Ep. 2015: The Smart Money Myth

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They're smart, baby smart, the smartest ones we know, or so they claim to be. And that's the point

Welcome to Talking Real Money

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of this show. Hi, welcome to Talking Real Money, the show, the podcast, the experience. I'm Don McDonald, and I am joined, as I am pretty much every day by Tom Cock, unless we sneak a guest host in when he's not looking. Which we don't do very often. Please don't. He gets testy when we do.

SPEAKER_07 1:11

Sensitive. Sensitive might be better.

SPEAKER_04 1:13

Well, but that makes you testy.

SPEAKER_07 1:15

I'm testy all the time. Prickly. Prickly. Exactly.

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All right.

Ivy League Endowments and Market-Beating Claims

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When it comes to investing, there is still a perception among uh a lot of people, particularly the highfalutin, the big money people, that there are because because they're smart, they assume that when it comes to investing, there is somebody else who is smarter than they are about investing. And so they pay people big, huge bucks to beat the market. And nowhere, nowhere is this more prevalent than in higher education. And and I'm we're talking the top of the top of the top.

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Particularly the Ivy League. Exactly.

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Where they expect, well, of course, they expect the kind of returns that the Yale endowment got under Mr. Svensson back in the day. And of course, if you hire the best of the best of the best and you pay them a ridiculous sum of money, you're bound to outperform, aren't you, Tommy Boy?

SPEAKER_07 2:17

Yes, and I believe Muffy insists on it, or she's not going to see you Saturday night. Uh, this is a fascinating topic. It comes up from time to time.

SPEAKER_04 2:26

Um, then the smart people are beating the market. Tell me they are.

SPEAKER_07 2:30

Yeah, they're they're not. And it's not just smart people. This is big, big. I can't put enough bigs on how big the money is. I mean, these endowments, Harvard's endowment, $55 billion. Yale, $44 billion, Stanford's $40 billion, Whitman College, $1 billion. Your little school has a billion-dollar endowment. Thank you. Yeah. And I'd like to. How much of that did you give? I'm not not. I didn't let's just let's just put it this way. I I'm on the edges there.

SPEAKER_04 3:00

Well, on the edges. You know, okay. Let me ask a question first. Okay. I do not understand the whole concept of giving money back to a school that charged you a fortune and gave you what you paid for.

SPEAKER_07 3:14

They didn't they didn't charge me a fortune.

SPEAKER_04 3:16

Or your parents. That's right. Well, they charge somebody a lot of money, and you got something in return for that lot of money, which these days is a lot more money. Yes. Why after you're done with them do you continue to give them money?

SPEAKER_07 3:30

That's a very reasonable question. And I don't have a reasonable answer. So let's just leave it at that. So it's you know emotional. Like all other things with money. Probably it's not like they need it. Just had somebody over recently that was going through all the bad acts committed while I was there. And I was like, I forgot all that stuff. I'd like to keep forgetting. Well, it's for the best.

SPEAKER_04 3:50

Or you couldn't live with yourself today. Exactly. If you remembered all the horrible things you did when you were younger, we just block that stuff out.

SPEAKER_07 3:56

I think that's

How Endowments Perform Against Index Funds

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smart. Uh so this is an absolute, as I started to say, fascinating topic, because for example, the Massachusetts Institute of Technology um was touting the fact that uh their endowment, which is large, earned 10.3% during its fiscal year that ended in June. Which sounds good. Oh, that sounds really good. It does sound good. But sadly, that's half, half or 50% of what the SP 500 index did in that period of time.

SPEAKER_04 4:27

Wait, that's half or half? So the SP did 20?

SPEAKER_07 4:31

Yeah. In the last in that year ending in June. Julie. Wow. In June. Almost 20.

unknown 4:37

Wow.

SPEAKER_07 4:37

Okay. Uh but it gets worse. And and we're gonna talk about why and the lesson to be learned from all this. Um these schools make big bets on things that maybe would surprise you, maybe not. Real estate, venture capital, private equity, hedge funds. You get the idea. Very little. The fancy stuff, the smart market.

SPEAKER_04 4:57

The smart people stuff.

SPEAKER_07 4:58

Exactly. Very, very little. In fact, I think it's only 14% of Harvard's endowment is invested in publicly traded stocks. Rest of it's in the other special stuff, which is fascinating. 14%. But let's just give you the numbers because this is so important. The smart people they haven't got this figured out. There's a group that studies the returns of college endowments. Six hundred and fifty-seven colleges participate. Their ten-year return, 7.7 percent, which doesn't sound bad.

SPEAKER_04 5:34

Well, uh over ten years. Ten years. Seven point seven.

SPEAKER_07 5:37

Annualized.

SPEAKER_04 5:38

Right. And now this these endowments, these endowments are long-term money. This is not money that the colleges need to spend immediately. This is not short-term money.

SPEAKER_07 5:47

They have to take out a certain amount each year to sit within the rules. Yeah.

SPEAKER_04 5:51

Right, right, right, right, right. But this is long-term money. This is not so this they're they're not doing a 60-40 portfolio like a retiree is doing.

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We'll get to that in a minute.

SPEAKER_04 6:00

Okay.

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So uh so let 7.7 percent. Remember that.

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Because for a 6040, 7.7 sounds pretty good.

SPEAKER_07 6:06

Yeah, it does sound pretty good. But let's just say that you decided to buy, oh, I don't know, VOO.

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SP 500?

SPEAKER_07 6:14

S P 500 in that same period of time. 7.7% what the college earned with all the fancy investments, as I said, and all the a lot of money goes to people to tell them which fancy investments to be in, et cetera, all that sort of thing. Or the S P 500, drum roll please, 13.5%. I think that's almost six percent a year a year more.

SPEAKER_04 6:37

It is. It's in fact, it's really leaning. I mean, we're not far from doubling territory there.

SPEAKER_07 6:43

And this comes in a period of time when global international stocks didn't do as well as the S P 500, but in that same period of time, the 10 years, had you been in a globally diversified portfolio, 11.3% a year.

SPEAKER_04 6:57

Trevor Burrus, Jr. And my guess is that by doing that, let's they use the international, that you would have, and we can't really compare this because it's not compared in this study, but my guess is that you would have a less volatile, less frightening portfolio that would have, over that 10-year period, still made substantially more than the experts' portfolios did.

SPEAKER_07 7:20

Aaron Powell Well, you don't know. That's one of the problems, right? When you're in all these private things.

SPEAKER_04 7:25

You don't know the volatility. Trevor Burrus, Jr. Well, because you can't know the volatility. Exactly. It's impossible to know the volatility. Therefore, you have to imply that probably there's more volatility than they're telling you there is, or there would be if it was public.

SPEAKER_07 7:38

Trevor Burrus, Jr.: Certainly more risk, depending on your measure of volatility.

SPEAKER_04 7:41

I was using volatility as a risk. I think that's true. Trevor Burrus, you're right. It may be more pure

Private Investments and Hidden Risks

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risk.

SPEAKER_07 7:45

Trevor Burrus, Jr.: And the point of this piece was okay, all these special things, right, that are now, by the way, being offered to you. I didn't realize that Robinhood already had its venture fund available, which is holds money in unlisted companies such as OpenAI, et cetera. And uh, you can be very special. I uh you know I hate Robin Hood. But when I read George Lake, I hate Robin Hood. I hate them more. Vlad Tenev, the uh the guy who runs the place, says, I love this. Opening up private markets will resolve one of the greatest long-standing inequities in capital markets today. Yeah, no, opening up private markets will make a lot of money.

SPEAKER_04 8:26

We want to give you the same garbage the rich people are gonna lose money in.

SPEAKER_07 8:29

Yeah. It'll make you a lot of money, him. And by the way, that fund expense ratio, 3.1%. 3.1%, which I believe is about a hundred times the expense ratio of the S P 500. So, okay, but not all colleges are doing poorly.

SPEAKER_04 8:46

No, and some and this is what this is what I was gonna ask you. Okay, given the fact, this is a fact that apparently everybody can know if they want to know it. Even these fancy dancy fund managers, they can know the fact that an aggregate, they've underperformed. As a matter of fact, individually, they've underperformed. We're not just cherry picking here. No. We're not just picking the ones who did badly. What I don't understand is given that evidence, they're academics, right? I'm sure their college graduates. One would imagine. Um w given the acad the the preponderance of evidence, wouldn't you think they'd just buy the market?

SPEAKER_07 9:27

Well, okay. Thank you for raising that. Because do you know Carthage College? Carthage College? I think it's a relatively small institution. Where is Carthage College? I should have looked that up because I should have known, but it's not in my neighborhood, I can tell you that much. But uh I wish it were, because Carthage College's endowment is rather minuscule compared to the Harvard 155 billion, etc. It's only 165 million, which to you and I still sound like a lot of money. That's small. They they're average.

SPEAKER_04 9:58

It's in Kenosha, Wisconsin.

SPEAKER_07 10:00

Ah, I should have known that. Yes.

SPEAKER_04 10:01

Yeah, of course you should.

SPEAKER_07 10:03

They average nine and a half percent a year.

SPEAKER_04 10:06

Yeah, but dude, that's a good Midwestern college.

SPEAKER_07 10:08

And they guess what they use? Oh, low-cost index. And guess how many really smart people they have advising them on the endowment?

SPEAKER_04 10:16

One guy runs the endowment. It could be one guy who works like a uh two days a year. Come in, fix the quarter, come out, rebalanced and so and what are they doing wrong?

SPEAKER_07 10:31

Well, they they they have a lot of alternatives, which you you make a very good point. It's hard to know what those are worth. Certainly hard to gauge, you know, day to day what's going on with those. They pay exorbitant fees. Well, you just heard our friend at uh at Robin Hood who only wants you to pay 3.1 to be very special. Um, and they're they're trying to figure out what's next, right? They're always they're not gonna just take what the market provides. Um, and so this always gets back to what you as an investor should do. Do you need to be special? Well, pretty much not, actually. You can be fine without it. Index funds have beaten uh most of these things, including the alternatives. And you this is such an important lesson over and over again. Avoid the trendy and fashionable investments. They come along because they're always something new and hot, and it seems the colleges get caught up in this. And there, as I said, there I think what you're seeing today is a lot of them trying to dump the private equity stuff that's gonna be purchased by somebody else, and guess where they want it to end up? In your 401k. Don't let it happen. You can see where you're headed here. It's bad news.

SPEAKER_04 11:36

Yeah. Um I I just did some checking on Robinhood Ventures Fund.

SPEAKER_07 11:42

Yeah.

SPEAKER_04 11:42

One. Um the fund opened, I believe.

SPEAKER_07 11:48

It hasn't been around that long, I don't know.

SPEAKER_04 11:50

It hasn't been around. It's only this year.

SPEAKER_07 11:52

Yeah, okay.

SPEAKER_04 11:52

Uh it opened at, I believe it was $24 a share. No, I think maybe it's $25. I gotta pull this out here and see. Um it looks like $24.

SPEAKER_07 12:08

That was the open in 2026.

SPEAKER_04 12:11

Yeah, it was in March of 2026.

SPEAKER_07 12:13

Oh, okay.

SPEAKER_04 12:14

So this is very recent history. Very young fund. Very young fund. Um it got all the way up to get this $77 a share.

SPEAKER_07 12:27

Wow. That's pretty that's like a 300%.

SPEAKER_04 12:32

Right now, though, it's $24.77 a share.

SPEAKER_07 12:36

Seth, speaking, didn't you just say something about volatility or something like that? Yeah. I mean how it's not.

SPEAKER_04 12:41

But Robinhood says Robin Hood says, well, it's really worth $29.

SPEAKER_07 12:46

Well, of course it. If it's worth $29, it's worth $30. But how do they?

SPEAKER_04 12:50

Because they're private investments.

SPEAKER_07 12:51

They're they're but how would you how do you mark the market? You can't. You can't know what that's worth. You can't know the the shares that we own in a private company are worth day to day. Well, they're worth what everybody will pay you. And you're finding out that. And by the way, if you want to get your money out, good luck. How long you got to let it sit?

SPEAKER_04 13:09

It's I uh they they have a managed distribution schedule.

SPEAKER_07 13:12

Oh, I'm sure they do. Call Vlad, he'll help you out. That's uh we give out his selling.

SPEAKER_04 13:18

And there's a there's I mean, it's a for something as volatile and dangerous as it is. I mean, this is invested in what are, quote, called frontier companies. Small cap, there's small cap, microcap, and frontier.

SPEAKER_06 13:30

Yeah.

SPEAKER_04 13:31

Uh $690 million. That's a pretty small fund, though.

SPEAKER_07 13:36

Yeah, but still for as aggressive as that is. No, I and by the way, just again, as we're pointing out, high fees, high volatility, tremendous amount of risk here. We're not advocating this fund in any way.

SPEAKER_04 13:46

In fact, we're saying 3% of $700 million is still we're you know, we're talking real money. We are indeed. So not jump change.

SPEAKER_07 13:56

I've got my own song for this one. Don't know much about history. You can't no, no. Those are cards owned by somebody else. You can't use it. I think that one's general use or whatever that is.

SPEAKER_04 14:06

No, it's not. There's no such thing. I thought there was a lot of people. Gosh, you know, people are so confused about copyright law. Yeah.

SPEAKER_07 14:13

So I'm gonna I'm gonna my confusion will end now. They're gonna call me and charge me for singing that.

SPEAKER_04 14:17

No, no, but what you can do, and here's the problem, is that if you you can get taken down for using a copyrighted song on a podcast. Now it doesn't happen very often, but it can happen. How about at a political rally? You you have to pay to use them. You have to pay ASCAP and BMI. Yeah, you have to pay. And uh copyright lasts for I think it's 90 years after the author's death.

SPEAKER_07 14:48

Okay, so this one probably uh this is a 60s or 60s, yeah. Okay. Yeah. All right. Well, quit using but they will listen and go, that kind of sounds like a song we know, but not really. Yeah, but not really.

SPEAKER_04 15:01

Yeah. That's right. The notes were different.

SPEAKER_07 15:04

Exactly. Who is that guy?

SPEAKER_04 15:06

It certainly wasn't the right key.

SPEAKER_07 15:08

Put a line through that.

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So

Darcy’s Early Retirement Plan

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uh well, once again, we reach that important part of the program where you get to participate in the program as Tom picks up the phone and rings you up.

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We go to Minneapolis, Minnesota, where we talk with Darcy. And Darcy, welcome to Talking Real Money. How can we help you today?

SPEAKER_02 15:30

Well, thank you so much. Um, I am in the well, one of those situations where I just want to get a little bit more organized. I retired about three and a half years ago, and I was fortunate to retire when I was 53 and currently 57. Um, at the time I was thinking it was just going to be a sabbatical, no big deal. And now I'm, you know, I have to confess that I'm loving life and uh I really would like to stay in retirement mode. Um, I live with my significant other who is still working and he owns a small business who that is his baby, and I don't see him ever retiring. Um, so I pay for my own expenses, so my health insurance, my car-related expenses, um, you know, some of the groceries and food, my share of our trips, that kind of stuff. But my problem is for the last three and a half years, I've pretty much been winging it as far as my budget goes. Um, so I want to get more organized and figure out how to basically pay myself a monthly salary so that I stay within that budget and I'm not winging it. Um, I could easily cut my expenses down to $1,000 a month if I had to. Um, I do have about $2.5 million in total savings. And my plan at this point is what I'm hoping you can help me with to see if it looks viable to you. Um, when I've run my own numbers, I've been assuming an average of about a 6% return. Um, I currently have a taxable brokerage account, which has about $1.3 million, of which $1.1 is in DFAW and $120,000 is in SNSXX in a money market. In my traditional IRA, I have about $976,000, of which $850 is in bonds. Um, that's a five-year ladder, and $125,000 is in AVGE. And then I have an inherited Roth that has uh just under $80,000 in ABGE. I still have about five years before I have to move that money out to a brokerage. And then I have a Roth that has about $260,000 in ABGE, and I have an HSA with about $15,000 in ABGE. I also have about $20,000 in my checking account. My investments all together are in a ballpark of about 60, 40. Um, and then I'm just planning to adjust my withdrawals each year based on actual results. Um, so I can easily uh go down if I need to, or you know, go up if the market continues to do this crazy well, which I do not anticipate. Um, and then I'm thinking I'll just do some Roth conversions before I start taking social security at age 70, but not anything too aggressive. I'd like to try to stay in like that 12%, maybe go up to 22% tax bracket. Um, I'm keeping actually quite a bit over two years of expenses in my money market account, um, which might be too much. We can look at that. So, anyway, I would love to see what you think about all this and see if uh what I have for an allocation makes sense, um, if my withdrawal rate seems reasonable. What's your thoughts on it?

SPEAKER_07 18:39

I'm tired. Uh, this is great. I mean, wow, this is this is you're one of those people who calls and just and I say, we're just looking for an A plus, just want to add a boy. I mean, this is really, really good in several ways. But some couple things to think about here. Um, you do have a lengthy retirement. So that suggests to me that I want to make sure you at least keep enough of a foot on the pedal here with exposure to stocks. You know, I don't uh the 6040 is fine. I don't want to vary from that too much here early on because I still want to get the growth of the stock market because retirement is a long time. The two and a half, you could, I mean, you already know this. If if you're you're talking about a withdrawal, a variable amount of withdrawal. So at that, you could get closer to, you know, 100,000 a year. So you I don't see any reason for you to cut all the way back to a thousand a month. I don't, I don't think necessary nor advisable. I mean, and especially, as you said, you're loving your life and you're out doing stuff, and I think you should keep on doing that. So I'm I'm good with the withdrawal rate. I might even boost that up a little bit. Then in in terms of the assets, I think this is one couple of things that people should be aware of that you've just done so well. Most people don't do. One is asset location. You put, for example, in that Roth you mentioned is all in A V G E, I think you said. Yeah, that's right. That's the Avantis Global Equity Fund. Well, that's all stocks. That's a globally diversified portfolio. It's low cost, widely diversified, as I said, and it's a wonderful fund, and it's growing tax-free, which is awesome. That's exactly where you want to have those stocks. Then in your, I think you mentioned in your um your your your qualified account, your IRA, you have $850,000 in bonds and a little bit in the AVGE. I think that's fantastic. Um, again, in the brokerage, you've got, you know, a good bunch in DFAW, which is Dimensionals Global Stock Fund. Again, a little bit in the, I think it's the money market there at Schwab. This is really great work. I mean, and it's as you said, it's simple, right? There's not a lot of work to be done here because the fund families are doing all the hard, heavy lifting, if you will, right? They're they're the ones moving stocks around doing all that stuff, and you don't have to work think about it. I don't even think, and I generally do recommend, I don't know that you need to have a professional look at this because the margin of error is so great here. You've been such a great saver that I don't, I mean, I don't, unless you really had a health thing or something that came along that really taxed your portfolio, I think you're in a great place. I love the asset location, I love the fund selection. Again, if you're just looking for an A plus, I I I'm gonna have to give it to you with a big stamp on there because this is just great work. Um, you know, I think I think the question, you're gonna have a little bit of a question still on the Social Security claiming strategy. You know, is that gonna be full retirement age? Is it really gonna be 70? That's something to think about. But overall, I gotta say, Darcy, you're gonna, I mean, next week you could probably have my job. This is really great stuff. Well done.

SPEAKER_02 21:40

Well, thank you so much. And I will tell you, from a simplicity standpoint, I was really, really tempted when I first retired because now I have time on my hands. Oh, I can monkey around with this a little bit more. And then I realized how time consuming that would be. And I don't want to be, you know, I don't want to consume my time with that. So um that helped reinforce. That no simple is definitely the way to go.

SPEAKER_07 22:02

Good judgment there. I mean, you know, I think I've talked about this on the program. I don't manage my own money. It's not something, again, I do I have an interest in it, kind of. Do I really want to be sitting around rebalancing accounts? Not really. And the fact is, you've set this up in a way that really is not going to need that much work, I guess, other than maybe the five-year bond ladder, but that's still not going to be that consuming because in a major custodian. Yeah, I mean, it's pretty, pretty easy. So this is really great. Wow. I mean, uh people listening, champion call here. Uh, Darcy can open her management service. No, kidding. Don't do that because you're enjoying your retirement. You don't want to be stuck with all this money and stuff. But uh, fantastic. Really appreciate the call and uh and and really appreciate you being on the program.

SPEAKER_02 22:45

Okay, well, thank you so much. I really appreciate it. Take care, Darcy.

SPEAKER_04 22:48

However, should he be unable to reach you, I'm sorry, but the party you're calling is not available at this time. Please leave a message.

SPEAKER_07 22:54

I'll just take my calls more likely.

SPEAKER_04 22:56

Yeah. Then Tom has to print your question out, ruffled your cue to riff riff, riff through the paper. It's an audio cue. We don't have video, it's an audio cue. All right. Remember when we did have video? How exciting that was?

SPEAKER_07 23:10

We have people watched it every day or whatever it was.

SPEAKER_04 23:12

Nobody watched those things. They're saying video podcasts are all the rage. No, I podcasts are audio by definition. Yeah. Thank you. The name was invented by Apple, apparently. Because of the

Building a Simple Two-Fund Portfolio

SPEAKER_04 23:27

iPod. Yeah.

SPEAKER_07 23:29

So do you want me to ask a question?

SPEAKER_04 23:30

I want you to ask me a couple of questions that our listeners sent in at talkingrealmoney.com using the ask a question button.

SPEAKER_07 23:37

Yeah.

SPEAKER_04 23:37

Go.

SPEAKER_07 23:38

Yeah. Okay. From St. Cloud, Florida, Melinda. Oh, that's in my county. I kinda I didn't know how far away that was. Dear Don't you know? I have been listening to your podcast uh for a year or two and appreciated the uncomplicated, evidence-based approach to building a successful portfolio. That's a pretty nice comment. I read Don's financial physics book this summer while on vacation and gleaned some helpful strategies. It took him all of a half hour. My question relates to choosing the simplest possible portfolio combining Vanguard's VT, which is the Vanguard Total World Stock Fund, and BND, which is the Vanguard Total Bond. Yeah.

SPEAKER_04 24:19

Okay.

SPEAKER_07 24:19

All right, here's where things get a little tricky and you're gonna be a little unfortunate. I know, and you're she's making a lot of sense. We are currently with Ed Jones. That's a brokerage because the advisor was a family friend. Now buy the nickel for really come on. That's how they sell this stuff. Several months ago, I had an appel advisor analyze our portfolio, and not surprisingly, we were in relatively expensive funds.

SPEAKER_04 24:46

Bet they're all American funds.

SPEAKER_07 24:47

I asked for a change through Edward Jones. He made some adjustments, but not enough. Emails from the Edward Jones office remind us that they are able to offer insurance products, which of course is a red flag.

SPEAKER_04 24:59

Yes, it is.

SPEAKER_07 25:01

I'd like to place our combined portfolio with Fidelity and split 6040 between VT and BND. My husband is retiring in December and is in the RMD phase, so we'll be withdrawing that much each year. I'm 62 and will continue working until 65, maybe 67. Wow, you're a good sport. I love that about you. Um doesn't happen at my house, doesn't happen at his house, so I'm glad it's happening somewhere else. We both have and will have pensions and social security, but would like to withdraw 4% per year once I retire. Meanwhile, his RMD of three to four percent, I think the first year it's about 3.5%, would equal 2.5% of the total. Okay, a lot of numbers here, but the bottom line the number, the RMD is only 2.5% of the total portfolio. Unfortunately, we do not have any Roth or brokerage accounts to help manage the tax impact. Is this plan too simple? I like the idea of not needing to rebalance, but I also understand it limits flexibility with what we have to sell and take withdrawals. I ran some bottom line is um, is this okay to have a 60-40? But you do have to rebalance it. That's is and by the way, you could rebalance it and take the RMD from that. Right? Yeah, of course. Yes. Because you're if because the 60% is likely to go up faster than the 40% over time, and therefore you're gonna be selling the stocks and keeping things in bonds or maybe adding the bonds. I she she wants to pre- she says she appreciates your perspective on two fund plans. I I think they're fine. I think there's a lot to be said. I think we just said something about simplicity a couple minutes ago.

SPEAKER_04 26:39

Yeah. Okay, you might leave a little money on the table should the factor tilt actually work out, which it has in the past. But life what's the what's the life cost?

SPEAKER_07 26:52

If you're doing this on your own, I see absolutely 100% no and problem.

SPEAKER_04 26:55

And here's and my guess is let's see. So if you what you basically have is a a a balanced portfolio. So if you were in those two funds, your total expenses are below actually, they're probably averaging about seven one hundredths or six one hundredths of one percent. Maybe half of uh maybe five one hundredths of one percent between them.

SPEAKER_07 27:22

Pretty little.

SPEAKER_04 27:23

Very tiny. Whereas that uh if you were in the American funds, American Balanced Fund, you'd be paying over half a percent a year. That alone is bound to help.

SPEAKER_07 27:34

And uh not to mention the wonderful insurance products in the U.S.

SPEAKER_04 27:39

You can have a more diversified portfolio. You're gonna have a better diversified portfolio because the American Balanced Fund has what, like, you know, eighty percent U.S. large? Yeah. It's uh they have uh 165 stocks in the portfolio.

SPEAKER_07 27:55

Crazy. Instead of what what does VT hold? I'm better, yeah. I was gonna say 7,500, 8,000. VT is It's gonna be way there's so there's there's nothing wrong with doing it that way if you're gonna do it on your own. I see no issue there. Absolutely.

SPEAKER_04 28:11

Oh, oh, wow, whoa. You were off. I was off. Yeah. 10,138.

SPEAKER_07 28:20

So you decide uh diversification 165. Yeah, that's this is give me another question. I'm having fun now.

Choosing Small-Cap ETFs

SPEAKER_07 28:28

Now it's good for it. All right, here we go from uh Rajiv, who writes Thanks for your advice on different ETFs in the past for several different accounts and situations in our portfolio, including for my kids. That's nice. I was looking at some of these funds and comparing, wonder, wondering what your recommendation for managed instead of low-cost unmanaged index ETF. I understand that while pure yield for managed ETF is better, I'm sure I understand that. Um I don't know. Per yield, does that mean like dividends? Or I mean I don't know. Because yes, you can go look at those. Uh, but considering high expense ratio, net yield starts falling behind. All right. He wants to know our comparison between these funds. Is should it be for small cap, should it be A A V U V? Okay, that's a great fund. Uh or LSCRX, which is the Loomis Sales Small Cap Fund. That's not a good fund. Or IJR, which is the iShare small cap.

SPEAKER_04 29:28

Well, IJR is cheap.

SPEAKER_07 29:30

Yeah.

SPEAKER_04 29:31

IJR is really cheap. IGR is, but that's just the 600.

SPEAKER_07 29:35

That's just the uh I think that's just the Yeah, it's it's not it doesn't have the value tilt we'd prefer you to have. Luma say, we like the value.

SPEAKER_04 29:43

We like the value tilt. It's six one hundredths of one percent. So the the that's the cheapest. AVUV is the middle middle child. Yep. AVUV is not an index fund. Not an index, but not active. It's a quarter of one percent.

SPEAKER_03 29:58

Yeah.

SPEAKER_04 29:59

And you get us you get a value tilt, which we love. And you get a you get a you get a better, a bigger portfolio too. You get uh blub blub uh 790 stocks.

SPEAKER_06 30:10

Yeah.

SPEAKER_04 30:11

Small company stocks. And then the Loomis sales thing uh has an expense ratio of one point one five.

SPEAKER_07 30:20

Crazy. It's such a different world. I I I I can't imagine anybody actually going out and buying that today, but I guess somebody is being sold that fund.

SPEAKER_04 30:31

And and you know, I'm looking back at the uh the chart of this fund going back to well, ten years, more than ten years, and it has very consistently underperformed the index at times by a pretty substantial margin.

unknown 30:50

Yeah.

SPEAKER_04 30:51

So every like if you you can look at individual years, like you can look back at uh 2023 and see that it beat the index. No, it didn't. It matched the index, I'm sorry. Did there a year where it beat the index? 2021 it beat the index by a pretty wide margin, but then it's underperformed it in other years. And overall it has underperformed and you're paying a lot. And going back to the diversification of the portfolio, yeah. You would have 108 stocks compared to 790 at A V U V.

SPEAKER_07 31:26

We're not fans. All right, so that's easy for us. A V U V would be our choice, but if you just want to know an index, you can own A I J R. And the third one that won't be mentioned again, don't

Comparing Broad-Market Funds

SPEAKER_07 31:36

buy. All right, uh large cap, S P Y.

SPEAKER_04 31:41

S P Y, yeah, yeah. That's the Spider 500. Yeah, that's the Spider, yeah.

SPEAKER_07 31:44

Or V O O, which is the Vanguard 500. Um boy, there's a Vanguard 500 is only three basis points.

SPEAKER_04 31:52

S P Y, I think, is the same though.

SPEAKER_07 31:55

No, I think it's nine.

SPEAKER_04 31:56

Oh, it's nine. You're right. Yeah, it's nine. Okay. So V O O wins. It's a toss-up, but yeah, it's not a different thing. Yeah, it's such a toss-up.

SPEAKER_07 32:03

Similar, you own the same assets.

SPEAKER_04 32:06

But I wish you wouldn't do that. I I would rather you own a total market fund than thanks for.

SPEAKER_07 32:13

No, yeah, no, no, but he's building his own portfolio. That's why he's asking for all these things. Um because the next choice is just owning a global portfolio. Because if you're gonna do the question is AVGE, which is the Avantas Global Equity Fund, or VTI.

SPEAKER_04 32:28

Ooh, see, that's where it comes from. Two different funds. They're two different funds. AVGE has the whole market, including international, whereas it as VTI does not. No, it doesn't. VTI is just the U.S. It's the U.S. total market, but that's an Apples to Cumquats comparison. And uh by the way, AVGE, it's only 23 basis points, and you get the whole world with a nice little small in-value tilt. And even though that's considered a riskier strategy because of the slight difference in correlation between the the small and the large and the U.S. and the internationals in that portfolio, the volatility should be a little lower, and the returns should be, if passed is prologue, a little higher.

SPEAKER_07 33:21

Yeah. But those are not comparison. Or how about this? This is a comparison for the world, the globe, DFAW, which is Dimensional's All-World Fund. Right.

SPEAKER_04 33:32

Yeah, Dimensional World Equity ETF. Yeah.

SPEAKER_07 33:35

Versus in the other corner, VT, which is the Vanguard total.

SPEAKER_04 33:40

Again, here, this one is easy. Oh, this one is so easy because the difference is small in value tilt. That's the only difference. If you do not want the small in value tilt, then VT is the winner.

SPEAKER_07 33:52

Well, VT is going to be cheaper, too.

SPEAKER_04 33:54

VT is a lot cheaper. It's 24 basis points to six basis points. And the reason we say basis points is because that's fewer words than saying twenty-four one hundredths of one percent versus six one hundredths of one percent. Um do the math.

SPEAKER_07 34:12

I think that's four times as much.

SPEAKER_04 34:14

Yeah. No. But the small value tilt has in the past, past performance is not indicative of future results, but it has in the past returned more.

SPEAKER_07 34:26

And both in the big both in the big picture are still relatively low fee. Relatively. Yes.

SPEAKER_04 34:33

They really are. Particularly considering that you know all that extra work that Avantis has to put into it. They're just not they're not blindly following the market.

SPEAKER_07 34:42

No. They now have 40 funds, by the way, with exchange traded funds. Um and uh they have they're closing in on $200 billion. Still a little baby, but they're they're growing.

SPEAKER_04 34:56

Well, considering that VT alone has a hundred billion in it.

SPEAKER_07 35:03

Uh okay. Which is a great fund, has been a great fund.

Listener Questions and the Sign-Off

SPEAKER_07 35:07

So there you go. Thank you for all the great charges. And the call.

SPEAKER_04 35:10

Keep sending them in, too. Go to talkingrealmoney.com and uh either type your question up using the ask a question button, or it's really easy to hit the mic in the uh lower right-hand corner of the screen and just record a question into your computer microphone.

SPEAKER_07 35:24

I'm not hitting anymore, so somebody else is gonna have to do that though. So you're not hitting what? You said hit the button in the corner. I said, I'm not hitting anymore, so I've stopped. I don't understand the joke. Okay. Well, not important for you to understand, it's only important for me to understand.

SPEAKER_04 35:39

Do you think your dad joke fans got that one?

SPEAKER_07 35:41

I don't know. They can look it up.

SPEAKER_04 35:43

Is it are you referring to pot? Was it That's good.

SPEAKER_07 35:47

I like that. Okay, we'll go with it. We'll go with that. That's good. Sure, why not?

SPEAKER_04 35:51

Hitting on women? What vice are we talking about?

SPEAKER_07 35:54

Okay, all the above.

SPEAKER_04 35:55

All right.

SPEAKER_07 35:55

Hitting it out of the way. Check in the boxer. That too. Yeah, that's pretty much.

SPEAKER_04 35:59

Hitting the dog?

SPEAKER_07 36:00

I mean, I don't know what you're not hitting. Okay. I think we just leave it at that. Don't hit the ball. Okay, hit the bong. Hit the bong. I'm not sure. Exactly. It's all free. Legal. Sure. Well, it's not free. No, I know.

SPEAKER_04 36:14

No, there's big taxes on that stuff.

SPEAKER_07 36:16

I know. Big money.

SPEAKER_04 36:18

All right. I think we've reached the exciting conclusion. Yeah. I always wondered, you know, were our grandparents or great-great-grandparents, great grandparents, or great-great-grandparents as as as big a reprobate as we were when we were.

SPEAKER_07 36:34

I just hope they weren't watching. Okay. That's my only thing. I bet they were. I hope they're watching. I bet they were.

SPEAKER_04 36:39

I have heard stories about my grandmother and grandfather when they were youngsters that'll that'll make your hair curl.

SPEAKER_07 36:46

I just hope one generat the one that's gone isn't up to the body.

SPEAKER_04 36:49

I think we're all bad when we're young. I just think we pretend when we get old that we weren't. And we're one of the first generations that just says, yeah, we were bad when we were young.

SPEAKER_07 36:57

Yes, I know. I know.

unknown 36:58

Okay.

SPEAKER_04 36:59

And my kids go, I don't want to hear about it. I don't want to hear they.

SPEAKER_07 37:02

Yeah. They don't want to know when we prepare.

SPEAKER_04 37:04

All right. So uh send in those questions if you want to meet with one of our advisors, who, of course, as a youth was perfect in everything.

SPEAKER_07 37:10

I think a lot of people are going to call us now that you call me a reprobate. Call Tom the reprobate at blank. Yeah. Yeah.

SPEAKER_04 37:17

Just go to talkingrollmoney.com and click on the button that says meet an advisor. Or reprobate. Meet. Meet a No, I'm not going to say it. Please don't. I'm not. I Reprobate was as bad as I'm going to go. I'm not going to call you any more videos. I'm done. I'm leaving because you know I have to come back on another day to uh so that we, you and I, together, we're

Important Disclosures

SPEAKER_04 38:03

the opinions and news expressed in this podcast were current on the date recorded.

SPEAKER_01 38:06

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SPEAKER_00 38:17

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SPEAKER_01 38:26

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SPEAKER_00 38:59

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SPEAKER_01 39:04

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