Episode 318: Your Perfect Portfolio: How to Find, Build, and Stick to an Investment Strategy That Works for You with Cullen Roche

Most people think investing means picking the right stocks and getting rich. But according to Cullen Roche, founder and CIO of Discipline Funds and author of Your Perfect Portfolio, that mindset is one of the most costly mistakes investors make. Melissa Joy, CFP® sits down with Cullen to unpack what investing actually is, why time horizons matter more than almost anything else, and how to build a portfolio you can stay loyal to when markets get uncomfortable.

From the three fund portfolio to dividend strategies to the growing world of high fee distribution ETFs, Cullen breaks down a wide range of investment approaches with honesty and clarity. This is not a conversation about hot stocks or market timing. It is a conversation about building something that actually works for your life.

What You'll Learn

• Why investing is better understood as a reallocation of savings than a path to getting rich quick
• How thinking about time horizons can transform the way you build and manage a portfolio
• Why planning toward averages, including average life expectancy, can set investors up to fail
• What the three fund portfolio is, why it works, and where it may fall short for some investors
• The pros and cons of dividend focused portfolios and what investors often misunderstand about them
• Why distribution ETFs are not the income generating bond alternatives they are often marketed as
• How an asset liability matching approach can help investors align their money with real life goals
• Why managing your own behavior is the most critical component of long term investment success
• What the financial media gets wrong and how to tune out the noise without missing what matters

Connect with Cullen: 

Website: https://disciplinefunds.com 

LinkedIn: https://www.linkedin.com/in/cullenroche 

X: https://x.com/cullenroche

The previous presentation by PEARL PLANNING was intended for general information purposes only.  No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from PEARL PLANNING or any other investment professional of your choosing. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. Neither PEARL PLANNING’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. PEARL PLANNING is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the video content should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. A copy of PEARL PLANNING’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https...

Transcript

Welcome And Show Setup

SPEAKER_01 0:00

Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and the founder of Perl Planning. My goal is to help you streamline and organize your finances, navigate big money decisions with confidence, and be strategic in order to grow your wealth. As a woman, you work hard for your money, and I'm here to help you make the most of it. Now let's get into the show. Hi, everybody. Today we're gonna get a great opportunity to talk to the author of a new book, Your Perfect Portfolio. And this book is all about investing. It's talks about the ways you can construct an investment portfolio. It's also quite helpful for those of you that are looking to understand how your investments really work. And I'm thrilled to have Colin on the podcast. We had a great conversation. Hopefully you enjoy the show. Colin, welcome to the podcast.

SPEAKER_02 0:59

Hey Melissa, it's great to be with you.

SPEAKER_01 1:01

I'm so glad you're here. I really enjoyed the book. Um, it is a really nice introduction to some of the fundamental concepts of investing. And then you break down a lot of the classic investment strategies for why they may might be a good portfolio for you to utilize and pros and cons, which every investment strategy has, you know, kind of um pluses and minuses.

SPEAKER_02 1:28

Yeah.

SPEAKER_01 1:28

Um congrats on the book.

SPEAKER_02 1:30

Thank you. I'm so proud of you for reading it. Uh I know you're busy, so I feel like uh I uh I had to read this thing about three or four hundred times. So I got to where I hated I hated it by the end. But no, it actually this um this book was it was actually fun to write because I wrote it in a very conversational tone. I think it's a it's relatively approachable for almost anybody, even I think uh somebody who doesn't really have a background in finance or much uh understanding of investing, because I cover the full gamut of different strategies. Some of them are very simple, some of them are more complex, some of them you know might take a little more of an advanced understanding of economics or finance to really get through it. But the the main message of the book is that everyone has to find a portfolio that works for them. And so I really tried to emphasize that hey, this is finding a portfolio that works for you is sort of a, you know, it's a make your own adventure sort of process where you have to choose your own adventure sort of process, where you have to figure out what works for you. And some of that might involve making changes at times or finding out that, hey, you know, maybe this doesn't work for me, but I'm I'm trying to help expedite the process for people where you can kind of understand a lot of different strategies and then say, hey, I really like this. I think this might work for me. I'm gonna give it a try and hopefully it works in the long run. And I can stay sort of married to this portfolio and uh kind of adhere to the the classic John Bogle advice that stay the course sort of mentality.

SPEAKER_01 3:09

I couldn't agree more. I think we'll talk more in this conversation about staying the course. Um, I have to tell you too, I I listened to the book on audiobook, and my 12-year-old uh on the way to school the other day was like, Hey mom, what's a bond portfolio? Because you were talking about it. So it it created some good conversations in Carline. And um, I explained what bonds were and stocks were, and then she was like, No, but what is a bond portfolio? And so anyway, good work, Colin.

SPEAKER_02 3:41

Wow, you're really taking momming to the next level then.

SPEAKER_01 3:45

It was not intentional, but you know, you got to get it in when you can. And sometimes I'm always curious when I listen to podcasts or investment-related audiobooks, which are not what I do all the time, about what questions come up from the kids.

SPEAKER_02 3:57

So that's amazing. It's nice to like my three-year-old has set up a uh a food shop in our kitchen where she is taking the food that I've purchased or me and my wife have purchased, and she is selling it back to us for my own money, which I'm part proud of and part ashamed of.

Investing Is Not A Lottery Ticket

SPEAKER_01 4:16

I love it. So those little anecdotes. Um, thank you for contributing to Josie's financial literacy. Um, but I think it was really smart that you started the book with kind of 10 investing truisms, rules of the game, you know, just um ideas that it's really I think are easily, easily acceptable to any investment professional, but I are really important reminders before you kind of dive into what's your your perfect portfolio. Um and you know, one of those kind of rules when you say you're saying or not an investor is like I don't know if I can paraphrase appropriately and feel free to correct me, but like investment strategies aren't a like a lottery ticket or a get rich theme. And in fact, you don't spend any time in the book um telling people how to pick the perfect stock. Um so can you just elaborate a little bit about, you know, some of the um when I say that I'm a financial planner, people are like, well, what stock should I pick sometimes? And I'm sure you get that question as well.

SPEAKER_02 5:24

Um I think that's the I think you hit the nail on the head in terms of the way that a lot of your average people sort of think the way that investing works is that when they're investing, they're picking stocks and they're getting rich. And this is something that is sort of a Warren Buffett-like process that, hey, I'm gonna pick all these stocks, I'm gonna get really, really rich really quickly. And I try to emphasize throughout the book that the stock market, especially, is something that it really is not someplace where you're gonna get rich. You can make a lot of money in the long run in the stock market, but it is not a get rich quick scheme. You see this a lot these days, where you know, a lot of people refer to like the degenerate economy, where people are are gambling more than ever and they're using the stock market or Calci or these other accounts that are designed to sort of take advantage of people's, you know, the enticing mentality to gamble and whatnot. And I frame all of this as a reallocation of savings very intentionally, because the process of allocating one's savings is, I think, a very different mentality than this sort of investing and sort of sexy get-rich quick scheme that a lot of people think of investing. And so I actually tried to build sort of a core understanding of this because the the first book I wrote was Pragmatic Capitalism back in 2014. And this was a book that is both an economics book and a finance book. And it's very weird because in the world of economics, the word investment means to spend for future production. And this is things like when a firm builds a factory or something like that, they are spending for future production. They're generating a return on investment by allocating capital into an investment spending process. And when we buy stocks and bonds, we're doing something very, very different than that process. We are buying instruments on a typically a secondary market exchange, and the value of those instruments actually reflects the way that the firms typically spend for investment. So when a firm spends for investment wisely, the value of those instruments will be reflected in the way that are the in the value of the instruments. And so the process that we go through when we buy stocks and bonds, the value of those things is a function of that investment that the firm makes. And what we're doing is we're literally reallocating some of our savings. We're generating an income, we're taking some of that, we're saving some of it, and then we are reallocating it into instruments whose value is reflected by the investment spending of the firms. And so it what we're doing is very, very different. And I try to emphasize that because the the process of reallocating one's savings is really, it should be this thoughtful, methodical process that you go through where it's not a get-rich quick scheme at all. And in fact, function of it, there are parts of your portfolio that very methodically should be designed to underperform the market. They're not going to feed the stock market. They might do just the equivalent of like a cash like return. And that's there's nothing wrong with that. And so I try to sort of reposition the mentality of this so that you get into this thought process of, hey, I'm doing something practical and prudent, and I'm reallocating my savings. And that is not at all analogous to something like gambling.

SPEAKER_01 8:44

Absolutely. And the time frame is so different for one versus the other. I remember many moons ago at a Morningstar investor conference, Michael Mabasan talked about like so many different considerations for how the world is increasingly short term, even, you know, this is probably in the 2000s. Um, and it's even more so today, where you can invest in a like a prediction market, you know, outcome for what's going to happen next week or something like that, versus um, you really are putting your money and reallocating your money in many cases for to be used by the future you 40 or 50 years from now. And so there is it it takes it, it's completely different than what is the hot stock for 2026. And um it it requires some rewiring from common assumptions if you just watch CNBC all day.

Time Horizons And The Savings Mindset

SPEAKER_02 9:42

Right. I talk about that a lot in the book. One of the um the essential principles is that I call the reallocation of savings a temporal conundrum. And what I mean by that is that what we're all trying to do across our financial lives is we're really trying to navigate time. We're trying to have our certainty of the ability to consume certain things in the future across very specific time horizons. And so, you know, that might be meeting a monthly credit card bill. It could be paying for, you know, a kid's college tuition in 10 years, it could be planning for retirement, but there are these sequences of time horizons that we're all trying to navigate. And time is the one thing that, you know, is it's the one commonality for all of us. And it's the one thing that's constraining our ability to navigate all of this because we all have a finite time horizon, but we also, in a weird way, we all, at least those of us with children and multi-generational needs, we also have multi-temporal time horizons in a lot of ways. So I talk about time consistently through the book because I try to emphasize that there are certain strategies and certain instruments inside of the financial markets that are very specifically designed to serve different needs across different time horizons. So, like I try to emphasize that the stock market is a very long-term instrument. This is an instrument that it will not serve your short-term financial planning needs. If you have a credit card bill due next month and you're you've got that cash allocated into the stock market, you are setting yourself up for disaster because that instrument is too volatile for the short term. And so you've got to, you know, block things and really allocate your savings in a way where, to some degree, it matches these specific goals and time horizons across your financial life because that's the thing that we're all trying to navigate is time ultimately.

SPEAKER_01 11:31

Well, and I think that that is one of the hurdles that people often end up pivoting toward a financial professional or financial planner, as opposed to 20 or 25 years ago. Figuring out how to invest your 401k is something that we've done a really great job of preparing people for as a society. We have auto-escalation with your savings, auto-enrollment. And now there are, you touch on them in the portfolio or in the book, but there are target date funds and you can easily diversify with, you know, kind of a single choice and the 401k educator comes in and and you make your election. But then when you need to navigate in um middle age between, hey, retirement is a lot more important to me than it was 10 or 15 years ago. But also my kids may be looking at a private school for college. How do I meet the demands of both? And how am I doing on one goal versus another? How do I triage or support what's most important for right now? That is just like the um, you know, common decision conundrums where there's too many choices or outcomes, and it's not as easy to just auto-enroll and auto-escalate to get the job done.

SPEAKER_02 12:47

Yeah. Yeah. I mean, and that's the thing, is that I think um it was interesting. Like uh my personal investment philosophy really transformed when I had children because what my children did to me was they really turned my whole world upside down in the best of all ways possible. But from an investing philosophy, what children did to me was they really made me realize that I now have this multi-temporal time horizon where things are starting to get really messy for me. And because before you have kids, life is really easy. I mean, and for me, it was just me and my wife's time horizon. And you know, my portfolio was basically you know full gas, all stocks for the most part. And then you have kids and you start thinking through things like, geez, I need I need life insurance. I need to start planning for college planning. I need to start thinking about five two nine plans and um, you know, paying for daycare. And you know, you start realizing all these things that are really expensive that are they're multi-temporal. And but then I also started getting this mentality of God, I really need to actually work harder because I want to leave money for my kids and I want to make sure I don't know what the world is gonna look like in 30 or 40 years, and I want to make sure they at least have a little something in the long run. And that is a a whole different time horizon because it's beyond even my lifetime. And so you start thinking across all these different time horizons across different things and different needs, and you start realizing that oh my God, a 100% stock portfolio is actually completely inappropriate for all of this because it can't actually fund all of these needs. And so I think a retiree, you kind of alluded to this, and then you see this all the time in your own practice, and you talk about the, you know, the sort of messy middle concept where the when somebody enters or is nearing retirement, they go through this sort of mind trip where they start to consider the reality that, hey, I'm gonna start maybe living off of my portfolio. I'm not gonna have an income anymore, really. And that starts to get really messy from a temporal perspective. And so, you know, that's the situation where you have to really start making sure that your financial plan and your investment strategy is really well aligned to help you navigate all of these sequence of sort of messy events because that's ultimately what happens as you get older. Life just gets messier and more complex. And and in a lot of ways, simplifying things actually will just make everything drastically easier to navigate.

SPEAKER_01 15:23

I couldn't agree more. My philosophy when it comes to simple versus complex. And I kudos to you, Colin, because you did a great job of going from, you know, kind of the one ETF portfolio all the way to some very complex options. Um but whenever when in doubt, choose what can be simpler because there's always going to be a need for complexity in some aspect of your financial life. Um it, you know, we all have to navigate complexity at certain times. And so if you can simplify whether it's, you know, how many different places you have to go to find your money or you know, how complicated you've chosen to make things, yeah, then also in investment world, simplification into, for example, exchange traded funds um often comes with a lower tax bill as well. If you're talking about taxable assets, but um choosing simple over complex when appropriate is a gift to your future self. It's a gift to your heirs. And um, you gave some great simple options of portfolios that might be just one or three funds.

SPEAKER_02 16:37

Yeah, yeah. I I I was lucky to uh uh to interview some fun people for the book. Like I interviewed Taylor Larimore, who's uh John Bogle crowned him the the king of the Bogleheads uh long ago.

SPEAKER_01 16:49

And Taylor leading the parade of the Vanguard acolytes. Yeah, yeah.

SPEAKER_02 16:54

I Taylor's Taylor's great, he was really fun to talk to. And um, but yeah, he's the originator of the three fund portfolio. And he, you know, Taylor became great friends with John Bogle kind of 50, 60 years ago after he got back from uh World War II. And he uh he happened to have apparently uh you know was married to like the most beautiful woman in Miami, I guess. She was modeling, and uh she made a fabulous amount of money.

SPEAKER_01 17:19

And so he starts you know trying to manage female breadwinner back in the day.

SPEAKER_02 17:24

But it was funny because he he he hires a really expensive stockbroker and realizes the stockbroker is kind of screwing him over, and he starts emailing, or I guess he starts uh communicating with I don't know how they communicated back then. Now that I think about it, I guess through mail or something.

SPEAKER_01 17:39

It's in a letter, yeah.

SPEAKER_02 17:41

But he starts communicating with John Bogle, and Bogle starts telling him, now you should be doing this or doing that. And anyways, Bog or Taylor becomes sort of an expert in the in the Bogle mentality, and he took the three fund portfolio and he distilled this is sort of the distillation of all of Bogle's, you know, most sort of famous concepts, distilled down into its simplest, most practical form. And for people who aren't familiar, the three fund portfolio is basically just a bond aggregate fund, a domestic stock fund, and a foreign stock fund. And so it's it's just three super low-cost Vanguard ETFs. It is about as simple as it possibly gets, but it's also incredibly elegant in its simplicity, just the way that it is incredibly diversified, it's incredibly low cost, and it serves probably most of the needs that an investor has. And so, you know, the I operate sort of as a third-party analyst in the book. And that's that was kind of my goal. So I don't just I'm not just a cheerleader for for the mentality or the you know, the the sort of strategies that I might have a preference to. So even even with a three fund portfolio, I do acknowledge that, hey, they're simple, but you could also argue that a portfolio like that for a lot of people, it might be too simple for lots of reasons. And that might part of it might just be behavioral. Um part of it might just be that you know, like one thing I point out is that a three fund portfolio, it doesn't have a cash bucket. And in a year like 2022, for a lot of people who saw their stocks and their bonds going down 15% plus, that might actually be a portfolio that's a little bit difficult to tolerate, even though it was relatively short-lived. It is a, you know, this is a behavioral um event that that did materialize and could expose you to the urge to make changes. And that's the thing that Bogle always emphasized that you need to create a portfolio that you can stay the course to, stay loyal to. And so you're not constantly flipping in and out of things and treating your portfolio sort of like a you know, a gambling portfolio where you're moving all in and all out all the time.

SPEAKER_01 19:50

I couldn't agree more, and I'm glad you brought that up, uh, because so many portfolio there will be a bad day for any type of portfolio. There's it's really nice recently that um accepting 2022, which was a relatively short um uh period of pain, not that it wasn't extremely painful, and 2020 when we had um, you know, COVID, the uncertainty of COVID, we haven't experienced prolonged periods of negative returns in, you know, kind of the most popular traditional asset classes, like we did in the beginning of my career in 2000 to 2002 or in 2008 and 2009. Um but it is such an important reminder that like people are well served to pick a horse and stay with it when it comes to your investment portfolio and having a merry-go-round of, you know, kind of I'm here today and I'm gonna pick something different, for example, for retirement, or um, you know, this year I feel like inflation's coming, therefore I'm gonna do, you know, this portfolio really is a way to trim your returns with the movements and the distractions because the crystal ball just isn't there, whether you're a professional investor or investing your personal portfolio.

SPEAKER_02 21:13

Yeah, well, gosh, I mean, and that's the arguably the most difficult thing to navigate within all of this is the financial media, because the financial media has this. I mean, we talk about conflicts of interest in financial circles service circles a lot, but the you could argue the financial or the the financial media has the biggest conflict of interest because they're they're they're really trying to just gather eyeballs, they're trying to get your attention and they're trying to say things that are the most dramatic things. And so I oftentimes I make this joke a lot that the the honest media report for you know daily financial news would be something that roughly is like 200 million people went to work today, not a whole lot happened, the stock market barely moved, and it was another boring day in the world, and instead. Of that, what you get in the financial media is you get Apple stock was down 10%, and you know, the the this report came out that said unemployment is going to rise to 10% by 2028. And you know, you kind of keep it.

SPEAKER_01 22:14

I love like a good, like the market had its worst day since November. It's like okay.

The Messy Middle And Simple Portfolios

SPEAKER_02 22:19

It's all these sort of scary, you know, grab your attention sort of headlines that are that make it actually really difficult for your average person to navigate because your average person is, you know, they're off all day doing something normal that you know they're not paying attention to the financial markets. And then they come home and they open up a you know a newspaper or they turn on the evening news and it's all about you know, all the bad stuff that happened for the most part, or the the most eyeball-grabbing, you know, parts of the news that are very cherry-picked. And and that just creates these huge amounts of behavioral biases. And so, you know, I try to focus a lot on the fundamentals and thinking about things in a really proper time horizon so that you can avoid and sort of control a lot of these behavioral biases that you're just going to be constantly bombarded with.

SPEAKER_01 23:08

So true. I want to pick on one chapter because one of the challenges I have most, um, I do have dividend-focused funds in my portfolios today. But a lot of people really like look to craft a plan for how to spend in retirement and think, you know what, investments that pay me a coupon where I can get a yield. And I don't think they're they articulate this when they're attracted to dividend focused portfolios, but they say, Oh, wouldn't that be great? Because then I don't have to figure out where to sell from. I'll just clip my coupons of my dividends and um call it a day. And I really struggle to talk about some of the challenges of dividend portfolios in conversations with those people um because um it is so elegant to just think, you know, like, hey, here's you know, two or three percent. Um, so can we can we talk about dividend portfolios for a minute?

SPEAKER_02 24:10

Yeah. Yeah. So it, you know, this is that chapter, yeah, I called it the the the dividend and anti-dividend strategies, basically. And so it's kind of it's almost two chapters in one because I actually try to take both sides of the argument to some degree where I talk about the pros and cons of both you know trying to have an income-driven portfolio versus one that is maybe just a pure growth portfolio. And, you know, the the thing about I've I used to be more militantly anti-dividend than I am now because I think that there's a behavioral aspect of this that is very reassuring, where when somebody builds a a dividend-based portfolio, I think what they're generally trying to achieve is they're trying to achieve a relative certainty in the way the stock component is going to generate its returns. And the the thing that's I think a little bit difficult about this is that the there are definitely there's an element of of dividend paying type instruments that are they're fundamentally safer to some degree than say buying something like a portfolio of AI stocks.

SPEAKER_01 25:15

So if you're buying uh you know, yeah, there's certain types of sectors that tend to be utilities and totally um but at the same time, maybe yeah.

Three Fund Portfolio And Staying The Course

SPEAKER_02 25:26

At the same time, stocks are stocks to a large degree, meaning that the volatility in these instruments is going to be, I mean, dramatically higher than something like if like if you think that you're buying an income-generating stock portfolio and that this is going to have the same sort of return profile as something like an intermediate bond fund, it it's just it's just not true. I mean, the intermediate bond portfolio is going to be dramatically more stable in the long run than any sort of stock portfolio. And there, and there's pros and cons to that, but I think there's a there's a psychological element to having an income generating portfolio that is very reassuring to people. So I, you know, I do I do try to emphasize that, hey, you've got to do what you're comfortable with. And if if you're more comfortable with an income generating dividend portfolio, I don't think there's if that's the thing that's gonna help you stay the course, I don't think there's anything wrong with that. And I'm not gonna push you into, you know, you know, like I might make the argument that, hey, you should buy something that's more like the market portfolio because the market portfolio will probably outperform your dividend paying portfolio in the long run. But, you know, if owning a bunch of AI stocks inside of the market portfolio is gonna make you really uncomfortable and threaten your ability to stay the course, then hey, maybe the dividend portfolio is better for you. So I think there's a place for dividend paying. I think you have to be really careful. I kind of allude to this later in the book that especially in this environment, it's become very popular. I mean, almost every day there are new filings for fanciful, sort of elaborate, um, really crazy sort of high fee, either yield type instruments, or the they call them uh the popular ones these days are called distribution ETFs, where what they're doing is they're actually they're they're taking a portfolio of stocks and they're writing options against the portfolio. And somehow they get to call this distribution yield in the regulatory world, which I don't really I'm surprised that even gets through um, you know, regulatory muster because it it's not yield in the proper sense. What they're really doing is they're basically they're pulling returns from the future, capturing some of your opportunity cost and giving it to you in the form of in what they call income yield today. And that is it's this is very fundamentally different than something like what a bond does in a in a sort of mathematical sense, where the bond generates its yield from the actual income that the bond accrues. Whereas a portfolio of stocks that where you're writing options against it, it has a an inherent friction where the income is basically coming from some way in which the fund operator itself is actually capturing an opportunity cost from the future and giving you some of the income. And these things typically not only do they not operate like bond funds, but they're typically like really high cost and they're really tax inefficient. So they have a they're sold as a bond-like instrument that really it should not properly be thought of as an income-generating bond instrument in any sense of the word.

SPEAKER_01 28:29

Well, and these conversations um emphasize an area which I think your your book is so great, and I'll be recommending it, especially for people who really are driven and appropriately driven to manage their own portfolios. Some people fall off the boat that should be managing their portfolios when it comes to a point in time where you need to start paying yourself and replacing your, you know, employed paycheck with a retirement paycheck because you know, you can be lured into an expensive, um an expensive, you know, kind of paycheck of you know, returns being dampened, but you know you can get 5% yield, but it's kind of being borrowed from the future value of the portfolio. And so I would encourage, you know, listeners who love the personal aspects of managing a portfolio to take that into consideration that at the point in time where you need to start paying yourself, it you're adding a degree of difficulty versus when you just fund your portfolio every day. Because you add tax consequences and you can get lured into, you know, kind of corners of the market that also um, you know, can uh reduce your exposure to the more general market and increase concentration in areas that might not always do well and you know, kind of limit your diversification.

SPEAKER_02 29:54

Yeah, and you know that you kind of allude to like the allure of like um annuities and things. People love certainty. And you know, you have to consider the not only the opportunity cost in certain instruments like that, but also the the embedded actual costs of these sorts of instruments. Where, you know, you I think the the thing I tried to really sort of educate and emphasize people about this book is when you when you understand the way that a lot of these instruments and these strategies work at a fundamental level, you can actually build something that gives you a great degree of certainty that doesn't necessarily have the costs of something like an insurance contract or an annuity, where you're getting, you know, maybe not a 100% certainty of outcomes, um, but you're getting at such a high-level degree of certainty about certain outcomes that you can look at the portfolio and say, hey, not only am I comfortable owning this and doing it on my own, but hey, I'm I actually understand this well enough to know that I can stay loyal to it in the long run because I know that the probabilities of certain outcomes are very, very high across different components of my portfolio.

Financial Media Noise And Behavior Traps

SPEAKER_01 31:04

So I try to really emphasize like your laddering chapters and I mean the investing that you do is all about you have an ETF complex that is all about duration where you can say, Hey, this I have some um needs that are for the next five years, and you have a different, you know, kind of risk metrics, if I'm if I understand correctly, in your discipline funds versus a medium duration or a longer duration. I could feel your passion and the duration chapter of the book.

SPEAKER_02 31:36

Well, you know, I it's something that um I came up with this whole concept. I mean, I I used to work with banks back after the financial crisis, and um, you know, I I got used to get hired by a lot of bankers to to help them navigate the bond market and interest rate dynamics. And uh, and banks very famously they implement what's called an asset liability matching strategy where they're very specifically trying to match the the time horizons of their liabilities to the assets that they own in their portfolio. Because banks, banks for the most part, they they they lend long and they borrow short. They have short-term deposit outflows and they have to be very sensitive about the way that their deposit outflows are able to be funded so that they're not they're not caught in a situation like Silicon Valley Bank, where they have a huge amount of of long duration outflows. And so it was interesting, you know, as I've kind of developed this methodology, I've started focusing really heavily on time so much that it's funny. I mean, talking to um retail investors, there's nothing, there's nothing quite like an asset liability matching strategy that is applicable for retail investors. And I guess I'm trying to kind of develop something like that, that a retail investor can sort of go through a financial planning process where they they're actually quantifying certain liabilities. And obviously, you know, it's it's hard or you know, arguably impossible to predict all the liabilities out, or you know, especially into retirement and whatnot. But to some degree, you know, we know things mathematically like our monthly expenses and probably our annual expenses, and you can kind of inflation adjust a lot of this stuff out and you can quantify things like, hey, I need this much money for a car down payment, or, you know, I want a new bathroom remodel in two years, and you know, I'm gonna be sending a kid to college in five years. And you can sort of map a lot of this stuff out where you do know a lot of the liabilities and expenses across certain time horizons. And when you start to then block certain assets and match them to that, you look at your portfolio and you say, this is a goals-based portfolio rather than just a big blob of diversified assets that we know is probably sufficiently diversified and has a high probability of probably meeting retirement goals and whatnot. But it's a it's a much more time-weighted and goals-based process where I love actually communicating this to people because your average person, they have no idea really what a style or factor is in a portfolio. And that's kind of the way that most investment strategies are structured around uh, especially the retail world where you look at something like that.

SPEAKER_01 34:09

Yeah, especially now versus 20 years ago when it was it was style boxes where you, you know, covered big, small value to growth. And nowadays it's more is kind of a factor-based world, what you explain in the book.

Dividends And The New Yield Products

SPEAKER_02 34:26

Yeah, and it's and I think the your average person, you know, they may know what large cap growth is, or they may have a vague understanding of what a momentum factor is, or whatever that might be, but they really don't understand, hey, how is this actually helping me pay for my kids' college tuition in 10 years? Or how is this how's this thing actually gonna help me achieve my retirement goals? And when you when you when you pivot the conversation to time horizons and you start saying, hey, we have structured something that is gonna help you, we have a 12-month T-bill ladder that is going to help you fund your bathroom remodel that you're doing in 12 months. People see that and they say, that makes total sense. I totally understand that because uh everybody understands time. And I think that's the thing that, you know, again, going back to you know, the the emphasis on on that temporal conundrum, the time is the thing that we're all trying to navigate. And when you have a financial plan that's actually matched to time horizons, I mean, it makes a lot of intuitive sense to people. And I I think you know, there's a whole chapter on target date funds. I think it's it's one of the things that's really beautiful about either life strategy funds or target date funds, is that you you're a person with the most basic understanding of finance can look at a target date fund and understand, okay, well, this fund is designed to be very aggressive when I'm young and probably be a relatively conservative when I'm older and retiring. I understand that it makes total sense and it has a time horizon attached to it and it's very intuitive. And so, you know, the going through that sort of thought process is really useful, especially from a financial planning perspective, because the client understands it. And I think that when you can communicate that time horizon-based perspective, it helps the investor understand what we are doing here, and it helps them stay the course ultimately.

SPEAKER_01 36:16

And really managing your behavior is the critical component of investment management, not only for our listeners who are likely investors themselves, but also, Colin, you know, you and I have to manage our own behavior when we act as an investment professional as well. And for me, and it sounds like you having a process and rules around how you invest and how your portfolios are managed is that key that even as you interview your own wealth manager, financial planner, investment manager are completely appropriate questions to ask. How do you maintain discipline in your investment process through unexpected changes?

SPEAKER_02 36:58

Totally, because it's hard for all of us. I mean, I remember early painful. Early COVID, I had just had my first daughter. Uh, the stock market fell, you know, what, 30, 35 percent. And I was sitting there, yeah, you know, I was probably crying in the shower every morning or something. I and I'm looking at my-like, yeah, no, sorry to interrupt cute. No, I was gonna say, I was gonna say that, you know, I I remember, you know, even the God, I mean, I remember reading articles about how Warren Buffett and Bill Gates were saying this time is different. We no one's ever seen something like a global pandemic. So even the most seasoned, you know, the the buy the dip types who, you know, you always hear about famously buying all the the dips. I mean, even those people will be tested in the most difficult of environments. And the those difficult environments are inevitable. That's another thing that is really important to emphasize is that there's always going to be parts of your portfolio that um are doing poorly. And that's not even necessarily a bad thing. You just have to understand, you know, that hey, this is part of the process, and you have to learn to stay the course through thick and thin. And you have to have a really good process and methodology, though, that helps you stay sort of systematically, you know, loyal to the portfolio.

SPEAKER_01 38:13

Well, I'll relate to you that um March of 2020, my company was two years old. We had two employees at the time and myself, and um, it was just me going into the office. I was the only person in the office building. And um I had decided because I'd kind of fought a lot of battles in in my former life of like kind of timing the market or hey, when there's risk, you need to like hunker down and get a lot of cash and bonds in the portfolio. So I made that adjustment to um articulate what I really believed would add value to clients over time and not make those adjustments. And just sitting there at the end of March, I remember recording a video that was just like to my future self, this is really painful and lonely. Um, but it worked, it it worked so well, you know, ever since from 2018 on when we've used that strategy of like maintaining that discipline and explaining up front to clients that their cash reserves, which are outside of their portfolio allocations, are built for their shorter duration um needs and are necessary as part of our process. And then that we won't capitulate to, you know, in in essence, in in my experience, um kind of compound the pain that the market presents to us or the economy presents to us. Yeah. Um, and so, you know, I'm reserving the right to feel lonely and sad again in the future because it is not without its own emotions to stick to that type of discipline, as I'm sure that you've experienced yourself.

SPEAKER_02 39:51

Yeah. I love the quote from Brian Portnoy. He says that you know, diversification is learning to hate some part of your portfolio all the time. And that's just part of the process, is that you know, the the urge is always that you see the grass is greener somewhere else. And a lot of people, rather than you know, staying the course and watering their own lawn, they'll run to somebody else's lawn. And it just so happens that a lot of the times when you do that, that lawn it looks green now, but it's on the verge of dying. The seasons change. And so that's how you know we see this all the time through the you know, the investment world, where you know, even now I laugh a lot these days where you know the the narrative for so long has been that you know, technology is the only thing they can do well, US is the only thing that can do well, bonds are dead, and now all of a sudden in the last two, three years, it's all you know, foreign stocks are the only things they're doing well, and bonds are doing better than Bitcoin. And it's like all the narratives flip, and this is just the way that it works. And you know, the CDU.

Goal Based Ladders And Duration Matching

SPEAKER_01 40:56

It's been a minute waiting for it. So, Colin, thank you so much for making the time to come and join us on the episode. We will have the link to find your perfect portfolio where all books are sold. Um, so listeners, just check out the show notes um if you need to read more on your perfect portfolio. But Colin, where else can people find you? I know you're writing a lot of things, great things in a thought leader um outside of the book.

SPEAKER_02 41:25

Yeah, I mean, I'm on most social networks. And then um, I mean, my primary communications are through the disciplinefunds.com website where I write a little newsletter called Discipline Alerts, and it's usually about current events. And I'm usually, I spend most of my time sort of either debunking nonsense narratives or talking about current events and trying to put things in perspective to give people a really uh, I guess, disciplined understanding of what is actually going on. And are these these things that the financial media talking about, are they worth paying attention to and trying to help people digest and understand all this? Because it's really complex and it's hard to stay on top of.

SPEAKER_01 42:02

Well, thanks for doing the great work that you do. Love the book and congratulations again.

SPEAKER_02 42:06

Thank you, Melissa. It's great speaking with you.

SPEAKER_00 42:20

Thank you for listening to the Women's Money Wisdom podcast. If you found value in this episode, the best way that you can support the podcast is to forward an episode to a friend or leave a review. Go to proplan.com and the podcast link to get all the resources and links mentioned. This presentation by Pro Planning is intended for general information purposes only. No portion of this presentation serves as the receipt of or substitute for personal investment advice from Pro Planning or any other investment professional of your choosing. Copies of Pro Planning's current rent and disclosure brochure and form CRS discussing our advisory services and fees are available upon request or on our website platform at proplan.com. The information that we share is meant to educate and inspire, not serve as personalized financial advice. Everyone's situation is unique, so be sure to consult with your own financial professional for guidance that fits your life. And just so you know, the opinions shared in this podcast are Melissa's own and those of our guests. They don't necessarily represent any organizations with which Melissa is affiliated. For more important disclosures, please go to our webpage at proplan.com.