Podcast #105- How to Think About Money- Interview with Jonathan Clements

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this is white coat investor podcast

number 105 how to think about money with

Jonathan Clements Creighton University

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when an investor focuses on short-term

investments he or she is observing the

variability of the portfolio not the

returns in short being fooled by

randomness thanks so much for what you

do the work you do each day is not easy

I don't know sometimes it's difficult to

drag yourself out of bed to go and to do

it especially when the ER calls you at 3

o'clock in the morning to come do it so

thank you very much for what you're

doing I know sometimes we don't get

thanked very often by those we actually

serve and so it's good to hear it every

now and then it's not an easy career and

I'm aware of that be sure you check out

our new white coat investor network

member the physician philosopher that

can be found at the physician

philosopher comm it's a new blog in our

network he's also written a book so

check that out as well the physician

philosophers guide to finance we have a

very special guest today we have

Jonathan Clements on the podcast who I'm

excited about Jonathan is a previous

Wall Street Journal columnist the

blogger behind humble dollar calm and

the author of eight books seven

financial books and a novel including

one of my all-time favorites how to

think about money he was also a faculty

member of the 2018 physician wellness

and financial literacy conference let's

bring him on now all right welcome to

the show Jonathan

hey it's great to be with you Jim let's

launch right into our questions today

let's start at the beginning can you

tell us about your upbringing and how

that shaped your views on money well I

think there are two things about my

upbringing that really influenced how I

think about money first of all there is

what I always referred to as the great

family story I think we learn a lot

about money from the family stories we

hear growing up and in the case of my

family there was a doozy my mother's

father my maternal grandfather inherited

the equivalent today of millions and

millions of dollars he he was to the

manor born as they say and he and his

four siblings inherited this huge sum of

money in the early 1950s and my

grandfather's four siblings blew the

money in short order I mean literally

within a couple of years they were broke

it took my grandfather somewhat longer

to blow the money instead of spending on

our own wine women and song he spent it

on farming but it was gentlemen farming

he never made any money instead he

started with big farms he ran through

his cash he traded down to smaller farms

freed up some capital that allowed him

to go on for a few years longer and so

this went on until the farms got too

small at which point he retired I grew

up hearing the story of how the great

family fortune had been frittered away

and it had a huge impact on how I think

financially and also on my three

siblings I mean we're all very different

the four of us and yet we are all

extraordinarily careful about money and

I think it's because of that great

families story that's so molded the way

we think you know it's interesting it's

such a different story I think than many

of my listeners have a lot of us our

family stories one of poverty and when

you go back to and certainly three

generations and you got people scraping

by on the farm you got people mining you

know like my grandfathers did and you

know it's not a story of any wealth in

the background that's actually a very

unique background I think compared to a

lot of people yeah so there was that one

story about the how the great family


fritter it away and then the other thing

that had a great influence on me was my

early adult is so I came out of

University in England as the kid who

swore that he was never gonna get

married and never gonna have children

within a year getting out of college I

was engaged within two years I was

married and within three years I had my

first child and so I was a 25 year old

father with a wife who was pursuing a

PhD trying to live in New York City on a

junior reporter salary and the lessons I

learned about managing money from

basically living with no money have

influenced me for ever since I mean it

really drove home the importance of

managing costs and being frugal and I

think that together with that great

family story is what has caused me to be

so careful about money over the years

and then that result was because of that

of being so careful

you know I essentially been in position

where I haven't had to work since my

early 50s and it's it's been a a

wonderful few years for me to be able to

essentially explore the world on my own


and I think what's particularly

impressive about that is that you did it

as a journalist right I mean I have so

many doctors that are eating hand to

mouth basically and on quite a

substantial income and yet we see people

becoming financially independent all the

time on much lower incomes just through

careful management well Jim you couldn't

give me too much credit because you know

one I did a number of books over the

years while I was a journalist and every

one of those advances I got for those

books went straight into savings so that

money didn't get fretted away and then I

did spend six years working on Wall

Street after I left the Wall Street

Journal as my friends will tell you I

went over to the dark side I spent six

years at Citigroup as their director of

financial education for the US wealth

management business and for those six

years I was ridiculously well paid and

again you know I saved as much of that

money as I could

fair enough to be sure that's definitely

a higher income than a typical

journalists income but the money hit

prepared hands and so when the money

you knew what to do with it and I think

that hopefully is the case for a lot of

my listeners that pick up on this in

medical school or residency that when

the big money comes as an attending

physician their hands are ready to

receive it and they know what to do with


absolutely and I think one of the things

that is crucial to make sure that you

actually use that money properly is one

knowledge obviously you need to know

what you're doing but two is you need to

have the capacity to save and what I

mean by that is you need to have your

monthly fixed costs at such a level that

when you get the big paychecks you can

save as much of that as possible if if

you come out of residency you buy the

big house you lease the expensive cars

and suddenly you're you know you've got

these high fixed monthly costs there's

no way you're gonna be able to save even

if you have a desire to do so so you

need to keep your costs extremely low

and throughout my time in journalism and

at Citigroup you know I had a relatively

modest home in New Jersey which is where

I raised my kids you know my property

taxes were low I had got the mortgage

paid off very quickly and that meant

that when I got my paycheck I was able

to save a substantial portion of it now

I think that despite your books despite

your time on Wall Street you're probably

most well known for that personal

finance column you wrote at the journal

what was that like to be a journalist at

The Wall Street Journal what was the

best part in the worst part I can't

really speak to what it's like at The

Wall Street Journal today but I have to

tell you in the almost 20 years that I

was at The Wall Street Journal

during those years it was an incredible

institution I mean super ethical and the

senior management were you know

extremely kind they sort of I got a huge

amount of freedom you know great

responsibility I mean it was just a

wonderful wonderful place to work and I

really feel that I was privileged to be

there for those years I couldn't speak

as I said to what it's like at The Wall

Street Journal today but in that time it

was a great place to be

and I spent you know most of that time

as a columnist for The Wall Street

Journal I was given a column when I was


young age of 31 I mean I was it was a

ridiculous they had a column at such a

young age and you know the freedom was

extraordinary but it also towards the

end became a bit of a burden I mean as

you know from you know running the white

coat investor you know those deadlines

come up relentlessly and you have to say

okay what am I gonna say this week or

for a period of time I was ready to

columns a week it's like okay what am I

gonna say what am I gonna say

and as I've joked many times you'd be

there basically only 20 personal finance

stories which meant by you know the time

I quit the journal I'd written each of

those 20 stories 50 times each yeah it's

amazing talent to be able to say the

same thing over and over again different

words isn't it and the real trick is to

make sure that nobody notices right you

know there's a there's so much truth to

that in any any of this business where

you're trying to teach others how to be

wise about their money if you don't go

after the fluffy stuff that doesn't

matter there isn't that much to say and

eventually you've said it all it's

absolutely true and and it really speaks

to this notion that you're investing

really is super simple I mean you people

make it way too complicated all the time

but in truth it is super simple by

diversified portfolio of stock and bond

index funds save regularly try not to

trade too much and so and you do all

that and you will end up amassing

significant amounts of wealth the

problem is while it's simple it is not

easy and that's where the repetition

does help hearing that same message

again again yes you should be

diversified yes you should be holding

down costs yes you should be indexing

yes you should be saving diligently

every month we need to hear those

messages again and again because if we

don't we're very likely to stray from

the course yeah it's like Rick Perry

says you got to keep telling the truth

about indexing over and over because so

many lies are being told about it that's

true so a couple related questions from

your time at the journal why'd you

decide to leave and what's it like to

see someone else filling that position

well let me take me this second part of

the question first so when I left the

journal I recommended that they may hire

Jason's wife to take my spot not many

people know this but Jason and I worked

together in the late 1980s at Forbes

magazine I was hired by Forbes magazine

as a what they called a reporter which

was a just a glorified fact checker in

late 1986 and Jason was the next hire

afterwards and in fact there was a

period of time when Jason myself and

another guy called ed Gill tennen we

would have lunch together almost every

day I was significantly heavier in those

days we would go out we would find the

cheap restaurants in Greenwich Village

where you they would have to know $5 our

lunch specials so I had known Jason for

years and years and I was really

thrilled to have him take my spot I I'll

tell it tell anybody who'll listen that

yeah I think Jason is far smarter than

and I certainly far better read and in

fact if Jason hadn't ended up as a

journalist he would have made a great

academic I mean he is just you know so

so smart I mean you can't help but talk

to Jason and come away impressed in

terms of why I left in 2008

it was because I I was suffering some

level of burnout I had sort of cost

around for something else to do and I

came close to taking a couple of

different positions and they didn't work

out and then Citigroup came calling and

saying you know we're launching this

start-up within Citigroup where we're

gonna try to provide advice to everyday

Americans in return for a flat monthly

fee we're gonna help people with their

entire financial lives we are gonna be

heavily focused on index funds I mean it

was all stuff that I believed in I had

been looking for a position outside a

journal so I I signed on but what I

quickly learned was the notion of having

a start-up within a large corporation is

pretty much an oxymoron large

corporations are not able to innovate it

was just

a total mess I'd be trying to build

something novel inside Citigroup was a

ridiculous undertaking and it was made

that much harder by the Great Recession

which hit just about that time and

within within a year the startup was

dead and I ended up being part of the

mainstream of Citigroup for another five

years until I just got sick of dealing

with the lawyers and the compliance

people and I realized they had enough

money so I decided I'd go off and do my

own thing that's the fun thing about

knowing how much is enough that you

don't end up spending any more time than

you have to let's talk a little bit

about your latest book title from here

to financial happiness it's written in a

different format than the others it's

subtitled enrich your life in just 77

days and is split into 77 very short

chapters I've called it a bathroom book

or a toilet book not because it should

be thrown in the toilet but because the

chapter lanes seem to be just the

perfect length for a trip to the

restroom why'd you choose that format

who are you trying to reach with this

book the book really pulled together a

variety of threads that I've been

thinking about one is I started work on

a book where I was thinking about

questions that we should be asking

ourselves about our financial lives in

order to elicit the answers that will

help us to get the most out of our

financial lives and out of the dollars

that we have and also make sure do we do

what we need to do into gara financial

lives pointed in the right direction so

I had this series of questions that I

had been thinking about I had also been

thinking about putting together a

step-by-step guide on how to build a

more meaningful financial life and then

as you probably know from from Twitter

Jim you know I have this series of daily

insights that I been putting out for a

couple of years and so I had those I was

thinking what should I do a book just

composed of those daily insights and

occurred to me one day my book you know

befuddled brain that maybe I could put

this all together and and that's how I

ended up with from here to financial

happiness and I think what's most

distinctive about the book beyond

providing those 77 steps

is throughout the book I'm trying to

help readers make the connection between

their money and the rest of their lives

I mean money is just a tool it's

something that we use to try to make our

time on this earth better and yet for

thought to many people I think money not

only gets wasted but it actually becomes

a bird and you know we look at the

surveys with you know people money is a

source of misery for so many people you

talk to marriage counselors you know

money is the number one thing that

people talk about money as much as we

prize it in this society is the source

of so much distress and yet it doesn't

have to be that way if you're smart

about how you use your money no matter

how much money you have you can get so

much greater happiness out of it but to

do so you have to resist your impulses

resist this notion that you know with

the snap of your fingers what you should

be doing financially and instead pause

and think about how best to use your

dollars to improve your life and if you

do that I do honestly believe that money

can buy happiness that is seriously

profound you know it's interesting some

people say if you don't think money can

buy happiness maybe you just don't know

where to shop but there are certainly

are some ways in which you can use money

to increase your happiness and I think

that's a big theme throughout all your

writing let's talk about some of your

other books

I mean you've now written seven or eight

books including the novel which one of

your books is your favorite and which

one sells the best so the book that I'm

most fond of is the previous one how to

think about money and I think it's

because it pulls together not only some

of the financial insights I picked up

over the past three decades but also

some of the more philosophical thoughts

that I've that I've had about how to use

money to create a a better happier born

rich life and so that little book and it

is it's it's really it's sure

it's only 40 thousand words or 41

thousand words it's in many ways my

favorite book and I think for a lot of

readers it's become my signature book

people you know that book sells you know

month after month I still get emails on

a regular basis from readers who found

it super helpful and thinking about

their own financial lives and indeed you

know I thought that I would actually

like to go back and maybe even revise it

further and you know dwell a little bit

more on some of the philosophical

underpinnings of how we should think

about money yeah that's my favorite book

too for sure in fact it was a pleasure

to buy that for all the attendees at the

conference last March and be able to

send them all home with that in their

pocket interesting that the one you like

the best is also the one that sells the

best I'm not sure that's what usually

happens to authors oh as you know maybe

you don't know Jim because your book

sells so well but you're the the

personal finance space is a difficult

space to sell books in a publishing

generally is it's not as easy a way to

make money as it once was

so it's hard to get sales of books and

and often you know even well written

books to not find the audience they

deserve in that one case though how to

think about money you know I do indeed I

have indeed seem to find my my audience

and partly I have to say I should thank

financial advisers for it I mean we you

know in this of the blogosphere are

often critical of financial advisors and

feel like more people should do it on

your own the fact is there are a

contingent of financial advisors out

there who do a great job for their

clients there they appreciate the

virtues of indexing they focused not

just on building portfolios but also

helping people with their entire

financial lives and they are focused on

these issues like how do you have a more

meaningful life using your dollars and

those financial advisors have actually

become a big audience for my book I know

number of financial advisors who just

regular come and buy 20 or 30 copies of

the book and then give it out to new

clients and you know I appreciate that

they are helping to spread the message


so wonderful to see them do that I've

had some advisers do that with my book

as well I think books are a great way to

learn personal finance and investing

because the important principles really

are timeless you don't need something

that's absolutely up-to-date to learn

this stuff and on that note let's talk

about some other books not mine not

yours but what are your three favorite

financial books that you didn't write so

I guess I would mention three books and

this is a bit of a idiosyncratic list

but three books that I would mention is

one there was a book by Terry Burnham

and Jay Phelan called mean genes and

it's a great read it's very entertaining

it's not just about money it touches on

a whole host of other topics but what it

is is the lay persons introduction to

evolutionary psychology and talks about

you know how the hard wiring that we

still have from our hunter-gatherer

ancestors influences the choices that we

make today and if you're looking for a

book that's on yeah a relatively

technical subject but is super

entertaining I would highly recommend

mean jeans

it was my introduction to the subject

and it's really it's sort of turned me

on to even retreat psychology and its

importance in thinking not just about

money but also about our entire approach

to life

second I put in a plug for winning the

losers game by Charlie Ellis Charlie

Ellis I would have to say it's a friend

of mine I mean he's he lives up in New

Haven Connecticut which is where my son

is currently getting his PhD at Yale so

I see Charlie thely often and one of the

reasons I love to see Charlie it's not

only is he super gentlemanly and a

delight to talk to but he's been kicking

around this business for decades and

indeed one of the most influential

investing books that I read in the 1980s

when I first starting out was this thin

little book it's only 100 pages it was

called investment policy written by

Charlie and later investment policy was

republished under the

I'll catch your name you know winning

the losers game and it's still a great

read and a great introduction to invest

in him why you should seriously consider

indexing rather than trying to beat the

market and the third book it again it's

more because it's you know it's both

entertaining and offers great insights

is the classic French red book

where are the customers yachts and even

though it was written decades and

decades ago what you learn about Wall

Street from reading that book is still

the way Wall Street is today I mean it's

still a place where you know people are

relentlessly putting themselves first at

your expense so if you want to know what

Wall Street is like today go back and

read Fred Fred's book where the

customers yachts it's it's it's a great

great read ya know I really like

Charlie's book and his I think the most

famous example that's come from his

writing has been the idea of investing

as amateur tennis is it wasn't that his

idea originally yeah that's it's very

early on in the book he talks about how

you know if you're an amateur tennis

player you know you should try to win

the game what you should try to do is

avoid losing and I would probably be a

much better tennis player if I followed

that advice yeah I think that's totally

true is certainly true at tennis and I

think it's probably true with investing

as well let's talk a little bit about

humble dollar your blog why'd you start

humble dollar what do you hope to

accomplish there and what's its message

and I've noticed you have a fair amount

of guest posters there and I'm curious

how you choose them so what humble

dollar has turned into is not what I

originally set out to build for a couple

years I put out this annual money guide

and at the time and I'm sure you can

appreciate this Jim I was very taken

with self-publishing through Amazon

particularly the speed with which you

can bring something to market so I had

done my novel which I'd self-published

I'd learned how the Amazon platform work

and having done that I realized that you

can finish a book today and have it

available for sale tomorrow and that's

an extraordinary thing I mean if you go

to a traditional publisher the lead time

is months you know but here I realize

you could finish a book on December 31st

and have it available for sale on

January 1st and that's when the light

bulb went off and said hey what I do an

annually updated money guide and that

was actually the project I left

Citigroup in order to devote myself to

so I created this money guide which

covered every financial topic

conceivable and I put out two annual

additions and it worked just as I

described I would wrap up the book on

December 31st there was no champagne for

me it was literally like the markets

closed and I started updating all the

numbers in the book I would submit the

the publication files to Amazon and the

next day they would be available for


it was completely cool but what I

realized was in many ways it was also

not so cool because the book was only up

to date one day a year so while it was

completely up to the under January 1 by

January 2nd it was a little bit out of

date in January 3rd more so and it's

like this is ridiculous

and so what I did was I took all the

bulk which I'd been charging and I said

okay I'm gonna put it on this website

but I don't want sweb site to be just

about Jonathan Clements

I already did have the URL Jonathan

Clements calm I said I'm gonna have put

it on some URL that you know is not

about me personally as that's how I came

up with humble dollar so the idea was

put this money guy on humble dollar

column make it freely available update

it throughout the year and you know give

this sort of resource to people you know

at this point I feel like I've been

extraordinarily lucky and I wanted to

some sense give back and the only way I

know to give back is to try and share

the knowledge that I've built up over

the years so that was the idea behind

humble dollar but in launching the site

I thought okay you know what I'll blog

every so often

and then I started using guest bloggers

and in many ways you know the bloggers

were getting much more notice than the

money guide itself and now the site is

running a blog every single day one time

a week it's by me but the other time

it's by these guest bloggers and so the

site has gone from being just a place

where I was gonna feature the money guy

it's really being a living breathing

daily updated website that tries to help

people learn about money and it's chews

up massive about since my time Jim I

mean it's ridiculously like I tell

people I'm semi-retired and I must you

know I walk ten hours you know every

weekday on it and at least three or four

hours every day of the weekend

yeah I'm familiar that's a good segue

into my next question tell me how you

view work at this stage in your life I

mean you're you're retired you're

financially independent and yet you're

working you just told us you know 60

hours a week almost what does work mean

in your life well this goes back to

talking about that that book I mentioned

mean jeans by Terry Burnham and J Phelan

you know about the influence of our

hunter-gatherer ancestors on the way we

think today I mean we are not built to

relax we're not built to sit around line

on the couch watching TV we are built to

strive the reason we are here today is

because our hunter-gatherer ancestors

were relentless in their pursuit of

survival and that impetus is still with

us I mean we every day we want to feel

like we're making progress I mean that

is happiness feeling like we're somehow

you know moving the ball forward we get

so much more satisfaction from that than

from lying on the couch and you know

eating cheese doodles and drinking

margaritas and you know I hope for as

you know as many years I have left that

I'm going to be able to spend those days


and you know my one trick it may not be

a great trick but my one trick is to is

to write about personal finance and to

make it understandable for everyday

Americans and you know I hope to

continue performing that trick every day

for the rest of my life you know it

sounds like John Bogle talking there

quite honestly you know I mean he

basically worked until well into his 80s

and and basically that was a huge part

of his life and I think he made more of

an impact after retirement age than he

ever did before retirement age it's it's

pretty impressive that way

yeah well I'm flattered Jim by the

comparison but it's not at all deserved

I mean Jack Jack was a force of nature


you know I had the good fortune to you

know know him for many years and his

energy level was just unbelievable

almost right up until the end I mean he

was an extraordinary man I hope that I

am not quite as driven as Jack is

because you know maybe you know as much

as he enjoyed helping the world maybe

you know he personally would have had a

little bit more peace he wasn't quite so

terrific then maybe true I don't know it

always seemed like he felt like every

day was a gift ever after the heart

transplant you know he just felt like

every day was bonus and so I just wanted

to do as much with it as he could it

seemed like yeah and you know he did

indeed make an extraordinary mark on the

world and it was gratifying to read you

know all the reaction to his death I

mean he really did have a very

meaningful impact on the world the

question is you know you know do we need

somebody else like Jack Bogle to keep

the financial business honest you know I

think back to you know the late 1980s

when I first got got to know jack and I

would go down to Washington DC for the

annual shindig of the mutual fund

industry and you know hang out in the

hangout in the newsroom and there

hanging out in the newsroom was Jack

Bogle because nobody in the mutual fund

business wouldn't have anything to do

with him he was a pariah and yet

because of his relentless energy and

because he had truth on his side you

know in many ways the mutual fund

industry today is Jack Vogel's industry

you know he through you know force of

his character and his ideas his

transform the investment business so

people are highly focused on these they

are you know thinking about tracking

error versus the market they are talking

about you're putting the customer first

even if they often don't do it and

that's Jack's legacy and the question is

you know will is there somebody else out

there who's gonna help to hold you know

the industry's feet to the fire or will

without a person like Jack Bogle around

will they start to backslide yeah I sure

hope it's the former and maybe it's

gonna take multiple people I don't know

that any one person can fill those shoes

that's true you came out to Park City

last year to speak at the physician

wellness and financial literacy

conference our inaugural conference and

listeners in fact can still catch your

talk by buying the online version of

that conference that talk was very well

received and well rated what do you

think of that experience of coming out

and talking to all these doctors well

the two things about that trip that

stick in my mind Jim

one is I was appalled to discover that I

could no longer ski I you know it had

probably been six or seven years since I

put on a pair of skis and when I came

out to the conference I brought my son

with me and the idea was you know we

would tend part of the conference and go

skiing and you know I got off on the

slope and I just it was almost like a

completely forgotten how to ski it

really was just a horrible reminder of

Bureau of aging and mortality I'm sorry

about that well maybe I should provide

lessons for the for the speakers at the

conference if we do another ski

conference you almost certainly should

that's that you know one of the things

that I talk about with people if you're

gonna manage your money so that you can

have a long and prosperous retirement

you want to make sure your body lost

almost as long right

you know there's no point in smoking two

packs a day and you know retiring with a

seven-figure 401k you know that those

two don't go together so your need to

take care of yourself physically but you

know what you know I see is you know as

I grow older is you know bit by bit you

know these Cisco capabilities get taken

away from you and it's just horrible I

really don't like that part of Aging

it's mmm you know if they say you know

getting old is not for sissies

so that was the downside of the

conference but the upside was you know

meeting the the people who are there and

it's you know despite the reputation the

doctors have for being terrible

investors you know it's rare that you

know I've had the chance to be amongst

so many people who are so clued into

investing so interest in investing can

speak in such an articulate manner about

it it was great from that point of view

it's so wonderful to meet people you

know who understand what managing money

is all about because so often the

discussions we have about money are

completely ridiculous sure yeah so many

people are just boasting about

investment winners not telling you about

their losers so many people are

obsessing over the next purchase that's

really gonna bring them very limited

happiness and to be among a group of

people like you had their impact City

last year who have an intense interest

and intelligent interest in money was

great you know doctors are notorious for

being bad with money you know maybe not

the group we assembled for that

particular conference although they were

a surprising amount of you know newbies

to personal finance in that group and

once you survey them but Doc's are

they're notorious for being terrible

with it why do you think that is I would

imagine it's some pot because doctors do

face you know a unique financial

conundrum they there should they have a

truncated career they often start out

with massive amounts of debt they've

gone through this period of deprivation

where they've you know lived a pseudo

as residents and not only had to walk

obscene hours but you know been paid

relatively little and suddenly they're

in the workforce they're making a decent

income they've got this debt to service

they have a relatively short time until

retirement and they have this pent up

demand and you put it all together and

the risk that you know they're gonna

start making foolish investment mistakes

as well as foolish purchasing decisions

is enormous and you know as you counsel

so often you know the key is to you know

continue to live like a resident it's

pause and not you know make those snap

decisions about purchasing not only the

bigger house and you know the fancier

car but also when it comes to purchasing

investments you just need to restrain

yourself and maybe also on top of this I

should have mentioned its of course you

know if you're a doctor and you're used

to making life-and-death decisions you

know deciding you know whether or not to

buy this stock or you know that

alternative investment may seem like you

know a relatively low-key decision by

contrast and you have the

self-confidence to make those

life-or-death decisions why wouldn't you

have the confidence to decide this is a

better investment than that one yeah

it's interesting that I see errors on

both sides I see both you know the

classic overconfident surgeon that's

sometimes right sometimes wrong and

never in doubt and then I see doctors

who are absolutely paralyzed

you know paralysis by analysis and

leaving money sitting in their checking

account hundreds of thousands of dollars

so it certainly goes both ways with the

confidence unfortunately a lot of people

don't get that message earlier in their

career to live like a resident take care

of business early on and they find

themselves in the second half of their

career kind of embarrassed about the

sorry state of their finances what

advice do you have to those doctors who

have already kind of screwed it up in

the first half of their career well if

anybody can make up for time lost it's

good it's gonna be doctors because they

do have substantial income so if you

look at the twenty highest paid

professions as identified by

the Bureau of Labor Statistics 14 of the

20 are some form of physician you know

doctors do make more than the vast

majority of Americans which means that

even if you screwed it up today if you

can get your living costs low if you

could trade down to a smaller home you

know you can you know get rid of the

least cause and buy used automobiles and

so on suddenly you do have this chance

to save substantial amounts and that in

the end is the key to financial success

despite all the blathering that goes on

on CNBC and in the media in the end

great savings habits are the key to

financial success and if you're late to

the game and you've screwed up until now

what you need to do is to set yourself

up to be a great saver and the way you

do that is to lower those fixed living

costs and then you'll be away and you'll

have an opportunity to save in the way

that most Americans don't you know if

you're a 55 year old middle manager

who's screwed it up to date you're toast

but if you're a 55 year old physician

yeah with a handsome salary if you can

get your cost low then you can save a

substantial sum and you can make up for

lost time that's good advice let's turn

a little bit to some more hardcore

investing topics since the 2012 Jobs Act

the number of available alternative

investments has skyrocketed what role do

you see for these in a portfolio should

investor stick with boring old index

funds should those alternative

investments be for play money only or

does it make sense to allocate a

substantial portion of the portfolio to

them I would argue that most of esters

do not need alternative investments I

mean the reason you buy alternate

investments more than anything is to

provide something that'll do well when

stocks don't but we already have an

asset that we know is gonna perform well

when stocks don't and that is

high-quality bonds if you want great

long-term returns you put your money in

the stock market if you're worried about

what's gonna happen when stocks turn

lower you include some bonds it's as

simple as that

and the easiest way to get those that

exposure is with low-cost index funds so


you capture as much of the markets

return as possible all these other

alternative investments alternatives

other than bonds more often than not

they're too high costs they're overly

complicated and I think people buy them

because they have you know so this

patina sophistication but when we save a

sophistication what it really means is

people don't know what they're buying

how about factor investing what's your

take on that such as Tilton or portfolio

towards small and value stocks so I do

this Jim in my own portfolio I have a

tilt towards small and I have a tilt

towards value and I do that both within

the US and in overseas markets and I

will tell you that even though I've had

these tilts for a substantial period

obviously you know for the last ten

years or so it's been the wrong thing to

do right tilting towards value and

tilting towards small has not benefited

but I do believe that it will over the

long haul but there are no guarantees if

somebody said to me you know do I need

to tilt my portfolio towards small or

value or any of these other factors I

would say absolutely not if you just

want to buy a plain vanilla portfolio

that consists the total US stock market

index fund a total international stock

market index fund and a total US bond

market index fund go for it

knock yourself out that is a great

portfolio it's going to be better than

what 90% of Americans own if you want to

tilt towards value and towards small I

believe over the long haul that that

will add but there are no guarantees and

it does mean that you will go through

long periods like we've seen of late

where your portfolio will do less well

than those who simply have a cap

weighted portfolio that replicates the

global markets yes certainly when large

growth stocks do well you certainly feel

that pain I think particularly the last

two years I've noticed the large growth

has been outdistancing small value by

quite a bit

and I think it takes a real serious


to small and values stick with it

through times like that that's why I

always tell people don't tilt your

portfolio more than you believe that

these are really going to outperform in

the long run because that tracking error

is very real and I think a lot of people

do have trouble with it and end up

bailing out of strategies like that just

at the wrong time just like you end up

buying high and selling low in the stock

market overall yeah well the problem is

the one we say to ourselves the stock

market we all think about either the Dow

Jones Industrial Average or the S&P 500

I mean that's the that's the headline

number that gets reported on the evening

news that's you know in those stories we

read about in the you know in the

newspaper the following morning wherever

it is we think about the sp500 or the

Dow Jones Industrial Average and in the

case of the sp500 what that really is

what than anything is a large cap u.s.

index with something of a growth tilt so

if you own anything else you own smaller

stocks you have a value tilt you have a

substantial portion in foreign stocks

there will be periods when you do not do

nearly as well as the S&P 500 but what

people forget is that you know you go

back to the first decade of the current

century and if you had owned the S&P 500

you would have lagged behind pawns you

would have lagged behind small stocks

you would have lagged behind value

stocks you'd have lagged behind

developed foreign markets you would have

lagged behind emerging markets in the

first decade of this century the S&P 500

was one of the worst places you could

have invested today it looks totally

different but ten five years from now I

think it may be look totally different

again you know it certainly does swing

it's a very cyclical thing and you do up

stay the course whatever your playing is

I think it matters more that you stick

with it than what the actual plan is I

think that is that is so true so true if

people tend to change investments at

just the wrong time what are some of the

other important behavioral traps that

high earners fall into

one of them we worried touched on which

is this notion that you know if you have

a higher income or you have a larger

portfolio that somehow you should have

something special you shouldn't be

buying those broad market index funds

that anybody with you know $1000 can get

into and yet I would say whether you

have a ten thousand dollar portfolio

or a ten million dollar portfolio that

having the vast majority of your money

in broad market index funds is the way

to go that you know if you go out and

you try to find something special that

is suitable to your wealth level or your

income level but more likely than not

you're gonna end up with something

that's gonna happy very high cost and

deliver disappointing performance

I mean it's astonishing to me that

people still seem to think that hedge

funds are something special whereas you

know we know from the numbers that most

hedge funds have terrible performance

you know you'd be much better off and a

portfolio of index funds and yet people

still want to own those hedge funds

because they think that somehow you know

that's what the the smart money owns

yeah it's interesting that somebody have

such poor performance but everyone

always assumes they're hedge fund

managers gonna be one of the top you

know 5% that seems to do okay and

probably that hedge fund manager is

somehow you know Ginny dump the numbers

so they are indeed in the top 5% yeah

exactly that's a problem with a little

bit less transparency there what about

those who are afraid of stocks I think

that's what drives a lot of people into

alternative investments is there they

hate the volatility of stocks they hate

seeing their money going up and down

every night on the evening news or on

the Internet and they can you know

they're getting statements every month

from their 401k showing no much money

they've lost what advice do you have for

somebody like that that's afraid to

invest in stocks particularly at stock

market highs like we're essentially out

right now so it's a huge mistake to put

money into the stock market


you think you know you will panic and

sell when the market goes down I mean I

believe the stock market is the best

place for everyday investors to put

their money and I think if you said to

somebody you know the 30 years from now

that you think the stock market will be

higher or lower almost everybody would

say of course it's gonna be higher so

the question is how can you get to that

point in 30 years in the future where

you will look back and say I'm so happy

that I was you know on this roller

coaster for this ride and I think you

know there are a couple of things that

you can do to make it more bearable but

in the end you know you don't want to

put more into stocks than you can

stomach because you know the amount of

financial damage that you will do by

selling at a market bottom you know

it'll wipe out any potential game that

you would get by you know being you know

in stocks over the long haul so what

should you do well if you're currently

sitting in cash you know my the thing I

mentioned to people all the time is

decide how much you want in the stock

market and if you stomach it really

makes you nervous maybe it's only 40

percent of your portfolio or 30 percent

of your portfolio and then save yourself

okay I don't know what the market is

gonna do over the next couple of years

so what I'm simply gonna do is I'm gonna

take the money I have that I want to put

in stocks and I'm gonna test it say

124th every month for the next 24 months

and that way I will get from where I am

now 0% stocks to say the 40% stocks that

I am aiming to get and then it if the

market goes down what you do is you

increase the amount you invest every

month so if the market drops 15 percent

from its all-time high and let's say you

were putting in ten thousand dollars

every month into the stocks you would

double the amount that you vest every

month and I know you're putting in

twenty thousand dollars so you've sped

up the speed at which you're getting

into the market if the market goes down

25 percent or more then you triple your

monthly investment so instead of doing

ten thousand dollars every month now

you're doing thirty thousand and the

idea is that when the market goes down

instead of seeing that as a disaster the

hope is to change the psychology so that

you see it as an opportunity and you

start increasing the amount you invest

and also of course it would have that

beneficial effect that it forces you to

put more in as prices go down I think a

program like that can get people

invested in the stock market but again

you don't want to put more in total than

you can control e stomach and to some

people it might only be thirty or forty

percent of their portfolio you know do

you think it's the right thing to tell

them to do to dollar-cost average like

that or is it better to just tell them

you know what you got to kind of suck it

up this is the way stocks work I think

it's Phil DeMuth that said your risk

tolerance or Thole o because basically

you have a need to take on risk I mean

at the end of that 24 month cycle you're

a hundred percent invested anyway why

not be a hundred percent invested today

if you're gonna be a hundred percent

invested in 24 months the reason is this

Jim on average we know that if you vest

all the money right away you get a

higher return than if you dollar cost

average into the market but the fact is

you know you do not get an average

result if you put everything into the

market you get you know a sample of one

and you it may be that you decided to

put everything in in October 2007 just

ahead of a 57% declined by yes P 500 I

am not willing to advise people to

invest based on an average that may be

completely inapplicable to their

financial situation which is why dollar

cost averaging makes a ton of sense what

about the alternative of rather than

dollar cost averaging simply investing

in all right away but into a less

aggressive asset allocation if they're

having trouble go into a you know 70/30

allocation maybe they should only be at

a 50-50 allocation should do it today

rather than over the next 24 months what

do you think about that approach well

since let's separate it out so first of

all whatever you do whether you a

vegetable right away

you invested overtime you know if your

notice about the stock market you

shouldn't be putting everything into

stocks no matter which strategy you take

right and if you don't cost averaging in

you should only be dollar costs by

averaging in that portion that you

wanted the stock market if you still

want to have 60% of your money and bonds

you know even if your dollar cost

averaging you shouldn't be going you

know above 40% stocks right I mean

that's let's make that clear you don't

end up with a portfolio that's risking

you can stomach the question is should

you put it in foster again if you put it

for that 40% in today and it turns out

to be October 2007 and the market starts

dropping and you panic in early 2009

when the market is down by more than


you know you screwed yourself so telling

people to put everything in right away

or everything they have em off the

stocks right away it's just no good

advice in my book because I don't want

to be responsible for that person

panicking and selling at the wrong time

you introduced a term I I think I'd seen

before with different names on it but

I'd never heard the term you used for it

naive diversification this was in your

book latest book from here to financial

happiness you talked about that naive

diversification what do you mean by that

and how can investors avoid it so when I

say no eve diversification I mean the

people tend to spread their money around

in ways that make them feel like they're

better diversified but they aren't

really and so they will do this by

having multiple brokerage accounts or

multiple mutual fund companies or even

multiple financial advisors and the

consequence is that they've made their

lives much more complicated but in many

ways many times they've ended up with a

worse portfolio so let's take the

example of having more than one

financial advisor so if you go to a

financial advisor you know they'll talk

to you about your goals they'll find out

how much risks you can stomach you know

your time horizon and so on and they'll

put together a portfolio for you and

that's that's great great but then you

go to another financial

bison they'll ask you about your goals

and your risk it's that time horizon and

they'll put together another portfolio

for you which in many ways will

replicate what you already own and so

what have you achieved now you've got a

lot more hassle in your financial life

you've probably got a lot of duplication

you may be paying more in fees because

you don't get the price breaks for being

a larger investor with any one

individual and individual advisor and

the net result is you're worse off that

is naive diversification the only time

that I can think that spread your money

across sort of multiple institutions

make sense is when it comes to getting

FDIC insurance yes if you have a lot of

money in the bank you want to make sure

your code by FDIC insurance by all means

have multiple bank accounts but beyond

that I don't see much point in having

multiple brokerage accounts you know

multiple financial advisors are dealing

with multiple mutual fund companies all

right we're coming to the end of our

time here and I sure appreciate you

being on the show today but I wanted to

give you a chance to ask you if there's

anything else you think the 20 or 25,000

people who will listen to this podcast

ought to know about money I mentioned

early on that the money is just a tool

and for it to be a tool that we use

effectively what we need to do is use

our money ways that are meaningful to us

so much of what we do with money is

things that others tell us are

meaningful so we're told by advertising

and marketers and salespeople that

having a big house is meaningful to us

or driving a luxury car is meaningful to

us but the question you have to ask

yourself is is that really meaningful to

you is that really how you want to use

your money and will it truly enhance

your life and I think part of the

problem with so much money management is

that we're doing what other people are

telling us is right for us without

really thinking through what would be

meaningful for us and I think it's one

of the reasons money has failed to buy

happiness for so many people

so it's say to listeners sit down think

about what it is that you could do with

your money that will really enhance your

life what would take those dollars which

are just dollars and make them more

meaningful to you and once you know that

then you'll be in a position to squeeze

greater happiness out of your money

thank you so much a lot of wisdom there

I think you just summed up you know

several of your books with that short

statement about how to really buy

happiness with your money you can learn

more about Jonathan and his writings you

can check out his books on Amazon we'll

have links in the show notes to those as

well as to his blog at humble dollar

calm Jonathan thank you so much for

being on the show today hey it's my

pleasure Kim thanks having me on what a

wonderful opportunity to have Jonathan

Clements on the podcast that was really

great to hear from him I always love

hearing his accent it's fun to hear his

voice again haven't heard it since the

conference a year ago our sponsor for

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you've got this we're here to help you

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coat investor podcast my dad your host

dr. dalla is the practicing emergency

physician blogger author and podcaster

he is not licensed accountant attorney

or financial adviser so this podcast is

for your entertainment and information

only and should not be considered

official personalized financial advice