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Kathryn Toope: Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.

Colin White: Alright, 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: So we have Carl Richards with us today. Carl, 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 Bare Naked Money. And his sketches have served as a foundation for his two books. The One Page Financial Plan A Simple Way to Be Smart About Your Money and The Simple Ways to Stop Doing Dumb Things with Your Money. So it sounds like we’re going to try to be smart today and not stupid, which is always a good thing.

Colin White: Well, I think it’s important at this moment too, to thank Catherine off of our team for finding Carol and introducing us because Carol, I read your book over the weekend and I think we really are kindred spirits and this is going to be a fun conversation.

Josh Sheluk: Hey, she has.

Carl Richards: That’s super.

Josh Sheluk: Last but not least, Carl’s sketches have appeared in a solo show at the Kimbell art center in Park City, Utah, as well as other showings at Parsons School of Design in New York City, the Schultz Museum in Santa Rosa, California, and an exhibit at the Mansion House in London. So 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: Yeah. Thanks, Josh. Thanks, Colin. Super excited to be here.

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

Carl Richards: Hey, Colin. Yeah. I look. I noticed, really early on in my career that 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.

Right? 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 that’s that’s there there’s an element of truth to that. But the problem, of course, is that it’s not like our decisions around money are not they don’t fit into calculator. Like, how do you fit greed into a calculator?

How do you fear into a calculator? How do you fit the worry that you’re gonna end up living under a bridge into a calculator? Right? So when I first started noticing that it was it was really like month two in my career. And I remember just thinking, woah, what is this all about?

Because I got I got into the industry speaking broadly, the financial industry, kind of by accident. 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 like, dealing with finance for a living, I was like, man, this is not a math job. Right?

It turns out I can 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. Right? So that’s become endlessly fascinating to me.

And it and it carries through. It’s not just about investing, but the way we spend money, the way we set goals, like, It turns out as much more of a human problem than it is a financial problem. So that’s I got into the industry by accident, but I’ve stayed because that piece has been endlessly fascinating.

Colin White: Carol, it’s it’s truly amazing. I came into this field from accounting and I came into it specifically because I was really good with the 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. It is, it’s, it’s truly a fascinating problem. And it’s been fascinating over the last thirty 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: Yeah. I mean, the easy ones to pick on are always around the investing process. You know, we, we traditionally buy high and sell low. It’s, it’s, it’s, it’s kind of cute and clever to point that out until you realize like we’re wired to do that. You know, like that that it’s easy to make people feel kind of like that’s so stupid.

Turns out you’re like, 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. Right? 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 gonna be fine long term. You’re gonna pull your head off the stove. Right? So that’s that’s like 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. Like, it’s pretty it’s pretty simple. You buy low, and you sell high if you ever need to sell. That’s pretty simple.

Mhmm. But we all make these mistakes. Because, you know, the news, our wiring. So I’ve been trying to like, how can we solve that problem? And I I think that points to one other that is, to me is the real challenge, which is we, we, the biggest mistake I think we make.

And by we, mean, all like, I certainly make it all the time. So I should be clear about this, that for listeners like this is, I don’t want this to feel like a punch in the nose. I want this to feel like an empathetic hug. Like we all make this mistake. Is not getting clear about why we’re doing the things we’re doing with money.

Like why money is important to us. Because if we really stop to get a sense of that, right, if we get clear about that, like I now know I have a one page financial plan. On the top of my one page financial plan is a little the top sect 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.

Right? Do I want to invest in that startup that my cousin is starting? Do I want to buy that piece of real estate? Does it help me spend more time with my family mainly outside or does it not? And that those decisions become a little easier, right?

If your goal 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 we can get a little more clear about why. Instead of running around, like, let me give you one more place where this the rubber meets the road on this.

Like, if you 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 twenty years. And the answers I normally get are, I read about it in the, you know, the really smart people say in a whisper, they say, I read about it in The Economist, you know, the rest of us say, like, I heard about it from my friend at the gym, I will, that’s, those are not the right answer. Right?

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 like, thinking that way, I think is is actually the biggest mistake we make, and most people don’t even know they’re making it.

Josh Sheluk: Right. So when you come back to the the issue with it, people are making sort of the wrong investment decision at the wrong time. Is it enough to have that why front and center for people? Are there other tactics and strategies that people can use to mitigate their chances of mistakes? Because obviously, as you’re saying, we’re 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: Yeah, so if you think about it, 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 built, the market gets scary, your portfolio is still going to go down. Right? So let’s your portfolio is down 2030%, 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.

Right? That’s the big yes that we want to have. Like, I I and what we’re asking what we’re asking listeners to do here is to say no to that feeling. The only reason 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 right 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 of the kids. For Julie it was I want to have time to think about having a family, like whatever that is. Right above that, if I say to Jerry and Vera, I never want to be a burden of the kids, I can now move up one level and say, Okay, let’s figure out what would you have? What would the world look like if you weren’t a burden to the kids?

Jerry would say to me, Well, I have $5,000 a month coming in the mailbox. Jerry, would it be okay now if we write down $5,000 a month and we call that a goal, right? 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 as reminding myself myself why I invested the way I did when I was thinking clearly.

Right. And the other thing I like to say to myself, I 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 doorstop. 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, right, 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. Like 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 around the kids. Has my goal changed? No, I still want $5,000 to arrive in the mailbox. Okay, has the process of 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, like turn the noise off. So that’s how that process works. In order to say no to something that feels deeply instinctual, I got to have a bigger yes. And the bigger yes is my, in air quotes for everybody, my plan.

Right?

Colin White: So Carol, maybe just take a, a second to comment on, because again, one of the challenges in dealing with individual clients is they often struggle to come up with that why. And, you know, I think we’re using why in the sense of, you know, Simon Sinek in the way, you know, he resents 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 can take a little bit of effort and 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?

You know, what, what really motivates them?

Carl Richards: Yeah, yeah, yeah. That’s a really good question. It’s all true. Like it’s, it can feel glib. It can feel like, hey, man, my hand is on a burning stove.

Why are you asking this question? You can feel like I’ve got an acute problem. And you’re asking me about like, my blood pressure, right? So I think, to me, here’s some, I like the idea of, I do believe it’s helpful to have somebody guide you through that conversation. And it’s, it’s really true.

Like, I think real financial planning, if you were just for your listeners, I’m going to try and draw on the radio. I’ve done a lot of this. So 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 write 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, right, your use of capital. And if you would put a parentheses under capital, and put time, money, energy and attention. It’s really like 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. Right? Now, for most of us humans, there’s a gap. Right? There there’s not there’s there’s over like, it’s it’s this constantly evolving thing.

There might be a little bit of overlap. Like I’m spending time I said that coaching my son, spending time with my daughter was the most important thing to me. Turns out I’m using some of my time to coach her her soccer team. Okay, there’s an overlap, right? So I think if we can start to just that process, I used to think the the right circle, what’s important about what’s important to me was gonna be the easy part.

Turns out that’s really hard. And then we just understand that as humans, there’s some great work around memetic desire. And Luke Bourgeois new book, it’s called wanting. Luke’s book is really good at work, like spelling out the work of Renee Girard around mimetic desire. And what it essentially says is like, 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, you know, family members, where you’re just trying to I call it goal clarification over time. And I think there’s a couple important things. One, just never expect to be done. You know, it’s it’s that’s called being human. Like, you’re not going to be done till you’re dead.

And you just make little guesses. Well, okay, I thought what was important to me was, you know, 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 was important to me was to retire and, and golf. You know what, I’m kind of bored.

So you’re just making little bets. As you notice, 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 like, here, let me give you an example. My wife and I thought that, well, it’s actually true.

My for my wife and I connection with friends was really important to us. And we thought so we made a plan. We’re like, okay, well, 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. We’re like, okay, this seems like a good idea.

And then we realized, wait, the goal was connection. We’re going to a noisy restaurant. And then we’re sitting in the movie together. So that was an experiment where we’re like, turns out what we learned from that experiment was we 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. Right? So I think the way 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 spending, you know, I think that annual trip to the beach with the family is really important.

You do it a couple years and then you discover like, you know what, we like the mountains better or whatever. That’s how I think about it.

Colin White: Well, I mean, that goes back to the financial plan as a living document. In my professional experiences, there’s life events that change your priorities. Like I don’t want to leave anything behind for my kids and grandkids show up. All right. Now I wanna leave money behind.

And I didn’t know I wanted to leave money behind because I didn’t know how much I was gonna love a grandkid, you know? So, yep. The human journey as well. Now it’s not only the internal journey, but it’s the external journey that everybody finds themselves on.

Carl Richards: Totally. Let me just call it real quickly that I think it’s really important for everybody to, for me to understand is the financial plan is worthless, right? 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, certainly not be carved in stone, but written in pencil.

That’s for sure.

Colin White: 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 kind of have your stuff organized towards what you feel your why is, it puts you in a better spot to react, you know, when the grandkids show up and when other things may change your why to to have that document to kind of go back to.

Carl Richards: Sure. Yeah. I think it’s important to expect it to change. Yeah. Yeah.

It’s not a sign of failure that it changed. It’s a sign of value.

Josh Sheluk: Yeah. Yeah. I I think what you’re saying, Colin, is you have to be prepared for 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: For sure. For sure.

Josh Sheluk: 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: Yeah. So I I think of a a one page financial plan as the document that kind of sits on top. Like, one comparison would be, you know, you get a very complicated, you know, new piece of something that has to be set up in the house. It could be 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 is the picture on the front of the box. Right? That just sort of serves as the key pieces to remind ourselves. And I love to think of it as a touchstone.

It’s the thing that I and as a client, I love the idea that I know like, Oh, yeah, that’s right. When 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 typically listed in order of priority. Just below that, we have next ninety days, or you can call it action steps, next steps, right? So that thing is changing, you know, depending on the the kind of the volatility of your situation, the dynamics of your situation. You know, 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 and maybe that thing’s changing every time I meet with with an advisor.

So it just becomes now underneath that might be 200 pages of projections and life insurance planning and the sort of the defensive methodology, the the methodology for the investing process. Those things are also there, but the one page plan sits on top of it as like an executive summary.

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

Carl Richards: Am I among friends? Yes,

Colin White: always. I wouldn’t have lobbed this one over the plate this way, Carl, without knowing that.

Carl Richards: 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. You know, projections are helpful in the way that, you know, a flight plan between Los Angeles and New York is helpful. Right? It’s helpful to know, like, alright, so it’s not quite throw them away.

Right? I think I think I used to feel like throwing them away. Now I realized it’s an and statement. Right? The financial, the financial projections, we want to make the best projections we can, like 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 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? It just we we place less certainty, we place less pressure, you’re not a good financial plan or a good financial advisor is not a defender of an outdated map.

Right? They’re a guide in a changing landscape. And so I think those projections, I mean, I look, I should tell you the one page financial plan was the title of that book, the one page financial plan was a compromise. Because I wanted the zero page financial plan. And then I realized, okay, well, maybe one’s fine.

Right? So anyway, I have softened my view on that I realized those goals and those those projections in that line, it gives us a sense of direction. And it also provides like 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: And I think that’s largely driven by the demand because people, you know, don’t like uncertainty. We haven’t liked uncertainty since, you know, we decided to put together our first farm as a species. I mean, it’s like, well, when’s it going to rain? All these systems are trying to predict things. It’s what gives comfort.

And that has 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 is for me is the important part. And getting people to understand that exactly as soon as we write it, it’s become obsolete. Because from that moment on it’s, it’s dealing with what changes.

Carl Richards: Yeah. 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 a an unfavorable experience with our and when I use the industry, I’m speaking really broadly here. Mhmm.

The bank and the insurance company and the plant, like, all these different people that we that make up the industry. One of the reasons people have a a rather a rather bad, you know, 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 ones that say, like, here’s my model of the future. I think I’m the best model builder on the planet. Like we 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 is when it’s wrong.

Like 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 you shouldn’t, 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. Yeah, I promise you it’s 3.1. So so 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 sign that they’re bad. It’s a sign that a surprise showed up. So the good planners and advisors know to say, hey, you know, 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 gonna do, but I know how to deal with I don’t know what we’re gonna do.

I’m really good at that. And I think that’s the important piece. It’s not that that makes 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: Yeah. The expression from the, from a coastal person from the East Coast, we build boats. We don’t predict the weather. Yeah. So it’s about having the best equipment on hand and then the wind’s gonna blow.

When it does, it’s how you react to it. Cause the other thing that blew up almost every plan was the pandemic. There was probably there’d be no plans that was predicting a global pandemic in 2020. Dramatically changed everything.

Carl Richards: Yeah. It’s my favorite example, right? Just 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 twenty twenty. And within ninety days, everything had changed. That’s, that’s pretty amazing.

There’s a concept I’ve been told I haven’t verified this, but I’ve got friends who are German, who live in Germany half the year, they’re, they’re seem like a reliable source for this. They told me there’s a concept that they always grew up with called planning security. And it was they almost felt like it was a cultural right. You know, and you could see this from like German engineering, and it was felt like it was a cultural right to be able to plan securely for the future. Like, know what I’ve and he told me in March of twenty twenty.

He said, is the first time I can remember in my life, this is somebody who’s 49 years old. This is the first time I can remember where I didn’t know exactly what I was doing the next eighteen months. Right? And so I think the sooner we can 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’ve been trying to avoid certain we love certainly we want. 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 on putting out the the window at the high mountains here and you I don’t go into the mountains almost every day because I know exactly what’s gonna happen. I go because they’re surprised.

I go because it’s adventure. Like, so when I changed the name a little bit, I realized like I surf because I exactly because I don’t know what the next wave is gonna bring. So when we change the name a little bit, we realize that we’re like, this is what gives life flavor and adventure. If we just end 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: So you think financial planning should be as exciting as surfing?

Carl Richards: It, it, it, it, the last couple of years, it’s more exciting than surfing.

Colin White: 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: Yeah, yeah, no, I it’s, it’s I think the dilemma is that there’s lots of good research around this, and especially in the field of complexity theory. Like we live in a complex adaptive environment. And in a complex adaptive environment, you 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.

Now you think you can explain it. Yeah. But that 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, like 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. Like, take no thought for tomorrow, Like, we don’t like, be here now.

Every once in while, put that ugly planning hat on and do those projections, but make it an ugly planning hat because you wanna take it off as soon as you can so you can get back to presence.

Josh Sheluk: Yeah. So some of those, those discussion points make me think a lot about the mainstream media and trying to assign a reason for something happening. Colin and I often joke about it because we’re like, oh, market was up today because oil prices were down. And then the next day we’re like, market’s down today because oil prices are down. And 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, to create that. And so I’m, I’m just kind of getting to what I, one of the chapters in your book that I really liked was called too much information.

Carl Richards: And

Josh Sheluk: 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 ten years ago. Ten years, ten years from then, do you think that we are better at distilling that information today or worse?

Carl Richards: Well, yeah, like it’s it’s yeah. Is that a rhetorical question? Yeah. It’s it’s we’re way, way, way worse. And that’s, again, empathetic out here.

Like, that’s not our, like, we’re just not, you can’t like you can’t we’re and we do. Yeah, we do. We all in the field that sort of behavioral finance and behavioral economics has gone a long way in the last ten years. And it’s really interesting to just understand, we’re just not wired to analyze. We think 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. Like, just walk into your closet and tell I I assume that you make that you make a decision each morning to get dressed and you wanna you wanna wear the optimal outfit of the day.

Josh Sheluk: You shouldn’t make that assumption with Colin here. Yeah.

Carl Richards: I I assume that your listeners despite your your lack of interest here, I assume that your listeners, know, like, we we think sort of like, yeah, I’m gonna wear the but if you walk in your closet, you have even a hundred items, and I’m talking about shoes, socks, like the whole thing, there’s no way. Like, 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 just it’s it’s insane. So I think part of the process is just determining and being very intentional. I like to think of it as it as as sort of just a media fast.

Like, what am I going to allow into the system? Because I I didn’t even I don’t even really know what’s going on with the market right now. Like, I’ve no I don’t think I in fact, I know I I don’t even think I could tell you within a thousand points where the Dow Jones is like, don’t even like, I just don’t because it does not matter. And so I think learning and that’s counterintuitive. We think it matters.

Of course, it should matter. Like I’m an investor. I’m being responsible for the money that I want to send my kids to college, like that all that energy around it turns out it just doesn’t matter. That what matters is making building a portfolio based on your values and goals, and then letting it compound. The Warren Buffett quote comes to mind that that benign neglect bordering on sloth was the hallmark of our investment process.

Mhmm. And part of that is just turning off the news and reading a biography.

Colin White: Yeah. Because of the part of the challenge here too, is, I mean, Richard Thaler is, was quoted in a podcast. I’ve listened to podcasts he was in and he pointed out that it’s far more profitable to take advantage of people’s weaknesses than trying to fix them. And, you know, so these, these inherent weaknesses that we have as the human race, you know, there’s, you know, there are people out there who will, you know, 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.

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. Is convinced there’s so much information that they should be consuming. We get clients who feel obligated. It’s like, 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: Yeah. It’s just hard for people. It’s hard for all of us to believe that that’s true. I completely relate to that desire and concern and, and yeah, it’s, but it’s, 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, you know, like, if yeah, so many things we can talk about there, but it’s it’s true.

You think the more information will help you and it turns out it doesn’t. It just makes you sad and and stressed.

Colin White: So let me put you on the spot, Carl, for for a question because a topical 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, you know, 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 to to

Carl Richards: Yeah. I think there’s a process. I I just call it the scary markets process. And it it we walked through it a little bit earlier. Like, so first, let’s get out of the out of the branches out here.

Like, what should I do? Get back, remind ourselves, let’s just check-in. Like, have my values changed? My statement of financial purpose? Have my goals changed?

We’re just sort of working up a, you know, for those of you listening, I’ll just, again, paint on there. Think of your, like, working yourself up like Maslow’s hierarchy of needs, like at the base of this, you know, this why, then we move up to how, right, like 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. And Mrs.

Planner, my my value still is I want to spend time with my family being outside. Yeah, yeah, that looks like this kind of goals. That’s all still true. You know, we’ve looked at the portfolio. It’s still 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, like, the there’s a, like, what do you do when the market’s down? Well, there should be something in your in your plan. Sometimes we call this an investment policy statement that outlines the idea of rebalancing. Right?

And this is, I think this is like 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 the right portfolio for you was 50% in something that grows fast, like we’ll just call them equities or stocks, and 50% of that’s 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. Right?

And now you wake up, the market’s down. So because the market’s down, that stuff that grows has gone down, like 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 fiftyfifty.

Well, how do you get back to fiftyfifty? 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. And the other thing you do that my favorite thing to do during scary markets is you decided you were gonna add $5,000 a month on the twelfth. It’s automated. What do you do on the twelfth of a scary market?

It’s automated. You buy every month. So you can brag on Twitter like, hey, I bought this one. 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: That’s going to be an exciting Twitter feed to follow. Exactly. Well, thank you so much, Carl, for your time. Really appreciate it. Really, really appreciate the insights.

It’s been sort of a fascinating journey as we kind of, 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: And Carl, a particular interest in your next book because I can’t wait for you to solve some of these problems we’re talking about more conclusively. Yeah.

Carl Richards: Thank you, Carl. Thank you, Josh. That was really fun. Thanks

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