Podcast: Ben Carlson — Everything You Need to Know About Saving For Retirement

Episode 52 of the Boldin podcast is an interview with Ben Carlson — Director of Institutional Asset Management at Ritholtz Wealth Management — and discusses whether we’re in a bubble, how to invest in a bubble, and Carlson’s new book, Everything You Need To Know About Saving For Retirement.

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Callouts:

• Everything You Need To Know About Saving For Retirement
• It’s Time to Prepare For Markets & the Economy to Get Weird
• How To Invest in a Bubble
• Boldin Podcast #9: Ben Carlson Shares the Wealth (of Common Sense)

Full Transcript of Steve Chen’s Interview with Ben Carlson

Steve: Welcome to the Boldin podcast. Today, we’re going to be talking with Ben Carlson, the Director of Institutional Asset Management at Ritholtz Wealth Management, about whether we’re in a bubble, how to invest in a bubble, and his new book, Everything You Need to Know about Saving for Retirement. Ben was also the ninth guest on our podcast. We appreciate him coming back, now that we’re just after our 50th episode. With that, Ben, welcome to our show. It’s great to have you join us. Ben: Good to be here, Steve. Steve: How was 2020 for you, personally? Did you have any kind of huge takeaways from the year, now that we’re through it? Ben: Yeah. It’s all relative, I guess. For us, it was fine. We have some young kids. That was always tricky. I think the thing that I learned the most, especially in the harrowing days of March when things were really getting crazy, talking to our wealth management clients, one of the biggest takeaways was how little it seemed like money meant at that point. We were ready to talk about the markets, what was happening. It was almost secondary when we talk to our clients, because they just wanted to … They were checking on us to make sure we were okay too, just like we were checking on them. Ben: We are, of course, telling them our thoughts and what our feelings were and how we’re positioned and how we were thinking about what was going to happen next and just how the plan was working and how we plan to proceed. It was almost like thinking about the markets was just not nearly at the top of people’s mind. I think it put things in perspective in terms of what really matters. A lot of people were worried about their health and their family and their jobs or whatever it was. It seemed like thinking about the markets was just way, way down the list for a lot of people. I think it put things into perspective for a lot of us. Steve: Do you think people have kept that perspective? How did that affect the psychology of your team and also your clients? Ben: I don’t know if people become numb to it after a while or they get used to it. Because I remember, I listened to a podcast interview in late February. This epidemiologist guy was saying, “Listen, we could be heading for 100,000 to 200,000 deaths from this.” That shook me to the core like, I can’t even imagine what it’s going to be like if that happens. Now, we’re double that. Obviously, there are people worried about that. There are also people who are numb to it. It’s hard to imagine how this stuff … Just our reaction to this stuff. Ben: It’s hard to gauge when you’re dealing with humans. I think we’re barraged with so much information and news these days that sometimes you only have enough mindshare for worrying about one thing at a time, whether it’s yourself or the world at large, whatever it is. I think some people have the ability to compartmentalize and move on. Some people are probably still stuck in that mentality. I think one of the interesting things will be like when things really do open up and we’ve crossed this and everyone’s vaccinated or however it happens. Ben: Hopefully, 6, 9, 12 months, whatever it is, you wonder how many people are going to be stuck in the mindset of the pandemic. It’s going to be hard for them to open up and get back out. I’m hoping most people are going to be like that. You could have something like that happen from this where they’re stuck in that same mindset. Steve: Yeah, I know. Morgan Housel did some writing about just how these huge events affect generations, especially younger people. People that grew up during depression or people that grew up during the Great Recession 2008, it changes their psychology. They become more frugal. They take less risk. Will see that coming out of 2020? Ben: So far, the opposite is true of this generation. I wrote about this in, I don’t know, April or May, maybe the biggest difference between now and the Great Depression is back then, the government either didn’t have the ability or didn’t think they had the ability to throw so much money at it. They went the opposite way and almost made it worse. Whereas this time, I think we basically stopped the Great Depression in its tracks. We had the worst quarter over quarter GDP fall in history. For, I don’t know, four to six weeks, we basically were in a depression. Ben: Then the government threw so much money and the fed stepped in and helped the credit markets function again, that they stopped it in its tracks. I think what you saw is, is people saw that backstop and they got some money and they said, okay, it’s completely changed the risk. Would it’d be crazy if this whole thing, this huge crisis that this is something that people are going to remember forever if they’re old enough to know what’s going on, that it could change their risk profile and make them want to take more risk, which is there is no way anyone would have predicted that going into it, right? Steve: Right. It’s like the Greenspan Put for the market that used to exist and now is there like a put for like, okay, well, if everything gets too bad, government’s going to print some money and shoot me some dollars, so I can keep going. Ben: Yeah. I don’t know how you put that genie back in the bottle after it’s been opened. It’s, I guess, political will is part of it. Once you start sending people checks and you’re deciding between two candidates, who are going to vote for? The person who’s going to give you money, the person who doesn’t want to? It’s going to be hard to put this one back. Steve: Right, yeah. It’s also amazing. Back to Morgan, he wrote again recently about like there’s basically an extra trillion, with a T, dollars in bank accounts now since the beginning of the pandemic. His recent article definitely reoriented me. I was like, alright, incomes are up, savings are up, debt is being paid down. Household balance sheets are in a much better place for many Americans. People in the service economy, they’re facing huge job losses that may not be coming back. Ben: Which is hard to reconcile. We saw that a lot in April and May, when the stock market really started taking off. We had clients saying, “Listen, there’s 10 million people unemployed. How was it possible that the stock market could be performing so well?” It’s hard to reconcile that in your brain that there’s so many people who are hurting, in businesses that are hurting, in individuals depending … A lot of it just came down to luck. It just depended on what industry you’re on. It wasn’t like you chose to have this happen to you. Unfortunately, some people have just gotten lucky end of the stick and some people got short end of the stick from all this. Steve: For sure. Well, I think another big thing that’s happened is, so back in 2018, when you’re first on the podcast, the 10-year treasury was 3%. People were like, well, that’s so low. Now it’s been hovering around, it’s heading back up, but it got down around 1%. That’s the backdrop for how we finance everything, houses, cars, businesses. How do you see that playing into where we are in the economy and where we might go from here? Ben: I think in March, it got down like 35 basis points or something. If this kept going, I thought those rates were going to go negative. I think if they didn’t step in it, they might have, which is wild to think about. People have been predicting rates are going to rise for years and years. They’re finally taking up a little. It’s funny that people think that rates rising from 50 basis points to 1% is a lot. I guess it’s all relative these days. From our perspective as me working for a wealth management firm and being on the investment committee, that’s the main thing I’ve been worried about for, I don’t know, 12 to 18 months. Ben: The stock market is the kind of thing where it’s been shown to come back. Even when it crashed, I was not nearly as worried about the stock market as the bond market, because the bond market is more controlled by math. You have your starting interest rate. Obviously, things can change based on the movement of those rates, and the volatility is going to be different. Over 5 to 10 years, your starting yield is a pretty good predictor of what your future returns are going to be. That lowers the hurdle for everyone. It brings everything down. Ben: Whether people like it or not, if they want to earn something above the rate of inflation, they’re going to have to learn to live with some volatility and accept it. There’s always going to be risk tradeoff. It would be great if we could go back to the world of 5% or 6% treasury yields. I’m sure a lot of retirees would appreciate that. It would make their lives a lot easier in terms of investment in retirement portfolio planning. I don’t know. It could be a long time before we ever get back there. You never say never. It’s unfortunate. Ben: I did a presentation a few weeks ago for a group. I said, “I think this is possibly the hardest market environment ever for people in terms of their prospects of what to do now, because US stocks have done so well and people are worried about that.” Then bonds, obviously, they’ve done well if you’ve held them because rates have fallen. It’s like, now what? Eventually, those low yields are going to turn into future lower expected returns. It’s not the easiest environment in terms of looking forward, even though things have been pretty good in the past. Steve: I definitely like a huge insight that I had this year, which is ridiculous. It took so long, but it’s like … Yeah, bond prices can keep going up as long as rates keep dropping. The question is, we’re seeing negative real rates in Europe and probably going to … To me, we’re seeing it worldwide. As long as they keep going down, the prices will keep going up. I saw a headline recently. I think there was like a 0% mortgage or negative mortgage in the Netherlands or something like that recently around for retail people. Ben: That’s the offset, is that if you’re a borrower, and especially for young people who are now rushing into the housing market in droves, that’s a … If you’re locking in a fixed rate mortgage, isn’t it possible in 10, 15, 20 years, maybe even sooner, people are going to look back and say, “Oh my gosh, you guys were getting two-and-a-quarter, 2.5% mortgage rates for 30 years.” That’s the opposite side of this coin. A lot of it depends on whether you’re a lender or a borrower. Ben: I think the other thing people worry about so much with rates is that they worry, well, if and when rates go up, my bonds are going to get killed. If you’re a bond investor, eventually, you want those rates to go up because that translates into higher future returns. You get a short-term pain by taking some losses on your prices and your principal in the meantime. Eventually, if we get to a healthier place, we would expect and want rates to rise. If they get back even to 2% or 3%, which doesn’t sound like much historically, but for now, I’m sure a lot of people would take it. Eventually, that hopefully means a good thing because you can earn some better returns on your capital from your fixed income. Steve: Before we move on to the bubble topic here, what do you think drives this? What will make it let rates start heading back up consistently? Ben: Well, the hope is, if you’re going by the textbook answer, it’s if we get some higher economic growth, that would push inflation up a little bit and then rates would naturally have to rise because that would make sense from the equilibrium perspective. The thing the monkey wrench in the situation here is fiscal monetary policy. The fiscal policy side of things is like a tug of war. Because the government spending so much money, you would think eventually in, let’s say, we get everyone vaccinated and we have this big shot in the arm from demand because people are out there spending money doing things that they haven’t been doing for the past few years. Ben: I know I can’t wait to do stuff we’ve been putting off. That could translate into a booming economy, potentially, if we have a few trillion dollars sloshing around from the government. The other side of the equation is the government starts to borrow money to pay for that, obviously. They don’t control the long end of the curve, unless they start buying those. They control the short rates. Could we get in a situation where the government and the fed wants to keep rates low? I think that’s the monkey wrench here. Again, eventually, you’d hope we get to a healthy place where it’s okay for rates to be higher, because we have higher growth. Steve: Yeah, right. Well, hopefully, we’ll get there. We’re definitely in uncharted territory. It’s incredible. Alright, let’s talk about bubbles a little bit. Before we jump into that, you wrote a piece about why bubbles aren’t always bad. They’re sometimes good. We’d love to get your context on that. Ben: Yeah. I wrote a piece and who’s … Going back to one of the … Actually, one of the more underrated bubbles in the day and he actually called it a manias from the 1800s, the British railway bubble. When trains came on board in the early to mid-1800s, it was this brand new technology. Like all new technologies, people get super excited and they extrapolate. People want to invest in it, because they think they could become rich. People went crazy for this project. It was interesting. It wasn’t like the British government was making all this railway projects. Ben: It was the actual citizens who are investing in this stuff, in these with private projects. They ended up building so much railway that like 90% of it still constitutes the train tracks that are in the UK. It was this huge bubble. People lost all their money after seeing like 500% gains. Like always happens, people just extrapolated to the future and went crazy. It turned into all this investment in the infrastructure. They were so far ahead of all these other advanced economies at the time and the bubble worked out for them. Same thing happened in the dotcom bubble in the 1990s. Ben: We had all these fiber optic cables laid down. It was eventually a good thing. It laid the groundwork for the internet. Bubbles aren’t always bad. They have a bad connotation because, of course, eventually, they’re going to pop and people are going to lose an assurance. A lot of good innovation can come out of them because you have this overinvestment. That’s what happens. Because people get too excited and it seems to happen with almost every new technology, which I think makes the case that because technology is such a part of our daily lives now and it’s such a bigger part of the economy, and frankly, the stock market. Ben: I think that maybe makes the case that we could just see more booms and busts happen in a quicker time fashion in the market, because technology is just so interlaced with everything now. People are going to extrapolate. Think about a company like Tesla where people are extrapolating what they’re going to do in the future and giving them that price now. I think it’s fascinating to watch. Because people are saying, “We’re not going to wait around for this to happen, we’re going to price it in now and see what happens.” I think he could see that a lot more these days. I think that just means things are happening faster, markets are happening faster. We’re going to see so much more volatility from that, I think, in both good and bad ways. Steve: Yeah. One thing that I’ve been thinking about is, historically, we have these bubbles that generally cause because humans are emotional creatures. There’s generational learning. The business cycle used to be longer. You’d have people, the tulip mania or whatever it is that it gets people the British railway thing, that gets people really excited, they overinvest, they feel a ton of pain. They learn their lesson and a generation is like, wow, okay, I’m not going to fall for that bubble thing again. Now what’s happening, I think, is we’re seeing these cycles. Steve: What I’ve been watching is like, hey, yeah, people see corrections. In March, we saw a correction of 32%. Then 30 or 45 days later, it’s so fast. It’s like it’s over. We’re back. Now people are learning lesson like there’s a floor. Ben: We had a full market cycle in 10 months last year. Yeah, I agree. I think that could be here to stay with us, because information is so much faster. The barriers to entry for investing have been broken down. It was so much easier for people to just invest on their phone when they’re sitting at home than in the past. You would have had to go to your local Schwab branch to fill out some paperwork to open an account or whatever. Now, you can just do it on your phone. I think that does mean that things are just going to happen faster in terms of cycles. Steve: Yeah. Fundamentally, things could go up to the right forever. You feel like there’s going to be a come up and set some point here. People are going to learn their lesson. I’ve son in college. He’s coming back. He’s day trading. He’s like, “I’m investing.” He’s like, “Yeah.” I don’t really look at the fundamentals. I just look at the momentum. He described what he’s doing. I’m like, “You’re momentum trading, you’re day trading.” He’s like, “No, I’m investing.” I’m like, “You’re day trading.” That’s what’s happening here. He’s like, “I made 100% in a month. I took my 400 bucks and I made it 800 bucks.” He’s like, “Give me five grand.” I’m like, “Mm.” Ben: Yeah. I go back and forth on this, whether it’s a good thing or bad thing. Because it’s a good thing that we’re getting so many more young people interested in this stuff. Is it a bad thing that they maybe develop bad habits? It’s hard to say. Hopefully, if you get into the game a little bit and you realize like, okay, I can’t keep this up forever. Now I need to develop some better long-term habits and skills. Hopefully, a lot of people will eventually realize they can’t keep that up forever and want to get to the more long-term. Steve: I said on the podcast that I did with Michael Batnick, I’m like, “Hey, listen, here’s some painful lessons that you can learn.” Tons of people are throwing themselves into the line of fire to try and make tons of money, but they also get crushed. What’s your case for us being in a bubble now? What are some of the indicators to you that say, okay, maybe things are getting a little bit frothy? Ben: The stuff like the parallel to the ’90s are pretty striking. People have been arguing this calling for a tech bubble for years and years now. They’ve been wrong, obviously. I think, frankly, a lot of the people in the technology industry have been proven right to have more of an optimistic bent about the world. The stuff like day trading and seeing penny stocks go crazy and see the volume in some of these stocks, and especially the young people in the call options, and that sort of thing truly makes it think like there are certainly pockets of bubbles or froth or euphoria. Ben: Hope you want to say it. It’s hard for me to say that it’s anything like approaching the 1990s, because you still do have a lot of people who are skeptical. You see massive flows into things like fixed income from probably retired investors who just need that ballast for their portfolio. It’d be hard to say that things have gone completely haywire. Even if you look at the overall stock market, the S&P is not like it’s going crazy. There’s parts of it that are going crazy in segments. It’s not necessarily the whole market. Ben: It’s just going bananas, and the fact that interest rates are so much lower now than they were then. It’s hard for me to say like this is a rip-roaring bubble. On the other hand, the S&P 500 is up 16 out of 18 years. One of those down years was 2008, which was like 37%, 38% loss. The other one was 2018, when stocks fell 4%. It’s been a pretty darn good run here. Whether it’s a bubble or not, investors should prepare themselves, eventually, for a sideways market or something maybe a little more prolonged than we had than a four-week bear market. That’s just the sort of stuff that happens in the stock market. Steve: Yeah, for sure. There’s also a narrative of like, hey, there’s long term prosperity ahead of us if we don’t screw ourselves with the climate too badly. There’s a lot of amazing things with technology and AI and communications, stuff like this, that things that can happen so fast all over the world. We’re educating and bringing people online in a much bigger way and lifting people out of poverty. There’s definitely a huge bull case that maybe we’re entering the next Golden Age. We’re actually on the front end of that and we don’t … Maybe Elon is right. Ben: The crazy thing about the dotcom bubble is we had to go through that dotcom crash, but everything people were saying back then, basically, came true. Even though we had to go through the crash and have a shakeout, maybe you’ll have these shakeouts in pockets of the market that get like electric vehicles or Korean energy that maybe people take it too far. You have some shakeout in the companies that maybe shouldn’t be there or got too little too far over their skis. You’re right. A lot of that stuff is going to be helpful. Ben: You look at people for years, were calling the FAANG stocks a bubble. I think that’s been basically debunked, because they more or less grew into their crazy prices, their fundamentals have kept up. Michael Batnick, he mentioned, he did a post last night where he looked at the free cash flow growth of those companies over five years, they’re at these huge market caps are averaging like 20% a year in free cash flow growth. Those companies actually grew into it. Now I think it’s almost like people got bored of those. They’re like, “Alright, I don’t need you anymore, Microsoft and Netflix. We’re moving on to the next thing.” Now that’s when things ramp up. That’s how it happens, I guess. Steve: I’d love to see his analysis on what it will take for Tesla to grow into its … What is it? Like 800 billion, 900 billion dollar market cap. It’s pretty. That’s a great company. I bought solar panels and two Powerwalls on our house and had a great experience. Love the products. Now I’m thinking about getting electric car, because it’ll goes together and totally makes sense. They manufacture cars and other stuff. There’s still a lot of growth that has to happen to get even close to this. Ben: That’s always the hardest question to answer as an investor, is what is priced in? Because even if a company is growing their bottom line at 20%, 30% a year, if investors are expecting to grow at 40, that the delta there, that’s the difference where expectations and reality could diverge from the price. That’s always the hardest question to answer. It’s like, well, what do people actually expect from this? Steve: Yeah, right. Okay, so one last question. We got mention bitcoin since it’s been kind of … Well, it had quite a run. I think it approached $40,000 back to like 32. I was like, well, we didn’t have a coup. I guess, the price of insurance against the coup went down. What do you think about what’s happening there and where that could go? Ben: I think from someone who just loves studying human behavior and behavioral psychology, I think bitcoin and cryptocurrencies are the most fun asset that there is to follow. Because there’s just so much going on there, where you have people who are just these true believers and you have other people who just want to come in and get rich. You have these shifting narratives from that it’s going to change the world to, no, actually, it’s going to be this next currency. It’s going to take over the US dollar. No, actually, it’s going to be the next gold. Ben: I think it’s just fascinating to see it develop. Now you’re seeing all these institutions coming in. I think the thing that the true believers that’s going to really make them angry is Wall Street, now that it’s got its teeth in on this thing. You’re going to see this thing just financialized from a product perspective, where people … They had futures for it, but now borrowing against it and lending it and shorting it and all these different things. Wall Street, now that it’s becoming more institutionalized and that institutional money is coming, they’re going to try to make this next digital gold and use it for a variety of different ways. Ben: I think that’s going to be really interesting to see. Because once that big money comes in, I’m not smart enough to know what that means for the price, but they don’t just come in and they’ll leave right away. Steve: Right, yeah. The market cap of bitcoin is what? 300 billion, 400 billion, I don’t know. I think the whole market cap … I mean, sorry. The whole market cap for crypto I thought was like 500 billion or something like that. Then bitcoin is the biggest part of it. It’s still basically tiny compared to the overall economy. What happens there? How does those fun flows affect this? Ben: To the point of a market speeding up, that’s the fastest market that we’ve ever seen probably from inception to growth phase to crash and some of the crashes they’ve had. For instance, if it’s going to be the next digital gold, gold had a 70 plus percent crash after it peaked in the ’80s, because it had this huge run-up in the ’70s from the inflation and getting off the gold standard and all that. It took 30 years to make that money back. Bitcoin has an 85% crash, and it makes the money back in a few years. Ben: That shows, when you get something like this, that’s why I think, in terms of technology, speeding the markets up, this is the perfect use case for that scenario, and seeing how quickly things can shift in terms of narratives and markets moving. I think just watching it as a spectator, I think it’s just one of the most interesting and fun assets there is to follow, no matter how you feel about it, Steve: Right. Well, let’s use this to segue into what people can do to hedge themselves in this uncharted territory that we’re in. Do you think people should hold some crypto? What other moves can people make when they’re … Ben: The way that I view it is, I’m still more or less a boring investor, set an asset allocation, think long term, plan for your own circumstances. I’ve certainly come around, especially in recent years on if you want to have a portion of your portfolio carved out to just go crazy and go nuts, I don’t see a problem with that. 5%, 10%, whatever you’re comfortable with, if you want to buy crypto or penny stocks or go trade on Robin Hood and have fun and scratch that itch just so you can leave the rest of your portfolio alone, I’m fine with that. I’m someone who never likes to go to extremes. Ben: I wrote a piece about this recently, that I’m never going to be one of these people that just puts all of my money into a single stock and watches it go crazy. That’s just not in my DNA. Some people have that personality. It just was never me. I’m more along the lines of thinking … We do this with clients too and say, hey, take 5% of your portfolio and do whatever you want with it and have fun. In that way, you know the rest of your investment plan is. Set on autopilot and more rules based and more thoughtful. Ben: Then this other piece you can go crazy with and trade options or whatever it is. That’s the way I think. I think crypto fits in that bucket for people. Obviously, it is an extremely volatile asset to the upside and the downside. You saw it dropped 20% effectively overnight. That’s the kind of thing you have to think about there. I think if you’re going to do it, let’s say you wanted to have a certain percentage in it like … I don’t know, people say 1% or 2% maybe. Let’s say you go up to whatever, five, whatever you choose. Ben: I think because it’s so volatile, actually, from a portfolio management perspective, you can actually be helpful if you’re actually disciplined and rebalance. When it has issues running and goes from 10 to 40 in a few months, if you have some bonds on it and you go, okay, I set it at 5% of my portfolio, now it’s at 10 because it’s wrapping everything. Now you need to trim back. Then when it crashes again or whatever, if it goes further, then you buy it. I think that’s a good way to play some rules around it, instead of just trying to think you’re going to put all your money into it and become a billionaire overnight or whatever. Steve: Yeah. This is the case for maybe having a robo that oversees all of your assets, especially if things are moving super fast, that rebalance that. Ben: It would shock you if in five years, bitcoin is in robo-advisors or target date funds. I don’t think I would be too surprised if it was a small piece. Steve: No. I don’t think so. I think our view is that futures people are going to have assets all over the place. They’re going to have all kinds of assets. They’re needed to look across, not just equities, bonds. If it’s crypto, cash. If it’s home equity, insurance products, they’re going to look across this for human capital and be thinking more strategically about how they put those things together, but being able to keep an eye on it and understand how the outside world taxes, interest rates, market movements is affecting that. I think people are going to need help keeping all this stuff organized. Because people’s lives are getting complicated without this moving faster. Ben: The double-edged sword of thi is, I think it’s great, especially for individuals. If you think about it, the institutions are just now coming to bitcoin. Obviously, the people who got in early because they’re the tech people, they own the majority of it. Retail has really been pushing this and driving this. This is the same thing for all these other place. You can now invest in art through a company like Masterworks or Fundrise, lets you do direct real estate investing. Some of these you can … That Rally Rd investing a car. I’m not saying that’s for everyone. Ben: The fact that you, now as a retail investor, have the option to do that stuff, it’s great on the one hand, because the barriers to entry have come down. It’s tough on the other hand, because there’s just so many options. You can go crazy and have this just mishmash of funds or strategies in your portfolio. You haven’t thought through like, how does it fit within my overall plan? Do I need these? I think there’s never been a better time to be an individual investor. You also have to be a little more thoughtful. Because in the past, you just didn’t have these options. Steve: For sure, yeah. I don’t know if you want to share anything more. I do see that you do some with your site. I think you have some sponsors, where you have these alternative assets people can buy. I’ve seen it out there. I don’t know too many … The only people I know who own art and fancy car like cars that could be appreciated value are people that have like 50 plus million dollars or 100 million bucks. Ben: Yeah. Honestly, the way that I look at something like art, and I’m obviously not an expert on it, we talked to them. I was interested. I played in it. I put some money just to play around and get a better understanding of it. Basically, the whole thesis from my perspective is, there’s a lot of really rich people out there with just not a lot of places to put their money. Frankly, it’s almost like a play on … I mean, it’s almost too bad. Because we saw what happened to the pandemic, where you could almost see it coming where inequality was going to get worse. Ben: I don’t know how they fix it in a situation like that, where they had to just throw money at this thing. Of course, if you own financial assets, you did better. Then we have these lower income people in the service jobs that lose their jobs. You could just see it coming, that inequality is going to get worse through almost no fault. It wasn’t anyone’s fault. It just happened. I feel like something like the art market, you’re almost betting on inequality in these ultra-wealthy people that just … In a way, it’s almost like bitcoin where there’s this narrative attached to it like, why would a piece of art be worth something? Ben: Well, it’s because a lot of rich people want to make it worth something. That’s my view of it. Now, do people need them in their portfolio? No. Could it be a diversifier if you’re looking at that? Obviously, the interest rate levels, I think, maybe push people out into stuff like that. I think you have to do a little bit of more due diligence and think a little long and hard about this stuff, because you’re investing in illiquid stuff that you can’t sell right away. I think it is interesting that we now have the access to this stuff. Steve: Right. Every asset is getting pushed up. There is a ton of liquidity out there. It’s happening across the board. It happens also in companies. Even as a small company, we see it. We’re seeing more investors, more private equity guys call us like, “Hey, what are you up doing? That’s pretty interesting.” Ben: Yeah. That’s the other side. Couldn’t you also see … I don’t know. I know Vanguard is pushing into this. I think in a few years, Vanguard will have a 5% sleeved private equity in individual target date funds or something. I think that’s the kind of stuff too that is just … All this stuff is going to be ubiquitous. Investors, I think, are going to need even more guidance in terms of, do I really need this? How does it work? Because a lot of this stuff is just harder to understand. Steve: Right. Well, it’s definitely pushing out. It used to be Goldman would go to their really wealthy clients and say, hey, we’re going to do this special private equity stuff. We’re going to get you into these companies that no one else can get into. Now you see as a venture person in this community, you see Fidelity like, oh, Fidelity took a huge chunk of Uber or something like that. They’re definitely … I mean, pre-IPO. They’re coming in, and then going earlier in these companies to get exposure to this stuff. Alright. Well, let’s move onto your book. You wrote this book, Everything You Need to Know about Saving for Retirement. Why did you write it? Who’s it for? Ben: This is the opposite of what we’ve been talking about. This was breaking it down to the basic building blocks. We actually, through our business, we have a 401(k) arm that helps people manage their 401(k)s and administers them. The guy who runs it, Dan LaRosa, had said, in an offhand way like, “I love all the content you guys produce. You’re talking about the markets and what’s going on and in giving deep dives and helping explain it better, but I have just regular normal 401(k) investors. Ben: I know that they are not going to listen to a bunch of podcasts about finance in the markets. They’re just not interested and they have other stuff going on in their lives. They just need the basics. Just help them understand, so they’re not constantly tinkering with it or they’re stopping saving, because whenever the markets down. They just need to know the basic building blocks.” I said, “Alright.” Because the way I feel about it is, if you can get the basic stuff down, you’re 90% of the way there pretty much, give or take. Then the other stuff, you can fill in as you go. Ben: It’s more of a personal finance book than it is about investing. I told Dan like, “Alright, maybe I can read a little white paper.” The more I got into it, the more I realized it probably had to be a book. I ended up being around 100 pages and ended up self-publishing it, so we could have some control over it. It’s meant for young people or those people who really don’t have their finances in order need to understand how important it is to just save. I kept coming back in this point from all the numbers I was running in the book, just how much more important saving is in investing for the majority of people. Ben: Because when you look at the retirement balances in the country, that number I started the book with, like the median retirement balance for people 55 to 60 in this country is $21,000. Meaning half the people have less than that. For most people, it doesn’t matter what stocks or bonds they’re picking. They just need to start saving and put the money away. Then you worry about the investing stuff later. My whole goal was, it’s hard to get people outside the world of finance to read this. Ben: Hopefully, people in finance will see this and know someone in their life that they can give it to and say, I have a son or a daughter. We’ve been gifting it to clients’ children saying, I want to get them interested and get them started. That was the whole idea. Really, the importance of getting your personal finances in order before you ever figure out what your investing strategy is going to be. Steve: It’s true. Savings is like high savings rate. It’s like the one thing that after our 50 podcasts, people are like, that’s what everyone has to do. I think one of the challenges is that people, especially people that are more specific and can save, some of them that are younger, if they get into things like Robin Hood, they’re getting this dopamine hit of like, oh, I can make money trading this other super risky stuff. They’re like, who wants to … When I go out and be like, hey, here’s how it works. Save money, buy index funds, keep your fees low, diversify, and do that for 15 to 20 years. You know what, you’re probably going to be pretty wealthy and be fine. That’s the best mathematically proven way to do this. They’re like, that sounds like so boring. Why would I do that? Ben: I think the hardest thing, especially for young … Those are the ones I really want to help because they still have time. I have a whole chapter in the book about if you’ve got a late start, but the young people. It’s hard if you’re 25 years old to picture yourself in 40 years like, what am I going to save for retirement for 40 years? I have no idea. If I’m going to be able to retire, what it’s going to look like if I’m going to want to. The way that I frame it for young people, especially just giving yourself more options. Ben: When you’re young, you have the ability to take some more risks, maybe with your career or maybe moving to a new city or whatever it is, could be for a relationship, whatever it is. If you give yourself a little bit of a financial buffer and put some money aside and save, that can allow you to take some more risks that you maybe wouldn’t be able to take otherwise. It’s not just about saving and planning for retirement, although that is important, especially when you can compound over decades and decades. It’s also about the here and now of giving yourself some more opportunity to take a risk here and there that you might not have taken otherwise. Steve: Yeah, for sure. We were talking about this yesterday in this podcast with JL Collins. We were talking about what’s your favorite manifesto. I looked at his list and I was like, it’s the one about FU money. Definitely, I heard that early in my career. I was like, wow, that’s a great idea. I would love to have some FU money. It’s been super helpful personally, and I tell my kids about it like, you want to have control, you want to be able to not be beholden to everybody else. Ben: Yeah. Maybe not working a job you don’t want to that’s soul sucking or not work with people you don’t want to. That’s the goal. I think for a lot of young people too, they see that. I hear from young people all the time. Coming right out of college, they have life so much more figured out than I ever did. They know the type of companies they want to work for. They know the people they want … They know the type of companies they don’t want to work for, saying, “I would never work for a company like this.” Ben: I never had that figured … It took me a long time to come to those conclusions, and the fact that they have it figured out young. That’s great. Unfortunately, sometimes it takes time. I think you have to give yourself the option of getting there and taking a little time and again, having some options and maybe taking a lower paying job. Because you have a high savings rate, just so you can get some better experience or whatever it is. I think just taking some … Allow you to take more risks and have more options is the idea. Steve: Right. Can you summarize the top things that you think? High savings rate. For people getting started that are like 0 to early 20s, what should they be doing to get set up right? Ben: My goal is I want everyone to have a double digit savings rate. That’s the goal. If you can do that … I mean, the great thing about having a high savings rate, not only that it gives you a margin of safety in the meantime, is that you’re placing less money when you become financially independent. The higher your savings rate, the less you have to replace for your lifestyle. The other thing is, I’m not saying most people can get there right away. Because when you’re young, you’re probably not going to have that much of a salary. You could have student loans. Ben: You’re paying high rent, maybe they needed in the past. I talked about in the book. Coming out of school, I made a very low salary. I started saving like $50 a month into a target date fund. Part of it is I think just getting those small wins, even … I mean, saving $50 a month is going to get you nowhere financially. It helps develop good savings habits so that as you progress in your career and you make a little more money, you can slowly increase to get to your goal. Even if you can’t hit my double digit savings rate goal right away, start saving and developing those habits. Ben: Because it’s going to be a lot harder to develop those habits later on in life. If you’re used to saving, and the biggest thing for me is just automating it and just having it come out automatically out of every paycheck or on a monthly basis, whatever it is, so you never even have to plan on that. I think the way to view it for young people, I highly frame in the book, is if you’re saving like a Netflix subscription. Every month, it’s like a bill. $200 is going to go to my Vanguard IRA or whatever. I’m not ever going to think about spending that money, because it’s on autopilot. Ben: I’m pretending that it’s a bill that I have to pay. My savings is part of just my financial ecosystem. I never even pretend that I have to save it. Because if you go with the mindset of, alright, I have my paycheck and I’m going to spend everything there and whatever’s left over at the end of the month, that’s what I’m saying. That just never works. Because eventually, you’re going to spend it all or you have this fleeting willpower and something will come up. If you just save it off the bat and spend whatever’s left over, that’s easier than trying to micromanage and figure out whether everything you’re spending on is worth it or not. Steve: I think that’s great. I think one thing when I’m listening to you is like, people have to get some big things right. One is also debt. Unfortunately, for a lot of kids, when they’re going to college, their families are making these decisions. Historically, with student debt, it’s exploded. I know in our family, we’re like, hey, we really don’t want you to have a huge amount of student debt. That guided our oldest to like, we should really think about state public universities, which we did. That’s made it a lot more affordable, though I have friends that, “Hey, my daughter’s going to USC. She’s in a fraternity and it’s like $80,000, $90,000 a year.” I was like, “God.” I can’t imagine biting that off and deal with that. Ben: I think that’s a good way for parents to start having that conversation with their children that are young. Obviously, it’s hard, as an 18-year-old, to understand this stuff. If you can lay it out and say, “Listen, if you go to community college for two years and then public school, it’s all paid for you coming out no debt. If you go to a public university the whole time, you really have to get a part time job to help pay for it. If you go to a private school, we’re going to pay up to X amount, but you’re going to have to cover the rest of the loans. Ben: You’re going to come out and then here’s what your monthly payments going to be.” I think it’s a way to start that conversation. Again, it’s hard for an 18-year-old to know enough to make those decisions. I think it’s important for parents to at least acknowledge that and talk with them and be upfront with them about, okay, here’s what we can afford or here’s what makes sense. Here’s what we’re willing to pay. I think that’s a good way to get that first conversations about finances out of the way and get them thinking about that stuff. Steve: Yeah. Well, unfortunately, it’s not easy to see this. You hear plenty of people that have gone through this and then they come out and they have six figures in debt. You’re hearing the stories like, “Well, I’m 25 years old, I’ve got $130,000 in debt.” You’re like, “That sounds pretty freaking daunting.” Then they’re spending a huge amount of their early life cycle not saving, investing, but trying to dig out of that debt hole, which is really hard to do. That forces them delay buying a house or maybe having a family or everything else. It does start with some of these giant decisions around debt early in your life. It’s the whole family that is involved in that process. Ben: Yeah. Unfortunately, I talked about this in the book, there’s not a lot of great financial role models for people. Because if your parents have bad financial habits and they’re in credit card debt and they didn’t save, they’re setting a bad example for you whether they know it or not. Frankly, the whole retirement concept is so new still. My grandparents were basically came up during World War II era and fought in World War II, that type of thing. That generation is one of the first that really thought about the concept of retirement. Ben: They were thinking they’re going to live for what? 10, 15 years maybe, and probably had a pension. Now you’re talking to people who are retiring in their 50s, could have four or five decades. There’s so much more that goes into the equation now if you’re having to go for two, three, four decades, whatever and have your money last. This gets back to our original topic of accepting volatility, even if rates weren’t lower. If they’re a little higher, you’d still have to accept some volatility if you wanted your money to grow, because you have two or three decades. Ben: Balancing that out is much harder than it was in the past, because you just didn’t need your money to last so long in the past, which is a good thing, obviously. We’re living longer. Healthcare is improved. Technology is improved. You still have to … There’s more that goes into the planning process than it was in the past. Steve: Yeah. Unfortunately, there’s such a huge gap between the original number you gave, what? People have $21,000 as they’re heading into retirement. People think, oh, having a few 100,000 might be good. The reality is, you may need over a million dollars and claim Social Security smart intelligently and manage your costs and try to avoid still catastrophic healthcare stuff that could go beyond what your car insurance. From your book, smart decisions, save money, build a process, that all sounds fantastic. Then any big moves people should consider as they head towards retirement? I think you mentioned there’s some stuff on Social Security in here and being smart with your 401(k). Ben: Yeah. The one thing people always asked is like, how do I know I’m ready to retire? What’s my number? People want to have this number in mind just to understand like, okay, once I hit this number, I’m good, right? I’ve heard a lot of people say, do I sell it on? I sit in cash, that way, I know I have enough money or whatever it is. Of course, unfortunately, the rates where they are, that’s pretty tough, unless you have a huge nest egg. The way that I like to think about that can I retire question is you back into it, instead of thinking like, okay, I’m going to do the 4% rule. Ben: Think about it in terms of what your lifestyle is, how much do you spend, how much do you need to retire, how much do you spend per year, how much is it going to grow, isn’t going to fall? Surprisingly, I actually looked at some numbers. The government has some really good data on this, like the Federal Reserve or the BA. They look at how much people spend by decade. It tends to peak in your 50s and then slowly cressing goes over. As you get older, you’re not going to spend the same in retirement. By your 60s, you spend the most. In 70s, it goes down. Ben: In 80s, goes down even though as healthcare cost increase. I think you have to be just realistic about what your lifestyle is and what you want it to be. For some people, that could mean changing expectations in retirement if they don’t have enough saved and they want to retire earlier. For other people, that might mean working longer or working part time in retirement, whatever. Part of it is just understanding your own lifestyle and your spending habits. As you’re close to retirement, you can plan that out better than someone in their 20s or 30s who’s so far away and doesn’t know their priorities going to change. Steve: I think there is going to be a future of mini retirements, sabbaticals, starting earlier in life as people realize the most important asset you have is your time and your health. I think more people are seeing that, and you don’t get it back. You can save your whole life, then you get to 75, something happens. Suddenly, you lose the time. Why not, to your 50s, your 40s, you want to take sabbatical, maybe you should do it. Ben: Yeah. That’s something that I’ve certainly changed my mind on since I had kids. I have young kids. I have I’ve always been this diligent saver. I’ve had to change my mindset from being a saver to actually like, let’s enjoy it now. My kids are young. They’re not going to be young forever. What’s the point of having a big bank account when I’m in my 60s? Why not enjoy some of it now? I think there has to be some balance. For other people that just spend everything they have, they have to change that mindset the other way. Ben: For me, it was just, yeah, you have to enjoy some of it now. Especially young people, I think their mindset is going to be different in retirement. Like you talked about mini retirements, but also maybe continuing to work on stuff that they care about, maybe changing jobs. Because some of the research I found was that the people who retired and then just immediately stopped and just went to the beach and read books all day, when they had nothing to look forward to and they shut their brain off completely. Ben: They said the person who did that versus the person who still did stuff and tried to work and think and had something to look forward to, the people who just retired and did nothing actually died a younger age than people who kept having something to strive for and doing, kept their mind busy. I think people in the future are going to have a different concept of what retirement is compared to what was in the past. Steve: For sure. With that, I think one of the big keys to happiness is purpose. The purpose is about having something larger than yourself that you’re working on. A lot of people lose sight of that. I see that in the fire community too. People, they’re so focused on like, hey, I want to get to financial independence, retire early. Then they get there and they’re 45 years old. If they haven’t thought about it, they get depressed. If they haven’t thought about what to do next, they can get depressed and be like, okay, now I’m aimlessly wandering around here Ben: Right. That’s where you can get lost and have a financial talk. It’s like, what am I going to do with myself, my time? There’s only so many trips you can take or books you can read or time you can spend on the beach. You have to do something with your time and keep yourself active. Steve: For sure. One of the things I say, we talked about dark fiber earlier, I feel like the human capital of people over 50 or people that get to retirement, but are still pretty healthy and doing stuff is like the next dark fiber. It’s underutilized resource. We see it in our community. We’re having people in our community, they’re like, hey, I can help you with cybersecurity. I can help you with sales. They’re like, look, they’re interested in what’s happening. I think you’re going to see that across a lot of companies and initiatives in general. Alright, well, look, I know we’re coming up on the hour here. As we wrap it up, as you look forward, any big changes you see for your business or yourself as you sit in the intersection of wealth and technology to some degree? Ben: One of the things we’re really focusing on this year, like most wealth managers that we have, we work with high net worth individuals, we’re trying to move downstream and work with people who might not meet the specific minimums of wealth management firms. Technology allows you to do that these days. They still want to talk with someone who can answer their questions. I think you’re seeing a lot of young people who get to a certain stage where they’re either making more money or they’re starting to have some assets. Ben: We’re trying to start to move more into that space and just help people who may not need a full service wealth manager, but maybe still would like to be able to talk to someone and have some questions answered. I think that’s the biggest thing for all people, no matter how much money you have saved or how much your income is or what you’re doing is … A lot of people just want to know that they’re going to be okay or that they’re on the right track or the right path and have a plan. I think for a lot of people, that’s the biggest part of it, is just knowing that they have a plan that they can follow and the understanding that things are going to change, and their plan is going to change too. That’s something that we’re focusing our energy on. Steve: Nice. How big is your firm right now? Because you guys have done a great job. I think it was you’re approaching a billion dollars, I’m blunt through that. Ben: Yeah. We’ve seen some incredible growths since I started. I think I started, we had 150 million under management. I think last year, we went the year about 1.5 billion. It’s going well. I think a time like last year, in March especially, is when you get a lot of people reaching out. People rarely want to change their advisor or portfolio during a bull market when everything’s going well. It’s when things start to fall apart that they realize that either their current advisor doesn’t have a plan for them or didn’t like think that maybe this is in the range of possibilities. Ben: Or they’re doing it themselves and they realize, I don’t want to handle the stress that comes with doing this on my own. You get a lot more people reaching out during a time like that, which makes sense. That’s when people start paying attention to this stuff more when things go bad. Steve: Yeah. Just as we wrap up, how are you scaling? If you’re going to handle people that have less wealth, what kind of tools and services are going to use to support them? Ben: For the investing side of things from an operation perspective, we partnered with Betterment and utilize their technology where we can build our own portfolios using funds that we choose, but use their technology for rebalancing and tax loss harvesting and their robo advisor technology. Then also pair that with a financial advisor who can help people create financial plans and answer some questions that they might have, and that audience or that client base definitely skews younger. Steve: For sure. That’s cool. That’s good. I think we definitely need more technology out here, because it’s hard. It’s hard to find the scarce resources, the people who know what they’re talking about. There’s so many people that need support out there to make better decisions. Alright. Well, look, Ben, thanks for being on our show. This is fantastic. Davorin Robison, thanks for being our sound engineer. For folks listening, appreciate your time. If you’ve made it this far, definitely check out A Wealth of Common Sense, Ben’s site. You can find him there on Twitter as well. Steve: You can find his new book, Everything You Need to Know about Retirement. For us, you can follow us on Twitter or check out our Facebook group or check out our tools and services at boldin.com. Thanks a lot and have a great day.