PODCAST EPISODE 181: Should You Stop Investing in “The Market”? A conversation with Joe Riggio of Dimensional Fund Advisors

EPISODE SUMMARY

Have you ever felt like you couldn’t get out of your own way? Sometimes active managers get in the way of potential growth for your money. Joe Roggio from Dimensional Fund Advisors stops in to discuss why he goes with the mutual funds as opposed to ETF’s and breaks down the stats and analytics of what this all means.

WHAT WAS COVERED

  • 00:00 – Show Starts
  • 2:04 – Seeing Through The Financial Media
  • 4:14 – Why do advisors in the Dimensional Fund group pay to go to events?
  • 6:27 – Why does DFA use a mutual fund structure rather than ETF?
  • 16:30 – A story example from Joe Riggio
  • 18:52 – Commercial break
  • 19:51  – Back from commercial
  • 20:40 – How is DFA different from active managers?
  • 25:00 – Equity Funds outperforming their benchmarks
  • 25:28 – Past performance is not enough to predict future results
  • 29:00  – Monkey dart-throwing fund
  • 29:54 – The lost decade
  • 34:55 – Closing thoughts
  • 42:26 – Show ends, thank you for listening.

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MUSIC CREDITS

Contains a sample of “King” by Zayde Wølf courtesy of Lyric House.

Full Episode Transcription


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0:01

Welcome to your business, your wealth, where your host, Paul Adams and Corey Shepherd teach founders and entrepreneurs how to build wealth beyond their business balance sheets.


0:34

Hello, welcome to your business your wealth. My name is Paul Adams. I am the CEO and founder no longer the president of sound Financial Group. I’ve been fired from that role because of Corey Shepard. Corey. So glad as always that you could be with me. I’m not sure audience likes when I’m unsupervised. So glad you could be here. So now that I know, but I might fire you from a few other roles.


1:00

inside the organization, I gotta go down the list. Yeah. Great. I mean, I just just give me like one thing to get really good at, I’d be fine with that. And, and the other reason I’m kind of excited about today is the guests that you’ve been helping working on coordinating and arranging to come on with us. Joe regio of dimensional fund advisors. Joe, I’m so glad you could be here.


1:23

Now, thank you for having me. Gentlemen, you are welcome. And I think our audience is going to get a great deal out of what you’re going to share. But before we do, let me just kind of pose the question of the day if you will, which is should you be invested in the market?


1:40

Now we talk a lot about market investing. And this idea that equity returns are one of the Belle’s best wealth building vehicles in the marketplace easily accessible. nearly everybody can get into the market and you have the ability even with relatively low amounts of money, you can build an incredibly diverse


2:00

portfolio.


2:02

And that doesn’t mean you’re invested in, quote unquote, the market. Because the market is what we see on TV. The market is what we see when people talk about the market is up, the market is down. And you’re gonna notice they’re almost always pointing at an individual index. Or they may be pointing to the performance of some hot shot individual advisor that’s out there, whether they’re running a mutual fund or a hedge fund, and saying, here’s what I think is going to happen in the market so that they can trade ahead of it and try to get some additional gains for their mutual fund holders. And what Joe is going to talk to us a little bit about today is where we can see through some of that and see through some of the financial media so that you can get a portfolio that takes the best care of your concerns for the long run. So before we kick off, Joe, could you just share a little bit about you and your career so far, just kind of


3:00

Give people a little sense of who you are before Cory and I start digging in with a lot of questions. Yeah, absolutely. And thanks again for having me. My name is Joe regio. I’m a regional director at dimensional fund advisors, where I’ve been there for the better half of almost a decade. I first started at n large ri, a in Century City that introduced me to the ultra high net worth space in dealing with very complex financial situations for clients. I then transitioned to the dimensional restaurant office associate and then work my way up to become a regional director. And my main role at dimensional I focus on three areas. So it’s going to be investments, messaging and business strategy with firms like sound financial.


3:49

Right on and one thing that we talk a fair amount about inside of sound Financial Group is that when it comes to most mutual funds that are out there really marketing themselves to the end consumer


4:00

Or to the advisor dimensionals really different that way that they don’t necessarily go out and just knock on the doors or cold call a bunch of advisors. I’ve been to your events where it’s like, here’s an intro to dimensional funds. And there’s a bunch of advisors in the room not currently using dimensional. But the thing that’s always kind of astounded me is that everybody pays their way to go. They’re paying their own flights, their own hotel, all of that. And they still come to show up to here from dimensional whereas many of these other fun companies will come and bring a great deal of effort to bring people in to an event that they finance or pay for fly people out to. Maybe just to kick off because we talk about clients about that all the time. from your experience. Why is it advisors are who are in the dimensional funds platform, choose to go to events that are not paid for. together.


5:00

Go and learn.


5:02

It’s a unique situation in industry undoubtably. The thing that I do love about our business model is that we understand our way of viewing markets isn’t for everyone. Right? It tends to be those who have some sort of intellectual curiosity to understand how can we potentially take the best and greatest ideas from financial science and academia and implement that into real role portfolios, and that’s the expertise that dimensional brings. So a lot of advisors maybe I should generalize, but there are advisors out there that tend to invest their clients money in a more conventional magnet, conventional way. And that conventional way is trying to forecast where markets are going. Take individual stocks or time to market. Those are what we view as unnecessary aspects to have a successful and


6:00

mature. So instead of trying to forecast pick stocks time, the markets, what dimensional does that lean on the greatest ideas in academia and bring that to life for clients. So there’s a distinction the way that we view markets and how the majority of money is invested in this role, the few markets and what clients hear from the financial media about how the best way that they should


6:26

grow their wealth over time, is a very different perspective.


6:31

You know, Joe and I introduce clients to DFA, a lot of times I’m saying something like, well, they they’re the biggest mutual fund company you’ve never heard of, because because of how you just play differently than so much the industry and one of the questions I get a lot is, you know, clients who are into this style of investing are usually already familiar with ETFs and index investing. Could you could you open up the conversation by just telling us a


7:00

Little bit about why DFA picks a mutual fund structure rather than diving into that ETF world like a lot of firms have. Yeah, absolutely. I think it’s helpful to take a historical Look at this. And what I mean by that is if you go back into the 1950s or so there wasn’t enough computing power to provide individuals with an understanding of what’s the long term average rate of return for the US market. So that mean, you go back to 1602, when the Dutch East India Trading Company was the first stock that’s ever issued, right? So from then till about the 1950s, there’s no understanding of what’s the long term average rate of return for the stock market. So what academia and others helped provide was with the help of computing power, was to find out what is that average trade return? So you could think of that as an index, right? It’s the average rate of return for the US stock market, which is now roughly about 10%, which


8:00

So long way I, I hate to interrupt you, Joe. But I have got to say something is just imagine that literally before the 1940s or 50s,


8:10

you just found a stock and bought it,


8:14

hoping all would go well, because you didn’t have any data on long term asset performance Intel, the 40s 50s 60s is some of that was able to start coming out. I mean, that that is like the most elusive obvious thing that most people miss. So I hated interrupt you there, but I just had to put a pin in that because I think we could probably do a whole episode of how people invested 19, early 1900s.


8:43

And that’s the way that most investors would access the market, right? they’d find a broker, the broker would pick stocks, they charge a high commission for doing this service. And then the investor was left with a small handful of stocks having no clue whether or not the return that they had from their basket of stocks.


9:00

was better or worse than just the average return of the entire market.


9:05

So as I was saying, with the advent of computing power, we’re able to find out what the long term rate of return was. And lo and behold, we find that the average rate of return was doing substantially better than all those brokers out there who are charging lots of money for only picking a handful of stocks. So that was almost the genesis of the index fund world. So then you fast forward to where we are today and ETFs have exploded. And for the everyday investor, that is fantastic. They have an opportunity now to get a globally diversified low cost portfolio, that, uh, that actually outperforms the vast majority of active managers and that is a huge benefit to them. So I would never say anything bad about ETFs I just know that what we do dimensional is a step forward.


10:00

You can think of day one as being stock pickers day two as being index funds. And then now day three is a dimensional approach, where we vote, we look like an index fund, we’re very diversified. We have very low costs, we have very low turnover, a very tax efficient vehicles. But where do we differ from ETFs is that we have the ability day in and day out to keep the focus on an asset class, and make sure that we’re delivering that asset class day in and day out for the advisors. So when they build a portfolio for their clients, they have the tools necessary to meet their clients as long term objectives. Well, and now you touched on indexing there a little bit, and ETFs and there’s this, this idea that some people say well, I just buy the index because it gives me a pure allocation to say small cap value, or gives me a pure allocation to, you know, some small cap international


11:00

And one thing that I’ve noticed is that there there are some problems, if you will, inside of both indexes and ETFs. One is reconstitution cost. And the other being that ETFs have to give this daily reporting of all of their underlying securities, which can damage their capacity to really trade and be effective in the market. Can you talk a little bit about the reconstitution costs in that, that, like, it’s kind of funny, it’s actually a problem. That that transparency?


11:33

Yeah, absolutely. So when we think about an index fund, what is what’s the index funds managers goal, their goal is zero tracking error. What I mean by that is that you have an organization like the SMP right, Standard and Poor’s. They send out a list to the all the index managers who are tracking the s&p 500. So they say, game here are the 500 stocks that you need to hold


12:00

And the precise weights you need to hold them at to match the index. Now the fund managers say okay, I know exactly day in day out what stocks I need to hold and the precise weights. So they have very rigid mandate in order to meet their goal of zero tracking error, or dimensional we provide flexibility to an asset class. We are not beholden to any index manager telling us excuse me any index company telling us what stocks we have to hold day in and day out. What dimensional does is let’s look at the we’ll design the asset class ourselves. And then we make sure that we have lots of other filters in place meaning will will screen for momentum will screen for companies that actually have lower expected returns that asset class, but the big picture here is that we’re able to use flexibility and substitutability between stocks in order to actively capture an asset class.


13:00

where an index fund has a much more mechanical, rigid way of allocating their dollars.


13:08

Well, and when they have to do that most of these indexes, right, they’ll they’ll release here’s what we’re changing the index some days prior before it’s actually supposed to change, and therefore can increase the cost of putting those positions back in the portfolio.


13:24

So can you talk a little bit about how that reconstitution cost creates that almost like an unseen cost to many of the index investors? Yeah, absolutely. So what happens is, the index has a reconstitution date, let’s hypothetically say, at the end of June, that’s when they’re going to reconstitute or refresh that list of stocks. All of the managers that are following them need a heads up. So generally speaking, the Index Provider says, Okay, we’ll give you 30 days notice what the new list is going to be and the precise weights. Well, what do you think happens during that 30 day


14:00

window, right? every doctor in the country buys those stocks at a time because they know there’s gonna be an open market for him in 30 days. Because there’s Yeah, live index managers trying to achieve no tracking error. All right. Yeah. Right. And they know the precise day and time they need to have those weights. And so what you see is that the volume slowly starts to creep up until reconstitution date. And when it hits reconstitution date, the volume of trading in those stocks exponentially gets larger. So what dimensional does is says let’s avoid a price pressure. And it’s avoid those kind of hidden costs of having to be in specific names at specific times. So that’s one. One aspect about index funds that can have can be a little bit detrimental because you’re increasing the cost during those times. The other thing that’s really important to remember is that with any asset class, you take


15:00

The s&p 500. It’s a very small subset of stocks in that list that actually drives the overall performance. So if you think about last year, the s&p was up about 30 to 33%. Not every stock returned to 32 or 33%. Right, there was a very dispersed range of returns. So if you’re not there capturing the high fliers, you’re not going to get that average rate of return. So that part is very important to us at dimensional because with an index fund, they are only looking at a refresh list once maybe twice a year. And dimensional we’re doing it day in and day out. And an example of that is in 2006, when President Trump was elected, going into that election, there was a lot of belief that Hillary Clinton was going to win as soon as President Trump won, and I’m not making any political statements here whatsoever. But when he won, what we saw was from the time of the election,


16:00

Results until the end of the year, the small cap stocks in United States exponentially shot the lights out. And going into the election. They’re basically neck and neck with large companies. And by the end of the year, you saw small caps outperformed large by more than 6% over just that four or five week period. And so if you’re not there to capture that excess return, you’re gonna be missing out on a lot, because if you’re an index, they, they refresh their list back in June. So that was, you know, six months ago, where you’re not gonna be able to capture all of those returns, that happened very quickly. Now, you you have a pretty good little analogy for that drift that occurs that people have the small cap, some become large caps or medium caps like the they get acquired by somebody else. And because that index list stays the same people kind of float out of the range that they’re supposed to be in


17:00

But you have like a simple story that kind of explains that you shared with Cory and I earlier. Yeah. So if you think about a if you’re gonna take a flight, so I live in Los Angeles, and I’m in our Santa Monica office. And if I go to LA, and I’m going to take a trip to New York, would I want my


17:19

pilot to be looking at the weather report in Los Angeles today, and then not looking at the other port for the rest of the duration until he lands, he or she lands in New York? Probably not. Right, I want up to date information during that entire journey. And that’s very similar to an index fund that says, Here are the holdings of this asset class as of the end of June. And now we’re going to wait six months until we refresh what that asset class looks like. to us. We think that that are that we think that there’s a better way to go about capturing that asset class and that’s why we do not be hold ourselves to an list Index Provider gifts. We say we should be able to design


18:00

In our own universe, and then seeing the focus on those groups, that group of stocks day in and day out.


18:08

That is, that’s one of my favorite distinctions about dimensional that, you know, a pure passive portfolios drifting all the time, it’s not active management, but it’s actively staying inside of a prudent structure. And I really, I really like that. So we’re gonna, this has been a lot of great material. So far, a lot of great analogies and info for our our listeners, we’re going to take a quick commercial break and a message from sound Financial Group. And when we come back, we’re going to dig into some some more results of the computing power that Joe mentioned and what we’ve been able to figure out and notice about what’s happened over the market for the long term. So stay with us.


18:53

Paul Adams here at sound Financial Group. Are you curious what you can accomplish with our help? You’re hearing joy


19:00

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19:51

Welcome back to your business, your wealth. We’re here with our guest Joe regio from dimensional fund advisors. So, Joe before the break, we were talking


20:00

A little bit about pre 1950s the style of investing people would do is, you know, buy whatever stocks their broker recommended and hope that that small, small pile worked well for them because they had some info that no one else had. And, and now, you know, people even though we have computer power at work for us, it’s that pre 1950s style still lives on for a lot of people. So we’ve got active investing and active stock picking, we’ve got passive indexing and dimensionals. Neither of those, it’s something different. So can you talk about that? How dimensional is different than both an active and a passive indexing strategy? Yeah. So what dimensional and again is probably self serving since I do work at the mesh will say this, but I retake the best of both worlds. We are our goal. unquestionably is our performance. We are trying to beat benchmarks on a daily basis.


21:00

What’s and that’s very similar to active management. And we’re very similar to indexing because our portfolios hold a very large number of companies. And we try me, we try and control what we can control, which is keeping our costs low, making sure they’re as tax efficient as possible, while still aiming to have that goal about performance. So you’re blending the two in a sense. Now, active managers, which is how a majority of monies invest around the world have a very difficult time outperforming benchmarks or the average return of the market. So you have to ask yourself, Well, why is that? Why do active managers have such a difficult time? And it really comes down to this notion that capital markets and the securities within those markets reflect available information almost instantaneously. And an example of that is looking at march of 2020. Right right when the COVID pandemic was really catching a lot of legs was


22:00

You saw was a very steep drop in stock prices. And why it is because there was so much more uncertainty about the future and prices and any market, any public market are for looking, meaning that the price has had such a steep drop, because the expectation is that there are going to be lower revenue for these companies lower profits, so the stock prices, stock prices drop. If you’re an active manager, I would put good money on the fact that you didn’t have a COVID pandemic gameplan in your forecast, no COVID screen built it okay.


22:43

So it’s very difficult for and what this boils down to is the difficulty active managers have in forecasting what’s going to happen next.


22:52

Uncertainty is the only certainty if anyone can tell you what the outcome is going to be tomorrow, a week from now, a year.


23:00

From now, that’s a fallacy. So active managers, although there are some that can do it to distinguish whether or not they were lucky or they’re skillful is a whole nother conversation we could say for another day. So bottom line is that active managers have a very difficult time outperforming markets. index funds, again give you the average rate of an asset class as entire market or of the global stock market. And on average, they do better than a vast majority of active managers and incense. That’s exactly what you can see on the slide.


23:33

So of course, if you like I’ve been described,


23:37

please do it for because there’s folks watching on video, but then there’s some folks driving around in their car listening on the podcast. Give him a sense of what we’re looking at here. Okay, fantastic. Well, what we have here is a slide from our annual mutual fund Lance. And what we do is take at the end of every year, we’ll look at all the actively traded mutual funds in the United States and


24:00

One of the key aspects when you’re evaluating performance is to make sure that you are you have a survivorship bias free data set. And what I mean by that is that you can’t only look at those funds that started 10 1520 years ago, and and look at the results of those that are still in existence today need to account for those that have closed up shop along the way, even a true sense of, of how well these stock or how well these mutual funds have performed over time.


24:31

And so what we see here is a red eye and I’m with you, I’m looking at this is like, if I waited, I mean, for those of you listening, well, I’ll just kind of read off these 10 year numbers, but it’s like 3000 funds assessed over 10 years.


24:48

59% we’re still open. Let me just say that again. Five 9%. We’re still open at the end of a decade. Just 10 years early, better than a coin flip. Yeah.


25:00

And at the end of that only 21% beat their benchmarks. So for all of you listening, put that in perspective, only 21% of all the managers you could have selected 10 years ago, would have beat the benchmark. So if you had a portfolio with 10 different funds to have them


25:23

outperform their benchmark.


25:26

And Joe, how well could we predict which manager would have been the ones that outperformed?


25:34

Not very well, that’s the short answer. Well, and I think you gave us some data on that. I’m just gonna see if I can click through to the next one.


25:44

Mm hmm. kind of walk us through what, what this is sharing with us. And for those of you watching, we’re looking at a graph or listening those we’re looking at a graphic that is only assessing which asset managers for the previous five years performed


26:00

The top 25%


26:03

of all the other managers are being compared to against their indexes. So Joel, have you taken from there?


26:11

Yes. So thank you, Paul, what we saw on the previous slide was looking at a very low number of managers were able to survive a 10 year period, and then actually outperform right, is that roughly that 20%? So then some investors will say, Well, why don’t I just focus on the winners, those that have the impressive track record, which that does make sense if I’m hiring an employee, I want somebody who’s successful before Cory doesn’t let me hire people. If I think I can turn chicken crap into chicken salad. That’s why Cory is in the organization to stop me from having this grand vision of how well people are going to do. But you would hire people that way. You might hire a vendor that way for your organization. But why doesn’t that apply to these managers that performed well in the past?


26:58

Yeah, that’s the disconnect from


27:00

The you know, our everyday life and compared to the financial markets, right, you would look for a doctor or a mechanic, a florists that has an impressive track record has good reviews. So that’s how a lot of individuals look at their investments. They say, well, let’s look at the Morningstar rankings. If it has five stars, it must be a great fun, or what you see on this slide is let’s give a manager five years and if they could demonstrate over a five year timeframe, that they are the top 25% of their category. I think that’s a pretty good indication that they should continue that outperformance that was so reasonable and common sense. But it’s wrong.


27:46

I laugh but it’s a sad it’s a sad reality.


27:49

You look at that top 25% of performers. So after five years, let’s just see how well they do one year after that great track record. So we’re not even


28:00

beating them up or not saying how’d you do over the next five or 10 years? This is just one year after they had five years of success.


28:08

Correct. And we’ve been doing this study for well over a decade now. And what we see is that those that were in the top 25% over the five year period, you move forward one year, and only 25% of those remain in that top quintile. So very dismal results.


28:28

Wow, yeah, that it’s like, almost like it’s random. They sure looks that way. If I only select the top 25% and then assess them over the next year, and on average, only 25% of them outperform on average. It’s like it almost goes back to the thing that we learned in econ 101, which is the monkey throwing the darts can outperform any active managers


29:00

That’s why I want to roll out to our audience, our new monkey Dart throwing fund, we are going to just employ one really sharp chimpanzee. He doesn’t know sign language.


29:12

And but the good news is he doesn’t bite. And he knows how to throw darts. So that’s gonna be our new strategy. Thank you all so much for being just


29:20

so, so now we’ve we’ve only selected the active managers. So now I want to take and transition us back to this idea of indexing. And the idea being that I’m going to own quote, unquote, the market. My emotions may be driven based upon what I see on the news or what I read in the Financial Times of some sort. What what are we seeing, you know, I see this slide that showing like a 10 year span of the student standards and Poor’s 500. And people talk about the last decade is that what we’re seeing here in the standard Poor’s 500 Yes, this is the last decade which many referred to as the period from January


30:00

2000 until the December 2009 timeframe, and over that 10 year timeframe, if you actually gave your capital to the largest, most mighty companies in the United States that are represented in the s&p 500, you actually would have lost money during that 10 year timeframe. And what many don’t know is that this actually can be expanded out to 2012. So then you go from 2000 to 2012 13 year timeframe, or the Mighty s&p 500 Trail one month t bills, which is arguably the safest investment in the world. So that’s a 13 year timeframe where if I’m providing my capital to these large companies, I actually would have been better off and a much safer, higher quality investment than these huge companies.


30:54

Despite and I love this series, this these next three oh, well, we’re you know,


31:00

Looking at how I think a lot of investors use short term data for long term planning. And that’s a that’s a fallacy, right? Right there. And so this, it’s one of those.


31:14

Like Eric said, my kid is always willing to talk in large crowds, so therefore, they’re going to be a public speaker. Like I just take this short term data of a four year old.


31:25

Get him on the fast track on stage. That’s true. So joke, do you walk us through these the narrative of these next slides, the 2000s, the 2010s, and then that whole 20 year period and the range of results we’ve seen from the s&p. Thanks, Cory. So what we’re seeing on this slide now is saying, okay, we’ve gone past the first decade of the 2000s. Now let’s look at 2010 to 2019. And how will have these asset classes performed? What we see is that the large US corporations


32:00

As represented by the s&p 500 index did very well, when you look at it compared to these other asset classes actually did the best during that timeframe. So that’s probably a lot of what your listeners have been hearing over the last few years is that why would I want to be in anything but the s&p 500? is big, well known companies. It’s all the names that we use on a daily basis. It’s the Netflix Google’s Facebook’s of the world. Why would I want to be an investor? Anything else? Well, if you expand this timeframe to the next slide, what you see is that even though the s&p 500 did the best on a relative basis during that 2010 to 2019 timeframe, if you look at the full period, two decades in combination from 2000 to 2019, what we see is even though the s&p 500 stocks did the best that second half a second decade, over the full time period, they still provide the least positive returns compared to the other asset classes.


33:00

So it’s really good for investors take a step back and look at the full timeframe and realize that you know what diversification is my friend, I need to utilize it be globally exposed to reap rewards no matter where they occur in order for me to increase my financial well being and have a more successful investment journey.


33:22

And you know, the story that I see here, even bigger behind these three slides, is that, you know, Paul, if you can go back to the earliest, the earliest time period, the biggest doubt the biggest negative pressure on the SNP during this 2000 to 2009 happened towards the end of this period. We all know that 2008 was the biggest drop, so people were still coming into the SNP probably earlier in the decade.


33:53

And so they’re both for the down and then in the next 10 years that we had the


34:00

Best Performance, they were slowly coming back in. So they probably didn’t even capture all of that, you know, upswing performance. So when we look at that whole 20 year period, even though the s&p itself did 6.1, the average investor probably didn’t even get that much because of the times that they were coming in and out over that time period. So it’s like a, it’s like a double negative because they’re, they’re staying concentrated and timing at the same time. So they’re coming in on the front end of the downturn and the tail end of the upswing. Whoa, say that again. I know. Right. That was great. The front end, they’re coming in at the front end of the downturn, and the tail end of the upswing.


34:46

Yeah. Well, and Joe, you know, we kind of kicked off this episode with the question. That’s kind of where I think would be a good place to wrap today is that perhaps you shouldn’t be invested in quote unquote, the market and me


35:00

using that term the market to be what they’re constantly talking about on TV, but they’re constantly talking about in the news, or on the articles you read online. And that it’s the market, which usually ends up as an index that as we talked about earlier, drifts throughout the year, and it gets reset. And we lose some efficiency in that reset coupled with the fact that we’re not rebalancing to any other asset classes. We show our clients often that they’ll say, well, but the s&p 500 was great or flat or whatever. The thing is that there have been, I would go as far as say, indoctrinated into thinking that your investment portfolio performance is the same as what you see on the news.


35:44

Instead of that rebalancing that occurs over time where you see that negative s&p 500 performance, but if you just had a 70% stock 30% bond portfolio that rebalanced every year, you actually get tremendous performance over that same period of


36:02

My question to you is, why do you think? And this? I know this is just an opinion, but just to trigger some thinking for people? Why is it you think that people are so attracted to tracking what it is that they see in the news? Or tracking what they see, you know, in their financial times or in the articles or whatever the is out in the Zeitgeist in the common narratives in society?


36:29

Why is it people are so attracted to that, and it’s difficult for them to both build, rebalance and be patient with an academically allocated globally diversified portfolio.


36:44

I think it’s, I think it’s most alluring to investors because they can reap really big rewards if they’re correct. And it’s a simple way for people. There. A lot of times, individuals look for an


37:00

easy way to achieve something. And they think that if they listen to CNBC or any financial media for that matter, that these experts will give them the insight that they need to get rich quick. And all of us that have been studying finance, understanding the inner workings of markets know that there’s no get rich scheme get rich quick scheme with investing, you need to focus on your fundamental principles as an investor to increase the odds of a successful journey. It doesn’t guarantee anything, but what Sal financial does, along with other really good advisors is they design a portfolio for the client that can increase the odds of them having a successful journey outperforming benchmarks and meeting their financial goals. Those who don’t have a financial advisor, end up trading at the worst possible times. It’s very similar to what we’ve seen recently with the Coronavirus. You see a sharp decline in prices, individuals


38:00

get the feeling that they can’t stomach it anymore, they have to get out. And what ends up happening is they end up selling at the lows and waiting for a green flag for when they should get back in the markets. And we will all that leads them to doing is selling low and buying high, which is the opposite of what you need to do to grow your wealth prudently over time.


38:22

It strikes me as we’re sitting here talking, I don’t know why. I mean, I’ve thought of this before, but it hits me in a new way. In principle, no different than why people buy lottery tickets, there’s almost no chance that they will win. But the potential reward they see is so high that they can’t help but try. I think the big difference is that one lottery ticket every now and then is five to I don’t even it’s like, you know, a gallon of milk. I don’t really know what it costs. I don’t buy it myself. Whatever that cost is very low compared to playing that lottery game with your life’s assets and your life’s work. It’s a variable


39:00

risk reward proposition. Joe, thank you so much for for coming on. This has been an amazing treat. We know that you all are super busy over at dimensional and we are very grateful for you taking the time to spend with us, Paul, any other any final thoughts? Yeah, just for all of our listeners, here’s what I’d like everybody just be able to take away from Joe today to really focus on. One is that there is a bunch of financial noise. You know, as we record this, we’re in the midst of lockdowns and shelter in place that are probably easing by the time you guys listen to this, that there’s all kinds of prevalent conversation around the performance of a particular index, or some commodity like oil or gold or whatever.


39:45

And what jokes communicating to us today is that the game is not how do I make a good bet today to place that bet on the table to hope that it hits my number and I come out with a significant amount of money.


40:00

That is by definition, speculation and gambling. But if what you can do instead is take a disciplined approach to be able to achieve a little bit better return. Not a lot when Joe talks about outperformance not talking about crushing the market, we’re talking about getting enough little extra performance, to be able to pay for having good coaching like our team. And I want to encourage anybody out there listening, that if you’re in the position right now, and we’re going to extend this through the end of COVID, that while we do have our full wealth design, build process and, and a way that we advise people on all areas of things financial to help them be more efficient at meeting what their aims are for the future. We also periodically offer a portfolio review $500 and it’s meant to be able to do the review and give you asset allocation. You could go implement on your own or you could explore implementing that with us. We are waiving any cost throughout the end of this


41:00

COVID crisis to help people make sure their asset allocation, even if it’s in your 401k, or money, we will never manage, we will give you a portfolio allocation wherever your investments are now, so that you have the greatest likelihood of being able to get back what the market has gone down so that you don’t panic or freak out and go to cash and Miss, what will one day be a resurgence of this market. And thereby, you actually locked in your losses if there’s anything we can do. To assist you in being a better investor. We want to come alongside you especially in this time, so that you get the opportunity to have the future that you and your family want. And as always, from myself, from Corey from Jordan, our video engineer from Joe ratio from dimensional funds and from all of our staff. We hope that this has been a contribution to you being able to design and build a good life.


Transcribed by https://otter.ai


Transcribed by https://otter.ai


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