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A Book for Everyone

Published on February 27, 2024

Peter Mallouk
President & CEO
Jonathan Clements Headshot

Jonathan Clements
Director of Financial Education

Investing may seem complicated, but it doesn’t have to be. This month, Peter and Jonathan dive into several major themes featured in Peter’s latest book, Money, Simplified. From home bias to market optimism, this discussion offers key takeaways for novice and savvy investors alike. Plus, discover why tax diversification of your retirement portfolio may give you added flexibility down the road.

Hosted by Creative Planning Director of Financial Education, Jonathan Clements, and President, Peter Mallouk, this podcast takes a closer look into topics that affect investors. Included are in-depth discussions on financial planning issues, the economy and the markets. Plus, you won’t want to miss each of their monthly tips!

Purchase Peter Mallouk’s latest book referenced in the episode — Money, Simplified

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Jonathan Clements: This is Jonathan Clements, Director of Financial Education for Creative Planning. With me is Peter Mallouk, president of the firm, and we are Down the Middle. Today we’re going to talk about Peter’s new book, Money Simplified. Peter, this is, I believe, your fourth book. What makes it different from your earlier books, and what inspired you to write it?

Peter Mallouk: My other books are very traditional, hundreds of pages, graphs and charts with a lot of text, and I put a lot of research behind them and a lot of evidence. This one, I really wanted to make it extremely accessible, like for all the people that I personally know that just don’t love finance. I can tell you who hasn’t read most of my books, almost all of my family, right? So they’re just not that interested in all of that. But I wanted there to be something that, if you had 20 minutes and you went through this, you were going to know a lot more about finance, even advanced concepts, make it very simple and accessible, just a few sentences. Then, the evidence is presented in a really easy, accessible, colorful, visual way, and really trying to highlight the basics to the advanced.

Jonathan: Yeah. It really is. It’s a great looking book. It’s very handsome. Whoever produced it did a great job with the design. So one of the things recently is we just saw the Japanese stock market hit an all-time high for the first time in 34 years. That speaks to a theme in your new book about the dangers of home bias. Isn’t that a particular danger for US investors right now?

Peter: Home bias is very real. So if you look at the average investor, no matter where they are in the world, they tend to invest most of their assets in companies in their backyard. This is why Canadians, they’re over-invested in energy stocks and financials, because that’s almost their entire economy. You see this in Sweden and Japan and the United States. In the United States, you even see it broken down by region. People on the West coast invest more in tech companies. People in the northern states invest in more industrial, and southern more oil, and the northeast more financial.

So you wind up with these biases built into your portfolio, where just because of where you live, you happen to have an overemphasis to one specific or two specific industries. We saw in Japan, investors suffered. It took decades for the market to get back to even, and we’ve had a lost decade in the United States, where for an entire 10 years, 2000, 2010, the US earned zero while the rest of the world did well. We haven’t experienced that since then. We have short memories, so we look at the last 14 years and say, “Why invest anywhere else in the world?” And the reason is 2000 to2010 in the United States, or the lesson of one of the world’s greatest economies ever, Japan, taking decade after decade to get back to even. Spread the eggs out across a variety of baskets.

Jonathan: Another thing in your new book, you talk about the perils of looking too often at a portfolio, and actually cite some fascinating research. Why does following the markets in our portfolio closely tend to backfire?

Peter: It’s interesting, because with everything, we tend to feel like, “Hey, the more we spend on it, the better we’re going to get on it,” but investing is really unique. Investing, you start out, let’s say you’re just okay, you’re just beginning. So you go research quite a bit, you actually get worse. This is one of those areas where a little bit of knowledge makes you worse. Then, on the other end, a lot of knowledge you get better, and we see that with retail investors, traditional investors. There’s a lot of research that shows that when people go look at their account once a year or once a quarter, those people do better than those that look at their account every day.

The reason is, if you’re looking at your account every day, and one of the theories is if you’re looking at your account every day, you feel they need to take action. 30 days seems like forever. 100 days seems like forever, but we know with investing even a couple of years isn’t forever. You really have to ignore it, which is why the busy doctor, they get criticized all the time, “Bro, they’re not great investors.” Not true. They actually are too busy to mess it up. It’s the person that’s got the time to look at the account all the time that makes the mistakes.

Jonathan: Over the past four years, we’ve seen the stock market plunge, come roaring back, plunge again, and then rebound again. That sort of manic-depressive behavior is the reason many folks compare the stock market to a casino, but in your book, Peter, you say the analogy isn’t justified. Why isn’t it?

Peter: When you look at the stock market, the people feel like they’re betting. There’s winners, there’s losers. We hear all about winners and losers, but the reality is, if you invest in a diversified portfolio, historically, you’ve always won. You’re basically the house, so if I go to a casino, I play blackjack. The longer I play, the more likely I am to lose until it’s statistically certain I will lose. If I play long enough, it’s statistically certain I will lose, which is why if you go to a Vegas casino, you absolutely do amazing, you clean house, and you take away a ton of money, they don’t say, “Oh, gosh. Please, Jonathan, never come back.”

They’ll send you plane tickets, tickets to shows, dinner. They want you to come back, because the longer you play, the more likely you are to lose. It’s the opposite with investing. If you have a diversified portfolio over a long period of time, the longer you do that, the more likely you are to win. Over one year, the odds you’ll win are 75%, but over 3 it’s 93%. Over 10, it’s 98%. The longer you’re going, the more likely the odds move in your favor. It’s the exact opposite of how some people think about it.

Jonathan: So final question on your book, Peter. I mean one of the things that shines through and that I really liked is your optimism about both the world in general and about stocks in particular. What is that optimism based on?

Peter: I think it’s based on reality. And I think we get caught up in day-to-day narratives, where we start to think about what the news cycle is, whatever war, political party, or whatever thing we are all worked up about today. Many things influence the economy and therefore the markets, but if we really look at what drives markets over the long run it’s, are we innovating? Is there technological innovation? Are we advancing as a society, and do we have people to buy these products?

The answer to both of these things is yes. If we’re living in a world where we’ve got more advancement with technology than any point in history, and we’re in the middle of the AI revolution, they’re going to be writing about this, if the earth is still spinning, they’re going to be writing about this a thousand years from now. This is the period of time they’ll be talking about, and we’re going to see breakthroughs with technology and healthcare that were, I think, unimaginable before, and you couple that with a billion people coming out of poverty over the next decade, and you have a recipe for success. There are a lot of things that governments can do to mess this up, but the major, major factors that drive economies, they look better than ever.

Jonathan: That’s good news for all of us. So the final piece of good news, Peter, it’s time to hear your tip of the month. What have you got for us this month?

Peter: So one tip of the month is to go to Amazon and look up the book, Money Simplified, if you’re interested in learning more about this. But my actual tip of the month is everyone tends to take care of themselves and go, “Hey, I put off getting my estate plan done, so I’m going to go get it done,” and then they feel really good when they walk out of the room, but the reality is you also have adult kids sometimes or still have living adult parents. Make sure they have their estate plan too.

I’ve seen a lot of our clients, they go get their house in order, but they don’t have their parents’ house in order or they don’t have their kids who are over 18. They have a healthcare issue. You do not, by law, get to make healthcare decisions for them. You don’t get to move them from one doctor to another, to one care facility to another, or make life and death decisions. They need to have a healthcare power of attorney giving you the right to do that once they become adults. Make sure you’ve covered that for your kids, and if you’re fortunate enough to have parents still, your parents as well.

Jonathan: Peter, just a follow-up question on that, a personal curiosity. I’d heard that if you have a financial power of attorney or a healthcare power of attorney, that you should renew these every 10 years or so, that if it seems outdated, that may not be accepted. Is that the case?

Peter: That’s true. If you think about it from a practical sense, you walk in and a couple siblings are fighting about what to do with mom’s care, and the hospital looks at a power of attorney that’s 16 years old, they’re going to be reluctant to rely on that, so keeping them current, 10 years or less, is going to make it much more likely it’s accepted.

Jonathan: And so additional point on that, and I know we’re talking about healthcare powers of attorneys, but on financial powers of attorney, one thing I’ve learned of late is that financial firms don’t necessarily accept general financial powers of attorney. They may have their own form that they want you to use. I recently went through this with my mother to get her financial power of attorney through Vanguard, because the one that she had wouldn’t have been accepted. So before you think it’s all done and dusted, check with your financial firms to make sure they’ll accept that general power of attorney. So finally, Peter my tip of the month, when funding retirement accounts, think about tax diversification. If your employer offers both a tax-deductible 401K and a Roth 401(k), or you’re eligible for both a traditional and a Roth IRA, the best strategy may be to split your contributions between the two. Most of the time it’s hard to figure out which is the better choice, so why not diversify across both types of accounts and that’ll give you added flexibility down the road.

Peter: My favorite tip of the month in a long time.

Jonathan: I’ll take that compliment. All right, Peter. So that’s it for this month. This is Jonathan Clements, Director of Financial Education for Creative Planning. We’ve been talking to Peter Mallouk, president of the firm and author of Money, Simplified — and we are Down the Middle.

Disclosure: This show is designed to be informational in nature and does not constitute investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on this show, will be profitable or equal any historical performance levels.

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