July 22, 2021

Factor Investing, Financial Advisors, Financial Planning, Fundamental Topics, Goal Setting, Happiness, Index Funds, Investor Behavior, Portfolio Management, Retirement

Episode 159: Bill Schultheis: Build Wealth and Get on With Your Life

Angelica Montagano

July 22, 2021

Factor Investing, Financial Advisors, Financial Planning, Fundamental Topics, Goal Setting, Happiness, Index Funds, Investor Behavior, Portfolio Management, Retirement

In 1998, amid the dot.com meltdown, Bill Schultheis wrote "The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street and Get On With Your Life." Profound in its simplicity and clarity of owning low-cost index funds, the late John Bogle, founder of Vanguard Group, selected it as his top book for investors.

In 2020, amid the global pandemic, Coffeehouse Investors have inspired Bill to write his new book, "The Coffeehouse Investor’s Ground Rules – Save, Invest and Plan for a Life of Wealth and Happiness." His new work has been inspired by investors who embrace his principles and live their rich lives.

After an 11-year career with a Wall Street firm, Bill’s first book landed him a weekly column in a regional newspaper and has been the driving force of his wealth management firm (RIA) that now oversees $800 million in assets under management in Seattle, WA.

The work of Bill Schultheis has had a profound effect on us here at the Rational Reminder Podcast, and eventually having him join us on the show is truly an honour! Bill is the author of the Coffeehouse Investor series and is currently the Principal and Senior Advisor at Soundmark, in Kirkland, Washington. Throughout his career Bill has dedicated himself to helping his clients make the choices that best serve them and their particular needs, and his approach has continued to grow and improve over the decades he has been in the game. We have a wonderful conversation with Bill, charting his course from his early days on Wall Street, to writing his first book and starting Soundmark, to where is today. Bill gives us some great insider insight into the important concepts from his books and also talks about current issues in the financial world, like the impact of cryptocurrencies. Towards the end of our conversation, we get even more philosophical with our guest sharing some thoughts on what constitutes a 'rich life', and the importance of listening to your heart when it comes to your big decisions. So for this and much more from an inspiring and sensible voice, be sure to join us today!

Key Points From This Episode:

Bill's upbringing on a farm in Washington with a large family. [0:04:16.2]
The route that Bill took to publishing his first book as a way to share the wisdom of indexing. [0:06:40.7]
The beginnings of Soundmark and the first clients that Bill started helping. [0:10:13.4]
Bill's most recent book and the three ground rules it lays out for readers. [0:12:36.3]
Unpacking the 'coffeehouse investor' model portfolio. [0:18:20.7]
How Bill approaches and explains diversification to his clients. [0:21:54.7]
Thoughts on presenting data and challenging strongly held views from clients. [0:23:14.1]
The impact of cryptocurrencies and commission-free trading on indexing. [0:25:53.6]
Comparing the commonly held investing approaches of now and the 1990s. [0:29:01.0]
The approaches to wealth building that Bill recommends to younger people. [0:30:52.7]
How a persistent attitude served Bill when looking for a publisher for his book. [0:33:07.4]
The basic strengths and weaknesses of index funds. [0:34:56.3]
Bill's idea of a 'rich life' and what this means to him. [0:39:55.2]
How to 'dial in your power settings' with your financial planning and common mistakes to avoid. [0:41:19.2]
Listening to your heart and finding the financial and professional life that feels right. [0:44:52.7]
How dissatisfaction can lead to unhealthy spending habits! [0:48:37.5]
Bill's thoughts on the FIRE concept; pros and cons of adopting the philosophy. [0:50:31.4]
The impact that The Millionaire Next Door has had on Bill's life and work. [0:51:48.2]
How Bill defines success and the value he places on kindness. [0:52:51.7]

Read The Transcript:

But I must say this conversation has been 23 years in the making and I'm grateful for the part that you had in changing the course of direction for our firm back in 1998, 1999. So it's been an incredible journey that you may not have even been aware of.

Well, it's nice to be on this journey with everyone in helping the people change their lives and the way they look at investing and planning for the future.

So we thought a great way to kick this off would be for you to describe how growing up on a farm impacted how you approach money.

Well, I did grow up on a wheat farm in the Southeastern corner of the state of Washington in a part of the world that the National Geographic has eloquently described as a paradise called the Palouse. And anyone who is going through that corner of the state, this time of year is just gorgeous. It's a county that raises more wheat than any other county in the nation. It's all dry land. I grew up on a farm on the banks of the Snake River King in just a gorgeous place with seven brothers and sisters and my grandfather and grandmothers. We're products of the depression and my folks were born in the depression. And I think that formed how my grandparents viewed money. To them, they kept detailed track of how they spent their money. And I know that because I have both of their ledgers that my mom shared with me.

Attending to how money flows in and out of your lives was built into me at a very early age. I had a passbook savings account, which is a passport type little ledger that you took to the bank every time you made a deposit or made a withdrawal. I see you shaking your head, Cameron. You probably are aware of that.

But my father got caught up in trading stocks. At a very early age, I started trading stocks and looking at the stock market also in part because I wanted to connect with him. Like all little boys, you want to have a good relationship with your dad. He was consumed with that. He was consumed with being the biggest farmer in the county and he felt the way to building wealth was through trading stocks. And looking back on that era in my life, the tragedy was not that he never made a lot of money trading stocks, Cameron and Benjamin, the tragedy was that we lived on this gorgeous farm with the Snake River King right in front of us and he never took his sons fishing. And to me that was a tragedy because he was so caught up in trying to make money that he didn't really appreciate the beauty of his own sons and the beauty of the farm around him.

Wow. What a story. Cameron mentioned your book and then the impact that it had on our firm, PWL, back then, back in the late '90s. Can you talk about what it was like promoting a book which extols the benefits of index investing in the midst of the tech bubble where everyone was getting rich trading tech stocks?

Well, just a little history, Benjamin. When I graduated from college, from Texas A&M, I did not want to go back and be a hired hand on the farm working with my dad. And so I moved back to Seattle and got a job as a stockbroker working with Solomon Smith Barney in Seattle. Hated every day of it. I'm just not a salesman. I did find a little niche selling municipal bonds, which were at that time yielding 8, 9, and 10% tax-free and I had a great clientele of folks across the nation. This was in the early '80s. People didn't want to invest in the stock market, at least the high net worth investors. They liked that tax-free income of 8, 9, and 10% and how nice that was. Although on the flip side, you were paying 13% on your markets. So I guess it's a trade off.

I got out of the business after 11 years and had no idea what I wanted to do with my life. And out of that came an enormous desire to share an investment philosophy that was unfolding at that time. This was in the early 1990s. Burton Malkiel had written a book called A Random Walk Down Wall Street. John Bogle was doing his work at Vanguard. And I thought there would be an enormous opportunity to share this unfolding investment philosophy that you embrace at PWL with people like my seven brothers and sisters who don't really want to follow the stock market but they're kind of forced to invest in the stock market through a 401(k) plan.

And so I was fortunate enough to connect with an editor and a publisher of a book called The Millionaire Next Door, which is integrated within The Coffeehouse Philosophy. The editor did a fantastic job in my opinion of putting together a simple little book that anybody could read. It was an enormous challenge in the late 1990s because that's when online trading was starting to take off and everyone seemed like they were getting rich except for me. But through it all, I felt there was an enormous opportunity to share the wisdom of indexing. And by luck, I was able to land a weekly column in the local newspaper in the heart of Microsoft and Boeing country. And every week I said the same darn thing, don't put all your eggs in one basket. There's no such thing as a free lunch, and save for a rainy day. And I thought, they're not paying me anything to write this column. And I thought, is anybody listening and is anybody reading this column, because everyone was getting rich.

But at the time the stock market had started to slide. And that was that bear market of the dotcom era. And I held a seminar at the library, at the local library, and it was absolutely packed with people who were wanting to take this whole concept of capturing the entire market and integrate it into their portfolio and integrate it into their lives. And out of that has evolved an RIA firm. We manage about little less than a billion dollars in Kirkland, Washington, and we're having the time of our lives as I'm sure you are at PWL. I mean, it's so gratifying to help people with some clarity on things that they need to do to go from point A to point B, and I'm sure we'll get into that later on in the podcast.

Let's expand on that, Bill. When did you start your RIA and describe what the investment advice industry was like at that point?

Well, back then, Cameron, it was still a lot of picking stocks and I'm sure you remember the obsession with five-star funds from Morningstar. It was all about that. There was very little financial planning. There wasn't any Roth IRAs back then for folks in the United States. I was still very investment focused but it was interesting because after these seminars I put on, people started coming out of the woodwork saying, "Hey, can you help me?" There was a CPA firm that allowed me to use their conference room to meet with these folks because I was living in Seattle, living in their apartment and I didn't have any place to meet with these folks. And so I would meet with these folks who wanted to engage with us and they would ask me questions like should I pay off my mortgage? Do I have enough insurance? What is the tax consequences of doing this or that? And my response would be, "I don't know. Let me go ask the CPA, let me go ask the expert."

And so two CPAs in particular, John Bowler and Todd Flynn, who are now my business partners, were very integral to the role I was playing in these folks who became our Soundmark clients. Now, the flip side to that story is that the CPA firm was focusing on the physicians in dental practices and they could see what was going on in their portfolios, the trading of stocks and the tax consequences. They quickly latched on to the whole Coffeehouse Investor philosophy. So to make a long story short, we joined forces in 2000 and we officially created Soundmark in 2008, but people talk about index funds and they're the best investments. Index funds, passively managed funds maximize your return potential in the baskets that you invest in. But the bigger benefit to index funds is it allows you to focus on the financial planning issues that really matter like tax efficiency, like am I saving enough or spending enough. Those are the things that matter in the financial planning.

Your most recent book, your second book, Bill, I've got it right here, the Coffeehouse Investor Ground Rules, can you take us through what the three ground rules are and why each of them are important?

Well, I tried to create some ground rules, Benjamin, that I felt were easy to focus on and straightforward to apply in your life. And the ground rules are timeless. They've probably been shared with you by a parent or grandparent, and they are don't put all your eggs in one basket, there's no such thing as a free lunch, and save for a rainy day. It's very simple. It's very straightforward. They're timeless. When you put it in the context of a financial plan, it's save for a rainy day. Are you on track with your savings to be able to retire at a point in life that you control and continue to live your life and lifestyle that you had created while you were working? I mean, in simple terms, that's kind of everybody's goal to be fulfilled in a career and then to be able to retire and not have to downsize where you're watching your pennies. So it's save for a rainy day.

The second principle is don't put all your eggs in one basket. Create a financial plan that reflects where you're at in your life and your need and your ability to take risks. So if you're a 25-year-old, the risk that you have is not what the stock market's going to do over the next two years. The risk that you have is what inflation is going to do to your purchasing power over the next 20, 30, and 40 years. And that's more important than ever before because when I got started in this industry, rates were at 10% and you didn't have to invest in the stock market to make a decent return, but now bonds and fixed income yields are one and 2% where you look out over the next 20 to 30 years, boy, the stock market's dividends are going to probably do better than that.

Now, ironically, when I created my first book, when I authored my first book in 1999, the Dow Jones industrial average was at about 9,000. Today it's at 33,000 and change. So it's more than tripled over that 20 year period. And we've been through bear markets and we've been through everything under the sun and it's tripled. We are absolutely obsessed with capturing the market's return over the next 20 years. And probably the Dow Jones, if it keeps up, it'll probably be at about 100,000. Now, that seems like a big number, but when you analyze it out, it's not so big. It's not such a great return. And so that is don't put all your eggs in one basket.

Then the third thing is there's no such thing as a free lunch. The question is, our markets are efficient. Can you beat the market? And it's discussed ad nauseum. But the question is not can you beat the market, the question you need to ask yourself that I ask myself, that I pose in front of everyone is, what is the price you pay to try and fail? For investors who are active in their pursuit of trying to beat the market, that price is prohibitively expensive. What we have tried to do is to change the dialogue of investing in the stock market from trying to beat the market to being obsessed with capturing its entire return over time. What that does is it allows you to ignore the market, ignore the daily ups and downs and focus on what matters.

Now I'm the first one to admit that there's a lot of people that are fascinated with the stock market. My dad was fascinated with the stock market. But the reality is that there's a silent majority out there of folks who want to do the right thing. It's just that no one has introduced them to a better strategy. I look at the videos and the YouTubes that you've created Benjamin and it's you and PWL and your crew there, you're having a profoundly positive impact on people's lives by allowing them to turn away from the stock market and I commend you for it.

Thank you.

Let's just expand on that, Bill. Like are there other benefits that you highlight. Let's say someone meets you in the street and says, "Bill, what are the benefits of index investing?" Do you go more technical than that ever or do you keep it to those ground rules?

Well, it's funny because if I'm out golfing, I'll golf with people who like to talk about the stock market and then they'll turn to me for a little bit of advice and I'll say, you know what, we're obsessed. And I really emphasize that word obsessed because we are obsessed with capturing the market's return. That introduces a deeper discussion of what that means. And as we get into the dynamics of financial planning, another benefit, people talk about the fees of actively managed funds versus index funds. And certainly John Bogle was a leader in promoting low cost funds, but most people don't even have a clue as to the impact taxes will have on their portfolio over a lifetime. And what we're seeing in the industry is an evolution of more tax efficient type offerings in taxable accounts that allow us to really maximize those returns over a lifetime of investing. And so that certainly is another benefit of index funds that has not been addressed as much as it should within this landscape of investing.

You've mentioned a few times capturing the market's return, which we obviously agree with fully. Can you tell us about the Coffeehouse Investor model portfolio? When people hear capital the market returns, they think market cap weighted index funds, but your model portfolio as ours do extends a little bit past that. So if you could talk about the model portfolio, that'd be great.

Yeah, that's always an interesting discussion, isn't it? In my book, I created a very simple portfolio of passively managed index funds and I included some value, I included some international, some small, and I said that if you want to take this capitalization weighted concept a small step further, here's a logical way to do it. Now, in my weekly column, I expounded on that. So every week or every other week, I would talk about a Coffeehouse type portfolio and I would share the fact that you've got a large cap fund, a large value, small, small value, so on and so forth. And that whole Coffeehouse Investor portfolio really took on a life of its own back in the 2000 time period.

So people would think, oh, that's a Coffeehouse type portfolio, but really the Coffeehouse type portfolio can be used in an active arena as well. I'm sure you're familiar with Capital Group and they're American funds. They've captured the market's return over time. And I know many people, including my sister, who has embraced those funds through 401(k)s. It's not that index funds have some magical formula to them. It just allows you to stick with what happens.

But let's get back to the question of integrating those other components into your portfolio, some call them factors. When you look at the period of 2000 through 2008, certainly those factors, small in value, greatly accentuated a cap weighted return where the S&P 500 I think actually had a negative return from 2000 to 2008, where a more diversified portfolio capturing different dimensions in the market fared much better. But now the flip side to that is from 2010 till today, the large cap stocks have done phenomenally well compared to value although value is starting to shine again, but which one is better?

Well, when you look out 20 or 30 years, they'll probably all return about the same, but the question is, can you stick with what you choose when it's working against you? There's a lot of talk about, oh, cap weighted is the only way to go and they point to the S&P 500, but you didn't hear people talking about that in 2008 where certainly there was a real embrace of a broader portfolio than a cap weighted portfolio. And when you look at what is evolving in the marketplace today and Dimensional Fund Advisors have done some interesting research on how you look at these large cap companies, the Fang companies, they've done so phenomenally well. It's not that they're going to go away anytime soon. It's just that they've gotten so darn big that it's hard for them to keep up that rate of growth.

And so we're saying at the very least, be diversified. We're not saying get out of those stocks and get out of those companies and get out of the S&P 500. We're just saying it is possible that there could be a ten-year period where that large cap arena does nothing. And so at the very least be diversified.

You mentioned needing to be able to stick with it, which is critically important. How would you suggest to somebody sitting down deciding whether to go full cap weighted or add in the value and the small value? How would you suggest that they think about making that decision?

Well, I would say, what is diversification? Diversification is owning different dimensions or different asset classes that may move dissimilar in the short run if not the long run. I would show them, and we do show people data from 2000 to 2008. And we say, "Hey, the decision is yours." But whatever you choose, you have got to have the confidence that you're going to stick with it when it's working against you. And more often than not, people say, "Hey, I want to be diversified." So most of the time it's a short discussion.

Makes sense. I think from 1968 to '86, maybe there's another period like that where the market was flat in real terms and small value did phenomenally well and then-

Oh yeah, exactly. And when you look out historically, you look at the premium. We don't talk too much about the premium, but there certainly has been a premium in the small and value arena. So it's possible that you will be able to capture that premium. I personally think that premium could be pretty significant over the next 10 to 15 years just based on the current valuations of today.

One of the value propositions of your first book was that if you follow what you said, you could get on with your life. I'm curious your perspective on the desire to change people's minds because often how someone feels about a strategy, as you've said earlier, you might be able to stick with it better. So right now a lot of people feel very good about indexing or factors or stock picking or technical analysis or dividend investing is another one. Do you try to change people's minds that they feel very strongly about something?

If a person feels strongly about something... Well, there's a couple of different folks out there. There's folks that feel strongly about something and you're not going to change their mind. There are folks that feel strongly about something but they're open to doing what they feel makes sense. And so certainly we present the data, we present the options and we let them decide for themselves because ultimately they are the ones that are going to have to live with their decision. If someone is an active stock picker, if they are active in trying to beat the market and they're focused on that, our philosophy is that for every person who embraces those stock picking mentality, there's 99 people who want to do the right thing, who want to maximize their returns in the market and they're not into the market to try to beat it, they're into the market because they want to live their rich life and get on with their life.

And those are the folks that we want to connect with as I'm sure you do at PWL. It's incredibly gratifying to connect with those folks because it's a process of education. It's like in our psyche we're so focused on picking stocks as a society, lot of folks have not been introduced to a more common sense way of building financial wealth.

It is mind blowing every day to know how many people have not yet been exposed to this way of thinking about markets.

Oh yeah. I mean, we haven't even scratched the surface. And this is not a criticism of investors, but I still am like it's interesting to connect with intelligent people who can't even describe what a bond is. And that's not a criticism. It's just that we're so ingrained in this industry we don't recognize and appreciate the small nuances of what an index fund is, what an ETF is. I mean, that's a foreign language to many investors.

Yeah. In Canada, we still have around 90% of fund assets are still in actively managed funds here. So it's that.

Yeah. And so what a great opportunity it is for us to create an awareness of common sense.

Now, on that topic, Bogle started this mission of index funds and we're all pushing toward the same goal. Do you think the development of cryptocurrencies and commission-free trading are detracting from the index fund investing mission?

Wow. It certainly has caught the attention of a lot of investors. On the whole cryptocurrency thing, I'm still trying to learn about the value of it from an investing standpoint. I asked someone, "Well, do you own currencies? Do you own the Euro in your portfolio? Do you own the US dollar in your portfolio or the British Pound?" And they'll shake their head, "No." And I'll ask them, and I'm not criticizing them, I'm just wanting to learn why do you own this currency and what makes it special? So certainly it has captured the attention of a lot of investors. But I think that there again when you ask the right question, I think that it helps people to walk through this.

Now, a lot of people, I have a friend whose son just graduated from college and he said, "Hey, would you talk to him because he is interested in getting involved in the industry." And so I had a phone conversation and we quickly turned to cryptocurrencies and I asked this 22-year-old who had just graduated from college, I said, "What is the difference between investing and speculating?" I'm not saying speculating is wrong. I'm just asking you what is the difference? And so we talked about that. I said, "Are you looking to make a quick buck, which you can speculate? I mean, when I go to the casino two or three times a year, I'm speculating. Or are you looking to build wealth so that you can live a rich life in retirement?" And he clearly said the latter. And I said, "Well, if you're looking to invest and put money away for your retirement, your chances of those dollars going into cryptocurrency and doing better than the Dow Jones over the next 20 or 30 years through your active trading is slim to none."

And I have a little book, a little exercise in my first that I ran in my second book called Outfox the Box. It's a game of odds. And I ran that. And so, again, now when you get back to education, most people are wanting to do the right thing. And if you differentiate between speculating and investing, they get it. But the sad part of this, Benjamin and Cameron, is you've got young investors who are struggling to figure out this from a financial planning standpoint. But then again I get back to for every person who's buying the gain stocks and opening up cryptocurrency accounts on Robinhood, there are 99 people who are going to work, getting their first job, investing in their retirement plan for the first time and they want to do the right thing and they don't want to gamble. And when you educate them on what is common sense, they gravitate to that pretty quickly. But it is interesting to see what's unfolding out there, isn't it?

And do you notice a lot of similarities in talking to these people to your experience back in '98 and '99 or is it a different time?

Well, back in 1998 and 1999, there was not the obvious smart choice of target date funds, of index funds in their 401(k)s. And so there was this, okay, what do I do? But here you've got a smart alternative. You can say, "Hey, let's look at the data." And if you don't want to invest in cryptocurrency, here's a target date fund in a 401(k) that you can choose. And the problem with the cryptocurrencies, you've got a million dollar net worth, you can put $5,000 or $2,000 in cryptocurrency and it's gambling but it's kind of interesting. Not to say the tragedy, but the reason why I don't invest a small fraction of my portfolio in a cryptocurrency or in a GameStop is because it takes up bandwidth. Now I got to follow it, now I got to watch it. And if I make some money, I think I'm smart and I'm going to do it again until I lose it.

And to me, I want my mental energy to be focused on something productive. I just think there's so many opportunities out there to make money through starting a business or sharing a... I've got a good friend who started making soaps a year ago and now she created a website making soaps and she's starting to make some money on soaps and it's just, it's amazing to see the opportunities that are out there from the internet and from social media marketing. It's so gratifying to see someone who really puts their creativity towards something that is meaningful instead of trying to catch the yo-yo of a GameStop or a cryptocurrency.

Are there other productive approaches that you suggest people do to build up their wealth early on in life?

Well, the number one thing that a person can do is up their saving. That has a profound and positive impact, and I can't tell you how many times. In fact, two weeks ago, a husband and wife called us up and said, "Hey, we want to work with you. We've been following the Coffeehouse Investor for 20 years and we're at a point in our lives where we're starting to take money out and it's just a little over our bandwidth from a tax standpoint." I think they had like, I don't know, a $3 million portfolio. And I said, that's impressive. I could almost guess their line of work. They were teachers. They were astute savers over their lifetime of investing. Those types of stories, it's the millionaire next door story that's so incredibly powerful. And so if somebody wants to build wealth, the first thing they do is up their saving. The second thing a person can do, and I share these in my second book, the coffeehouseinvestor.com. You can find these three on my three ways to building wealth. It's coffeehouseinvestor.com/freedom.

The second way is to up your career. There's never been a better time to up your career through online learning than there is today, and focus your energy on that. The third way is to start a business. The first business you start, you'll probably fail at. You learn a lot, but failure is integral to succeeding. There's a book called Grit written by Angela Duckworth. And she has some very inspirational stories of people in my backyard, Jeff Bezos at Amazon and Howard Schultz at Starbucks. The amount of failure that they went through early on in their life, it just inspires me to push on. So those are the three things. Save more, up your career, or start a business for someone who wants to accentuate their wealth building opportunities over a lifetime of investing.

Well, speaking of failure, you talked about this in your book, like how many times it took you to get your book approved. You were rejected 46 times for your first book?

Yeah, it was just... It's funny because I would send them out and I don't have it in front of me, but I laminated my favorite response from an editor. They wrote back and they said, "We just don't see the wisdom in this. You're not going to be able to say anything that John Bogle couldn't say in a speech." But I was persistent. And it's funny because when you believe passionately in something, it's great to get up every day and go to work. I was obsessed with getting this book out, felt like there was an enormous opportunity to share this message. And finally, I was able to get an agent out of New York who connected me to a publisher and an editor in Atlanta, Georgia, that had just done The Millionaire Next Door.

And that is what inspires me to continue on today because what my goal is, somebody says, "Well, what's your goal with Coffeehouse?" My goal with Coffeehouse is for two people to be sitting on an airplane next to each other. They don't know each other and the market's down 1,000 points and one person says, "Well, what are you doing with your investments?" And that person says, "Well, I'm a Coffeehouse Investor." And the other person will know what that means. As you are saying, with 90% of all dollars invested in actively managed funds in Canada, the opportunity is off the charts. We have gotten so tuned into this stock market thing that we forget that what's important is not the stock market, it's those qualities of building wealth that were embraced by my grandparents 30, 40, 50, 100 years ago.

I want to dig more into that, Bill. We've talked about a lot of the things that index funds solve. Can you talk about what index funds do not solve?

Well, again, index funds are not some magic investments that will allow you to build wealth. Index funds are a tool. They are building blocks that allow you to focus on the financial planning. Now, about 10 years ago there was a columnist, maybe even 15 years ago, Walter Updegrave, who was a very prominent financial writer. He did some research integrating the data from Morningstar and from Vanguard. What they found was that owners of the S&P 500 index fund at Vanguard were just as likely to sell out of their funds in market declines or more apt to sell out than folks who owned actively managed funds at American Funds with the Capital Group in part because there's no one there saying, "Hey, let's stay the course when the market declines."

In February of 2014, the stock market to start the year was down 5, 6, 8%. And I've got the paper, the Wall Street Journal on one page had an article about the flow of dollars from equity mutual funds to bond mutual funds. It was the largest flow ever during the last four weeks. On the same page, it shared that the stock market was up 3% for the day and that 2014 turned out to be a pretty good year for the stock market. So an index fund is not going to hold your hand and say, stay the course and capture the entire return over the 20 years. You've got either have the intestinal fortitude to do it yourself or work with a financial planning entity that embraces the same.

After 20 years of working in the RIA industry, and I'm sure that you all can have stories the same, it's so gratifying to see people who have turned away from the stock market and the positive impact that it has on their lives, especially in the down markets, the bear market of 2001, the financial crisis of 2008, the pandemic of a year ago when the market was down 30 and 40%. And one of the reasons why these folks are able to stay the course is because through their financial plan, they've got enough in bonds so they know they're never going to have to touch their stock market investments in bear markets. And so they can stay the course. And that's where astute and smart financial planning really comes into play in my opinion.

What would you say is the ultimate goal of financial planning?

The ultimate goal of financial planning is to give people clarity on what they need to do to get from point A to point B, and a peace of mind in knowing that they are on track to get there. They're doing the right things. They've got their estate plans in place. They've got accumulation strategy in place in the different tax buckets. They've got a de-cumulation plan in place. And again, it's just when somebody knows that they are on track and doing the right thing, the peace of mind that it gives someone is just so darn gratifying. And I know in my own personal life, I know exactly how much I need to save. So what the stock market does is irrelevant because I know I'm saving automatically and I am on track. And I know that I've got a bear market built into my financial plan.

The biggest unknown for many folks is unexpected healthcare costs later in life. That's the big unknown. And so we start addressing issues like that. We start addressing elder care planning. We start addressing building a team around you so that when you do have to address either cognitive decline or a health issue that's physical in nature, you've got a team that will support you. And this is especially important for husbands and wives because more often than not, it's the wife that handles the day-to-day finances, and I have a whole chapter about that, being in control with the checkbook and the husband is involved more in the investing part of things. And yet when we integrate both spouses into this discussion, and then later on the husband begins to have cognitive decline, the peace of mind that the wife has that, hey, I'm being taken care of and it's authentic is just it's very, very rewarding.

Earlier you mentioned a term, a rich life. I'd love you to describe what that means to you.

For me, a rich life means, and I have a quote by a philosopher in my first book that kind of sums it all up. It means finding a place at which your passions and interests intersect with the needs of the world, and then moving forward in your life so that when you wake up every day, you've got a purpose in life. And it doesn't have to be something that's grand. I mean, I have many stories in my second book of my mom who inspires so many people because she wakes up and she's kind to people. And when you move through life, I've got another story in my book about a bus driver who was so darn uplifting and the way she embraced her passengers, it changed people's lives. It changed my life.

We don't have to do these grand things, but when we find... I mean, and I'm sure you've got the same stories for folks who are older getting on in their lives. Their purpose in life is to be good examples to their grandchildren and to make sure that their grandchildren are doing the right things and making the right decisions. That's their purpose in life. And when you give someone the financial freedom to embrace those things, I mean, for me that's what gets me up every day and I'm sure it's what gets you two up every day.

Definitely. In the book, you have a great analogy about dialing in your power settings. It's a flying analogy. Can you talk about the analogy and how it applies to financial planning?

Sure. I've got some stories about flying. In my first book, I talk about my younger brother. We'd be out there on the farm chopping thistles and a plane would fly over and he'd say, "God, I'd love to be an airline pilot." And to make a long story short, he is now been a captain with Alaska Airlines for 30 years. But when he was 17 years old, he gave himself a high school graduation present. He bought himself an ultralight airplane kit. This was those gliders that have a lawnmower type engine that power through the air. We put it together in our shop and he took off and it looked like he was going to crash and I was screaming at him to pull up and I thought, gosh, he's never taken a flight class and I've never taken a first aid class. We've got a big problem on our hands.

I've always been fascinated with flying. And five years ago, I got my pilot's license, two years ago I got my instrument ready. It's very similar the flight planning and the financial planning. In flight planning, you dial in your destination. And if you're on autopilot, the autopilot makes small adjustments along the way so that you will ultimately arrive at your destination safe and sound. Now, in the context of financial planning, you dial in your power settings based on a goal. You're 30 and you want to retire at 65 and you want to spend this much money in retirement. So your power settings are how much you save while working, when you retire, how much you spend in retirement, the rate of inflation that you are expected to experience in your life, which is a whole nother topic, the rate of growth in your portfolio.

No one knows what your portfolio is going to return over the next 20 to 30 years, but you've got a good ballpark idea it's probably going to return somewhere in the neighborhood of 4 to 5% if you've got a 60/40 type portfolio based on today's returns. So the goal is not to get those exact figures dialed in because no one knows what's going to happen. The goal is to get those drivers of your financial plan so that it closely approximates where you're at and then makes small adjustments along the way each year so that your expectations of what you want to happen match the reality that unfolds. That's what financial planning is all about in our opinion.

What do you think are some of the biggest mistakes that people make in financial planning?

Well, early on, I think that younger investors can't appreciate the incredible power of compounding. Just little changes, little increases in how much you save will have a profound and positive impact 20, 30, and 40 years down the road. For investors who are getting closer to retirement, I don't think there's an appreciation for the complexities of the decisions that are in front of you, especially from a tax standpoint. Again, taxes are likely to be the biggest strain on your portfolio. And when we ask someone who we sit down with for the first time, what is your plan for taxes during the de-cumulation phase, they kind of look at us with a blank face. They haven't really worked through those decisions. So I would say that those are some of the big issues that we need to face today from a financial planning standpoint that will have a significant impact on your portfolio's ability to sustain you throughout your life.

My favorite part of your new book is where you tell a story about finding your own path and financial planning. You describe how it's about aligning your financial resources with what you call your essential creativity. You talk about being in harmony with how money flows through your life. Can you talk more about that and what would you say to someone who hasn't had that experience yet?

Well, I would say that it is very important to listen to your heart. If you're burned out on your job, listen to that. And you may not be able to make a change tomorrow. When I was burned out as a stockbroker, I didn't immediately start writing the book, but I encouraged folks and I do this with people we engage with, with our clients at Soundmark to go dig in the dirt philosophically if not literally, and create that emptiness that will allow what I talk about the energy of the universe to share some insights into a greater wisdom that will be more fulfilling, more enriching. But it can be a very painful process as it was for me. But the first thing is to create that space and allow that to happen.

And then the next thing is to take baby steps to move forward. And again, I have a story of my book of a woman who was in a dead end job as administration assistant and wanted to buy a dog washing company. It didn't happen overnight, but over the course of two to three years, she made it happen. And now she's got this incredible dog washing business that is so, so enriching to her life. She touches people's lives in a profound way in the way she connects with them and their dogs. And when you look at the opportunities that are out there today, it's just mind boggling in the opportunities that are there.

One of my favorite quotes was in the Wall Street Journal about, I don't know, three years ago, maybe it was even longer, but they interviewed one of the founders of Home Depot. He had written a book on capitalism. The interviewer asked the author, one of the founders of Home Depot, he said, "Are there opportunities like that today to create another Home Depot or something like that?" And he said, "All you got to do is look at our aging population to see a world full of opportunities to help this part of our society move safely in their life." And you look at the explosion of companies that are trying to address that aging issue. It's just there's so many opportunities that are out there.

But it doesn't happen overnight. Create a team around you that will say, "Hey, go for it." When I was writing my first book, there were people that were saying that'll never fly but there were people who were saying, "Hey, I love this idea." So surround yourself with people that are saying, "Hey, go for it." And people who you can turn to when you do fail, because you're going to fail. But that's really what I experienced in creating the Coffeehouse. And I've got some steps, I've got some wisdom that I have gathered over the years that I share on my website, coffeehouseinvestor.com/freedom, that you can chew on, that you can reflect on in your own life if you're at a point in your life where you're thinking I'm at a dead end, I'm stuck and I'm not being fulfilled.

You mention in that book an experience while you were at Smith Barney being a stockbroker where empty spending started to creep into your life. Can you talk about that experience and how it changed once you started doing something that you love?

Benjamin, I was not fulfilled working as a stockbroker. And so I would just, to fulfill that emptiness, I would go out and spend dollars. It was kind of easy because I was making some good dollars at Smith Barney. But when I stepped away from that, and I was empty. I was not fulfilled. When I stepped away from that experience at Smith Barney and moved to a little town north of Seattle, I had to cut way back because my income dropped dramatically. And yet what I found was life was more fulfilling because I started tuning into my own creativity through writing a book, through climbing mountains, through cooking. I share a story about teaching folks in classes how to cook or make pasta. That type of creativity, I never had so much fun in all my life.

Now, the same thing happened over the last 20 years when I haven't been as fulfilled as I feel like I want to be in my work and that spending creeps in. That's one of the reasons why I was driven to write the second Coffeehouse Investor book because I feel like I haven't even scratched the surface with the impact that Coffeehouse Investor can have on people's lives. And I've never had so much fun in all my life, and I'm still experiencing failure on a daily basis in the way I'm reaching out to different media outlets to try to get this message out. But that's part of life and in some weird sort of way, I kind of thrive on that failure because I know that I'm one step closer to my ultimate goal of that airplane experience where people know who Coffeehouse Investors are.

It sounds in a lot of ways like the FIRE, financial independence retire early, idea what you just spoke about. Do you have any thoughts on that whole concept?

Well, that whole FIRE concept is fascinating and I think it is great for people who want to live that life. There's been a lot of criticism that they live such a frugal, such an austere life that, hey, where do you find a balance? To each their own. But I will say that I admire the financial independence because those folks know if they're on track or not. They keep track of their spending. They keep track of their savings. That's something we all should be doing. That's something that my grandparents did 60, 70, 80 years ago, keep track. Now, if someone wants to cut way back so they can retire at 40, I mean, great. The reality is that nine out of 10 people are not going to do that. They're going to stay involved and engaged in their career and hopefully it's fulfilling. But I do think it's very admirable what they're doing in raising the awareness of financial planning.

And there's a lot of elements in that. You mention that book The Millionaire Next Door, which you shared, I guess, the writing agent with.

Yeah, exactly.

Did that book have an impact on you as well?

Oh, a huge impact. I mean, I see it in life with the folks I work with, the clients at Soundmark. I mean, the millionaire next doors are not the people that are driving fancy cars. They're not the people in the huge houses. They're the people that are kind of content with where they're at and they recognize the importance of living within their means and socking money away. Now, today it's easier than ever to do that because you can do it automatically from a paycheck, from your workplace. You don't even have to have a workplace retirement plan. You can have automatic withdrawals from your checking account to an investment account. I look at my life and I don't budget because I know how much I need to save. And so that's out of my paycheck on an automatic basis. I don't even think about it. And so there are some great tools out there that put those types of functions on automatic so that it doesn't take up bandwidth at the end of every month.

Our final question, how do you define success in your life, Bill?

Oh, gosh, I guess at the top of the list is I hope that I'm kind to people and I look at my mom and how over the past, who through her lifetime she's just kind to people, especially when it's not easy to be kind to people. I think that there's a lot of talk about religion and I share a little bit about my religious experience of growing up in a pretty strict Catholic environment. I look at the people who walk this earth and I think the people we hold up are people who are kind. And so I try to take that into my work every day. I'm just so incredibly blessed because I have found that place at which I am able to fulfill my passion of sharing the Coffeehouse Investor message.

It's gratifying to be on this podcast with both of you because in many ways you share that mission with the world. You two are absolutely passionate about it. And it's fun to share that energy with both of you. And I want to thank you for the impact that you are having on people's lives because I don't think it... What I have found and I'm sure you see it in your life is that people who have anxiety over money, it just saps the energy of life right out of their bones. And when you can help them to see a better way, I mean, how gratifying is that? So thank you for sharing this mission and this journey with me.

This has been amazing, Bill, and it's almost strange to me to think back like 23 years ago, it was you and Larry Swedroe's books that started me on this path. So I guess you book-ended my entire career in this business. So, for that I'm grateful and also for this amazing hour together, thank you so much.