At The Money: How Do Financial Professionals Invest Their Own Money?

Most investment authors tell you what to do with your money – but they never tell you what they do with their money. Brian Portnoy, holds a PhD from the University of Chicago and is CEO of Shaping Wealth, which helps financial advisers incorporate behavioral finance into their practices. His latest book is “How I Invest My Money,” co-edited with Josh Brown (CEO of Ritholtz Wealth). Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 2:08Barry Ritholtz?

  Most investment authors tell you what to do with your money, but they never reveal what they do with their own money. That bothered Brian Portnoy. He spent more than 20 years in the mutual fund and hedge fund industries. He holds a PhD from the University of Chicago, and he is the CEO of Shaping Wealth. His 2018 book, The Geometry Wealth of Wealth, was really a fascinating exploration on behavioral finance and emotional intelligence. He has co-edited two editions of How I Invest My Money with my partner Josh Brown. Full disclosure, Josh is at Real Wealth Management.

• 2:51Barry Ritholtz?

  So, so let's talk a little bit about both of these books. They're really very different from the usual investment tones. Tell me a little bit about its genesis.

• 3:04Speaker 04

  Yeah, thanks, Barry. Appreciate it. So, yeah, the genesis is, it's a, it's a fun little story. It was 2019, and Josh, who you know, I know, is just a very sharp and good writer, published a blog with the title, "How I Invest My Money." And he made the simple observation that in all the years that he's been in the market, no one's really ever asked him, you know, investment advice, financial planning advice. So he decided to write a blog that kind of walked through how he builds his portfolio, venture investments in friends' companies, a variety of things, and it got great feedback. It was very well done. I read it. I texted him. I said, "This was great.

• 3:46Speaker 04

  And hey, what do you think about getting a bunch of our friends together to write similar short, you know, blogs or chapters? And we could put it together as, as a volume." And he loved the idea. I called, I called our friend Craig Pierce at Harriman House and said, "Craig, what do you think?" Well, I'll say from me texting Josh to us having a book contract was about 72 hours. Harriman House was very into it. And, you know, Josh and I proceeded to build a volume of 25 contributors, and that volume was published in 2020 and, and really received wonderful reviews. And as you indicated, we've followed up with a second volume very recently.

• 4:31Barry Ritholtz?

  So the really interesting thing about this is some people who are free to share their advice, you know, the, the question comes up, hey, might they be a little reluctant to tell, open the kimono about how they run their own books, their own portfolios, their own household of, of finance? Did you get in any pushback from people who were a little reluctant to drop their professional personas and, and speak honestly about what they do with their own money?

• 5:03Speaker 04

  The, the, the short answer is no. But, so, you know, for the first volume, 25 phone calls, 25 chapters. Second volume, yeah.

• 5:13Barry Ritholtz?

  25 for 25. That's amazing. No hesitation, nobody tapped out, nobody said, "Not for me."

• 5:21Speaker 04

  Second volume, 25 for 25. And, but your, your word hesitation, yes. So here's the thing, and, and a word that has surfaced with the publishing of these two volumes that I think so important to being successful financially, which is permission. Effectively, we gave permission to people. They happen to be financial experts, financial advisors, portfolio managers, economists and the like, but we gave permission to quote unquote, "go there." Talk about how you invest your money, because think about a, you know, an equity fund manager. Well, they might run a, a large cap equity sleeve and, and be very good at that. But when they think about running their money, well, they're going to have lots of equities,

• 6:06Speaker 04

  lots of bonds, they're going to have real estate, they're going to be doing a lot of different things with their money beyond the portfolio, charitable giving and insuring and risk management, on and on. And so the stories ended up being this unbelievable kaleidoscope of different, different journeys. I can say, and it's, Barry, it's, it's, it's the part that I'm proudest of in this ongoing project now. 50 chapters, 50 completely distinct life stories from people who all know quote unquote, "the right answer." But then when invited to, and the stress again, given the permission to really talk about how they invest, how they allocate to the things that are important to them,

• 6:49Speaker 04

  they went in their own direction and, and, and expressed it in a very unique way.

• 6:53Barry Ritholtz?

  So I'm really curious about both the first 25 people in the first book and the second 25 people, or I should say other 24 people, because I'm one of them in the second book.

• 7:05Speaker 04

  Yep.

• 7:06Barry Ritholtz?

  How did you put that list together? Did you just go through your, your contacts on your, on your phone? Or was there, hey, let's have a few of these and a few of the, what, what did that look like?

• 7:17Speaker 04

  It was important for me to have a diverse set of voices. And, you know, one of the outcomes that I want from this ongoing project is for readers, just, you know, regular folks, friends and neighbors, to pick up the volume. You know, you've now got 54-page chapters, very easy, bite-sized insights. I, I, I want people to find voices that resonate with them. And so it was important for me that we have people a lot further along in their career. We have people who are relatively young. We have men, we have women, we have people of color. We, we've just got, you know, sort of a differentiated set of perspectives that tie

• 7:59Speaker 04

  into, you know, individual journeys, and those are what they are. You know, the feedback that we've gotten from so many readers is exactly that. Wow, I was able to, one, find some voices that really synced with my life experience. And then secondly, oh, I, I read chapters from, from other contributors. I would have never thought about that particular perspective or, or, or journey. So I think it was important in both volumes to have a, a, a mix of people so that you can, everyone can appreciate sort of the diversity of experiences that we have with our money stories.

• 8:36Barry Ritholtz?

  Did contributors get a, a brief, "Hey, we want you to talk about this or that"? Or was it just a blank page without any structure? And hey, we want a thousand words. Knock yourself out.

• 8:48Speaker 04

  Completely blank page. There was a one-line instruction. Answer the question, "How do you invest your money?" You contributed, you, you, you knew, you, you saw that firsthand. You know, in the second volume, people could look back and, and see what folks did in the first volume, but with the first volume, this, this being just a, a, a total, you know, sort of greenfield experiment, what was really neat was to see that we gave that simple instruction, and people tended not to answer the question, "How I invest my money?" They leaned into why I invest my money. Because we got all these wonderful stories about families and priorities and hopes and dreams and fears.

• 9:33Speaker 04

  So it really isn't sort of a bullet point list of, hey, I have a 75% allocation to equity and a 20% allocation to bonds and 5% allocation to realist. That, that's not the way these turned out. You know, some people went more into more detail on their specific investments, but without asking, what the contributors did across all 50 chapters was basically say, "This is my life. This is what's important to me, and this is how I allocate my capital." I mean, you in particular, Barry, were one of a handful of people in the two volumes who pointed out, when we're talking about money, we're actually talking about our capital, our financial capital, our temporal capital, our social capital, our human capital, and

• 10:18Speaker 04

  we're all making decisions about how, what those are, how we want to invest them in order to live the life that we want.

• 10:26Barry Ritholtz?

  I'm curious about the use of proceeds. I should have asked you this earlier, but let's talk about the royalties on this book. This isn't just a money grab for the authors. Tell us a little bit about that.

• 10:41Speaker 04

  Yeah, I mean, anyone who publishes a book outside of someone like our friend Morgan Howes on those, there's not a lot of money in this. There, there really isn't. So no, this, this was a labor of, of love. Everybody contributed their chapters without sort of any expectation of a compensation. And as I said to several of the contributors to the two volumes, if, if you want 1/25th of the proceeds, I, I'm happy to send that to you, or I could just send you a Starbucks gift card so that you can get maybe a large coffee.

• 11:17Barry Ritholtz?

  So curious as to the biggest surprises in each addition, what chapters kind of leapt out at you and said, hey, I've never really thought about this aspect of money and investing quite this way before?

• 11:31Speaker 04

  Yeah, so it's a good question. And I think back, volume one was published six years ago, so I'll have to rack my brain a little bit. It was really the stories that people surfaced and you know, so how, how well they were able to articulate things in their lives that sort of brought them joy that were important to them. So, you know, in the first volume, a couple or three people, I mean, Bob Seall wrote a beautiful chapter about a cottage or a vacation home that his family has had for a couple of generations. And, you know, his chapter on how I invest my money was really about how do they maintain

• 12:13Speaker 04

  that house as a place where grandparents, parents and grandkids can come together and enjoy life. At the same time, DeSarte Yarnway in volume one, wrote a beautiful chapter about sort of, it was sort of an immigrant's tale about how his family came from Africa, built a life in America, and how that influenced the way DeSarte thinks about his portfolio and supporting his family and, and community. Lee Anne Miko, you know, writing about, you know, sort of growing up in pretty intense scarcity and how that impacted her perspective on becoming a financial advisor who could help people really come along. So, volume

• 12:58Speaker 04

  one, you know, you asked about surprising. I wouldn't say that I was terribly surprised. It was, I had a chance and I thought I knew most of these people reasonably well. I, it was a delight to sort of read their life story and learn something new about them. And, you know, the same experience carried over to, to, to volume two. You know, Heather Robertson Fortner wrote a very personal tale about some intense childhood struggles she had that sort of established and changed, you know, her, her lens on, on, on money. Sam Samantha Russell, who many in the industry know well, you know, tragically, at a very

• 13:41Speaker 04

  young age, she lost her husband to cancer and has three small children and asked some very profound questions about what does any of this matter? Basically, like, how do I invest my money? Like, who gives a flip? Like, I've had this tragedy and it has made it so clear what's truly important. And so the money questions, which are real, because you need the portfolio, you need the insurance, you, you need to have the estate plan. And thankfully, they had that in place before her husband passed. You know, all of that is in this broader context of, you know, sort of navigating life's sort of ups and

• 14:23Speaker 04

  downs, uncertainties, happiness, tragedy, and so forth. The surprise with someone's financial strategy, not so much. Surprises usually delightful in terms of, wow, I didn't know that about this person on almost every page.

• 14:39Barry Ritholtz?

  Really, really interesting. So, so the underlying thesis of, hey, people always tell you what to do, but they don't tell you what they do. I'm curious, where were the biggest gaps between the typical investment recommendations and the sort of things people either actually do or think about and talk about as part of their approach to investing?

• 15:05Speaker 04

  Yeah, I think across all 50 chapters, you see a pretty subjective approach to risk. So, you know, you know, we know technically that risk can be managed, measured in some quantitative ways that, you know, tell us whether or not we're taking too much, too little, the right, right amount of risk. I think what we saw across many of the chapters was, were narratives about how attitudes toward risk, which tended to come from childhood and adolescent experiences, then later influenced an approach to managing the family, you know, family finances. Couple of specific examples, mortgages, I think. And, and we could talk

• 15:49Speaker 04

  about whether there's a sample bias in who came along for, for this journal, for, for this journey. But, you know, on the mortgage front, there are a number of people who indicated that they paid off their mortgage early. You can run the math and you could say, well, if I don't pay off my mortgage early and I, and I take that extra cash flow and I invest it in the market, there's probably going to, depending on your rate, there's going to be a delta between the rate of return in the market and your market rate. And hopefully that's a positive delta. And so it's quote unquote rational to not pay off your market. Forget about it. A number of people, including me, paid, have paid off their mortgage at one point or another, because it just feels good to know that, leaving aside taxes, you

• 16:32Speaker 04

  own your home and you're safe and you're secure. You know, the number, you know, the number one question with our money lives, with financial planning across the board is simply, am I going to be okay? You saw lots of these, you know, financial experts in their own way, answer the question, am I going to be okay? Paying off the mortgage is one thing, establishing that safety, holding a lot of cash. Another theme that came up multiple times across both volumes. There's a quote unquote optimal level of cash that you want to have in your portfolio relative to the risk you're taking, relative to your monthly expenses and whether you set aside six months of living expenses, you know,

• 17:11Speaker 04

  whatever rule you choose. Lo and behold, you know, we saw a number of people hold what the theory would say is too much cash. But in the same vein as paying off mortgages early, there's a certain element of safety that comes through that. And you forsake maybe higher long-term returns with that feeling of safety now.

• 17:34Barry Ritholtz?

  Yeah, we've, we've all had this conversation with people and I believe the question that we often ask is wrong. It's not which is mathematically the optimum solution. The question is, for you and your personality and your risk tolerance and your just sense of well-being, are you willing to do what is suboptimal mathematically for something that is going to be, I don't want to say optimal, but much better psychologically, much better in terms of your comfort level. A lot of, I don't want to say left brain

• 18:15Barry Ritholtz?

  people, but a lot of the mathier people, and, and just as an aside, my CFO, Bill Sweet and I have this ongoing discussion about, do you take the cash back on your points credit card? Or do you take the points? And Bill, who is a CFO, says, well, of course you take the cash back. And me, who has been married for nearly 35 years, says, no, I want the points because $43.72 dropping into my checking account will kind of sneak by unnoticed. But when I want to buy that really stupid cappuccino maker for two grand and

• 19:00Barry Ritholtz?

  my wife is going to make me sleep in the backyard, honey, I'm getting it with points. Oh, go ahead then. So sometimes the optimal mathematical solution may not be the optimal human solution.

• 19:14Speaker 04

  Yeah. So Daniel Crosby, who is a good friend and expert in behavioral finance, wrote exactly about this and, and, and used the line that there's a difference between spreadsheet optimal and behaviorally optimal. So in a sense, how I invest my money, both volumes one and two are sort of, you know, master classes in applied behavioral finance, because we're asking the experts to, you know, reflect on sort of which version of optimal are you going to choose? And across the board, it was the behaviorally optimal, you know, path that they took. We know that the best financial plan is the plan that

• 19:54Speaker 04

  you can stick with. And so if you build the perfect plan according to modern portfolio theory, but it introduces behavioral risks that the client can't manage, well, then you don't have a good portfolio. So, you know, unfortunately for the ultra-left brain folks among us, it's life. It's a mess, but this is what we do. This is the good stuff.

• 20:22Barry Ritholtz?

  Wes Gray wrote a white paper, Wes is of Alpha Architect, a couple of years ago, where the highest returning combination of factors was something like deep value and momentum. And the, but it was so volatile and the drawdowns were so fierce that he titled the paper, even God would get fired as an active manager, just to give you an idea.

• 20:49Speaker 04

  I love that piece.

• 20:50Barry Ritholtz?

  The difference between mathematically and behaviorally optimum. Second to last question, any conflicting approaches are there throughout the books, different chapters that sort of lay in opposite of each other? Or are they really more, listen, we kind of forget, personal finance is personal and what's right for one person may not be right for another.

• 21:15Speaker 04

  Yeah, yeah, Tim Mauer has that great line that personal finance is more personal than finance. So, you know, based on, you know, risk tolerances or approach to risk, mapping it up to goals, short term and long term, you see a pretty wide range of people who have more aggressive portfolios versus more conservative portfolios. You know, the key is to understand the why. So what is it about who you are now and what you want to achieve, but also, you know, your experiences that got you here led you to have a portfolio that's more balanced between stocks and bonds versus one that's entirely in equities,

• 21:56Speaker 04

  and you're okay with taking what's likely to be more volatility in the hopes that that portfolio returns more over time. So, you know, I'd say that there's disagreements across the chapters, if you put them kind of in the same room in terms of, you know, how to invest. But, you know, the point is that all of these folks, all 50 of them, are saying, well, this is the way I invest. And it's not in conflict with how I might manage client assets. It's just that what I do for them isn't perfectly, you know, mapping to my life and my constraints, taking care of kids, supporting parents as they age, things you want to do in the community. Imagine the full kind of range of choices

• 22:41Speaker 04

  that we have, even if you're a seasoned portfolio manager with an outstanding track record or a financial advisor who's been taking care of families for the last 20 or 30 years, your life circumstances are yours. Everybody is quite unique. So that's what makes these chapters so fun and colorful. You could just sort of find different smart people doing it differently.

• 23:05Barry Ritholtz?

  And last question, did editing the book change how you invest your own money or what you wanted to accomplish with that money?

• 23:13Speaker 04

  No, no, because I think good financial planning starts by looking in the mirror. And that's something that I've done a lot. I think I've been reasonably thoughtful about who I am and my money journey. I sort of write about this and do this for a living. You know, I have what I think is a healthy, ongoing dialogue with my wife about this. Increasingly, we're folding our adult children into more mature conversations about finances and legacy and things like that. So I was sort of delighted to see the range of perspectives. You know, the way folks wrote about answering, well, how much is enough? What risks should

• 23:57Speaker 04

  I take? You know, how do I navigate this sort of complex relationship? I learned a lot. But in terms of the way that, you know, we've managed our own financial assets and my philosophy, which is really, you know, based around, you know, simplicity, diversification, and compounding, I would say that those have been some anchor principles for me for a very long time. And, you know, those did not change based on editing these chapters.

• 24:25Barry Ritholtz?

  So to wrap up, if you consume a lot of financial content, be it on television, print, or heaven forbid, social media, and you've ever been curious about what those people telling you what to do with your money actually do with their own money, this is the book for you. How I Invest My Money by Brian Portnoy, edited by Brian Portnoy and Josh Brown, volume one, and now, volume two, out today. I'm Barry Ritholtz. You're listening to Bloomberg's At the Money.

• 25:10Speaker 05

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