Friday Querisode

SPEAKER_02 0:05

Welcome to a really great financial future. Tom and Don are talking real money.

Podcast Introduction

SPEAKER_01 0:12

Well, it's the best day of the week, right? It's Friday. Hi, everybody. I'm Don McDonald. This is Talking Real Money, the podcast. And look, it's Tom calling. All right, I got rid of him. Literally, he calls like I'm seconds into recording, and he calls. It looks like we might get a really cool interview. Really cool interview. This is going to be really fun. We don't do very many interviews, but this one is worth doing. I'm not going to tell you anything more about it than keep listening because if we get this interview, you're, I'm going to love it. I'm going to love it. And I don't love doing interviews. This one's going to be really fun. And I think many of you will love it, with the exception of like, I don't know, a couple of you. We might get another bad review from those two. Anyway, so um welcome to the Friday edition of Talking Real Money. And if you're new to the uh to the area, you'll know that the Friday podcast means questions from you and answers from me. That's how we do it. And how do you send those questions you ask? Well, it's way too easy. All you have to do is go to talkingrealmoney.com and then click on the ask a question, and then in the lower left-hand corner is a little microphone button. You click on that and you speak into your mic on your technological device, whatever that might be. That's it. That's the whole thing. Just go to talkingrealmoney.com, click ask a question, and then speak it. You must speak it to put it on the Friday podcast. If you type it, we don't know where it goes for sure. We just know it goes towards Tom's goal of deforestation. Now, without further ado, doot doo-doo, let's go to the first um, it's not caller, it's spoken question. I gotta come up with a shorter word for that.

Career Change to Financial Services

SPEAKER_00 2:02

Hey, Tom and Don. I was pulling to get your thoughts on potentially making a career move and switching from IT consulting into the financial services industry. I've always had a passion for personal finance and have always enjoyed talking details with family and friends about retirement planning, investments, and just general finance. I've been in the IT consulting and professional services world for the past 13 or so years, but I'm starting to get tired of that. Uh, and I'm thinking about making a switch, potentially starting with taking the SIE as kind of a dip my toe in the water and see if it's something that I actually want to pursue. Could you give me any advice on some of the things to think about as I go through this process of looking into making a career change? Thanks, guys.

Enhanced Direct Indexing Explained

SPEAKER_01 2:57

This question comes up a lot more than you'd think. It really does. A lot of people think this is their their future career, and it might be for some, but I'm gonna give you the often painful truth. It's not necessarily an industry for people who are data oriented. That would be more of a CFA, a chartered financial analyst. Being an investment advice provider, like a certified financial planner, while you gotta know your stuff, it's more about your people skills. And it's with 99% of the firms out there, when you start, it's about being a really great salesperson. So I would not even think about it unless I loved sales. If you're not good at sales, you're likely to fail. And the SEI course, the securities, I mean the SIE course, the securities industry uh exam, that's not where you start. That's a that's a test from FINRA. And that's really the kind of thing that would put you in the brokerage industry, which is definitely a commissioned sales job. It is. Trust me, I was one. And let me just tell you a little story before you consider this. Uh it's personal, and but it's a good one. Back in uh 1983, I was uh a very experienced salesperson. I had been a uh parts clerk at Sears Roebuck and Company at their service center, and I, you know, sold parts and service, worked the counter. Then I helped a guy who worked for a car dealer, and he said, Ooh, you're good with people. I need you to be a service advisor for my Volkswagen Subaru dealership. So I changed course and went off to uh sell car service on a commission. Then I had the opportunity to go to work for JCPenney selling electronics on a commission, and I was good. I was good. I was good at all those. I was a good salesperson. I had no experience in finance, and I hated math. Hated it. Hated it. However, one day there was an advertisement in the local paper for people to work for a company called Dean Whitter Reynolds, now Dean Whitter, a member of the Sears Financial Network, to fill positions at the new Sears Financial Centers in the Sears stores. They chose fifteen people, including the most unlikely candidate of all, a guy named Don McDonald. As a matter of fact, the manager of the office said, Damn it, I have to hire you. He didn't want to. He didn't think I was qualified. I mean, we had a PhD in our class of 15 who went off to training. Eighteen months later, only one person remained in that initial from that initial training class. Now, other ones had come in along the way to replace them. There was only one guy out of that 15 who ended up with a window office. That was not the numbers guys. All of them failed. It's not a numbers business. I know there's planning, but let me tell you, all of that stuff, most of that stuff, that's done by computers. The real key to being a successful financial advice provider is your interpersonal skills. Now, if that's your strength in the world, then you have a chance. And if that's your strength and you want to get ready to be in the business, the thing you're going to need first is a Series 65 license. So take a Series 65 crash course and uh go take your Series 65. That's from the SEC. If you have that, then you might get hired. Um, but remember, they're going to be looking for people who can open new accounts and bring in new clients, not who are great planners. That's the business. That's the way it works. Thanks for your question. I know I went a bit long on that answer, but I thought it warranted it. Now here's our next one.

SPEAKER_03 7:14

Hi. I have a question regarding enhanced direct indexing. Um I'm familiar with the direct indexing where you buy individual stocks that will mirror the SP 500 to hopefully harvest losses to offset gains elsewhere. There is something called enhanced direct indexing that I'm not entirely familiar with, but seems like you can short positions to harvest losses during both rising and falling markets. I was wondering if you can talk about enhanced direct investing a little bit more and to talk about the potential pros and cons of doing this type of investing. I appreciate any thoughts that you may have regarding this topic. Thank you.

Avantis ETFs and Active Investing

SPEAKER_01 8:17

I hate it. I hate the idea. I think it's it just goes to my general belief that Wall Street financial firms, we just call them Wall Street, that they go to extreme lengths to make investing complex so they make themselves valuable. Now, this is probably something you've heard about recently from a company called AQR, a company that we once looked at working with that just is making me angry at every turn because they're they're they're really muddying the investing water, and I think they're doing it because they love their ridiculously high fees. There are others doing it. I just hate that term. There's direct indexing, and then there's direct indexing where you sell, tax loss sell sometimes, and then there's this, which is an active strategy that is really expensive, not worth it for I I don't I I can't even think of anybody for whom it's worth doing. I can't think of anybody. Uh, unless your portfolio is gigantically large, you shouldn't be looking at direct indexing anyway. There's no need for it. Do do your own enhanced indexing by overweighting small caps in value and some international. These things are so dangerous. This is actually something we were going to talk about on a future program. These things are so dangerous potentially that Charles Schwab has introduced new limits on clients looking to do this, this long short, this very same long short strategy being proposed and pioneered by AQR. A few months ago, Fidelity stopped opening new accounts for these strategies because they believe that the risks are high. You've got, if it's if you're, and I don't want to get really into the weeds. Um, but if you do one of these strategies, they're typically like 130% long, which means you borrow money to buy stock, and then short 30%. So that's this huge exposure. It feels like it can be managed, but the market surprises us and has over and over and over again since the beginning of time. I mean, it sounds great. We generate losses to offset your taxes, you're making free money. These strategies were originally for institutions and high net worth. They're not for people like us who have hundreds of thousands or maybe a couple of million that we've saved and scrimped and saved for all our lives. It is potentially dangerous, and Schwab and Fidelity would not be restricting it if they thought so too, because they're just leaving money on the table for themselves, but they don't want the headaches that could come from it, and you don't want those either. Run away. Do not even, do not even think about these. Thanks for calling. And thanks for the question. It it was going to be a future topic. We'll still do it. Thanks so much. We appreciate that. Let's go to our next question. Here it is. Hi, Tom and Don.

SPEAKER_04 11:39

This is Dave from Colorado. I had a quick question about the newer ETFs by Avantis. One is called AVTM. Uh, what it is is it's Avantis Total Market ETF. When you look inside, it looks like it's almost a direct indexing type product, as well as they throw different ETF um parts in of their own inside of that. And so it looks like more of a beyond passive indexing, is what it describes in their press release. So as these companies have more active investing elements to them, my concern is you really have to know what you're doing, or you know who to hire and know what they're doing in order to get your investment objectives completed and done correctly. Thank you.

Diversification and Stock Selection

SPEAKER_01 12:45

Aaron Powell I think this is Avantis's attempt to, again, try to find little niche markets to play in. Uh it's it's not as crazy as AQR's moves, but it's crazy enough. It's uh it's an unnecessary fund. It's a it's a fund filling a need that very few of us have. We don't need this. Plus, it's a really large cap fund. I mean, it is weighted heavily towards the biggest companies. That's what you see in those individual stocks. You see, a lot of that is the SP 500. So uh again, I think it's a little gimmicky. I find it totally unnecessary. I think you can do an AVGE and have, I know you can do an AVGE and have much better diversification. This is really in the grand scheme of things, unnecessary for somewhere around 99.9%, maybe even nine nine percent of investors. What's again, what's the problem it's solving? There really isn't one. It's a it's a niche thing. Ignore it, ignore it. There's just too much noise out there. Gosh, we've got to ignore the noise. DFA says it in their in their little documentary. Tune out the noise. It's noisy because these companies are trying to sell things. They are they are in business to make money. And if they can come up with a product that's gonna pick up a few extra bucks for them, they're gonna bring it out, some of them. Some won't, but most will. I'd skip it. Totally and utterly skip it. And let's see. I think we have two more left. Do we? Yeah, we do. Two more. Here's the next one. Domin.

SPEAKER_06 14:27

This is Raymond from Royalton. I'm circling back to your recommendation of Tune Out the Noise, the DFA documentary. And I'm 16 minutes, 30 seconds in, give or take. And they are showing a chart from Harry Markowitz that seems to indicate that diversifiable risk requires no more than forty-four individual stocks. You often talk about VT and the 8,000 stocks in that uh security. I'm just wondering if you could look at this chart and let me know if there's anything about that 44 number that is magical. Pause here for the second part. And I think it is I'm gonna say Professor Bessenbinder whose work you have talked about that talks about the lion's share of all market returns are attributable to four percent of stocks. I can't remember the exact number, but it's a pretty low amount. So I'm seeing in the documentary this forty-four stocks, diversifiable risk, thinking about VT, overthinking maybe, yeah, uh being 8,000 stocks, and wondering why um why this is the case. Like what's the difference between forty-four and eight thousand in this case? Concentration improves returns if you pick the right four percent.

Managing Your Own Retirement Portfolio

SPEAKER_01 16:27

Oh! You just you just broke the code right there at the end. What did you say? If you pick the right stocks, and here's where listening to snippets and reading headlines gets us in trouble. We have these big brains, but sometimes, well, most of the time, we don't want to dig into the data to try to figure out how all this stuff was arrived at. Bessenbinder's conclusion is that you cannot possibly pick those best 4% in any given year. You cannot do it. Therefore, you must own them all to get the benefit of those 4%. Harry Markowitz came up with the 44 number, just playing with math, because he found that 44 stocks, the right 44 stocks at any given time, were enough to diversify against a company going bankrupt. That's all. That's all he's talking about. It is that narrow. There's no magic to it. He's just talking about company-specific risk, where you could lose all your money if a company fails. One stock, lots of risk. 44, not much. 8,500, non-existent. You don't feel it at all. If you just look at those facts, then you think, well, okay, then I only need 44 stocks, or I only need 4% of the market. No, no, no, no, no, no. Both men. Markowitz is no longer with us, but both men would argue. You can't do it. It's just a number. It's a mathematical exercise designed to prove the point that you better own the whole market because you'll never know which companies are going to be the best ones in any given period. Ever. You will not know it. Okay, I shouldn't say ever. You might, but you just got lucky you didn't get smart. You can't be that smart. So that's why. It's just it was just a numbers exercise. It's a it's what economists do. But we got to quit thinking so much about this stuff and realize that it m owning a diversified portfolio, you don't even have to think about it that much. It just makes sense. If you can't predict the future, then what's your other option? Own the market. That's it. You can vary it a little, but you can't focus. It doesn't work. Oh, and it's funny. I I did not know. I I I don't take these questions until I put them into the podcast and then I answer them. I had no idea we were gonna get this question following the last comment I made before this question about tuning out the noise. So that was just a coincidence, but a good one. We just got lucky. Get it? Oh, now we're down to our last question, which means we're gonna need you to ask some. How do you do that? You go to talkingrealmoney.com and then click the button that says ask a question, and then click the button in the lower left-hand corner that looks like a microphone, and then record your question, and it will be on a future Friday QA podcast like this.

SPEAKER_05 19:51

I would like to manage my own portfolio in retirement. I have two questions. Can you tell me a good source for providing step-by-step instructions on setting up a bucket strategy portfolio and then managing the withdrawals? And what is the best tool for monitoring all investments on one platform when I have accounts with several different brokerage firms? Is it safe to give monitoring services breed only access to my accounts? Thank you for all your great advice over the years.

SPEAKER_01 20:25

All right. I hate to break this to you, but if you need help just determining where to put the money, what places to put it, you've got to keep track of all of these different accounts. You're gonna need at least, at least a full service robo advisor, a betterment or one of those kinds of things. And you're gonna pay an annual fee for those. You need ongoing help. Unless, of course, you want to just build a really simple portfolio that's like A V G E and B N D and split it based on your risk profile. Otherwise, you're going to have complexity. What you're asking for is a service that tells you what an advisor would tell you. And one way or another, you're going to pay for it. If it if it's personalized, yeah, you're going to pay 1% a year. If it's robo, you're probably going to pay half a percent a year. But you're going to need one of those. And if you're talking about aggregators like Quicken or something like that, yeah, it's safe, but I don't know that it's going to do what you want to do. The other thing is, is why don't you just consider moving everything to a single custodian instead of having stuff all over the place? I'd be curious to see what your portfolio consists of. That would tell me a lot about whether you really can do it yourself or not. I know you want to do it yourself because it ain't cheap to hire somebody. But often it's really worth it, particularly at retirement. I'm not saying everybody should have an advisor. Certainly not everybody in the accumulation. Phase. But most of us, when we get to our ages, retirement ages, well, either you need to be really good at it yourself already because you've studied it for a long time and you know where to go and you know how to move it and you know how to and you know how to maintain your discipline you know you've got the behavioral fortitude for that, you really should get help. I I I really believe that. Now I don't think you should go hire one of these two percent a year advisor broker people. Uh depending on the size of your portfolio, you can even get individual advice for less than one percent per year, or get a robo advisor. But um I I it does it doesn't sound like you're comfortable doing it on your own if you need that kind of step-by-step help. Thank you so much for your call. Thank you. Well, question, they're not really calls. It's talk radio, 40 years in talk radio. I keep saying the same things over and over and over and over again. Caller gets gets just pounded into your brain, you know? Call us at Don't Call Us. Go to talkingrealmoney.com. Click that button that says ask a question, but the times they are changing. And uh speak your questions in so I can put them on the Friday podcast. And you know, the more the better. And this was a good one. Thanks for all the great questions. They were really different. This was a truly different edition. And please tell friends about the program. Please, please spread the word. We're trying to do something really important here, and that's make everyone a little bit more literate about money and investing and not doing stupid stuff. And also, for all of you who think, well, you know, I don't really need to hire an advisor, but maybe I should have somebody look at my portfolio. Hint hint. Set up an appointment with one of our advisors at Appella. I promise you, one, it'll be free. Two, they're not gonna ask for anything in return. You know, not they're not gonna ask you to take them to dinner, and we're not gonna give you a steak dinner. And three, there's not gonna be any high-pressure sales pitch. We don't do that. We don't believe in it, we don't need to. Now, if you want to hire us, we'd love to have you hire us. That would be a huge compliment. And you might find it helps too, but either way, we don't care. We want to help, whether you pay us or not. So go to talkingrealmoney.com, click the button that says meet an advisor, meet an advisor. You can even meet with Tom. Thanks so much for being a part of the program, and remember, we're here five darn days a week talking real money.

SPEAKER_02 24:39

The opinions and views expressed on this podcast were current on the date recorded. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and our subjects change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. Although information and opinions given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy. Information presented on the podcast is not personalized investment advice from Apello Wealth. The views and strategies described may not be suitable for everyone. This podcast does not identify all the risks, direct or indirect or other considerations which might be material to you when entering any financial transaction. Past performance does not guarantee feature results, and profitable results cannot be guaranteed. We hope you realize that the information provided on Talking Real Money is for informational, educational, and hopefully enjoyable purposes only. The podcast is not trying to get you to buy or sell any financial products or security. Instead, the program is provided as a public service by Appello Wealth, a fee-only registered investment advisor. Please see Appello Wealth's ADB Part 2A on our website for information regarding Appello's fees and services. Apello Capital, LLC, DBA Appello Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in the states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Apello does not provide tax or legal advice, and nothing either stated or implied here should be inferred as providing such advice. Thanks for listening, and please visit talkingrealmoney.com for more information and important disclosure related to performance of any specific index or fund quoted in this podcast. And the lawyers get richer.