Protect Your Investments from Too Much Risk – Episode 310

 

You generate income from your practice and your wealth then comes from investing that income. But what are you doing to protect your growing wealth? On a Veteran’s Day episode of the Dentist Money™ Show, Ryan and Matt use a World War II story for their theme. You’ll discover how safeguarding the vital parts of your investments can help keep your wealth flying high.

Show notes:

The Laws of Wealth

7 Big Mistakes Dentists Make that Wreck Retirement

 

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Podcast Transcript

Ryan Isaac:
Hello everybody, welcome back to another episode of The Dentist Money Show, brought to you by dentist advisors, a no commission, fiduciary, comprehensive financial advisor just for dentists all over the country. Check us out, dentistadvisors.com. Today is Veterans Day. First and foremost, thank you and shout-out to all veterans listening to the show, we really appreciate and love you, and we’re telling a story today about World War II and about planes and bullet holes and putting extra armor on the parts of the plane that matter most and how it actually relates to some of your financial decision-making, specifically your investment portfolios and investment decisions.

Ryan Isaac:
If you have any question for us, you can go to the dentist advisors Facebook group page and post a question on there, we will always answer and oftentimes use your questions for a future Dentist Money Show episodes, so be as specific as you can and leave us a question or if you’d like to chat with this directly, go to dentistadvisors.com, click on the book free consultation link and schedule a chat with one of our very friendly, very dental-specific advisors today. And thank you for being here, we really appreciate the love and the support over all the years. Enjoy the show.

Announcer:
Consultant and advisor conduct their on due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by dentist advisors or registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to The Dentist Money Show, where we help Dentists make smart financial decisions. I am Ryan Isaac, and here with the man, the Hollywood mountain, Matt Mulcock, fresh from traffic on the free way. What’s up, Matt?

Matt Mulcock:
Oh my gosh, yes. I came out to the office today, I’m in studio, it feels good, I wish you were here with me.

Ryan Isaac:
Oh yeah, soon, let’s do it.

Matt Mulcock:
It feels good to sit in here where all the magic started between you and Ms. Harper. Honestly, I feel more powerful in here, there’s still parts of you guys living off on me.

Ryan Isaac:
Doing this remotely is going to just a cool theme park, but then being in studio is like being in actual Disney. But that’s lost on you ’cause you’re not a Disney guy, so sorry.

Matt Mulcock:
That’s a bad analogy for me.

Ryan Isaac:
Hey Folks, we’re gonna help Matt right now. He doesn’t love Disney. I need everyone to go to the Facebook group and tell Matt why he’s wrong for not loving Disney.

Matt Mulcock:
Oh, it’s been like heated conversations with people on our team. Our guy Will, shout-out to Will Gockner, he legit judges me for it, and we’ve been in some heated conversations, I mean, heated from his side I don’t even care.

Ryan Isaac:
You don’t really care, it might split our team apart though, it’s what you are saying.

Matt Mulcock:
He judges me. Yeah, it might be something that we don’t recover from.

Ryan Isaac:
Today is actually Veterans Day.

Matt Mulcock:
Oh, shout-out to the veterans. Veteran? Veteran?

Ryan Isaac:
Yes. I don’t know how to say that, as it came out of my mouth.

Matt Mulcock:
We don’t know how to say a lot of words.

Ryan Isaac:
It’s like when you say “relator” and it’s really “realtor”, I heard a realtor get mad about that, that was their pet peeve, relator, there’s no a in realtor. At that spot there is an a, but different spot.

Matt Mulcock:
It’s realtor or relator?

Ryan Isaac:
Realtor yeah, it’s not relator. But everyone says that “relator.” So Veterans Day, “Veteran’s Day”.

Matt Mulcock:
“Veteran, veterans” shout-out.

Ryan Isaac:
“Veterans”, I mean, that’s how it’s spelled, “Veterans” either way. Yeah, shout-out to all the women and men who have served in our country and continue to serve, I had grandparents who served and then just tons of friends and most of us do, so… Thank you. Shout-out to them.

Matt Mulcock:
Yeah, we joke around a lot, obviously, in this podcast.

Ryan Isaac:
A little bit too much yeah.

Matt Mulcock:
And in life but maybe a little too much. But seriously, yeah, and I know it’s a little cliche at this point, I think it is… Honestly, thank you for your service, it’s incredible what you guys do.

Ryan Isaac:
We got a buddy who, he’s like career military, has been for 20 years and we always just chat, I can only reach him on Facebook Messenger, I never know where he’s stationed, and I always just think of him on days like this, like “Where in the world are you right now?” But he’s like flying helicopters everywhere, it’s so cool. Anyway, we’ve got veterans theme stories today, to kick us off here.

Matt Mulcock:
Yeah, we do.

Ryan Isaac:
The first one, though is I wanted to… I was thinking, what’s the history of Veterans Day? Where did this begin? Obviously, we know what it is, but… So I don’t know if you knew this, Matt, but this holiday began, the origins were after World War I, it was like right when it was about to end, and it was when the treaties were being written up and documented to end World war I.

Matt Mulcock:
Sorry, you said World War I?

Ryan Isaac:
Yeah.

Matt Mulcock:
Like the Treaty of Versailles? .

Ryan Isaac:
That’s exactly… Yeah, Matt Treaty of Versailles. Spell Versailles.

Matt Mulcock:
Oh man, V-E-R-S-I-L-L-E-S.

Ryan Isaac:
Close, S-I-. S-A-I-L-L-E-S. Yeah.

Matt Mulcock:
: Got it, got it. Not bad, I wouldn’t win a spelling bee.

Ryan Isaac:
Talking about Versailles, yeah, it was originally called armistice. They liked the treaty and then it was a official, Treaty of Versailles, but it is November 11th, 1918. And then President Woodrow Wilson made it November 11th, yeah.

Matt Mulcock:
My man Woodrow.

Ryan Isaac:
My man, he made it armistice day and that rolled for quite a long time until much later in the future after we had World War II, Korea, Vietnam.

Matt Mulcock:
This other war you may heard of about.

Ryan Isaac:
You may have heard about these other tragic crazy things. And then it became Veterans Day after that and was just that moving forward. So that’s the history of Veterans Day. I did not know the history of it, I didn’t know where it began. So that’s where.

Matt Mulcock:
I did not know that either.

Ryan Isaac:
So it began, and thank you, everybody. Shout-out. Now, I have another war story, though, this is getting to the meat of the content though, so here we go.

Matt Mulcock:
The war we fight every day, is that what you are talking about or?

Ryan Isaac:
Yeah, actually. So this is a World War II story. I read this like months ago and I’m like, this has to be on the podcast, it’s so interesting, and then today is the perfect day for it. So back in World War II a lot of our planes were getting lost to German anti-aircraft fire, flying over and just getting riddled. So they decided to, what seems intuitive, is just add a bunch of armor to them, right? Let’s just… They’re coming back…

Matt Mulcock:
The bulk of that.

Ryan Isaac:
Throw some armor on those suckers. So they come back and the obvious thing that everybody, highly intelligent people in the military, looked at these planes and said, “Alright, well, let’s put the armor where all the bullet holes are.” That makes sense, they’re coming back and they’re just… And it was all over the body and the tips of the wings and it seems like some pretty crucial areas, right?

Matt Mulcock:
Yeah, you probably need wings to fly, I’m guessing.

Ryan Isaac:
But it’s funny because although intuitively, for most people, intuitively gut reaction as they saw the bullet holes, so let’s put the armor where the bullet holes are, there was one person, he was a Hungarian born mathematician, his name was Abraham Wald, and he was in the military and he was a very highly intelligent guy, and he said, “You’re all wrong.” And it was like running counter to everyone’s intuition and gut instinct. He said, “You’re all wrong”. He said, “Hey look, if a plane makes it back safely, even though it has a bunch of bullet holes in the wings, it means that the bullet holes in the wings aren’t very dangerous, they’re not critical. So what you really wanna do is you wanna put armor in the areas on average that don’t have bullet holes.” And the reasoning is because planes with bullet holes in the places that they’re not seeing, they don’t come back. They’re only seeing the evidence of the planes that come back and the planes that come back obviously came back.

Matt Mulcock:
Yeah, it’s like survivorship bias.

Ryan Isaac:
Survivorship bias, which is… Man, we can do a whole other episode on survivorship bias. So anyway, Abraham Wald, World War II…

Matt Mulcock:
Old Waldy, I think they called him, right.

Ryan Isaac:
Old Waldy. The whole point was, put the armor where the bullets aren’t, and that’s what we’re about today. We’re talking about financial decision-making-armor-plating, but putting your financial decision-making armor where the bullet holes aren’t. Boom. That’s what I’m gonna talk about today.

Matt Mulcock:
I love that.

Ryan Isaac:
I have three categories, there’s so many. I wanted to deliver, I wanted to just explain a few areas where intuitively, we as human beings, the totally rational creatures that we are, we tend to put our focus on certain things when they need to be on different spots, but where we put our focus it feels intuitive. So I just picked three categories, you could probably do a lot of these, if you go to dentistadvisors.com, actually, there’s a download, shoot, I think it’s in the Education library tab, but if you search for it’s called the 7 Big Mistakes… Is it wreck retirement, wreck a dentist’s retirement?

Matt Mulcock:
Yeah, I think it’s something like that. 7 Big Mistakes That Wreck Retirement.

Ryan Isaac:
There might even be 10 mistakes now, honestly, there’s…

Matt Mulcock:
Yeah, there’s probably more, who knows? There’s more places to screw up nowadays.

Ryan Isaac:
I picked three and we’re gonna get into a little bit of specifics. I don’t wanna just name, this is what people do wrong, but we’re gonna dive into what should be happening instead, and we’re gonna begin on the easiest one to pile onto, which is investing.

Matt Mulcock:
Everyone’s all ears right now.

Ryan Isaac:
Here we go. Investing. And so here’s a funny thing though, I pulled up some quotes, I pulled up this interview from a friend of the show, Dr. Daniel Crosby, not Dr. Dentist Crosby, but PhD behavioral, doctorate in behavioral finance, Daniel Crosby out of Atlanta, Georgia. Author of many good books: Laws of Wealth…

Matt Mulcock:
He’s from Alabama, but he lives in Atlanta.

Ryan Isaac:
Yeah, we love this guy. We got to bring him back on the show, he’s so great, so smart.

Matt Mulcock:
We really should.

Ryan Isaac:
He did this interview with the Morning Star, and he was talking about this study, it’s a study from, I think it’s called Netixus, it’s this data research company. He said they did, this is just a quote from him, he said they did a research a few years back that looked at what the average financial advisor said they did for their clients versus what the clients thought they got from their advisor. Have you heard this?

Matt Mulcock:
Oh yeah, this is good.

Ryan Isaac:
I was just smacking my forehead. 84% of advisors said the most powerful thing they did was help investors manage their behavior and make good decisions. However… [chuckle]

Matt Mulcock:
But, there is a but.

Ryan Isaac:
But when the investors were asked the same question, the thing that they thought out of the most value was stock picking. And 6% percent, not 84%, 6%, of the clients that were interviewed said that investor behavior management added that much value.

0:11:14.4 MM: So they’re exact opposites ends of the spectrum.

Ryan Isaac:
Yeah, so his point was, “Man, we need to do a much better job in the industry messaging to people why behavior matters so much.” And clearly, there’s this gigantic gap in the way people perceive how important behavior is, and I would assume, I bet if you did a survey, I bet if you did a survey of national fitness and health trainers and then their clients, and he said, “Hey, trainers, what’s the most important thing that you do for your clients?” I’ll bet it would score very high that they would say maintaining good habits for long periods of time, behavior.

Matt Mulcock:
Yeah, behavior management.

Ryan Isaac:
Sticking a plan for a long period of time, I’ll bet you, clients would be picking supplements, choosing work, which routines, which muscle groups to hit, which exercises to do in which order, strategy. So anyway, thanks for Daniel Crosby for shedding light on this. This is why we do, I read that because… This is why we hit on the subject so much. So much of dentist wealth in general is built in other places beside the practice. Wealth is created, income is created in the practice, but wealth gets built in other places. One of these places very common is public stock markets.

Matt Mulcock:
Yeah.

0:12:40.4 RI: So what’s intuitive? So most of us, and I’m not just saying dentists, just humans in general, ’cause this is all over the board, most investors wanna put the armor on their portfolios or they’re investing experience in places where the armor should not be. Number one. People wanna put their armor against market drops. I heard someone describe it as renting stocks. You know how everyone’s so paranoid about renting real estate? Like “Why would I rent? I wanna buy. Throwing my money away.”

Matt Mulcock:
“Throwing my money away.”

Ryan Isaac:
We rent stocks. Statistically, people on average do not hold funds, or individual stocks for that matter, for very long at all.

Matt Mulcock:
Yeah, do you have the numbers on this? I think the average is… The last I… I think it’s getting a little longer, but I think it’s somewhere like two and a half years or something like that.

Ryan Isaac:
Oh, it’s less than that, yeah.

Matt Mulcock:
Is it less?

Ryan Isaac:
 I’d have to pull it up. The last time I saw the longest held… This was a list of top index funds in the world, and the biggest one was Vanguard, and the average holding period for that fund, meaning how long the average investor in that fund was actually holding on to it before they sold it was either just under or just above, let’s give benefit of the doubt, just above two years.

Matt Mulcock:
Okay.

Ryan Isaac:
The biggest one in the world.

Matt Mulcock:
Short.

Ryan Isaac:
Two years. What do you get out of two years? You might get lucky, but… And then all the other ones, gigantic index funds, the very product that is supposed to promote long-term behavior, some of these, were single digit months. And so anyway, that’s a place where we intuitively look, we’ve said this a lot on the podcast too, statistically, this is US markets, but going back over a century… See, people are trying to avoid drops. In the news, in friend groups, there’s always… The words like ‘correction’ or ‘bear market’ or ‘crash’, all these things that are thrown around, people tend to forget how often these things happen and they place a lot of value, I guess, on how big and scary these events are and we want to avoid them. That’s kind of like…

Matt Mulcock:
They wanna believe that they can…

Ryan Isaac:
You even can.

Matt Mulcock:
Time that. Yeah, like you can figure out when that’s going to happen.

Ryan Isaac:
Well, that’s the message, man.

Matt Mulcock:
: Yeah.

Ryan Isaac:You can go to Facebook groups, go to Mastermind classes, go to so much of financial media and they’re…

Matt Mulcock:
Well, and think about it, why would the… The financial media wants to make you believe that you can control it because that’s the only reason you’d watch.

Ryan Isaac:
Well, that’s the only reason you watch and it generates a bunch of money.

Matt Mulcock:
They want to eyeballs on the screen.

Ryan Isaac:
‘Cause if everyone just buys something and then just slightly tweaks it, re-balances it but holds it forever, transaction… So many ancillary industry services, products, fees are not generated. Revenue is lost.

Matt Mulcock:
Exactly. Financial media is not gonna make money if they’re like, “Hey guys.”

Ryan Isaac:
Just don’t do anything. Build this here.

Matt Mulcock:
“If you’re young, just stick it out for 30 years. It’s gonna be totally fine. The world is getting incrementally better in every facet of life, just each day and each week, each year life’s getting better and just stay the course.” They’re not gonna make any money with that message.

Ryan Isaac:
Yeah, pick five or six cheap funds and then just invest in them for 30 years. Make slight changes.

Matt Mulcock:
Yeah. No, that’s not gonna make money.

Ryan Isaac:
Yeah. So over the last century the truth is, on average, and this is S&P 500 US market data, but over the last 100 years, the truth is that a 10% drop in the market, which is technically called a correction, so next time you hear something on the news or see a headline like a correction is coming, just know that for the last 100 years of correction, the 10% correction is happening on average about every 11 months. So 100 years, if you take all the corrections that have ever happened and your average them out, how long between each one? It’s about 11 months. Once a year. So next time you see a headline or someone in a Facebook group saying, “We’re due for a correction,” you just be like, “Well, yeah, dude, it’s like saying we’re due for Christmas.”

Matt Mulcock:
I was literally just gonna say that. It’s like Christmas is coming. It’s like yeah.

Ryan Isaac:
Well, yeah, maybe at least we know the date of Christmas on a calendar, but… And you don’t know the date of the correction or how long it’ll last. Those are the unpredictable things, when it’ll happen and how long, which is what makes it entirely almost impossible to get right twice, but every year there’s a correction happening, okay?

Matt Mulcock:
On average.

Ryan Isaac:
On average.

Matt Mulcock:
People are saying right now, “Well, we haven’t had one.” Although, yeah, March 2020, it happened.

Ryan Isaac:
Well, we’ll get to that one. The next step up is a 20% drop, which is called a bear market and those are really scary headlines like, “Oh my gosh, the bear market’s coming,” that’s a 20% drop, those are happening on average about every three and a half to four years for the last 100 years. So again, the next time someone’s like, “We are due for a bear market.” You just kinda nod your head and be like, “Well, yeah, that makes sense, because it’s happening every three… ” Here is what’s funny about people who make predictions, though, in the markets is… And you think about this, if the cycle time is really that short and someone is off by even two years in their predictions or heaven forbid, three or four or five years in their predictions, then they’re always right. If someone’s saying, “We’re headed for a bear market, it’s coming” and they’re three years off, it doesn’t matter, they’re right, ’cause it happened every…

Matt Mulcock:
Yeah. That’s the thing, people that try to predict things or act like they know what’s coming, they know that.

Ryan Isaac:
Yeah.

Matt Mulcock:
They could be wrong 100 times and eventually they’re going to be right.

Ryan Isaac:
They just wait, just keep saying it.

Matt Mulcock:
And they know because our psychology is more tilted towards pessimism.

Ryan Isaac:
Yeah, we love it.

Matt Mulcock:
Which is how it is, I think it’s something with evolution. But because we are more prone to be susceptible to that, it’s sexier, right? It’s sexier to be a pessimist.

Ryan Isaac:
It is, yeah. It’s not helpful… Here’s the bottom line, it’s not helpful to people. It is not actionable advice that improves your decision-making at all.

Matt Mulcock:
And that’s why it frustrates us. Honestly, that’s why it is… ‘Cause it’s not helpful.

Ryan Isaac:
Yes, yes. I’ve watched people follow certain voices, some specific to the dental industry that will predict this stuff, and I’ve watched them sit on cash since 2017. And just kinda continue and then I think, “Man, you already as a dentist, as a successful practice owning dentist have so much on your plate to deal with, I can’t imagine”. Also in the back of your head every single day sitting there and thinking, “Oh yeah, I’ve got hundreds of thousands or even maybe seven figure sitting in cash… ”

Matt Mulcock:
Seven figures, yeah, we have seen that.

Ryan Isaac:
And I’m waiting for this thing that I’ve been told about, it’s not happening.” “Oh, I’ve got to see 100 people today.” “Oh, my office manager just quit.” “Oh, we gotta do a new marketing.” “Oh, competitor just opened up next door to me.” It’s like there’s no brain space for that.

Matt Mulcock:
And by the way, it just so happens to be, if you’re doing this since 2016, 2017, which we’re seeing, we’re seeing this.

Ryan Isaac:
Oh yeah. It sucks, yeah.

Matt Mulcock:
And not only is it not helpful, but those people… Like, again, not to pile on, this is just reality. You are not only… Not only are those people not right, they are wrong, they are dead wrong. They are absolutely the opposite.

Ryan Isaac:
Well, to their detriment.

Matt Mulcock:
Over the last four years, it’s one of the greatest run we’ve ever had.

Ryan Isaac:
It’s been insane. It’s been insane.

Matt Mulcock:
Yes.

Ryan Isaac:
So let’s hit March 2020, okay. March 2020 was, in the US market, it was down 37-38%. That is in crash territory, so that technically… So we have correction, bear market, crash is like a big one, like that 30%, right.

Matt Mulcock:
And it was the fastest of all time, by the way, it was like 15 days.

Ryan Isaac:
Well again, timing and magnitude and duration. So when, how bad and how long, completely unpredictable and not really much of a pattern at all. At least you could say, “I know how often a correction’s probably gonna be here, a bear market and a crash,” but timing, duration and magnitude are completely off the charts unpredictable. So March 2020 happens, technically a crash, lasted 30 days. And immediately after we had a 50% run up in the market, just crazy. However, the last time something that big happened was about 10 years ago and wouldn’t you know, statistically, over the last 100 years in the United States markets, a crash of that magnitude is happening about every decade, once a decade, which means in your investing life, you’ll see a handful of them. You’ll see a handful of crashes for totally different reasons, mostly unpredictable. No one’s gonna see them coming. I mean, leading up to the COVID crash, we’ve said this before, there was inflation fears. Well, yeah, inflations now, but it didn’t cause the crash. There was Presidential Election fears, that didn’t cause the crash. There was interest rate fears, all kinds of things.

Matt Mulcock:
Oil prices.

Ryan Isaac:
Those things were happening. They’re still playing out, but they didn’t cause the crash. Something completely blind-sided us, we didn’t see coming and the timing, the duration, the magnitude, it was totally unprecedented and that’s how they’ll always happen.

Matt Mulcock:
And then the recovery was unprecedented.

Ryan Isaac:
And then the recovery was insane and so… We got a little sarcasm, we got a little mockery in our voice. Yes, it hurts to see, honestly. It’s probably like a dentist who sees a patient do things that are self-destructive in their behavior that they know long-term are gonna damage their physical health and could be avoided if you just followed some better, more conventional wisdom. I’m sure dentists see that in their patients all the time. I wish…

Matt Mulcock:
All the time, I’m sure. Yeah.

Ryan Isaac:
The patient won’t accept treatment, they think you’re lying, they think you’re just trying to sell them extra dentistry, they don’t need all the stuff you’re recommending.

0:22:30.6 MM: They saw something on YouTube, but it was contradicting or WebMD or whatever.

Ryan Isaac:
Yeah, they self diagnose and they don’t come back and then five years later, they’re like, “Oh yeah, now I need teeth ripped out and this hurts and I’m in pain and it’s gonna cost me more and I set myself back.” So that’s like the equivalent with financial advisors. We watch people sometimes set themselves back and it doesn’t have to be that way. And it sucks. It’s sad to see it happen, it sucks, but I get why it happens, because those are the bullet holes that people think they’re trying to patch up with more armor, like let’s avoid these drops. Let’s do these kind of things and… Anyway. So the op… Yeah.

Matt Mulcock:
Yeah, so… Sorry, I was gonna say, this reminds me of, quote alert, Matt and his quotes, ’cause he steals everything from everyone else. But one of my favorite quotes is from Benjamin Graham, he was Warren Buffet’s mentor. So he talks about how, just to paraphrase him, your investment success comes down more to… We’re so focused on the behavior of our investments when really we should be focused on the behavior of the investor.

Ryan Isaac:
Oh yeah. Yep. Matt, it’s time.

Matt Mulcock:
Time for what, Ryan?

Ryan Isaac:
It’s time to book a free consultation at dentistadvisors.com. Just click on the big book free consultation button on the homepage and talk to one of our friendly advisors today. There is one more piece I wanted… So I wanna give some practical stuff. So all those studies show that investors, clients don’t think that the behavior is the most important thing, but it is, it no question is. Now the long-term behavior, though, sticking to something, assumes that you’re sticking to something that is built correctly in the first place. When we’re talking about building them right in the first place technically, there’s one, also very common thing that happens all the time, and it happens in every country, and it’s so fascinating. It’s called Home Country Bias. What that means is if you live in the United States of America and you build a portfolio, you are highly likely to just stock your portfolio up with mostly United States stocks, like way more than it should be.

Ryan Isaac:
And here’s the context that we’re giving this in. If you are an investor in stocks and you wanna say, “Look, I’m not trying to time markets, I’m not trying to predict where and when the returns are gonna happen, I just wanna own ‘the market’, as it exists, and I kinda just wanna get the returns that the market’s gonna give me over long periods of time,” which I think is an excellent strategy. It’s what I’m doing for my very own self and would recommend anyone to do. Because the long-term returns of the market are exceptional, they’re like… Over long periods of time, it’s more than triple inflation, so let’s just get those. Once it’s kind of…

Matt Mulcock:
Just give me that.

Ryan Isaac:
I just want that on the menu, just give me that. Once I’ve mastered getting market returns, which spoiler alert, I won’t ever master it, then I can move on to try to beat those returns, but I’m not gonna get that.

Matt Mulcock:
Sure.

Ryan Isaac:
So anyway, what happens is, if you’re an investor and you’re saying, “I just wanna capture what the market’s gonna give me,” you would wanna build a portfolio that looks like the market, meaning some of your portfolio’s gonna be in the United States, this is like geographic diversification allocation.

Ryan Isaac:
The whole world’s market isn’t the United States stock market, it’s… Right now, it’s about 60% of the world, so it’s not all of it, it’s more than half, it used to be smaller.

Matt Mulcock:
And it’s grown over the last 10 years because of the…

Ryan Isaac:
Yeah, in the 2010s or in the 2000s, it was less than 50% and it dropped to the low 40s and now it’s up to 60, and this all fluctuates. And your portfolio, in rebalancing annually should reflect some of these slight changes. If you’re gonna be a worldwide investor, Mr. Worldwide, then a big chunk is gonna be represented by the United States, but you’re gonna have some non-US countries, you’re gonna have some emerging markets, you’re gonna own the whole world. Here’s what investors do though, there’s a thing called home country bias, and I pulled up this chart, there’s this study, it goes back a few years, the data, but it is on Vanguard, it’s called, the global case for strategic asset allocation and home country bias. Big mouth full of stuff there.

Matt Mulcock:
Yeah, it’s a lot of words.

Ryan Isaac:
What they did is they measured where people lived in the world and how much of their home country they held in their portfolio compared to how much of their home country actually represented in the world. Okay, so here’s an example, the most egregious of all these…

Matt Mulcock:
I know. Can I guess? I know who you were gonna say, was it Australia?

Ryan Isaac:
Yes. Sorry for all our Australia fans, we actually have some, I’d slaughter that accent. If I could pick any accent in the entire world and live a whole life with an accent, it would be your accent. It’s so beautiful.

Matt Mulcock:
My wife would also love that if I had an Australian…

Ryan Isaac:
Sometimes when I surf and I see someone take a good wave, I’ll say to myself, I’ll be like, “Oh, sick mate.” Just to myself.

Matt Mulcock:
That’s pretty good, that’s pretty good.

Ryan Isaac:
Australia. No, this is at the time of reporting on Vanguard study, and this goes back like four or five years, so it’s a little bit older. Things have changed a little bit, but this still illustrates the point. At the time, Australia represented 2.4% of the world’s stock market. Australians, however held, 66.5% of their portfolios were Australian stocks. Japan represented at the time 7.2% of the world. Japanese people held 55.2% of their portfolios in Japanese stocks. Canada, Canadians, our neighbors of the North, 3.4% of the world is what it represents, they held almost 60%. United States, not quite as egregious, but it’s still a margin at the time.

Matt Mulcock:
Well, it’s because we have some, that we have…

Ryan Isaac:
It happens that the United States makes up a big chunk of our market. At the time it represented 51% of the world and we held about 80%.

Matt Mulcock:
I was gonna say, it had to be in the 80s, right?

Ryan Isaac:
So here’s what we find. Why are we talking about this? Because if you are not meaning to try to over-invest in certain parts of the world… Which is kind of a form of timing. Look, if your entire portfolio is in one country and that country, it’s not representative of how that country is in the world, then you are kind of placing a bet on that country. So if your portfolio is all United States, if you have an S&P 500 fund, now look, I’m sure if you held that for 40 years, 50 years, I’m sure it’s gonna be fine.

Matt Mulcock:
You’re gonna be fine.

Ryan Isaac:
But you can lower your risk and probably even out your returns, is… What’s gonna happen is you’re gonna smooth out your return pattern over that period of time by making it more diversified. But if you’re in the United States and you hold a 100% of your portfolio in there, there’s gonna be periods of time in holding that that you are going to hate, absolutely. And then this goes back to point number one, which when you really hate it, you’re more likely to go change it, and it’s just a pain. We see people all the time, when people come to us and they say, “Hey, look at my portfolio,” home country bias is probably, it’s up there in the top, mistakes people are making in their portfolios, and this is what happens, is where you live, and this is clear in the data, where you live influences what you put in your portfolio. So if you’re in the United States, high chances that the majority of your funds are just like S&P 500 funds and that’s just not… That’s not a balanced portfolio, and you are placing a bet and you’re saying, “I think the United States is gonna have the highest return, I’m only gonna hold it.” And the thing is, what people have in their portfolios might not really match up with what they want to be doing.

Ryan Isaac:
I would bet that a lot of people, especially the ones we talk to, they want a diversified approach to investing, they wanna own the whole market as a whole, they wanna lower their risk and smooth out the returns, that would be their desire. But if you look at what’s been implemented, it’s contrary to what they think they want, which goes to show someone’s doing it on their own or they don’t really either have the time to understand how it works, so they just don’t get how it works or they just haven’t paid attention to it for a while or someone who just doesn’t know what they’re doing, has done it. So anyway, home country bias is just, when we talk about sticking to something, you gotta build it right in the first place, and having a globally diversified portfolio, if that’s your goal, is one place to begin. So check your portfolios. Push pause on this, go to your portfolio if you’re doing it yourself and go see, do these parts of the world over represent really how they are? Do I hold too much? Diversification is funny ’cause there’s always something to dislike in the portfolio, there’s always something to like. That’s why when people say, “If I’d bought Amazon, if I’d bought Apple back in the day.” The truth is, if you had bought Apple back in the day in a significant chunk, you probably wouldn’t have held it for as long as you think you would have or wished you would have because it went through some insane volatility.

Matt Mulcock:
If you look at the chart of Apple or Amazon or any of these companies, if you’re looking in hindsight, you look from point A to point Z, of course, but you don’t see all the letters in between and all the turmoil they had, and I actually thought, okay, when Apple had its dozens of like 20% drops over the last 20-25 years, would I actually have held on? Probably not.

Ryan Isaac:
You wouldn’t have. I’m gonna go back to Daniel Crosby in that same interview with Morning Star, it’s in his book, and it’s called the Laws of wealth, which we love.

Matt Mulcock:
Which by the way, if you have not read any of the Daniel Crosby’s books, please do yourself a favor. They are so good.

Ryan Isaac:
The Behavioral Investor, The Laws of Wealth, two really, really good ones. Probably really cheap on Amazon, and they’re seriously, really good books.

Matt Mulcock:
Check them out.

Ryan Isaac:
He says this, he says, “I cite this in my Laws of Wealth book,” he said. He’s talking about a study, speaking of the 2000s in the US markets. He said, “There’s a study, it looked at the best performing equity fund of the 2000s.” So from 2000-2010, the S&P is slightly down over that time, the lost decade, didn’t grow, but this fund from the study, this fund focused, it was an equity fund in the United States, it got 18.5% per year for that decade, which he says it’s just, and it is, an enormous, incredible run at any given point, but especially over that decade when everything else, the whole country was down. So there’s this one fund in the 2000s, US equity fund, averaged 18.5% per year. What’s crazy, though, is if you drill, he said, and this is in his book, if you drill down into the data and you look at the average investor performance, okay, so not everybody, but the average investor in that fund, in that fund over that period of time that was doing 18.5% per year in the lost decade, the average investor lost money.

Matt Mulcock:
That is like mind-blowing.

Ryan Isaac:
It’s mind-blowing, but it is so… That’s it, that’s the pattern.

Matt Mulcock:
Yeah.

Ryan Isaac:
That is the path, that is how us normal humans typically behave, ’cause that’s our gut reaction. In the 2000s, you had two major crashes. You had some wars. There was a lot of global things going on and that is exactly the pattern. We don’t stick to things even though we just think they’re so simple and so easy and so obvious, we’re totally gonna stick to it. We just don’t. So yeah, you have this entire decade, the entire market’s dead, doesn’t even grow for 10 years. This one fund is the top performing fund of that decade, returning almost 20% per year on average and the…

Matt Mulcock:
During the worst…

Ryan Isaac:
During the worst.

Matt Mulcock:
During the worst… One of the worst decades of the S&P ever.

Ryan Isaac:
During the worst, ever, ever. We might not ever see that again, I don’t know, a whole decade where our country doesn’t grow our stocks. But the average investor’s losing money in that fund, and it just 100% goes back to this behavior that is really hard to communicate. It’s really hard to communicate. Man, I think I started this episode, if we can’t edit it, I’m just gonna apologize for it. I said I had all these points that we’re gonna do, we stuck on investments because it just had the most traction, okay? I had all the data and it…

Matt Mulcock:
Do you wanna give teasers of the other points, or?

Ryan Isaac:
Yeah, here’s the teaser. Go to dentistadvisors.com under the Education Library, there’s a drop-down, it’s all of our content, it’s all free. There are these things called e-guides, it’s basically these really pretty designed PDFs you can download for free, and there’s one called “7 Big Mistakes Dentists Make That Wreck Retirement.” It’s confirmed, it’s seven, it’s a beautiful PDF, it’s a free download.

Matt Mulcock:
We’re gonna try to hit all seven and we did one?

Ryan Isaac:
No, I was gonna… We did three. We actually did it, we did a whole episode. We actually did an episode, it was like two…

Matt Mulcock:
Yeah we did, we did a full podcast on this.

Ryan Isaac:
Yeah, it was like 293, we did a whole episode on the outline. Go check out the outline, it’s really insightful, and especially if you’re new to this stuff. If you’re new to this kind of thinking or you’re really trying to learn this stuff for the first time, go check it out, dentistadvisors.com, 7 Big Mistakes. I want this to be helpful because, like we said, again, your practice is going to be the biggest generator of money, but it’s likely, totally likely, and I’m not talking about a few of these DSO transactions that didn’t happen five years ago, it might not happen five years from now, I don’t know. But more than likely your practice isn’t going to be the giant resell chunk of your net worth. It’s gonna be a little bit of it, but it is absolutely the thing that’s gonna fuel the fire and you’re gonna grow your wealth in other places.

Ryan Isaac:
More than likely, for most dentists, most dentists are gonna grow it in stocks, that’s why we talk about this so much, that’s what our giant component, huge, main component of our business is, managing this stuff and keeping people accountable to getting those long-term returns that we all want. A lot of it might be in real estate, some of it might be in other industries, but those are the common ones. So it’s generated in the practice and then it’s really built and grown in real estate or stocks. So that’s why I wanna spend time on this because there’s so many preventable self-destructive behaviors that we all commit, okay, we all do this stuff, but that we can… If we just keep hearing about it and acknowledging it, that we can improve over time and watching your patients, we don’t wanna see people have preventable problems that could be fixed. We wanna fix them. It hurts to see. So that’s why we… We do. We do, man.

Matt Mulcock:
Yeah. We care. It’s ’cause we care.

Ryan Isaac:
That’s why we talk about this stuff. If you’re joining us for the first time, thank you. If you’ve joined us for a long time, thank you. If you have questions, go to… There’s two places you can go. Go to the Dentist Advisors discussion group on Facebook, post a question, we’ll post an answer and we’ll use it for content in the podcast. We love doing that. So post a super detailed question. Go there, post something, tell Matt why he should love Disney, why he’s wrong and… Seriously, please do that. And yes, if you wanna talk to us directly, you wanna talk about your portfolio, you wanna talk about how to make a better change in your investment strategy so that you can stick to something smart for the next 30 to 50 years, just go to dentistadvisors.com, click the Book Free Consultation link, let’s have a chat, talk to one of our advisors directly. I’m gonna end, Matt, with this other quote, this is also from his book.

Matt Mulcock:
Take us out, take us out on a quote.

Ryan Isaac:
“The Laws of Wealth.” Daniel Crosby said, he said, “I tried to put down my 10 commandments for investor behavior, if you will, and this brings to mind two of them. The first is that excess is never permanent.” Shout-out to Meme Stocks, I guess. And the second is, “If you’re excited about it, it’s probably a bad idea.” Boom. Thank you. Thank you, Daniel Crosby, I appreciate that. You guys, thanks for tuning in. And thanks, Matty, we’ll catch you next time.

Matt Mulcock:
Thanks, Ryan.

Ryan Isaac:
Goodbye now.

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