The World’s Worst Investment Advice

The World’s Worst Investment Advice

Hollis Walker: This is #NowMe, a podcast for financial advisors and their clients.

Hello, this is Hollis Walker with Jan Blakeley Holman, director of advisor education at Thornburg Investment Management. Welcome back. Thanks for joining us for another episode of #NowMe. Hey, Jan, how are you?

Jan Blakeley Holman: I’m great. Hollis. How are you?

Hollis Walker: I’m doing great.

Jan Blakeley Holman: Good. It’s good to see you again.

Hollis Walker: Thanks.

Jan Blakeley Holman: Hey, Hollis, I thought it would be fun to count down the three worst investment ideas or advice I came across. And what I’m going to do is count backwards from the third worst to the first worst. Are you interested? Sure. Let’s hear it. Okay.

Coming in third: recommendations to invest in crypto. Now, as you know, Hollis, and as regular listeners know, I’m not a fan of crypto. In fact, I think I’m an anti-fan, if there’s such a thing. From my perspective, there’s something inherently wrong about putting money into something – I won’t even call it an investment – but something that you can’t get the money out of, if you forget your password. But that’s not the only thing.

Hollis Walker: Okay.

Jan Blakeley Holman: I also have issues with crypto’s lack of regulations, so investors aren’t protected. I have issues with celebrity endorsements for any type of investment. I think that’s crazy. And I don’t understand someone who looks kind of like the dude who mows my lawn, Sam Bankman-Fried, being hailed as the next or the new Warren Buffett. Meanwhile, when the proverbial you-know-what hits the fan last November, he claims to not have known what was going on in his company that he was CEO of.

Hollis Walker: Right.

Jan Blakeley Holman: Okay. So meanwhile, he takes down the company and all these people, and his net worth goes from $32 billion to not even $100,000.

Hollis Walker: You can’t even I don’t know stock your refrigerator with that, can you?

Jan Blakeley Holman: Depends on whether or not you’re using the right kind of refrigerator. Okay, that was number three.

Number two, declaring the 60/40 portfolio debt. Now you and I have talked about the 60/40 portfolio and that was developed by the Nobel laureate Harry Markowitz in 1952. And what it is, is an investment portfolio that’s comprised of 60% stocks, and 40% bonds. And it’s actually been an investment approach that many advisors have recommended to clients during the 60s 70s 80s, etc, etc. Well, last year, it thumped. I mean, thumped. It was down 16.07%.

You know, in many industries like ours, once something like that falls out of grace, everybody shuns it. So now many people are even at the end of last year, many investment pundits, were talking about the death of the 60/40 portfolio. And I actually don’t agree with that. Yes, it was down 16 plus percent in 2022. But over the past 30 years, it has an annualized return of positive 8.23%.

So, here’s the moral of that story, Hollis: It is one year does not a trend make.

Hollis Walker: I like that.

Jan Blakeley Holman: Okay. Now, do you have a drumroll? Here’s the absolute worst investment advice. In a paper published by the Journal of Portfolio Management Research, the author suggested that young people should not save for retirement. Does this surprise you?

Hollis Walker: Yeah.

Jan Blakeley Holman: Okay. The research makes a point that it’s more rational for younger individuals to instead adopt a lifetime saving consumption model, whatever the heck that means. Essentially, it’s translated into this. They saw that many people younger people had these huge piles of debt, and they’re still trying to save for retirement and all that type of thing. And it’s nigh on impossible. So what they recommend is that younger people, people coming into the workforce, instead focus on meeting their current spending needs, and later, they will get to putting money away for retirement.

Now, here’s my issue with that. When we begin working full time for living our careers, there are a lot of demands for whatever we get in our paychecks. First of all, they’re the demands that are withdrawn immediately from our paychecks, whether those are federal, state taxes, our co-payments for insurance, all those types of things. But after those are paid, we also have to use the money that we have left over to pay for housing, food, transportation, clothing, student loan payments, you know, fun in the Bahamas, whatever, all of those things. And often there’s not enough left. What’s more, many people are spending a ton of money on things that we considered basic. Now, I don’t want to sound like an old Fudd, as one of my father’s friends used to call him, because I’m not a Fudd yet. But according to Nerd Wallet, the average monthly payment for a new car is $716 a month.

Hollis Walker: Wow.

Jan Blakeley Holman: Yeah, that’s big, isn’t it. And the average for a used car is $526 a month.

Hollis Walker: Amazing.

Jan Blakeley Holman: That’s going to eat up some of your extra cash right away. The list goes on and on. I think we are a society that wants everything faster and faster. The things we aspire to become we want to become next week. The things we aspire to acquire, we want to acquire next week. And I think that’s more of an issue than oh, by the way, putting money away for retirement.

So here’s what I recommend. First of all, putting money away regularly, either monthly or bimonthly out of a paycheck is something behavioral. And in order to be successful long term, people have to learn that behavior. If in fact, they get to spend whatever’s left over out of their money and try to pay their debts for their Tesla and whatever their, you know, big Humvees or whatever they’re driving, then we’ve got a problem, because we know that there are people who are in their 60s, mid-60s and older, who don’t even have $400 available to spend if there’s an emergency.

Hollis Walker: Right.

Jan Blakeley Holman: So, they have to get into the practice of one, putting that money away regularly and to denying themselves some of those expensive things that they’ve always wanted their entire life.

Hollis Walker: So, let’s see, let’s go back over this. Don’t buy crypto; stick with 60/40 on your portfolio; and learn how to put money away for retirement as soon as you can.

Jan Blakeley Holman: Absolutely.

Hollis Walker: I’m proud to report that I did not do any of the bad things that you mentioned. And that I started putting away as much money as I could in my retirement account when I was very young, because I got good advice from people. And guess what the bulk of the money I have now is what I saved when I was young. So there.

Jan Blakeley Holman: There you go.

Hollis Walker: Yeah.Now as you know, Jan, let’s move along. For the past year, we’ve included a segment to #NowMe called Ask Jan, in which listeners ask you questions directly.

Dear Jan, when I look at your name on the #NowMe podcasts and the articles you write for thornburg.com I noticed you have quite a few initials after your name, or alphabet soup as we call it in my profession. Why do you have all those initials? Yours truly, E I E I O?

Jan Blakeley Holman: Well, this must be a letter from Mr. or Ms. MacDonald of the farm, right?

Hollis Walker: I think so.

Jan Blakeley Holman: Thanks for your question. Mr. or Ms. McDonald. I don’t usually get questions that are “personal.” So, yours is making me laugh.

Let me give you some background. When I started in the financial services industry 47 years ago, I had no background in finance or investing. In college, I majored in political science, minored in history, but since I went to school in Colorado, I must be honest and say, I really got an advanced degree in skiing. Remember, it was the 1970s. Now around the time I graduated, I discovered that a ton of my ancestors had had careers as investment bankers and stockbrokers. So, when I wound up getting a job in financial services, the fact that so many family members had been in the business gave me hope that the subject would come to me naturally, like it was a genetic thing. It didn’t. So, I had a choice. Either I could just learn the tasks associated with my job without understanding the context and or the industry more broadly. Or I could look for more opportunities to become as knowledgeable about the financial services industry as I possibly could. So, surprise, what do I do?

Hollis Walker: You went and got some initials behind?

Jan Blakeley Holman: That’s absolutely right. My first designation was the CFP or Certified Financial Planner designation, which is bestowed by the College for Financial Planning. And I chose that because by the time I was looking for advanced training, which was about four years into my career, I was very knowledgeable about the investment aspects of planning, because I was working on the investment side. So, I wanted to learn more about the financial planning, business and financial planning practice, because it’s much broader than just the investments. And so that’s why I started with my CFP. And I liked it so much that over the years, I’ve continued to look for additional training.

I have been probably, I can’t even imagine the number of conferences I’ve been to that I have sat in the audience of somebody speaking about some subject about this industry. And I’m very, very passionate about people need to learn the business they’re in, really learn it, and demonstrate it somehow to clients.

Now, it’s been many years since I worked with individual clients. I do not advise individual clients anymore. But I work with financial advisors. So my perspective remains: I need to demonstrate that I’m knowledgeable, that I’m well versed and that I’m up-to-date in the things that they deal with all the time.

So, thank you, the MacDonald family for sending in that message.

Hollis Walker: Thanks, Jan. Okay, everybody, let’s see if you can hold your breath for this long. Thanks, Jan Blakeley Holman, CFP, CIMA, CHFC, CDFA, CFS and GFS. How was that?

Jan Blakeley Holman: Sound pretty good to me, or overkill, depending on how you look at it.

Hollis Walker: That’s all the time we have today. You’ve been listening to #NowMe with me, your host Hollis Walker, and Jan Blakeley Holman, director of advisor education at Thornburg Investment Management.

If you want to suggest a topic or have a question to ask Jan, email us at NowMe@thornburg.com. If you’d like to hear more episodes of #NowMe, you can find us on Apple, Spotify, Google Podcasts or your favorite audio provider. Or by visiting us at Thornburg.com/podcasts. Jan can also be found on LinkedIn. If you like us, subscribe. Share us on social media and leave us a review. Until next time, thanks for listening.

This podcast is for informational purposes only, and should not be relied upon as investment, legal, accounting, or tax advice. It is not intended to predict the performance of any investment or market, and is not a recommendation, offer, or solicitation to buy or sell any security or product, or adopt any investment strategy. Past performance is not an indication of future performance. Investing involves risk including possible loss of the money you invest. Consult your investment advisor before making any investment decisions. The information contained herein has been obtained from sources believed to be reliable. However, Thornburg Investment Management makes no representations or guarantees as to the accuracy or completeness of the information and has no obligation to provide any updates or changes. The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management. This podcast is for your personal and non-commercial use only. You may not use it in any other manner without the prior written consent of Thornburg Investment Management. Thank you for listening.