RPF0289-Carl_Richards

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00:00:30.200 | Today on Radical Personal Finance, I have a radical interview for you with Mr. Carl Richards from The Behavior Gap.

00:00:36.000 | Carl's an awesome guy and his specialty is building financial plans that fit on a single page

00:00:42.800 | and developing art out of financial concepts that fits onto a single napkin.

00:00:50.500 | Welcome to the Radical Personal Finance Podcast.

00:01:08.800 | My name is Joshua Sheets and I'm your host.

00:01:10.500 | Thank you for being with me today.

00:01:11.900 | This is the show where each and every day I come to you and share with you some ideas

00:01:16.500 | that will teach you how to build a lifestyle that is rich now

00:01:22.000 | and also how to build a plan for financial freedom in 10 years or less.

00:01:28.000 | Plans should be simple.

00:01:29.500 | Today we're going to talk about exactly that.

00:01:38.500 | My guest today is Carl Richards.

00:01:40.000 | Carl is a financial planner, but most importantly, I guess for this topic,

00:01:43.500 | is he's grown from a position of being an individual financial planner.

00:01:47.500 | You'll hear the story into the interview today about how he became a planner,

00:01:51.500 | but he's grown from that position to kind of being a leader of the industry.

00:01:54.500 | He's written a book called The One-Page Financial Plan among other books.

00:01:57.500 | That book is really, really excellent because he focuses on the need to simplify the world of finance.

00:02:03.500 | Carl's claim to mass notoriety though is that one day he started drawing pictures on a napkin

00:02:09.500 | and those pictures now are called art.

00:02:12.500 | Not only are they sold for a lot of money, but they're actually published every week in the New York Times

00:02:17.000 | as part of his sketch guy column, which is pretty cool.

00:02:19.500 | Carl's an awesome guy.

00:02:20.500 | I was able to connect with him and met him for the first time at XYPN 15 and also FinCon 15.

00:02:28.500 | We met there and then we did the interview a little while after that.

00:02:31.500 | Quick note, be gentle with me today.

00:02:33.500 | We had some major Skype issues and we just soldiered through,

00:02:36.500 | but if you hear kind of a rough edit, we had the call drop on multiple times

00:02:40.500 | and I've had to stitch the file together the best that I can,

00:02:42.500 | but I really think there's a lot of valuable concepts in here.

00:02:45.500 | One sponsor for the day before I play the interview for you, a sponsor today is Paladin Registry.

00:02:50.500 | Paladin is my go-to recommendation for where you should go to try to find a good financial advisor.

00:02:57.500 | You'll hear Carl and me today talk about the Society of Enlightened Financial Advisors,

00:03:02.500 | how difficult it is to find them.

00:03:04.500 | I'm sure that not every advisor in the Paladin Registry is an enlightened financial advisor,

00:03:09.500 | but they've got at least some and I'm hoping that they've got some in your area.

00:03:14.500 | The way it works is Paladin Registry is a screening service where they bring in a number of different financial advisors

00:03:19.500 | and then financial advisors apply to be a part of the registry.

00:03:22.500 | They go through, they check their background, they check their credentials,

00:03:24.500 | they check their business practices, they check them out every which way.

00:03:27.500 | If Paladin Registry and the founder, Jack Wehmer, if they are confident that they have been well screened,

00:03:31.500 | then they will list them in the registry.

00:03:34.500 | So this will help you to – they have to have a certain experience requirements.

00:03:37.500 | This will help to avoid some of the scammers.

00:03:39.500 | This will help to avoid some of just the people who have all kinds of complaints filed against them.

00:03:43.500 | It should be the first place that you start in your search for a financial advisor.

00:03:47.500 | Go to RadicalPersonalFinance.com/Paladin, P-A-L-A-D-I-N, link in the blog post or show notes for today's show.

00:03:54.500 | And that will forward you through – if you go directly to that link, it will forward you through to a landing page

00:03:58.500 | where you will put in your information, your name, your phone number, your email address, your date of birth,

00:04:03.500 | and the amount of assets that you have available for the advisor's advice for them to consult on.

00:04:07.500 | You will put that information in there and then Paladin will screen that.

00:04:11.500 | They will send a couple of advisors' information to you.

00:04:14.500 | So far, the results have been great.

00:04:16.500 | I've had many of listeners who have contacted me, said they had a good experience

00:04:20.500 | and it was a good starting place for them to start their search for a financial advisor.

00:04:23.500 | So make this the year that you find a good one at RadicalPersonalFinance.com/Paladin.

00:04:28.500 | Now, let's get to the interview with Carl.

00:04:30.500 | Carl, welcome to Radical Personal Finance.

00:04:33.500 | Thanks for having me. I'm looking forward to talking with you.

00:04:36.500 | Take two because we just tried to start this interview and Skype completely dropped out on us.

00:04:41.500 | But we'll do take two here and hopefully we get into it this time.

00:04:44.500 | And I'm glad that you're on the show.

00:04:46.500 | We had a chance to meet at FinCon in Charlotte, North Carolina a few months ago.

00:04:50.500 | And I really enjoyed connecting with you.

00:04:53.500 | And there's a lot of synergy between some of the ideas that I've talked about and some of the ideas that you've talked about.

00:04:58.500 | And so I'm excited to expose some of those things here today.

00:05:02.500 | For those who aren't familiar with your books, your work, what is your background as it relates to finance?

00:05:08.500 | Yeah. First of all, that FinCon was amazing. So it was fun.

00:05:13.500 | One of the things that I think makes that event so cool is--

00:05:16.500 | and actually it's true of all conferences, at least well-run conferences--the magic seems to happen in the hallways, right?

00:05:22.500 | And getting a chance to connect with you was one of those things.

00:05:25.500 | So that was fun.

00:05:27.500 | In terms of background, it's kind of a funny story. I'll try and make it quick.

00:05:30.500 | But in college, I had no idea what I wanted to do with my life.

00:05:34.500 | I was an undeclared major and I went to apply for a job.

00:05:37.500 | I was in school full time, but I also needed to work.

00:05:41.500 | And I went to apply for a job that I swear the ad in the newspaper said security.

00:05:47.500 | I thought it was like a security guard job.

00:05:49.500 | And I went to apply for it and I got it.

00:05:54.500 | Well, I found out halfway through the interview when they didn't ask me about my Kung Fu skills,

00:05:59.500 | I found out it was actually a job about mutual funds and stocks and bonds.

00:06:03.500 | It turns out the ad said securities, not security.

00:06:08.500 | I didn't know the difference. Long story short, obviously there is quite a funny story in there,

00:06:13.500 | but we don't need to tell it now.

00:06:14.500 | But I ended up getting the job. I made it through the interview, got the job,

00:06:18.500 | ended up at a really large firm that everybody would recognize.

00:06:22.500 | And so I got there quite by accident, right? I got in the industry quite by accident.

00:06:27.500 | But I stayed because of what happened shortly after that.

00:06:31.500 | This was in '95, and in the summer of '95 when Netscape went public,

00:06:36.500 | which most people won't even know about. You can read about it in your history books at this point.

00:06:40.500 | But when Netscape went public, it was clear to me I came out of this sort of training room

00:06:46.500 | where I was learning about all these spreadsheets.

00:06:48.500 | And what we all think about when we think about personal finance and investing is spreadsheets and calculators.

00:06:53.500 | And that's what I was learning about.

00:06:55.500 | Once I got over the fact that I wasn't a security guard, I was like, "OK, this is cool. This is a math job."

00:07:00.500 | But then my first experience with my job and interacting with the public was Netscape's IPO.

00:07:09.500 | And it was crazy, right? They opened at '24 and closed at '76 or something like that.

00:07:15.500 | And the emotion and the energy around that, this sort of dichotomy between the math and spreadsheets

00:07:25.500 | and then walking out onto the trading floor and feeling all that emotion and energy was just startling, shocking to me, really.

00:07:31.500 | And that's why I stayed, was like, "Wow, this isn't about math and spreadsheets.

00:07:35.500 | It turns out it's about emotion and behavior and fear and greed.

00:07:39.500 | And we all pretend it's all about math and spreadsheets, but it's not."

00:07:44.500 | And so that's how I got into it. I got in by accident. I stayed on purpose.

00:07:49.500 | I've spent the last 20 years really trying to understand that experience.

00:07:53.500 | I feel like you just exposed one of the major lies of the financial advice industry.

00:07:59.500 | I think we just often use numbers and things to make people think we know what we're talking about

00:08:04.500 | when in reality those of us who are skilled with finance, it has nothing to do with the math and the numbers

00:08:08.500 | and everything to do with understanding the goals and the drives and the desires and the passion and the emotions

00:08:13.500 | and learning how to manage those things.

00:08:16.500 | I was a professional financial advisor for six years.

00:08:19.500 | My first few years, I went around trying to make people think I was smart by how many numbers I could talk about

00:08:24.500 | and how many ratios I could indicate.

00:08:26.500 | And then about the last two or three years, I finally got smart and stopped talking about that crap

00:08:30.500 | and started just focusing on feelings and emotions.

00:08:34.500 | And all of a sudden, it completely changed at least my perception of how effective I was able to be.

00:08:40.500 | So that's why I've been drawn to your work is you really hone in on those things that actually matter.

00:08:48.500 | Why do we sell people on the idea that the numbers matter when in reality the numbers are just ancillary to the things that truly matter?

00:08:55.500 | Well, I think there's two answers.

00:08:58.500 | One is real financial advice is both a science and an art.

00:09:06.500 | And I think you've got to have just to be in the game, you've got to have your sort of technical chops about you.

00:09:15.500 | You need to know all the numbers.

00:09:17.500 | We've got to know that stuff because you can't do the job without it.

00:09:21.500 | But so sometimes we just get confused because we know all that stuff we must think it's really, really important to talk about.

00:09:26.500 | But then I think the second thing is probably the more likely answer, which is people really like we really have a huge fear of uncertainty.

00:09:37.500 | And so we'll go to great lengths to find something that will tell us what the future is going to look like, even if we know it's not correct.

00:09:50.500 | We'll go to great lengths to get rid of that fear of uncertainty, even if we know.

00:09:56.500 | And I think there's a growing awareness, at least I'm really optimistic about this growing awareness of the idea of people starting to accept, learning to accept uncertainty.

00:10:06.500 | I think another word for uncertainty is reality.

00:10:09.500 | So I think but what that requires people in the industry, speaking broadly, the traditional financial services industry, to do is say things like, you know, I don't know.

00:10:22.500 | But, you know, I'll be here to help you figure it out if it happens.

00:10:27.500 | And in fact, we could game that situation out just to make you feel a little better.

00:10:31.500 | We could go like, well, this could happen, this could happen, or this could happen, and here's how we would deal with each of those.

00:10:36.500 | And that's a very useful exercise for people to go through.

00:10:39.500 | But it does require us to say something we've been trained not to say, which is, you know, I don't know.

00:10:44.500 | And what I'm finding, the optimism for me right now is I'm finding people not only appreciate that, but they value it a lot when somebody finally, because they know.

00:10:55.500 | Like what? You're trying to tell me that you're 97.325% confident that I can retire in 30 years?

00:11:04.500 | Like the false sense of precision that pervades our industry is so dead.

00:11:11.500 | People are starting to recognize both inside and outside the industry and value somebody who can say, hey, look, I'm not here to defend an outdated map, right?

00:11:23.500 | A set of projections.

00:11:25.500 | I'm actually here to help you navigate a changing landscape.

00:11:29.500 | And not confusing the map with the landscape, I think, is incredibly valuable.

00:11:33.500 | How did you wind up going on this transition from individual financial advisor working with individual clients to more of a public persona?

00:11:44.500 | Well, I mean, it certainly wasn't on purpose.

00:11:47.500 | I, you know, back to sort of the background story, right? Like a little while after I went to work for that big firm by accident, I left and went to work for another big brokerage firm, which everybody would recognize.

00:11:59.500 | And it may or may not have as a bull as its symbol.

00:12:02.500 | And then I started drawing these little drawings.

00:12:06.500 | Like, actually, I was in meetings with clients and I could sense, I can remember these meetings.

00:12:14.500 | Like this was 17 years ago.

00:12:17.500 | I can remember these meetings really vividly.

00:12:20.500 | Like I would be, in fact, I can even remember some of the clients' names.

00:12:23.500 | I would be sitting at a table and I'd be explaining a concept that actually was indeed really important for these people to understand.

00:12:32.500 | They were trying to make some of the most important decisions of their entire lives.

00:12:36.500 | And I thought there was this concept.

00:12:38.500 | I was like, you know, this concept, you've got to understand this concept in order to make this decision correctly.

00:12:44.500 | If you don't understand this concept, you will not make the right decision.

00:12:48.500 | And so I was trying to describe it and just getting the standard blank stares.

00:12:52.500 | And these are smart people.

00:12:54.500 | So it wasn't their fault.

00:12:55.500 | It was my fault.

00:12:56.500 | And just getting these blank stares and one day out of just a purely pragmatic and act of desperation, to be honest, I stood up at the whiteboard that was in the conference room.

00:13:08.500 | And I said, "No, like this."

00:13:10.500 | And I just drew like a series of boxes with arrows going.

00:13:13.500 | And I think it was just sort of outlining how money would flow in retirement.

00:13:18.500 | Like it's going to go from this account to this account and this is what's going to happen.

00:13:21.500 | Just a series of boxes and arrows.

00:13:22.500 | And I can vividly remember the mood in the room changing.

00:13:27.500 | And I can remember them saying, "Oh, okay, I get it."

00:13:31.500 | And that, I was like, "Whoa, what was that all about?"

00:13:35.500 | And I thought, "Well, okay, what if I just took what just happened, that concept, let's say it's diversification or whatever."

00:13:42.500 | And I just took that image and I wrote the words I said and I drew the image and I put it up on, you know, Al Gore had recently invented the Internet at this point.

00:13:51.500 | I put it up on the Internet and slowly, really slowly, you know, my mom and sister were reading it.

00:14:00.500 | My sister was lying.

00:14:01.500 | It was just my mom.

00:14:02.500 | And then slowly other people started reading it.

00:14:04.500 | And then one thing led to another.

00:14:06.500 | I'm not skipping a lot of steps, but, you know, after a couple of years of nobody reading it, I got an email kind of out of the blue from the New York Times saying, "Hey, I love these.

00:14:16.500 | Would you do them for us?"

00:14:18.500 | And I knew enough from my security guard background to say yes and figure things out later.

00:14:24.500 | So I said, "Of course."

00:14:25.500 | And so that's now been six years every week for the New York Times, every Monday, a column with a guy for the New York Times.

00:14:36.500 | And that led to the books.

00:14:38.500 | So it was really never, which is so fascinating to me, particularly for the people, your listeners that are entrepreneurial in nature at all, right?

00:14:47.500 | Like, it's so – there was no plan.

00:14:50.500 | It was purely sort of now I recognize it as sort of a –

00:14:54.500 | It is a little bit ironic that here you are as a financial advisor supposed to be predicting the future and knowing where you're going.

00:15:04.500 | And I feel the same way.

00:15:05.500 | I'm a goal setter.

00:15:06.500 | Here are the goals that I'm going to work towards and here are the plans on how to get there.

00:15:09.500 | And yet a lot of what – I guess a lot of the best things in life that seem to happen appear at the outset to be random.

00:15:18.500 | Have you figured out a way to integrate these two – to integrate this dichotomy?

00:15:23.500 | Do you see value in planning but you're okay with serendipity or you just ignore planning and always go with serendipity?

00:15:29.500 | No, I think there's this beautiful middle ground which is like I think first we just need to acknowledge like planning is guessing, right?

00:15:41.500 | And that we should be okay with that.

00:15:43.500 | Like we should just – and I think people love it when I tell them this.

00:15:47.500 | Like, look, I'm going to make the best guesses I can and they're going to be educated guesses and I don't think you'll be able to find anybody who's better at making these guesses.

00:15:56.500 | But they're still guesses.

00:15:57.500 | And so what we're going to do is we're going to sort of set a stake in the ground out there, whatever, 15, 20, 30 years out.

00:16:04.500 | And we're going to head in this direction.

00:16:06.500 | And the beautiful thing about this idea – and I think it's really sort of Bainesian forecasting.

00:16:11.500 | And I'm so excited because I just discovered that idea two or three days ago.

00:16:16.500 | A friend of mine introduced me to it and I feel like I'm super late to the party.

00:16:19.500 | But just the idea that like, hey, there's another way of modeling which is instead of waiting until you have all the data, trying to forget, pretend you know what it says about the future, you can say, hey, let's make a guess.

00:16:32.500 | Let's move that direction.

00:16:34.500 | And tomorrow we'll have a little more information about whether our guess was right or wrong.

00:16:41.500 | And those guesses involve when you – like what you even think – like your goals are guesses.

00:16:48.500 | Your values to a large degree are going to change.

00:16:52.500 | We know all the assumptions that go into our software are going to change.

00:16:56.500 | Inflation, asset returns, correlation, standard deviations, all that stuff that we pretend like isn't going to change, that stuff is all going to be wrong.

00:17:04.500 | So the cool thing about this idea of just sort of like this series of guesses is planning.

00:17:10.500 | Financial planning is totally worthless without the ongoing process of planning.

00:17:17.500 | So the – sorry, the better way to say that.

00:17:19.500 | The financial plan, a financial plan is totally worthless without the ongoing process of planning.

00:17:26.500 | So it's not about the plan.

00:17:27.500 | It's about the process of guessing.

00:17:29.500 | Right.

00:17:30.500 | And so if you stay committed to that, that's invaluable.

00:17:35.500 | But if you're committed to that two-inch thick book that's sitting on your shelf that you haven't opened since you produced it, then it's worthless.

00:17:43.500 | That's because it's obsolete the moment you print it.

00:17:45.500 | So I want to talk about the value of a planner because that was originally how I got referred to your work.

00:17:53.500 | I was – so my story on getting into the financial services business is I started – when I started, I hated financial advisors.

00:17:59.500 | I thought brokers are out to make you a broker.

00:18:01.500 | The whole thing was a scam and insurance is a waste of money, blah, blah, blah.

00:18:04.500 | And then I decided – somebody opened my eyes to some things that I hadn't known about, and I wound up deciding to join a company called Northwestern Mutual.

00:18:13.500 | The major reasons that I joined them was, number one, they were old and traditional and conservative and that fit my personality.

00:18:18.500 | But number two, they were acknowledged as having a really strong sales training program.

00:18:23.500 | And what I was looking for was to work in sales in a really strong sales training program so that I could build and hone the skills of sales, which would lead to my ability to be a highly compensated employee for the rest of my life.

00:18:36.500 | I looked around and said, "Hey, sales and marketing are two very highly compensated areas, and so I'll do that."

00:18:42.500 | I worked hard at it.

00:18:43.500 | So the first few years, I focused primarily on insurance sales.

00:18:46.500 | Then I decided to go ahead and fully embrace comprehensive planning, got my investment stuff, got all my designations, and just really dug in and transitioned to kind of a deep dive, deep dive, working with the target clients that everyone else is trying to work with, too, the retirement market, people with lots of money because that's the best business model at that time that I could see in the financial advice business.

00:19:11.500 | But along the way of getting there, I really struggled to figure out what value could I bring to clients because I was a very cost-conscious consumer before becoming a financial advisor and I preached the message of don't pay anybody for advice.

00:19:26.500 | I preached the message of buy low-cost investments.

00:19:29.500 | I preached those messages.

00:19:30.500 | And then here I was as an advisor and I was trying to figure out, well, can I actually bring value?

00:19:36.500 | Am I manipulating my emotions in order to try to justify something that's going to make me money or can I actually bring value?

00:19:46.500 | And I came to the conclusion that there were only two things that I could – there were two major areas that I could help clients and maybe three depending on how good I was.

00:19:58.500 | Number one, I could save them time by providing an expert advice on financial planning questions, not investments but on financial planning questions.

00:20:07.500 | Number two, I could engage in behavior modification and behavior modification would be two things.

00:20:13.500 | Number one, helping them to actually follow a planning process to build a plan that sets out goals, helping them to modify their actions so that they would actually implement the plan, and then the big one was helping them to avoid the big mistakes, avoid chasing the latest shiny investment fad and avoid those big mistakes.

00:20:32.500 | And I became convinced that I could actually have some hope of accomplishing those things whereas I couldn't – I never sold the idea that I was an investment guru.

00:20:44.500 | And then somebody connected me with Nick Murray's work and his discussion of behavioral investment counseling rocked my world.

00:20:51.500 | I dropped even the last vestiges of pretending to know anything about it in the investment markets.

00:20:57.500 | Obviously, that's tongue in cheek but I dropped that stuff and just focused exclusively on behaviors and just started preaching that gospel all over the place and clients really engaged with it.

00:21:06.500 | And so that was ultimately how I found your work, Behavior Gap.

00:21:11.500 | So I was preaching that message to people and someone was like, "Oh, do you know Carl Richard's stuff?"

00:21:18.500 | And I'm like, "Wait.

00:21:20.500 | Somebody has written a book called Behavior Gap?

00:21:23.500 | Somebody has dug into this?"

00:21:24.500 | I was like, "Wow, there's somebody else that figured this out too."

00:21:27.500 | Now I don't feel like such a lone voice in the wilderness.

00:21:32.500 | So you described the value of an advisor.

00:21:35.500 | Go ahead and describe what you see as the value of an advisor and how did you arrive at those conclusions?

00:21:40.500 | Yeah.

00:21:41.500 | I think – look, I had to really face this honestly actually a couple of years ago when I decided it was time for me to hire my own advisor and actually pay them, right?

00:21:51.500 | Which is a fascinating process for somebody in the industry to go through.

00:21:55.500 | I almost feel like it should be a requirement.

00:21:58.500 | But my wife and I sat down and we're like, "Okay, why would we hire an advisor?"

00:22:03.500 | So we came up with three things.

00:22:04.500 | Number one, I wanted help clarifying my goals.

00:22:08.500 | Now I know most people don't walk into a financial advisor's office saying, "Hey, will you help me clarify my goals?"

00:22:12.500 | But that's really what they want.

00:22:14.500 | They don't know that they want that but I'm telling you, it's not me.

00:22:16.500 | The people have told me this.

00:22:18.500 | I've been doing this in a major newspaper for six years.

00:22:21.500 | I get an insane amount of email about this.

00:22:24.500 | People just – it's not even about having the skill or the intelligence or available options.

00:22:30.500 | It's actually the available options have made it even crazier, right?

00:22:34.500 | People just want somebody that they can trust to take this plate from them.

00:22:39.500 | The reason they're not hiring – they're not lined up outside a real financial advisor's door is because they don't believe they exist, right?

00:22:46.500 | But if they believe that they exist, there would be indeed a line outside of every real financial advisor's door.

00:22:51.500 | But they've told me that much.

00:22:53.500 | I'd hire somebody in a heartbeat if I believe they exist.

00:22:57.500 | They think when I tell them that there are real financial advisors, most people respond like, "Oh, you mean like the butcher, the baker, the candlestick maker?

00:23:06.500 | That's a cute story."

00:23:07.500 | Right.

00:23:08.500 | And yet I know a whole bunch of them.

00:23:12.500 | Of course, they're – so anyway, number one, help me clarify my goals, which was an ongoing process.

00:23:18.500 | We didn't know.

00:23:19.500 | We don't know what our goals are.

00:23:20.500 | If you think you know what your goals are, you're totally fooling yourself.

00:23:25.500 | And there's research to back it up, right?

00:23:28.500 | So number two, remind me of what I said my goals were when I'm thinking about doing something inconsistent with those.

00:23:37.500 | And I used a stronger word.

00:23:38.500 | I said when I'm thinking about doing something stupid.

00:23:42.500 | And then number three, and this is about me, right?

00:23:44.500 | Number three, be the thing between me and stupid.

00:23:50.500 | A softer way of saying that would be, be the thing between me and the big mistake.

00:23:55.500 | And so to me, I was really – actually, the reason I wanted an advisor was, "Look, take this plate from me.

00:24:01.500 | Man, I don't have time.

00:24:03.500 | I don't want to think about it, even if I had time.

00:24:05.500 | I certainly have the expertise and the experience, but I also knew from painful personal experience that I have massive blind spots."

00:24:17.500 | And here's the thing, Joshua.

00:24:18.500 | I hope everybody realizes how absolutely revolutionary this statement I'm about to make is.

00:24:25.500 | We all have blind spots, and here's the thing about blind spots.

00:24:29.500 | You can't see them.

00:24:32.500 | And so when you start to realize that, when you just accept – and if you don't believe you have blind spots, then you've got one called overconfidence.

00:24:41.500 | And we can talk about that another time.

00:24:43.500 | But I just think when you start to realize human behavior in that way, you start to think like, "Okay, look.

00:24:50.500 | Here you've got a situation where, A, you've got massively complex information and contradictory information being thrown at you, even on your drive home from work.

00:25:00.500 | Turn on the radio, you'll get seven different opinions about what you should be doing with your money.

00:25:04.500 | B, it's embedded in it is this thing that none of us – I've sort of appointed myself as vice president of unspeakable things, so I can talk about this.

00:25:13.500 | But most of us have decided we don't talk about money, we don't talk about fear, we don't talk about greed, we don't talk about being worried, we don't talk about our dreams, we don't talk about any of that stuff with anybody.

00:25:22.500 | But it's all embedded in money.

00:25:24.500 | Turns out money is totally emotional.

00:25:27.500 | And then on top of that layer, on top of those two issues, you've got an organism called a human being that's uniquely designed to do the wrong thing with money.

00:25:41.500 | Because the things that kept us alive as a species have really conspired against us to be good investors.

00:25:49.500 | Like if you wanted to design a bad investor, you would design a human.

00:25:54.500 | And if we start to realize that, then you start to understand like, "Whoa, if I could find somebody," what I refer to as a member of the secret society of real financial advisors,

00:26:08.500 | "If I could find somebody who really honestly put my interests ahead of theirs, knew what they were doing, and on top of it was an objective, independent third party so they could see my blind spots,

00:26:21.500 | and they had the guts and the professional confidence to tell me even when I didn't want to hear it."

00:26:27.500 | I remember when we hired our advisor, I told him, I said, "Look, you need to be a drill sergeant.

00:26:32.500 | If you don't tell me when I'm doing something stupid, this whole thing would have been a total waste.

00:26:40.500 | Not only will you be fired, but I'll be mad.

00:26:43.500 | You need to tell me when I – now I may be hurt and I may go away mad for a day, but I promise you I'll come back in a day or two and say, 'Hey, thanks.'"

00:26:51.500 | That's what we need.

00:26:52.500 | Can I tell you that has been and still is the hardest thing for me?

00:26:56.500 | I feel like a total – I guess still today, I feel like a total imposter when it comes to giving strong advice.

00:27:03.500 | Last night, I was helping a friend of mine who's going through some financial difficulties, and I was doing just a little bit of kitchen table financial counseling trying to help him.

00:27:10.500 | This person has given me a place in their life.

00:27:13.500 | It's a nonprofessional arrangement.

00:27:15.500 | It's just me and a friend.

00:27:16.500 | I've given some strong advice, and they have heeded the strong advice and with good results.

00:27:25.500 | I needed to give some even stronger advice and things that are crystal clear to me, but still, it involves me saying, "Listen, you're doing something wrong.

00:27:36.500 | You need to change this."

00:27:37.500 | Basically, a verbal slap across the face, like, "You are doing stupid," and I see it so clearly, but still to this day, even though they gave me the place, I still shrink back from that.

00:27:49.500 | I've got to interrupt just so that you know this is too important.

00:27:54.500 | That is what we get paid for, and I don't mean necessarily in this case paid money-wise.

00:28:00.500 | There's a couple of phrases that I've used over the years that have really helped me.

00:28:04.500 | One is, "Would you give me permission to be professionally candid?"

00:28:09.500 | I've said that so many times I can't count anymore.

00:28:13.500 | "Can I have your permission to be professionally candid?"

00:28:16.500 | As soon as somebody says yes, I would say, "Look, this is dumb."

00:28:21.500 | I also often would explain exactly what you just said.

00:28:28.500 | "Look, here's the reason this is so hard for me."

00:28:31.500 | I have the same thing.

00:28:32.500 | I probably have five or six, or maybe there's as many as 10 now, people that are just kitchen table friends.

00:28:39.500 | I've helped them figure out what to do.

00:28:41.500 | I can't tell you how many times I've had to just say, "Look, this is really hard for me to do because I make the same mistakes you're making, but it's incredibly easy for me to see you making them because you're not me."

00:28:56.500 | The most valuable advice I've ever been given is from a third party who's looking at me going, "How could they do that?"

00:29:07.500 | And they tell me, and I say, "Whoa, really? I didn't know I was doing it. You're right. Thank you."

00:29:14.500 | Or maybe I'm even mad for sitting where I am to be comfortable.

00:29:18.500 | I think you're right because I've made some major financial mistakes.

00:29:22.500 | And when I went through that experience a couple of years ago, I thought to myself, "Who am I to be giving advice?"

00:29:28.500 | And then I realized it's not about that.

00:29:31.500 | I think I'm probably one of the best.

00:29:35.500 | I'm saying this with a dose of humility, but I think I'm really good at giving other people advice.

00:29:41.500 | I know I'm terrible at giving myself advice.

00:29:46.500 | I feel the same way.

00:29:49.500 | And I'll tell you, I've learned as an advisor.

00:29:52.500 | By watching other people, I've been able to give myself better advice.

00:29:55.500 | But sometimes I made – in the early years of my practice, I made some stupid business decisions that cost me a ton of money.

00:30:04.500 | And it was one of those things where I learned from it after I ate my humble pie and worked my way out of the mess I had made.

00:30:12.500 | Basically, I let my business expenses and my staff costs exceed where they should have been.

00:30:18.500 | My business was not as profitable as it should have been.

00:30:21.500 | Once I ate my humble pie and was willing to admit my mistakes to myself and even to clients, I looked back on it and I realized I would never let a client get away with what I was doing for a couple of months.

00:30:33.500 | Like if they were just talking to me about, "Wait a second. You are doing something dumb. This is not working. Let's solve this."

00:30:38.500 | But here I did it for months and months and months and months and drained myself dry because I didn't have somebody that I trusted who could be that objective third party.

00:30:48.500 | And they could have saved me a lot of time and a lot of heartache.

00:30:52.500 | Yeah, for sure.

00:30:54.500 | And to me, that's the key.

00:30:56.500 | If you start to think about most of the time, I don't really even care what the model a real advisor uses in terms of their fee structure.

00:31:09.500 | As long as it's open and disclosed and agreed upon, I don't know that I want to get into that debate.

00:31:15.500 | But I do know that whatever it is, as long as it's open, fair, and disclosed, it's worth it.

00:31:23.500 | Because if they just save one, despite giving you your life back…

00:31:29.500 | Let me just describe a relationship.

00:31:31.500 | This is why I get so passionate about real financial advisors.

00:31:34.500 | Now, I want to be at the outset.

00:31:36.500 | Look, I know when you say real financial advisors, I know that there's 10 times more fake ones.

00:31:43.500 | Right.

00:31:44.500 | And the public not only needs to be, but needs to be wary and needs to be careful.

00:31:50.500 | And the financial advice, speaking broadly, the financial services industry has earned the reputation that it has.

00:31:59.500 | So I'm not complaining about that at all.

00:32:01.500 | I'm just saying, for the last 15 years, I've watched amazing people do amazing work.

00:32:08.500 | They're normally quiet, boring, often like CPAs.

00:32:16.500 | I'm thinking of one of my friends.

00:32:18.500 | Well, I won't tell you his name.

00:32:19.500 | But one of my friends who literally wears the same maroon tie to work.

00:32:24.500 | He's making a lot of money.

00:32:25.500 | He drives a Toyota Corolla to work.

00:32:27.500 | He's just been giving steady advice for 15 years.

00:32:30.500 | I know dozens of those people.

00:32:32.500 | Those people are worth their weight in gold simply because…

00:32:35.500 | Now, finding one's a whole other deal.

00:32:37.500 | We could talk about that all day.

00:32:38.500 | How do you find one?

00:32:39.500 | Because there's no place in the phone book that says, "Seeker Society of Real Financial Advisors."

00:32:45.500 | And the problem is those advisors are usually terrible marketers.

00:32:48.500 | Yeah, yeah, for sure.

00:32:49.500 | It's the guy with the flashy Rolex who gives the good commercials.

00:32:53.500 | And he's the guy who's a terrible financial advisor.

00:32:55.500 | Yeah, yeah, yeah.

00:32:56.500 | So that's, to me, I think, though, the value in my life.

00:33:01.500 | So independent, let's forget about financial advisors for a minute.

00:33:03.500 | But just general, like the people I value the most, it's so funny, right?

00:33:09.500 | So there's a name for this.

00:33:10.500 | It's called confirmation bias.

00:33:12.500 | And it's the way most people, and particularly men, the data's clear.

00:33:16.500 | That's not a sexist statement.

00:33:17.500 | The data's pretty clear.

00:33:18.500 | Particularly men, the way we make decisions is…

00:33:21.500 | But we all do this.

00:33:22.500 | We make a decision, and then we go do our research.

00:33:26.500 | And our research consists of summarily dismissing anything that disagrees with us

00:33:32.500 | and gathering evidence that supports what we've already decided to do.

00:33:36.500 | And so I had this friend.

00:33:38.500 | His name was Jason.

00:33:39.500 | He's still a friend.

00:33:40.500 | But he was the one I would call every time I had a new sort of, I think of my business as art projects.

00:33:47.500 | Like every time I had a new performance art project, other people would say,

00:33:50.500 | "Every time I have a new idea for a technology startup," I say, "art project."

00:33:54.500 | Every time I had a new idea, I would call Jason.

00:33:57.500 | And Jason would always tell me what a great idea it was.

00:34:01.500 | And I'd go home and I'd tell my wife, "Hey, talk to Jason about this."

00:34:03.500 | And one day my wife was like, "Hey, you should stop asking him because every one of your stupid ideas

00:34:09.500 | that you've had over the last 10 years, Jason has told you it's a good idea."

00:34:13.500 | And I was like, "Oh, my gosh. You're right."

00:34:16.500 | So the people I value the most, and I have to sort of set up conditions to allow them to do this.

00:34:25.500 | The people I value the most are the ones that will tell me the truth.

00:34:29.500 | Even if they don't know it's the truth, they'll at least give me a strong opinion about what they think,

00:34:35.500 | even and especially if it's different than mine.

00:34:40.500 | And so that applies as a creative sort of business builder.

00:34:47.500 | It applies as an artist. It applies, and it certainly applies in financial advice.

00:34:53.500 | I would say learn to foster, seek out people that will do that.

00:34:59.500 | And not just play devil's advocate. That's kind of a silly game.

00:35:02.500 | I have somebody who works with me closely.

00:35:06.500 | And we still may do this, but we need a new car and I want to buy a truck.

00:35:11.500 | We'd actually use a truck. It's not just driving around town in a truck.

00:35:15.500 | Confirmation bias.

00:35:16.500 | Yeah.

00:35:17.500 | Now you're just justifying the fact that you want a truck.

00:35:20.500 | Yeah, for sure. But I told my friend who actually works with me, and she said,

00:35:24.500 | "I can tell you don't like that idea." And she goes, "You need a truck like you need a hole in your head."

00:35:30.500 | Now I was like, "Whoa." And I went home and I told my wife and she was a little mad.

00:35:37.500 | She's like, "What? What is that?"

00:35:39.500 | But then I thought, "Okay, I don't know if I agree with it, but man, I really value that."

00:35:44.500 | So I went back and had to tell her, "Hey, by the way, I want you to know I may still get a truck.

00:35:49.500 | But that piece of advice was so valuable to me. So don't stop doing it even if you feel like I "ignored it."

00:35:57.500 | I didn't. I totally took it into account.

00:36:00.500 | And sometimes I'm going to make decisions that go down the same path as your advice.

00:36:06.500 | And sometimes they're still going to be, but they were still carefully considered.

00:36:10.500 | So I think setting up those kind of relationships, I don't even know how to emphasize how valuable that is.

00:36:16.500 | I feel like it's almost a technique that we as financial advisors use but that can be employed proactively.

00:36:22.500 | I've done a similar thing where people – I talk through problems with people and they give me advice.

00:36:27.500 | And then I try to express to them very carefully like, "I appreciate your advice. I value it.

00:36:32.500 | I know you disagree with me. I want you to know I listen carefully.

00:36:34.500 | And I'm going to do the opposite of your advice and here's why."

00:36:38.500 | I sometimes feel like it's a technique that we can employ to prove out if something is actually the case.

00:36:46.500 | Example, don't start your own business. Most businesses fail. You shouldn't start a business.

00:36:51.500 | So I often advise people against starting a business.

00:36:54.500 | And then the people who ignore the advice are the ones who should ignore the advice

00:36:59.500 | because they're the ones who have the tenacity and the vision and the drive to press through all the problems.

00:37:06.500 | They'll prove you wrong whereas maybe you can help somebody who doesn't have that tenacity.

00:37:10.500 | If they're easily dissuaded by simply saying, "Oh, you shouldn't start a business," if they're dissuaded from their idea,

00:37:15.500 | they probably weren't committed enough to make it succeed.

00:37:18.500 | So it's almost an interesting, I think, behavioral modification.

00:37:22.500 | I don't go around telling people I think they shouldn't do something when I actually think they should.

00:37:26.500 | But it's almost an interesting thing that I have used at times to help people prove to themselves they really care

00:37:32.500 | or they're really passionate about a certain decision.

00:37:35.500 | I think another interesting way to do that same thing is remove, like this has a lot to do with what we refer to as the status quo bias

00:37:44.500 | or the endowment effect, right?

00:37:46.500 | If you're set in a certain decision, like you're convinced that you should sell or you should keep,

00:38:00.500 | like you inherited the family cabin in the Adirondacks and you haven't been there for 20 years,

00:38:06.500 | but you have memories of it from when you were little.

00:38:08.500 | You inherited it. It's yours.

00:38:11.500 | And somebody calls you and says, "Hey, I'll give you $100,000 for that cabin."

00:38:16.500 | And you're like, "Well, I don't know if I should sell," but you're clear that you're not going to go there anymore.

00:38:23.500 | You just need what I like to refer to as the overnight test.

00:38:26.500 | And this applies to business decisions and financial decisions.

00:38:29.500 | Just remove yourself from the--some people have referred to something similar called the reversal test,

00:38:34.500 | which I think is an interesting way of putting it, too.

00:38:36.500 | But the overnight test is this.

00:38:38.500 | Okay, so somebody's offered you $100,000 for the cabin.

00:38:41.500 | You could say the same thing.

00:38:44.500 | Let's say you have a concentrated stock and whatever.

00:38:48.500 | You've got $25,000 in this stock that you worked for Apple and now you have $25,000.

00:38:53.500 | Let's say that overnight somebody comes in and sells the cabin or the stock or whatever,

00:38:58.500 | and you now have the cash.

00:39:00.500 | So in the cabin example, there's $100,000 sitting in your bank account.

00:39:04.500 | And the question is, in the morning when you find out, would you go buy the cabin back?

00:39:12.500 | Or would you go buy the Apple stock back?

00:39:15.500 | And that technique to me is really valuable because it just removes the emotion for a minute.

00:39:20.500 | We're just simply trying to say--and almost always.

00:39:22.500 | I've never had anybody say, "Yeah, I'd actually go buy the cabin back."

00:39:26.500 | Most people are like, "Oh, no. That'd feel like a relief."

00:39:29.500 | Okay, well then let's now work through reality of commissions and taxes and all that stuff.

00:39:34.500 | But at least that gets you set.

00:39:36.500 | And I think it's the same with the business.

00:39:38.500 | Sort of getting rid of the sunk cost fallacy, the idea that you've got to keep pursuing this opportunity

00:39:46.500 | because you've already spent $25,000 on your business and your cards and your website and your whatever.

00:39:52.500 | Well, that $25,000 is gone.

00:39:55.500 | It doesn't matter at all anymore. Zero.

00:39:58.500 | All that matters is from today, nobody cares that you spent $25,000.

00:40:03.500 | All that matters is what's going forward.

00:40:05.500 | So I think just removing the sort of attachment, the ego, which is real,

00:40:11.500 | just giving somebody the space to see the decision from the opposite perspective is super helpful too.

00:40:16.500 | And you do have to set those scenarios up for people.

00:40:20.500 | When we were in Charlotte, we had a very synergistic conversation talking about different investment options.

00:40:30.500 | And what's interesting to me is when you were talking about the three things that an advisor can help with,

00:40:35.500 | it almost had nothing – they had nothing to do with the technical prowess

00:40:40.500 | and had everything to do with the people involved.

00:40:43.500 | Now, as you said and I will reiterate, we need the technical prowess.

00:40:47.500 | If I'm working as an advisor, I need to be competent enough to analyze a portfolio within the constraints of the goals

00:40:53.500 | and make sure that, "Okay, I've spent a lot of time clarifying the goals. Now, is this portfolio like me to get me there?"

00:40:58.500 | But it's almost as though that's not the real huge value. It's the more minor value.

00:41:06.500 | And we were talking a lot about the concepts of investing in yourself versus investing in stocks,

00:41:12.500 | developing your human capital versus always focusing on your financial capital.

00:41:17.500 | I know since then you've been giving that some additional thought.

00:41:21.500 | Do you feel like we oversell the value of financial products in our modern economy sometimes?

00:41:27.500 | Oh, for sure. In fact, my column yesterday, Monday, was about that experience I had.

00:41:35.500 | I don't know how many years ago, but at a Financial Planning Association conference, their national conference,

00:41:42.500 | it's like the biggest gathering of financial planners in the world.

00:41:45.500 | Ian Bremmer, who runs the Eurasia Group, is a brilliant guy.

00:41:49.500 | The Eurasia Group is a political risk consulting firm.

00:41:55.500 | And as financial planners will do, every time there's a Q&A, some financial planner has to ask the question,

00:42:05.500 | "How do you invest your money?" as if it really even matters at all.

00:42:10.500 | Because we all know that how one person invests their money has no bearing on how you should.

00:42:15.500 | But Ian's answer was fascinating to me.

00:42:18.500 | Literally, for whatever it's been now, it's got to be at least five or six years I've been stewing on this.

00:42:26.500 | He said he didn't even think really about it. He just said, "I just hired another PhD at my business."

00:42:33.500 | Now, that could mean a lot of things, but what I took it to mean was--

00:42:37.500 | because he could have easily just said, "Well, in my 401(k) I'm broadly diversified among low-cost index funds,

00:42:42.500 | and I buy and hold." But he didn't.

00:42:46.500 | What came out of his mouth at least first--and I'm assuming that means it was top of mind--

00:42:50.500 | was, "I just hired another PhD in my business."

00:42:52.500 | And I think what we underestimate massively--and I'm just getting around to this,

00:42:57.500 | it's been amazing the last three years--is switching our mindset from expense to investment in the appropriate place.

00:43:08.500 | So, if you work in a business, getting some additional training.

00:43:16.500 | Going to your boss and saying, "Hey, I see you really have a need for this. I'm not qualified for it yet,

00:43:21.500 | so I've signed up for an evening class. I just want you to know that I'm doing that,

00:43:26.500 | and I want to prove to you I'm ready to take on that job as soon as I'm done with this class.

00:43:29.500 | I will have the experience you need, and you know that job pays you 15% more."

00:43:35.500 | And in doing that, instead of spending three hours at night trying to find the best investment,

00:43:40.500 | there's no comparison what the impact would be in your life.

00:43:44.500 | The same thing with--think about all the athletes.

00:43:47.500 | Every great athlete I know has a coach. Probably multiple coaches.

00:43:53.500 | The physical one, probably some mindset coach.

00:43:57.500 | Every top performer I know has a coach. They don't think of that.

00:44:01.500 | And Ian wasn't thinking--this is interesting, right?

00:44:04.500 | Ian Bremmer, at least I'm assuming from his statement,

00:44:07.500 | he wasn't thinking of that PhD as an expense item on his budget.

00:44:12.500 | He was thinking of it as an investment. That's what he said. That was his answer.

00:44:15.500 | So, I think when we can get that mindset to shift--now, we have to do it carefully,

00:44:21.500 | because you could justify things that truly are just plain old expenses,

00:44:24.500 | but if you're careful about that, investing in yourself--

00:44:28.500 | I've been working on this--I always pretend like every project I work on is a book,

00:44:33.500 | and so then I name the book, and the book would be called "The Investment Called You."

00:44:39.500 | And, yeah, there's massive--there's a whole bunch of stuff you can do

00:44:44.500 | to make a big impact on "The Investment Called You."

00:44:48.500 | So, I had a conversation recently with a well-known financial advisor

00:44:53.500 | who operates in private practice but is also a public figure in the financial planning profession.

00:45:01.500 | We were having a private conversation.

00:45:02.500 | I shared with him some of my frustrations with the broad-scale financial advice industry.

00:45:08.500 | And one of my major frustrations where I feel like I made really a lot of mistakes,

00:45:13.500 | and I feel like I almost got gypped by mainstream financial advice,

00:45:17.500 | is I spent a lot of time--when I was 18 years old, I opened my first Roth IRA.

00:45:21.500 | And I was very, very dutiful about funding it, putting aside my 10 or 15% of my income into my Roth IRAs.

00:45:28.500 | And when I opened a 401(k), I immediately started funding my 401(k)s, and as things went on--

00:45:33.500 | well, I didn't take it to the extreme of saving 75% of my income,

00:45:39.500 | so I'm financially independent at 30, which I could have done,

00:45:42.500 | and I didn't take it--but I also just put all the money in the 401(k)s.

00:45:45.500 | And then I arrived in my late 20s, and I'm looking around and saying, "Why am I not rich?"

00:45:50.500 | Like, this plan hasn't worked. This plan has not worked.

00:45:53.500 | And I looked and I saw business opportunities where I said, "Okay, if I had $10,000, $15,000, $30,000 invested in that,

00:46:01.500 | look at the opportunities." And I had to systematically recognize that,

00:46:07.500 | recognize the fallacies that I was facing, and then systematically stop investing in IRAs

00:46:14.500 | so that I could invest in my own businesses. That was how I launched Radical Personal Finance, etc.,

00:46:19.500 | etc. Looking forward, I look at the opportunities that I face with building the media empire that I'm working on,

00:46:25.500 | and when I look at that, I look and I see, "Okay, $20,000 here, $50,000 there.

00:46:31.500 | Okay, if I expand in this direction, it'll require me--there'll be a buy-in of $100,000 of that."

00:46:37.500 | I'm talking about some of the high-priced projects.

00:46:39.500 | But, "Okay, I hire someone here to work here for $3,000, and I can see that can create $300,000 of revenue."

00:46:45.500 | I look at that, and now I look back at my IRAs and 401(k)s, and I just question,

00:46:49.500 | "Why would I ever put money in that again?" At least not right now, or at least until maybe some number of years from now

00:46:55.500 | where it's just an afterthought, and I'm going to max them out because there's so much extra money.

00:46:59.500 | I was talking with this advisor about it, and he told me the same thing.

00:47:02.500 | He said, "Here's this noted financial advisor." He said, "I haven't funded my retirement accounts for the last 10 years.

00:47:07.500 | I've got way too many other opportunities that are so much bigger that are there for me."

00:47:13.500 | I said, "Wow." I felt like the lone voice in the wilderness, but it makes me feel good to recognize there are other people realizing this.

00:47:23.500 | I wish we as an industry could figure out how to embrace both sides of it

00:47:28.500 | because there's a danger to having everything in private business because businesses fail,

00:47:33.500 | and that can be a major impact. I want some backup money, and I need those funds on the backside.

00:47:39.500 | On the other hand, I don't know anybody who ever got rich by funding their 401(k) and buying index funds in there

00:47:46.500 | that wasn't already rich just because they had such a high income.

00:47:49.500 | I've got to push back just a little bit. Joshua, would it be okay if I'm professionally candid for a minute?

00:47:58.500 | I welcome your professional candid.

00:48:00.500 | I totally agree, but I've thought a lot about this. I actually have another project, which I think of as a book, called the Over-the-Wall Portfolio.

00:48:15.500 | Here's what I think the distinguishing factor is. I do know people, and they typically look like this.

00:48:27.500 | They're really high income. Actually, they don't need to be high income. They just need to be saving a lot.

00:48:34.500 | Typically, that means you have high income, but I'm now running into some people who are extreme savers,

00:48:41.500 | saving 75% of their income. If you want a quick, hard dose of that, go hang out with Mr. Money Mustache for a little bit.

00:48:49.500 | I love that. It's awesome. In fact, the one reason I like what he says so much is he's so aggressive about it.

00:48:55.500 | He's so opinionated, and like we talked about earlier, I think that's so valuable.

00:48:59.500 | Those people, and I'm thinking particularly, I've got a bunch of buddies that have been emergency.

00:49:06.500 | I mountain climb and hike and ski, and somehow I've ended up having a lot of friends who also hike and ski,

00:49:13.500 | which typically a lot of them are emergency room doctors, which comes in really handy when you're doing those kind of activities anyway.

00:49:18.500 | But a lot of them have just plugged away. They just plug away, and a number of them are totally on track.

00:49:27.500 | They're thrilled. They're 45, 50 years old, and they're like, "We got enough money that now this job that I love is optional."

00:49:34.500 | That's great. But I think where there's -- for some group of people, their investment is in their high income job.

00:49:46.500 | We have to recognize for that group of people, the most valuable asset they own is the present value of their future earnings, which is essentially them.

00:49:59.500 | Which is why we tell people to invest in college.

00:50:01.500 | Yeah, yeah, right. They've put all of that, so they've got this high income job, and now they realize that the most valuable asset is declining in value every year,

00:50:11.500 | despite what their spouse tells them. It's declining in value every year. The most valuable asset is them, and their value is declining every year,

00:50:17.500 | simply for no other reason because they have one less year to work.

00:50:23.500 | So those people need to build what I like to think of as the over-the-wall portfolio, and their over-the-wall portfolio is typically --

00:50:30.500 | because they may not have the expertise -- I think there's three things required to do what you were talking about,

00:50:36.500 | is relationships, expertise, and experience. They may not have the relationships, expertise, experience, or, to be honest, the inclination,

00:50:47.500 | to go home at night after being in the ER all day and figure out how to build a side hustle.

00:50:54.500 | And so the best value for them is to just simply throw a bunch of money over the wall in low-cost, passive investments and let it grow.

00:51:02.500 | Then there's this other group, which is what you're talking about, which is saying, "Okay, what do I have -- at least one, preferably all three of these things --

00:51:12.500 | expertise, relationships, and experience in?"

00:51:17.500 | And I'm thinking a lot of the people who trick themselves into thinking that they were real estate investors in 2007 and 2008,

00:51:23.500 | just in time to get their heads taken off. I know people who made an absolute killing in that period in real estate,

00:51:31.500 | and it was because they had either the relationships, experience, or expertise, most likely all three.

00:51:38.500 | The fakers got their heads taken off. The real ones knew.

00:51:41.500 | Now, if you have that, you've got to be really careful about being overconfident about having that.

00:51:48.500 | But if you do indeed have that -- like, the best experience I have is I have a buddy who runs one of the largest construction companies in the West,

00:51:58.500 | and he was a client of mine for years. He's no longer a client for reasons because I don't have clients anymore, really.

00:52:05.500 | But he used to get so mad at me because we were only making whatever, 8%.

00:52:13.500 | And he would come to me and say -- and this is really important for entrepreneurs and business owners to understand --

00:52:20.500 | that finally, working with him, we finally developed this concept fully.

00:52:23.500 | And it was through conversations with him and a bunch of other entrepreneurs that I finally understood this.

00:52:28.500 | By entrepreneurs, I mean risk-takers. So this is some private equity guys, some hedge fund guys, some venture capitalist guys.

00:52:35.500 | All the really smart ones have told me the same thing because I've interviewed hundreds for this project,

00:52:40.500 | and they all tell me the same thing.

00:52:42.500 | "I'll make the money. I just want somebody to protect it.

00:52:47.500 | I'm going to make the money over here. I'm going to throw it over the wall," which is where the title comes from.

00:52:52.500 | "I'm going to throw it over the wall, and this is the money I promised."

00:52:54.500 | They would refer to it in different ways, but some of them would say things like,

00:52:57.500 | "This is the money I promised my spouse I would never lose," right?

00:53:00.500 | Or, "This is my financial --" I have one of them that calls it a financial fortress.

00:53:05.500 | "This is my protection. This is my" -- I have one of them quote -- calls it his go-to-hell money, right?

00:53:10.500 | Like, if you just -- and I like to think of it as the over-the-wall money.

00:53:13.500 | So, to them, the over-the-wall -- they've got -- and this is more than you wanted to hear,

00:53:18.500 | but I think it's important to understand -- they've got unique opportunities in inefficient markets

00:53:25.500 | where they have unique skill, ability, or experience, or preferably all three.

00:53:32.500 | And they can wait, like Warren Buffett talks about.

00:53:35.500 | They can wait for the absolute pitch, the fastball straight down the middle, right?

00:53:41.500 | And they don't have to swing at any pitch.

00:53:44.500 | And they can wait until what we refer to as asymmetrical opportunities show up,

00:53:50.500 | where the risk -- the reward is so far skewed in their favor that it's worth the risk.

00:53:57.500 | They're not going to risk $200 to make $250.

00:54:01.500 | They're going to risk $200 to make $20,000.

00:54:04.500 | And if the pitch like that doesn't come along, they don't swing.

00:54:07.500 | When they swing and they hit it out of the park, they throw some of that money over the wall.

00:54:12.500 | And so I think where our industry has gone so wrong is what we normally tell people like that is,

00:54:17.500 | "Stop doing that. You're crazy. Look at all the risk you're taking."

00:54:21.500 | And what I've found in interviewing hundreds of them is they say to me, "Oh, my gosh, really?

00:54:26.500 | This is a beautiful model."

00:54:28.500 | Because the mistake they typically make is they're the golden goose, right?

00:54:32.500 | And they look down, and one day there's this big pile of eggs,

00:54:35.500 | and from a liquidity event or something happened, they built this business,

00:54:38.500 | or the business is just throwing off free cash flow for the first time in their lives.

00:54:42.500 | They've got free cash flow, free time, free energy.

00:54:45.500 | They're amazed. They're like, "Wow, look at this pile."

00:54:47.500 | And then they think, "I'll take my skills, and I'll apply it to this pile.

00:54:51.500 | I'll start investing it." And then they lose it all.

00:54:54.500 | And then they go, "Oh, that's right. Wait, there's a goose over here."

00:54:57.500 | They focus back on the goose, and then the pile of eggs builds again,

00:55:00.500 | and then they go focus on the eggs.

00:55:02.500 | And so what I'm proposing is there's a different model.

00:55:04.500 | I'm going to start one and say, "I'm going to keep the goose healthy and happy,

00:55:07.500 | and I'm going to throw these eggs over the wall,

00:55:09.500 | and you're going to keep those things totally safe for me,

00:55:12.500 | and I don't expect a high return from them.

00:55:15.500 | The return I expect is peace of mind, and it's the over-the-wall portfolio."

00:55:18.500 | So to me, that's the way I manage what you just described,

00:55:22.500 | is figuring out, "Are you one of those people that have those unique skill,

00:55:26.500 | ability, and opportunities? Awesome. Let's figure out how to free you up to do that."

00:55:31.500 | If you don't have those opportunities, then, okay, let's focus on making your income

00:55:35.500 | as high as possible and saving as much of it as you can.

00:55:38.500 | I used to give the blackjack analogy to those prospective clients,

00:55:43.500 | and I'd say, "Okay, we're on the cruise.

00:55:46.500 | You decide we're going to play blackjack tonight.

00:55:48.500 | It's going to be the evening's entertainment, so you pick the number.

00:55:51.500 | I don't know, 500 bucks. Okay, so we're going to risk 500 bucks.

00:55:54.500 | If we lose it all, we're going to walk away happy because we spent 500 bucks

00:55:59.500 | on the evening's entertainment, but who knows? It might grow."

00:56:01.500 | So you start playing your $500 up a little, down a little.

00:56:06.500 | You're up to $750. Keep going. You're up to $1,000.

00:56:09.500 | You look at it and you say, "Okay, well, $1,000. Should I keep going or should I pull?"

00:56:12.500 | "Well, let's go a little bit more." So you double up again. You're up at $2,000.

00:56:16.500 | The difference between intelligence and entrepreneur versus these two approaches

00:56:23.500 | is an entrepreneur looks at their business and they look and say,

00:56:26.500 | "Well, I turned 500 into 1,000 and put everything back in. 1,000 to the 2, everything back in.

00:56:30.500 | 2 to 4. Okay, I need one last swing to hit my $10 million number,"

00:56:34.500 | or some whatever fake number that was made up out of thin air that sounded impressive.

00:56:38.500 | I'm going to bet it all on this last option, and then you play the hands poorly

00:56:42.500 | and you wind up at some significantly less number.

00:56:45.500 | The better way is to do what you said. Start with what you got. Play it.

00:56:49.500 | Now, play your 500 into 1,000. Go ahead and play the 1,000.

00:56:53.500 | When you're up to 2, pull off a few hundred and tuck it aside

00:56:56.500 | and start incrementally tucking it more aside.

00:56:59.500 | That way, you have a lever action.

00:57:03.500 | One of my interests is people who make it big and then go broke.

00:57:09.500 | When I look at making it big and then going broke,

00:57:12.500 | I don't see why that ever has to happen to anybody

00:57:15.500 | because if they would employ just some good systematic planning, control their risk,

00:57:20.500 | it's okay to take risk when you're young with entrepreneurial ventures.

00:57:23.500 | If you've got zero, you don't have a long way to go.

00:57:26.500 | But along the way, lever it up. Set aside some of that safe money.

00:57:29.500 | Set aside some of those portfolios.

00:57:31.500 | That's a valuable financial planning concept that perhaps I oversold my own position,

00:57:36.500 | but I'm doing that. There's no way in the world I'm risking all of my capital on a new business.

00:57:40.500 | But in comparison to my investment opportunities, I look at it and say,

00:57:44.500 | "There's massive opportunities."

00:57:47.500 | I don't know how to articulate this stuff as a framework for people to be able to grab onto.

00:57:51.500 | It's so personalized.

00:57:53.500 | That's where I've been spending a lot of time thinking,

00:57:55.500 | "How can I build this framework so people can coach themselves

00:57:58.500 | in absence of the secret society of great financial advisors?"

00:58:01.500 | I've really found people intuitively know.

00:58:04.500 | One of the frameworks that I like around this sort of over-the-wall portfolio idea

00:58:10.500 | can also be stated as sort of barbell portfolio management.

00:58:14.500 | You own assets out here that have asymmetrical risk/reward opportunities.

00:58:18.500 | You are personally invested.

00:58:20.500 | It involves your unique ability, skill, or expertise to make them happen.

00:58:24.500 | And then the other stuff you have is 100% liquid, safe, and generates some income,

00:58:29.500 | but income's the third, like liquid and safe were the first two.

00:58:33.500 | I think people intuitively know where that balance is.

00:58:37.500 | Initially, it typically starts out, for most entrepreneurs I know, it's 100% zero.

00:58:43.500 | Like 100% on the A portfolio, which is the one you control, and it's zero over here.

00:58:49.500 | And they know. They know that does not feel right.

00:58:53.500 | But it may go 10, 20 years to get to the point where they start going,

00:58:56.500 | "Okay, cool. I eventually want to get--we've always sort of toyed around with--

00:59:01.500 | look, getting to 50/50 is awesome, but we're never going to get--

00:59:06.500 | because most of these people are in the game, right?

00:59:09.500 | They're never going to get to zero/100."

00:59:11.500 | No, absolutely not.

00:59:12.500 | That's what the industry tries to talk them into, though.

00:59:15.500 | And so I think it's beautiful that people like you are starting to say,

00:59:18.500 | "Hey, whoa, whoa, whoa. You don't have to do that.

00:59:20.500 | We know you've got these opportunities."

00:59:23.500 | And yeah, be careful about being overconfident about them,

00:59:26.500 | but we want to protect you.

00:59:29.500 | In fact, one last story.

00:59:30.500 | I have a friend who's a trader in the pits in Chicago.

00:59:37.500 | And he's made and lost more money than I could ever even imagine.

00:59:43.500 | And sometimes in a single day, sometimes in a single minute,

00:59:47.500 | because he trades the 30-year, and the 30-year is so volatile.

00:59:51.500 | And he started his own trading company, and they had plenty of money.

01:00:00.500 | They're not airplane rich, but close.

01:00:03.500 | And he started this new company where he was going to have to hire 30 people

01:00:08.500 | and have a substantial space, and there was going to be serious investment in this thing.

01:00:12.500 | And the trading company didn't go.

01:00:14.500 | They had a rough period where trading slowed down a bunch.

01:00:18.500 | And he started to get so stressed because he had to take his income out of it.

01:00:23.500 | Anyway, we sat down with him and said, "All right.

01:00:25.500 | We did exactly what we just talked about.

01:00:27.500 | Let's separate these two out.

01:00:29.500 | You're going to get your income from your B portfolio over here.

01:00:33.500 | You've got enough over here.

01:00:34.500 | Let's just set up a monthly draw that arrives in your checking account every month.

01:00:38.500 | You never have to think about it.

01:00:39.500 | Stop taking an income, period, from your business."

01:00:44.500 | And setting him up like that, he was like, "Whoa."

01:00:48.500 | I mean, the business has grown way more dramatically than it would have otherwise.

01:00:53.500 | It's freed him up.

01:00:54.500 | He and his wife know they have nothing to worry about ever.

01:00:58.500 | And now the business is-- so I actually think we're setting up conditions for much more dramatic success by helping people see that.

01:01:06.500 | As soon as possible, we want to get you to the point where you actually don't have to be considering the fact that you may have to move to a tent in your parents' backyard if this doesn't go well.

01:01:20.500 | We've removed that worry from you because we've got this B portfolio over here, the over-the-wall portfolio.

01:01:25.500 | Basically, we've got your back.

01:01:27.500 | I love that model, and I love also that as an example of what financial advisors can do.

01:01:33.500 | It's not technical.

01:01:37.500 | It's personal.

01:01:38.500 | And you can clarify and identify what are the things that are keeping this family awake at night and how do we control for that.

01:01:46.500 | And it sometimes, perhaps even often, won't be the financially optimal choice, but it's the personally optimal choice.

01:01:55.500 | And you can clarify that by solving for this risk, we make these decisions, and now that fear goes away and it adjusts.

01:02:05.500 | Personally, I'm very debt-averse, and it's not because I don't see the place for it, but because my risk, like for me, I despise financial stress.

01:02:16.500 | And so I would rather give up the upside in exchange for having the confidence of not having financial stress, of monthly stress.

01:02:26.500 | And that's my thing.

01:02:29.500 | But for other people, it's different.

01:02:30.500 | And that's where an advisor, a good advisor from the secret society can make a huge difference.

01:02:36.500 | Yeah, I totally agree.

01:02:39.500 | In fact, I think it's the only because that stuff doesn't fit in an algorithm.

01:02:46.500 | Right.

01:02:47.500 | The only answer is this sort of messy human process of sort of bouncing these ideas around.

01:02:53.500 | Carl, man, this has been an exciting thing.

01:02:56.500 | I would strongly recommend, well, the two books that I--do you have more than two books?

01:03:03.500 | No, no, no.

01:03:04.500 | I have a whole bunch in my head.

01:03:05.500 | Okay.

01:03:06.500 | I just wanted to make sure.

01:03:07.500 | I probably didn't read them all.

01:03:08.500 | "The Behavior Gap," excellent, and also "The One-Page Financial Plan," a simple way to be smart about your money.

01:03:14.500 | My only beef with your one-page financial plan, I never found the one-page financial plan in the book.

01:03:19.500 | It was a 200-page discussion of it.

01:03:21.500 | Cut it out.

01:03:22.500 | So here, I got to tell you a funny story first of all.

01:03:24.500 | And I have the book right in front of me and I'm going to the page where the one-page plan is.

01:03:28.500 | But the funny story first of all is my daughter who was 8 or 9 at the time that I was sort of deeply in the weeds in this project.

01:03:39.500 | I heard her talking to her 9-year-old friend, and she was like, "Oh, what's your dad doing?"

01:03:45.500 | And my daughter said, "Oh, he's writing a book."

01:03:48.500 | And my daughter's friend said, "What's it called?"

01:03:51.500 | And my daughter said, "The One-Page Financial Plan."

01:03:54.500 | And then there was this long pause, and I hear her friend go, "Well, then why is it taking so long for me to write it?"

01:04:01.500 | So believe me.

01:04:02.500 | But on page 11 is a picture of my one-page plan.

01:04:07.500 | In fact, I've got the real one here with the cardstock and Sharpie.

01:04:11.500 | But that was the one.

01:04:14.500 | Now, I've developed it a little bit further.

01:04:16.500 | This napkin drawing was your one-page financial plan?

01:04:19.500 | Yeah, fully fund all retirement accounts each year.

01:04:21.500 | Fund the kids' education account every year and save for a house.

01:04:25.500 | That was our plan at the time.

01:04:26.500 | Now our plan, I've got it in front of me.

01:04:28.500 | It says, "Fully fund all retirement accounts.

01:04:30.500 | Fully fund the kids' education accounts."

01:04:32.500 | Oh, sorry, but the top of it says our values, which are spend time with our family, mainly outside.

01:04:40.500 | And number two is serve in the community.

01:04:44.500 | And everything else lines up with those.

01:04:47.500 | So the list of to-do items changes based on where we are now.

01:04:52.500 | We're still fully funding retirement accounts, saving into the kids' accounts,

01:04:57.500 | and then everything else is going towards housing for us right now because I'm dead of verse two.

01:05:04.500 | So there. It's right there on page 11.

01:05:08.500 | Okay. I stand corrected.

01:05:11.500 | So I can show you some of my one-page financial plans.

01:05:14.500 | I never figured out as an advisor how to articulate this because as an advisor,

01:05:19.500 | I've got to hand over the 200-page book with the brightly colored charts and graphs

01:05:23.500 | and the 57 pages of disclosure crap that the lawyers wrote.

01:05:27.500 | But my plans, they're simple.

01:05:29.500 | It's, well, I mean in times past, it was things like buy one rental house each year for the next five years.

01:05:35.500 | And simple, very, very simple, tangible things.

01:05:39.500 | Save 50% of my income, save little things like that which I could stand on.

01:05:44.500 | But I could never figure out how to articulate those for clients as well as you've probably done here.

01:05:49.500 | Well, yeah. Thank you. Thank you. It takes a lot of work, right?

01:05:53.500 | Yeah, absolutely.

01:05:54.500 | Carl, thank you for coming on the show. I've really enjoyed it.

01:05:56.500 | I look forward to reading your forthcoming projects.

01:06:00.500 | And what's the best website for people to check out your work and connect with all of your resources?

01:06:05.500 | BehaviorGap.com. BehaviorGap.com.

01:06:08.500 | Thanks for coming on.

01:06:09.500 | My pleasure. It was awesome.

01:06:11.500 | Here's the key.

01:06:14.500 | Do you have a clear goal and do you have a simple plan behind it?

01:06:18.500 | Frankly, I'm the king of complication.

01:06:20.500 | Those of you who have been listening to the show for a long time, you know that.

01:06:23.500 | I'm the king of complicating things.

01:06:25.500 | And maybe there's some value in those things, but I have to constantly work to simplify, simplify, simplify.

01:06:31.500 | At this point, my goals that I write out every morning, there's six things on there.

01:06:35.500 | And they're all just very, very simple things.

01:06:37.500 | They're not big. They're not complicated. They're simple.

01:06:40.500 | But they're simple and they're actionable.

01:06:42.500 | And I think the same thing needs to happen with finance.

01:06:44.500 | If you're doing things that you don't understand or if you're chasing goals that you don't get, that you don't capture, it's probably something you shouldn't be doing.

01:06:52.500 | Simplicity is really almost always the best solution.

01:06:57.500 | There's some famous quote that I'm trying to pull out right now and I can't come up with it.

01:07:01.500 | It's something about Occam's razor.

01:07:03.500 | I can't do it off the cuff.

01:07:05.500 | But anyway, make it simple, make it actionable, and then get busy on it.

01:07:09.500 | A quick reminder that I am participating in the online investing conference.

01:07:13.500 | Over the next two weeks, this show is going on February 2, 2016.

01:07:18.500 | If you are interested in getting early access to the best ideas that eight leading financial traders have for the year 2016, ideas that could impact how you manage your portfolio, follow the link in the show notes today and check out the online investing conference.

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01:07:42.500 | Click the link, follow that.

01:07:43.500 | You can see the videos.

01:07:44.500 | You can see the video that I did.

01:07:45.500 | My session is actually a bonus session, and I like to believe I've already done and recorded the session that's going to be presented.

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01:07:54.500 | You can check it out.

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01:08:25.500 | Remember, if you are a patron, conference call this Thursday. Was it 1 o'clock p.m.?

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01:08:32.500 | This Thursday.

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01:09:10.500 | Programming subject to change.

01:09:11.500 | Fees, terms, and restrictions apply.

01:09:12.500 | See Cricutwireless.com for details.

RPF0289-Carl_Richards_Interview