D (2:21)

Ben, I want to pick up on one example. You speak to in the book the Japanese Asset Bubble, which, which you call simultaneously the biggest bubble in market history, and it was an everything bubble. I'm curious what lessons we can all learn from that particular experience and maybe any interesting corollaries you see in the markets that we're all wading through together today in 2026.

E (2:50)

I think from a psychological perspective, one of the lessons from Japan is that just anyone can lose their head and let their emotions get the best of them. Because Japan, their culture is not like the United States, where it's not really a surprise that we seem to have a new bubble once every seven to eight years. We're just kind of hardwired that way to have the higher highs and lower lows and the extreme emotions. Japan isn't like that at all. It's much more of a conservative society. They don't really take things to the extremes. But even then in the 1980s, they just got so caught up in this wave and it was like this suspension of disbelief, the fact that these asset prices were going so much higher and they didn't think that wrong could come of them. And so I think it's important to recognize the psychology behind it. And as far as the market psychology goes, I think it's interesting just to note how far investors can take these things and how the pendulum can swing from one end to the next. In Japan, the dot com bubble is arguably the greatest bubble. Certainly from a valuation perspective that we've seen in the US In Japan makes it look tiny by comparison. You know, stocks were trading at 100 times earnings in Japan. The real estate values were just insane. The value of Tokyo real estate itself, just the city, all the real estate in the city was worth more than the entire real estate value of the United States at the time in 1989. So it's kind of crazy. And then you had this other side of afterwards. You know, markets go nowhere for three decades or whatever. And so I think the big lesson for most people is just how far the pendulum can swing and then how hard mean reversion can be on the other side of it.

C (4:25)

One thing I was surprised about in the book, Ben, was your discussion of market performance. Very long run market performance in Japan, it's not even that bad. I assumed, you know, that it would be just dead money for decades, but it's actually not. When you look at the data.

E (4:42)

I was kind of surprised by it too. And I dug into it because the only thing people talk about with Japan is, hey, since 1989, 1990, stocks have gone nowhere the number I had was like one and a half percent per year for the stock market. You did terrible. You would have done better keep your money in cash or bonds or anything else in Japan in that time period. But the returns were so great in the 1970s and 1980s it was over 22% per year. So if you go back from now into 1970, which is when MSCI has this data, it's actually like 8.7% per year for Japanese stock market. It's really not that bad. It's almost 9% per year inclusive of three decades where stocks kind of went nowhere and were underwater. And it's funny, a lot of people say, well, Japan shows that long term investing, you know, doesn't always work. Buy and hold doesn't always work. It really depends how you define the time horizon there. I was pretty shocked by those numbers too.

D (5:34)

Yeah, Ben, I think you see it as much as anybody. People will interject. It's probably if you were to rank order the most frequent replies on what is now called X once was called Twitter in Fintwit. Now do Japan or what about Japan? So I'm curious, when we think about the flip side, Japan, that experience is fairly well known. What are some of the more interesting episodes in market history that are relatively unheralded that nobody's ever really talking about?

E (6:05)

It's funny, I originally asked, I think I was being tongue in cheek. I asked my editor what they thought about now show Japan as a title of the book and that one never got off the ground. Yeah, certainly Japan is up there. People talk about the dot com bubble and the great financial Crisis and the 1987 crash and even the Great Depression. And Ross Sorkin had his new book about that. I think the one that doesn't get enough attention that maybe should because of the environment is the 1970s. Right. It wasn't just that there was a stock market crash, the 1973, 1974 bear market, you know, it was, it was a big crash, but doesn't really even have a name. Maybe that's how overlooked it is. But it wasn't even just this crash that saw stocks fall like 50%. It was the fact that inflation was so high and it really ate into stocks and it was more. Even though there was that one crash, it was more of a death by a thousand cuts because the nominal returns for the stock market in the 70s really weren't that bad. It was like 6% per year, but inflation was like 7 and a half percent per year. And that's the Painful period where people had nowhere to hide. Bonds got crushed too, on an after inflation basis because rising rates and inflation being so high. So you had the three main asset classes for most investors these days. And the liquid sense is stocks, bonds and cash. Right. And all three of them got swallowed up by inflation that decade. I think that's the period where people don't pay enough attention to and how to deal with rapidly rise in prices.

C (7:22)

So we've now had a pretty extended stretch of no great big crashes that have been long lived. And I'm wondering, do you feel like investors maybe are underrating the risks today that were a little bit more in the greed cycle? We're remembering less what it felt like to have the great financial crisis or even the mini bear of the COVID period. Is it that we just haven't had anything really bad for quite a while and maybe people aren't. Aren't paying enough attention to risks?

E (7:54)

Yeah. You know, it's funny, the two groups of people I really wrote this book for, I find it like a yin and a yang, which is obviously why it's called risk and reward. On the one hand, there was people after the great financial crisis who wanted nothing to do with risk and they were like on the fetal position in the floor and they just wanted to hedge everything. And now it seems like that mindset has shifted, especially for newer investors who maybe weren't around for that time period. And now it's just game on. It's all risk, all the time. And anytime there is a minor fall in the stock market, even a major correction, people rush in to buy. Which I think is actually great from a behavioral perspective. But I also think you're right. If there is a longer, more extended bear market, is that more painful and is there complacency? That actually is something that I probably would be a little concerned about for when that happens. Because we haven't had a real recession. You know, the one in Covid wasn't a real economic cycle and it was over so quick and we threw some money at it. So I do think, you know, I wonder what the reaction will be from investors when we actually have like a real recession and a recessionary bear market. How bad will sentiment get? How bad will people overreact? I certainly think that's something to consider.

D (9:00)

Well, one of the things that you speak to, Ben, is the power of maybe just inaction or maybe even just consistent action. In some cases. That's codified in the way that countless millions of Americans certainly invest, which is just every two weeks as part of their paycheck that goes into their employer's 401k plan. It's something that's part of what your colleague Josh Brown is typified is the relentless bid that's underpinning markets in general. Is that something that we should just continue to expect irrespective of the environment? Whether we continue to have these intermittent air pockets that we've been hitting lately or we go through, you know, multi decade period of malaise like was experienced in Japan, like should we expect inertia to win out over the end of the day?

E (9:52)

And what are some of the risks

D (9:53)

of just effectively putting this on autopilot?

E (9:57)

Yeah, I do think it's hard to overstate how big the impact of IRAs and 401s are to people. And I looked at the history of this and when those tax deferred retirement vehicles first came out, it was really the first time that investors had a reason to think and act for the long term. It's like, hey, I'm not going to be able to touch this money. Why don't I put it in stocks? And at that point in the late 70s, early 80s, there wasn't that much money in stocks. Most people had money in short term T bills or bonds because rates were so much higher and people wanted nothing to do with the stock market and those accounts came out and people thought, well, why wouldn't I just put it in stocks if it's going to be in there for the long haul? And then technology improved and now we have. Josh called it the automatic bid. I call it, it's kind of like the automatic investing revolution where automation is now such a big part of investing for people. And it's automatic contributions and it's automatic rebalances and it's, it's these target date funds that people are automatically enrolled in when they put their money into a retirement fund. And for people who've wondered how valuations could continue to stay so high and how the market could keep coming back, I do think that's probably a big part of it. Now obviously that that means to your air pocket thing, the people who really control the active part of the market, like they probably have a bigger say. And then the machines and algorithms and hedge funds, when they kind of pull back and turn their liquidity off, maybe it does create these situations where I think one of the risks we could have is there's more flash crashes and stuff like that where you have these, like you said, these air pockets where the market rolls over really hard really fast in a day, a week or a month. And markets are, it does seem like moving a lot faster these days. So I do think the risk of those quick falls is probably higher now than it was in the past.

C (11:36)

So you make the point in the book. You cover so many different topics, but you make the point that health decisions, this wasn't a big part of the book, but that health decisions that we make are actually a lot harder than the wealth related decisions that we make. Can you talk about that? Because that was kind of a aha moment for me.

E (11:57)

Yeah, I think it was always the easiest personal finance analogy to make. Right. Like, hey, health and wealth are kind of the same thing from a behavioral perspective. Everyone knows what they're supposed to do when it comes to being healthy. You know, you exercise on a regular basis, you watch your diet, these types of things, but it's hard to do. And then the same thing is true for finances. But actually, you know, being healthy requires making decisions all the time. It's a lot harder to automate and you have to actually make yourself go to the gym and do something. You have to, you know, consciously decide what to eat or what not to eat. And with investing, technology has made it a lot easier where you can automate a lot of the big decisions ahead of time. You can automate your asset allocation, you can automate your contribution rates and how much you're going to save. You could escalate those contributions over time so they, they increase. You can tell your brokerage or your 401k plan when to buy and when to sell and all these things. And I think the ability to take yourself out of the equation and automate has been such a huge win for investors because it's hard to ignore the noise these days and it's hard to stay out of it and not tinker. And the ability to make those big decisions ahead of time. I think it's just been a huge leap forward for investors and I think it's one of the reasons that we've seen behavior improve and more money go into target date funds, low cost index funds, and have a more long term mindset.

D (13:15)

I would tend to agree, Ben, but I think we also see every day and perhaps 2026, the evidence is more abundant than ever of categories of investors that just can't help but want to not just tinker, but go all in and new and different ways that frankly just like weren't even available to even like you. Christine and I, when we were early in our own investing life cycle, like the prospect now of ETFs that will allow you to bet on the outcome of presidential elections now imminent. When you think of like the current environment, your own experience, like what's the value of like taking your lumps, learning those lessons that others have learned, but you have to ultimately learn and internalize yourself early. How do you see that evolving just given the dynamic like the opportunity set that younger investors are looking at today? And many of them are just terms getting thrown around, financial nihilism, one of them looming large, just basically going full YOLO mode early in their investment life cycle.

E (14:20)

So I think that you need to have a little bit of cognitive dissonance with the way that things are going these days. Because on the one hand, yes, there's more, whatever you want to call it, degenerate gambling out there and people are gambling on sports and prediction markets and there's these zero day options and people are trading more than ever. And on the other hand, you do have, I don't know, you guys might know the numbers better than what is it, $12 trillion at Vanguard and $15 trillion at BlackRock or something and how many ever trillions in target day funds. So you have both of these things going on at the same time, which is kind of hard to wrap your your head around. And I do think maybe some people need to pay their tuition to the market gods for whatever reason. Maybe it was the way I was brought up or just my personality. I was never like this. So my very first investment I ever made was a target date fund, which is really, really boring. I know my dad helped me set up an IRA right out of college and I put it in a target date fund and I've been a boring investor ever since. But I think some people do need to take their lumps and try to figure out is speculating for me is day trading for me these things. And even though the data shows ob, it's a very low probability that you're going to be successful. Some people just have to see for themselves. I have an advisor friend who told me that he'll get clients coming to him or prospects coming to him and they'll kind of tell their story and he'll say, you know what? You're not ready for me. Take it out another five years, go do your thing and make your mistakes and then come back to me when you're ready. And I think that some people just have to learn those lessons.

C (15:46)

Unfortunately, the book has a lot about time horizon and the value of having an appropriately long enough time horizon. If you Want to be a stock investor. You have a great quote in the book from Daniel Kahneman where he said the long term is not where life is lived. Wondering if you can talk about that and talk about how you think that helps explain why so many investors have trouble staying focused on the long term.

E (16:12)

Yeah, I think it's probably never been harder to be patient. Just think about the society we live in these days. Everything is on demand, right? Like my. It's funny, I was talking to my wife. My kids grow up in a world where they can listen to any sound they want by the push of a button or the sound of their voice to tell, you know, this AI related thing to play it for them. Streaming allows you to pull up any TV show or movie you want, play it at any time, you can hit the button on your phone and someone will bring you food from doordash. And so I think patience has been taken out of our society in a lot of ways. And for most people, compounding is something that is very backloaded and takes a lot of time to happen. And some people just don't want to wait for that to happen. And so they try to get rich overnight and they try to see if they can speed up the process. And unfortunately, obviously, most of the time that just makes it even harder and it leads to more mistakes. But it's kind of understandable when you think about it that way though, why it's so hard. So there's this, I think I told a story in the book about Jeff Bezos, asked Warren Buffett, like, why aren't more people, why don't they just follow the same type of long term buy and hold strategy that you have with stocks? And he said, most people don't want to get rich slowly. And in a world that seems to be speeding up more and more, it does make sense why it's hard for people to want to take that slower route.

D (17:28)

In one of the ways we've sped up a bit and far removed from the era where you had to go get a movie from Blockbuster Video and make sure you rewound it to avoid incurring a penalty when you drove back to the store to return. It is just the availability of so much information and the ability to act on that information, like in a supercomputer that we're carrying around in our pockets all day. I'm curious your take on just the impact of all of this on our attention spans and whether you think it risks having a negative impact on us as investors.

E (18:07)

Well, this is another cognitive dissonance area of the market for me, because there's never been a better time to be an individual investor, right? Fees are lower. You have $0 commissions at brokerages. You know there's fractional shares to trade. You know, you can set up an investment account immediately on your phone and fund it to your bank and then invest immediately. Whereas in the past you had to go down to a brick and mortar building and fill out some paperwork and maybe write a check. And then a few days later you ask them what to invest in. It's. It's so much easier. The barriers to entry have been completely knocked down. The ETFs that are available today, the investment strategies you have access to, it's kind of crazy how they've been packaged and stuff that would never have been available to individual investors in the past. Now you have access to, and you can buy and sell it all day long when the market's open. And you can even trade after hours now, right? There's 24,7 trading on certain stocks. But I think what that does by taking down those barriers to entry, it increases the temptation to make a change. And I think that's the hard part for most people is trying to find ways of filtering and limiting. And it's the same thing with information, right? The opinions you get and the analysis you get with social media and all these different newsletters and stories and there's never been more information available. But drinking from the fire hose is not a long term winning strategy. So I think for a lot of people it's learning about how to limit yourself and how to put guidelines on your actions and how to say no to certain things. Even though they could be good investment strategies for certain people, maybe they don't work for your overall portfolio or your plan. And I think that's what you have to do if you don't want to constantly think, well, what about this new fund? Maybe I should put this in. Like in recent weeks we've seen like venture capital funds and ETFs come out, right? And I get emails from people saying, hey, what do you think about this? Should I put money in this? And I think you want to get to the point where you don't have to think about this stuff. It should be like an automatic yes or an automatic no. And that's the kind of place that you want to get to as an investor. I think these days lots of firms

A (19:58)

throw a couple flashy funds your way and call it a day. But not Vanguard. Vanguard bonds are institutional quality. Institutional quality isn't a Tagline, it's a commitment to your clients. It means top grade products across the board. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself@vanguard.com audio. That's vanguard.com audio. All investing is subject to risk. Vanguard MARKETING Corporation Distributor well, you just

C (20:26)

mentioned the venture capital products. We've been hearing a lot about this idea of getting private assets, especially you know, private equity, private credit, in the hands of retail investors in some fashion, whether through their 401ks or maybe the Target Date Fund inside the 401k. What's your take on that idea of retail investors owning privates?

E (20:52)

So I had a lot of experience working with private assets early in my days working with endowment funds and foundations because they were there first, right? They all had 30 to 40% of their money in hedge funds and private equity and venture capital. And I got to see how that worked firsthand. I was an analyst who had to track these things and do all the capital calls and the distributions and how much money's gone in, how much money's gone out. And operationally it's very challenging. So I actually think if you wanted to do it somewhere, doing it in a Target Date fund where a manager is doing it for you and it's a long term holding, probably makes sense if you really wanted to. But I think what the whole private credit stuff of the last few months has shown us is that the asset liability mismatch is really, really large, even for financial advisors and their clients. And the first sign of trouble, they wanted to get out and they gave them a little liquidity and people decided to take it. And I think that's the problem with introducing this to people who might not understand how that illiquidity risk works. And the fact that you do really have to tie your money up for seven, 10, maybe 12 or 15 years and you might not even know how well the fund is performing in the meantime because it's getting up and it's getting invested and the marks are often stale. And so I really don't think, I don't think it's a great idea for retail investors and their 401ks to invest in this stuff. I think again, there's even financial advisors and their clients who don't have a great understanding and don't set the right expectations for this. I just think that not only is the illiquidity risk hard for people to wrap their mind around, it's just the education component. It's a huge Hurdle to get over.

D (22:28)

Ben, I want to shift gears and talk a little bit about inflation. We're sitting here in a moment where in the U.S. retail gas prices are sitting at near all time highs. We're experiencing this, I think, the most prominent and acute way we can as consumers. Want to ask you, as you allude to in the book, why people tend to be maybe more upset about periods like this when they're experiencing inflation than they are when they might get commensurate, if not greater, increases in their pay. What do you think explains that?

E (23:09)

I really wanted to look into this because it had been so long since we had inflation that I think even I underestimated the psychological impact of inflation when it hit this decade. People just hadn't had it to think about that high inflation or that kind of spike in forever since the 70s. And for a lot of people this is the first time. And the psychology of it is really interesting to me because as you know, like wages tend to rise kind of in concert with inflation when it rises, you know, collectively, not for everyone, obviously, but if you look at when the high wage periods tend to take place in the decades, it tends to be when, when inflation is higher. Because wages are kind of one of the things that push it up, right? One person's wage is another person's buying power. And it's interesting because I think we saw that this decade where people would see their wages rise and they would think, that's me, I did that, right? My hard work did that. Then the prices rise and they say, no, wait, that's the government, that's someone else, they did this. And I think that psychology, and it's also almost like this loss aversion thing. And I told the story in the book about this egg study that was done and they showed Econ 101 would tell you that when prices rise and inflation is higher, people should see their demand fall. And then when prices fall, they should see their demand rise and it should be by an equal amount. But what they found is that when the prices rose, the demand fell by twice as much as the demand rose when prices fell. And so the inflation had a way greater impact on people's psychology. And I just think from a sentiment perspective, I think it explains a lot about what's going on this decade and why people, even though the economy and the stock market have remained resilient, why people have kind of just not liked this economy because that one time huge rise in prices really caused a behavioral change in a lot of people in terms of how they thought about the money.

C (24:53)

Your point earlier about health decisions happening with more frequency makes me wonder if that's part of what's going on here too. That, like, I'm consuming and buying stuff a lot more than I'm getting my paycheck quietly deposited in my bank account. You know, it's those consumer decisions where I'm experiencing inflation are just a lot more frequent than I engage with my paycheck or what my pay is. Do you think that that might be part of the issue too?

E (25:18)

Yeah, that's a good point. Because even if you look at people's net worth, like we've seen perhaps the biggest concerted boom in stock prices and housing prices ever this decade, right. Housing prices are up 50% and the stock market has boomed. And so if you look at a net worth basis, people have seen their net worth if they invested in financial assets. And you know, most people in this country are, they've seen a huge rise. But then they go to the restaurant, they say, geez, this used to cost $15 and not cost 22. Can you believe that? A sandwich, really? And you're right, the more often you interact with this stuff, the easier it is to become, you know, affected by it. And maybe your portfolio, you're not, you're not, you don't have to interact with it on a daily basis as much as it does when you go out to buy something from the store or go to a restaurant or buy a beer or whatever it is.

D (26:04)

And we love the fact that our house is worth more and hate the fact that we're paying 22 bucks for a chicken sandwich. Yeah.

E (26:09)

Yes, exactly.

D (26:11)

I'm curious from a portfolio perspective, Ben, what your take is on the best ways that investors might protect their portfolios against inflation.

E (26:22)

Yeah, I mean, really, it gets down to like, the whole reason for investing in the first place for a lot of people, I think, is you're trying to either keep up with or improve your standard of living like that. That's the reason to invest. I think the number is a 3% inflation rate will cut the value of a dollar in half in 23 years. If it's 4% inflation rate, it'll cut your money in half in 17 years. So the whole point of investing is you're trying to buy these assets that will compound at a rate greater than inflation. And that's where the stock market obviously comes in. But that tends to be more of a long term inflation hedge over the short term. The stock market doesn't always like inflation, as we saw in 2022, when you had the big spike and rates rose, stocks did pretty poorly. And we've seen that over the short term, if inflation is high, and I call that 5% or higher, or it's rising from one year to the next, I found that average returns are way lower. So stock market is more of a, like a long term hedge. Right. And I think the hard one for most people is in inflationary period, your household budget and your personal finances are probably going to matter more than your portfolio is. You mentioned the getting mad about stuff. So I think really it's about making yourself indispensable at a job and finding ways to increase your income. Right. I think that's a big part of it. And it's also getting the big spending things right. If you look at the collective budget of all Americans, like the BLS looks at this data, how people spend their money, 50% of it comes between housing and transportation. So I think it's 35% goes to housing, 15% goes to transportation. If you get those two big spending areas right, you're going to be a much better place than you are if you get them wrong.

C (27:57)

What are some ways to think about getting those two big line items in my household budget? Right. My housing costs and my transport costs.

E (28:06)

Yeah. Unfortunately, this decade, a lot of it has been kind of luck and timing. Right. If you were able to buy a house before 2020 and you refinance into a 3% mortgage, that's one of the reasons so many people tended to do a lot better coming out of this. Right. Because they had already locked in those low rates and they locked in a potentially low payment. So some of it is unfortunately just luck. But I think it's, you know, I think a lot of people are trying to figure out what's enough house for me these days and how much do I really need. And I think those types of questions, not overspending on them, car prices for inflation are up a lot this decade as well. And so it comes down to, you know, do you need that new luxury vehicle if it's going to make a huge dent in your budget? Those are the big things that matter more than, you know, how much you go to Starbucks or how often you go out to eat or something like that. The big, huge purchases are going to have a big say down the line and how much you can spend and how much you can save.

D (29:01)

Yeah. It's not the latte, it's the Lexus.

E (29:04)

Yeah. Right. And, yeah. And it's, and it's the house too.

D (29:07)

Yeah. Ben, I want to talk a little bit about your take and your assessment of different flavors of bear markets in equity markets. And you kind of split those largely into two, those that are brought on by recessionary periods and the economies and those that happen in the absence of a recession. Why do you think the former, those that have coincided with a recession tend to be much more acute, much worse than the latter category?

E (29:42)

It's interesting because 2022 really was a textbook non recessionary bear market. And they tend to be, they don't go down as much, the magnitude is much lower, and then they don't last as long. Right. The recessionary ones last as long. And I think that's one of the interesting things about the current environment of not having experienced that is that it is a different thing. And that's why I think people are kind of lulled into the sense of complacency now, because it doesn't last as long. And obviously during a recession you start seeing people lose their jobs, even if it's not you. You see your neighbors lose their job or a colleague that you work with or your peers. I think it can dictate your risk appetite a little bit like, oh my gosh, is this going to get better? Is this going to get way worse from here? And people lose their jobs and companies go out of business and people rein in their spending. And I think that's one of the main differences is it's easier for people to kind of freak out when you have these types of recessionary bear markets. And you know, we really haven't had one since the great financial crisis, which is kind of hard to believe. As worried as people have been about the economy. The last real recession was from 2007 to 2009. Now you can't obviously expect that to happen every time. It could be just a little run of the mill recession the next time it happens too. But again, those times do tend to see bigger drawdowns and they last a little longer from peak to trough and getting back to new highs as well.

C (31:03)

So you just referenced that 2022 period which was so interesting because everyone thought that a recession was close at hand. We saw the yield curve inverting and it seemed like it was definitely going to happen and then it didn't. So can you talk about, and you talk about it in the book, this idea of trying to forecast a recession, how hard that is, or maybe trying to forecast the next leg of the economic cycle. Can you discuss why you think that's folly for investors?

E (31:36)

So it's interesting because I mentioned how much better things are for individual investors. If you're an economic person. The amount of data available at your fingertips now is greater than ever. It's not just the data from the government, but you can slice and dice this stuff in a million ways. If you get the inflation data, you can look at all different 90 components, whatever that make up for it and look on an individual basis and how it's impacting certain households in different parts of the country. And there are so many intelligent people who are following the economy now. And it's funny because I think it's probably never been harder for them to guess what's going to happen next. And I guess watching enough of those people who are way smarter than me about the economy try to predict it and see them fail has really driven home the point that it's really impossible to do. And the thing is, even if you knew ahead of time when the next recession was going to start, I don't know that you could actually profit from it in terms of the timing because as I show in the book, the timing of the recession itself doesn't always lock up with the timing of the stock market drawdown. A lot of times the stock market is forward looking and it bottoms way before the recession is over and it goes into the correction before anyone knows that recession actually began. So I think that's the hard part is trying to forecast it and use it as a timing indicator. I think that's nearly impossible to do, especially with consistency.

D (32:46)

Are there any options at all, Ben? So I think when we see how investors respond in these environments, they respond, you know, often based on sort of their like you know, pre modern man like lizard brains and less so on that like level two that Danny Kahneman so famously wrote about or any like asset classes, strategies, tactics that you think investors can use reliably to maybe at a minimum just take some of the sting out of these periods in the market with respect to how their portfolio is positioned.

E (33:24)

It's funny. The most boring one that I think a lot of people have been reminded of this decade is how helpful cash can be. And just when I say cash, I'm talking about T bills or a money market or a high yield savings account, something like that, because I think a lot of investors were caught off guard by the fact that the bond market got hit so bad in 2022 when rates rose. And even though cash is a long term drag on your returns because it has a hard time more or less for the long term, kind of keeps up with inflation, the stock market crushes ownership and T bills over the long term, obviously, but over the short term, cash can actually help in an inflationary environment, it can help from a liquidity perspective. And so I think that piece of the portfolio, especially as a lot of people are reaching retirement age, I think people are realizing the benefit of having cash because people are worried about sequence of return risk and how to withdraw money from their portfolio. And what if there's a bear market when I retire? And the simple answer for most people is to hold a few years worth of cash in your accounts to see you through any disruption. So I think cash actually has gained more groundswell as a portfolio option this decade, which is kind of funny considering we're in a bull market.

D (34:36)

How do you think about, Ben, the benefit of those cash holdings? I think you've eloquently described the mathematical benefit, but what are the psychological benefits that come with that, too?

E (34:47)

Yeah, it's just a fallback. And for a lot of people, it could be something of a portfolio barbell. Right. Where you have risk on one end in stocks, and then you have just kind of zero risk on the other side in cash. When I say zero risk, I'm talking about from a volatility perspective. Obviously, there is some risk there because you're not growing your money. But I do think it's the sleep at night part of your portfolio and the margin of safety. And obviously that margin of safety differs from different investors. Some people are happy with one or two years worth of spending money in cash. For others it could be six to three months, and for others it could be four or five years. So it really depends on how you know what your appetite for risk is. But I think just having that margin of safety built in gives people the ability to leave the rest of their portfolio alone and take more risk and be happy with that and okay with the volatility on the other side of things.

C (35:37)

One thing I've experienced in talking to other people who work in this industry is that it's sort of the most common do as I say, not as I do thing that many people I know in this industry do hold a lot of cash, even though the math very much argues against it for exactly the reasons you just talked about, Ben.

E (35:57)

Yeah, I do think, especially if you work in this industry, you probably already have a lot of your livelihood tied to the stock market in a lot of ways. And so I've seen that with wealth managers as well, because they think the growth of their business is kind of predicated on the stock market growing. And if that falls, that could hurt their business and that could hurt their fees and all these things. So I have heard a lot of wealth managers who have that same feeling and I've even heard people who've thought about having some sort of hedge strategy for their business if the stock market were to go into a prolonged bear market because they want to have an offset to it in some way.

D (36:31)

Ben, I want to talk a minute about alpha, which is is rare and elusive, but maybe a different flavor of alpha which you've written about in the past, which is tax alpha. I think this is an area increasingly where we're seeing a lot of advisors make real meaningful inroads with their clients to try to deliver better after tax outcomes for them by pulling a variety of different levers. I'm curious in your day to day and you're working with your clients at Ritholtz Wealth Management, how is that coming to life and where are you seeing the most traction?

E (37:09)

Yeah, it's interesting because obviously a lot of investors have given up on the idea of market alpha, at least with the majority of their portfolio. They said, you know what, I understand the benefits of index funds, the lower cost, the tax efficiency, the fact that it's seemingly becoming harder and harder to outperform the market. But I want to add value elsewhere. And one of the interesting things about tax alpha from my perspective working in the wealth management field is that clients are now coming to us and asking for it. It's not like we have to go to them and give them these solutions. People are saying, hey, I know that there are ways to do this. And after living through a bull market, we have clients come to us and they'll say, hey, I have stock options in Google because I work there, it's 90% of my net worth. I know I need to diversify, but I also don't want to just rip the band aid off and sell. Can you help me sell down in a more tax efficient manner and diversify my portfolio? Or I put money in Nvidia seven years ago and it's worth way more than it was, but help me diversify so I don't lose it all, but also make the tax bill easier to withstand. So things like tax loss harvesting and I think the fact that fees came down and direct in custom indexing are now more prevalent in the wealth management space. There's a lot more options for the tax side of things. And again, I think clients are now looking for that. They know that it's not the gross return that matters. It's the net return after fees, after taxes. And what do I actually bring home that matters the most? And it's like, help me do this in a very efficient way. And certainly one of the biggest trends that I've seen in the wealth management space in the last five years.

C (38:45)

We had a conversation with Michael Kitces, it's been a couple of years now where he felt like, yes, there is absolutely a lot of value to be added with various tax strategies, but he felt that they were being kind of grossly oversold in terms of the dollar benefit or the percentage benefit to a portfolio. What's your take on that pushback? Do you think that they have been perhaps a little bit overhyped in some circles?

E (39:10)

Well, I certainly think you can't just use it as a blanket strategy for everyone. For most people there has to be a good reason for it. So for a lot of our clients it's hey, I just sold a business, I have this huge gain or I just sold some real estate, I'm sitting on a massive capital gains tax. Again, I have these low cost basis positions, I need to get out of them, I want to sell. So you're right, the benefits for people who just have a portfolio and they don't have these big one off items, I don't think it has as much value as it does for someone who has an actual reason. So I think that's why the advisor has to know when it makes sense and when it doesn't. Because as you know, there's these long, short strategies now that really can even ramp it up even more. But that also ramps up the complexity and you have to kind of balance those and understand am I doing this just for the sake of trying to look better, or am I doing this because the client has an actual tax liability that I can help them with? So you have to use it for clients who actually need it. You can't just use it for everyone because for everyone you're adding a layer of complexity and you might not be helping them and adding as much value as you think.

D (40:13)

Ben, I want to switch gears a bit and ask you a bit about just how you manage your time. You're seemingly everywhere these days hosting podcasts or being guests on podcast, including this one. Writing your blog, A Wealth of Common Sense. You've got your book, obviously that's just come out. And this is all in addition to your day to day responsibilities at Ritholtz Wealth Management. Curious if you have any like best practices time management tips to share And I'm very clearly asking for a friend here.

E (40:51)

This is probably the question I get asked more than any other is like, how do you guys have time to do this? One of the big reasons that like the Josh and Michael and I have time to do a lot of the content stuff at our firm is because we have a great group of people work with us. We have client facing advisors and operations people and traders and such that are kind of working behind the scenes that aren't producing the content. So that, that's a big one. I think one of the secrets is that I really just enjoy this. And I never really enjoyed the process of writing like when I was in school. And it wasn't until I found like the market and the behavioral psychology is my muse that I liked writing and. And I find that writing and communicating not only helps me personally learn more, but it helps me communicate better with clients as well. So I do a lot of our internal client communication. So we do a recorded video once every quarter and I write a lot of the client letters. And I found that doing it more often actually makes it easier. It's almost like a muscle where the more you do it, the better you become at it and the easier it becomes. And so I think part of it is I don't know if it's a 10,000 hours thing or what. I also don't. Besides, you know, my kids and their sports and stuff, I don't have a lot of hobbies outside of work. I really enjoy doing this, like reading about it, I like following it and I kind of, you know, I have my head down during the day and I kind of have a routine. And my routine, as far as writing goes is I just like to write a little day, even if it's bad and even no one's going to see it. But yeah, no, I don't have like a great morning routine because I have three kids and trying to get them out the door every morning is my house is full of chaos and it's hectic. And so when I get to the office and my kids aren't there and it's not chaotic and it's not hectic, I make sure I have my head down and I'm getting stuff done.

C (42:32)

I wanted to ask about figuring out what to write about. I recently said to one of my colleagues that sort of the more I know about all this stuff, the less I have to say actually, you know, that it comes down to some fairly straightforward principles that I think spell investment success for most of us. So how do you grapple with that because I think you too are a believer in fairly simple, straightforward principles for investment success. How do you figure out how to put sort of a new spin on maybe one of those time tested concepts?

E (43:04)

Yeah, I certainly don't think you have to reinvent the wheel and try to say new stuff all the time. My favorite saying about this is no one goes to church on Sundays looking for an 11th commandment. They kind of go there for reinforcement of the ten commandments they already know. And I think what you have to do is have sort of a view of the world, a philosophy, a system of principles, how you think the world works or how you think you know, your, your investing principles, and then you apply those to what's going on today. And I think that's kind of how I view it. I'm not trying to like, come up with these unique thoughts all the time. I do a lot of reading and I follow a lot of what others are doing and I think it's helpful and useful to take the work of others and comment on it or use it. And also, yeah, just take my worldview and how I think the markets work and how I think the investing principles work and then apply them to whatever's going on in the moment.

D (43:55)

And where do you find those ideas, Ben? Is it organic? Do you have any, like, go to sources that you like, have come to rely on for inspiration about what to pick up, what to learn more about next?

E (44:11)

I, you know, I read a little. I like to read everything. There's the financial media, there's like substacks and newsletters. I listen to a lot of podcasts. I still do find value in reading books because I think a lot of that is just effort, green stuff that's not going to go away. So I just like to have a wide range of sources and that could be also things outside of the markets. Reading a lot about, you know, psychology and history and better understanding, you know, things that you can tie into the markets. I, I think one of the best ways to explain the markets that I've tried to do over the years is just using stories, analogies about stuff that's not in the markets. Right. I think the better you can do that. And there's so many different ways I feel like, I feel like I'm constantly thinking of ways to tie in what I'm reading and thinking about and paying attention to into the, the markets. And maybe that's just my brain is just so, you know, relying on markets and thinking about it. But I, I constantly think of ways to relay other parts of the world and other research and sources into what's going on in the markets. Because I think, you know, I think the markets are just this big laboratory for human behavior and studying it. And that's one of the reasons that I find it so fascinating. And there's all these other ways that your behavior is impacted in other ways in the world. And I think tying those into the markets is how I kind of try to better explain what's going on.

D (45:25)

Yeah, I always think back to and this is a now very dated Saturday Night Live sketch, Ben. But Phil Hartman is Charlton Heston in soylink green. And Soy Link Green is made of people and markets at the end of the day, like Soy Link green, just not just made of people and reflective of all of our best and worst traits at the end of the day.

E (45:47)

Yeah, it really isn't. And yeah, big Phil Harmon fan here too. So that's a good one.

C (45:52)

So in terms of the books you've read recently, what's one that really stands out? One or two?

E (45:58)

Okay, Dan Wang, his book about China I thought was fascinating because that's just an area of the world that I don't understand as much as I do with the U.S. it's funny, I haven't been reading as many like finance books, but I just did read the History of Money, which is by David McWilliams, and it kind of goes through the history of the world and it shows the importance of money and currency and investing and how it really built innovation. And his whole point was just that where did innovation come from and why did we go through all these years where there was no economic growth and finding that there was some and part of it was just high incentives to everything. And I think the idea of understanding incentives is really helpful. And I'm also an audiobook convert now, so I'm listening to a lot of books, which is easier these days with AirPods and such.

D (46:42)

Ben, thank you so much for your time today. Really excited for others to be able to discover and pick up your book and always a pleasure to spend time with you.

E (46:54)

Thank you both. I appreciate the time.

C (46:56)

Thanks so much. Ben, Thank you for joining us on the Longview. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you get your podcasts. You can follow me on social media, hristinebenz on LinkedIn or ChristineBenz on X&@BenJohnson,

D (47:22)

CFA on LinkedIn or @mstar.

C (47:24)

Benjamin George Cassidy is Our engineer for the podcast, Jessica Bebel, produces the show notes each week and Jennifer Garrett copy edits our transcripts. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us@thelongvieworningstar.com until next time. Thanks for joining us.

B (47:49)

This recording is for informational purpose only and should not be considered investment advice. Opinions expressed are as of the date of recording and are subject to change without notice. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. And its affiliates, which together we refer to as Morningstar. Morningstar is not affiliated with guests or their business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy or the completeness of the data presentation presented herein. This recording is for informational purposes only and the information, data analysis or opinion it includes or their use should not be considered investment or tax advice and therefore is not an offer to buy or sell a security. Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analyses or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile. Before making any investment decision. Please consult a tax and or financial professional for advice specific to your individual. MorningStar Investment Management, LLC is a registered investment advisor and subsidiary of Morningstar, Inc. The Morningstar name and logo are registered

E (49:18)

marks of Morningstar Incident Sam.