Hey everybody, welcome back to Dividend Stockpile. So, today I'm excited to introduce our very special guest, Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, the host of the very popular Animal Spirits with Michael and Ben, and the Ask Compound YouTube and podcast. He's a prolific blogger at A Wealth of Common Sense, and the author of five books, including his brand new number one best-selling book that is our focus today, Risk and Reward: How to Handle Market Volatility and Build Long-Term Wealth. Ben, very special welcome to the channel.
Yeah, thanks for having me.
Absolutely, really appreciate it. Been a long-time fan listening to your podcast, as well as reading your blog, get your emails. So, I was really excited to be able to have you on to talk about your brand new book that just came out. I got it on the first day of release, and I've read through it already. And so, I'm very excited to talk through it. I think it's an excellent book, so congratulations there.
Thank you. For those who may not know you, could you just give a brief synopsis of your background and what you do?
Yeah, I started my blog A Wealth of Common Sense in 2013. I just wanted to kind of help explain the complexity of the financial markets in a simple, plain English way to, you know, everyone. People in the finance industry, people outside of the finance industry. I really had like my family and friends in mind when I started writing. Um, and joined Ritholtz Wealth a couple years later to work on the wealth management side of things. My background was like non-profit money, managing money for like endowments and foundations and pensions. And it was interesting because I found that those bigger, you know, these are big piles of money, right? Hundreds, tens of millions of dollars, sometimes billions in some case. And they really made their investing portfolios very complex. And I was always, that really stood out to me, that it doesn't, you know, something doesn't have to be complicated to work. It like you can simplify, and it's much easier. So, that's kind of the whole background of where my writing style came from was just trying to like take how complicated things are and make it simple for everyone.
Absolutely. Now, I really appreciate that. As an individual investor, you know, I've been investing for quite a while, but you can always learn something new. And I would love to have had a resource like yourself back when I first started because there are, there's so much jargon, there's so much information, there's so much bad advice out there. So, to have someone who has that one institutional knowledge that you have, as well as the ability to put it in everyday terms that someone can really understand, it really goes a long way. So, I really appreciate all your work in that. So, going over to your book, so Risk and Reward, everyone definitely go pick up a copy. But, what inspired you to write this book?
It's interesting. I've been a big proponent of just long-term investing, thinking and acting for the long-term. And I think the, you know, the two biggest things for any investor, regardless of what strategy you use, is your risk profile and your time horizon. I think the time horizon is the one that people probably trip up on the most, and and they maybe mix up their time horizon for someone else's. And I think anytime you make any investment, you have to kind of, you know, outline how long you plan on holding it for, cuz I think that can help with all other decisions that you make with the investment. Is this something you're holding for a few years cuz you plan on spending the money? Is it something you plan on holding for decades at a time? And I think that that really can can change how to think and act about these things. And being a proponent of long-term investing over the years, and having a public forum, I've had people push back against it. Well, yeah, but, you know, being a long-term investor is hard because you, there's crashes, and there's lost decades, and there's high inflation, and there's low inflation, and there's high rates and low rates, and all these things. People are constantly hitting me with like the exceptions. Like, what about this? And what about that? And so, I wanted to write a book that really just like went through all those exceptions, and and said like, 'Listen, over the past 100 years, here's all the bad stuff that's happened to markets, and it's it's can be really nasty at times. And regardless of those bad things happening, inclusive of it, results have still been pretty darn good.' And that's the point is like, you don't get the good without the bad. And you can't just, it'd be nice if we could just all just side-step the volatility, side-step the pain and the recessions, and all these things, and just get what's left over. But, you can't do that. It's impossible. No one can do it. And and I think the point is that even with all that stuff, bad stuff happening, the results can still be pretty darn good.
Absolutely. As I mentioned in the intro, I've been investing since 1999 myself. I mean, anyone who has been in the market knows all the volatility and all all things that we've had during that time. Dot-com crash, 9/11, the great financial crisis, COVID, end of 2018, that little 20% dip. There's so many little things that have been going on. 2022, which was a major downturn. All those things happened just in the 26 years I've been investing, much less through the history of the stock market. But to your point, over time it's still done exceptionally well for those who are able to stick it out. So, I think that's really good advice for a lot of people. So, the book itself is called Risk and Reward. Now, why did you call it that and how are the two linked?
It's funny. I told my editor that I wanted to call the book 'No Show Japan' cuz that's what people always say to me, but that would have been a little too too much of an inside joke. I just think that the whole, I think investing itself is like this form of regret minimization. And everything you, every financial decision you make is involves trade-offs, right? If you're saving and investing for today, you're putting off spending money so you can have more money in the future potentially. That's the whole idea, like you're trying to increase your standard of living. And I think risk and reward, just the idea that no matter what decision you make with your money, you're taking some form of risk, right? If you just bury your money in the backyard or put all your money in T-bills, that's a form of risk. You might not lose money nominally, but there's inflation risk that you could be left behind. Your, there's opportunity cost of not investing your money. You know, your standard of living could fall. So, I think every sort of investment decision you make involves risk in some form. It never completely goes away. It just kind of changes shape. And that's the the idea that I wanted to get into people is that like however you invest, like you have to consider the trade-offs that you're making and consider the kind of risks that you're willing to take. And the thing is that there's not like a one perfect answer for everyone. A lot of it depends on who you are as a person, what kind of investments you are comfortable taking and the kind of like emotional disposition you have, and then understanding the trade-offs you take by having that philosophy.
Yeah. Makes a lot of sense. I think in your book and, you know, previous times you said you can't get the reward of the market without taking the risk. And so, it definitely ties together pretty well.
Yeah, yeah, exactly. You don't get long-term great returns in the stock market way above the rate of inflation if you don't have the potential for large drawdowns, volatility, uncertainty, all these things like that. It's it's goes hand in hand.
Yeah, absolutely. So in the book you have certain themes that you're focused on, you know, obviously this is my summary, but stay invested, diversify, I think long term and know that volatility is part of the process. Is there certain things about the market today that just reinforces those mindsets when it comes to investing?
Yes, and I think the hard part about today is that because we're in the information age everything seems to be moving faster and I think it's harder to have patience and it's harder to have a long term mindset. Before we got on the show you told me that you interview a lot of these new ETFs that come out, right? We do that for one of my shows too. It's I think it's a great step forward for individual investors that you have all these options that would have never been available to even like five or 10 years ago and in like a tax efficient wrapper and ETF low cost like it's it's kind of phenomenal that like this stuff would have only been available to hedge funds and really ultra wealthy institutions or individuals back in the day. Individuals can do it for like pennies on the dollar for a cost. The double-edged sword of that is that there's so many new funds now that you're constantly tempted to like, well what if I could invest in this and what if I could invest in this? The problem is it becomes like this never-ending buffet where you're constantly just grabbing something like, oh I could have a little of this on my plate, I could have a little of this, and you have to have some like limitations on your process to know like, hey that strategy might be good for someone else but it doesn't fit my philosophy, it doesn't fit my plan, and even if it's a great investment like I don't need it. And I think you have to have some like guardrails in place to help define the stuff that you will and won't invest in. Otherwise you could just, you know, you're up to your eyeballs in new funds all the time and you're it's...
Absolutely. Yeah, being the one who interviews all these ETF providers I'm like, oh this sounds great. Oh that sounds great. Let me adjust my portfolio but before you know it I have 100 different ETFs and obviously you know that's not going to, not the most efficient way to run a portfolio so there is so much, to your point, so many products, so many things to think about, so many ideas to get distracted with, we really have to take a step back and think about what you're really investing for. I think one of the things in your book towards the end is you talk about 20 things I believe about investing. And one of them is defining what you won't invest in is more important than what you will invest in. So, tuning out the noise, turning out all the shiny objects, that type of thing. You really have to understand who you are as an investor.
Yeah, so my my colleague Josh Brown always says that like a good wealth manager is like a bouncer at a club who's standing behind that velvet rope and constantly like turning away the riffraff, right? Nope, you can't get in, you can't get in, you can't. And I do think that's probably more important than ever cuz if you think about it, not only do we have all the ETFs today, but AI is probably going to be making available in short order for you to just type in a prompt and say, 'Hey, I want to invest in these types of companies. They have these characteristics, you know, they have this market cap, they're in this country or these countries. Hit the button, create the portfolio, buy it for me.' And it that sounds awesome. That like that's definitely going to be a thing, but it's also going to be way harder to avoid like tinkering with it all the time and making changes. And well, what about these stocks? What about about these? And so I I do think having the guidelines in place and for most people what that means I think is like writing them down, right? Having a philosophy is is huge, but I also think having your investment guidelines, that that was always a big thing that we I learned with the nonprofits I worked with is that we had these investment guidelines in place because we didn't want people coming into these committees and saying, 'All right, we're going to change everything on day one cuz I just joined.' That's not what you want to do. You want to like have some consistency in your strategy. And that doesn't mean that these things are set in stone. You can change your plan over time, but I think if you write it down and and have your goals there and your your allocations and and some of your reasons for why you made these decisions, and then you look at it once a year or so. Or when when the market upheaval hits, you go, 'Okay, this is what I did and this is why I'm doing it and we we're invested, you know, I have 10 more years. I don't have to worry about this current bear market or whatever it is.'
Absolutely. A few years back I did a a video on investor policy statements, which is very similar to what you're saying, where you need to detail like your why, the timeline, what it's going to be used for, what type of investments you will do, what you won't do, what kind of yield you're looking to do. Like so it all keeps you on track and so you don't get distracted by these 50% yielding ETFs and you know, this newest meme coin, if you will, like all these different things. Having something on paper that you can go back and reference and hold yourself accountable to goes a really long way in the market, I would say. All right, so there's been a lot of volatility over the last couple years or just looking back at this year alone is starting last year. We had the taper tantrum type of thing. Then we also had the Iran war and downturn that happened earlier this year. But there's been so much volatility, ups and downs. What do you think people make, what's their biggest emotional mistake they make in volatile times like that?
Yeah, that's interesting. I think the one is like the illusion of control. Like in most areas of life, if you try harder, you can improve yourself, right? If you study more in school, your grades should improve. If you work out and go to the gym more, your body can improve and your health can improve. It doesn't necessarily work like that in investing and often it's the opposite. Usually like the less you do and less you tinker, the better. And so there's this old saying that like the more often you touch a bar of soap, the the smaller it gets, right? And the same thing is true with like your portfolio and your asset allocation. And I think the idea that some people think if I just do something and I make a change to my portfolio, it'll make me feel better cuz it feels like I'm actually doing something instead of just sitting on my hands. And so I think that there is this like call to action that we get where you think if you have your hands on the steering wheel and you're doing something that you're improving your results when most of the time, especially when your emotions are heightened, it's it's the wrong move. So I like to tell people to make the good decisions ahead of time, right? If A happens, then I'll do B. If X happens, then I'll do Y. And I think that's the way to think about it is making good decisions ahead of time so you're not trying to make them when your emotion's running high. You know, when you lose money, that's why there's so much more volatility cuz people panic or fear to lose money. When you see your money kind of evaporate and the stock market is down 10%, like, oh my gosh. Look at the, look at that money's just gone and people kind of freak out and panic. I think that's not when you want to be making your decisions. You want to make the decisions when you have a clear frame of reference. And so now we're in the midst of a bull market. We've we've been had a good run here. Like now is the time you think about what will I do when things do turn bad cuz they will at some point. We don't know when and we don't know why, but now is the time you want to think about it not during the heat of the moment.
Absolutely. Now it it definitely goes a long way. Uh one of the major parts of your book is talking about all the volatility and the ups and downs, the bear markets, the bull runs, everything in between. So there's a lot of historical examples you put in the book, you know, the Great Recession, the Great Depression, the 1970s, all those things. What are some examples um from history, like maybe from your book, that reinforce that long-term investing mindset that you that you preach about?
