was giving earlier, like emerging markets didn’t even have forty years’ worth of return data.
[00:38:18] Peter: You can make a s- a faster inference on volatility, but not, but not return. So like, is it gonna improve return? And then diversification, which I think is easier to prove, is great. But I do wanna call out that like Each diversifier you add has a marginally smaller benefit. So like if you have a portfolio of all stocks and you add some bonds, big diversification benefit.
[00:38:39] Peter: Or you add some international stocks, good diversification benefit. And then you add like little nuances here, and by like the 20th addition you’ve made, you’re really not moving the needle. So like this bar, you can kind of hear it in my voice, I’m more concerned about implementing a bad idea than missing out on a good one.
[00:38:54] Peter: So if I read a research paper that says I need a new holding that’s gonna be my 20th holding and it’s gonna improve diversification, it’s like, cool, but by how much? That’s question two. Question three, uh, also one of my… This actually maybe is my favorite. Does it introduce unnecessary complexity?
[00:39:10] Joe: I’m good at this one.
[00:39:12] Joe: I’m good at introducing tons of unnecessary complexity.
[00:39:14] Peter: Yeah. Well, and the key is complexity, it doesn’t have to be bad. But unnecessary complexity, I’m not okay with. So Joe, 15 years ago, um, not quite 20 years ago, I mean, I think really like the boom in simplicity in index funds happened after the financial crisis, and everybody’s all about simplicity.
[00:39:33] Peter: But things have changed. There are things that add complexity to your portfolio that don’t really cost all that much more than the simple option, but they do add complexity. And when you add complexity, that means there’s more opportunity for error. And so unnecessary complexity, a good example might be direct indexing.
[00:39:50] Peter: Not for everybody, but for some people it really should be a part of what you’re doing. V- I wanna be very clear, direct indexing, and that is, that is actually s- one of the bonus chapters, so now you know it’s in the bonus chapters. It’s not the actual tickers. But unnecessary complexity, let’s talk about private investments or alternatives.
[00:40:10] Peter: For most people, it’s unnecessary complexity. For some people I don’t know if I would call it necessary complexity, but it doesn’t have to be unnecessary complexity. So that’s the third one. The fourth one is, are you extrapolating recent performance or like are you ignoring the base rates? In statistical speak, a base rate is just like what is the most likely thing to happen next?
[00:40:32] Peter: Um, so US stocks, for example, like have a long-term return of 10%. Basically, no matter what happens this year, next year, the most likely outcome is that stocks will earn 10%. They probably won’t, but you know, that’s the base rate. And when you’re extrapolating recent success, whether you were really hot for crypto when it was doing very, very well, or you’re currently very hot for like AI stocks that are doing well, you have to think, okay, like am I excited about this just because performance is good?
[00:41:01] Peter: Because let’s imagine you, the performance was actually bad leading up to this moment, would you still want to invest? And so I think that last question sort of helps you try to weed out fads and at least have that honest conversation with yourself where you might accidentally verbalize, “Oh yeah, I’m only investing the…
[00:41:16] Peter: Like why would I invest in it if it hadn’t gone up recently?” You’re like, “Well, that’s, that’s what I’m saying, you’re, you’re extrapolating recent success.” Those four questions, Joe, I test against index versus factor investing, a variety of different bond strategies. I-
[00:41:30] Joe: Well, let’s do that right now. Sure.
[00:41:32] Joe: Actually, I’ve got a little game. I’m gonna- Ooh … I’m going to, ’cause I think this will help our stackers understand these four questions. This is, we’re gonna call this Does It Earn a Seat?
[00:41:40] Peter: Mm. Perfect.
[00:41:41] Joe: I’m gonna ask you questions and you walk me through the relevant one of the four questions or two of the four questions, maybe all of them, I don’t know.
[00:41:49] Peter: Okay.
[00:41:49] Joe: Here we go. Scenario one, stacker comes up to you, Peter, and goes, “US stocks have crushed international for years. I’m done with international.”
[00:41:59] Peter: International earns a C. Let me tell you why. I’m gonna go through the four questions. Yeah. Like, international stocks, I… Why do you expect them to have a positive return?
[00:42:08] Peter: Well, they’re corporations that are trying to make money. They’re going to have dividends, earnings, interest, rent, et cetera. So they do earn a positive expected return. Do they improve the portfolio outcome? Look, they add diversification. The data is very clear that for a US investor, somewhere between, like, 20 and 50% of your portfolio, of your stock portfolio, outside of the US provides a diversification benefit.
[00:42:31] Peter: Nobody really knows what the right number is, so my- I always say, like, find a number and stick with it. And, like, our firm, we’ve been 30% international for as long as anyone can remember, and we’ve been in business since 1983, so we’re gonna, you know, run with that. The return side, it might add to return, but it’s kind of unclear.
[00:42:48] Peter: But either way, it improves portfolio diversification, so we’re good on question two. Does it introduce unnecessary complexity? Well, Joe, it’s not 1960, and we- it’s not that hard to, you know, buy a basket of international securities for the same cost as a low-cost US fund, so I don’t think that’s an issue.
[00:43:05] Peter: And then the last one, are we extrapolating recent success? Most certainly not, ’cause international stocks, although in recent years have done a little bit better, basically since the financial crisis near the end of the decade and near the end of the noughts, it’s been terrible. So I would say that, yes, international stock investing certainly earns a seat in your portfolio.
[00:43:25] Joe: We did do a b- bunch of shows at the beginning of last year because I kept reading online, people going, “I’m dumping international.” And look at last year, to your point. If you had done that right when everybody online is telling you, “I’m done,” man. Uh, scenario two, the question of the moment, everybody’s asking it.
[00:43:41] Joe: My coworker’s making a fortune in AI stocks.
[00:43:45] Peter: Hmm.
[00:43:46] Joe: I gotta have some
[00:43:48] Peter: Well, if you own the whole market, good news, you already own them. Uh, but if you’re going out and explicitly buying AI stocks, well, let’s walk through the four questions. Do you expect a positive return? Well, yeah, like they have earnings projections.
[00:44:01] Peter: Hopefully, you’re buying ones that are profitable or could reasonably be profitable soon, but there, there’s reasons to expect that they will generate a positive economic return. Second question, do AI stocks improve the portfolio? You know, I, I’m not sure that this clears it. Like, does it add return? The answer is yes if you’re right, but no if you’re wrong.
[00:44:24] Peter: And does it diversify the portfolio? Well, let’s just assume that you own a total market index stock fund somewhere in your portfolio, even if you happen to own a lot of individual stocks or maybe you have a variety of different funds, but it’s tough. Like, tough to prove that it’s gonna improve diversification.
[00:44:42] Peter: It’s sort of like, does this little extra piece really do anything?
[00:44:46] Joe: Um,
[00:44:46] Peter: so we’re
[00:44:46] Joe: gonna- I think you’re concentrating it more.
[00:44:47] Peter: Yeah. So I think in general, like the second question, it’s not clear that it has cleared the bar, particularly if you’re more concerned about implementing a bad idea than missing out on a good one.
[00:44:59] Peter: Now, this is a really good question to see, like where you might fall on that spectrum. ‘Cause if you say, “Yep, it improves the portfolio,” chances are you tend to skew more towards the, “I’m worried about missing out on a good idea.” It’s not, not bad. One’s not right and one’s not wrong. I’m just explaining what my preference is.
[00:45:17] Peter: So the third one, does it create unnecessary complexity? I’m gonna say yes. It’s another position that you have to track, and more importantly, it’s actually a trade that you have to track. So you have to be correct twice. You have to be correct at the beginning, and you have to be correct when to get out.
[00:45:32] Peter: And when you get out, you might have to pay taxes depending on what account you are in. And as a result, the bar for having that be the right choice is already higher, and look, it’s already hard to measure this. This is already sounding a little bit more complex. And then I look at the fourth question, like are you extrapolating recent success?
[00:45:49] Peter: I think undoubtedly you are. If AI stocks had been doing terribly the last five years, would you really wanna make this investment? That might be a question you’re asking Also, you know, I just don’t think that any given group of stocks, like if you pick an individual stock or a sector, the base rate is that it’s gonna trail the overall market.
[00:46:09] Peter: Hendrik Bessembinder has the best, most recent research, but there’s been some research by Goldman Sachs, by JP Morgan, that shows that when you try to pick specific sectors or individual stocks, on average you’re gonna lose. So I’m gonna say AI stocks are not gonna earn a seat in isolation in the perfect portfolio.
[00:46:29] Joe: But to your point, they’ll still be in your broad diversified portfolio.
[00:46:34] Peter: Yeah. Good news, you’ve owned Nvidia since it was a tiny little stock if you owned, um, you know, total market index. And you might say, “Well, I didn’t get to benefit of it very much.” That, that’s just not true. I mean, it drove a lot of return the past few years as it grew into a bigger and bigger portion of the index.
[00:46:51] Joe: I think, Stackers, you just gotta go back and remember that a few years ago I would have asked Peter, marijuana stocks, right? Yeah. We’re, we’re not talking about marijuana stocks anymore.
[00:47:02] Peter: Yeah. And those didn’t really end up going anywhere.
[00:47:04] Joe: It truly did not. But I remember, you know, for what, three, four months, that was the- Yeah
[00:47:08] Joe: the hotness, all anybody wanted to talk about.
[00:47:10] Peter: For sure.
[00:47:11] Joe: Uh, you mentioned bonds, so let’s go there last. Uh, bonds were terrible when rates rose. Why wouldn’t I just keep the safe part of my portfolio in cash?
[00:47:20] Peter: Such a good question and timely right now, um, ’cause if you’re listening to us right this moment, interest rates have recently gone up, and so if you have, like, a bond fund, chances are it went down in value.
[00:47:32] Peter: Now, if you look at your brokerage statement, it’s not always gonna capture all the income that you’re receiving. So maybe your price is down, but maybe your total return, so, like, the income you earn plus the change in price of your fund, maybe that total return is actually positive. But if you’re looking at, like, a five-year return on cash versus bonds, well, twenty twenty-two is the worst bond market in history, full stop.
[00:47:56] Peter: So if you’re looking at five-year comparisons, you’re comparing cash to the worst bond market in history. But here’s the good news, is that starting yields define what the future return is. So if you have a five-year bond earning five percent– or actually, let me make this more realistic, a ten-year bond yielding five percent, you are going to have a five percent return on average for the next ten years.
[00:48:19] Peter: And so that, that’s pretty good. That, that’s gonna beat cash, I can almost assure you. You can’t worry too much about what just happened. It’s more about what’s going forward. And here’s the, the tricky part. So if you own a bond fund, let’s say you own the Agg, which is shorthand for, like, the Bloomberg Barclays Aggregate Bond Index, and there’s a lot of funds that track that, and it has a duration of six years.
[00:48:44] Peter: What that means is that in six years, whether interest rates went up or down, you’ll break even. So what that means is if interest rates are going up, as long as your holding period is greater than the duration of your fund, you are actually gonna come out ahead, even though there was a price loss at first.
[00:48:59] Peter: So if I’m testing with the four questions, like should I own bonds? The first question, why do I expect a positive return? Well, it’s interest. The second one, does it improve the portfolio? Yes, it improves diversification almost, like, definitively, like very, very robust data. Third, does it un- introduce unnecessary complexity?
[00:49:18] Peter: No, I don’t think so. I, I would caution against having a portfolio of individual bonds. I don’t want the stackers who love the individual bonds and are using a bucket system to attack me, so hear me out. Um, actually, the bond chapter in the book is the one that got the most revisions in response to my listeners giving me feedback.
[00:49:35] Peter: Oh, wow. ‘Cause what I heard a lot of people asking were not actually bond questions, but cash management questions. I am talking about bonds in a long-term portfolio, a portfolio that you will not need for five years. Let’s just, I’ll just draw the line there. In which case, if it’s individual bonds, you might be introducing unnecessary complexity, higher cost, lack of diversification, cash drag, all sorts of things Bond fund, not that complicated.
[00:50:01] Peter: And then lastly, are you extrapolating recent success? No. I mean, if anything, bonds have been pretty bad. On the other hand, the product development in the bond space is astounding. I have never seen there be a more exciting time in my lifetime to be a bond investor. Now, I wasn’t born in 1982, which would have been the ideal time to buy bonds.
[00:50:23] Peter: I was born in ’84, so I was a little late to that party. But you’re not extrapolating performance. Yes, this definitely earns a seat in the perfect portfolio
[00:50:33] Joe: Stackers, we started off with the perfect portfolio isn’t something everybody else owns. It’s something that is unique to you, like the perfect steak, that applies to your situation.
[00:50:42] Joe: We walked into how not to blow yourself up and fighting bias. And then as you’re adding things to your portfolio, how to evaluate those, what the filtering system is to make sure the bad ideas don’t make it into the portfolio. I wanna go back to the investment policy statement that we touched on. Given all that stuff, if I’m constructing the perfect portfolio, what goes on that one-page statement?
[00:51:08] Joe: What do you wanna see in there no matter what? I mean, some people are gonna have this mousetrap that’s 50 pages long, and they’ve got all kinds of machinery. But if I’m just going one page, simple, what must be on that investment policy statement?
[00:51:22] Peter: I think you need a household view, and that doesn’t mean a super detailed spreadsheet of your entire balance sheet.
[00:51:27] Peter: But I think it does need, like, some very big categorical line items of, like, what are your assets and liabilities, and where does the portfolio sit relative to those? So, like, if your portfol- if you have a $10 million net worth and a $1 million portfolio, your portfolio has a very different role in your life.
[00:51:45] Peter: So I think it’s just, like, how can you get the whole household view there? Doesn’t have to be very detailed, but right at the top, where does it sit? From there, I think you’re really just saying, like, “Hey, what am I trying to accomplish with this portfolio? What is the portfolio’s purpose?” If you can do it in one or two sentences, that’d be great.
[00:52:02] Peter: If you need to talk to AI and tell it to write you one to two sentence summarizing your stream of consciousness, that, that’s fine. That can actually be a really great strategy. From there, you’re gonna say, “How am I gonna automate?” Like, what parts of my plan are gonna be automated, whether it’s deposits, withdrawals, investments, rebalancing, et cetera.
[00:52:22] Peter: And then you’re gonna say, “When am I gonna rebalance?” Sorry, skipped a part. When you– you’re gonna say, like, “What is my mix of assets?” So as you’re connecting the different investments to your why, like, how much are you gonna have in stocks? How much are you gonna have in bonds? What are you gonna keep in cash outside of the portfolio and cash inside of the portfolio?
[00:52:39] Peter: And Joe, I’m, I’m all for keeping cash really, really, really small inside the portfolio, and let your cash being part of, like, a different bucket and a more conservative piece.
[00:52:48] Joe: More of a cash reserve.
[00:52:50] Peter: Yeah. Yeah. Like, I’m one to two years of cash reserve kinda guy. I’ll probably, personally, as I get closer to retirement, be more likely to do that than, than the buckets, but buckets work for a lot of people.
[00:53:00] Peter: Totally get that. Yeah. But then, you know, I think you’re going to lastly explain the maintenance schedule I mentioned rebalancing rules. Like, when are you gonna rebalance? Are you gonna do it on a calendar schedule? Are you going to do it when your allocation deviates by a certain percentage? If you’re gonna do the percentage, how often are you going to check your portfolio to see where that percentage is at?
[00:53:22] Peter: Is it daily, quarterly, annually? You have to really be specific with yourself because when things are ugly, you’re gonna need those rules. You don’t need the rules… Well, they say you don’t need the rules in the good time. Eh, you know, you, you, you might if you get too excited, but generally speaking, the reason you have a philosophy and rules is that when everything seems broken in your portfolio or the world around you, it’s gonna be that statement that anchors, “Hey, I knew that downturns were gonna happen.
[00:53:51] Peter: I didn’t know when or why, but they’re gonna happen with similar magnitude and frequency as they have in the past.” And if you need to write that to yourself on the one-page document, go for it. But, “Here are the rules I’m gonna follow when that happens, and then everything’s gonna be okay.”
[00:54:06] Joe: The book is called The Perfect Portfolio: A Proven Guide to Smart Investing for Long-Term Success.
[00:54:11] Joe: I had so much fun as a money geek going through this, and it looks like you had a lot of fun writing it in Mexico
[00:54:17] Peter: City. I really did. I don’t know that I wanna write another one right away, but- … uh, look, this is 20 years’ worth of knowledge, uh, and, and learning from others, you know, really distilled down into some quick lessons.
[00:54:29] Peter: So, whether you’re an experienced investor or new to investing, I, I am certain that you’re gonna find something new in there.
[00:54:34] Joe: And that’s the cool part, Stackers. If you’re not watching the video of this, it is thin. It is 135 pages.
[00:54:42] Peter: Yeah, my first book is thin, too. I, I… Again, nobody wants to read a 500-page book.
[00:54:47] Joe: You are succinct. Actually- Yeah … I take that back. It’s 180 pages.
[00:54:51] Peter: Yeah, my apologies to Harriman House. I think they wanted a 200-page book, and when I was done writing, I was done writing. I’m like, “This is all it needs.”
[00:54:58] Joe: Yeah, more words does not make it better. You and I have read those books before- Yes
[00:55:01] Joe: where you’re like, “Oh, Chapter Five, please, God.” “
[00:55:03] Peter: Most books can be a blog post. Most blog posts can be a tweet.” A famous Morgan Housel statement that, you know, I think people should take to heart. But hopefully you can sit down. Even if you’re not a big reader, you’ll read it in a weekend. And if you are a big reader, you might read it in one night.
[00:55:18] Peter: So, I hope you enjoy. I hope to hear from people about it, too.
[00:55:21] Joe: We will link to it in the show notes at stackingbenjamins.com if you’re walking the dog or on the commute. So, we got you covered, Stackers. Peter, great seeing you again, man. Congratulations on a job well done, and thanks for sharing it with our Stackers.
[00:55:33] Joe: I appreciate it.
[00:55:34] Peter: Hey, thanks for having me, Joe.
[00:55:36] Doug: Hey, I’m Bob Wheeler, and when I’m not talking to people about money, I’m stacking Benjamins.
[00:55:46] Doug: Hey there, stackers. I’m Joe’s mom’s neighbor, Doug. Today we’re talking about a term I’ve been hearing a lot lately in financial circles. Alpha. I know what alpha means in the real world. It means you’re the top dog, the big cheese, the guy everybody else looks to for leadership, and around here, I don’t wanna brag, but I mean, come on, that’s totally me.
[00:56:06] Doug: I control the trivia microphone. I know where the good folding chair is. And when somebody needs the Wi-Fi router unplugged and plugged back in again, guess who gets the call? That’s right, M-E, which is short for me. Now, OG claims it’s not what being an alpha means. He says it has something to do with investments and performance and benchmarks, which sound suspiciously like something a beta would say.
[00:56:29] Doug: In fact, OG told me that if I really wanted to understand alpha, I should look at my investment portfolio. So I did. I gotta tell you, I didn’t see any Greek letters in there, just a bunch of red numbers and a notification that said, “You need permission to do that again.” Anyway, a- apparently alpha is a real financial term, and it has a very specific meaning when it comes to investing.
[00:56:48] Doug: So here’s today’s trivia question. What do you think the term alpha means in a financial context? I’ll be back right after I remind everybody who’s in charge down here. Maybe after I go look this up for all of us.
[00:57:03] Joe: Hey,
[00:57:03] Doug: hey, come on, who moved the folding chair again?
[00:57:15] Doug: There, Stackers, I’m the undisputed alpha male of this basement and the guy who doesn’t ask permission before changing the thermostat, Joe’s mom’s neighbor, Doug. Before the break, I asked you what the term alpha means in finance. Turns out it has nothing to do with being the loudest guy in the room, having the coolest muscle car, or, you know, maybe getting to the Sizzler salad bar before Todd puts out the fresh croutons.
[00:57:39] Doug: In investing, alpha is a measure of how much an investment outperforms or underperforms its expected return after accounting for the risk taken. Positive alpha means it did better than expected. Negative alpha means it did worse. So for example, if your investment earns more than its risk-adjusted benchmark would predict, you’ve generated positive alpha, and if it does worse, well, apparently that’s called negative alpha, something I have never been called, at least not to my face, proving again just what an alpha I am, ’cause people won’t say it directly to me.
[00:58:16] Doug: See ya.
[00:58:21] Joe: Doug, every time you change the thermostat, I, I just think knowing mom upstairs, you’re just taking your life into your hands, man. Every time
[00:58:29] Doug: Yeah, but she’s gonna complain no matter what, so I’m just gonna set it where I like it
[00:58:33] Joe: As you know, OG, that woman likes it, uh, set at 87 degrees. And we never, and we never change it.
[00:58:40] Joe: And when we say sweater weather, when I said- Yeah … sweater weather earlier talking about the Veterans’ Day giveaway- Sweater weather … what I meant was sweat-er- … sweatier weather
[00:58:49] Doug: Sweater. We’re sweating Mom out.
[00:58:51] Joe: Yes.
[00:58:51] Doug: God, because, God, older people and the thermostats, it is, it’s like walking into an Easy-Bake Oven when you go in their houses
[00:58:58] Joe: SNL did a great skit about that, about, uh, Alexa Silver, about Alexa for older people.
[00:59:05] Joe: It’s so, “Turn the heat up. Turn the heat up. Turn the heat up.”
[00:59:07] Doug: When my mom comes to visit, especially at the holidays, and we’ll turn the thermostat up to, like, 74 thinking, “Okay, we’re gonna splurge a little bit, turn it up, make sure Mom’s comfortable,” and she’s wearing all of the warm clothing she brought from Florida.
[00:59:21] Doug: “It’s so cold in here.” Got the blanket up over her nose.
[00:59:25] Joe: God, Mom Hey, it’s time. One stacker just said, “You know what? I better call Saul, C-Hi, N-O-G.” This is the part of the show where we help you deal with whatever issue you’re having with your money. So give us a call. Go to stackingbenjamins.com/voicemail or stackingbenjamins.com/yell downstairs.
[00:59:47] Joe: We’d love to help you with whatever your question is. You know what? We got a great question here today, OG. This one comes from Stacker Nick. Hey, Nick “
[00:59:58] caller: Hey, Joe and OG, but really Anna. I’m currently a resident physician with term life on both me and my spouse appropriate for a full physician income. We have a will with a separate guardian custodian set up, different people to mitigate balance of power.
[01:00:11] caller: We just had kiddo number three. We canceled our cable subscription and got bored, I guess, and tried updating our beneficiaries in case we die at the same time. Our agent said, ‘Don’t name the kids as an alternate beneficiary because it skips the will and goes through special probate. Instead, name the custodian or the guardian and hope they move the money into the kids’ accounts.’
[01:00:29] caller: Problem number one, we’d rather the money be legally tied to the kids, not dependent on good behavior, even with trusted family in good financial shape. Problem number two, when the guardian transfers to the kids’ accounts, does that burn through their gift tax exemption? It’s 13 million a person now, but this can always change in DC.
[01:00:46] caller: We don’t really wanna put this burden on the custodian. We know a trust solves this. The budget is just tight right now. Is the agent’s concern even accurate, and is the gift tax thing a real issue, or are we overthinking? Should we consider an older relative closer to the time they won’t need a gift tax exemption, if you know what I mean?
[01:01:02] caller: Thanks.” And listener’s still waiting to learn something.
[01:01:07] Joe: Thank you, Nick. I love how the Netflix subscription they canceled and just happened to have a third kid- … during that time. Yeah. OG, I really, I can’t wait to hear what you’re gonna say, but when I heard this the first time, I thought, “I don’t like this agent’s recommendation at all, like, at all.”
[01:01:25] OG: I was on mute, so you didn’t get to hear me say, “What the ?” You know, like-
[01:01:30] Doug: I could see the scoffing happening, though …
[01:01:32] OG: it wasn’t even, like, scoffing. It’s- Horrible … it’s- Horrible … it’s, this is the absolute frigging worst idea ev- I mean, here’s the great news. You should do that, document it, and then sue the living crap out of this firm for providing this advice because then you’ll get, like, five times as much money when you’re dead.
[01:01:53] OG: You know, you just have to write that up so that the team knows to do that once you’re dead. This is absolutely horrid advice, absolutely ridiculously bad, unconscionable-
[01:02:04] Joe: If you’ve ever seen- … that somebody
[01:02:05] OG: would say this …
[01:02:06] Joe: if you’ve ever seen the movie Cinderella, you know exactly where this goes. Somebody else is controlling the purse strings.
[01:02:14] Joe: The kid has nothing. Next thing you know, I mean, there’s, there, there’s way too many opportunities for bad things to happen.
[01:02:20] OG: Yeah. Here’s the thing. What you’re hoping for is you’re hoping for some other person To do what’s right in the face of having millions of dollars that, you know … Look, I don’t know the background, I don’t know your family background.
[01:02:37] OG: Families that have $100 million asset probably don’t give a crap about your $3 million term life policy. Families that have $42,000 to their name think that $3 million is more money than exists in all of the universe, and will justify the decision-making that they have around, “Well, your kid doesn’t need all this, but my kid definitely needs a new minivan.”
[01:03:03] OG: This is absolutely terrible advice. I can’t even believe that somebody would recommend … Uh, like this is, this, this makes me want to write a letter to my congressman you know? Like, like how do we get this person fired from ever talking again?
[01:03:18] Doug: Joe, is there a possibility that Nick is rage-baiting OG? Could this whole thing have been- I
[01:03:23] Joe: don’t think so.
[01:03:24] Joe: No. I
[01:03:24] OG: think
[01:03:24] Joe: there are-
[01:03:25] OG: No, ’cause he was asking Anna for advice, honestly.
[01:03:27] Doug: Yeah. Well, Anna’s the … Like we know you’re just the great and powerful Oz, and Anna’s really behind the curtain. I mean, like that, that secret’s out.
[01:03:35] OG: So basically, what, what he’s trying to solve for is this: I have an estate, so I have a pile of money that gets created when I die.
[01:03:45] OG: Now, this is through insurance, and I have these children that I wanna make sure are taken care of, but they’re minors, and I need a mechanism to take care of them but also provide some guardrails around … You know, legally you can’t give a nine-year-old a million dollars, right? Like, there has to be some thing in the way, and if you don’t design that in advance, the court system will design it for you, right?
[01:04:09] OG: So these are the two things, and, and the agent, what he was suggesting was, “Well, just skip the whole court system. Just give it to Uncle Bill because he’s an upstanding young man, and he’ll probably just give it to your kid-
[01:04:21] Joe: Ugh …
[01:04:21] OG: on the back end.” Probably. You know, assuming that he doesn’t need it, and spend some of it, and, you know, just it’s such a terrible idea.
[01:04:30] OG: Do not skip investing money in a correct estate plan because the budget’s tight. There’s gotta be a way to work with an attorney on a payment plan. Skip the next Disney trip. There’s– this is not something that you skip out on trying to save a few bucks. The likelihood of both you and your spouse getting hit by a bus, probably pretty low, but I would not be skipping out on an estate plan.
[01:04:53] OG: Here’s what you wanna have happen ultimately. You wanna make sure that the money goes to a place that’s controlled by people that you trust for the benefit of your children, with accounting and record keeping that makes sure that they’re doing it the right way. If you’re in a relationship, you say, “Hey, I trust that person to be my wife or my husband, you know, or my spouse,” right?
[01:05:16] OG: Like, I believe that if I die, my money will go to my w- my wife, and my wife will take care of my kids in a manner that she sees fit. I trust that to be the case. I don’t need to adjudicate that in advance. But if both of us pass away, this is our estate plan. Now, I have a son who’s 19. I have another one who’s gonna be 18 in six months, and then I have a daughter who’s 10.
[01:05:40] OG: But I still don’t trust them with millions of dollars, even though they’re technically adults. So ours goes into a trust. The trust then creates three separate trusts, one for each kid, that’s supervised by a financial account manager, somebody who’s gonna help with the investing and the decision-making around, like, the day-to-day tactical stuff, and then also a team of people, small team, three people, who are gonna decide what’s in the best interest of the kids until they get to a certain age at which they have access to it themselves That’s how we have it set up because I want my kids to be able to take care of college tuition.
[01:06:14] OG: You know, if they wanna do a, a study abroad program and it’s a little extra, that’s what we would do. We would allow our kids to do that. What I would not allow my kids to do is buy a Ferrari. So I need somebody to step in and say, “No, you’re not buying a Ferrari. But if you wanna go study in Italy for a semester, you know, we’re cool with that.”
[01:06:32] OG: That all has to be done legally, and it has to be done in advance because if you don’t do those things, here’s what happens. A, you can’t give money to a minor. If you say, “Hey, my life insurance is, you know, to Junior,” he’s eight, the court system will step in and say, “Well, e-eight-year-olds can’t have money, so we will manage it for you.
[01:06:52] OG: And by manage it, we mean put it in a savings account, and at 18 your kid can have access to it.” If you wanna take money from the account, you file a petition with the court. If it makes sense, the court decides what makes sense, and then they can take money out, right? College tuition, need a beater car, he’s 16, probably all makes sense.
[01:07:12] OG: Buy a Ferrari probably doesn’t make sense. So there’s gonna be some restrictions there, but there’s no investing ’cause they can’t take any risk, and at 18 the money all goes to the kid. Probably not what you wanna have happen. If you leave it to an adult hoping that the kid gets it eventually or the kids get it eventually, yes, there’s a gift tax issue, yes, there could be problems like that.
[01:07:33] OG: I’m not worried about that insofar as I’m worried about just the temptation of having $10 million sitting in an account that’s not mine. If you’ve never managed that level of wealth before Why, like, I don’t know. It just, people are good intentioned, well-intentioned. It’s a big risk
[01:07:53] Joe: We’re gonna have a story next week.
[01:07:55] Joe: Most of our Halloween week is gonna be fun, bump in the night, but one of our stories next Wednesday, OG, is, uh, our-
[01:08:01] OG: Is how this goes completely bad maybe?
[01:08:03] Joe: Well, it’s about an estate plan, somebody that hadn’t done the estate planning correctly. The people that inherited the money accidentally said, “Oh, no, no, no, no, no.
[01:08:12] Joe: We would never take this money because we know that there’s no way that the deceased wanted it to happen this way. We’re gonna do it the way the deceased wanted.” And then they found out how much money it was, and it’s strange how once they figured out how much money it was- Mm-hmm … all of a sudden your brain comes up with all these reasons why.
[01:08:29] Joe: Well, maybe he did want it this
[01:08:30] OG: way. It’s a lot of rationalization, and I’m just, I’m thinking further down the line. So you leave it to Uncle Bill because Uncle Bill’s a stand-up guy and the best money guy in the, in the family, and you go, “Hey, you have the chat?” And he goes, “Absolutely, I’ll make sure your kids each get the million dollars, no problem.”
[01:08:44] OG: What happens when Uncle Bill dies in a plane crash?
[01:08:47] Joe: It’s his cash.
[01:08:48] OG: You know, now what?
[01:08:48] Joe: It’s his cash.
[01:08:49] OG: Now it’s Uncle Bill’s money. Well, what’s his estate plan say? Well, it goes to his kids. Well, no, no, no, this part of the money was supposed to go to these kids. Well, how do they… You know what I mean?
[01:08:57] Joe: What’s the mechanism?
[01:08:58] OG: No, no, no, we need this to be airtight, bomb-proof. My family is staying protected in the manner in which I want them to be protected, and if that costs you five grand to get an estate plan done or 10 grand, get it done.
[01:09:10] Joe: Get it done right. Never worry about it again. I wanna go over some of these numbers.
[01:09:14] Joe: That gift tax number in 2027 is projected to be $20,000 per person, so again, if, if, uh, Uncle Bill- Oh, that’s
[01:09:22] OG: per year
[01:09:23] Joe: of gifting … per year per person. Yeah. Yeah. Again, not the world’s biggest thing ’cause, uh, as you mentioned, Nick, that goes against your just absolutely huge number that you can, uh- Lifetime,
[01:09:35] OG: yeah
[01:09:35] Joe: yeah, that you have during your lifetime, so probably not gonna come close to that, but that is the number before you have to file a return, but I agree with OG. S- some other terms that we use for people that aren’t familiar with estate planning, you mentioned something that I like sometimes, I don’t like all the time, which is for your kids, you have a guardian and a custodian.
[01:09:56] Joe: This can work. It doesn’t have to go that way. W- what this means is what Nick is doing is putting one person in charge of the kids and their livelihood- Mm-hmm … and they’re gonna decide, you know, kids goes to school, kid eats, kid, uh, food, clothing, shelter, takes care of the kid. somebody else is in charge of handling the kid’s money.
[01:10:16] Joe: So OG, when OG was talking about the court will handle it for you, if there’s already a conservator who has been put in place to do that, that person now controls the purse strings. I’ve seen this work with- Well, hold on.
[01:10:29] OG: If it’s a will situation, if you wrote it in your will, the court can decide if they want to-
[01:10:36] Joe: Follow it or not
[01:10:37] OG: follow up your will. If this is a trust, there is no court proceedings because it’s a living, breathing entity that hasn’t died. So there is no court proceedings for a trustee. It’s just the legal documentation that the bank needs to say, “Joe’s the trustee of the trust,” period. Yeah.
[01:10:54] Joe: Makes it super easy.
[01:10:55] OG: So nothing is up for debate.
[01:10:57] OG: There is no… I mean, obviously there’s a process to like, you know, adjudicate it if there’s a problem, but- You can have somebody in, be in charge of the kids, and the money is still the money. And, you know, maybe that crosses over, maybe it doesn’t.
[01:11:10] Joe: Well, and it w- and here’s how, I don’t know how you guys handle this, OG, but the way that I would handle it was if you’ve got somebody who is good with money, responsible, great with kids, don’t overcomplicate it.
[01:11:24] Joe: Just leave it one person is gonna take care of everything. Listen, I either gotta trust them or not. I’m dead, right? So I gotta decide. But in some of my clients’ cases, they knew somebody who was purely the best person to take care of their kids, but money just flowed through their hands. They were so bad with money, it was just absolutely horrible.
[01:11:47] Joe: And it wasn’t that they were gonna do anything nefarious, it was that this money was just not gonna be handled well. And then they b- would have a separate person that handled the money and the financial stuff, and a different person who handled the kids. I like that in that situations, but I also had to make it clear, when you set this up, Nick, and I just wanna make this clear to you, these people, when you pass away, if your kids are minors, they will hate each other.
[01:12:13] Joe: They will. ‘Cause the one person’s job is to take care of your kids and make sure that they get what they need, and the other person’s job, if they do it well, is to question everything.
[01:12:23] OG: Yeah.
[01:12:24] Joe: Realize if these people are friends now, they’re not gonna be. It can work very, very well, but you are gonna create some conflict between these two people.
[01:12:31] OG: Yeah. Ours is set up similar to what you just talked about there in that example where there’s somebody in charge of the kids and then somebody in charge of the money, except we have, it’s more of a three-person kind of platform where the, the people in charge of the kids are also on the finance committee, so to speak.
[01:12:47] OG: Ah, yeah. And so the third-party independent person is the tiebreak, you know? And look, I wrote all this stuff down in our estate plan, and I’ve also communicated it to the guardian of our kids and the trustees of the trust, which is we want our kids to maintain a standard of living similar to what they had.
[01:13:06] OG: What we don’t want is for them to say, “Oh, your parents just got hit by a bus. We’re moving across the country. We’re pulling you away from all your friends. You’re never going to Disney again. But great news, Mom and Dad left you millions of dollars. Someday you’ll get it.” You know what I mean? I understand that it might cost money to stay in the school, the system that they’re in.
[01:13:27] OG: It might cost money to say, “Hey, well, we went skiing once a year.” If you want your kids to go skiing, I gotta bring my kids too, you know? ‘Cause like I get that and I’m okay with that. I want that same standard of, you know, it’s already bad enough that their parents are dead. I don’t need to like rip their whole life- Keep as
[01:13:45] Peter: much normalcy- Yeah
[01:13:45] Peter: as much normalcy as possible.
[01:13:46] OG: But in the chance that there’s a dispute, I have a third party who’s gonna, you know, who oversees that. And frankly, this is a period of time of transition for us because now I’ve got a kid that’s in college, got another one about to be in college. I’m not saying that I would be willing to hand all the money over to my two boys right now, but we’re getting there.
[01:14:04] OG: You know what I mean? Like, we’re getting to the point pretty quickly where they will be adults and, you know, you can’t coddle them forever. You know, if I, if I’m dead and they’re 37, like they either figured out life or they haven’t, and if they haven’t, me giving them 5 million bucks ain’t gonna change that one way or the other
[01:14:22] Joe: It’s easy to put this stuff off.
[01:14:23] Joe: I know that my estate plan has been outgrown for a long time. We’re actually redoing it as we speak.
[01:14:28] OG: Sinner.
[01:14:30] Joe: It is time, time to get it done. Get it done.
[01:14:32] OG: Yeah.
[01:14:33] Joe: Don’t, don’t wait.
[01:14:34] OG: Yeah, don’t… This is not an area to skimp on, right? You don’t wanna skimp on your taxes, tax preparation, financial advice, you know, estate planning advice, electrical work.
[01:14:44] OG: These are all in the same category of- … not DIY, do not skimp on. Do the… Well, ChatGPT, have you guys seen those videos recently that people are making where it’s like, you know, the guy’s, like, collapsed on the, on the track? You know, he’s, like, all splayed out on the track, and it’s, like, the voiceover of ChatGPT going, “You’re right.
[01:15:02] OG: Doing intervals in 105-degree temperatures could be taxing on your body. Maybe you should wait till it gets a little bit co- You know, it’s, like, just blindly following the chat advice. It’s like, “You- you’re right. That’s my bad. Peanut butter does have peanuts in it, and you’re allergic to peanuts.” Oh. “I would not be eating a peanut butter sandwich,” as the person’s, like, laying on the ground-
[01:15:20] OG: with, like, peanut butter all over him. “
[01:15:22] Joe: Sorry I recommended that.”
[01:15:23] OG: Yeah. “
[01:15:24] Joe: But you know what? Y- you look great on the ground.”
[01:15:27] OG: That’s the downside of some of this stuff, you know, wisdom, you know, versus knowledge. So I hope this was a rage bait. I hope it was, to Doug’s point, and, uh, just gave us something to talk about.
[01:15:37] OG: But, um, I cannot honestly believe in this universe that there is some insurance agent out there that goes, “Don’t put your kids on it because you can bypass the probate process by putting, you know, Uncle Bill on there instead.” And that’s… Yeah, don’t do that.
[01:15:56] Joe: Yeah. Oh, boy. Thanks for the question. And again, if you’ve got a question, it’s stackingbenjamins.com/yell downstairs or just stackingbenjamins.com/voicemail.
[01:16:06] OG: I actually have one last little comment here. I would rather, obviously I’d rather you do an estate plan, but I would rather list your spouse first and your kids secondary on your life insurance, knowing that it’s gonna be a mess in court, versus leaving it to Uncle Bill and hoping that he does it right.
[01:16:22] OG: ‘Cause at least I know that the money will be there at my kid’s 18th birthday. You know what I mean? Like- Yeah … I know that that’s gonna be- Yeah … the case. It’s still giving a million dollars or millions of dollars to an 18-year-old, which could go bad in a hurry.
[01:16:34] Joe: But still way
[01:16:34] OG: better- But I know it’s gonna be there- Yes
[01:16:36] OG: at least. Now, maybe Uncle Bill can take 11 to 18, and, like, he’s trying to, like, drum common financial sense into their skull for the seven years that he’s got them. But otherwise, I wouldn’t- But I
[01:16:47] Joe: think that scenario, I mean, we’ve heard about this before, where Uncle Bill dies- Well, there’s that … and now, and then that’s, that’s a huge mess.
[01:16:54] OG: Another mess.
[01:16:54] Joe: Yeah.
[01:16:55] OG: For sure.
[01:16:55] Joe: Duct tape shouldn’t apply here.
[01:16:57] Doug: OG, I, I mean, just name me. I’m definitely taking your kids skiing.
[01:17:01] OG: You would.
[01:17:02] Joe: You
[01:17:02] Doug: would. Yeah. Check and check. I wouldn’t even bring my own kids.
[01:17:06] Joe: Let’s m- let’s mosey out on, on the back porch.
[01:17:10] Doug: Joe, now that we’re on the back porch, you know what’s coming soon.
[01:17:14] Doug: The 11th hour of the 11th day of the 11th month.
[01:17:19] Joe: You
[01:17:19] Doug: know what that is, right?
[01:17:21] Joe: Oh.
[01:17:22] Doug: That’s Veterans Day, baby.
[01:17:24] Joe: Oh, yeah.
[01:17:25] Doug: And that means we honor all who have served or are serving, but it also means something for us in the Stacking Benjamins world.
[01:17:32] Joe: Yeah. I can’t wait, A, for people to get great financial tips every week in their email.
[01:17:39] Joe: The 201, everywhere I go in the country, people share such great thoughts about it, ask me about some of the stuff that we write in the 201. It is, uh, such a great way to get financial tips. You know, usually, when people send out an email, 3% of people open it. Uh, 48% of people who get the 201 open it each week.
[01:18:03] Joe: Nearly one in two, which is just a fantastic open rate for any email, and that’s because Kevin Bailey does such a good job. We put a lot of love into it, and so I hope that you do. Plus, when we go around the country and we meet Stackers, then we can send out an email to you to tell you that we’re coming.
[01:18:20] Joe: We don’t spam you with a ton of email, but we do tell you about what we’re doing on YouTube that week. We’ll tell you about some of the things happening around here. But stackingbenjamins.com/201. And if you’re an active duty service member or you are a veteran or you know one, hand it to them because either you or your friend is going to get three entries to honor them, uh, during Veterans Day.
[01:18:42] Joe: So good stuff. Ends this Friday, though, ’cause we wanna give it out next Wednesday on Veterans Day Got just one more thing. We had a great meeting of all of our meetup groups. Our meetup groups are in Tucson. We have two meetup groups in Minnesota. We have a meetup group in Boston. We also can use some help, our Seattle group can use some help.
[01:19:03] Joe: Write me, joe@stackingbenjamins.com if you’d like to help our creators out there. We also have groups, we just had a couple meetings early next year coming to the greater Washington, DC area and to the Bay Area, which, uh, Doug likes to call San Fran. Um, true story. ‘Cause
[01:19:20] Doug: that’s what it is.
[01:19:23] Joe: We have meetup groups coming there too.
[01:19:25] Joe: If you’re in those areas, make sure that you are in their Facebook groups, uh, or you’re getting their emails because I know some groups are changing the dates this month because of Thanksgiving and because of holiday season. I know they got holiday parties coming, which is a bunch of fun. I’ve been in on some of those, those plans, and our meetup groups around the country are doing some really good stuff.
[01:19:48] Joe: If you wanna know about your local area, go to stackingbenjamins.com/bad, which is Benjamins After Dark, the name of our meetup groups. Big thanks to Peter Lazaroff for hanging out. I know, Doug, you’re gonna thank him in a minute, but if you know somebody that needs to hear Peter’s wisdom, invite them to listen to this episode because we’re following up on Wednesday with more.
[01:20:09] Joe: Peter told you how to design the perfect portfolio and where to start. Well, guess what? Make sure you don’t wreck that ship by letting your brain get in the way. Dr. Daniel Crosby coming up on Wednesday to help us solve that. All right, that’s gonna do it for today. Doug, you got it from here, man. What should we have learned on today’s show?
[01:20:27] Doug: Well, Joe, first take some advice from Peter Lazaroff. Hoping to create the perfect portfolio? Begin with your goals, not with some stylized idea of more is better. Second, life insurance beneficiaries, do not leave it for the guardian and hope they pass the money on to your kids. I’ll tell you that. But the big lesson, you don’t have to be the smartest guy in the room to be a leader.
[01:20:51] Doug: You just have to project confidence. That’s why whenever I don’t understand what OG is talking about, I nod slowly and say, “Interesting strategy.” And then I write down the word synergy. Works every time. Thank you to Peter Lazaroff for joining us today. You’ll find his new book, The Perfect Portfolio, wherever books are sold.
[01:21:16] Doug: Driving or walking the dog? I got you. We’ll include links in our show notes at stackingbenjamins.com, along with links to FieldKit and all the resources we’ve talked about on today’s episode. 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.
[01:21:48] 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
Leave a Reply