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With no hidden fees and a 100% purchase guarantee, you can feel confident when you book your premium LA tickets with Sweet Hop. Visit suitehop.com today. Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets. I'm your host. Today is Tuesday, December 30, 2014. Today I share with you an interview with a financial advisor named Paul Merriman.

Paul is a really neat guy. He's been suggested to me as a guest by a couple of listeners. And finally, we were able to get the interview to go after some bouts with his spam filter with my interview request. And today I have a feeling this is probably going to be just simply the first in a series of shows that I do with Paul.

Paul has been involved in finance for many, many years. He began his career in the 1960s working briefly as a broker for a major Wall Street firm, then left Wall Street and went on to work in the venture capital business. In 1979, he became president and chairman of a public manufacturing company in the Pacific Northwest.

Retired in 1982, financially independent in his early 40s, and then went on to create an independent investment management firm. Grew that firm to a massive size, sold that, retired again, and now he works harder than ever giving out a lot of public education on financial topics. It's a really great interview.

And we talk a little bit about the business of financial advice. I think you'll enjoy that and also about some specific action steps that individual investors can take that will enhance their lives. Thank you for listening. Enjoy the show. So Paul, welcome to the Radical Personal Finance podcast. I appreciate you're making time for me today.

Boy, I'm thrilled to be here. Thanks, Joshua. I had a couple of listeners actually suggest your name to me. I wasn't familiar previously with your work, but several listeners says you got to interview Paul Merriman. You got to interview Paul Merriman. And so after enough emails, I said, fine, and reached out to you.

Where I'd like to begin today is, if you're willing, I'd love for you to share a little bit about your professional story, especially as it involves financial planning as a business, financial services, and then also your personal progression with financial knowledge. Yeah, well, that's a treat for me because I love this business.

I'll give you the end first, and that is I retired a couple of years ago and started the Financial Education Foundation. And all the work that I'm doing is dedicated to educating people how to take better care of their money, which means even for people who have advisors, I'm trying to help them be a better client to that advisor.

But it started about 30 some years ago. I had good fortune in business at age 40. In essence, I retired from making money and started an investment advisory firm. It's almost embarrassing to admit that nobody knew that I would be a good advisor. And my minimum account back in 1983 was $2,000 per account, and I charged 1%, which means I would work for you for a year for $20.

But it grew. And of course, it wasn't a business model that would support other people helping me grow. And I eventually sold that a couple of years ago. And when we did, we had about $1.6 billion, and the Merriman Company continues on with the great advisors they have. But I don't have to worry about that stuff now.

I really am worried about the part that I had the most fun with when I was an advisor, because I built my business with a marketing plan of teaching people how to do everything on their own. So they never needed an investment advisor. And I always felt that took the conflict of interest out of that relationship of the person who's learning from you, because if they decide that they can't do it or don't want to do it, then they know who they could hire to do the kinds of things that I think they should be doing.

And that was the way we built our business. I'm a little unusual in that I started out in this business as a market timer. And that seems strange for somebody who has probably 80% of my money under management when I retired was buy and hold. But when I started the business, you have to remember that the stock market had been the pits for 17 years.

People hadn't made money in the stock market. They made it and they lost it and they made it, they lost it. And a lot of people just quit the stock market and put their money and went home. So a defensive strategy like market timing seemed to make sense. It's something that would fit for people who don't want to have an absolute buy and hold portfolio.

And we still the company still does that. But the fact is, most people are better served with a pure buy and hold strategy because market timing is the hardest of all investment strategies. I know for people to find peace of mind. So we built this business. Eventually, the minimum was one hundred thousand.

And now it's a half a million. And and I love the days that basically there was no minimum because we could we could help everybody basically. But there's only so many hours in the day, as you know, Joshua. And that's kind of the background. I had good fortune of getting on with Louis Rukeyser on Wall Street Week.

That was huge for my business. I had 400 phone calls that weekend after I was on that show. And and now when I get on a show like yours, I'm hoping that I can attract people to my to my website where everything is free, free books, free Vanguard portfolios, free Schwab and Fidelity and Vanguard ETF portfolios.

I've got one hundred four one K plans that I've looked at and made recommendations, basically the largest one hundred plans in the US. And I do a podcast and an article every week. And and my wife chastises me because when I retired, I told her I promised I would never work for money again.

Joshua, what she thought I said was I'll never work again. Didn't work. So here I am working and she's in Cozumel with our 19 year old diving right now. But I'm doing what I love. Is that why you do it? Does you and you just you purely enjoy it?

I love it. I love it. And I've listened to a few of your shows. I was not aware of your work either. I love educating people. I love changing lives. I've got a couple of articles that maybe I'll get a chance to mention that have probably been the most important pieces I've ever written in terms of helping people make better decisions.

And I really think we can easily add anywhere from a half to three percent a year to most portfolios without having to take more risk. And and it's not hard. And and I just hope that I can do this for another 10 years so that I can change, change some more lives.

It's hard. There's a lot of competition out there for for whatever message that you have. And so I've found a bunch of people who were interested in my asset allocation approach. And and I do I love it. And every once in a while I get to talk to one of these people and help them make a decision to get back to get back on course, because, you know, how often people get off course.

And we've got to teach them how to stay on course, because that's where the money is. If we don't get to those ideas, I may bring you on for a whole show on that, because I know where you're going from with those ideas. We'll see if we have time.

But I want to I want to I want to spend at least the time that we do have here at the beginning talking a little bit about the financial planning business. But you piqued my interest in talking about two thousand dollar accounts. I cannot conceive of how it would be possible for anybody to build a firm today with without minimum accounts.

Was it different in 1983 when you started? Well, what was different was I had enough money to live on for the rest of my life. I retired at age 40. And so it was a hobby. That was fine. And the problem became that that the people who wanted to come to work with me were not interested in a hobby.

So so we had to become more, more normal. And the reality is, when I look back at those early years, I have great affection for people and the desire to help. But if you take accounts that are too small, you water down the level of service and the letter, a level of attention and the devotion to other things that are important other than just talking to the clients and managing the money.

And I I fought taking higher and higher minimums. But in the end, I realized that for an advisor to have any more than one hundred and fifty to two hundred clients is probably not serving the client properly. So and my son, my son saved my life. In fact, when I get done here, I'm going to catch a ferry and go see my son for breakfast this morning.

And and he is the one actually who came into our company and made it a company as opposed to a hobby. And thank God for him, because I kind of worked on the back of an envelope for too many years. In fact, you talk about the difference today versus what it was like then.

My first 10 years in the investment advisory business, I spent no more total than a thousand dollars on lawyers. Wow. And today you can spend that in the day. Yeah, because it's it's it's tough when when you have to do every little thing by the law or you could lose your business.

Yeah, it's a big and so that is a big deal today that it wasn't that. We could actually we could talk about this for hours. I'm not going to, but it's interesting. I actually went through the process. I had some ideas on how it would be possible for a financial advisor to serve people without having minimums.

But the only way that I see to do it is to completely disconnect the the planning fees from the assets under management fees. So to simply just charge a straight flat fee on a monthly basis that's charged to the client's checking account. And when you consider that as related to a percentage of assets, it becomes astronomically high.

But when you consider it as regards the total financial planning picture, then I think it's the only way that people with small accounts, I think, can get good service because you can't. I agree with you. I couldn't I can't conceive of any way that I could serve. If I were doing a full time, I can't conceive of any way that I could serve more than 100 to 150 households effectively.

And if you just run the numbers on the gross revenue that you would need for a practice, all of the overhead, some of it legal overhead, some of it technology overhead to do an effective job. I just don't see how it's possible to be to be done in today's world.

I recently I came to the conclusion and I actually just pulled all my R.A. paperwork and shuttered the firm because I said, I can't do this well. So I'm actually going to do a show, try to give away all of my ideas for how I was going to do it to maybe get some other advisors to pick it, pick up the torch and go with it.

But I feel like this show that I'm doing is my most effective use of time. And it's something that I can do that some people many I'm a good financial planner and I'm learning to be a good broadcaster. But I think there are other great financial planners that can fill those shoes.

And this is this is the role that I think I can serve well. Well, that's amazing. And this is maybe too aggressive a question, but how do you make a living then? Because I don't need to make a living doing my podcast, my articles and whatnot. But how do you make a living the way that you're approaching the business?

I'm trying to follow the radio model and also trying to follow the the new basically what I call the new Internet model. And I believe that people desire. It's a good question. I believe that people want and are looking for value. And so over the years, the walls that have come down between people who are able to educate and teach and create content and create value, the walls have come down between them and the public.

And so in the old days, if I wanted to start, for example, if I were running a firm back in 1990 and I wanted to get on the radio, I would need to go down to the local AM station and I need to pay them whatever the fees were to do my Saturday morning financial show.

Well, now I can I can host my show and I can put it online. I could actually do it for free with poor technology choices, but with great technology choices, let's call it what, one hundred dollars a month. So now all of a sudden I can have a global outreach to anybody in the world with no friction in between.

I don't have to keep the advertisers happy. I don't have to reach a certain number. And so I can create a niche audience. And then I think that because of the increasing transparency that's come to the world, I think people my my my hope and I'm proving it, I'm in the process of proving it, is that people desire people don't mind paying directly for value.

And so in financial planning, I feel like we have one of the most effective ways where we can clearly say here are specific financial ideas and that are going to save you money in the long run and that it's only just that we get paid for those paid for the work that we do.

But so what I'm doing is I'm building it on a voluntary basis and I'm creating a couple I've I've struggled a little bit to figure out how to establish it. But I'm creating ways for the audience to pay me directly if they find value in the content. So the show is completely free.

And so if they find value in that content, I try to give away. My goal is over the next couple of years to essentially give away a master's degree in financial planning that I've studied over the years for free. And then people can pay me for that. And then I'm also kind of working on a freemium model was what they call now where I'm going to build up some additional resources beyond just the show.

And then those will be available for purchase for people to buy them directly. So we'll see if it works. But so far, I've proved the concept over the last five or six months. And so now I'm not yet financially independent, but I've been running. I have a consulting contract which pays my bills in the meantime, which allows me to see if I can get this business going.

And I've proved the concept. So now it's time to fully implement it. So that's my plan. I think that's wonderful. And I'm going to do what I can to help. I don't know what that will be, but I'm really impressed, Joshua. And we're always looking for people who have others best interest at heart.

I wrote a book entitled Get Smart or Get Screwed. How to select the best and get the most from your investment advisor or financial advisor. And I am very critical of Wall Street because I really don't feel they tell the truth. They tell half truths, but the other half can be can be damning or very harmful to people.

And we need more people who are really working on behalf of what's right for people rather than what's right for the provider. Because I think if you've got good material, you will find a market. I'm very excited about that and hope that we can talk again in the future.

Absolutely. I appreciate the encouragement. So I want to go back and I want to learn a little bit more about your story because we spend a lot of time on this show talking about early retirement. And financial independence. What was your path to establishing yourself to be financially independent at the age of 40?

Well, I had a checkered past. I'm almost embarrassed to admit that for a couple of years I was a stockbroker back in the 60s. But it didn't take too long to figure out what the conflicts of interest were. My picture of what it would mean to be a stockbroker were entirely different from what it turned out to be.

So I left the industry in January of 69, I believe, and did some private venture capital work raising money for some small companies. And one of those companies along the way got into financial trouble. And I had raised the original money for that company and I felt obligated. And so I went to the bank that was about to put them into into bankruptcy and said, look, I'll run this company for nothing.

And by the way, I had no experience to run it, but I believed that the bank would trust that I would do some things that would be in the company's best interest. And they got the company turned around and then I wanted to go home because I had other things I was working on and they offered to pay me.

And part of what they paid me was in stock. And that stock turned out to be worth enough at age 40 that I never had to work again if I didn't want to. But I'm a workaholic. And and so I'm one of these people that that believes in affirmations and the company that I started and built was built based on a handful of three by five cards, a series of affirmations about what I wanted that company to be to people, how it would treat people, etc.

And everything that we did for the 30 years I was there had to do with those three by five cards. I think affirmations are one of the most powerful things in terms of of leading us in our life towards towards the best. So that's that's kind of how I got there.

I love businesses. I'm kind of an entrepreneur. I've owned a jewelry making and lapidary equipment and supply house. And I've done a lot of things that that didn't have to do with managing money. But the 30 year career in the business of educating and managing money, it was the most fun of all.

When you say affirmations, you're referring to writing down a series of ideas. For example, we serve our clients with the highest quality products and insert the industry and then reviewing those on a daily or regular basis. Every day I when I as I was driving to work, I had those three by five cards in my hand, reading them out loud.

I'm sure people that's before cell phones. People probably thought I was nuts, but that's what I did every morning on the way to work. I had about a half an hour drive and and and it moved me to to starting all over again and doing something I wasn't trained to do.

Who inspired you with that technique? Oh, a guy named Lou Tice from Pacific Institute. I'm I'm always amazed at the randomness of of of life because I was at a Boys and Girls Club auction and I won a bag of quarters. And it turned out to be about 300 bucks worth of quarters.

And so then this this three and a half day workshop that Lou Tice puts on came up for bid and I bid my bag of quarters and that bag of quarters turned into literally when I look at how little I put into my company and and what it paid out and sold for and all those kinds of good things, not counting the sweat equity.

It was about a 30 percent compound, a little more than 30 percent compound rate of return over a 30 year period, which is way more money than I ever needed or wanted. But it just happened. And but it all started with that bag of quarters. Was one of your aspirations from a beginning and an affirmation, you know, I, Paul Merriman, am financially independent at the age of 40 with a net worth of X number of dollars, or was it accidental that you became wealthy and financially independent?

You know, I was like so many young people. I wanted to be a millionaire. I I grew up in an environment of physical abuse and and money. It was a way of getting out of that. And while I didn't do everything to do in my life, wasn't all about money, I was focused on becoming financially secure that that because there was a sense when I was a kid that that you had more freedom if you were financially secure and people couldn't hurt you.

So I suspect a lot of your listeners have have grown up in similar situations and it pretty much screws us up. But that's what happened. The outcome was OK. I'm not complaining about the outcome, but the the the million dollars is so strange today. When I talk to young people about how much money would you like to have someday?

It's still a million dollars. Joshua, right? It should be six or seven million dollars compared to the million I was thinking about in terms of inflation. But but that was what I wanted. And but but I never really never had a focus on how much would each thing make.

I always felt and I think this is true of a lot of people who are successful, who don't have a lot of talent. I think if you can figure out a need that people have, treat them with a TLC, help them solve problems. Half the problems I solved for my clients had nothing to do with my business.

But if I had a way to help somebody, I wanted to figure out how to do that. And I didn't do it because I was trying to get deeper in their pocket. It was just it was just the way I guess I was. I was raised. I was raised very close to the church and they'll do unto others.

And and and I was raised by a stepfather who was a Democrat who believed that everybody was actually equal. I like that about him. And and so there were a lot of these things that I learned and we all learn these kinds of things that then make us whatever we are.

And I don't think being a success is all that complex as long as you really care about other people and you're not an idiot and you're willing to work hard. When you advise and counsel younger people who come to you for advice and wisdom, do you begin with a series of goal setting and affirmations or do you begin with the technical aspects of perhaps their financial plan?

Well, let me make sure I understand. Uh, are you asking in terms of coming to me for advice on investing specifically? Let me give you some background and then you can you can comment. I've struggled with this question. One of the one of the things. So over the years, I don't feel qualified at the moment.

I'm I'm almost 30 and I I have enjoyed quite a bit of success, but not much of it is the kind of thing that a popular magazine would write an article on me about. So I consider myself to be living a very successful life, but I define it differently than other people.

However, some of the success industry and that's often kind of what I refer to is where you learn to where you go to learn about goal setting and building plans and goal achievement and affirmations has been very influential in my life. I remember the first my first exposure to podcasting was I discovered when I was in college, the Zig Ziglar inspiring words of encouragement podcast.

Yeah. And I I started listening to Zig and I bought all of his programs and I remember and that was a major influence for me. And I remember he used to have an exercise where he would have people write out a series of affirmation cards where but his were not necessarily focused on the goals that you have, but rather on who you are.

And he would have his participants recite in the mirror every every morning, looking at themselves in the morning and at night and recite this this several paragraphs. So, for example, it was I, Joshua Sheets, I'm a caring, competent professional, you know, and it went on and kind of all of these character qualities.

And that was a very great influence in my life. And I can think of two specific goals that I set over the years. When I was in college, I had student loan debt and I got inspired to get out of debt and I wrote down a goal and I said, I want to get out of debt by the time I graduate from college.

And I didn't see any possible way for me to do it because I was I owed more money than I was making and I still had to pay for college. And I couldn't see any way for me to actually achieve the goal, but I wrote it down. And then there were a series there was a bunch of action steps, but all of a sudden I woke up and two weeks, two weeks before I graduated from college, I wrote a check to Sally Mae and paid off my student loans.

And I said, how did that happen? I don't know how that happened. Another example was I had written down a goal of earning one hundred thousand dollars a year by a certain age. I think it was twenty five. And I had written it down on my when I was every day just kind of going through my goals and writing them down.

And I discovered so but I didn't see any way to do it at the time I was making forty, forty five thousand dollars and I was twenty two, twenty three years old. And I'm thinking like I don't see any way for me to do it. Well, I wound up getting laid off and I woke up at twenty five years old in the financial services industry.

And I had forgotten about the goal because I had quit doing that exercise a few years previously. And all of a sudden there I was. And I said, wow, I'm actually in the position of making six figures. And I didn't even really intend it. I didn't I didn't know how I was going to get here.

So my question is, I've I've wanted to integrate these two things with in financial planning, because oftentimes when you go to a success seminar of some kind, it may be very encouraging and it may be very motivational and you feel awesome when you walk out. But oftentimes my experience is that you don't have a series of action steps or a clear plan to go from here to there.

So people say, I want to be a millionaire. Well, what's the next action that you can take toward that goal? But on the other side, you get to financial planning and technical financial planning often emphasizes, well, you need to put 15 percent on your 401k. You need to allocate it in this, this, this.

And you haven't connected with the heart and with the goals. And what I see is I see them as fully integrated, that everything should start with goals and you should lay out everything like big picture. And then our job is to figure out, do the best we can of setting, charting a course of how we can potentially achieve it.

If you want to be a millionaire at 30, you're not going to do that by getting an entry level minimum wage job and saving 10 percent. You need to go and get started on learning business skills so you can start a business. That's the only way to do it.

And so I try to bring them together, but I've not found many financial people that do. And I don't know sometimes how to actually do it. So that's the background of my question. Well, I can respond in terms of the kind of direction I try to give young people in terms of the investment process.

I unfortunately look at investing as successful investing as being about ninety nine point nine percent mechanical, ninety nine point nine percent defense, not offense. And and I really think that it is important that young people see the end result as a part of establishing what they're doing today. So I have three articles, four articles, really, I think that are our must reads.

But one of them is about distributions and retirement. And my view is, is that you have no idea how much you need to save, what return you need to make, what risk you need to take and all of those kinds of things that go to putting that plan and the action steps together, unless you know how much you're going to have and not just how much you're going to have, but how much are you going to take out?

Are you going to take out three percent a year, four percent? My wife and I take out five percent a year. We take it out at the first of each year. Everything is mechanical. And and so I'm trying to get people to dream about the future. That's not mechanical.

But once you've established kind of what that picture of what life should look like when you finally do reach retirement, what are the specific mechanical step by step things that need to be done? What are the asset classes you should own? What mutual funds best represent those asset classes?

How much should you have in stocks and bonds, which which which is going to lead to to how your portfolio is going to be constructed? And I want people not just to look at the positive side of this process, but I want them to understand that if you follow my advice or probably yours, Joshua, I can guarantee you you will lose money.

I guarantee it. And people kind of say, whoa, wait a minute, you're guaranteeing you're going to what kind of an advisor are you? And my answer is that you are not likely to be a success unless the amount of money that you're going to face in terms of losses are within some limits that you have, because most people, as we know from the Dow Bar studies, most people don't make it, not because the stock market isn't great for the long term, but they can't take the pain for the short term.

Right. So it's a combination of putting that dream of the future together with what they can do. Now, I I'm a little taken back by your comment about the you got to go start a business. Now, maybe if you want to make a lot of money fast, you got to go start a business.

Although I found it doesn't come off fast, but but but I do believe that people who work in regular jobs ought to be able to take legitimate steps that that that create great wealth for themselves. Now, what great is is subjective, but great wealth for themselves and great wealth for others who survive them.

In one of my articles, Joshua, I point to an extra half of one percent. Eight versus eight point five over 40 years of accumulating and twenty five years of distributing and then leaving money to others. The difference between eight and eight and a half percent is two million dollars.

And you and I know so many ways to pick up that extra half of one percent. Absolutely. And sometimes it's just like like bending over and picking up money off the ground. It's so easy. Seriously. Right. And and and so my job and I think your job is to help people understand what the payoff is for a little effort, because it's not a lot of effort.

These kids, I have a university course that at Western Washington University that I support financially. And it's for it's a personal investing course for non finance majors. That's what it's built to be. But if we can get them to make the right steps from the day they come out of college and they start, whether they're nurses or teachers or biologists, whatever they are, and they're doing the right things with their money, this is life changing for them.

And at the end of the day, I know the money I give away is not because I'm stealing it from somebody. I give a lot of money away because I had the good fortune of saving and working hard and waiting, delayed gratification, waiting, waiting. But there's a huge payoff at the end if we can delay that gratification.

Right. Absolutely. Let me clarify what I was saying with regard to the business. What I was using is as an example of illustrating that, OK, if you are at the age of 22, you're graduating from college and you've set a goal of having a million dollars accumulated at the age of 30 and you're earning forty thousand dollars and you're not doing something where you're going to build your income from 40 to 400 thousand.

If you're just going to take the take the approach of saying I'm going to save 10 percent. So four thousand dollars invested over 10 years in order. So from actually I did it at 20 from 20 to 30. That would require a 57 percent annual return to grow four thousand dollars per year of contributions to a million dollars at the age of 30.

So it's not possible to do with public trade of securities. Now, it might be possible to do with a really might be with a really brilliant with a really brilliant business growth. And in fact, you might be able to grow a business from I've had several clients who have done this.

Very risky. There's no guarantee of success, but I've had several clients who have gone from nothing to businesses valued far in excess of a million dollars by the time they reach their way, they reach their 30s. So the point is my point was was that if your goals are aggressive like that, you need to look at your plan and see is my plan going to actually does it have a possibility of success?

If your goals are to be wealthy over a course of a few decades and you have enough income to where you can save enough and you can define that wealth. Well, in that situation, then public traded securities may just toss the money in a well-built portfolio and go on and go on vacation with your family.

And you don't need the hassle necessarily of running the business if you're happy with your career and with your salary. That's the point. I think that's I think that's very important. I in my company, Ryan Beck, he's works at the trading desk. Ryan is the son of a very dear friend from college days, and he's been with the company for ever since he got out of college.

Maybe he's been with the company for 20 plus years. And Ryan is a guy who does a fantastic job. But at five o'clock, he's done. Right. He's got a life. I didn't have a life in a sense. My life was taking care of of of clients. And I put in long hours.

I get up at three o'clock in the morning and go into work. And the fact I was up at three o'clock this morning, so so, you know, there are and to be honest, and there's a downside of all this. I'm on my fourth wife. Oh, wow. How did you survive that financially?

Did you? Well, you know, it wasn't easy. Wow. Because they always got a little more than half a half of whatever it was worth. By the way, they're all wonderful people. And and and something good came out of all those marriages. But but my focus was not on my family like it should have been.

And so there's there could be a serious price to pay to have a lot of money. And and so my hope is that I don't ever encourage people to do what I did. I started at 19, by the way, which was I mean, that was really dumb. The good news is I had kids when I was young.

And so that was that that made life different, because when I got older, then my kids were grown. I wasn't very old and my kids were already grown. And then I was crazy enough to adopt two Chinese girls. So I started all over again. I mean, there's nothing about my life that makes much sense, but I found an area where and I think this is true of a lot of us.

I found an area where I could add value in the world. Absolutely. And I did that well. I am mechanically the most of them all thumbs. I cannot deal with mechanical problems. My mind does not deal well with fixing things. And yet when it comes to fixing the portfolio, I just I have a sense I've every client I ever met with, I felt I knew what they should do in order to get themselves back on track and be a successful investor.

Doesn't mean that I was always right, but I but I've had a strong sense. I knew how to fix that problem. I suspect you do, too. And. And so my view is I've done a good job with what the talents that I that I have in helping people, other parts of my life, I wish I had been very had been very different.

But I think we have to be careful what we wish for. And and if I can just help a whole bunch of people who are working hard for a living and want to go home at five o'clock and to get them to do the right thing, besides put their money into a target date fund, which is not a bad decision.

You just leave a lot of money on the table. Right. Right. And I want to help them make that extra half or one percent. So that's what my website, Paul Merriman dot com is devoted to. And and so I really appreciate the chance to share what I'm doing with with your listeners.

It's really encouraging to me as a young advisor to hear you talk about your mechanical incompetence, because in many ways I feel exactly the same way when I go to work on something and to fix something on, you know, on a car, on the house. I feel utterly incompetent.

But financial planning at this stage, when somebody describes a financial situation or a financial problem, it's I never understood what artists talk about when they talked about they just saw the picture. But for me, it's almost become that way where I can just see, I think I can just see clearly, oh, this is the solution.

Here's the here's the missing problem. And it just it comes to me so easily now compared to how it used to. And then also compared to how some other people seem so overwhelmed by it. So it's encouraging to me to hear that you being, I don't know, 40 years down the road, a little farther, have a similar experience.

Yep. Here's what I like to do in the in the few minutes that we have left. We're going to have to do some more shows together. We're going to do a show on how to increase long term returns with some asset allocation tweaks, which is what you're referring to with optimizing a portfolio.

And then also probably, if you're willing, we could do a show at some point on how to effectively work with a financial advisor. But you mentioned four articles that in your mind are must reads. Could you describe those articles and describe the concepts that are in them as far as why you feel they're so foundational for somebody to to be aware of?

Absolutely, Joshua. And if you read an article entitled Six Decisions Every Investor Must Make, it actually links to these articles. And that article is at MarketWatch.com. But one of the articles is about asset class selection. And the the the title of the of an article that I've written it, updated it for 10 years.

It's called the Ultimate Buy and Hold Strategy. And the ultimate buy and hold strategy simply shows investors the impact of starting with a portfolio that 60 percent S&P 500, 40 percent fixed income. Then we make a little tweak. We add a little REITs. We add a little small cap.

We add a little large value. We add a little international, some emerging markets. But you end up with about 10 different equity asset classes. And all the time that we're doing each edition, we're showing what's happening to risk so that people understand when they put in a little slice of small cap value, they're not changing the risk factor.

But by a very, very small amount. And so at the end of that article, it shows very clearly how easy it is to increase your returns by maybe one and a half percent with a 60 40 portfolio by simply adding indexes. And by the way, there's another big decision.

How are we going to build a portfolio of these asset classes? And that means, I think, index funds for 99 percent of investors. And I've got another article entitled 30 Reasons I Love Index Funds. And if you could even find five of them that made sense and would say, hey, that makes better sense than what I'm doing.

But read all 30 and realize how powerful these index funds are. And then I have a portfolio, I mean, an article called Fine Tuning Your Asset Allocation. Because how much in stocks and bonds is going to drive your return is going to drive your risk. And I've built a table of 11 columns of numbers and every column is a different combination from all fixed income to all equity in 10 percent increments.

What does it do from 1970 through 19 to 2013? One year at a time. Look at every year. Just imagine this is the ride you're on with each of these columns. And of course, the more equity, the wilder the ride and the higher the return historically. So they're all things that people know intuitively.

But I want them to be able to kind of feel it as they look at these numbers, what it might be like doing that. And then there's the distribution article, because at the end of the day, there are many different ways to take money out of your investments. I show aggressive ways, moderate ways, conservative ways.

I show fixed distributions. I show variable distributions. I show distributions for couples that what is a spender and one is a saver. What's the best solution for that couple so that both the saver and the spender feel like they're being treated fairly? A lot of it is a combination of kind of dealing with numbers and emotions to get people to find peace of mind.

It's always looking for better returns at less risk and trying truly to build a peace of mind for the investor that they don't worry about their portfolio. Because there are wives who are driven nuts by their husbands who spend all their time worrying about what's going to happen on the stock market the next day.

I don't know if I can change that for people, but I do for everybody, certainly. But I do know I've changed it for a lot of people who have written to me and said, I now have peace of mind. I'm not worried about my money. That's that's the end result I'm after.

Right. I'm convinced that in many cases, women make better investors than men. I've worked with some clients and I just... Well, you know something, that's an interesting question, Joshua, because my experience is they don't take enough risk. True. They tend to be better buy and holders because they're not sure what to do.

And also, it's very difficult because women are so unbelievably loyal. And if they're in investments that are not in their best interest, but they like the person who put them in the portfolio, it is very difficult to get them to make the changes. And in my case, where I'm not their financial planner, I'm just an educator.

It's even more difficult because I'm not there to kind of overcome each one of those sales pitches that they're getting from the broker who's getting a big commission from them. Right. Yeah, it's it's, you know, that's another show topic I need to put on my show that I haven't talked about because there are advantages and disadvantages.

I think if you can if you can build a portfolio that satisfies somebody who is uncertain, male or female, somebody who's uncertain with with risk, if you can satisfy that in other ways. And my secret weapon has always been financial planning. And people often don't understand that. But I say, satisfy the risk needs with intelligent, with intelligent planning.

Example, I had one client that I worked with that was nearing retirement. And I could not get like the but we discovered through the process that we could keep the portfolio invested in a fairly aggressive manner if we kept. I think it was something like sixty thousand dollars in the checking account at all times.

So we would make a joke and the husband and wife would come in and the husband would laugh. But but his wife, she was she was amazing lady. And her rule was, as long as I've always got at least sixty thousand bucks in the checking account, then I'm good.

I don't want to worry about the investment. And so sometimes it would creep up and sometimes they'd have one hundred thousand and one hundred. And I'd say, you know, you want to do you want to go ahead and move some of that money over here? And well, as long as we keep sixty, it was it was good.

So I think that's a secret tool of we've got to address that risk in other ways rather than everything being done with an investor profile questionnaire. I think so. And and there's a I have a list of about twenty five different risks that people need to manage. I'm a terrible list maker.

I wake up and make a list immediately. But I think if we can get people to to squarely view what risk is and there are so many of them and see how every one of those risks are being addressed in a in a legitimate way, that is is good for them for the long term.

I think we can turn some of these people around. And sometimes the success may be to get that person who has all that money in a checking account to put thirty thousand of it into a short term bond fund at Vanguard. Right. Something just a baby step. Baby steps are are powerful.

Even even putting 20 percent in equities with the super conservative people is enough to probably add about one point one to one point two to the compound rate of return. Life changing, life changing. Right. And to understand that the risk they're taking is so, so small baby steps for most people.

And then you put enough of those baby steps together and you've been it and you've made a huge, huge leap. That's what I believe. If we can combine the baby steps, we can leap. We can really leap. Absolutely. Last question on that theme, and then I'll give you the last word as you answer this question.

One other way that I've been thinking about dealing with risk, and I've actually recognized in myself and I'm very concerned about this is a trend in the industry, is the trend toward putting all of the assets into qualified accounts that can't be touched for young people. And I've been thinking I have a one year old son.

I've been thinking a lot about potentially, even though it's inefficient from a technical tax perspective, I'm thinking about encouraging people in some way of making their first investment something that's going to flow income into their actual checking account. Because the purpose of investing is to create cash flow, is to create, is to grow money, but ultimately we can only spend cash.

And I think that we have in the years past, many people may have had a portfolio perhaps of dividend paying stocks where they had income coming in and Coca-Cola sent them their quarterly dividend. And so I don't think they worried too much because Coca-Cola's share price wandered around by 15% in any random quarter or year.

That wasn't really a big deal because the dividend checks didn't really change that much. But now I realize this, that I focus so much, starting investing at the age of 18, and everything, all of my investments were in qualified accounts. And I never had the opportunity to actually spend the money.

I never had the opportunity to feel the joy of actually spending money that my investments made for me instead of me going out and earning it with my time. And I think that if we could help people connect a little bit to their, to actually, that the purpose of investing is going to be income and cash flow at some point in time.

And it's not all deferred into retirement accounts. That might help them to alleviate some of those behavioral problems of the fear of, I've got to have this account there, but I'm watching it wander around by, you know, by 15%. Because there's no income that they mentally associate with it, then there's just, everything is based upon the principal value.

And that principal value can be so arbitrary and capricious at any certain point in time that that's one of my ideas that I'm thinking might be a good behavioral trick, especially for young people to consider. What do you think? Well, it's confusing to me. When I'm thinking about the kind of story that I tell about putting that money aside and having it grow, and that anything that limits that growth, for example, I hate target funds because I don't hate them.

But I disapprove of them for young people because they put 10% of the money in bonds. That's holding them back. What is 10% of bonds going to do for somebody? If we have a market that goes down 50%, is that 10% in bonds supposed to make them feel good, like it really protected them from having a big loss?

No, they've still got a big loss. Right. But what it does on the way up is it reduces the return historically by half of 1%. For every 10% you have in bonds. Now, I'm not suggesting that people not have bonds forever. Yeah, there's a time I'm 50% in bonds.

And so I do believe in bonds, but not for a young person. And so where I'm having emotionally problem with what you're addressing is that here I'm always thinking about, okay, let's make sure that we invest a certain amount of money and let it grow and let it grow on itself.

Because a five cent piece of bubblegum in 2000 years at 3% inflation will cost $2.3 trillion billion. That's the growth of 3%. Right. And so we're not going to get to 2.3 trillion billion, but I'm trying to make sure that you make this for the long term because that at age 65, which seems like a long time for a 30 year old, I'm sure.

But at 65, all of a sudden everything turns around and it's distribution instead of accumulation. And how much distribution? Well, the more you put aside and the smarter you were on how you put it aside over those years is going to increase the amount of money that you have.

And if you have saved, let's say 50% more than you really need to save in order to retire, which is what what many of our clients did, then all of a sudden you can take out more. You aren't relegated to 4%. You could take out five. You could take out six because you overstayed.

There's a whole there's a whole rhythm to that in my mind, Joshua, and what you're suggesting. It may be a great idea. I've never thought about it, but it's contrary to the way my kind of my focus is in trying to get people to make a commitment to the long term.

I think maybe what needs to be done there to help a little bit is for people who are just starting to invest a relatively small amount of money and we're their investment advisor. And we're telling them that we're going to show them how to have a $2 million portfolio.

And all they're putting in is $100 a month or $200 a month. Right? They can't feel it being worth too much. But what if we told them, look, I'll tell you how to benchmark this. Let's look out two years. How much would you have to have in two years to be on track for your $2 million?

How much in four years? How much in 10 years? And we all know how to do this, but to get them to realize that if I can go from this $2,000 to this $5,000, they're on track for their 2 million. Right? I don't believe it half the time, by the way, because they're not statistically driven.

Right? I mean, here's what we're working with, Joshua, and it ain't easy. About half the people surveyed believe that putting money into their company stock is less risky than putting money into the S&P 500. Really? That's what we're working with. Unfortunately, it doesn't surprise me. I haven't seen that study, but it doesn't surprise me a bit.

Wow. So it's been great fun, Joshua. And I'm excited about what you're doing, and I look forward to coming back and joining you again. I hope we didn't bore people with our personal stories, but I can tell you that I enjoyed it and look forward to talking with you again.

Paula, thank you so much for making the time to come on, and we will connect again soon. Good deal. Take care. Happy holidays. With Kroger Brand products from Ralphs, you can make all your favorite things this holiday season because Kroger Brand's proven quality products come at exceptionally low prices.

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