It’s a festive episode for this holiday season, with a lot cool gifts-Like the stock market, the bond market, and the 60/40 portfolio! Also, a special tribute to the late, great Charlie Munger. If you’ve never heard of him, listen and find out about one of money’s wisest men. And finally, don’t always take the advice of those famous financial pundits. So there’s presents, a wise man, and a grinch…a perfect recipe for episode 108 of Plan For Life Now.
*Actually, he lived to 99, so we knew ye pretty well
Steve:
Welcome to Plan for Life. Now, episode number 1 0 8. We’re sitting here smack dab in the middle of December. What are we 10 days away from Christmas, 16 days away from the end of the year and a new year. Man, what a difference a year makes Dave.
Dave:
What a difference a year makes. I was going to say what a difference 45 days makes.
Steve:
Yes. To put more a fine point on it,
Dave:
Right? I did real research for today’s show. You’re welcome everybody. I basically looked at October 30th, which was only 45 days ago. The s and p was at 41 35 today, last time I checked and I checked about 10 minutes ago. The s and p was at 47 16 on December 15th. So in that 45 day span, the s and p has been up approximately 12.5%.
Steve:
I mean, that’s within spitting distance of an all time high, right? Right. That’s within a percent or two. I mean, that’s pretty darn close,
Dave:
But it’s the acceleration of that doom and gloom from doom and gloom to almost all time high. A 45 day span of a 12 point a half percent game. That always goes to our saying about, or it’s not just our saying, it’s everybody who we agree with saying about not timing the market or getting emotional about these long-term equity investments.
Steve:
And I mean, let’s take this out even further. I mean, I didn’t write down the last 45 days, but I wrote down in the month of November, the bond index, which reminder to everyone bonds have gotten killed for the last two years. The bond index was up 4.9% just in November, which that was the biggest increase in the bond index in 40 years.
Dave:
That’s insane.
Steve:
You can only repeat it so many times, but just goes to show you can’t time these things. The sentiment changes so quickly. It goes from six or eight weeks ago, oh, just put everything into a CD and just keep it there. You’re going to get five and a quarter percent interest and you’ll be nice and safe there. Now, you fast forward to today, and I think a lot of people have realized, Hey, wait a minute, even if I did put my money in that CD and getting five and a quarter percent, that only lasts for a year or two maybe, and then what do I do? I’m missing out on
Dave:
All these games here. Have to look at that things, those everything and diversity. But ultimately we don’t believe in little formulaic strategies. Hey, if this happens, do this. So I caution you that the evidence of for what I’m about to suggest you do is overwhelming. Yet again, no little formula is always right. Having said that, when financial pundits say something that’s been going on a long time is dead historically, you may want to allocate some assets to the thing that they said is dead. And the latest of those things is the 60 40 portfolio.
Steve:
Yep, the 60 40 portfolio. Put a nail on the coffin, it’s dead, never coming back. Oh wait, 60 40 looks pretty good. Now, I mean the all time great. I mean there’s all kinds of, you can research all kinds of different quotes and timings of cover stories when they say, oh, this is the next, I mean, even just recently, Sam Bankman Freed. Is he the next Steve Jobs or things like that? A couple months later, it turns out the guy, not Steve Jobs baby,
Dave:
Not quite
Steve:
Criminal, but the classic one was the 1982 cover story for Time Magazine, the Death of Equities, but Death of Equities. And it was all about how you can’t invest in stocks anymore. They’re terrible. Well, the next 18 years were the greatest bull market in history,
Dave:
Right? That was a broad stroke. Okay, that’s food for thought, not responsible. When something the pundits say dead really is dead. But so far, if that was your strategy, allocate more funds. When I see something is dead, you would be doing pretty well.
Steve:
And kind of along those lines, I know most people aren’t going to dive into the details of, okay, the stock market is up, what components of the market are up. But the interesting thing to me is that at least recently, the things that have been up more have been more of those dividend paying stocks, more of those things and smaller cap stocks and not just the big magnificent seven stocks as they’re calling them. So for the first part of the year, the story was, yeah, the market’s up, but it’s all the big magnificent seven, Facebook, Amazon, Netflix, Google, all those. And at least recently that hasn’t been the case. It’s been a lot more of these dividend paying sort of interest rate sensitive stocks that have been up.
Dave:
And I think that’s a good thing to certain. I mean, you don’t want the magnificent seven to be the only thing that only goes up when you’re trying to broadly diversify in the s and p 500 or whatever mutual fund or ETF you’re in. So that’s a good thing. That’s good news.
Steve:
All right, so it’s been a pretty good year in the stock market and definitely been a pretty good last six months, but we did lose one of our all time greats, Dave, and I don’t think he gets nearly the credit that he deserves. I mean, this is me reading a lot of stuff since his passing, but I’m talking about Charlie Munger,
And for those of you who don’t know, Charlie Munger was Warren Buffett’s right hand man. He was, some people say that when they would do their Berkshire Hathaway annual conferences, the annual shareholders meeting, these things have sort of become a religious event for people where they make that trek to Omaha to attend these. And they would answer questions and they would always say that Charlie served as kind of the straight man to Warren’s whatever kind of joking, folksy attitude there. But Charlie Munger in and of himself had a lot of really quotable lines, and I think that’s what makes Warren Buffet and by an extension Charlie Munger makes them so revered is that they have these little snippets, these little sound bites that you can grab onto and say, yeah, that makes a lot of sense. There’s some wisdom buried in there.
Dave:
And I’m going to read one now. I don’t know which ones you have, but I have one that I think applies mostly to what we do live within your income and save so that you can invest. Then he says, learn what you need to learn. So part one is exactly what I think preach with every client and most podcasts, which is we need to make sure you have enough income that you can live on and you need to live within that income. This isn’t just our saying, by the way, this is backed up by, you can get all fancy. We do with all of us financial advisors, with all the software that does all this and all the software is also, by the way, this is what the software says too. You live within your income. We have to come up with an amount of income and work our way. So we can do that, but live within your income and save so that you can invest is pretty good advice right there, which is never going to put you in harm’s way
Steve:
As you get. The beauty of that is that it’s so simple, so powerful, so true. Doesn’t have to be all complicated. So actually that was one of the quotes that I had written down that I wanted to do, so I’ll cross that one off. But actually even before he had passed away, I started to listen to this podcast and now I got to go back and listen to the rest of the interview. It’s this podcast called The Acquired Podcast, and I don’t know the background of the two guys that do it. I’d assume there’s some sort of MBAs or something like that, smart guys, but they basically talk to business leaders and people like that. It’s usually about companies that have been taken over. I listen to one about Yahoo and they talked about all the inner deal workings, but somehow they got an interview with Charlie Munger about six weeks ago, and they sat down with him and did an interview.
And like I said, I didn’t listen to all of it yet, but I’m going to go back and do it. But I was really struck by, as they were talking to him first and foremost, about how sharp he still seemed, he still speech maybe was a little bit hard to understand at times, but for the most part, really sharp at 99 years old, and this was the thing that really struck me is when he talked about how hard it is to invest money to stay invested and to do that for a long time, he said, it’s not easy. No. These people who try to tell you it’s easy, forget it. No, they’re bss, right? It’s not easy. It is hard. This is not something where, oh, everybody should be able to do it easily. It’s no problem. And I like that because I feel like too much of our media is consumed by people who telling you how easy it is if you just follow their X, y, z steps there. I like hearing from somebody with just a couple dollars more than I have. It’s not easy. Alright, let me go through some of the quotes that I had here. The big money in investing is not from buying and selling, but in the waiting. And I interpret that to be the don’t get caught up in the hysteria of things going up. Don’t get caught in the fear of things going down, being able to have that even keel when you’re investing. Wow. I think that’s,
Dave:
But again, like you said, let’s go back to the last thing you said. It’s not easy, but boy, statistically, when you look at good funds, we’ll say good growth funds or things in stocks, and you look at the 15, forget about the five year horizon, look at the 15 year horizon. You’re going to see returns almost invariably that are really, really good. But it is predicated on holding on to that for 15 years. Again, his other point is a really good one. This is easy to say after the fact, but harder to do. But a lot of these sayings that we preach that Charlie Munger preaches are backed up big time by statistics.
Steve:
Absolutely. I liked this one. He said like, Warren, I had a considerable passion to get rich, but not because I wanted Ferraris, but because I wanted independence and flexibility. I desperately wanted it. And this just made me think of a lot of our clients, and that’s mostly the case. They don’t want, they’re not looking to get Ferraris and have some flashy lifestyle. They want to be rich or whatever. You consider it for that independence, for that freedom to say, I could work if I want to. I don’t have to. I can go on vacation if I want to. I’ve got that flexibility
Dave:
Money in this country if you’re looking at it the right way. According to you, me and Charlie Munger and Warren Buffett, money buys you freedom, freedom to do what you want to do and to not have to answer to somebody for your livelihood. And boy, if that’s your attitude, you’re looking for freedom and independence and you’re not looking for material things per se or overabundance of material things, then you are mentally and psychologically on the right track when it comes to money.
Steve:
Yep. All right. Another one here, there is no better teacher than history. There answers worth billions of dollars in any history book. I mean, you are a history major, right? You’ve got to believe in that one.
Dave:
Honestly, this is such a sore subject with me. I don’t want to chat about it a lot. Yeah, I was, and I’ve always said, and that history, that being a history major might be better for all this financial stuff than being an economics major or something like that because it’s so the lessons learned, but this is all across life. This is an issue we have in this country, in my opinion, across all walks of life, is the lack of knowledge of history, understanding it, interpreting it, and then using it for what’s going on. So yeah, I’m all over that one.
Steve:
I mean, some of these are just, they’re common sense, but hey, I’m going to go through ’em anyway. Acknowledging what you don’t know is the dawning of wisdom. Once again, I love this in an era of people going out there shouting louder than the next person, that they know the answer and that they’re smarter and they’ve got the solution. I love people who could acknowledge, Hey, I don’t know. I don’t know. And I think that’s powerful.
Dave:
Agreed. Let’s see. The older you get, the more you realized that
Steve:
Where was my next one? It’s not supposed to be easy with relation to investing. Anyone who finds it easy stupid. I like that. I was going back to what he was saying in the podcast, it’s not easy. Forget anybody who tells you, oh, this is easy. All you got to do is follow the 30 day moving average trend and trade the inverse or the blah blah, blah. No. If it were that easy, everybody does it. Just program a computer to do it. You don’t need any help there. Here was the last one that I had here, and this is when he was talking about experts and talking heads and economists in particular, and he made this quip. He said, yeah, they’re experts in saying something plausible and making it sound certain. So saying something plausible and making it sound like a certainty.
Dave:
How many times have we had this discussion? Yeah, maybe we’ll have that again when we do our January show and look at predictions and stuff like that. But how many times have we gone through that? They are very convincing. I watch that stuff and say, my gosh, these people sound like they know. And then often they are 180 degrees off. They’re completely wrong.
Steve:
Well, let’s use that to transition Dave into the last thing that I wanted to touch on here, and I just feel like, I think this might have crossed over to people who pay a passing interest in the finance community. I think there’s probably some clients out there, people listening who have heard this because our industry has been losing their minds for the last couple of weeks. And this has to do with Dave Ramsey. For anybody who’s not familiar with Dave Ramsey personal finance guy sells millions of books. His big thing, which no argument for me on this, get yourself out of credit card debt, tough love. You shouldn’t be spending money on boats and motorcycles. You need to be saving and blah, blah, blah. That’s all great stuff. But he made this comment on his radio show, and it wasn’t just a comment. I mean, he kind of backed it up with a discussion about it where he said he would be perfectly comfortable with a client taking an 8% withdrawal rate. And his reasoning was, Hey, the stock market long-term is averaged 11 or 12%, so you can take 8% and no problem.
Dave:
Really.
Steve:
And our industry sort of exploded. I mean, I’ve probably seen five articles in the last week or so all about this refuting this because most people are familiar. He was answering this in response to someone who said, Hey Dave, do you believe in the 4% rule? And the 4% rule basically says if you’ve got a pot of money, you can take 4% off of that and adjust for inflation every year. And essentially what that tells us is chances are you’re not going to run out of money in retirement, no guarantee. In fact, the long-term data says, I think it’s about a 90 some percent chance that you don’t run out of money. And he comes in and says, 8% is fine. And to me, what’s so scary about that is somebody who’s out there giving financial advice to millions of people without a basic understanding of how withdrawals and something that we call sequence of returns risk works,
Dave:
Which you did when we were doing our public seminars for so many years. You did a whole thing about why you can’t take 8% off of portfolio.
Steve:
You can have a portfolio that averages 8% and you still run out of money within 20 years because there’s volatility. There’s ups and downs, and if you want examples of this, you can literally go to Google, put in sequence of returns, you’ll have a dozen examples that’ll show you one investor retired in 19 65, 1 retired in 1975, and just based on their difference in timing, one ran out of money quickly, one lasted a long, long time, or there’s all kinds of different ways to look at it. So that was disturbing, but not terribly shocking. We know we’ve heard bad advice from other very prominent figures in the past. Sure
Dave:
You have. But again, they are expressing an opinion without a client that they’re dealing with and all the regulation and licensing that’s out there for good reason, they’re just expressing an opinion. I remember years ago, Susie Orman expressed their opinion, or maybe it was her own portfolio, just all her money in bonds or something like that. So again, if I put all my money in bonds and took 8% out a year, I probably wouldn’t have a very long retirement. But that’s not a specific piece of advice for someone who’s working with a financial advisor who gave it and is licensed and has fiduciary responsibilities and everything else. But you’re right, awfully dangerous because people revere these folks.
Steve:
Right. Well, and I hope that this one, I don’t have this in front of me, but I also saw this. Now he’s got a long track record of less than perfect advice, but the Rich Dad, poor dad, author, Robert, what is it? Robert Kiyosaki, he is constantly pounding the table saying that the world is ending. Everything’s about to crash. Biggest crash of our lifetime. So far, he hasn’t been right. I not
Dave:
Saying, well, if he was right, the world was ending, I could up that to 10% out of my portfolio every year.
Steve:
Yeah, yeah. I mean if you got that kind of insight,
Dave:
Absolute knowledge of that, I’m going to change my portfolio rates I could take out.
Steve:
Yeah. Alright, well I think we’re going to wrap there. Hope everybody has Merry Christmas. Happy Hanukkah. Happy New Year.
Dave:
Yeah, happy holidays everybody. Enjoy your families as well.
Steve:
Alright, we’ll check in again with you.