Tony Robbins

John Rothmann –  I'm John Rothmann. And you are listening to the Retire With More program. We're delighted to have you, and we have a very special program today, a very special guest. Mitch, take it away.

Mitch Tuchman –  Well today, we are honored to have Tony Robbins on our show. And so instead of introducing Tony directly with all of the things I could say, I'm going to ask you a question, Tony, just to get this conversation going, okay?

Tony Robbins – Okay.

Mitch Tuchman –   So, Tony, you are the world's leading authority on leadership psychology. You've coached and inspired more than 50 million people, CEOs like Marc Benioff, a local guy here who's done a lot of great stuff in San Francisco, and some of the world's most high-achieving people around. More than 4 million people have gone to your live events, and Oprah even calls you superhuman. So Tony, against all advice from friends, even your publishers, you as an outsider decide to go write a book, and I've read it, and I'm in the financial services business. It's complex. Six hundred pages. You try to distill the complex world of finance. Why on earth would you go and write Money: Master the Game?

Tony Robbins – Well, it's interesting. It began because of 2008. I grew up dirt poor, and we had no money for food at times, even at Thanksgiving. It's one of the reasons I fed 42 million people over the years, and 100 million people this year, and I did it with proceeds from this book, that was part of it, and I added a bunch of money to it.

But what drove me was seeing all these people literally losing their net worth, half of it overnight, seeing people losing their homes en masse. Those weren't statistics to me, I mean, I lived that life. I'm fortunate enough to have a privilege, and that's access.

I've been coaching a man named Paul Tudor Jones, who many people know as one of the top 10 financial traders literally in the history of the world. This is a guy who in 1987, when the stock market drop, percentage-wise, still in history, 20% in a day, made 200% for his clients that year, made a fortune that day.

I was working with him and have been working with him for 21 years. He hasn't lost money in those 21 years. I mean how many people do you know his scale on earth can say that? And not only that, in 2008, when the markets as you know were down 51% from peak to trough, he made 28%. So I have a tremendous level of insight because I've been coaching him for 21 straight years, literally every day, he writes to me, I see him in person.

So the level I've been able to absorb in the financial area is beyond what most people have a chance to know in their lifetime, and I thought if I could add to that by, say, interviewing 50 of the smartest, most brilliant financial minds in the world, Nobel laureates, self-made billionaires, hedge-fund founders, if I could find out what the common denominator is, I'd really have something of value. I could help a millennial who is just getting out of college who thinks they'll never be financially set or free, and what do I do with all this debt, or even a baby boomer who maybe didn't do so well in 2008 and they haven't gotten back in the market and they think I'll never retire.

If I could help them, it would be a worthy task. And then if I could take this and find a way to help people who society has forgotten, the 49 million people in this country, including 17 million children, who wake up every morning not knowing if they are going to have food or not, then it would be something I could sink my teeth in to.

So it was a four-year journey and I loved it. But you're right, everyone told me not to do it. Paul Tudor Jones told me not to do it. He said it's too complex, there's no way you going to do this. He's one of my dearest friends and, obviously, my publisher and he said, “Tony, I'll give you a sizeable additional bonus if you don't write this book.” I said, why would you say that? And he said, because it's an industry and it's a category that's been picked to death like a scavenger. There's nothing left. And I said that's because there hasn't been a great book in this area because it's based on individuals' opinions.

None of this book is my opinion, other than how to shift yourself psychologically and emotionally, because that's been my 38-year expertise, around the world, with tens of millions of people. But when it comes to the financial side I'm going to be bring the best there is on earth, people who made money in the worst times and who made money in the best times. And simplify how it can be done. So it came together and I actually saw my publisher and the book's been No. 1, the New York Times No. 1 business bestseller for four straight months, 17 straight weeks, and I saw him just a couple of weeks ago, and he said there are fewer words in the English language better than "I was right."

I don't want to be right, I'm just glad it all worked out. So I feel really grateful that people who will normally not open their doors were able to give me this much time. I asked for 45 minutes and my average interview was three hours. Jack Bogle I spent four hours. There's a quote in the book where he said, "Tony came by for 45 minutes and four hours later I had the most provocative and profound discussion of my life about by career and my insights.”

Ray Dalio gave my insights that he has not shared with anyone — he’s made that very clear — in his entire history, 23% returns for 21 straight years, so I'm really pleased to be able to bring this to the general public, and if you're unsophisticated you can start with this book and if you're sophisticated you can go straight into the greatest masters of finance and see directly what they have to say.

Mitch Tuchman – Well, one thing I just loved about it is you've rattled off a lot of very sophisticated investors like Paul Tudor Jones but no one has heard of Paul Tudor Jones unless you're ultra-wealthy or you're running an endowment and you know or have access to his fund, which I am sure...I bet he's been closed for a long time.

Tony Robbins – He has been, yes.

Mitch Tuchman – But at any rate, what you've done though is you've interviewed all these people and then you've brought down it to the guy with a couple hundred thousand IRA or 401(k). That's what I love about it. One of the first steps that you've said in the book is, if you want to master the game, let's get on the inside, let's become an insider and know what the rules are. And you start to dispel all of these myths that rob people of their financial dreams.

I'd just like to discuss a few of them. I know you went through nine of them and we probably don't have a lot of time here to go through all nine. We on this show talk quite a bit about the $13 trillion lie, that beating the market is a myth, it's just gotten harder and harder. And on our Rebalance Investment Committee Charley Ellis has written lengthy articles recently about why it has even gotten harder over the years. At Rebalance we talk a lot about fees. We bring our clients fees way down, but those are like a cancer in your portfolio. It's insidious how they erode value. I love the way you address the concept of “I'm your broker, here to help.” I love the way you address some of the things about how returns are misrepresented in the media. And it's legal to do, and some of those things. Can we go through and click off, I'll guide you on a few, and I’d love to talk about it.

Tony Robbins – Sure.

Mitch Tuchman – What about the broker thing? The conflicts of interest in the business.

Tony Robbins – I made it a mission to teach people the "F word," and the F word in my sense is "fiduciary." It's not a word the average person may have heard and it sounds really complex but here's the crazy thing. You think, okay, everyone is going to tell you, give me your money and we'll beat the market. You've already said it, this doesn't happen. Ninety-six percent of all mutual funds over any 10-year period of time fail, I repeat, fail to beat the market.

So the 4% that do, what's your chance of finding that mutual fund that's in the 4% that beats the market? Well, if you play blackjack, and you get two face cards worth 20 and you're playing 21, and your inner idiot says, "hit me," you have an 8% chance of getting an ace. You have a 4% chance of buying the right mutual fund. So it's just not true.

There are a few I would look at as these weird, unicorn exceptions like a Ray Dalio, like a Paul Tudor Jones, but as you said, the average person can't get access to them, so they're not practical. I think the first thing you're going to do is, you're not going to beat the market. The second thing you mentioned is fees.

Let's be specific. You used the right word, "cancer." That is about as direct a word as you can use. It destroys your financial future. And here's the simple thing: This is one of the only industries in the world where you can pay 1,000 times more than another person for the same product and not know it. If I said to you, you can buy a Honda Accord for $20,000 and I sold it to your neighbor for $350,000, you would think, he's an idiot and I'm a crook. But that happens every single day in the financial markets because you can go get the index from Jack Bogle at Vanguard for 0.17%, or you can go get some the exact same stocks and pay the average mutual fund 3.1%.

It's the same ratio as a $20,000 Honda for $350,000. Or, another way of saying it would be- if you started a 30-year goal with $100,000 and you got two other friends and you all get a 7% return, and you keep compounding at 7% for 35 years and you're going to retire at 65, what do you have? Well, if you have 1% set of fees, you have $574,000. Your $100,000 went to almost $600,000. Pretty nice return.

But if you get the same return on the same investments but you had 3% in fees, now you have $324,000. You're literally almost losing, almost giving 50% up in fees to someone that added zero value. I mean there are so many people out there right now, and I know you guys are exceptions, what you do in your firm, you know, "retire with more." But the idea is you’ve got people that say, "Oh, we've got Vanguard funds and Vanguard charges 0.17% and then they add 60 basis points, or more than half a percent on top. There's one I just saw recently, a 401(k) plan, 110 basis points. They only charge you 0.17% and Vanguard does all the work, and these guys who are telling to buy Vanguard charge you 500% on top of that.

Mitch Tuchman – I know. It's insidious.

Tony Robbins – It's insane. So you've to educate yourself. You've got to become an insider. The reason I did the book is to give you that. The part about the broker. "I'm your broker, I'm here to help." Here's what's true. Most people in any industry, including in the financial industry have integrity. The majority do. The majority really do care.

The problem is that a broker, which by the way there were 327 names that I was to identify for "broker," everything from wealth manager on down. They're just still a broker. What is a broker? Well, the broker may have good intent, but if you go someone who is a butcher and you say, “What's for dinner tonight?" he's going to sell you meat. And that's because that's all he carries. He's not a bad guy. He probably eats the meat himself. He's probably an expert on that meat.

But he's got a limited selection. If you went to a dietitian, they would say to you, "Wait a second, I don't make money off meat and you don't want to be eating this much meat. You're going to get cancer eating this much meat. We need to put some salad in here, maybe you have some fish. Let's cut back on these things and that's really what a registered investment advisor does, or a fiduciary because, legally, that broker might have a total positive intent, but legally he doesn't have to put your needs ahead of his own. He just needs to show that whatever you're investing in is suitable.

What is suitable? Well, it aligns with your goals to some extent. You'll never get sued for that. Versus the fiduciary, if he says "buy Apple today" and later he buys Apple at a cheaper price on the same day, he's got to give you the stock he got cheaper because he had to put your needs first. He couldn't be making a benefit off you in that area. So it's a unique approach fiduciaries have and there aren't that many. You're one and you understand as a registered investment advisor. 

Mitch Tuchman – Sure.

Tony Robbins – I'm a giant promoter of saying, look, it's not enough to have somebody be sincere. They could be sincerely wrong. You need somebody that is tied legally to put your needs first. And I would add one more piece.

Mitch Tuchman – Okay.

Tony Robbins – And that is, some people would be better off, frankly — and I know Charley Ellis would agree with me, I also know David Swensen from Yale, who is the greatest institutional investor, I would say, in history, took them from $1 billion to $24 billion in 30 years, it's mind-boggling — I know they'd agree that a lot of people, maybe they've got a small amount of money, maybe they just put it directly in index funds.

I know that some people are self-doers. But my experience is, if you get somebody who is a fiduciary, who can give you the expertise they have at a reasonable price, under 1%, that person can usually do a really great job for you, as long as they are not getting a commission.

So I've created a site called PortfolioCheckup.com. And at PortfolioCheckup.com you can go in and get the answer that most of us don't know. You can link all your accounts in a few minutes wherever they are and then you can, "How much am I really paying in fees, and you get the reality check. You can look at that and you can say, okay, how much risk am I really taking? You can make a comparison, put all the portfolios on them and you can do that yourself or you can be recommended to an RIA like yourself or somebody who's got integrity, but I think there are RIAs...

John Rothmann –  Tony, I had to interrupt, I'm the bad guy. We've got to take a break. We're going to come right back. Remember, www.rebalance-ira.com, and when we come back, more with Tony Robbins.

John Rothmann –  I'm John Rothmann. And I'm Mitch Tuchman. And you are listening to the Retire With More program. Our guest is Tony Robbins, and Mitch, why don't you pick up where we left off?

Tony, we were talking about your book, Money, Master the Game, the best-selling book, and it's about money and finance and we were talking about some of the myths that you help dispel in the book and we were going through the last few ones on the list. What about the ones that you call "the lies that we tell ourselves?" I love that one.

Tony Robbins – Well, you know it's interesting all of the things the financial industry does to make things complex and to make you just give up and basically give them their money so they can charge you these crazy fees. Again, a lot of people have enormous integrity in that business but the system is not set up for you to win. The system is private corporations, which, their job is to make a profit. So, they're not evil. They're trying to do what they are supposed to do, make money for their shareholders.

But that's not making money for you. And I believe if you can get through all of that, then you have to get through your own limitations, which is, oh my gosh, money is the root of all evil, or if I make a lot of money, then I'm not spiritual. So what I try to do in the book is show you, if you're going to become an insider you've got to understand how the game is played, but you've also got to understand what your own limits are.

I always find in any business or in any investment approach, people, the biggest limitation they often find is in themselves. So I give you a set of tools to uncover what they are and dispel those myths, just like you're doing with the other financial myths that are out there. 

Really, one of the myths I think would be useful to highlight for a second if we could is... I interviewed all these people, and I'm talking some of the greatest investors, literally, in the history of the world. Some of them are people I interviewed before they passed, like some people may have heard of Sir John Templeton, the first billionaire investor, an extraordinary man. You know, Charles Schwab, Marc Faber, T. Boone Pickens, I mean, Ray Dalio, Warren Buffett. 

One of the things I found is that they all have different approaches to investing and so people say that's confusing. Well, no, let me let me show you how to set yourself up to win the game and then let's look at what best aligns with you. So, when I did that, there was one thing that was a myth that I had. And the myth was I thought these multi-billionaires who started with nothing must have taken gigantic risks to get where they are. 

And truth of the matter is they all live by one universal principle at that level. And it's something most average individual investors never heard of. It's called asymmetrical risk-reward. It's a big word, what does it mean?

It simply means they do not risk a lot to make a lot. They are obsessed with finding what's the least amount I can possibly take with the greatest potential upside. In other words, how do I risk a little and make a lot?

And the way in which they do that is really interesting. Paul Tudor Jones does it — I've worked with him for 21 years making sure he does this — is every time he makes and investment his question is, "Is this a 5 to 1? If I risk a $1, can I really make $5?"

Now he knows he's going to be wrong. So if he risks a dollar trying to make five and he's wrong he can now risk another dollar and he's only risked two to make five. He can be wrong four times out of five and still be great.

A better example might be Kyle Bass. Kyle Bass is a man who is very famous because he took $30 million of other people's money and he converted it into $2 billion in two years, if you can imagine that, and he did it in the worst economic crisis of our history.

I spent days and days with him. I know him very well, he's a good friend now. But I can give the whole game of how he did it in one distinction: He never risks more than six cents to make a dollar. Most of us risk a dollar to make 10 cents, 10%. Or a dollar to make 20%, make 20 cents. He risked only six cents to make a dollar. In other words, if he was wrong, he could risk another six cents. He could be wrong 15 times and still make money.

I'll give you a simpler example that might make sense. Most people admire Richard Branson, and most of you think of Richard, he's a friend of mine, as a huge risk-taker. And you'd be right, he's a risk-taker with his life, but not in business.

He's crazy. He'll go on balloon where he can kill himself or jump in a boat, we're going you know on his spaceship together. And those opportunities are scary, crazy, take-your-life at risk. But when it comes to business his number one question is, "How do I protect the downside?" And when he does it, I'll give you a perfect example of asymmetrical risk-reward, when he started Virgin Air, his biggest risk was you're buying these millions, tens of millions of dollars Boeing jets. So he went to Boeing and made a deal that said if he failed, if the business didn't work within two years, he could give back all the jets with no downside, no liabilities.

Check this out, no downside, and all upside. That's the way these people do it. You might say, Tony, I don't have access to hedge fund guys, so how am I going to do that? Well, if you work with somebody who is a really great registered investment advisor and they're sophisticated, they might say to you, you know, you might look at some alternative investments, you might look at trust deeds. You could do a one-year trust deed and you could provide the money for that trust deed with the promise of payback and, today, I get 10% returns on one-year trust deeds in marketplaces where I know, I looked historically, in 2008, worst time in history, they didn't drop 50%. They might have done it over three years but not in a year.

So my risk is extremely low, extremely low. It's never happened in history. My upside is 10% vs. 4% on, let's say, a junk bond, which a kind of crazy, and I'm getting a nice return with some asymmetrical risk-rewards. So there are many ways that you can do this without being involved in a hedge fund, and from what I've heard about what you guys do, Mitch, you're looking at using ETFs, you're looking for the greatest leverage with the least amount of risk, the least amount of cost possible, so it's the same type of thing. But I think asymmetrical risk-reward is something for people to look at.

I'll give you one final example. With Kyle Bass I said "How would you explain this to a child?" He said, "I had to explain it to my kid."

I said, "Perfect, how'd you do it?" He said, "The answer is nickels." What do you mean, nickels? He said, Tony, I ask myself a question that most investors don't ask. I said, where can I get a riskless return, where on day one I have a 10% or 20% return on day one and I have no risk? Any one of us would say that's impossible. But he's obsessed, and so he came up with nickels and here's what he figured out.

The U.S. government at that point was spending nine cents to make a nickel. You wonder why our government is in bad shape financially, right? Of that, he found that the actual nickel itself — it's not just nickel, it's the materials that they use  — was costing them more than a nickel, 20%. In other words, if he buys nickels, the day he buys them they are worth five cents. They'll never be worth less than five cents. They'll never go down in value. So whatever he invested, it's never going to go down in value but, the day he bought it, it's worth 20% more in just melt value.

You can't really melt money today legally and he said, that's true Tony, but look at what's happening today with pennies. Used to use copper, and then it costs way too much to make a penny. The government finally woke up and they used tin, and now those one-cent pennies, some of them are worth 10 cents and the average one is worth two cents.

It's a 100% return. He said, if I could push a button and convert all of my money into nickels tomorrow, he said, I'd do it.

So what I did with my kid was I bought $20 million worth of nickels. And he said, I went to the Federal Reserve and he said, I got 20 million nickels and I had my kids come in and see this room full of nickels. He said I just wanted to show them there is a way to have riskless returns that are guaranteed, if you think creatively enough. So nickels might be the ticket for some of these kids.

John Rothmann –  You know Tony, the way you're talking I think we might want you to be the next Secretary of the Treasury.

Mitch Tuchman – Speaking of risk, what I learned from David Swensen, I read his book, it was a life-changer for me. We've been lucky enough at Rebalance to have Charley Ellis, who oversaw that committee, on our Investment Committee, but Charley recently said that Swenson’s greatest attribute is controlling risk and playing not to lose. So, as an authority on leadership psychology, I have a question for you: You deal with high-achieving people. You try to get people to become higher-achieving people, and that's all about playing to win, right, playing to win.

And I find, though, that investing is more about playing not to lose. So when I talk to clients of Rebalance who are high-achieving people who have made enough money to invest and I say to them, This is about playing not to lose, this is about protecting the downside, let's invest in the global economy, let's keep our expenses low, let's make sure we have exposure in all of the asset classes, all of the normal things you covered in your book, how would you recommend for me, as an RIA, that I talk to clients that are high achievers, that they’ve got to change their attitude from playing to win to playing not to lose.

Tony Robbins – Nobody likes that. That's not a psychology most people like.  And yet what you said about David is absolutely true. I got to spend quite a bit of time with David and follow up with him a multiple times. Every one of these investors, Paul Tudor Jones's first obsession is not losing.

The average investor will say, if you lose 50%, how much do you have to make to get even?  And the average investor says 50%, and you and I both know that's not true. Start with $100,000 and you lose 50% you have $50,000. If you grow 50% you’re only at $75,000. You've got to make 100% to get even. People don't understand the geometric impact.

So what I try to do is rather than start out with saying we've got to play protection, I usually start out by getting them to see that two things are important. Here's what it really cost you if you lose and here's what the greatest investors on earth know. Secondly, as I try to deal with those individuals is I get them to see, look, if you can put yourself in the position where you don't lose and everybody else does, you are richer.

And I'll give an example of that. I use what I call my “core four.” My core four I didn't put in the book. It kind of evolved after that. Of all the things I've learned, the book takes you step-by-step through them all. But if I'm looking to build an asset allocation which as you know is the secret to all investing, the one thing in common other than getting into the game, reducing your fees, knowing how to win the game, knowing the numbers that are going to win the game vs. the way you were probably taught traditionally, things come down to asset allocation.

And when I do it I look at my core four. And my core four is number one, and I've learned this, every investor, every RIA, every person that advises me, my first question to them now is how do we not lose money. And the way I educate them about that use I use all of the investors I've talked about, I give them examples just like I did with you here, of Sir Richard Branson.

Everybody thinks there giant risk takers but they're not. They're just not. They protect themselves first. So I get everybody anchored on that. Then the other thing I do is, Okay, where is the asymmetrical risk-reward? My assets, I want to make sure there's a significant amount in there where I have a huge upside with very little downside. I question them. Show me that. Show me where it is. Can we find the right mix that can allow me to do that?

And my third one came from, really, from David Swensen more than any other. I asked David, if you want to get greater returns, what are the things you can manipulate? You can only manipulate a few items. You can manipulate which stock selection you make. You can manipulate the timing. And he said you can manipulate asset allocation. And of those three, asset allocation is the only one that matters. Because you're going to be wrong on timing and it's costs you money to get some advice and you're going to be wrong on a lot of those pieces.

So, asset allocation is the most important thing. Diversification is the most important thing, like you guys are teaching. But he said the other one is, really, making sure that you also, the third principle I'd use, is tax efficiency. Because you and I both know, it's not what you earn that matters, it's what you keep that matters. You can't spend what you earn. You can only spend what keep. So tax efficiency, he would not have the returns he has, David Swenson at Yale, $1 billion to $24 billion, if he paid taxes.

I'll use an example in the book. Most people know compounding. If you compound $1 it's $2. Compound it the next year its $4. Compound it, $8. So you do that 20 times and you have $1,048,000. But if you just paid 33% tax each year and most of us pay more than 33% tax, especially people listening in California, so if it's 33% tax each year what do you end up with? People think, well, 33%. It was $1,048,000. I get what $700,000? 600,000? I don't know. You have $28,000 left instead of $1,048,000.

John Rothmann – Tony, I'm glad you doing this because April 15 is fast approaching and, of course, we have to take another break but I want to remind our listeners that we're very fortunate to have with us Tony Robbins here on the Retire With More program and you can find out more by going to www.rebalance-ira.com. And, when we come back, Mitch would ask you to continue the line of questioning with Tony, and Tony all I can say is I'm so glad you're with us, right here, on the Retire With More program.

John Rothmann – I'm John Rothmann. And I'm Mitch Tuchman. And you're listening to the Retire With More program. Our guest is Tony Robbins. Those of you who've been listening to the first two segments know he is a phenomenal guest, someone who really knows what we're talking about. We want everyone to retire with more. So Mitch take it away, let's go into the next segment.

Mitch Tuchman – So we're talking to Tony about his best-selling book Money: Master the Game. Tony there's a whole section, one of the seven steps, that to me is an intersection of what you learned by interviewing 50 luminaries in the investment business and what you've been doing for a living for all these years in leadership psychology. You have found that most people have no idea how much their dreams to achieve financial security and independence really cost. You gave a great example of that kid you asked, what do you want” "I want to be a billionaire."

And when you got right down on it you found that the kid could achieve everything he wanted with $10 million. And you provide some exercises in the book about how to drive these dreams deep into one's mind. It reminds me of that old book Think and Grow Rich, which I read many times as a young man. Can you talk to us about how we can define our dreams and make the game winnable? I just love that, make the game winnable, because dreams are dreams unless you have a plan. I'd love to hear more about that.

Tony Robbins – Well, it's interesting. The vast majority of people have been given advice that is 20 or 30 years old and inaccurate. In fact I saw in USA Today two weeks ago there was a story in there saying how much do you need to set aside for retirement, and the person said eight times your income. And I thought where on earth do they come up with that?

I remember, they used to say 10 times your income. Meaning, if you make $100,000 a year you need $1 million dollars to retire. Well, to do that, most of us know the 4% rule is dead, but for simplicity's sake but just use simple math. Where are you going to get $100,000 a year out of $1 million? The means you are going to be getting the 10% return, if you're not going to be reducing, especially if you're younger, and most of us are living much longer than we ever dreamed of living and that's going to get geometrically better since the digitized more of our DNA and digitized health just like digitization has changed the tech industry. The tech industry is now about change our biochemistry on a major scale.

So everyone is living longer than they ever were and we're about to see a geometric change in that again. So you've got to think in terms of where am I going to get a 10% return in a secure environment? Or 12%?  It's just not going to happen, not in the world we live in today with suppressed interest rates.

So I look at this and I say here's what you've got to do first. First, you've got to break this into multiple goals, usually it’s what your number? Here's what you've got to know. You need to start with a small goal, a goal that's within reach, so you can achieve a well built-in success without a built-in failure. If you got this huge number in your head well okay, what's really real? Well, what's really real is probably 20 times your income. Twenty times my income! If I make $100,000, what are you saying to me? Are you saying I've got to have $2 million? Well, on a 5% return for the rest of your life, that's probably closer to reality. You going to have a quality of life but there are also going to be inflation. You've got to remember that also.

What's interesting is that seems so big. Here's what I do with people. Let's start with the short-term goal called financial security. The thing about the word financial security vs. financial independence vs. financial freedom. Which one is higher? Security or freedom? It's not hard to figure out. Security is a lower level goal. So let's define it in very specific terms: here's what I have people do. Ask people how would you feel if you had enough money, enough income coming off your investments in a secure environment, you don't have to think about it, where the income itself would provide for six things: It would pay for mortgage for as long as you live, you'd never have to think about your mortgage payment again, it would pay for all your utilities, provide food for your family, transportation and your basic insurance, those five things. How would you feel? Most people go “My God, that's most of my expenses in life, that would feel incredible!”

You're right. And here's what's cool. That number is at least 60% less than the number you would normally think of. I mean, you would still work. But you would work not because you have to, for those major things. You work for those things that you really enjoy. Here's what I know. If you look at all the research today, when I was growing up, the goal was to get rich and retire when you're 40 or 50 or something, right? Today the goal…my friends, Marc Benioff, a dear friend, he's 50 years old. I know he'll be working when he's 75, there's no question. My friends are 75. Steve Wynn, in Las Vegas, multi-multi-billionaire, he works more today than he ever has.

Warren Buffett is in his 80s. He's what, 84 now, 85? He works more now than he ever did. The goal today is, if you love what you do, research shows, people that make $750,000 a year, if you make that much money, 90% of those people say they'll never retire or are the earliest they would a 75. Most healthy 75 year olds that I know work not because they have to. The goal in finance is to get to a place where you don't have to work. It's not not to work. There was a statistic that was done, it was published in a medical journal in Britain recently, that showed that if you retire at 55, the average person dies in 10 years.  If you retire at 65 it's larger than that, I think it's 14 or 15 years.  It's like if you're tired but you don't have a meaning for life, you don't have a greater purpose, that's not the goal.  The goal is, do what you love, and if you don't have to work, you work differently.

So I said to people let's get so that you don't have to work for these five items and then let's work part-time for the other stuff. And then let’s set a middle goal, financial independence, where it's the lifestyle you have today without working. That number is going to be a bigger number, and maybe there's something called financial freedom that’s a better lifestyle than today without ever having to work. I've been fortunate to hit that goal a long time ago my life. I work harder today than I ever did when I had to work. But I do it because I love it.

And I'm able to do things like feed 100 million people. I mean, it's inspiring. Taking care of yourself and buying toys or cars or planes or all that stuff is really a great privilege. But it will never excite you as much as thinking that you can change someone's entire life, or you can change a community, or you can change somebody, and that you have the resources to do it. Economic resources. Time resources.

I've got people who set very specific measurable goals. And you can figure out what financial security is by adding up the cost of your mortgage, your utilities, your average monthly food, what are your costs for basic travel and basic insurance. And you'll know what that number is and what I show you next is how you can put together the asset allocation that can really get you there.

Mitch Tuchman – It's greats, it's great. I also love how deeply address about how to really deeply internalize those goals so they manifest themselves while you are doing whatever you do. And it comes from goals that you believe are achievable, deep down inside.

Tony Robbins – Yeah, the term is absolute certainty.  You see it, if you watch the NCAA championships, if you watch any time, and you watch a player go out there and you go, "He’s going to miss that free throw." And most people paying attention know he's going to miss. How do you know? Because you feel that while he has the talent, he is missing the certainty that will get you to execute. If you've got a goal but you don't have a plan that makes you certain you can achieve it, you're not going to execute. You're not going to follow through. You are going to have this idea you keep talking about. And I think that's the biggest challenge for most people, they just don't get started.

So when you make the goal reachable, when you make the goal where you feel you know you can do it, then you're willing to take action. And when you take action on the first results, now you reach for the larger one. And everybody gets momentum, right? You can't build on failure. You can only build on success.

When you make this goal that's this huge goal like the kid who told me I need $1 billion to be financially secure. What it did him was, I told him, tell me everything you want. He wants the Gulfstream. He wants the island. And I'm fortunate enough to have those things, so we went through what the price of those things really were, add them all up. He could have all those things for $10 million in terms of the interest on it would pay for those things, to have that lifestyle. You don't have to be a billionaire to have an extraordinary lifestyle. You just have to understand what it's really going to take and until you sit down and put a price in your dreams and find out what they really are....

To me, why would you buy a brand new plane for whole when he could just charter the plane for the 10 trips a year he wants to take with his family? There's a big difference between $56 million for a plane or $4,000 an hour. It's a different game, and that's part of what I really show people how to do in the book.

Mitch Tuchman – Let's go back to these interviews. You did these 50 interviews with these legendary financial experts, even with our own Rebalance Investment Committee member Burton Malkiel. And I gotta tell you, which you said in in the book was great. You said of listening to Burt talk about investing was like listening to Bruce Springsteen playing acoustic guitar in your apartment, playing “Born to Run.” And I've got to tell you that our Investment Committee meeting in New York last January, we gave Burt a lot of grief about that one. It was very funny, and he said that even his kids and grandkids were teasing him endlessly to this day about that comment. I don't know that his grandkids even know who Bruce Springsteen is, but that was great. But of all of these guys that you talked to and, again, some of them are hedge fund guys, which of the interviews when you're talking to regular everyday person with a few hundred thousand dollars working for retirement, which ones stand out the most that gave a few pearls of wisdom for that person, that they can execute.

Tony Robbins – There are so many, but I think that if I had to narrow it down, I would say Ray Dalio. Again, the average investor has probably never heard his name but wealthy people that have money, they tend to go to hedge funds. And hedge funds have the ability to invest in the market on the way up, on the way down, in a variety of assets they might be involved with, and a really large hedge fund might be, let's say, $15 billion. Ray is the largest hedge fund and the world, but he is 10 times bigger than the largest one. He's $160 billion. He manages money for China. It turns out he was a fan of my work and listened to my audio programs for decades, so he really opened up and gave me the time. And for my last question for all of them at some point in the interview, I asked all of these investors, if you couldn't give up any of your money to your kids, not a dime, and you wanted them to succeed what would be the portfolio, what would be the asset allocation, what would be a set of principles that you would teach your kids to make them financially successful for a lifetime?

And Ray had the most interesting response. He said I spent a decade of my life answering that question and I have the answer. I said wow, what is it, and he said he said, well, there's an illusion that most investors have. They go to a traditional financial planner, and they say as I get older we're going to change your asset allocation. We want to make it so that you're more protected. So we're going to do 60%, let's say, in equities stocks and maybe 40% in bonds, the typical example, and you have now a "balanced" portfolio, or 50/50. The problem is nobody pays attention to the fact that when we have these giant drawdowns, like 2000 and 2008, where you had peak-to-trough a 51% drawdown, that they basically lost money on their bonds and their stocks. They weren't protected at all. This whole theory is total bull is what he said.

He said what happens, though, is the market eventually comes back and all the advisors just focus on the fact that market's doing well. Nobody addresses it. I decided to address it. It took 10 years to do it, and I discovered something. When people say they are in a balanced portfolio, they're not balanced at all. They’re balanced in the amount of money but they're not balanced in the amount of risk, and risk is what makes you or breaks you. So he created something called "risk parity," and here's what it is: If you're 60/40, say 60% in equities and 40% in bonds, since equities are three times for volatile than bonds, he showed you that you are you're 90% at risk and 10% protected. This is something very few people on Earth understand.

So what he did was, here's what's interesting, he said there's only four things that change the market. Changes in inflation or deflation move prices of all assets, and whether the economy is growing or shrinking. Those of four elements, up or down inflation, inflation or deflation, a growing market or decreasing market or economy, I should say, are what move different assets. And they all do well at different times. They all have their own season. So he said I created over the years this approach that allowed me — he called it "all weather" — to make money no matter what market it is. So, if a little bit less return, he's known for making 23% return for 21 straight years before fees, but he said I decided I want something where I can make a 10% or 11%, a 12% return on average, but where you didn't have the volatility, you didn't have the "stomach problem." 

John Rothmann – Tony, I hate to do this to you but I have a break that I have to take. We're 75% done, you get 25% more. Our guest is Tony Robbins and we're on the Retire with More program, right here on Talk 910.  I'm John Rothmann. And I'm Mitch Tuchman. And we are the Retire With More show. And we are delighted to have Tony Robbins with us, his bestselling book, Mitch in this last segment I know you have some critical questions for Tony.

Mitch Tuchman – Sure, so Tony we were talking about your best-selling book Money: Master the Game, you interviewed all these legendary investors, and we were talking about Ray Dalio, and I had to interrupt you before the break, but you're talking about the “all weather” portfolio. So why don't you finish that thought, it was really great.

Tony Robbins – So here's what's interesting, Ray's whole idea was, how do I, without knowing what the market is going to be 20 years from now, when I'm gone, be able to have something that will prosper for my kids and for all the philanthropic things I'm involved with? In other words, I’ve got 1,500 people right now at Bridgewater, at his fund, working around the clock to have the best ideas. But if I wasn't here how could we win? And what he said was, listen, the average person can't take the volatility. Dalbar did a research project that showed last 20 years in the market, the S&P did 9.2% compounded but the average investor saw 2.5%.

That is insane. How is that possible? Fees, and we all do the opposite. We sell when we should buy and we buy when we should sell. It's the volatility that kills us. So he said I went and said, how do I get less volatility with the greatest return? So he created this “all weather” and he's done that for his top clients.

So explain to me the details and how it works and I said I'm going put this in the book. There's just one problem. You told me the principles that you haven't told me the percentages. And we all know when it comes to asset allocation, you live and die by your percentages, right? You get a wrong percentage and you're not going to work. And he said Tony, you’re asking me to give my secret sauce. That's what I get billions of dollars for. You have to have $1 billion net worth at least $100 million for me to start, for me to even take any money 10 years ago and today I won't take your money no matter who you are. 

I said that's my point. Give me the secret sauce because I'm going to give it away to the average person. I'm giving it all away. I'm not even going to make any money on it. I'm giving the book away. We're going to feed people with this book. I said, you can't take any more people. You've got the insight. Give me the secret sauce. Otherwise you telling me to build a chocolate cake, use chocolate, use sugar...well yeah, how much?

Mitch Tuchman – Right, right.

Tony Robbins – He started laughing, any he finally got him laughing so hard and intrigued him. I said, you're going to give away half your net worth anyway. You're one of the most generous human beings. Give me the formula. And he goes well, it wouldn't be perfect. And I said, your idea of not perfect, this is the guy they called the Da Vinci of investing, the Steve Jobs of investing.  Your idea of not perfect will be better than anybody else's. 

And he said well, I don't want to do it with leverage. And I said design one without leverage, because “all weather” has leverage. And he says will do this “all season.” And he started listing this and I got chills down my spine. We went out and we got it tested by an outside firm. You know most people back-test something and see how it did, and we always say the past doesn't guarantee the future, but most people back-test for five years or 10 years. We back tested this for 75 years, the entire modern period of investing. Seventy-five years. And in 75 years it made money 85% of the time. But here's the real killer: When it was wrong, when it didn’t make money, the 15% it was wrong, it only lost an average of 1.6%.

If you think about the last 10 years, say 2000 to 2008, 50% drawdowns, the largest drawdown in 75 years was 2.95%, less than 3%. It gets better. I put this out and last year there were some people, a couple bloggers that were in the IRA business one guy managed $100 million dollars, not $1 billion, not $160 billion. He said, Tony made this up. Ray Dalio would never do this. And of course he’s completely wrong. But to give you an idea as you know last year the S&P was up 13.69%. This all season was up 15.3%.  And if you remember October of last year when the Dow lost 1,000 points and people were freaking out, the market, the S&P was down 6%, this was up 0.2%.

You come to the first of this year January 2015, and you probably remember the first seven days of this year, you're in the business, the S&P was down 3%. This was up 1%. Today, I looked it up this afternoon, the iShares S&P 500 is up 1.35%, the all season is up 2.98% — more than 50% better. Now, it's not supposed to beat the market everywhere, but if I was saying what's an asset allocation with the least amount of risk and a significant, nice upside that has averaged over 75 years just under 10%, with the least amount of volatility, this is something I would certainly look at as a portion of somebody's portfolio, and it's a gift from one of the greatest investors in history and it’s something he’s never, ever shared. So it's quite a privilege. I just spoke to Ray today about it.

Mitch Tuchman – That's very interesting. I found the concept of long Treasuries in that portfolio a very interesting idea. Obviously there's something to it. Ray Dalio is one of the kings of investing. Let me ask about women, Tony. As RIAs, in our business, we're told by the industry, hey, women are underserved because so many brokers in a very male-dominated business women feel that oftentimes they are talked down to, that they ask questions of their adviser and they are not given a straight answer, that there's all kinds of mumbo-jumbo and finance speak, yet that the industry is waking up and saying women control a whole hell of a lot of money and we have to learn to talk better to women.

You just wrote the book. You interviewed a few women. You've probably gotten a lot of feedback from women. As a matter of fact, Allegra, in our office, she calls you the "financial babe" of the financial services industry. But, women, let's talk about women for a minute. I mean, what have you learned, what have you seen, what are your observations and what can people in our business and at our firm, Rebalance, how can we better empower women to do better with their investing? 

Tony Robbins – To me, I would hire some women as your other RIA members of your team, me personally, because women deserve to ask somebody they can identify with, who's talented, and here's the cool thing. I interviewed Mary Callahan Erdoes, because when you get to this level of the people that literally manage billions, and in our case she's the first $1 trillion woman, she the CEO of the JP Morgan asset management division. And since she has been there, if I remember right in 2009 I think is when she really took over, there’s been a 30% growth. I meant, they brought in half a trillion, with a T, dollars of business. She manages $2.5 trillion, okay?

Mitch Tuchman – Wow.

Tony Robbins – So she oversees the employees who helped build this thing. I just think there aren't a lot of women who had been dominant in this industry, but people like Mary Callahan Erdoes, they’re forces of nature, and she's proof. And I asked her, how did you make it in such a male-dominated business? And she said Tony, the great thing about Wall Street is, she said, it's an illusion that it’s a male-dominated business. It's only dominated because women don't participate and compete.

She said, if you can produce results, the great thing about the financial business it doesn't care what your color is, what your background is, all it cares about is results. If you can produce results, you move up. It’s an illusion, it's your own lie that your gender will be there. But the problem is not enough women get into the business, from her perspective, because they're intimidated. Or they have beliefs like, "I'm not good with numbers." She was fortunate to have a father in the business. And she's to go to his work and she used to dream about mastering that business, like anything else that can be mastered. I think the one thing that's been proven financially is that women tend to be better investors.

Mitch Tuchman – Yes.

Tony Robbins – Because men are overconfident. We think we have all the answers. Like, I came back with Ray Dalio's strategy, right? And these bloggers in the investment advisory business either say it wasn't true or say Ray is wrong, and their managing…

Mitch Tuchman – Nothing. A rounding error.

Tony Robbins – A full-page blog saying Tony Robbins is giving terrible advice. We all know he's telling you to put the majority of your money in bonds and bonds are going to go down because interest rates have only one place to go and they don't understand. They're looking at the ratio, not the risk ratio, the dollar ratio. They don't understand a damn thing about what they’re talking about.

Women will read that. It all makes sense to them. And they'll invest in it. Men will think, I've got a better idea. I'm going to do better than Ray Dalio, a guy who manages $160 billion with 23% returns in 21 straight years, and they're going to criticize him and say it's wrong. I mean, that's how stupid men can be.

John Rothmann – We're winding down in terms of time and Mitch told me you had a final secret that we had to discuss and I just, in the last few minutes, have to ask you, what is the final secret?

Tony Robbins – Gosh, maybe the best way to describe it is to tell you the final little story. I personally when I was building my business like a lot of people, you know, you struggle for many years, you're trying to add so much value. I was at a point where I was very, very frustrated and I was driving home at midnight in this place in California, on 57th street, I remember this vividly, in my 1968 Baja bug Volkswagen.  And I literally pulled over on the side of the freeway and I had this insight. It was such a simple insight. I still have it today, the journal I wrote, the full-page journal I wrote, "The secret to living is giving." 

I realized that I was so frustrated because I was focused on what I wasn't getting. I wasn't focused enough when I was giving. I was giving a lot, but I was focused more on what I wasn't getting. And I just shifted my entire focus to giving. And the next 12 months were incredible until I ran into a partner who stole a bunch of money from me, so I found myself in a place where I lost everything.

I moved into this little 400 square foot bachelor apartment in Venice, California. I was washing my dishes in the bathtub because I had no kitchen. Cooking on a hot plate sitting on top of a trashcan in this tiny little room. And I was literally down to my last $20, $21, $22 and change, whatever I had. And I realized I don't have enough to feed myself. This is going to be a few weeks before this thing is going to be resolved. I don't have enough money for my rent. So instead of going out to eat and driving my car I parked my car and I walked three miles and I thought I'm going to go to this all-you-can eat salad bar at a place called El Chirito, and I'm going to load up for the winter here. I'm going to eat everything I can to make this last...$5.95, I think it was, I don't remember the real number, it was like six bucks if I remember right. But I'm going to sit there and look out at Marina Del Rey at all these boats and all those beautiful ocean area in this environment of abundance.

So I go there and I eat two plates worth of food and I’m loading up, and what changed my life was a simple moment when the door opens, this beautiful woman walks through the door — that got my attention, quite frankly — but what got my attention more was I waited to see the man she was with, and I looked down and he's this little eight-year-old kid. He's in a three-piece suit.  He holds the door for his mom. He pulls the chair out for her. He was listening and talking to her with such presence I was truly moved. I paid my bill, whatever it was. I've got whatever was left in my pocket $14, $15, $13.50, whatever it was.

And I go up to this young man, and I just said, "I really want to meet you. You're an impressive character, taking your lady out to lunch like this." And I shake his hand and he goes, "She's my mom!" Well, that's even more impressive you take her to lunch. He goes "I'm only eight. I don't have a job yet. I can't take her to lunch." And, I didn't have a plan for this. It was just spontaneous. It was one of those moments that change your life, and I said "Yes you are, you're taking her to lunch."

He looked at me, and I just reached in my pocket. I took all the money I had in the whole world, put it down on the table in front of this boy, his eyes got his big as garbage can covers and he said I can't take that and I said yes you can and he said how come? And I said because I'm bigger than you are. And I got him laughing. And I didn't even look at the woman. I wasn't doing it for it acknowledgment. He giggled so hard. He was so lit up. And I flew out that door and I didn't have my car. I've got to walk three miles. I should've been thinking, hey, that was really nice, but what the hell are you going to do, you don't have any money for food, what are you going to do?

But it was the first time in my life when there was not scarcity in my nervous system. I went home, I'll never forget, and I got up the next morning, had no plan how I was going to have money for breakfast or eat. The mail comes and there's a man I'd loaned more than $1,000 to maybe six months before, when I was doing okay, and I'd reach out to him probably five times in the last two weeks and he'd never return my phone calls, so frustrated and angry, and here I get this mail, snail mail, I open it up.  It's a letter from this guy apologizing, gives me my money back, and hands me interest on it.  In those days it would've been enough to support me for three weeks.

But here's the kicker. I'm sitting there crying, holding this thing, like okay, I'm set, and I just talked to myself. What does this mean? And I realized, in that moment, I did what was right. I didn't do something for positioning. I didn't do it to look good. I didn't do it because I have this great strategy. I just did what felt right, and in that moment, giving what was right, in other words, no more scarcity. I mean I've had 22 businesses with at least $5 billion a year revenue in all my companies. And I had up times and down times, horrific times, good times. But I've never gone back to that moment of scarcity and it changed my entire life

John Rothmann –  The book is Money: Master the Game, Seven Simple Steps to Financial Freedom. Our guest Tony Robbins. I want say thanks, Tony, it's been great. I'm John Rothmann. And I'm Mitch Tuchman. And this is the Retire With More show.

Professor Burt Malkiel

John Rothmann – I’m John Rothmann, and as we’ve promised we have a very special guest joining us.  Mitch, tell us about this remarkable individual.

Mitch Tuchman – We’re so excited, we have Professor Burt Malkiel on with us, and Burt is a member of our Investment Committee at Rebalance. Burt wrote a book that I read when I was in college in the 70s, and I think millions of others have read the same book. It’s called A Random Walk Down Wall Street and it was published 40 years ago and it’s now in its eleventh edition. It is not 50 Shades of Grey, but it has sold 1.5 million copies and for finance that’s getting up there.

John Rothmann – Before we get going, Burt I have to ask you a question right out of the box – the most famous quote – a blindfolded chimpanzee can throw darts and do better than the pros. How in the world did you come up with that?

Professor Burton Malkiel - The fact is that what I have done from the very first edition of the book is to recommend so called “index funds”. Now an index fund is simply a fund that buys and holds all the stocks in the market, and the reason that that does so well is that there are a lot of smart people around who hear some information and that are buying and selling to make sure that any information that arises about a stock or the whole market gets reflected in its price.  Now that doesn’t mean the price is always right, in fact I like to say the price is always wrong, but the point is millions of Americans including very highly paid professionals are buying and selling and if they think the price is wrong they’re going to make transactions to change that price.  So the price really reflects everything that’s known about a stock. Therefore, if you just take the prices that are there and buy and hold, you’re going to do at least as well, if not better than all of the other people. In the other words, if the prices reflect the information a blindfolded monkey throwing darts can select a portfolio as well as the experts.

John Rothmann - But Burt I got a tip, I want you to know that, and you’re the first one to hear this - a company called Enron if I put all my money there I’m going to be able to retire with more than I could ever imagine. Not a good idea right?

Professor Burton Malkiel – No, not a great idea.  You happened to take a company that used to be a very admired company, but that was basically a fraud that was built on a number of lies and the price was actually wrong.  It does not mean that there aren’t some fraudulent people around or that there aren’t some Bernie Madoff’s around. You could do a lot worse than the blindfolded chimpanzee by simply following “tips”

Mitch Tuchman – So you have now published eleven editions of A Random Walk Down Wall Street and the original message was indexing, but there were other messages. Talk about some of the basic tenants that you put forth forty years ago and whether or not you still believe in them all still or if you have had any doubts about some of them.

Professor Burton Malkiel – I believe in indexing, the main tenant, even stronger than I did when I first wrote the book.  When I first wrote the book, index funds didn’t exist.  Three years later, Jack Bogle at Vanguard Group started the first index funds and index funds have proliferated.  There has been a lot of competition.  Their prices have been driven down so that you can then buy index funds close to zero cost.  More recently there are so called Exchange Traded Funds (ETFs), and these are index funds that trade very much like stocks, and again can be bought at expense ratios that are very close to zero.  So the fact is that from the first thought of doing this forty years ago to when they didn’t even exist, they now exist and they are almost costless and the data from the period from which you‘ve had index funds, the data is overwhelming that each year the index funds does better than 2/3 of so called “active” managers who try to pick the great stocks and the 1/3 that seem to win in any one year are not the same who do better in the next year. When you look over 20-30 years, its just overwhelming that 90-95% of active managers are beaten by the index.  What I like to say about markets is we all need to be cautious and modest about what we know and what we don’t know, but the one thing that I’m absolute sure about is that the lower the expense that I pay to the purveyor of the investment service, the better that I’m going to be and the more money there’s going to be for me.  So indexing remains one of the biggest lessons, but as you said Mitch, there are others and one of them, one of the great lessons, is the name of your company Rebalance.  I believe and have believed for years, and have the data to show that it works, the simple idea of rebalancing works wonders for a portfolio in that in that it always reduces the risk of the portfolio and in very volatile markets it will tend to increase your portfolio’s return

Mitch Tuchman – Rebalancing is a great concept that I learned early on from the book.  It’s a very hard to grasp concept to grasp sometimes because the financial world continues to tell the people that they are predicting this or predicting that and that forms the basis of making a change in the portfolio and what you recommended forty years ago and what we do is very different, isn’t it?

Professor Burton Malkiel – Look, nobody, and I mean nobody, can predict what the market is going to do, next week, next month, next year.  I started my career on Wall Street.  I have been in this business for more than forty years. I have never known anyone to be able to successfully predict the market over time.  You can get it right once in a while, but to do it consistently over time, I’ve never known anyone who could do it, and in fact I’ve never known anyone who knows anyone who could consistently predict the market.  What rebalancing tells you to do is this – if you’ve got a portfolio, which lets say, has some equities or some common stocks, and has some safe securities such as bonds and you want to have a balanced portfolio that’s let’s say 60% stocks, and 40% more fixed income, bonds, preferred stocks etc., that what you do is, you look at your portfolio periodically and you ask what’s happened?

Have you gone through a period such as the period during the internet bubble at the beginning of the 2000s where the stocks just went crazy up and the bonds were going down so instead of a 60:40 portfolio, you’re stocks were at 75% and your fixed income was 25%. What rebalancing tells you to do is take a little money off of the table, take the proportions down to that 60:40 that you’re comfortable with. You know it’s almost as if we’d all like a genie to tell us when the markets too high, when we should get out and nearest thing to it, is rebalancing.  Basically what this does is remove some of the risks of a portfolio, particularly when one asset class gets too popular and it will in volatile markets tend to increase your returns.

John Rothmann – Burt that’s my question for you, lets go back to 2008 when everything seemed to fall apart, if I had been involved in a rebalance would it have made a difference for me in terms of my investments?

Professor Burton Malkiel – Absolutely.  One of the mistakes that people made in 2008, and this is one of the other things that I pay a lot attention to particularly in more recent editions of the book, is so called “behavioral finance.” Sometimes in investing we are our own worst enemies and what we know that we do as individuals is we buy when everybody is optimistic, as people were in the beginning of 2000 and during a period like 2008 when the world seemed to be falling apart that’s when we tend to sell.  What rebalancing forces you to do, is to do just the opposite of what your instincts tell you because your instincts are always going to be wrong.  What rebalancing told you in 2008 was the stock market was low - instead of 60% in stocks, you may be only had 33-40% in stocks. Since the bond market was way up because the monetary authorities were reducing interest rates down to zero, bonds were way up. Instead, sell your bonds and buy more stocks so rebalancing protects you from these behavioral problems that you have, buying when you’re optimistic, selling when you’re pessimistic, and what it would have done in 2008 is got you more into the market at just the right time.

John Rothmann - Burt, I want to point out that you do serve on the Rebalance Investment Committee with Mitch and his partner Scott. We are going to take that break and when we come back, we are going to have a series of more questions for you. We will be right back, with the man who impresses me amazingly.

Jonathan Clements

John Rothmann – I’m Jon Rothmann and you’re listening to the Retire With More program and our guest Jonathan Clements is an absolutely outstanding, fascinating fellow, Mitch we want to continue on our theme of the following 5 themes, we’ve covered three so far, let’s hit the next one

Mitch Tuchman –  I want to go back to talk about the third theme just a little bit more, because again, Jonathan Clements is one of the top personal finance writers in America.  He writes for the WSJ every weekend and has been doing this for decades, and his perspective is second to none.  We’re talking about people as hunter and gatherers, and we are not wired to do instinctively things that relate to being financially successful.  That all those instincts that we’ve got burned into our brains have sort of moved us into making the wrong decisions in the wrong time when it comes to investing.  Jonathan, I wanted to ask you have you read about this Vanguard study where just guiding people to avoid those instincts can help an investor over many years increase his returns by 3% per year.

Jonathan Clements – I’ve seen that study and what it talks to is the value of a good financial advisor and I preface it with the word good. People make a huge number of mental mistakes, but lets lay it on the line right here.  Saving and investing for retirement is too important to mess up.  If you can’t do it on your own, if you consistently fail to save enough, if you regularly panic when the market goes down, if you find yourself chasing the hot performers, if you clearly can not get it done on your own, then find somebody qualified, whose acting as a fiduciary to work on your behalf.

John Rothmann – and that would be from our perspective Rebalance.com

Mitch Tuchman – well of course, we talk people off the ledge all of the time. it’s amazing and I would like to read some of those behavioral studies that you’ve mentioned…. that’s a lot of our value added.

John Rothmann – so I just want to be clear then, Jonathan you would then no advise me to take all of my money and put it in Enron?

Jonathan Clements –   no I would rather go to Vegas and put it on red, that would be my preference.

John Rothmann – lets keep going, we’ve got two more themes to hit, Mitch?

Mitch Tuchman –  Jonathan, talk about this sort of holistic approach that people miss that they don’t take in managing their money.

Jonathan Clements –   when you think about your finances, you really want to take a broad view that cuts across all these different financial products that you get sold. You should be thinking about your insurance, and your real estate, and your retirement portfolio, and your college savings, and your mortgage all in a single financial systems, rather than thinking of them in one bucket at a time.  And, often the central organizing element is you try to take this broad view of your finances, it’s what economist call your human capital, which is your ability to pull in a pay check.  Why is your human capital so important?  Well, in crass economic terms, your years in the workforce are all about building up enough financial capital so that one day you can live without the income of your human capital, and so if you think about that process, building up savings so that one day you no longer need a paycheck.  You should make sure that all the different parts of your finance support that.

For instance, early in your working career when you know you have decades of paychecks ahead of you, you should probably be heavily focused on the stock market, because in the sense your paycheck is like earning a pay check from a bond.  You have a big bond, that’s your paycheck, so you diversify it by investing in a lot of stocks.  As you approach retirement at the end of your human capital, what you’re going to want to do is bring bonds into your portfolio so that you replace the income of your paycheck with income from your bonds.  Similarly, because your human capital is so important, you’ll probably want to have some disability insurance in case you suffer a career ending disability so that you have income that’s going to replace that paycheck.  The riskiness of your paycheck should also be reflected in how risky of your stock portfolio is.  If you work on commission and/or there’s a great chance you’re going to get laid off you’re probably going to want to be a little big more conservative with your portfolio. Similarly, in terms of debt, the riskier your human capital, the less debt you should be taking on.

Mitch Tuchman – you know Jonathan it’s interesting, we were recently talking to a prospective client the other day.  This guy had an enormous pension, about $70,00 a year.  You add up the social security he was going to be collecting and the guy was making more money than he would ever spend.  And yet, to him, he was being very conservative in his stock portfolio and we asked him why and he said well you know, there’s this rule, that I should take the number of years that I am and that’s the percentage of debt.  When we spoke with him holistically at Rebalance, we talked to him and we said “you can look at this pension and social security and the income that’s throwing off almost like a bond portfolio, which would mean that the IRA account is really to protect you from inflation and so that holistic approach we’re finding, evades people many times when they’re thinking about it. And, of course, the key here, and you pointed it out very eloquently Jonathan, is rebalancing.

Jonathan Clements –   that’s absolutely true.  Before we move off from the topic of holistic financial thinking, there’s a couple of other things along the same lines that we should talk about-  one is as you look at your overall finances you should be making sure that you’re not overcommitting to one goal and under committing to another.  And specifically you shouldn’t being buying ever-bigger homes and stuffing money into a college account if it means you’re shortchanging your retirement.  The fact is you don’t need to own the biggest house in the neighborhood, and you don’t have to pay for your kids to go to Harvard, but one day you will need to retire, and when you retire you can’t take out a loan, like you can when your kids are going to college or when you’re buying a house. When you start retirement, you have to have a great big heaping of dollar bills, and if you don’t have it you’re going back to the office

John Rothmann – I just want you to know that I’ve told both of my sons that their job is to graduate, to get great jobs and support me in my old age, but I guess I can’t count on that – talk to us about addition versus subtraction.  I did not do very well in math, but people do focus on additions not the subtractions, can you talk about that with us please?

Jonathan Clements –   when you discuss investing with individuals, their all focused on performance, are they going to be the market, what sort of return are the going to earn, and I say to people I’ve been kicking around Wall Street for 30 years, nobody knows which direction the financial markets are going to be going or what stocks are going to be another.  The crystal balls on Wall Street are all cloudy so forget trying to figure out what’s going to be the next top performer. Rather than trying to focus so much on the additions, try to limit the subtractions.  And, when I think about subtractions, I put them into two buckets.  First of all, there are the small annual subtractions that in the end can take a huge chunk out of your wealth and what we’re talking about here is subtractions from things like mutual fund expense, and brokerage commissions and trading too much.  And then there’s also the subtraction of annual tax bills.  If you trade your portfolio too much, realize your capital gains too quickly, you can end up giving away a lot of your annual gain so that your portfolio compounds at a lower rate.  So, that’s the smaller annual subtractions that you need to be aware of, and then there’s these big hits that can set you back so far that retirement can become a decade or two further away.  And what I’m talking about is taking huge risks like putting all of your money into a couple of stocks and one of them winds up going into bankruptcy, or we have a big market decline, You are over invested in stocks, you panic when the market goes down, you lock in your losses and you’ve given up money that you will never get back.  So don’t focus so much on what you’re going to make.  Think instead a lot more about what you could potentially lose. And if you limit those losses good things will happen.

Mitch Tuchman – That’s great… we call it risk-adjusted return, it’s not the return along… but it’s the return combined with what risk you took to get it.  But Jonathan, we’re going to run out of time here but can you tell us a little bit about the Money Guide 2015, your newest, updated book and why its important for people to get a copy of that?

Jonathan Clements –   The JONATHAN CLEMENTS Money Guide 2015 is an annual updated personal finance guide.  It just came out and it really is, unique and I will tell you why.  Most books take months and months to come to market. I have wrapped up this book on Dec 31, that evening I was taking all the latest financial numbers for closing markets, plus latest numbers from the economy and I was updating the book.  Thanks to Amazon and modern technology, that book was wrapped up on Dec 31 and available for sale the next day.  How cool is that?

John Rothmann – Astounding!

Jonathan Clements –   The JONATHAN CLEMENTS Money Guide 2015 is a comprehensive financial guide, it covers ever conceivable financial topic, it really is totally up to date and it will be updated again this year and be available for sale January 1 2016

John Rothmann – last word – 30 seconds.  What do you have to say to people?

Jonathan Clements –   I, over the years, met thousands of ordinary Americans who have amassed 7 figure portfolios – a lot of these people didn’t have high incomes, they weren’t particularly good at investing, but they do all share one attribute and that attribute is that they are all great, great savers.  If you want to know what the key to financial success is  - it’s really, really simple.  You’ve got to live within your means and save as much as possible every month.  If you do that, really good things will happen.

John Rothmann – Thanks, can’t wait to read the book!

Jonathan Clements –   My pleasure.

Donna Rosato

John Rothmann – I’m John Rothmann…

Mitch Tuchman – I’m Mitch Tuchman…

John Rothmann – …and this is the Retire With More Program. After all, what do we want to do? Retire with more. Now, Mitch in this segment and the next one we have a very special guest. I’ve read her for years. Please introduce Donna.

Mitch Tuchman – This is going to be a great segment. We have Donna Rosato. Donna is a writer at Money magazine and she’s been doing that for about 12 years. She’s a dyed-in-the-wool personal finance journalist. And just so everybody knows, Money magazine still remains the largest personal finance magazine in the United States. It’s got 2 million subscribers still, and Donna is regularly on CNN, MSNBC, I’ve seen her on the Today show, CBS This Morning, CNBC — she’s very charming, a very attractive woman and they put her on the air a lot to talk about personal finance. So, unfortunately, we can’t see her, but we’re definitely going to get to hear from her, so hello Donna, welcome to the show.

Donna Rosato – Thank you both for that very kind introduction. I do enjoy talking about personal finance and there is a big appetite for this information, both from younger folks and older folks. In addition to the magazine, we are the largest personal finance magazine, but we also have our website, Money.com, and you can get a lot of information there, too. But, it’s a really great topic. I love writing about it, interviewing people myself about it, and then I have to follow all my own advice, too.

John Rothmann – That sounds perfect! I want Mitch to lead off because he’s been telling me about some surveys that you were citing to him, and I’m just fascinated. So Mitch, take it away.

Mitch Tuchman – So, John where this came from is Donna and I were preparing for the show, and I began asking her some questions and she kept saying oh, well, there was a survey about that and this very surprising result happened in the survey, and then she would explain what that was. After she mentioned that five or six times, I said wait, Donna, these are really interesting surveys. Let’s talk about some of the interesting facts that companies, organizations all over the world are bringing forth to you to pitch you to write stories about. So, as the person that gets all of this information, what do you find very interesting? So the first one, Donna, that I thought was really cool is the one you’re writing about now, and I guess it’s coming up in a forthcoming Money magazine, about the 401(k) millionaire survey from Fidelity?

Donna Rosato – That’s right. This is fresh data from Fidelity, which is one of the largest providers of 401(k) plans for companies, so they may be the company that manages your 401(k). They have come out with their latest survey and the number of people who are in their 401(k) plans who have $1 million or more has doubled in the past two years. What we’re seeing for the first time is, the 401(k) is turning 35 next year, so we’re seeing for the first time how people who have had a 401(k) basically offered to them throughout their career are kind of managing with it. Certainly, the bull market of the past couple of years has helped people accumulate more, but these 401(k) millionaires are particularly interesting.

They’re not just people who make a lot of money, super big bucks, but a lot of the people in Fidelity’s survey who are 401(k) millionaires earn less than $150,000 a year. So we were fascinated by that, about how you could be a 401(k) millionaire without being super, super wealthy and they practice a lot of things that are really interesting. Some of the habits include, of course, saving early, but I think, Mitch you and I were talking about this earlier, there’s a lot of panic about retirement and having enough. You always see the headlines that nobody is going to have enough and everyone is going to run out of money, but we ran some numbers looking at what it takes to have $1 million dollars. If you start when you’re 25 and you put away 10% of your salary and you do that throughout your career, you’ll easily get to $1.5 million by the time you’re 65. So you don’t have to save a lot. You just have to start doing it early enough and you can put yourself really in much better shape.

Mitch Tuchman – So, wait a minute. Let’s say, if I start putting away $5,000, $3,000 and then I get up to the limits of maybe, whatever they are, $15,000, $17,000 depending upon my age — just doing some simple math — let’s say the average is $10,000 a year for 25 years, you mean that can actually become $1 million?

Donna Rosato –  It can. The way to think about it, and of course not everybody needs $1 million and for some people $1 million isn’t enough, but a way to think about it is taking a percentage of your salary. So if you make, say, $75,000 a year and you’re 30 years old and you put 10% of that away, so that’s $7,500 a year away, and you do that for 35 years, you’re going to have $1.1 million. Now, that doesn’t even include an employer match. Ninety-six percent of companies offer a matching contribution for your 401(k). Put that in and you’re going to be well over $1 million. I’m not saying that people shouldn’t be worried about having enough money for retirement, but I am saying that if you have a 401(k) or some kind of savings plan and you earn money and you’re not in debt, you can save. You can save and you can be more in control of your finances.

Mitch Tuchman – And back to this concept of being stressed about not having enough but actually finding that people are living okay and not being miserable by living on less, talk to us a little bit about that.

Donna Rosato – That’s really true. Now of course there’s panic, how much do I need to save? There’s this rule of thumb in the industry, when you retire you should replace 80% of your pre-retirement income. Well, that’s kind of a lot of money and what I have found over the years, interviewing people about how they’re living in retirement, I find a lot of people are living very happily on less than that. The reason I think is because people’s expenses do go down perhaps more than they think when they retire, but also people find when they get to retirement there are also things that they can do besides have a big pile of money.

For example, I interviewed this couple. They were terrific. The husband was diagnosed with sort of a chronic condition and they said you know what, we don’t want to work until we are 65. They were 62, They really wanted to start retirement. They didn’t have quite enough money, so they said you know what, we can live on less. They sold their house in Chicago. They moved to Tennessee and they were able to buy a house in cash, and they were just so happy. They were living on less, but they were thrilled because they had so much freedom in their life.

Mitch Tuchman – I keep hearing that too with a lot of people I speak with all over the country. Where you live has so much to do with how much you need for retirement, cost of living.

John Rothmann – And it reduces stress, doesn’t it? A lot of people when I talk to them about retiring really worry about what they’re going to be able to do. So what do you tell somebody about to retire who’s beginning to stress. To scale down? Is that what you recommend?

Donna Rosato – Well, not even scaling down necessarily. I think the No. 1 thing you want to do before you retire is figure out how much money you need. And part of that is your fixed costs. Are you going to retire with a mortgage? Are you helping your kids out with their college loans? You have to look at your fixed costs and you want to make sure you have enough steady income to cover that. And then after that it’s discretionary spending. Do you want to take a big trip when you retire? Do you want to buy a vacation home? So, if you can figure out what you’re spending is going to be, and it’s easier to do as you get close to retirement, then you can figure out, well, gee, I do need to downsize because my house is taking up so much of my income, I’m not going to be able to do the things I want to do.

Mitch Tuchman – Well Donna that reminds me of this Morningstar study we were talking about, but on this 401(k) topic, we run this math for people all the time at Rebalance. If people want to call one of our financial consultants at Rebalance, we can run all kinds of scenarios about how much money you’ll have in your 401(k) at a modest rate of return if you keep putting money in. Doing that math is usually fascinating for people because it’s hard to grasp mentally how money does compound and money makes more money. Anyway, we can always run that for people. On this Morningstar topic, the second study we were talking about, you mentioned how the trajectory of spending really goes down in retirement and people were very surprised with that.

Donna Rosato – That’s true. I think people think, oh, I have a certain amount of money, my expenses will be the same every year, but really your spending in retirement is very dynamic. You may actually spend a little more in your initial years of retirement than you do in your last years of working because now you have time to spend money and take up expensive hobbies or travel. You do see sort of a spike up, but what is surprising is some research by David Blanchett, who is a retirement researcher at Morningstar. He looked at what actually happens to your spending in retirement. Actually, there may be a little spike in the beginning, but then steadily it goes down.

People do spend some more at the beginning. You always hear people say, oh my gosh I’m going to spend less and less and then I’m going to have this big cost at the end for healthcare. That’s not what happens. You see this steady downturn and even though your healthcare costs do tend to rise at the end, there’s a trade-off. You’re actually maybe spending more on healthcare, but you’re spending less on other things. But it kind of ties into what we were talking about earlier, which is retirement and happiness and what makes you happy. What has been surprising to me is that people can live on less than they expect very happily and that the things that make them happy in retirement don’t really cost a lot of money.

John Rothmann – Donna, we have to take a break. It’s very thoughtful of you and you’re going stay with us for another segment and we really appreciate that. Our guest is Donna Rosato. She is a writer for Money magazine. She has been there 12 years. She’s amazing. And when we come back, we have more to talk about, right here on the Retire With More Program. I’m John Rothmann and we’ll be right back.

Dr. Charley Ellis

Mitch Tuchman – Charley you were telling us that the difference between taking social security at 62 years old versus 70, two people with the exact same income could mean a 76% difference.  What if I retire at 62, and I need that social security and I don’t really want to wait until I’m 70 years old, even though I can get 76% more I feel like, well I never really know how long I’m going to live, and maybe I’ll just grab it now.

Charley Ellis – That might be your way of thinking about it.  That’s not the way that I would think about it.  I would think very carefully, I might check with my doctor and if he said “Charley you’re going to go in the next 90 days” then I guess I’d go ahead and claim it, but if I am going to be hanging around at all, and had a decent chance of living until let’s say 80, I would defer because that extra income would be terrifically valuable and you never know you might live longer, and longer again. To me, the ability to have a higher income that is adjusted to protect me from any inflation, that happens and goes as long as I can live, I think that’s a really important benefit.

Mitch Tuchman – And in your book “Falling Short” that just came out, you co-wrote with some real important people from the retirement industry think tank at Boston College, what are some of the key things that the everyday investor can take away from that book like the social security claiming strategy, are there other ideas that you propose for people?

Charley Ellis –  Sure, one of the easiest ones to talk about is if I can convince someone to wait until they’re 70, not only do they get 76% more than they would have gotten then if they had quit working at age 62, at 76% I think it’s really important that’s not the total sum of it.  You then have a chance for 8 years, you’re not taking money out of your 401(k), 8 straight years you’re putting money in. It just so happens that your 60s are a time where most of us find our spending levels saucers down, so little bit lower than it normally is, and then it lifts up a little in our mid to late 70s because of healthcare.  You’re not taking money out, but you are putting money in, and you can put in pretty generous contributions and you get a return on your investments that are there when you started at 62 and all the accumulation.  If you put those three together and you have a shabby not very good market, you still have increased your 401(k) by 150%, and if you have a good market, decent, normal market, you’d be increasing it by 200%, and that’s really important because that means that your payouts can increase by that magnitude too. So you get the bigger social security and the bigger 401(k) payout, and the combination can lift large numbers of people, and when I talk large numbers I’m not talking 100,000 people I’m talking about 10-20 million people being lifted from a level where they can’t quite make it or worse, up to a level where they can say they’ve got enough and they’re going to be ok.

Mitch Tuchman – And we should remind everybody that “enough” in your judgment is when you hit retirement having at least 80% of your top income, whatever you were earning the last 5 years before your retirement.

Charley Ellis – Right you are.

John Rothmann – Ok, I want to reiterate that because everybody who is listening to the sound of our voices will now be able to compute roughly what it is that they need in order to retire with more.

Mitch Tuchman – Charley, since you published the book “Falling Short” you’ve been out talking about the book and listening to people’s responses to the book – what have people’s responses been to the book, and what are some of the surprising things that came out of the book that people are listening to and saying “wow, that’s important – I didn’t know that…”

Charley Ellis –  Well, the first thing is that almost everybody is surprised by how much benefit you get by working 8 more years and how valuable it would be for every individual to be able to sit down and know the numbers and then be able to make their own choice, for themselves and their family.  I’m all for free choice, but I don’t think anybody is making a free choice if they haven’t got the information that they need to make a good free choice.  That’s one of the things that virtually everybody is picking up on and saying “oh boy, is that really important.”  The second thing that really comes across very strongly is this is a problem that could grow to be one of the worst social economic financial problems our country has had in 50 years.

John Rothmann – Explain to me why it could be a major problem?

Charley Ellis – You tell me what you think John, when there are 20 million people who don’t have enough to live comfortably reasonably in retirement.

John Rothmann – That’s exactly the key.  You’re exactly right, but I want people to understand what it means that if people do reach retirement age don’t have enough money, don’t have enough resources, hasn’t contacted Rebalance in order to know precisely what they can do – the statement you made was so critical.

Charley Ellis – Well that sad reality is John, individuals are going to be left on their own.  10 years after retirement you don’t know anybody at the company that you could call and they don’t know you, and they don’t have a responsibility to you as they look at life and you don’t have a claim on them as you look at life and they look at life.  So you would really be on your own, getting older, starting to incur pretty serious health costs, not having enough money to be able to do all the kinds of things that you always thought you’d be able to do and that’s a terrible combination for individuals to go into if it could be avoided and I think the reality is that it can be avoided for most people.

John Rothmann – And what is the way to avoid it? What is the method you recommend?

Charley Ellis – First, be sure that everybody knows about social security and the 76% increase. Second, be sure that everybody knows about the benefit increase they can have in their 401(k).  Third, and this is something we haven’t talked about, but it’s very important, we could easily get to a very real strength of solution if as soon as you took a job, you’re automatically in the 401(k) plan unless you say you don’t want it and that you want to opt out or I want to get out of this deal.  Fine, you could opt out, but otherwise you’re in the plan automatically and you automatically match the match.  You get the free money that the company was prepared to put up automatically unless you say you don’t want that and then third you have auto-escalation.  Every time you get a raise, your choice, but either ¼ or 1/3 goes into increasing the savings that you’re putting aside for future use for when you need it later on and that auto-escalation could rise until you get up to something like 12% savings, but if you do it gradually, and only when you’ve already gotten a raise, it doesn’t hurt, it’s not causing you to change your behavior.  And then the investing- have the investing be done automatically for you in a balanced portfolio that is automatically rebalanced and is invested in index funds so that you don’t have to worry about a thing because you know in the long run it’s going to accumulate and accumulate and it’ll be very sensibly managed so that for you, but the time you come to your retirement years, hopefully 70 instead of 62, you will have accumulated a substantial amount in your 401(k) plan compared to the way we are today, which is, get this – half of the people in America who have a 401(k) plan, and are 65 have less than $110,000 in the plan and they’re about to start a 20-25 year retirement.  It’s not possible for them to make good on that retirement dream or plan that we all had with that kind of money.  If you’ve been putting money in all along and building it up, and been investing it in low-cost index funds, with somebody rebalancing it on their behalf, they would be in such a different position that you’d say “Well done!”

John Rothmann – And let’s point out that that’s precisely what Rebalance does.  It rebalances, it gives you individual attention and their investment method is the index fund, which is precisely what you’ve been recommending and why you’ve been so supportive of Rebalance is that correct?

Charley Ellis – Exactly so.  I mean I like Mitch, Scott and the team at Rebalance, but the reason that I’m interested in the program is because I know we’ve got a problem and when I can see a solution to that problem I want to get behind it.

Mitch Tuchman –  Charley, we’ve talked a lot about the type of investor that should get an advisor but when somebody is out there looking for an advisor, and of course I’m biased towards Rebalance we have a great service, but just in general, when you’re talking to people how do you help them pick an advisor?  What do you tell them, things to look for?  Obviously don’t go to a broker, go to a registered investment advisor, but what other things do you tell people when they ask your advice on that?

Charley Ellis – The reason it’s so important to go to a registered investment advisor is that they are required by the federal government to meet standards of fiduciary responsibility, which basically means they’ve got to put the interest of their client ahead of themselves.  The brokers have said we don’t want to be required to treat people that way and we don’t want to be held responsible for being fiduciaries.  We don’t want to have penalties if we don’t take care of our clients by putting their interests first, and it’s really embarrassing as a nation that the President of the United States was commenting that this is not right, this is not the way things should be.  The political process however, it looks like the people that don’t want to be subject to fiduciary responsibilities and are going to be continuing to “give financial advice” that they will be able to politically get this regulation not passed or approved and it’s a shame.

John Rothmann – Charley we only have another minute with you- what are your closing words of advice for our listeners?

Charley Ellis – Saving is a wonderful idea because the only person you’re saving for is your family, and yourself.

John Rothmann – And again, your new book “Falling Short”.

John Rothmann – Thanks Charley!

Charley Ellis – My pleasure.

Jay Vivian

John Rothmann – I’m John Rothmann…

Mitch Tuchman – And I’m Mitch Tuchman.

John Rothmann – …and our guest on the Retire With More Program is Jay Vivian. He is the man who oversaw the retirement funds — $135 billion in retirement funds for IBM — and when we left off, Mitch, I was on the edge of my chair because he had two conflicting views and, gosh, I’m so indecisive, how do you decide, Mitch?

Mitch Tuchman – Well, let’s set this up a little bit. So, when you’re Jay Vivian and you’re running this kind of money, every smart money manager in the world comes in to see you.

Jay Vivian – Oh, the dumb ones do, too, Mitch.

Mitch Tuchman – And the dumb ones do, the smart ones and the dumb ones! But when they get to see you, you do have access, and so you were telling a great story about how one guy comes in in the morning and says our fund’s going to go long Japan. We see an amazing opportunity. And then that afternoon another guy came in and he says we’re going to sell Japan short, and what did you guys do? I mean two smart guys, conflicting views, great performance…

Jay Vivian – Essentially, we learned that having a really smart guy doesn’t really help you that much, and it’s really hard to make a decision like that, and it comes down to the fact that I ended up, certainly, believing that indexing was the way to go in a lot of areas. Certainly in an area like large-cap stocks. Certainly in trying to time markets and trying to time interest rates, because there’s a ton of smart people out there and they disagree even with each other. So, if they can’t figure it out, how the heck can I figure it out in an ivory tower, like an academic, or in a corporate plan? It’s just really hard to do that. So what you do is you say you know, unless I’m really convinced that I’m smarter than all those guys and gals down on Wall Street, I really shouldn’t try to play in that space.

Mitch Tuchman – And therefore, if I’m not going to play in that space, my default, the other choice is simply to ride the markets and capture those returns, right? And that’s what you decided to do with billions and billions of dollars for IBM employees.

John Rothmann – And Jay, what you’re logically saying, then, is that the safer way to go, but not only safer way to go, the smarter way to go, is what you and Mitch are recommending in Rebalance, and that is to go with an index fund. And just so everyone is clear, can you just quickly define for us, very simply, what exactly is an index fund?

Jay Vivian – You bet. It’s called an index fund because it’s managed against an index and an index is something like the S&P 500 Index, which is the 500 large industrials, and an index fund is a fund which instead of trying to figure out which of those stocks is going to do better and which is going to worse, just says you know, I’m not sure I’m smart enough to do out, let’s just buy the 500 stocks in the S&P 500 and ride them.

The reaction that most people have to that idea of just buying the index or buying an index fund, which replicates the index, the negative reaction is well, you can’t be the index then, so you’re always going to underperform. Well, the answer is you’re not always going to underperform. If it’s a well-managed index fund you’re going to earn the index. And yeah, you’re not going to outperform, but guess what? You’re also not going to underperform. And it turns out that that’s where the real the problem is. It’s like a lot of games that you play, you don’t always win the game by beating the other team at what they’re doing. What you do is end up losing the game by losing.

Look at a game like hockey. How do you win the game? Yeah, you win the game by scoring goals, but you lose the game by letting the other team score goals against you. Same thing with indexing. If you don’t lose, if you can avoid those darn losses, you can on average do better than many of the other participants. This has been particularly true in the last five years, where active managers have underperformed index funds in large numbers, 60%, 70%, by some measures 80% of active managers have unperformed in the last couple years.

Mitch Tuchman – So let’s get back to these target-date funds. We were talking about a target-date fund, has a date on it. That is the date you retire. I think to the average investor who is getting into his 401(k), they think, well, I’m 50 years old, it’s 2015. I’ll probably retire at 65. That’s 2030. I pick the target date 2030 and that’s the end of it. I would say that’s probably a very shortsighted thing to do. Can you help somebody understand what else they should be doing besides just picking a random date on a target-date fund?

Jay Vivian – Well, one thing is, is that going to be enough? One of the worst decisions that people make is how much to defer, how much to save. That’s something that’s a hard judgment to say because you don’t know how long you’re going to live. So 2030, that may well be when you’re going to retire, if you’re going to retire 15 years from now. The bigger question is, how long are you going to live?

Mitch Tuchman – I wish I knew!

Jay Vivian – If you knew that you were going to die in 2030, sad story that you’re only going to live 15 years, but you might not need to save as much. If you knew you were going to live to be 99 like my grandfather did, you’ve got a bigger problem. You’ve got to save a heck of a lot more money and you’ve got to be a lot more careful how much you spend in fees. You’ve got to be a lot more careful that your portfolio is well-diversified. You’ve got to be a lot more careful that you’re protected against other things that might happen between now and then, like healthcare and kids that need help and whatever other expenses you have. So, picking 2030, yeah, that’s a good choice if you’re 50 and you’re going to retire in 15 years, but you’ve got a bunch of other things that you’ve got to think about, too.

Mitch Tuchman – Well, you know, Jay at Rebalance when we’re talking to clients who have these target-date funds in their 401(k) — and we do advise people on money we don’t manage as well as the IRAs that we do, because we like everything to be holistic with our clients — but when we’re looking at these target-date funds, I’m always amazed at how “off” they are. So, guy says to me I’m 50 and I’m going to retire at 65. I look at his target-date fund and there’s just not enough equities in this target-date fund, or when you kind of look at things, he probably ought to be at a much further out target-date fund. And I think that we’re always talking at these glide paths and they’re deceptively easy-looking but they’re really not easy at all.

Jay Vivian – That’s right. I mean, a 2030 fund, for example, that sounds pretty far away, but somebody who’s 50 years old might say, you know, I ought to be taking the risk down, but a 2030 fund really ought to have 70%, maybe 80% equities in it because not only does that fund have to survive the 15 years from now — again we’re talking about a 50-year-old hypothetical investor — until 65, but the average 50-year-old today probably has between 35 and 40 years of life left…35 and 40 years, that’s a long time! So that’s why that investor, even though they may not feel comfortable holding 60%, 70%, 80% in stocks, if they’re going to be living 30, 40, maybe even 50 years, like my grandfather, from age 50, you’ve got some serious thinking to do.

Mitch Tuchman – And Jay, in the industry, these glide paths, and maybe you can explain what a glide path is after I finish my question, but these glide paths, they’re different from purveyor to purveyor to purveyor and, to me, these glide paths were also devised when you could make money on bonds. Now we’ve got depressed bond prices. So, how do you think about glide paths and what should a regular, everyday investor do about that?

Jay Vivian – Well, I like the idea of glide paths for two reasons. One, these funds all automatically rebalance…

John Rothmann – Explain what a glide path is, though.

Jay Vivian – Within a given family of target-date funds there is a typical glide path, and the glide path, what it does is, over time, it gradually takes your risk down. So, for example, the 2030 fund, let’s just say, hypothetically, that the target-date fund at one of these fund families we were talking about a little while ago is 75% in stocks. That number might actually stay at 75% for the next 10 years. So our 50-year-old, when he turns 60 in 2025, it might still have 75% in it. But then it will slowly decrease. So the same fund, the same fund at Vanguard we used as an example before, the 2030 fund, this fund will be around for 50 or 75 years, but that fund’s target equity weight will slowly come down over time as its investors slowly age — or people at least that say they want to invest with the risk associated with retiring in 2030 — that will slowly come down.

Now the 2025 fund is for people who retire a little early. That equity weight will start to come down sooner. The 2050 fund might have, I don’t know, 85% in it now, we could look it up online in a second, and that’s going to come down later. So, if you think about it, and this is hard to do on the radio, but there’s actually a chart that each of these providers has that shows the equity weight at different numbers of years from now.

Mitch Tuchman – It just looks kind of like a plane kind of coming down for a landing.

John Rothmann – Gliding. Gliding to a landing. But I have to ask you a question: So, if I’m 50 years old and I’m planning my retirement, how do I know, what are the benchmarks that I should look for in terms of what I’m going to need to retire? I’ve got to pay my mortgage, my life insurance, property taxes, all these things. How do I figure it out?

Jay Vivian – That’s a very, very hard question, John. The most important one is one we talked about a minute ago, how long you’re going to live? So tell me that.

John Rothmann – If I knew the answer to that, boy, would I have a life insurance policy for you!

Jay Vivian – So, it’s a very hard thing to do, John. What you have to do is you have to try to reduce the risk. The biggest risk, strangely, is that you live a long time because if you live a long time, that means you’ve got to have more money. So you’re right, you’ve got to think about your mortgage. You’ve got to think about your retirement. You’ve got to think about the things you might want to do in retirement. You know, you want to buy that vacation home on the coast? Maybe. Do you want to leave money for your kids? Maybe. Do you want to take that vacation to Outer Mongolia that you always wanted? Maybe.

Whatever it is that you might want to do, you can put that all down on paper, but those are relatively small compared to the risks that you live longer. Now, one of the things that Mitch and I have talked about is, let’s say you’ve got somebody that’s pretty smart, thinks this stuff through, figures out how much they should save. Let’s say they even figure out how much they want to spend, and they look up their life expectancy on some table somewhere. And this 50-year-old, hypothetical person looks up and says, well, based on my genes, okay, my life expectancy is 87. I’m going to die 37 years from now. And he plans really well to have enough money to live to be age 87, and that’s great.

But we all know what the life expectancy of 87 means. That means that of all the people, of all that “cohort,” they call it, all the people with that age and with those characteristics, half of them are going to live until 87 and half of them are going to live more than that. So what that means is that this really smart person, well-intentioned, educated person, did all the stuff — and of course many people don’t do all these things — that person only has a 50% chance of having enough money to live to their life expectancy.

John Rothmann – I hate to do this to you, but we’ve got to glide into a break before we come back for the next segment. Our guest is Jay Vivian. He is the former managing director of IBM’s Retirement Funds. He is absolutely on target, and we’re going to glide into Rebalance-IRA.com, of course this is the Retire With More Program, and when we’re through we’re going to figure out how to do that, and so we will be right back.

Paul Sullivan

John Rothmann – I’m John Rothmann and you are listening to the Retire With More show. I want to remind you that to contact us directly, all you have to do is go to www.Rebalance-IRA.com or, if you prefer, you can pick up the phone and call 877-IRA-4IRA (877-472-4472). We want to tell you that because, as Paul is leading us through his … analysis … we wanted to give you the opportunity to check with us. Remember, that consultation is free. We welcome your calls and your emails. But now, let’s pick up where we left off because Paul, I can’t wait to hear about those sweaty palms.

Paul Sullivan – You’re causing more stress.

Mitch Tuchman – When we were last talking, right before the break, Paul you were all hooked up with transducers. They were measuring your sweaty palms, your heart rate and everything and they’re asking you a lot about money and you asked them, how did I do in answering the questions? And they said, we didn’t care about the questions.

Paul Sullivan – Man, I feel bad for your listener whose just sort of come on here with me talking about sweaty palms and my racing heart-rate.

Mitch Tuchman – Well, this is a financial show everyone, so don’t be surprised.

Paul Sullivan – So, as I was saying, I was out at Kansas State at their financial therapy clinic. They had hooked me up to all of these ways to measure how my body was reacting to the questions I was being asked. And, as I said, I was trying to answer the questions really honestly, really think about them, and they weren’t terribly hard questions. They were the type of questions that any financial advisor would ask his or her clients.

And I thought I had aced this test. And I turned to the woman who had been watching me and said, how’d I do? And she said, well, how do you feel? And I said, well, I’m a little cold but, other than that, I think I did great. And she said, you had one of the highest stress levels of anybody we’ve ever tested. And I said, what are you talking about? How is this possible? I knew all of the answers. And she said no, you were focused on the answers, but your body was responding in a different way. It was a classic fight-or-flight response. My fingertips were so cold because all of my blood was going to my core to keep the vital organs going. My palms were sweaty because I was nervous.

And she’s fascinated by this, while I’m horrified by this. This is one of those big hurdles that every advisor needs to get over because talking about money, even if you think you know all the answers, even if you think you’re financially secure, is difficult because it’s so personal. And as I say in the book, these days we can talk about the most horrible disease we have or somebody else has and not worry about it. We can talk about sex with friends, acquaintances, and not worry about it. But we cannot talk about money openly. I mean have you ever gone to any of your friends or neighbors and said, “Hey, how much do you make a year or, hey, how much do you have saved in your 401(k), or how much did you put in that 529 for your kid’s college fund?” We would never, ever do that. It’s taboo. But there are so many other things that are important and essential to our lives, just as money is, that we’re willing to talk very openly about.

John Rothmann – Why? Why is that? Why are people reluctant to talk about money?

Paul Sullivan – Because money is no longer what it should be. Money is a means of exchange. If you have more money you can buy more things. If you have less money you can’t buy as many things. It’s that simple. As this trip out to Kansas State and a lot of the other research in my book showed, money has become attached with all of these psychological values. Money is equal to your self-worth. Or the classic keeping up with the Joneses. Or you want money to stand in for something it can never stand in for — love. You want to show more love or you want to make up for love you didn’t receive.

Money is a means of exchange. And money can buy you freedom. If you have a bit more money you can get away, take a nice vacation. I don’t necessarily subscribe to “money doesn’t buy you happiness.” Money can buy you escapes. When money becomes more than just the ability to buy things you need or buy things you want, that’s when it becomes very difficult for people and that’s when people clam up and they don’t want to share how much they have or how little they have because they don’t want to be judged or they don’t want to seem like they’re prying if they’re the person with more money asking the person with less.

Mitch Tuchman - And yet in my business at Rebalance as a financial advisor, usually when we begin a conversation with a client it’s because something got triggered. Maybe they’re out of a job and they’re between jobs and now they’ve got to deal with their money and that’s always hard. But usually it’s forced by something that happens in your life. They also say that when people turn 39, 49, 59, right before turning a decade, that’s a trigger. But these triggers happen and they call us up and when they find somebody who wants to talk about their money, in our case an advisor, and they get to open up about it — you can’t stop them. It’s like a relief for so many people to lay it out and get an opinion because they can’t do it socially or in other environments. So it’s very interesting from our standpoint how this all works. Sure, socially, no one will talk about it but on the other side of this, people are desperate to talk about it, we’re finding at Rebalance.

John Rothmann – I’m curious about tips you got from those who spend a lot of money but aren’t broke. How do you do that? I really want the answer to that one Paul, before I send you my bills.

Paul Sullivan – This is a fun chapter I have. I start off the chapter with a football player, guy named Paul Posluszny, who is a linebacker, he’s a really great linebacker. And I started off with him because, man, football players, they get beaten up all the time for the bad choices they make with money. And Posluszny is different. By the end of his playing days, if he doesn’t get another contract, after taxes, after his agencies, he’s still going to be worth about $20 million. That’s how much he’ll get, after tax, after agencies.

But when I met him, we were talking about cars. He was wrestling, he’d been wrestling over….he was getting a free car when he played for the Buffalo Bills, because he signed some autographs. He really wanted to buy a BMW. This is a kid who grew up very modestly. Mom a teacher, dad a mechanic and he really wanted a BMW. Well, I talked to him a couple of years after that, when he got a second contract that really put him in this tens of millions of dollars range and he said, I remember we were talking about the car, and I said, yeah, yeah Paul, I remember that. And he said, well, I couldn’t do it. I said, what do you mean? And he said, I couldn’t buy the BMW.

The headline number in this guy’s contract is $47 million. This is the headline number. With football players those headline numbers don’t matter. It’s the guaranteed part that matters. I said, Paul, why couldn’t you buy the BMW? And he said, well I drove it, and it was great, but it just was too much money. I just couldn’t pull the trigger. He’s talking about a $90,000 7 Series BMW, and I said, well, so what did you do? And he said, well, I bought an Audi. … It’s still comfortable. It’s still that good German engineering. And it just felt better.

John Rothmann – There isn’t that much difference between and Audi and a BMW!

Paul Sullivan – Well, $90,000 to $75,000. It’s 15 grand, but in percentage terms what’s that, 18%, 19% less? It’s those little decisions, those little choices that people make throughout the course of their life that make a difference. If you could save 18% every time you made a decision and take that 18% and save it for something you might need, either for a goal — it adds up. And a guy like that is going to be OK because he has the ability to make those little decisions now and wait and see how they add up later on. And he’s not depriving himself, either.

Mitch Tuchman – It’s almost like an instinctive ability to be able to stay on the other side of the line that you’ve described, this imaginary thin green line. It’s almost like when you get too close to it, you know and you want to get away from it to stay on the upper part of it instead of cross through it. It’s almost instinctive for certain people, or is it learned?

Paul Sullivan – I believe it’s learned. And I believe that Posluszny is an interesting case. Mom a teacher, dad a mechanic. He told me stories. They talked about money at the dinner table. They had to make decisions. They were solidly middle-class people growing up in central Pennsylvania but, you know, their decisions counted. If they needed a new car, maybe it was a new Chevy, a new Ford, maybe it was a new Toyota — it was a need. The old car was not working anymore. And they had to think OK, if we buy this car, what else are we going to have to give up?

And that’s one of the things that people miss. The people that I’ve known over the years who are the best with money, who are the best-adjusted, particularly at an early age, not the client that’s coming in at age 39, 49, 59 saying help me now. Those people who are best-adjusted, have the best relationship to money in their 20s are people whose parents talked openly about the decisions they were making, whether they had a lot of money or a little money, and they were connecting their labor to what that labor created, which is money, the money that allowed them to make those decisions. And that is essential. I think the people that try to hide money from their kids or pretend their kids will never figure out how much money they’re worth when they can go on Zillow and figure out exactly how much the house costs, they’re deluding themselves.

Mitch Tuchman – And that’s such an interesting dynamic here in the Bay Area. And you mention the founder of eBay in the book. But people here in the Bay Area oftentimes find themselves with these huge windfalls, and I’ve lived in the Valley for 35 years and I’ve watched people come into lots of money, blow lots of money, and others just hold on to it and save it and grow it, and it’s just a very interesting dynamic about getting experience with having money.

John Rothmann — And isn’t the key here, because we are talking about retiring with more, that you really want to give thought at a younger age to what you’re going to need when you get older. Is that a fair statement?

Paul Sullivan – Sure. Not even when you’re 20 looking at 70. When you’re 20 and looking at 40 and you want to have a home and you want to have a couple of kids and you want to take a vacation. That’s a mental leap. That’s a big place to go from your first job to having a family.

John Rothmann – If you want to retire with more, and we have to break in another minute or so on this segment, but if you want to retire with more, what is your best advice for the people listening to our program?

Paul Sullivan – I think it’s practicing moderation with occasional moments of indulgence. Because if we tell people you need to save “X” amount every week and do that, boom, boom, boom, boom, boom, don’t have your Starbucks, don’t treat yourself, it’s going to be very difficult. If people have some sort of goal in mind, they want to have “Y” by this time, and by the end of the year they want to have “Y” more, well, that gives them to have some sort of flexibility. They can practice moderation and have occasional bits of indulgence. They can have that nice bottle of wine at dinner. They can go out with their friends. They can go on a vacation. I think that that’s a more realistic way for people to think about spending and saving their money.

John Rothmann – Speaking of indulgence, you have a story in your book about the son of Ruth’s Chris Steak House, and that is an indulgence — if my wife is listening, it’s one of her favorite restaurants — so when we come back we are going to ask you to tell us that story and a little bit more, when we come back right here on the Retire With More program. Our guest is Paul Sullivan. We will be right back.

Sally Brandon

John Rothmann – Welcome back to the Retire With More Program...We have a very special guest, Sally Brandon. She is the person who handles all of those kinds of questions that you’re going to call or email about. So, I left off with a question: I know what personal hygiene is, but what in the world is “portfolio hygiene?” Can you answer that for me Sally?

Sally Brandon - Sure. Portfolio hygiene is really making sure that every year you take a look at your portfolio and make sure that everything still is appropriate. So, have you had any life changes that you need to take into consideration when you take a look at how your portfolio is being managed? Your beneficiaries, now this is a really important one, John. So, think about maybe when you started a retirement account, hopefully it was in your 20s, and at the time when you put together a retirement account, you have to list beneficiaries. Beneficiaries are those that would receive your account if something were to happen to you. And at that time it was probably your mom and dad.

But as life goes on, changes in your life will occur. You’ll get married, maybe have some children, and you’ll want to revisit who those beneficiaries are. So every year it’s really important that clients take a look at — well, we with our clients will do it — but that people in general take a look their portfolios and make sure the beneficiaries are still appropriate and is the asset allocation, the way the money is being invested, is that still appropriate given where you are in your lifetime?

John Rothmann – And you really want to look for pitfalls. For instance, if someone who is named as a beneficiary dies, you certainly have to make the correction. What about a divorce? What do you do in the case of divorce?

Sally Brandon – Well, that too. If you’ve gone through a recent divorce, chances are your former wife is on your account as the primary beneficiary and you’re going to want to make a change and have your new wife, if you’ve gotten remarried, be the primary beneficiary. Or possibly consider, if you haven’t gotten remarried, putting your kids there.

We had a client recently that had gone through a very similar situation. He had been divorced for many years and had just gotten remarried. And when we got linked to his account I was able to look inside and see who is beneficiaries were and wanted to make sure that the way he originally registered the account was still appropriate and, sure enough, he had his first wife as the primary beneficiary. And, when push comes to shove, whoever you designate as a beneficiary is going to take precedence on who gets your money. So we quickly made that change and put his current wife on the account.

John Rothmann – Now you told us a story about Dale, the sole beneficiary for an elderly mom. Tell us that story, will you?

Sally Brandon – Well we had her retirement account that we were managing and she was in a pretty aggressive portfolio but there was a little bit more room to take on a little bit more equity exposure. But she has an elderly mom and she is the only child for her mother. So she was going to be soon inheriting those funds. And when she took a look at how her mom’s assets where being invested, they were all in bonds. So when she took that into consideration, she really needs to factor in the money that she’s going to be inheriting into her overall allocation, and it made us kind of pause and rethink about how we should invest the retirement account that we had. So we stepped it up and went more aggressive.

John Rothmann – So at Rebalance, if I contact you, if I call you, if I email you, what you do is a real assessment of what you have. So my great aunt just died and left me $1 million, and I don’t know what to do with that $1 million.  I call you. Do you really sit down with me, examine everything, figure out what to do? Do you do that for me?

Sally Brandon – Well, we’ll look at everything holistically, so we’ll take that into consideration as that is now a part of the mix and we will then evaluate if the funds that we’re managing need to be re-jiggered a little bit, and maybe we need adjust how those funds are being managed.

John Rothmann – And that applies no matter what the amount is right? I use $1 million. I wish I had that great aunt. But, the point is if it’s $1,000, $10,000 or $50,000. What a life insurance policy. Somebody names you as the beneficiary on a life insurance policy? What do you do then?

Mitch Tuchman – Well it’s all part of what Sally is talking about with portfolio hygiene, it all needs to be factored in and what we always find, Sally’s always telling me stories about... She conducts a first-year call with all of our clients, a second year call, a third year. Every 12 months, she makes a point to get on the phone with every client — Sally or a member of her team — and go through this process, and that’s why she calls it portfolio hygiene.

Because there’s usually there’s something that happened during the year that might not be of any consequence to the client. The client may think it’s nothing, no big deal, but when we hear it, because this is what we’re trained to do, we say “Wait, that’s very important.” That actually might make this assumption we had very different, just like in the case of Dale who found out that if you consider both portfolios together her allocation is out of whack. It’s all about making sure that on a regular basis learning about people’s life changes. So we recommend that everybody take stock once a year and look at everything they’ve got.

John Rothmann – Ok, so speaking of test driving, I love this expression, which you taught me, you should take your advisor for a test drive. Just like you try out a car, why not an advisor?  What does that mean?

Sally Brandon – Well, I think that if you are going to have somebody manage your money, you want to make sure that you’ve made the right decision, that you’re going to be, first of all, paid attention to, that they’re going to hear you out, they’re going put you in the right investments based on where you are in your life and that they are going to be charging you the least amount of fees. Fees are very important and they can erode your returns.

So why not then, if you want to try somebody out, you might not want to give them everything. You don’t want to jump in with both feet, but why not give them some of your assets to manage and evaluate then how they’re managing it compared to how your other money is being managed, and then after a while maybe evaluate and see if you should make some changes.

John Rothmann – I have to go back to this question of fees because Mitch has underlined each week the fact that 1%, which sounds a very insignificant amount of money, really mounts up. Can you explain that to us?

Sally Brandon – It does. Do you want that 1% in your own pocket to compound over time and retire with more? Or do you want to be giving someone else that 1%? When you’ve got a lot of time on your side, even though it’s 1% today, it really can amount to a lot of money in the long run.

Mitch Tuchman – But John back to this concept of the test drive that Sally was talking about. We’re an advisor, and of course we like managing people’s money and we compete against other advisors who are managing money for the same client, and if you’re just everyday people listening to the show, you hear people like me talk, like Sally talk or a hundred of other people talk and many of them probably sound great, like they know what they’re doing and that’s the best idea, that’s the best advisor.

So, at a point you say, how do I know which one to use? Sally’s recommending like you test drive a car, test drive the advisor, but where we really learned a lot is from a client name Ron. And Ron had a wife named Tammy and he decided to test drive us against his wife’s accounts with a broker at Ameriprise, and I think Sally, it was the way that he did it that really enlightened us in terms of a very intelligent way to test drive an advisor, because you really have to do this in a diligent way to get a good result. Otherwise you’re comparing apples to oranges.

So, if you want to talk about that, or I can talk about how Ron did this. I just thought it was brilliant, and we think everybody who is giving us a try should do this.

John Rothmann — So, Sally, what did Ron do?

Sally Brandon – Well, what he did is, they had a number of accounts and so he chose to give use one of his wife’s accounts that was managed in the same manner that his retirement account was managed. So, to what Mitch said, you want to make sure that it’s apples to apples. You obviously don’t want to be comparing how our portfolio is doing compared to one that is a lot more aggressive or a lot more conservative.

So what they did is they gave us her retirement account and we managed that for a year and he kept his account over at Ameriprise, which was managed in a very similar manner, and then when we had our annual call and he looked at the returns, he was really amazed by kind of the shortfall in his account, and it was mainly due to the fees that were being stripped out of his account to manage. So, at that point, he got very disenchanted with Ameriprise and wanted that money for himself, so he took his other three accounts and moved them over for us to manage as well.

John Rothmann – And Mitch you’ve made this point, differentiating what you do and what a broker does, and maybe this is a good time to restate that so we’re crystal clear.

Mitch Tuchman – Well, so the key here was that the Ameriprise broker had for his wife’s accounts a stock-bond allocation, bonds funds and stock funds, at 60/40. Actually, we didn’t think that was appropriate and we told Ron we don’t think that’s appropriate, but if you’re going to compare us to them, let’s use their allocation. And we’ll do a 60/40 allocation so that it’s apples to apples, because bonds operate and get different returns than stocks. If you have differences, you’re not getting a great comparison. So, we kept the allocations the same.

As Sally mentioned, their 2% in fees as opposed to a third of the amount that we were charging really made a difference in the returns, same stock/bond allocation, and we were selected. But the point was, Ron did a test drive and he did a very, very accurate representation, apples to apples, and we helped him do it. May the best advisor win. But we really like this idea of a test drive.

John Rothmann — I think it makes a lot of sense. So in summary on this then, really taking a test drive with whoever you work with is critical, and that includes Rebalance. Is that correct?

Mitch Tuchman – One more thing John. Here’s what Ron did also: There’s a difference in how certain advisors manage money and the amount of taxes that are paid because certain advisors do lots of trading, and as they do a lot of trading it generates taxable income. So what Ron did was is he looked at the taxable income generated on each account and he used his own tax rate and deducted that from the returns as well. That’s where we really were able to shine, because we don’t do very much trading at all. But that’s another factor — fees, taxes, allocations, do the right thing with the test-drive. And we’ve been helping lots of clients do that after we learned this from Ron and his wife.

John Rothmann – We have to take another break, but when we come back I want you to tell us the story of Sarah in New York, whose husband passed away. She was worried. How did we resolve that problem. You are listening to the Retire With More Program. Yes, that is our goal, that we all retire with more.