Investing: The Wealthy Understand These Keys to Investing

Have you ever wondered about the strategies that make the rich even richer? Ever been curious about why your financial advisor is so keen on mutual funds or index investing? You're not alone in questioning these age-old tactics, and it's time to shine a light on them. This episode aims to unmask the often hidden facets of the financial industry. We delve into the pressures financial advisors face, the misleading strategies they sometimes use, and, most importantly, how you can protect your financial future from these potentially harmful tactics.

Put on your thinking cap as we discuss the intricate dynamics of investment strategies and mutual fund fees. You'll gain insights into the training shortfalls within the finance industry and how they impact wealth building. We examine how successful individuals utilize unique investment strategies and why these might not be accessible to most of us. We'll also reveal how advancements in technology are leveling the playing field, allowing smaller investors to mimic the successful strategies of the wealthy. 

In the final stretch, we'll help you understand the differences between passive and active investing and why the affluent rarely settle for average returns. Explore the importance of understanding your investments and why diversifying your portfolio is critical to wealth building. This episode isn't just about understanding the financial industry; it's about empowering you to take control of your financial future. So please tune in and let's debunk some myths together. One conversation might be all it takes to set you on the right path.

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Ditch the Suits is produced by NQR Media. NQR also produces the One Big Thing Podcast with Steve Campbell.

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Transcript

Speaker 1: 0:09

Welcome to Ditch the Suits, a movement awakening and opportunity for you to start getting more from your money in life. I'm Steve Campbell. With my amazing co-host, Travis Moss, we're going to share industry insights nobody wants you to know about, so buckle up and enjoy the episode.

Speaker 2: 0:26

Hey everyone, steve Campbell, one of the co-hosts here at Ditch the Suits. Now, before we kick off this last episode in our series on passive investing, I did want to graciously remind you that you can watch all of these episodes with us. Not only listen, but watch on NQR Media on YouTube that's NQR Media you can watch this episode, all of your DTS episodes, as well as our other podcast put on by NQR Media, which include my very own One Big Thing podcast, which is an interview-style podcast interviewing people from all walks of life. It really is a lot of fun and we've been having some incredible and amazing conversations with people making a difference in this world. But you can also check out Cutthroat College Planning. If you've got juniors and seniors in high school at home thinking about college and your parent, don't miss Cutthroat College Planning. But head over to our YouTube channel at NQR Media. Hit that subscribe and follow button so you never miss one of our videos. And, as always, we appreciate you stopping by Ditch the Suits and hope you enjoy this last episode today. Well, welcome back to Ditch the Suits.

Speaker 2: 1:25

Steve Campbell here with Travis Moss, concluding the most epic series we've ever had on this show's history. This is, I think a five or six episode series. Normally we're two or three, but, folks, that's why you're here we thought it was worth the time to talk through passive investing by really bringing this home today, talking about really why the rich get richer. And if you listen to our last episode, we left off the Travis and I are not trying to give you a get rich quick scheme. We're not trying to tell you what to go invest in, as much as change your ideology or the way you think, your mindset when it comes to your money. So let's just jump right into it. Partner, we kind of left people with a little bit of a cliffhanger, but now we actually want to get into the crux of how do the rich actually get richer?

Speaker 3: 2:06

Yeah, and one of the big questions we probably left people sitting with is okay, so if mutual funds and index funds aren't the best thing out there, if just buying some funds and forgetting about it the best thing that, why are there so many financial advisors still out there pushing mutual funds or index investing? And the answer to this and this is where the fun part of Ditch the Suites and the whole kind of reason we created Ditch the Suites to let you know, on industry secrets, why the industry does what it does, so why you as a client or a customer of the financial industry are maybe getting the raw end of the deal the reason why financial advisors are pushing this stuff is because they are taught and revert to this structure. For, as far as I can tell, three reasons, and again, this is coming from somebody who's classically brought into our industry at the ground floor up, kill what you eat, go through the commissions, then went hybrid, then went fee only. So somebody I've progressed, dave, you've progressed all the way through the spectrum and we had to survive and we had to learn and we had to grow within the way that the industry works. Now we're just sharing this with people.

Speaker 3: 3:27

But the first reason studying and learning and being a real investment manager is hard. It is time consuming. It is a full time job all by itself. Most financial advisors that I've met that are out there calling themselves financial advisors, financial professionals, financial planners, whatever you want to call them their primary goal is to have more personal time to go fishing and stuff like that. You see all the stuff on their social media, all the vacations and the travel and stuff they're doing. They're not sitting at home trying to figure out how to be a better investment manager and reading up all the time. Very few of them actually are. And when you think about it, not only is there a full time job in investing, but if I'm the financial planner, too, there's a full time job in that, and if I'm the tax planner, there's a full time. There's a lot of full time jobs in there, which means if you see somebody who's really dedicated to this, you're probably not seeing all the trips and all the other amazing things that people tend to do when they have lots of free time, because it is busy work, it is intense, there's a lot of responsibility to it too, and if someone has any kind of humility to them which you need to have to be a good investor, in my opinion anyway. I guess some people don't probably want to see it that way, but if you have any kind of humility in you which I guess, maybe not to be a good investor, to be a good advisor, because if you're going to work with an advisor, you want an advisor with some humility, so that they can address weaknesses, their own personal development, they can become a better advisor for you as you grow and as they grow in the future.

Speaker 3: 5:00

But there's a lot of pressure to do a good job and there's a lot of pressure for how the results pan out, like when the market's bad, we feel it, it hurts. We hurt with our clients, we're sick to our stomach for our clients, right, because their portfolios sometimes represent the means to do their dreams and we're concerned about whether or not they're going to be able to do some of the things that they want to do and that a lot of people don't like. That kind of pressure that's a six-year stomach can't sleep at night, type of pressure For something that is beyond your control and if you're an investment manager and you work with clients, you really care about clients that is a hard set of emotions to reconcile. It's a lot easier just to say it can't be done, and then I'm just going to smash you into the same generic fund, and that way I don't have a responsibility, time commitment or any pressure. So I feel I'm going to feel much better about myself.

Speaker 3: 5:58

The second reason financial firms try to minimize risk. Not as you think, though, steve. There's two areas of risk here they're trying to minimize. It has nothing to do with the client. Well, it has to do with getting sued by the client, basically. So, not necessarily worried about whether or not the client loses money, they're more worried about minimizing regulatory risk, and that's why you see a vast majority of firms are outsourcing the investment management to the experts, which is fascinating to me.

Speaker 3: 6:33

You go to an investment firm and you say to the investment advisor, the financial planner or whatever, what do I need to do with my investments? And they say you know what? We're financial gurus, but we're not good at investing. So we recommend these third party gurus at investing. Well, if they're not good at investing, how the hell do they know who's good at investing? Bingo, that's always been a question I have. If you admit that you're no good at investing and you pick a firm, how can we trust what you're saying? And then, if that firm doesn't work out to be a great investment firm, how do we trust you to pick a better investment firm? This is like this Pandora's box of questions. So basically, where were we here? We want to keep and minimize the regulatory. We want to outsource the investment management and it's best to keep it cheap and generic, because the less sexy it is, the less chances are something gets off the rails and we get in trouble for it. And this keeps risk quantifiable. It's easy to manage and most firms in the industry allow their representatives to manage portfolios or sell investments with minimal to no training in the investments or the investment management.

Speaker 3: 7:45

Another kind of secret within the industry you come in, you've been there for you know you passed your regulatory exams and stuff, to give you a phone book to tell you to call your friends and family and sell them stuff. Almost no formalized actual investment training, investment thesis. You know investment philosophy, understanding how the different products even work. The regulatory exams don't really address much of that. The firms they don't care about that. They say here's the lineup of 500 things that you can sell. You can sell anything on this lineup as long as you fill out this questionnaire to make sure that it looks suitable. Have at it. Now. Go sell people.

Speaker 3: 8:24

You take people who really don't know what they're doing, telling you here's the experts. You should hire them. They have absolutely zero clue. A lot can go wrong there. We've got a lot of empowered people telling you to do stuff that are absolutely clues, because they start out not knowing what to do. And telling you to do stuff once they get enough people in that system. Everybody asks well, how could Bernie Madoff rip so many people off Once you get so many people in the system? It's just like that's what you do. This is what I do. It's work to get me this far. Why rock the boat? I don't have to put any more work in it. This is where the humility part comes in. I don't have to get any better. I'm good enough the way I am, because look at all the people who love me. They give me their money and then one day the bottom falls out of it. That's third reason. Yep, go ahead. You want to jump in before?

Speaker 2: 9:10

third reason Go ahead. Well, I just I'm thinking about how many times when you're out and about and somebody comes up to you and, travis, what do you do for a living? He says I'm a financial advisor. Do you go? Thank God, I found one. I found one, honey, he's a financial advisor. This is what we. No, you go okay, and you start to back away. Why? Because you know that our industry is dirty in many ways because of experiences people have had. And I just think about, before you jump into this third one, just the mental picture I want to paint for many people of the phone calls that I have when they talk to us. Can't tell you how many times over the years people have called and said you know, we read about you and we need some help, we need to build a financial plan. And you start to say, okay, so tell me about what's going on right now. And it's like, well, we have a financial advisor. And it's like, why are you calling us?

Speaker 3: 10:00

And it's like, well, we need help Because I need a plan, I need help understanding, I need some advising.

Speaker 2: 10:03

You know when to take social security and when to take my pension, and all of a sudden you're like so what? So let me like and you don't want to be too boisterous in their face and say like can I actually understand what's going on, then, with this relationship? So, basically, what's happened is you worked for 30 years at a company, built up a 401k into a sizable amount of money, kind of found somebody that was willing to take that million, two, three, four, five million dollars for you, doesn't actually tell you about any of the underlying pieces that keep a plan to float, and then says you know what? I'm going to take your three million dollars and actually give it to this group over here, right, and take a cut of the fee because I found them. And then we're just going to meet a couple of times a year and talk about what's going on, like it's almost like we believe that financial advisors are out on the ground in company warehouses talking with CFOs. You know being like what's your forecast? Look like this year, and they're coming to you with a blueprint of Travis I have the 12 best companies for you to invest your money in.

Speaker 2: 11:04

That is not what financial advisors do. They take your money, they outsource it. They meet with you once or twice a year, talk about your kids and then say you know, here's a 55-page packet. Only look at two pages and you know let's get back on the calendar. Meanwhile you're left with like honey, what do we do about this? What do we do about that? I got questions about my taxes. Steve, can you help me with my taxes? No, we're not legally obligated to talk about your taxes. Think about what an incredible profession this is to be alive in, that you can just outsource money. There's really no guilt or shame on you, because if somebody else screws it up, what do you do? You deflect? Oh, that was them. You know they did not make a good choice. So we want to kind of help you guys understand as consumers. If your spider sense has ever gone off with a financial advisor of what's really going on here, you're probably on the right track. So please, travis, feel free to share thoughts and get right into point three for us.

Speaker 3: 11:58

I can't even get to point three, because I was just saying but what? They got a nice suit and they got a nice car and the kids go to the nice schools and they got a nice house, they live in a nice neighborhood. They must be successful. They are successful at mooching your money off of you. They are getting rich while you are paying them. You know what I mean.

Speaker 3: 12:17

Like that, and it's like so, they're saying to you can't do better than average. Just by this thing. They're literally selling you the average garbage and then you're running out going. Oh, this is they said, this is the only way you can do it, this is as good as you can do. Well, why are they saying that? Because if you believe you can't do any better, you're never going anyplace else, and so you're at least far enough alone that you go. I need help for this. I need somebody who seems like they know what they're talking about. But then the problem is that we get people who like basically just tell you you know, sorry, you're doomed, but pay us anyway. Yeah, if it's going to be that bad, like, why even bother giving them your money?

Speaker 2: 12:53

Well park, right there for a second, because, with the analogy that you just painted of the nice house and the trips, if it's like well Travis, if they're not really good at picking these things, how are they living this lifestyle? Here's simple math for you folks. If you've built this machine large enough over time that it's taken care of itself, in the average client that you have gives you a million dollars and you charge a 1% annual fee Every year, you're making $10,000 from that $1 million household. If you have 10 clients, do the math. If you have 100 clients, do the math you can make. Do you and your job get paid that much money per client? No, so you think about they're not being paid because they're a top surgeon that saves lives or they're such a specialist at what they do. They have been able to curate a story that is retellable. That makes people feel good. What we're trying to do is say you can still feel good, but let's look under the hood at what's really going on, because this is not how rich people get richer.

Speaker 3: 13:48

Well, and it's the financial industry. Surviving in the financial industry is about the war of attrition. That's what I call it. A lot of the folks that are making that kind of money are not making that kind of money because they were just so good and they had such good ideas for clients as so many clients came to start working with them. They're really good because they were really good at being poor longer than their friends who joined up at the same time as they did, and as their friends failed out of the industry, they couldn't meet their quotas and stuff like that. They absorbed their friends' clients. So basically, their friends, friends and family became their clients.

Speaker 3: 14:26

You may know where the firm had orphans from advisors who retired and didn't necessarily have enough clients to sell a book of business or something. Or they buy clients from an older advisor, not because they're coming in and their financial genius is not. This isn't the case for everybody. There are some people that get in that are really good, but you as a consumer have to figure this out, and it goes into this issue of you guys are telling me that that's not what wealthy people do, but I go hire advisors who say they work with wealthy people, and that's exactly what they tell me to do, and the problem is that they don't actually do what they're telling you. The industry has said to them this is how you need to operate, and they've been able to get away with it.

Speaker 2: 15:12

Folks, the first 13 minutes were free. I mean, we haven't even gotten into the heart of this conversation yet.

Speaker 3: 15:17

So we'll be talking for 30 hours today All right pal, let's keep people going.

Speaker 3: 15:22

We're not even done with the set in the episode. The third reason is the fees. Index funds tend to be cheap, and people aren't already a cheaper because it sounds good Less money or less fees equals more money in theory. So we just talked about, though, in a previous episode, the variance between just the index funds. So you get two funds that you're paying 0.06% fees for, so next to no fee. Yeah, they still vary in performance, even though they're supposed to be buying the same exact index. So what the hell gives there? I thought cheaper was better If you buy at Nice House.

Speaker 3: 15:57

So for people who have not done this before, think about your situation. If you bought a nice house, let's say you went out, you bought a million dollar house. When you need to do work on that house, are you hiring to do it fix it up, or guy who you know uses duct tape to fix everything? Are you hiring a contractor that knows how to do nice work? You're gonna spend the money and you're gonna hire the contractor knows how to do nice work, because you don't buy a million dollar house and do minimum wage work on it. Whoo Well, I'm sorry. That was really good.

Speaker 2: 16:31

That was like a mic drop.

Speaker 3: 16:32

That's the truth. You're, you pay for quality. Your investments is noted, your medical is no difference. You don't go to the cheapest doctor that you can find. You go to the best doctor you can find and you say, can I afford you? You know, and sometimes you can't even afford them. That's a different story, but still you look up for quality. Somehow we get to investments. We go now get the cheapest shit that I can find out there. This cheap stuff is the best I'm. I'm gonna get so much further ahead because it's cheap. I do that when I go to the grocery store. I buy the cheapest stuff I can find and I get home. By the time I get home their vegetables are rotten and I'm like I believe at least it was cheap. Can't do nothing, okay.

Speaker 2: 17:13

So I'm on another way, hold on, hold on. We got up, we got a pause right there I even got to the third reason.

Speaker 3: 17:18

Oh, I'm in the third reason, but hold on, pal.

Speaker 2: 17:20

I'm gonna have to mark this episode explicit pretty soon for it. For you folks that are like, wow, travis is really just feeling it today, that's because we've unleashed him on unleashing Leadership, which, if you're due to DTS, it's a free podcast where Travis gets to be unfiltered every day talking about leadership. So if you haven't checked out unleashing leadership and you're like, wow, he's sworn this episode, who's this guy?

Speaker 3: 17:39

Yeah, that's, travis that's. Travis unleashed, so folks unleash leadership with Travis Moss.

Speaker 2: 17:44

Go ahead partner.

Speaker 3: 17:46

I have a potty mouth, all right, so just think about this for a second. The industry that builds and manages these products because that's what a mutual fund is. A mutual fund is literally a product Okay, they, the industry that builds these things, these contraptions, is telling you, the consumer, the client, you are helpless, you should just buy my product and this will solve all your needs. And You're like oh, that sounds wonderful. I want to be helpless. Take, take my money please. Then they're gonna compete with each other. So they each, each, each one in the industry builds one of these products, you know, for the helpless customers out there, to save them. And they each build one. And they go oh, yours is cheaper than mine. And since they're all the same, right, in theory, they.

Speaker 3: 18:38

One company says you know that company over there, their mean, they charge you point one percent, we're gonna charge you point zero eight. Oh, I should go to the cheapest one, right? Because if it's, if everything does average, if it's cheaper, that means I should get more out of it, even though it's not the case at all. It's empirically not the case, but you know, let's just go with it, right. And then the other one says well, we'll go to point zero, six percent. And the other one says we'll go to point zero, one percent, the other ones Because fine, we won't charge you any fees, we'll do it out of the goodness of our heart, because you're helpless.

Speaker 3: 19:08

Okay, do you really honestly think that there are Companies out there that are running multi-billion-dollar investment funds charging, making zero money on you? It's like Facebook they don't charge you because you are the product Right. So just because there's not an explicit expense ratio, does it mean they're not making money off of you with an in the fund? People don't understand this, but it is so important. There is no free lunch in this. You, we are naive if we're thinking about the fact that the people who built the products, who created the competition to go to zero fees, who then convinced you you're not paying them Anything and there's no difference between us and anybody else, and they're making more money off of you.

Speaker 2: 19:56

Well, think about it this way I'm just, you're disarmed.

Speaker 3: 19:58

You don't even know how to approach it.

Speaker 2: 19:59

I'm thinking about it this way too. If you've ever worked with a financial advisor, think back. How often are Significant changes to what you're doing ever suggested? Or is it just you get together and you meet, because I think this is what can happen, as you're talking about why do the rich get richer?

Speaker 2: 20:17

In our last episode, I think you talked about the gentleman that left, you know, 10 million dollars of a legacy, for somebody's got one, two, three million dollars. 10 million is a pretty big jump, right, but I think for a lot of people, when you meet with a financial advisor in the year and it's been a long time since you've seen them you spend the majority of your time talking about your family and your kids and what life is going on. When they say because it's really hard to understand real numbers and what this means when they say, hey, we've done pretty well this year. You know, on your million dollar portfolio we made $60,000. You're thinking about what you made in an annual year salary and you're like, well, that's pretty good. You're not even thinking about, well, what percentages of that, of how much money we actually have.

Speaker 2: 20:59

So you can easily skew numbers or believe you're doing maybe better than you actually Are, because these numbers seem large on paper. But if you were actually talking about, well then, how do the rich get richer? If you had a million dollars and somebody said, hey, because of the Moves we made this year and the convictions we had, we made $300,000., yeah, I mean you'd be like whoa, what happened? But most people don't understand what building wealth over time really actually means, because these numbers seem so big when they're talking to an advisor, and so I think then, kind of understanding, then even breaking this down more from what you want to share when you're talking about fees, just just take people where we need them to understand them. You know more of this conversation.

Speaker 3: 21:44

So, whether we want to, there is a difference between being rich and wealthy. I guess you know it's a vernacular thing, so let's just pretend with rich and wealthy are the same thing today, okay so so so people who want to get the most out of their money right, or people who accumulate wealth or accumulate richness in their life we're really just talking about dollars today, but If you've accumulated a lot, chances are, like we talked about earlier there's a reason. You're successful at something and people who are successful at something this is what they say Don't walk in my door and give me generic, don't sell me helplessness. I didn't get where I am because I'm helpless. I didn't get where I am because I'm like everybody else. I want customization, I want quality, I want control. I don't care what the indexes are doing. People become rich. People become rich, are rich because they don't do what everybody else did. They don't do what everybody else said. Investing is no different, and if you want to be part of the small percentage of people that you consider wealthy or rich, you have to start doing what they're doing. And what they're doing is not what you're doing. They're not doing the generic BS. They're doing better than that.

Speaker 3: 23:16

There's a concept, so this is getting into this a little bit more. There's a concept that I call endowment theory. I don't know the proper term. I've seen it in different. I first was open to this well over 10 years ago, maybe longer. It was actually at Wharton through an executive education class. I think I took a class on it and they were talking about endowment theory and that's the idea of diversification by spreading your money across very different asset classes.

Speaker 3: 23:46

So if you look at how Yale's endowment or Brown's endowment or Cornell's endowment the big university endowments are actually invested, and if you look at how big money is really invested, it's not all in mutual funds. In fact, a very small percentage is even in mutual funds or even in the market in general. They go and they say, look, let's put a portion of our money in real estate, but let's actually buy the real estate. Let's put a portion of our money in private investments. Let's put a portion of our money in private investments like small companies and stuff like that. Let's put a portion of our money in loans. It's actually loan people money type of thing. Let's put some of our money in hedge funds, different strategies, maybe betting against currencies and stuff like that let's put a portion of our money into private equity funds XYZ and they spread that and thus have maybe a seventh of our money in equities actual in the market, maybe a seventh in treasuries or something like that.

Speaker 3: 24:46

So they spread it apart in very unique, different things and then within those things they go in and they try to pick the best in each space. There's literally nothing generic and index oriented about what they're doing. So the brightest, most brilliant money out there the ones run by all the education think tanks right and the ones run by the people with the best degrees, and all that kind of stuff has nothing to do with mutual funds and index funds and has everything to do with active management and long. You know I'm planning for the long term, which means that you understand price and volatility in the market and the difference between price and value and all the things that we're always talking about. They actually own and control when they buy and sell stuff. They have 100% control over that. That's the difference between the real wealthy and everybody else.

Speaker 3: 25:39

And the funny thing is is so you can't necessarily mimic that, because it's hard for smaller investors to do all those things, but you certainly look at the lessons of the diversification, and that is is I need to be investing in different sectors of the economy, right In different types of assets and things that go up and down very differently from each other or fundamentally different from each other. Now I need one of everything because I can't decide. So you can at least start to mimic that concept within a portfolio. You know, some people say, well, I need international investing because that's how you get the diversification. International investing will match up. I saw a presentation on this and it was pretty remarkable. But international investing in every country kind of matches up with their dominant industry that makes up their stock market. So there's no difference between really investing in different industries and different countries, other than there's different risks associated with which markets you're buying in. Like, there's different currency risks and geopolitical risks and those types of things. So it's really about being able to control what you're buying and selling and being able to buy and sell very different things. So a few other issues that a typical person has.

Speaker 3: 26:50

So why can't I, just as a regular investor, just go do this? Well, there's going to be restrictions. Sometimes you got to invest a lot of money. Sometimes it's liquidity restrictions. I got to be able to commit my money over a long time periods. You know, an endowment can invest in way 100 years for an investment to work out. You as an individual can't really do that. There's expertise, you know. Have fun going and reading contracts with private equity and some of these other things. Right, you've got to be a lawyer and you've got to be a specialized lawyer at that to understand a lot of this stuff. So there's an expertise issue and then there could be minimum buy-ins. You got to have a minimum, you know, a million dollars to even get at the ground floor of a particular investment or something like that. So there's reasons why an individual can't invest, just like an endowment can, or just like, you know, lebron James or somebody like Gazillions of Dollars.

Speaker 3: 27:38

But the idea, the fundamental idea, is still the same. I need to be able to control when I'm buying and I need to try to buy the best of what's available out there. These guys like when you see sports guys and they become billionaires. They didn't become billionaires because they bought all the average garbage. They hired firms out there to actually work for them and go and find the best investments possible. You know, and it's just. It's just at a much bigger scale than an individual, but with where fee compression is going and how the industry is is gearing up technology. Most, even small, investors can at least have a portfolio that looks similar to that kind of structure, where they can be investing in Very low correlated things that are very different to help reduce the systemic risk, which is really what you're trying to do when you're spreading your assets across different assets like that. So the technology and the fee compression is actually lying at least at the portfolio level the stuff that people that us regular people have access to. It's allowing you know you to actually be able to do that.

Speaker 3: 28:43

It's just a matter of do you even know how? Because you have to get through the gateway of the industry, which is all the people that don't want you to do it on your own, or, if you do it on your own, it needs to be done through their fun, like Vanguard wants you to do it on their own Because it pays them, because you're you're, you're essentially hiring their investment manager, right? So even though you think you're doing it on your own, all you've done is decide to hire them and you're paying them to buy the investments for you, and then sometimes you would pay a company like that money to have somebody tell you which of their investment managers actually to hire. So it's like a double dipping, right? So you have like all these layers of people saying you know you can't do this on your own, be you know, or tricking you to thinking you're doing it on your own, and that's why it's so hard for the Regular investor to really keep up with what the rich are doing, because you can't even get to the same fundamental Kind of thought process that they're using. And so just a little piece on correlation and systemic risk, because I just introduced those.

Speaker 3: 29:42

We did, we've done episodes, steve, so I don't know if we can put in the show notes stuff on correlation, but correlation is the idea is that you but you want to buy investments that don't go up and down at the same pace together, right? So you really want investments and people really can't stomach this sometimes was the key part of investing. You want investments that maybe one goes down and one goes up on the same bit of news, right? Or one goes up a lot and one goes up a little bit, right? That's a, that's, you know, saying that there's less correlates, a completely random kind of experience. And there's a way you measure that called the coefficient, the correlation coefficient, which measures, you know, if it's on a scale of negative one to one. If it's a one, things go up or down at the same time, maybe different amounts, but up or down the same time. If it's a zero, there's they could go up or down at any random time, and if it's negative, they go in the reverse of each other. Right, and so there's a scale there that we can put investments on, to say, you know, how do these operate from a standpoint of when things go up, when things go down, because that's diversification, that's actually what diversification is.

Speaker 3: 30:43

And then there's this issue of systemic risk that we talked about, and this is the idea of a cascading event In in one system, creating the entire system to fail. So that's why people say, well, I'm gonna invest in multiple countries in case the US fails. Well, who tell you what if you're investing in dollars in other countries in the US fails, or you live in the US and the US fails, you got more problems than your money. So the question there is okay, so what system am I actually investing in in the US? So if I'm in the you know US stock market. You could still be saying like there's a dramatic difference between, let's say, pharmaceuticals and utility companies. You know, the pharmaceutical industry could completely implode.

Speaker 2: 31:25

It's not gonna have anything to do with the utility industry and I'm thinking about maybe the listener that says Travis, I'm following with what you're saying, but I feel diversified. You know, when I look at my IRA, I own 10 different mutual funds from three different companies each, and what do you mean? I'm not as diversified. We spent an entire episode. That, I think, was actually when I think about the most feedback We've gotten from listeners. That episode about mutual funds and are you, you know, as diversified as you think was probably the most Well-responded episodes, to people saying, holy crow, I mean, I didn't realize. You know how much risk I was taking. Right, because it can make you feel good. You can look at your statement and see you own 10 different mutual funds, but if you really pop the hood on what you own, you could own the same investments in every single one of those funds, not Realizing it, paying every one of those fund managers a fee, but have the feeling that you're doing well. So I think what you're trying to do is help people understand that there is risk even involved in what you're doing now. But you need to understand what is that level of risk and is it helping you serve a purpose? And what if there was a way to reduce the risk by buying higher quality investments. That isn't necessarily equated to just getting cheaper, but buying better quality investments, and I would say that most people you know when they.

Speaker 2: 32:35

It's hard to really understand when you're comparing to passive investing. When you hear people say, yeah, I'm a passive investor, I didn't lose as much as the market last year, it's like, well, what does it even mean? Right, if the market was down 15% and you lost 11%, you feel good because you didn't lose as much as the market. It's almost like the way people talk about it. It's like their, their portfolios got blown up and they lost 60%.

Speaker 2: 33:00

It's like when you're comparing the small Differentiations from what you could have lost, you know the market was down 15%, but I lost 11 or 12. You still lost a good chunk of money, right, but on the upside, is it the same type of feeling? Or are people just kind of coasting Every single year, gaining little bits by little bits and feeling good about that? We're not saying go out and buy startup companies and don't buy things that you don't invest in, but just understand that, like the rich, there's an ability to diversify your money. That may be very different from how you've been doing it. That could put you on a path that might Make this make more sense for you.

Speaker 3: 33:41

Well, I think I think the underlying message is is that what wealthy people are doing different than folks who are just looking at them saying I want to be like them is they either clearly understand what they're doing, what they're actually buying, where they hire people who clearly understand what they're buying. They never buy anything that they don't know what it is and they do not buy average. They do not go out there and say I hope I can be as good as everybody else. They go out there and they say you know what this is like a long-term event I talked to. I have a good friend who's who's into real estate and he he buys rental properties and he will not buy a rental property if you can't make 10% on average per year off the property. And it doesn't matter. He doesn't, he never stretches, doesn't matter what anybody says about the property, it doesn't matter if he has too much money or whatever. He sticks to how, he knows how to make money and all the guy does is make money. You know and the difference between him and so many other people's.

Speaker 3: 34:39

People don't understand that. They look at and say why can make $600 a month off the rent? Well, no, you can't. You have money that you have to sink back into property for upkeep on the property. You know you have your own time that you have to put into managing the property. You have to pay a manager like it's not sure income that's coming off, that you have property taxes. You know there's other things that that rent has to actually go to and the question is is are you making 3% on that? Are you making 10%? So wealthy people know where they put their principal and they make very specific decisions of why they do that, and or they go out and the higher people who they have the same expectation to do with that with their money.

Speaker 3: 35:13

Right, there is none of this. I'm helpless. We're defeated. You know, cry me a river because nobody could do any better. Because I've googled this term online and I got 54 reasons why I can't. You know 54 million reasons why I can't do it. They come in and they go. You know what. I've already done it in my own life. Now I'm gonna do that with my money because that's how I operate. That's the difference.

Speaker 2: 35:39

Partner, this was quite the series. What I mean, what I would say to you folks look, this is what Travis and I do every single day. We try to bring you education that can help you get the most from your money in life. But let's be honest, if you're out there and you're like guys, I am I doing what I should be doing, get in touch with us, you know. Send us an email, visit, ditch the suits, calm, reach out to Travis and myself. We'd love to get to know, you found out what's going on. It might be one conversation to push in the right direction.

Speaker 2: 36:05

I know that we've had an opportunity to talk to many of our listeners, that you know. We've been able to guide them in different ways. So, whatever's important to you, don't just realize you're not alone. If you need a second opinion, if you need a voice from somebody, travis and I just want to be a help in any way that we can. But we hope, as always at this series, as long as it was Pain to the total picture, taking a high-level concept and breaking it down in a way to say there might be a little bit of a different way of doing things. So, partner, as always, thank you for being you. Thanks for being on this show and sharing from your industry experience. Stay tuned for our next series, but, as always, don't forget, you can check out ditch the suits on NQR media on YouTube Watch along with us at NQR media. Also visit ditch suits. Calm and until next time, thanks for stopping by.