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Do Your Investments Suffer Because of Where You Live? – Episode 87


home country bias

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Pledge allegiance to the flag, support the troops, and cheer for your favorite Olympian. There’s nothing wrong with a little home country pride. But how does love for your country affect your investments? In this episode of Dentist Money™, Reese & Ryan compare Americans, Canadians, and Australians to illustrate how home country bias can influence investment decisions.

Show notes:
dentistadvisors.com/10habits

Podcast Transcript:

Speaker: Consultant an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors a registered investment advisor.
This is dentist money. Now, here’s your host Reese Harper.

Reese Harper: Welcome to the Dentist Money Show, where we help dentists makes smart financial decisions. I’m your host, Reese Harper here with my trusty old co hosts Sir Ryan Isaac, and Q in the studio.

Justin Copier: Justin Copier, Q in the studio.

Reese Harper: Welcome. Thank you Q for being a part of this for the commoner and keep us out of the weeds today.

Justin Copier: [crosstalk 00:00:37] I’ll do my best.

Reese Harper: Because we’re going deep. Diving into the deep of investment theory.

Ryan Isaac: I like-

Justin Copier: Make sure you guys come up for air every once in a while.

Ryan Isaac: No, that’s good. Keep us out of the weeds.

Reese Harper: I want to tell you guys a story about an experience I had recently in St. James, San Diego. It’s in California.

Justin Copier: Okay.

Reese Harper: For those in the studio who may be unaware of that city.

Justin Copier: St. James?

Reese Harper: St. James.

Justin Copier: Alright.

Ryan Isaac: St. James in San Diego.

Reese Harper: No, St. James is San Diego, just in Spanish. And I had a conversation with some people from Germany, some people from Australia, some people from Great Britain. I don’t use accents for anyone but Australia, and I still know how to do an Australian accent very well, but I had this conversation. It was this investment training group, and we went into this big conference room, and there was a sandwich station that I found myself in front of quite quickly.

Justin Copier: You were skipping the lecture to be at the sandwich station.

Reese Harper: It was a hand-carved turkey sandwich station. I was like, “Man hand carved Turkey.” You could tell it wasn’t lunch meat. So, that was the first detail of the story that I’d like to share. And then, there was a juice bar which I could tell is basically high fructose corn syrup. It didn’t match up with the-

Justin Copier: With the turkey. With the sliced turkey.

Reese Harper: I was like, “Man you got like, there was like an avocado aioli, it was a really tasty little turkey sandwich. And I was like this juice bar-

Justin Copier: It was basically-

Reese Harper: Worse than Cran-whatever.

Ryan Isaac: It was Hi-C?

Reese Harper: It was like Hi-C orange that they just stopped continuing from McDonald’s. The point of the story, in case you get confused and think it might be about the food, it’s not.

Ryan Isaac: Why would anyone think that?

Reese Harper: It was about the person that I talked to during my lunch meal. I think, if I remember, his name was Dave.

Ryan Isaac: Dave.

Reese Harper: Dave.

Ryan Isaac: Dave.

Reese Harper: And he was telling me about how his clients in Australia-

Ryan Isaac: He was an Australian Financial Advisor.

Reese Harper: Yes.

Ryan Isaac: Yeah. Okay.

Reese Harper: Down under. And, I just had to do that. And he said, “You know-”

Ryan Isaac: We’re going to get every Australian stereotype we possibly can in complete ignorance out on this podcast. Keep going.

Reese Harper: And the problem is, we do a lot of Australian listeners on this podcast.

Ryan Isaac: We do.

Reese Harper: We love you out there.

Ryan Isaac: I love when they call. It’s cool.

Reese Harper: We just need an instruction on the accent, so we can start doing it right. He said, “Reese, my clients have a diversified portfolio of Australian equities.” And I was like, “Okay.” And it made me start thinking, so I asked him, I’m like, “What do you mean? Like, what does that mean?” He’s like, “Well,” and he was kind of joking with me. He’s like, “Australia makes up like, 2% of the world’s stock market.”

Ryan Isaac: Which is true.

Reese Harper: And he said, “But we have like, 75% of our money in Australia.” And so, you know, the joke in the Australian Financial Advisor community is that all their clients have a nice diversified portfolio of Australian equities, which, you know, it’s like 100. And so-

Ryan Isaac: Meager.

Reese Harper: The interesting concept for me from this, it started leading me to think more about home country bias. And I was kind of like, aware that this existed, right?

Ryan Isaac: Oh, we see it a lot.

Reese Harper: People have a bias about the place that they live, being the place where the majority of their money sits. The tilt in their portfolio is reflected based on where they live. And, we see that in the United States, we see it in Canada, you see it in Great Britain, you see it in Australia, and Japan.

Ryan Isaac: Australia has the biggest disparity, though, of what it actually is compared to what they most normally hold.

Reese Harper: Yeah, and it’s interesting. And a lot of it, though, is because of the size of Australian’s market. The size the Australian market and performed pretty well, but it’s a small market. And it’s done well, and I think that’s created a little historical bias on past performance seeking. But I won’t go there on this segment.

Ryan Isaac: Skip that.

Reese Harper: Let’s talk a little bit about this idea of what home country bias means, as well as a few kind of investment faux pas that go along with it.

Ryan Isaac: Yeah. Well, you’re kind of just talking about it. It’s when you hold a disproportionately high amount of stocks of the country you live in. Just because you live there.

Reese Harper: Relative to the way that they really are. It really is in the world.

Ryan Isaac: Yes, and we have some examples. We’ll get into some examples of some of the data.

Reese Harper: So if you take the whole world stock market, I don’t know where it’s at today, but recently, it was at 44 to 46 trillion dollars in total value of all of the stocks in the whole world. I didn’t look it up this morning. But I know that was like the end of last year. So if you take all of the stock market value of the whole world, right now, approximately between 52 and 54% is in the United States. So the 44 trillion dollars, the United States has between 52 and 54%. Australia has 2% of the world’s market, and Canada has three and Japan has eight.

Ryan Isaac: UK’s got seven.

Reese Harper: UK’s got seven. Let’s just talk about these countries, as they’re some of the larger developed markets, but they also have some of the disproportionately high amounts of home country bias. So people living in the United States generally keep around 73% of their stocks in the United States.

Ryan Isaac: Higher.

Reese Harper: Higher than the average of what it should be is around 53. That really is not what it should be, but that’s the the amount of global stock market value that United States possess.

Ryan Isaac: Represents.

Reese Harper: Is 53, but people have 79% on average.

Ryan Isaac: [crosstalk 00:06:44] portfolio.

Reese Harper: Tell me a little bit Canada. How’s that look?

Ryan Isaac: Oh, Canada. I love Canada. Great, great things coming out of Canada.

Justin Copier: They shout out to Mike Myers.

Ryan Isaac: I mean, we’re going to start the list.

Justin Copier: Bryan Adams, Justin Bieber.

Ryan Isaac: He wanted to say Bieber.

Justin Copier: Rob Thompson.

Reese Harper: Rob Thompson. Shout out to Rob Thompson from Canada. Good call.

Ryan Isaac: Canada represent 3% of the world’s stock market, the world’s equities, world’s publicly companies, but statistically, Canadian’s hold about 54% of their equities in Canadian companies. So, they hold 54% of their portfolio when 3% Canada is representing present in the world. It’s a big disparity.

Reese Harper: Would it be fair to say 20 times the amount of normal… where [crosstalk 00:07:31]

Ryan Isaac: Australia’s worse though.

Reese Harper: Yeah, it is worse.

Ryan Isaac: In the disparity, not worse in, you know, worst place.

Reese Harper: Not worse than like, down under’s worse than Canada.

Ryan Isaac: What’s the-?

Reese Harper: Up over.

Ryan Isaac: Up over?

Reese Harper: I don’t know. That’s not even Australian.

Ryan Isaac: That’s like Boston. Okay, so Australia has 2% of their equity of the world’s market and 64% Australians, or Australians on average have 64% of their portfolio in Australia.

Reese Harper: In Australian equities.

Ryan Isaac: Yeah. So, the question is like, why does this happen? In mean, it’s a smaller disparity than the United States, but I mean, most of the time, when we meet someone new, and they ask us to look at their portfolio-

Reese Harper: It’s only because the United States is a bigger country. It happens to be a larger representation of the world’s market. I think if the United States just happened to be a smaller stock market, you know, people would be investing disparately in whatever, you know, their country was as well. I don’t know.

Ryan Isaac: I think that’s true.

Reese Harper: I think globally, people generally know that the United States stock market’s one of the biggest markets.

Ryan Isaac: When you say stock market, people always say dow or S&P. So I mean, if think it is, yeah.

Reese Harper: But ultimately, we’re talking about more than like the majority of the world’s population is investing in, or they’re concentrating their portfolio in a way that’s not really reflective of the world market, including the United States. And, people here are under-weighting countries like Australia, and Japan, and the UK, and Canada because most of our listeners are from the US. I mean, most of you have portfolios that are not reflective of the global market. You’re still significantly over-weighting the United States, almost by twice as much as what it naturally exists in the world. And this calendar year in 2018, that is to your detriment.

Justin Copier: 17?

Reese Harper: 17.

Justin Copier: This podcast is brought to you by the future.

Reese Harper: Didn’t realize I was like one year ahead of everyone.

Ryan Isaac: Brought to you by Marty McFly and his Delorean.

Reese Harper: Most people, especially those in the US, probably need to be very conscious of this home country bias, or at least understand, why would you choose to do that? Like what about it would make you want to over-weight? Because, I don’t think it’s a conscious decision. I just think it’s random.

Ryan Isaac: It just kind of happens that way.

Reese Harper: It’s the way that the 401k-

Ryan Isaac: The fund lined up.

Reese Harper: Charts I had to do.

Ryan Isaac: Yeah, we talked about that in another podcast before. Depending on the options you saw available to you inside of a plan, kind of dictated how you ended up investing in allocating money. I mean, it’s usually no less than 80% for most people’s portfolios that we look at that’s in the United States. It just feels like a logical choice. If you open up your 401k booklet, you’ll have like 20 US funds. And then two international, one emerging market.

Reese Harper: And it feels like, “Well, that’s kind of speculative.”

Ryan Isaac: Yeah, like, those must be the weird ones. You know, there’s only two of them out of this list of 20, so.

Reese Harper: Most people are in the S&P 500 in the in the US. That’s what they invest in. Like they invest in something that’s similar to S&P, right? But if you look at the global market, like what’s investible globally, there’s thousands and thousands. Like approaching 10,000 stocks that are a possibility to invest in, but most people are probably in less than 500. And, you know, they’re probably between 100 and 300 and mostly in US domiciled companies.

Ryan Isaac: Yeah, and, part of that is there’s more parts of the market that… This is a conversation about allocation and diversification, you know? We’re talking about geographical allocation, but when you own 500 companies out of 10,000, you’re also missing small companies, and you’re missing different types of companies in there. There’s value stocks and growth stocks. There’s large, and there’s small, and they have different return behaviors and patterns and return history. They will affect your portfolio returns over time in different ways. And so, just capturing a tiny segment of that market, it’s just not representative and it’s not going to give you a whole breadth of return experience over time.

Reese Harper: Yeah, I think one other principle I want to hit on here has to do with different sectors of the market, and how they perform so differently over time.

Ryan Isaac: You’re talking about the quilt picture.

Reese Harper: That’s a famous picture that, if anyone doesn’t know it, any financial advisor listening to this knows the quilt picture.

Ryan Isaac: It looks like a pixelated Mario or something from the 80s.

Reese Harper: Yeah, there’s a there’s a common graph in financial services that shows the sectors of the market. Technology, infrastructure, big companies, small companies. All the different types of segments of the market, if the market being the thousands and thousands of stocks around the world or in the United States, depending on which market you’re looking at.

Ryan Isaac: It breaks it up into sectors and breaks it up in types of companies and kind of shows you that’s a fairly random pattern, which things are going to do better year after year. And not only is it fairly random among the sectors, but it’s fairly random among these countries. So as we talked about home country bias, you have to kind of include this concept of sector bias. And a lot of people try to go after a country, or they go after a sector, they go after a segment of the market and say, “You know, I’m going to sit on cash for now, because cash is what I’m going to be in until I get in a position where I know what the right sector is I want to go after.”
I’ll have a lot of clients or people that aren’t clients, talk to me initially about the the sector that they think is going to be the highest performing sector in the near future, or the country that they’ve heard is doing good. Brazil right now is a big conversation topic, just had a recent kind of run in the last bit, and people are excited about that it might recover to the point where it’s one of the dominant, or the more dominant emerging countries again. And, from time to time, we’ll sense themes based on what’s in the media or what’s on TV, what people are reading about which sector is going to be doing the best.

Reese Harper: Yeah, that’s really common.

Ryan Isaac: I think it’s just important to not wait for something to happen in the market or the world that will finally tell you which sector or which portion of the market makes sense. And it does move in a fairly random way.

Reese Harper: I was just going to say, Justin you can let our listeners know where they can download this. We’ll mention again at the end of the show, but we have a download where one of these points about good investment behavior shows this… What do we call it? The quilt. Looks it looks more like a Minecraft-something from my kid’s Minecraft game if you look at it.

Ryan Isaac: Could be.

Reese Harper: It’s just this random scattering of different colored shaded blocks from high to low returns and there’s no discernible pattern in there at all, you know. But Justin, where could we… We’ll mention the end too but…

Justin Copier: Yeah, we’ll mention at the end too, but if you want to go to DentistAdvisors.com slash 10 habits. So, that’s one, zero, habits.

Reese Harper: Okay.

Justin Copier: And you can see the quilt among other investment behaviors that are-

Ryan Isaac: Yeah, I think this is like probably number seven on the download. You can check out what we’re talking about.

Reese Harper: Yeah, I want to I want to jump into another related topic today that has a lot to do with looking beyond the headlines. I want to talk a little bit about about that. But before we do that, I think we should grab a quick break.

Ryan Isaac: Let’s take a break.

Reese Harper: And then, jump into this media storm that’s going on right now-

Ryan Isaac: Frenzie.

Reese Harper: With all the investment stories.

Ryan Isaac: Okay.

Reese Harper: Hi, this is Reese Harper. I’m the host of the Dentist Money Show and CEO of DentistsAdvisors.com. I want to take just a minute and explain why Dentist Advisors.com is different than your average team of financial advisors. We help you plan, invest, and retire better using a unique set of tools you won’t find anywhere else.
First, we use our proprietary methodology called Elements to assess your financial health. The Elements framework enables us to give you data-driven, objective advice based on a comprehensive picture of your personal and practice finances. We maintain that picture in a custom dashboard that tracks all your assets, debts, and accounts so you know what you’re worth anytime and anywhere. And because we work with dentists and specialists, we can leverage our industry expertise to weigh your progress against your peers. We are the premier wealth management firm for dentists and specialists, and we’re ready to put you on a more predictable path to financial independence. Start now by booking your free consultation today at DentistAdvisors.com. Thanks again for listening. Now, let’s get back to the show.

Ryan Isaac: Sir Ryan, Isaac, we’re back.

Reese Harper: Thank you.

Ryan Isaac: Let’s talk a little bit about how media headlines influence this home country bias, the sector rotation, all these like investment themes that we’ve been talking about both this week and last week. I want to talk about, primarily, a few headlines I think are quite interesting, and the danger behind using headlines. Ryan talked to me about this last week and wanted me to kind of spend some time thinking about this. And I just spent, like, maybe it was literally 15 minutes on Google just coming up with my fastest search that I could on articles. And what’s crazy to me is how easy it was for me to find major headlines on major publications that just are flat out really bad pieces of advice in hindsight. I mean, you don’t know that they’re bad pieces of advice the day they’re published.

Reese Harper: No.

Ryan Isaac: But looking back a year later, you’re like-

Reese Harper: A lot of times it comes from really credible, smart sources, too. That makes it hard.

Ryan Isaac: Yeah, so one of my best examples here. One of the larger hedge funds and institutional money managers in the United States is called Bridgewater. They manage by far, I mean, one of the… They’re 150 billion dollars in assets under management, which is one of the largest institutional managers. I know some people are associated with them, and they’re brilliant people. They claim on their website to advise the 350 largest and most sophisticated institutional clients in the United States. That’s what they say. That’s self proclaimed, right?

Reese Harper: We managed the 350 most sophisticated dentists in the world.

Ryan Isaac: Yeah, exactly. Okay, so I’m just saying.

Reese Harper: Disclaimer, I don’t know if that’s true.

Ryan Isaac: It might be.

Reese Harper: Okay.

Ryan Isaac: So this is a very large group and a very sophisticated, self-proclaimed sophisticated, group but also one that… I mean, their bios and the management team, these are super smart people. And hopefully this isn’t like in an overly disparaging way trying to throw them under the bus.

Reese Harper: You’re pointing out data.

Ryan Isaac: It was their article and their headline, so we’re gonna go with it. The headline read…. It was a few weeks prior to the November 8 election, and the headline said “Stocks will crash if Donald Trump wins.” This was from Fortune magazine, and that was the headline that they used, but it was a quote from Bridgewater. And, what I thought was interesting was it was… I mean, if you read the article, it was like overwhelming on the warning. It was precisely predicting the Dow crash and S&P crash by points. And the S&P points that it predicted were a 20, right around 2000 points on the Dow. Sorry, the Dow crash. Which is a pretty significant decline. The worst day decline in the Dow would have been 700 points, probably, previous to that. And it would have been like 08, maybe 09. So this would have been like three times as bad as any of the previous worst one-day dow crashes. It would have been close to like a 10% decline in overall market value roughly.
Let’s just take the S&P on the few days leading up to November 8, and it was at 2085, okay? So the S&P is at 2085, then it moves, that was on the fourth. Then November 7, we’re at 2131. Then November 8, we’re at 2139. November 9, 2163.

Reese Harper: So we get some build up. Yeah.

Ryan Isaac: So the ninth was the first day that the market had a chance to price itself. Okay?

Reese Harper: Yes.

Ryan Isaac: So We went from 2131, 2139 to 2163, to 2511, to 2164, on the 11th. So from the fourth to the 11th, the market basically went nowhere really. It went up a little bit. So, ever since that moment in time, it’s climbed in what has been historically now, as of today, I think people are saying it’s the largest increase in stock market moves since Ronald Reagan. And what my point that I’m making is far from political here. If you look at this information, which was published on multiple news outlets-

Reese Harper: They’re incredible people.

Ryan Isaac: You’re an average and you see a headline that predicts a huge crash if Trump wins. What you do? Well, there was a lot of sell off during that period of time. And there’s a there was a high trading volume day. And I know from my own experience that many people from the seventh and eighth were ready when the polling started showing that it could be a possibility that Trump might win. There was definitely heightened media storm and client inbound phone calls and prospecting amount of phone calls. And I’m just looking at this going, “There’s a lot of pressure on investors to do something over an event that turned out to be materially like nothing happened.” The opposite happened. The opposite. You know, the complete opposite happened over the last 12 months. And if I’m just isolating the article that I’m quoting, nothing happened at all during that period when we’re supposed to see a 10% decline in the market. And that’s something a lot of people reacted to and acted on, so.

Reese Harper: When you brought up the story, I remember early 2016, it was like January. It was just earlier that year, there was the Royal Bank of Scotland call to… I pulled this up… to sell everything. Do you remember this?

Ryan Isaac: Yeah.

Reese Harper: We got emails about this, clients saying, like, “This is Royal Bank of Scotland.” and a lot of their clients, you know, and what’s happened in the market since early 2016, until today. And you can google this. These headlines are, every day, there’s stuff like this, you know? So I guess the point is, like, you’ve got to go back to the fundamentals. You can’t just look at these articles and these titles and just base some massive decision. I mean, if you’re 30 years old, you’re 35, or if you’re 15 years from retirement, I mean, even if it was true, let’s say you’re 20 years from retirement and someone got it right. You know, political something happens and the markets going to crash and they they get it right. Even if even if they got it right, that didn’t mean that You should have sold. That’s not something you can follow for the rest of your investment career.

Ryan Isaac: Yeah, you shouldn’t look back at a guess that you made that you got right and feel vindicated by that. That’s just luck. You just got lucky and just call it what it is.

Reese Harper: And some people get lucky, but more often than not, these headlines are proven wrong all the time.

Ryan Isaac: Yeah, like during that same period time in 2016, Business Insider website, which is a pretty high volume publication, had their finance sections front page article was “The market is going to suck for the next 20 years, and you’re going to have to double your life savings.”

Reese Harper: That’s the actual title.

Ryan Isaac: That was the actual title. And it was April 27, of 2016. And it was a summary from a big piece of research from McKinsey Global, which kind of talked about how the economy won’t probably be growing as fast in the future as it has been growing in the past. And, there’s a lot of reasons why this is very rational.

Reese Harper: Okay, sure, yeah.

Ryan Isaac: There’s systemic problems with how much debt our federal government has and other countries federal government has, and in the last 20 years of stock market growth has been accelerated because of all of the leverage that we have had. The easy leverage that both businesses and consumers and governments have artificially kind of had in the last 20 years. There’s an argument that could be very logical, and very rational about how that has helped grow the world’s economies. And moving forward, if we’re going to be in a period of austerity, or trying to pay down debt, and we’re not trying to borrow as much, and we’re trying to de leverage our government’s balance.

Reese Harper: Growth could be slower.

Ryan Isaac: Growth could be slower. Rational. Very rational, and this, you know, the argument that this article makes is it could slow down the expected equity return. So if in the past, we’ve had a nine or 10% equity return might need to be more conservative around that. Some people are even saying, “Well, it’s as low as a six or 7% equity return.” That could be more of a realistic nominal return. Not even a real return.
And so, from my perspective, the thing that kind of blows my mind is that from that period of time, when this article was written, if you’re waking up in the morning and you read “The market is going to suck for the next 20 years and you’re going to have to double your life savings.” and you read that article, do you think your first reaction is, “You know, I’m going to accept market pricing, be patient, be rational about this. She’s probably not right. She’s on the front page of Business Insider magazine.”

Reese Harper: Especially if this is a source you trust.

Ryan Isaac: Yeah. I mean, it got like 1000 Facebook shares. So, you know. If you see it flying through your Facebook feed, and you see it on LinkedIn, I mean, you’re going to react. A lot of people are going to react to that. And this turned out to be like one of the worst pieces of advice you know, that you could have followed in the last 12 months. I mean, we might have just gone through… I was just telling a client I was meeting with yesterday that, thank goodness for the last 12 months in their own personal portfolio, because we don’t know when moments like that are going to happen again. We didn’t know the last 12 months are going to be like this. I didn’t know that this article was like dead wrong when it came out. I mean, I’m just like everyone else looking at it going “Geez. That’s pretty compelling data.”
Which it is, yeah, like, maybe I should, like temper my expectations for what I think I can earn out of my own investment account for my own retirement, and my clients retirement for the next 20 years. I mean, that’s the reaction I’m having from this. I don’t take it as far as going, I’m gonna get you out of the market, and I’m not going to invest anymore. Because even if the market does offer a temporary return, it’s still better than sitting in cash. I mean, if equities are going to experience a period of retraction, I promise you money market funds and short term bonds are going to have worse returns too. So, no matter what the gloom outlook about the future of global markets and being a slightly less or lower return than it might have been historically, that’s still going to be a better return than doing nothing.

Reese Harper: Yeah, or trying to speculate in increasing your risk to try to get an even better return. If your expectations are that it’s going to slow down and be lower than you thought it was going to be, it’s still better to probably take that as a dentist, then to take on more risk and expense to try to chase something higher, or trying to sit out and time it, right?

Ryan Isaac: Or avoid it all together. So I think daily market news and commentary can really challenge someone’s investment discipline. And I think it stirs anxiety in people about the future. Science distracts them from making actual progress and actually doing something that’s beneficial for their own situation, and you’re going to find a lot of information throughout your life that’s going to seem like very contradictory to what you’re doing as a long term investor that lets markets work for you.

Reese Harper: Sometimes I think it’s kind of interesting though, when people are surprised at news that the market… Let’s say it is down, you know, if it is going down, it’s going through a cycle, or that it will at some point. People take that as if something’s broken in the system, you know, like, “Whoa, whoa, whoa. You know, stocks are going to go down?” Something’s broken, I need to change my plan. I need to do something different. And if people just had a better expectation up front that there’s nothing broken about that stocks do go down a lot. Like frequently. They cycle frequently. I mean, it’s really common. You know, it doesn’t mean something’s broken. It’s just what has always happened. It’s what they do.
I think setting the right expectations up front can save a lot of that anxiety and heartache too later on.

Ryan Isaac: No question. I think it’s good to kind of go through a few things that we can control.

Reese Harper: Yeah, what are actually things we can do.

Ryan Isaac: There’s a lot of things you can worry about, but there’s a few things you can control. And let’s just list a few that kind of come to mind. What do you things that you think you encourage your clients to focus on that they can actually control?

Reese Harper: Yeah, man. I mean, one of the most basic, and this is where we actually do start when we work with a new client, the most basic foundational thing you could do is just be organized in your financial life, you know? Know where everything is, know where your money’s going to different places. Just be organized, like, know what’s happening in your situation. Just knowing that alone will, at the very least, it’ll give you a little bit of pause before you make a big decision, because you have data in front of you and you can see everything at once. You’re less likely to be emotional about a an investment decision if you’re organized and you know everything about your own situation.

Ryan Isaac: Yeah, I was actually… It wasn’t a dentist but I was talking to an attorney of a dentist yesterday. And, it kind of like went from talking about estate planning where he started asking me questions about his own financial situation, going “Oh, you know, well what would you-”

Reese Harper: “Does this work for me?”

Ryan Isaac: What about me? I have a lot of questions. And it was interesting because he’s a really sophisticated person. He’s a partner at a big law firm, and he has a lot of experience in litigation, and estate planning, and I think it was interesting, because he was asking me questions about his own net worth, and how it was calculated, and how much he thought he needed to be worth to retire. What was the dollar amount that he needed to have? And I said, “Well, what’s your spending?” You know, and he had never really tracked that before. He started trying to figure out what his spending was. And then I said, “Well, you know, if you had 20 times your spending that might be enough, and if you had 25 or 30 times your spending you’re probably getting to the point where you’re getting close to financial independence and anything about the 30 times you’re spending it probably really,” you know, and that was like really eye opening information. And he started to write everything down and the first part of our conversation, he was really frustrated about his financial situation.
I mean, he was talking to me about like, how, as a high income professional, he just got back from a family reunion and at this family reunion, he was talking to some of his cousins, and all of them are paying like no taxes. And you know-

Reese Harper: The old I know a guy who pays no taxes story. Can you describe that Please, sir?

Ryan Isaac: “Yeah, you know, it was really frustrating for me. I don’t know how they’re not paying any taxes.”

Reese Harper: He felt like he was doing something wrong.

Ryan Isaac: Yeah. And “I don’t know why, you know, it seems like I pay taxes and no one else does.” And and it just turned out that I think a lot of his family members don’t earn quite as much as he does. And, it is frustrating because there is an income point where you can earn quite a bit. You could still earn a nice, almost six figure living, and pay very, very little taxes. And then as soon as you start seeing that climb, it’s like you have less money and less money and less money. It’s like more income, less money.

Reese Harper: More income, less money. Yeah.

Ryan Isaac: You’ve doubled your income, but you don’t have a lot left.

Reese Harper: You didn’t double your savings.

Ryan Isaac: Doesn’t feel that good. And she was just kind of complaining about “Man, it seems like the harder I work, the less money I have and-”

Reese Harper: Where am I headed, where is this going?

Ryan Isaac: And taxes I pay, and it’s a conversation you probably have, you know, regularly every day. And the interesting thing for me was once we kind of… probably only 20 minutes. Once we calculated his net worth, got an estimate for spending, I gave him a target of where he needed to hit, I was able to calculate about how much per year he needed to put away, and that would be roughly like 21% of his income. And by the time he was 65, he’d be in great shape, and you need to get started right away.

Reese Harper: Pretty manageable.

Ryan Isaac: He’s just like really excited and he’s like-

Reese Harper: Empowered.

Ryan Isaac: “I’m gonna go and I’m gonna take a vacation.”

Reese Harper: Good.

Ryan Isaac: It’s like he was about to go on a fishing trip to Alaska and he was worried if he went, just don’t wanna be stressed out about it.

Reese Harper: Now he feels good.

Ryan Isaac: I mean it I’m sure he would went anyway without this conversation, I could sense a meaningful difference in his composure and outlook.

Reese Harper: He will catch bigger fish.

Ryan Isaac: He’s going to catch a bigger fish. I just think it’s interesting. good organization. It’s so basic.

Reese Harper: When we say organization, we’re talking about, what exactly is your net worth? How is it broken up? Into what components? How much is real estate practice equity, retirement plans, cash, investments, you know, what are the percentages? And how is it growing every day, every month, every quarter, every year?

Ryan Isaac: More importantly.

Reese Harper: And then what are you spending? And you know, when are you going to be able to get to a point where work is optional? It’s that simple, right? What are you worth? How’s it broken up? What do you spend? When are you going to get to a point where work is optional? And then, you know, you got these many years left, so let’s break it down. We know we need to make a net worth growth happen of approximately 260,000 per year, or 140,000 per year, or whatever it is. Half a million dollars per year. You have to have this growth rate occurred to hit that goal, so let’s get started. Once you have that plan down and you have that closure, it’s easy when you hear all this market news and all this crashing and all these forecasts you can just kind of stick with it.

Ryan Isaac: It doesn’t seem as relevant to your situation anymore.

Reese Harper: Yeah, It’s like, “Well, mine’s under control.” I’m using market pricing effectively, I’m using the right investment strategy. It’s low cost,[crosstalk 00:35:11] I’m not paying a lot of taxes, or I’m paying the right amount of taxes for my income, or-

Ryan Isaac: My savings rate is high enough.

Reese Harper: Yeah.

Ryan Isaac: My net worth is growing at the appropriate rate.

Reese Harper: My debt’s going to get paid off at the right time. My debt will get paid off at this date and then this one, then I’m going to pay off this one, and then this is going to happen. It’s just you having an actual organized plan, it just gives people the confidence to stick with their investment strategy. If you don’t have a plan. I don’t know that people can stick with an investment strategy because it’s not in context of anything.

Ryan Isaac: Exactly. Yeah. Then it is just purely emotional, because you don’t know.

Reese Harper: So your first thing on what you can control would be to just get impeccably organized.

Ryan Isaac: Yeah.

Reese Harper: Or pay and Sir Ryan Isaac to do it.

Ryan Isaac: Just pay me to do it.

Reese Harper: He just loves getting people organized.

Ryan Isaac: That’s favorite.

Reese Harper: Actually it’s like organizing someone’s gym set up a their garage for them

Ryan Isaac: How fun.

Reese Harper: Yeah. You know, that’s what you’re doing every day.

Ryan Isaac: Yes, squat rack here.

Reese Harper: Second thing that I think you can control, is having proper global diversification.

Ryan Isaac: Which we talked about earlier.

Reese Harper: Yes. That’s a really, really important fact.

Ryan Isaac: Don’t be biased about your home country. You can have home country pride.

Reese Harper: You can have a little bit of bias.

Ryan Isaac: You can have a little home country pride.

Reese Harper: We’re just talking about most of you have like-

Ryan Isaac: Don’t be crazy prideful in your portfolio.

Reese Harper: 100%.

Ryan Isaac: Bias.

Reese Harper: It really is. That’s not that’s not an exaggeration. Most people I talk to are close to 90%. We’re talking about US dentists that contact us are close to 90% or above in US equity exposure.

Ryan Isaac: Yeah, and we do get contacted by Australian dentists.

Reese Harper: I love that.

Ryan Isaac: And we love it, and that’s one of the other countries I think that can actually benefit from this conversation.

Reese Harper: This conversation.

Ryan Isaac: Statistically, they’re the most over-weighted in like disparity compared to what Australia is represented as.

Reese Harper: It’s the same reason you shouldn’t bet on your favorite sports team, right? There’s too much emotion involved.

Ryan Isaac: It’s hard to do, man. You can’t. But, you know it’s funny though because a lot of people don’t think that that’s a… they think it’s a really rational thing. Again, most people are here in the United States that we talk to. It feels like a really rational thing because US does represent such a big part of the world, but when you look at all these other countries, everybody does it. They do it in Canada, UK, and Australia. It’s not just like a rational thing because the US is big.

Reese Harper: I support my local cheese. Handcrafted cheese manufacturer.

Ryan Isaac: Which is?

Reese Harper: Beehive cheddar.

Ryan Isaac: Okay.

Reese Harper: I love it. It pairs really nice with creminelli meats, also a local favorite.

Ryan Isaac: Creminelli?

Reese Harper: Yeah. The third thing that I really want people to think about when we’re talking about focusing on what you can control, is to stay disciplined through all these dips, stay disciplined through all of the the market volatility, which can just happen by combining both your own knowledge and your own experience with that of a good set of accountable… Just someone to help hold you accountable. That’s a financial advisor and a good independent financial advisor, or it’s a friend who listens to the podcast with you and you’re both trying to like, follow the right investment principles.

Ryan Isaac: Yeah, I was just going to say this still goes back to being really organized, because everybody says stay disciplined, stay the course you know? keep long term in mind, but it’s impossible to do if you’re really wondering like, “I’m going to retire in the next five years and if the market goes down am I wiped out? Can I no longer retire?” I mean, it goes back to knowing for a fact that you have enough short term money to accomplish, maybe, a short term project. Or, you have enough liquidity to live on for X amount of years, or-

Reese Harper: Your portfolio is large enough to where it will go through the natural volatility that the market’s about to go through, and you’ll still recover just fine and have plenty on the other side.

Ryan Isaac: Enough time. I mean, it still goes back to knowing and being organized enough. So, if you’re doing this with a friend, a fellow podcast listener, then help each other be organized.

Reese Harper: Alright, let’s wrap it up, Sir Ryan, Isaac. Let’s make sure people know how to get… We’ve covered a lot today, and we covered quite a bit last week.

Ryan Isaac: Las couple episodes. Yeah.

Reese Harper: What we’ve done is put together a special offer. It’s free. And it’s not really an offer. But it’s a diagram that we’ve put together that covers the 10 habits that we feel like are essential for managing your investments and reaching a retirement, at a point where work is optional, that is really successful, and that’s done without big mistakes.

Ryan Isaac: Yeah, these are some good data, some good statistics on just building a good retirement strategy. We’re not going to call this a part one and part two. We’re not going to go that far, but it does encompass a few of the things we’ve covered in the last few episodes. Justin where can they find that download?

Justin Copier: Yeah, if you go to DentistAdvisors.com slash 10 habits, and 10 habits is one, zero, habits, is where you’ll find it. There will be all kinds of visuals and commentary that will be helpful to explain kind of the stuff we’ve covered today.

Ryan Isaac: Cool, thanks.

Reese Harper: If you just want to call Sir Ryan Isaac-

Ryan Isaac: You can call me.

Investing, Behavioral Finance
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