Podcast - August 8, 2022

Podcast Episode 54: Special Guest Carl Richards | The Behavior Gap

In this week’s episode, we were fortunate to be joined by Carl Richards of The Behavior Gap. Carl is a renowned author, a Certified Financial Planner™ and creator of the Sketch Guy column, appearing weekly in The New York Times since 2010. Carl has also been featured on Marketplace Money, Oprah.com, and Forbes.com. In addition, Carl has become a frequent keynote speaker at financial planning conferences and visual learning events around the world.

Episode Transcript


Special Guest Carl Richards | The Behavior Gap

Speaker 1: (00:07)
You’re about to get lucky with the Barenaked Money Podcast. The show that gives you the naked truth about personal finance. With your hosts, Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners, iA, Private Wealth.

Colin White: (00:22)
All right, everybody. Welcome to the next edition of Barenaked Money. And this is a special edition because we have a very special guest with us. And as always, Josh is the one who’s prepared. He knows exactly who this is. Josh, who is this?

Josh Sheluk: (00:34)
We have Carl Richards with us today. He’s a financial planner, certified financial planner in fact, and the creator of the Sketch Guy column. It’s a weekly column appearing in the New York Times since 2010. So he is quite renowned. Now, he’s been also featured in Marketplace Money on oprah.com and on forbes.com in addition to being a pretty frequent keynote speaker at financial planning conferences and visual learning events around the world. Carl and his Sketch Guy column are known for making complex financial concepts easy to understand. That’s what we’re all about here on Barenaked Money. And his sketches have served as a foundation for his two books. Two books, not just one. The One Page Financial Plan: A Simple Way to be Smart About Your Money and The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. So sounds like we’re going to try to be smart today and not stupid, which is always a good thing.

Colin White: (01:30)
I think it’s important at this moment too to thank Catherine off of our team for finding Carl and introducing us because, Carl, I read your book over the weekend and I’m not going to accuse you of plagiarism because I think you technically may have said some of that stuff before me, but a lot of it sounded really familiar up to and including your use of the saber tooth tiger. So I think we really are kindred spirits and this is going to be a fun conversation.

Josh Sheluk: (01:53)
Yes. Last but not least, Carl’s sketches have appeared in a solo show at the Kimball Art Center in Park City, Utah, as well as other showings at Parson School of Design in New York City, the Schulz Museum in Santa Rosa, California, and an exhibit at the Mansion House in London.Carl, you’re not just an author, you’re also an artist and a financial planner. Much more accomplished than Colin and I, but thanks so much for joining us today.

Carl Richards: (02:21)
Yeah. Thanks Josh. Thanks Colin. Super excited to be here.

Colin White: (02:26)
Carl, why don’t we start with one of your books that, again, I thoroughly enjoyed over the weekend, The Behavior Gap. Because you have a different way of talking about some topics that we have been talking about on our podcast with regards to how people behave with regards to money and some of the predictable mistakes perhaps and/or how they can notice those things and how they can help close the gap in their behavior. I found it a very interesting read. Would you care to comment or a couple key points out of that work of that book you put out?

Carl Richards: (03:03)
Thanks Colin. Yeah. Look, I noticed really early on in my career that there’s this problem and the problem is we think … And we being humans. Us humans think that money is a problem of calculators and spreadsheets. We think if we just can find the right answer, if we can just build the biggest spreadsheet, if we can just find the biggest calculator, then we’ll be able to make good financial decisions. And there’s an element of truth to that. But the problem of course is that our decisions around money are not … They don’t fit into a calculator. How do you fit greed into a calculator? How do you fit fear into a calculator? How do you fit the worry that you’re going to end up living under a bridge into a calculator? So when I first started noticing that, it was really month two in my career.And I remember just thinking, “Whoa, what is this all about?” Because I got into the industry, speaking broadly, the financial industry, by accident. I had applied for a job that I thought was a security guard job. And the ad actually said securities, and I didn’t know the difference between security and securities. And so when I finally figured out that I was dealing with finance for a living, I was like, “Man, this is not a math job.” It turns out I could have the best portfolio ever created. And I really get one behavioral mistake a decade and I might as well have had the money under the mattress, metaphorically. So that’s become endlessly fascinating to me. And it carries through. It’s not just about investing, but the way we spend money, the way we set goals. Everything, it turns out is much more of a human problem than it is a financial problem. So I got into the industry by accident, but I’ve stayed because that piece has been endlessly fascinating.

Colin White: (05:03)
Carl, it’s truly amazing. I came into this field from accounting and I came into it specifically because I was really good with a spreadsheet. And my disappointment very early on and within the first couple of months was that yes, precious little of it was actually about that spreadsheet. So it’s truly a fascinating problem and it’s been fascinating over the last 30 years working with people and recognizing and trying to help them with that. In your mind, what are the biggest problems or biggest mistakes that people make on a predictable basis?

Carl Richards: (05:39)
Yeah. I mean the easy ones to pick on are always around the investing process. We traditionally buy high and sell low. It’s cute and clever to point that out until you realize we’re wired to do that. It’s easy to make people feel like that’s so stupid. Turns out, we’re hardwired to get more of the things that give us pleasure or security and run away from the things that cause us pain as fast as we can. And it turns out based on just the system we built, the news, what your neighbors are doing, when the market’s down, you feel like I must do something because it’s causing me pain. It’s a little bit like having your hand on a burning stove. It doesn’t really matter what anybody tells you about how you don’t need to worry about it, it’s going to be fine long term, you’re going to pull your hand off the stove.That’s the easy one. But I think the one that’s far more important … Because that’s the problem I’ve been trying to solve is why do we misbehave with our investments? We all know. It’s pretty simple. You buy low and you sell high if you ever need to sell. That’s pretty simple. But we all make these mistakes because the news, our wiring. So I’ve been trying to like, how could we solve that problem? And I think that points to one other that to me is the real challenge, which is the biggest mistake I think we make. And by we, I mean all. I certainly make it all the time. So I should be clear about this. That for listeners, I don’t want this to feel like a punch in the nose.I want this to feel like an empathetic hug. We all make this mistake. Is not getting clear about why we’re doing the things we’re doing with money. Why money is important to us. Because if we really stop to get a sense of that, if we get clear about that … I now know … I have a one page financial plan and on the top of my one page financial plan is a little … The top section of a one page financial plan is a statement of financial purpose. And mine says time with my family, mainly outside. Well, once I got that written down, a bunch of other things became much easier. Do I want to invest in that startup that my cousin is starting? Do I want to buy that piece of real estate? Well, does it help me spend more time with my family mainly outside or does it not?And that those decisions become a little easier. I was thinking of some of my clients, their names are Jerry and Vera. And Jerry and Vera said, “Look, we never want to be a burden to the kids. And if there’s some left over, we’d like to use that during our lives to have experiences with them.” Well, that makes a lot of decisions easier. So if we can get a little more clear about why instead of running around like … Let me give you one more place where the rubber meets the road on this. If all the listeners would just think real quickly, how would you answer the question why is your money invested the way it is? I’ve been asking that question for 20 years and the answers I normally get are, “I read about it in the …” The really smart people say it in a whisper. They say, “I read about it in The Economist.” The rest of us say, “I heard about it from my friend at the gym.” Well, those are not the right answer. The only right answer is my money’s invested this way because it gives me the greatest likelihood of meeting my goals. Well, in order to know what your goals are, you have to define why. So thinking that way I think is actually the biggest mistake we make and most people don’t even know they’re making it.

Josh Sheluk: (09:35)
Right. So when we come back to the issue, people are making the wrong investment decision at the wrong time, is it enough to have that why front and center for people or are there other tactics and strategies that people could use to mitigate their chances of mistakes? Because obviously, as you’re saying, we are all pretty aware that we’re hardwired to make the wrong decision at the wrong time. Beyond that why statement, if you want to call it that, what other strategies or tactics are there for us to use?

Carl Richards: (10:09)
Yeah. Let’s just focus in on investing, because it’s an easy place, but this applies to savings and spending and everything else. But investing when the market gets scary … Let’s assume we’re invested like an adult. So we’ve got a broadly diversified portfolio built intentionally. Every piece of the portfolio is built not only for its individual contribution, but its interaction with the other pieces. In other words, we followed basic portfolio design principles. We’ve built this portfolio based on our values and our goals. So if that’s what we’ve built, the market gets scary, your portfolio’s still going to go down. So your portfolio’s down 20%, 30%, whatever the number is. That’s scary. Everything on the news is talking about how scary it is. All your neighbors are talking about how scary it is. The natural thing for you to do is to alleviate that pain.And the way we think to alleviate that pain is to sell. That’s the big yes that we want to have. And what we’re asking listeners to do here is to say no to that feeling. Well, the only way to get someone to say no to a feeling that instinctual is to give them a bigger yes. And so the bigger yes is to remind ourselves, “Oh, that’s right. Wait a second. I made this decision to have this portfolio. I made this decision to invest this money this way based on this set of values.” So for me, it’s time with my family, mainly outside. For Jerry and Vera, it was I never want to be a burden for the kids. For Julie, it was I want to have time to think about having a family. Whatever that is. Right above that, if I say to Jerry and Vera, I never want to be a burden to the kids, I can now move up one level and say, “Okay, let’s figure out what would the world look like if you weren’t a burden to the kids?”Jerry would say to me, “Well, I’d have $5,000 a month coming in the mailbox.” “Well, Jerry, would it be okay now if we write down $5,000 a month and we call that a goal?” So now we’ve got our values, our goals, and our goals drive the portfolio decisions, how we invest the money. So the way to get ourselves to behave is when things get scary, we remind ourselves why we invested the way we did in the first place. I like to think of it as reminding myself why I invested the way I did when I was thinking clearly.And the other thing I like to say to myself, I’d never say this about your listeners, but I like to put something between me and stupid. And that thing is this thing we’re going to just roughly call a plan and don’t worry, I don’t mean a 200 page door stop. I just mean roughly this thing that clarifies the decision process I made. So when I’m out in the trees, the limbs of the tree, and the market is going crazy and my neighbors are yelling and all this stuff’s happening, I can go, “Wait. It’s really scary out here in the limbs. The branches are moving a lot. Can I remind myself what’s at the root of this decision? Oh yeah, that’s right. Have my values changed? No, I still don’t want to be a burden to the kids. Has my goal changed? No, I still want $5,000 to arrive in the mailbox. Okay. Has the process of the investing … No, actually the portfolio is still the way I would build the portfolio. Okay. Maybe now, maybe I have a shot at doing a different tactic. Instead of selling, maybe I can ignore for a little bit. Turn the noise off.” So that’s how that process works. In order to say no to something that feels deeply instinctual, I’ve got to have a bigger yes. And the bigger yes is, in air quotes for everybody, my plan.

Colin White: (14:02)
Carl, maybe you could take a second to comment on it. Because again, one of the challenges in dealing with individual clients is they often struggle to come up with that why. And I think we’re using why in the sense of Simon Sinek and the way he presents it in his book and we use that a lot. But I do find it can be challenging and it’s kind of glib sometimes to say to somebody what’s your why. Because honestly it could take a little bit of effort of soul searching and quite frankly, a conversation with somebody to help draw it out. Do you have any tips or techniques that you found useful for people to discover within themselves what really motivates them?

Carl Richards: (14:42)
Yeah, yeah. No, that’s a really good question and it’s all true. It can feel glib. It can feel like, “Hey man, my hand is on a burning stove. Why are you asking a question about …” You can feel like I’ve got an acute problem and you’re asking me about my blood pressure, right?

Colin White: (14:57)

Carl Richards: (14:58)
So I think, to me, I like the idea of … I do believe it’s helpful to have somebody guide you through that conversation. And it’s really true. I think real financial planning … For your listeners, I’m going to try and draw on the radio. I’ve done a lot of this, but it’s still kind of hard. Just imagine if you were to take out a piece of paper and on the left side of the paper, just draw a circle on the left side, leave a little gap and draw a circle on the right side.So imagine this is a Venn diagram with no overlap. So at this point it’s just two circles. And in the left circle, your use of capital. And if you would, put a parenthesis under capital and put time, money, energy, and attention. Because really, we’re defining capital as time, money, energy, and attention. So use of capital. And then in that circle on the right side that has no overlap, just write, “What’s important to me?” Now, for most of us humans, there’s a gap. It’s this constantly evolving thing. There might be a little bit of overlap. I said that spending time with my daughter was the most important thing to me, turns out I’m using some of my time to coach her soccer team. Okay. There’s an overlap.So I think if we can start to just … I used to think the right circle, what’s important to me, was going to be the easy part. Turns out that’s really hard. And if we just understand that as humans, there’s some great work around mimetic desire and Luke Burgis’ new book, it’s called Wanting. Luke’s book is really good at spelling out the work of Rene Girard around mimetic desire. And what it essentially says is we don’t actually know what we want. And again, I think that’s really helpful in the work. You can have these sort of conversations with financial advisors, with friends, with family members where you’re just trying to, I call it goal clarification over time. And I think there’s a couple of important things. One, just never expect to be done.That’s called being human. You’re not going to be done until you’re dead. And you just make little guesses. “Well, okay, I thought what was important to me was living in a nice neighborhood. Well, we live in a nice neighborhood, it turns out it hasn’t generated the kind of happiness I thought it would. I thought it was important to me was to retire and golf. You know what? I’m kind of bored.” So you’re just making little bets. You’re just running little experiments. As you notice, you start to hone in over time with what’s important to you. So you may just guess. Let me give you an example. My wife and I thought that … Well, it’s actually true. For my wife and I, connection with friends was really important to us.And so we made a plan. We’re like, “Okay, why don’t we meet another couple for dinner and a movie and let’s do that twice a month.” Or once a month, whatever it was. And we did that a couple of times and we’re like, “Okay, this seems like a good idea.” And then we realized, “Wait. The goal was connection and we’re going to a noisy restaurant and then we’re sitting in a movie together.” So that was an experiment where we’re like, turns out what we learned from that experiment was connection was important, but that’s not the way to find it. So we started inviting people to our house, got the ingredients for the meal and we prepped it together. So now we’re spending three or four hours making the meal, sitting down, talking, and that was a much deeper connection. It turns out it was a little bit cheaper too, but that wasn’t actually the goal. So I think the long winded answer to your question is the way you discover what’s important to you is you experiment. You just try little things. Like I think that annual trip to the beach with the family is really important. You do it a couple years and then you discover, “You know what? We like the mountains better.” Or whatever. That’s how I think about it.

Colin White: (19:18)
Well, I mean, that goes back to the financial plan as a living document. In my professional experience, there’s life events that change your priorities. Like I don’t want to leave anything behind for my kids. Then grandkids show up. All right, now I want to leave money behind. And I didn’t know I wanted to leave money behind because I didn’t know how much I was going to love a grandkid. It’s the human journey as well. It’s not only the internal journey, but it’s the external journey that everybody finds themselves on.

Carl Richards: (19:43)
Let me just … Colin, real quickly, I think it’s really important for me to understand is the financial plan is worthless without the ongoing, never ending process of plan. I’m not even convinced that the actual financial plan exists because it’s always changing. It should certainly not be carved in stone, but written in pencil. That’s for sure.

Colin White: (20:10)
Well, I mean, again, from our perspective, it’s good to have everything organized when the wind blows. So if you have gone through a planning process and you have your stuff organized towards what you feel your why is, it puts you in a better spot to react when the grandkids show up, and when other things may change your why, to have that document to go back to.

Carl Richards: (20:33)
For sure. Yeah. I think it’s important to expect it to change. It’s not a sign of failure that it changed. It’s a sign of value.

Josh Sheluk: (20:44)
Yeah. Yeah. I think what you’re saying, Colin, is you have to be prepared for that change to happen, but when you have a starting point, it makes it easier to change your mind than if you don’t have a starting point.

Carl Richards: (20:56)
For sure. For sure.

Josh Sheluk: (20:59)
So how did you, Carl, distill all of these intricate thoughts into what you call a one page financial plan? Explain what that is to us.

Carl Richards: (21:09)
Yeah. I think of a one page financial plan as the document that sits on top. One comparison would be you get a very complicated new piece of … Something that has to be set up in the house. It could be Legos for that matter, but there’s a 200 page instruction set on how to set this thing up. That’s really valuable. The one page plan’s the picture on the front of the box that just serves as the key pieces to remind ourselves. And I love to think of it as a touchstone. And as a client, I love the idea that I’d know, oh yeah, that’s right, my one page. So on a one page plan, it’s pretty simple. The top is just a sentence or two called a statement of financial purpose.And we reviewed that already. So mine says time with my family, mainly outside. Just below that we have a list of goals, typically listed in order of priority. And just below that we have next 90 days or you can call it action steps, next steps. So that thing is changing, depending on the volatility of your situation, the dynamics of your situation. If I’m retired and I’m receiving a regular pension payment, that thing may not change more than once a year. If I’m building a business and selling a business and young, maybe that thing’s changing every time I meet with an advisor. Now, underneath that might be 200 pages of projections and life insurance planning and the defensive methodology, the methodology for the investing process. Those things are all still there, but the one page plan sits on top of it as like an executive summary.

Colin White: (23:06)
I think I know part of the answer to this question, but I’ll ask the leading question as to what you feel the value of detailed projections might be.

Carl Richards: (23:15)
Am I among friends?

Josh Sheluk: (23:18)
Yes. Always.

Colin White: (23:19)
I wouldn’t have lobbed this one over the plate this way, Carl, without knowing that-

Carl Richards: (23:24)
Yeah. I’ve got a friend who’s a really well known venture capitalist. And he says every time a new company that they’re thinking about funding comes in with their pitch deck, he flips to the section of projections and he tears them out and throws them away. Projections are helpful in the way that a flight plan between Los Angeles and New York is helpful. It’s helpful to know, so it’s not quite throw them away. I used to feel like throwing them away. Now I’ve realized it’s an and statement. The financial projections, we want to make the best projections we can. We want to be the best calculator we can. Let’s do the best job we can. We’re drawing a line. Let’s do the best line we can.And it’s totally worthless. And the one thing we know for sure about that line is that it will be wrong. We just don’t know how. So that doesn’t eliminate the need for the line, right. We place less certainty, we place less pressure. A good financial plan or a good financial advisor is not a defender of an outdated map. They’re a guide in a changing landscape. I mean, look, I should tell you the title of that book, The One Page Financial Plan, was a compromise. Because I wanted the zero page financial plan. And I realized, okay, well maybe one’s fine. So anyway, I have softened my view on that. I’ve realized those goals and those projections and that line, it gives us a sense of direction and it also provides some gravitational pull. Like hey, we’re headed that way. That’s really helpful. I just think as an industry, we’ve gone way overboard on our sense of precision around those lines.

Colin White: (25:25)
And I think that’s largely driven by the demand because people don’t like uncertainty. We haven’t liked uncertainty since we decided to put together our first firm as a species. I mean, it’s like, well, when’s it going to rain and all these systems for trying to predict things. It’s what gives comfort. And that really hasn’t changed. And unfortunately the financial industry is really good at giving people exactly what they want and maybe a little bit less about what they need. And it’s managing the expectations when you do that projection that we’re doing this projection, but having somebody understand what it is and what it isn’t, for me, is the important part. And getting people to understand that as soon as we write it, it’s become obsolete. Because from that moment on, it’s dealing with what changes.

Carl Richards: (26:09)
Yeah. I mean, I think it’s really important for listeners to understand that the financial services industry speaking broadly has become really good at selling certainty because certainty is easy to sell. But this is the important part to understand. It’s impossible to deliver. So one of the reasons people generally have an unfavorable experience with our … And when I use the industry, I’m speaking really broadly here. The bank and the insurance company and the plant, all these different people that make up the industry. One of the reasons people have a rather bad view, opinion of the industry speaking broadly, is because they had been promised certainty and it didn’t get delivered. And we need to understand that’s not because we weren’t good at the job, it’s because that job’s impossible to do. As humans, we live in a complex adaptive environment and with a complex adaptive environment, there’s no way to be certain about the future.And so the really good planners, the really good advisors are the one that say, “Here’s my model of the future. I think I’m the best model builder on the planet. We know what we’re doing. And we know for sure that it’s going to be wrong and we’re going to be here when it’s wrong. When that shows up, we’re going to be here and our job really …” So if you understand that in working with an advisor, you understand that the relationship … When your advisor shows up and says, “Hey, turns out we were wrong about …” Oh, by the way, just go back to January, clients, listeners and look and see what your advisor put in as their assumption for inflation. I promise you it’s 3.1%. And it turns out to be eight or nine or whatever the number is. That’s not a sign that they’re wrong. It’s not a sing that they’re bad.It’s a sign that a surprise showed up. So the good planners and advisors know to say, “Hey, we’ve gone over mountain pass 11 times together. And every time we’ve gotten over, there’s a lake there. We just came over a pass, there’s no lake here. And guess what? Do I look worried? I got a bunch of tools in my backpack. I don’t know what we’re going to do, but I know how to deal with, I don’t know what we’re going to do. I’m really good at that.” And I think that’s the important piece is it’s not that that makes … So don’t expect it to be right. Expect them to be really, really good at drawing the line and then expect them to be even better at adjusting when the line’s wrong.

Colin White: (28:46)
Yeah. Especially from a coastal person from the east coast, we build boats, we don’t predict the weather. So it’s about having the best equipment on hand and then the wind’s going to blow. And when it does, it’s how you react to it. Because the other thing that blew up almost every plan was the pandemic. There was probably no plans that was predicting a global pandemic in 2020. And it dramatically changed everything.

Carl Richards: (29:10)
Yeah. It’s my favorite example. You think you live in a place where you can plan with certainty? Go look at what your goals and plans were in January of 2020. And within 90 days, everything had changed. That’s pretty amazing. There’s a concept I’ve been told. I haven’t verified this, but friends who are German who live in Germany half the year, they seem like a reliable source for this. They told me there’s a concept that they always grew up with called planning security. And they almost felt like it was a cultural right. And you could see this from German engineering and it almost felt like it was a cultural right to be able to plan securely for the future. And he told me in March of 2020, he said, “This is the first time I can remember in my life …”This is somebody who’s 49 years old. “This is the first time I could remember where I didn’t know exactly what I was doing the next 18 months.” And so I think the sooner we can just accept the fact that uncertainty is reality … And I know we don’t like it. But you know what’s funny, Colin? You mentioned that we love certainty, and I agree. We do. It’s probably the thing that humans like the least is uncertainty. But when we change the name, we love it. You don’t read a book because you know the plot. You don’t go to a movie. You don’t go to an art show. I don’t spend … I’m pointing out the window at the high mountains here. I don’t go into the mountains almost every day because I know exactly what’s going to happen. I go because they’re a surprise. I go because it’s adventure. So when I change the name a little bit, I realize I surf exactly because I don’t know what the next wave’s going to bring. So when we change the name a little bit, we realize this is what gives life flavor and adventure. And sorry, I kind of think of this as reality based financial planning. I’d love to deliver you something different, but it’s impossible.

Colin White: (31:22)
So you think financial planning should be as exciting as surfing.

Carl Richards: (31:28)
The last couple of years, it’s more exciting than surfing.

Colin White: (31:30)
Well, if you can write that book and get some people to buy into that, I’m thinking this is the last time I’ll get to talk to you, because you’re going to be way too successful.

Carl Richards: (31:38)
Yeah. Yeah. I think the dilemma is … And there’s lots of good researcher at this. And especially in the field of complexity theory. We live in a complex adaptive environment. And in a complex adaptive environment, you don’t have anything … Even with the benefit of hindsight, you don’t have anything to explain what happened in the past. All you have is myth and story. And you think you can explain it. But that’s because you think you live in a simple environment. We live in a complex environment. And then to make it even more challenging, it’s adaptive. So your interaction with the environment changes the environment. In that world, we’re just one step from chaos most of the time. And the sooner we can accept that … And the wisdom traditions have been saying this forever. I mean, Jesus said it, the Buddha said it, all of them have said it. Take no thought for tomorrow. Be here now. Every once in a while put that ugly planning hat on and do those projections, but make it an ugly planning hat, because you want to take it off as soon as you can so you can get back to presence.

Josh Sheluk: (32:47)
Yeah. Some of those discussion points make me think a lot about the mainstream media and trying to assign a reason for something happening. And Colin and I often joke about it because we’re like, “Oh, market was up to date because oil prices were down.” And then the next day we’re like, “Market’s down today because oil prices are down.” It’s like assigning the same reason to two different actions. And it very much is I think what you’re talking about either coming up with a narrative or something like that to describe what’s happened when really it could have been a whole host of different things and probably was more than one thing all interacting together to create that. And so I’m just getting to one of the chapters in your book that I really liked was called Too Much Information. And this idea that we have too much information, more information than we need, more information than we can possibly use. And I guess my question is, so you wrote that book 10 years ago, 10 years from then, do you think that we are better at distilling that information today or worse?

Carl Richards: (33:59)
Well, yeah. Is that a rhetorical question? Yeah. We’re way, way, way worse. And that’s, again, empathetic here. You can’t. You can’t. In the field that’s sort of behavioral finance and behavioral economics has gone a long way in the last 10 years. And it’s really interesting to just understand we’re just not wired to analyze. We have this myth that we’re good at analyzing all the available information and then making a self interested, informed decision based on all of it. But here’s an experiment that I love to walk people through. Just walk into your closet. And I assume that you make that you make a decision each morning to get dressed and you want to wear the optimal outfit for the day.

Josh Sheluk: (35:05)
You shouldn’t make that assumption with Colin here.

Carl Richards: (35:07)
Yeah. I assume that your listeners, despite your lack of interest here, I assume that your listeners, we think sort of like, yeah, I’m going to wear the … But if you walk in your closet and you have even 100 items, and I’m talking about shoes, socks, the whole thing, there’s no way. If you were to consider every possible combination every morning, you would never leave your closet. So thinking that we can evaluate all this news, it’s insane. So I think part of the process is just determining and being very intentional. I like to think of it as sort of just a media fast. Like what am I going to allow into the system? Because I don’t even really know what’s going on with the market right now. I don’t even think I could tell you within a thousand points where the Dow Jones is. Because it does not matter.And so I think learning … And that’s counterintuitive. We think it matters. Of course, it should matter. I’m an investor. I’m being responsible for the money that I want to send my kids to college. All that energy around it, it turns out it just doesn’t matter. That what matters is building a portfolio based on your values and goals and then letting it compound. The Warren Buffett quote comes to mind that benign neglect, bordering on sloth was the hallmark of our investment process. And part of that is just turning off the news and reading a biography.

Colin White: (36:52)
Yeah. Because part of the challenge here too, is, I mean, Richard Taylor was quoted in a … Or I listed a podcast he was in that he pointed out that it’s far more profitable to take advantage of people’s weaknesses than try to fix them. And so these inherent weaknesses that we have as the human race, there are people out there who will either maliciously … Or not even maliciously, just in thinking they’re giving people what they want. They will put things out there that are not in the final analysis in people’s best interests. So that’s why this is quite a passion for us just to try to educate people so that they at least understand where some of the mistakes they’re going to make are. But it’s an uphill battle because, again, everybody is convinced there’s so much information that they should be consuming and we’ve got clients that feel obligated. It’s like, I should know more about this. And we say, “No. No, you shouldn’t. Knowing more about this isn’t going to help you.”

Carl Richards: (37:51)
Yeah. It’s just hard for people. It’s hard for all of us to believe that’s true. Yeah. I completely relate to that desire and concern. But it’s hard. So much of what we do, so much of what makes somebody successful in terms of lifetime returns is counterintuitive to everything else. Yeah. So many things we could talk about there, but it’s true. You think that more information will help you and it turns out it doesn’t. It just makes you sad and stressed.

Colin White: (38:26)
Yeah. But I’ll put you on the spot, Carl, for a question. A topical question because you’re out in the real world and you’re talking with advisors and the general public on the regular. I mean, one of the questions, and either implied or explicitly asked right now, is what should I do now that the market has dropped as much? How should I change my plan? What action should I take? Do you have any tricks for recentering people other than referring them back to the one page financial plan?

Carl Richards: (38:55)
Yeah. I think there’s a process. I just call it the scary markets process. And we walked through it a little bit earlier. First let’s get out of the branches out here. Like what should I do. Get back, remind ourselves. Let’s just check in. Have my values changed? My statement of financial purpose. Have my goals changed? We’re just sort of working up a … For those of you listening, I’ll just, again, paint on the … Think if you’re working yourself up Maslow’s hierarchy of needs. At the base of this why. Then we move up to how. Goals. Sorry. Why, what, goals. And then how is our actual investments there. And let’s say that all that stuff still checks out. Yeah. Yeah. It turns out Mr. Planner, my value still is I want to spend time with my family, mainly outside.Yeah. Yeah. That looks like this goals. That’s all still true. We’ve looked at the portfolio, it’s behaving the way we expected in this kind of market. There’s nothing fundamentally broken with the products we’re using. So once you’ve gotten there, what do you do when the market’s down? Well, there should be something in your plan, sometimes we call this an investment policy statement, that outlines the idea of rebalancing. And I think this is the smartest thing in the world when it comes to investing. Because it’s a disciplined unemotional way to get yourself to buy relatively low and sell relatively high. And all that means is when you made that initial plan, you decided that the right portfolio for you was 50% in something that grows fast.We’ll just call them equities or stocks. And 50% in something that stays really safe and stable. I’m just making that up. That really safe and stable thing is short term bank deposits or bonds or cash. And now you wake up, the market’s down. So because the market’s down, that stuff that grows has gone down, the risky stuff’s gone down a little bit. Now you only have 40% there. You have 60% of the other one. Well, while everybody else is running around thinking about selling it, your plan says to get back to 50-50, well, how do you get back to 50-50? You sell some of the stuff that didn’t go down and you buy some of the stuff that did go down. And you don’t think about it. The other thing you do that’s my favorite thing to do during scary markets is you decided you were going to add $5,000 a month on the 12th. It’s automated. Well, what do you do on the 12th of a scary market? It’s automated. You buy every month. So you can brag on Twitter like, “Hey, I bought this month.” It’s really low. And then you have to say asterisk, “Because I buy every month.” So I think the more we can automate good behavior, the better.

Josh Sheluk: (41:50)
That’s going to be an exciting Twitter feed to follow.

Carl Richards: (41:53)
Exactly. Very true.

Josh Sheluk: (41:54)
You should tell Elon Musk about that one.

Carl Richards: (41:56)
Yeah, for sure.

Josh Sheluk: (42:00)
Yeah. Well, thank you so much, Carl, for your time. Really appreciate it. Really appreciate the insights. It’s been a fascinating journey as we navigate some of these different behavioral concepts and ideas and tendencies that we have as individuals. I’m sure we’ll see it again. We appreciate your time so much.

Colin White: (42:22)
And Carl, particular interest in your next book, because I think your head’s headed in the right direction and you’ve got some good thoughts in there. So I can’t wait for you to solve some of these problems we’re talking about more conclusively.

Speaker 1: (42:50)
This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealth, Inc. iA Private Wealth Inc is a member of the Canadian Investor Protection fund and the investment industry regulatory organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc operates.

Colin White: (43:14)
We’ve noticed something. It seems there are a lot of people who would rather try to figure out their lives with an online calculator than air your finances to a human. Stop doing that. You need to talk to someone who can help direct you, tell you where to start with what you’ve got to make the biggest impact on your future. You can’t figure that out at doihaveenoughcash.com, but you can figure it out by chatting with us. Call us. It’ll be okay. You’ll see.

Speaker 1: (43:47)
The content of this presentation, including facts, views, opinions, recommendations, descriptions of, or references to products or securities is not to be used or construed as investment advice, as an offer to sell, or the solicitation of an offer to buy or an endorsement recommendation sponsorship of any entity or security cited. Although we endeavor to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it. This should not be construed to be legal or tax advice as every client situation is different.This podcast has been prepared for information purposes only. The tax information provided in this podcast is general in nature, and each client should consult with their own tax advisor, accountant and lawyer before pursuing any strategy described herein, as each client’s individual circumstances are unique. We’ve endeavored to ensure the accuracy of the information provided at the time that it was written, however, should the information in this podcast be incorrect or incomplete, or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented or revised, whether as a result of new information, changing circumstances, future events, or otherwise. We are not responsible for errors contained in this podcast or to anyone who relies on the information contained in this podcast. Please consult your own legal and tax advisor.

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