TIP849: Average Returns Can Still Make You Wealthy w/ David Fagan

In this episode, Stig Brodersen speaks with David Fagan about Total Wealth Performance and why someone with average investment returns can still build a meaningful net worth. They discuss why saving is the first step in wealth creation, why financial independence is a matter of intention rather than luck, and how idle cash quietly becomes one of the most expensive decisions investors ever make. IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:04:20) Why David has been a saver ever since he blew his entire net worth on a Hot Wheels racetrack at age eight (00:12:34) Why money decisions that look odd are often rational given someone's lived experiences (00:13:56) Why financial independence is not luck but small habits that compound (00:17:47) What Total Wealth Performance is, and why the return on your broker statement is not your real return (00:22:29) How Stig thinks about financial independence (00:29:34) The ABCs of front-end performance: availability, behavior, and configuration (00:37:55) Why idle cash is one of the most expensive decisions an investor can make (00:45:00) Why net worth beats portfolio returns as a scorecard during the accumulation phase (00:54:13) How and why tax is a real expense Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out Stig and David's free educational resource, Compounding Simplicity. Watch David Fagan's free educational videos. Read Charles Schwab's study, Does Market Timing Work? Listen to our interview with David Fagan about Why Simplicity Beats Complexity. Listen to our interview with David Fagan about Simple Investing. Listen to our interview with David Fagan about investing like a business owner. Listen to our interview with David Fagan about Buffett's favorite business book. Connect with David on LinkedIn or through mbf Chartered Professional Accountants. Stig's blog post on his portfolio and track record since 2014. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Investor’s Podcast Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our sponsors: Monarch Plus500 Netsuite Plaud References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

• 0:00Speaker 00

  You're listening to TIP.

• 0:02Speaker 01

  In today's episode, I'm joined by my close friend and business partner, David Fagan. David is a chartered professional accountant in Nova Scotia, Canada, and for more than two decades, he has helped business owners and families build wealth. We start with a question David has been asking himself. Why can someone with average returns still build a meaningful net worth? His answer, what he calls total wealth performance. And you can think about it like this. When someone asks how your flight was, you don't just describe the plane. You also want to make sure that you make it to the airport on time and that your luggage's arrived. And many other things, of course. And investing works the same way. Total wealth performance is whether the money got invested on time

• 0:47Speaker 01

  and how much of the return actually made it home after taxes, fees and friction. It's the money you ultimately have at your disposal that matters.

• 0:59Speaker 00

  Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own and they may have investments in the securities discussed. Now for your host, Stig Brodersen.

• 1:43Speaker 01

  Welcome to the Investors Podcast. I'm your host, Stig Brodersen, and I'm co-hosting this episode with my friend, David Fagan. David, this is your sixth episode with us, but it feels like we're just getting started. So what is on your mind today?

• 1:58Speaker 02

  Thank you for the invite, Stig. We've had some beautiful weather here in the Annapolis Valley of Nova Scotia. And when the weather's super nice, I sit out in my backyard and enjoy the beauty. And I've been in a very reflective mood these days. And I've been asking myself a lot of questions. Questions like, why can someone with average returns still compound and create meaningful net worth? And is net worth even a good barometer for assessing someone's financial performance? And then here's a big one. Why do some people save and others don't? Been thinking about all this stuff this summer. And I've spent over two decades as a chartered professional accountant,

• 2:40Speaker 02

  helping business owners and professionals and families build stronger financial futures. And the longer I do this work, the more I come back to simple things on how people can grow their net worth. And get this, it's saving, behavior, time, taxes and structure. You know, is their money compounding in a way that supports the life they're trying to build? And maybe that's where I want to start today, Stig. And before we talk about investment returns and strategy and portfolio construction, first, people have to save. And I should be clear, I'm not talking about wealth preservation today. That tends to be a different ballgame. I'm talking about creating wealth from near zero.

• 3:23Speaker 02

  When you talk to people about creating financial independence from zero, savings is a first principle. We've talked about this. It's, it's what I like to call an irreducible step in wealth creation. And my business partner and I, James Allen, we were talking the other day. And we were just in topic of conversation in the lunchroom. And we were asking, why is it so hard for some people to save? It was just a simple question and it kind of spun me off in a few different directions. And then I was like, well, why do I save? And why am I wired for saving? And I really wanted to get to the root of it. And so one day when I was meditating, it actually hit me. And I started smiling. I came right out of my meditation that day. It was like, I was almost laughing.

• 4:08Speaker 02

  I mean, we talk about our lived experiences so much and how they shape us. And well, I had to go deep into the memory bank for this one and to answer a very, very simple question. Why do I save? And here, here it is. I'm just going to share it because it shapes so much of me and who I am and what we'll talk about today. When I was the walking age of eight years old, back in the mid eighties, so people can do some math there, I went to the summer mecca of PEI, the land of Anna Green Gables. And we stayed in Cavendish and I took every penny I owned with me on that trip. I think it was around $40 at the time, which was for me at eight years old, it was an amazing sum of money.

• 4:52Speaker 02

  And while in Cavendish, which is the summer playland for families with kids in the Maritimes, we went to a toy store and this toy store, it was just packed aisle to aisle with games, puzzles, right to the ceiling. And my brothers, they were ripping around the store, looking at all the G.I. Joes and Hot Wheels. And for a kid, there was some amazing stuff there everywhere. And I kept wandering around looking for something to buy. And my brothers, they had no problem finding cool stuff. But I can remember not seeing anything I really wanted. And you know, I also felt like I had to buy something too, to kind of keep up with my older brothers. And so I ended up finding a Hot Wheels racetrack for cars.

• 5:36Speaker 02

  And these are the old cars that would, you'd race down a track. It had a 360 loop on it and it took all of my money to buy it. In fact, I think my dad even had to cover the sales tax on it. My dad even asked me very kindly, he said, are you sure you want to buy this? And like, he knew something I didn't, but, and of course he did. But I spent my entire net worth on that toy racetrack that day. And I was excited to get home and play with it. And of course, that's exactly what I did. I get, we came home from the trip and I set it up and I raced the cars down the chute. And then it happened. The cars wouldn't even get around the 360 loop and without falling at the top. And the more I played with it, the more I just got frustrated with this toys,

• 6:21Speaker 02

  the, the cars that couldn't even get to the end of the racetrack ramp and make the final jump. I had blown my entire net worth as an eight-year-old on a toy that I played with for an afternoon. And I remember just, I can remember, like, when I came out of that meditation, I, I felt it. I could remember just how hard it was for me to save that $40 as a kid. And I blew it on a thing that, that didn't even work. And my dad knew it with his comment, but he let me learn the lesson. And you know, I've been saving ever since. So maybe in hindsight, it was the best purchase I ever did, Stig. Not for its utility, but for its guidance. I mean, I, I remember it feeling so wasteful that I spent all this money on this toy and I didn't play with it.

• 7:05Speaker 02

  And the ironic thing is I actually cared that it was wasteful. And I think that was the difference in this. I can't explain why my eight-year-old self kind of understood that feeling, but I did. And you know, and there it is, as innocent as that story is, that's what snapped me out of my meditation that day. And I've been saving ever since. So Stig, you can imagine, we're, we're just all wired so differently. And I've heard you say this before so eloquently, that personal finances are often more personal than finance. So you know, why do you think some people are able to delay gratification and consistently save while others struggle with it?

• 7:47Speaker 02

  And do you think it's more learning or knowledge, environment, lived experiences? Maybe I'll just throw it over to you here.

• 7:55Speaker 01

  Yeah, wow, it's a big question. I mean, I could come out and say it's a combination of all of the above, but I'm certainly not a guy to avoid the whole nature versus nurture discussion. So you know, I, we're talking cheek, I would ask good friends, and I should have asked you this question before, but unfortunately, I kind of feel I'm going to spoil it now. But Dave, but I'll be asking, so you have two daughters. So you know, I'd be asking you, so who's your favorite daughter? And I, I won't put you on the spot because you would be like, of course, like, I don't have a favorite child. Like I love all my kids, you know, in equal amount. Yeah, it doesn't work like that. And that, that is the response that I always get, you know, for, for good reason.

• 8:35Speaker 01

  But then I would typically be asking my friends, like, okay, I completely understand that, makes all sense. What about your parents? Do they have a favorite child? And without a single exception, they're always like, if they have siblings, they always said yes. And they always said it was the sibling, one of the siblings and not themselves. And I mean, I don't think you need to be a statistician to sort of like, see, there's something there that's missing. Perhaps you're not honest with ourselves, but it's also just a fun game. So anyways, you know, one topic I often discuss with friends is really how to ensure that the next generation respects money the same way they do. And I think we all want to pass down our values for better or worse down to the next generation.

• 9:19Speaker 01

  Now, today, many of the friends that I have are first generation financial independent. But whenever we talk about how they were raised, most of them say that they were never taught about money by their parents. At least not like this is how you should be thinking about money. I'm sure there have been a lot of influence in terms of watching their parents. Even though they don't necessarily recall, hey, they sat me down in front of a blackboard and then they went through the eight steps of whatever. That was, that's typically not the story that I hear. But both when you speak with first generation money, if we call it that, but also just as much second generation. You see also how they say they think about money this way.

• 10:02Speaker 01

  And then their siblings think about money that way, and it's typically very, very different. And to me, that's kind of interesting, you know, I've been speaking with my parents about this multiple times and they're always like, but we gave your kids the exact same upbringing. It's like, yeah, but then, you know, if you're a therapist, which I'm, which I'm not, you know, there is also things about, are you the oldest or you're the youngest? And I think there's probably also something to be said about if there is a big age gap and perhaps, you know, the oldest grew up at a time whenever there wasn't as much money around, then perhaps there was more money around. So I don't know, but if you put me on the spot, I think delayed gratification, you know, it's like speaking with people about compounding interest, you know, it seems like either they get it or they don't.

• 10:47Speaker 01

  Or perhaps they get it or intellectually get it, but they just can't execute on it. They would just rather buy that shiny new thing. And you know, perhaps that is what you think whenever you're eight years old. But you know, some people, they never grew out of it, like they still want that shiny new thing whenever they're 48. So some of you have probably heard of this famous marshmallow test. I think it's an absolutely brilliant story. But like, this is this study here from the 60s and then it was repeated in the 70s. And it's one of those experiments that almost become like folklore. So, you know, researchers invited four and five year old children into a room and then they placed a marshmallow in front of them.

• 11:29Speaker 01

  And so they were told, hey, you can, you can eat it now or you can wait another 15 minutes and then you would get two marshmallows instead. And so what do you do as a child? And lo and behold, researchers, you know, then, then they followed the children years after. And those who waited to get two marshmallows, they seemed to do better in life. They performed better academically, stronger social skills and ever it's just achieved more. And so the conclusion became pretty obvious, like successful people are simply better at delaying gratification. And that is of course something we as value investors understand really well.

• 12:09Speaker 01

  But then I saw this more recent study and their angle was that if you really think about it, the researcher made a promise to each child, like the children through perhaps bitter experience had learned that adults don't always keep their promises. They were far less likely to wait for the second marshmallow. So taking that marshmallow right now, actually, if you think about it, was a pretty rational decision. And so one framework I found to be incredible, effective. When you meet people and you typically they think about money differently than you. And let's face it, that's more or less everyone like, cause it's, it's more personal than the finance.

• 12:51Speaker 01

  Think about what kind of experiences they had, because those financial decisions that they're making, it seems odd to you, are probably completely rational to them. And so, you know, let me just bring up this example, like it might make complete sense for, let's say, someone in the boomer generation to always be thinking real estate first, you know, they might have lost, let's say 40, 50% in a stock market crash in 73, 74. And then they bought a home in San Francisco for like $50,000. That's worth 3 million now. Like, why would they go to equities today? Like, why wouldn't they always think the way to go is in real estate? So perhaps David, you have experienced the same.

• 13:33Speaker 02

  Yeah, no, I think that's, that's a great framework to think about and not just for money and finances, but for life in general. I mean, you want to try to see someone's situation through their eyes. And then you can look at how they make their decisions and so many respects. That is why you have to have compassion for people. I mean, you really have no idea what someone's been through in life. And what looks odd to one person may make complete sense to someone else based on what we call their lived experiences. I mean, I had a moment a few years ago that actually made me think about this. I was in a conversation with someone and they told me, you're so lucky to be financially independent.

• 14:13Speaker 02

  And the word lucky, it just kind of hit me, like I didn't expect how it would hit me that day. And I believe in luck, I really do. I mean, there's serendipity and life's not a straight line. And Buffett often talks about winning the ovarian lottery. And here I am, living in Canada with education and healthcare and parents that love me and lots of opportunity. And that matters just a tremendous amount. But this comment, it wasn't just about chance. And I want to be clear, when this individual was talking to me, there was no envy in the person's tone at all. There was no, nothing like that. It was just the interpretation of my situation. But I just felt that in the words, there was a subtle implication that financial independence might have just happened to me.

• 14:58Speaker 02

  And I had to pause and then, and then I had to ask myself, well, did luck prepare a budget? Or what I like to call a spending plan, when my wife and I were 22 years old, living together for the first time and not knowing where our money was going. I mean, we started preparing a spending plan and boom, it really organized our life. You know, did luck prioritize our ability to pay off our student loans or live below our means when our income started to rise? And did luck instill delayed gratification? Or, you know, helping us just ignore the pressures to keep up with the Joneses? And, you know, I don't think luck was the right word. I think it was intention and we were disciplined. My wife and I were very disciplined and that discipline, it became a habit.

• 15:43Speaker 02

  So, you know, were we fortunate? A 1,000%, but financial independence, it's not something that you just stumble into. It's a path and a practice and it's the cumulative results of so many choices that you make over your lifetime. And I'll just give you an example, like for the longest time, I didn't have a great answer for people when they asked, like, I'd be playing golf with someone and like, oh, you know, I hear you guys are running a pretty successful accounting firm. What's your secret sauce? And I would just answer it in this long-winded, very unorganized way. But then I read Richard Dawkins' book, The Blind Watchmaker, and it hit me.

• 16:23Speaker 02

  You know, our success at the firm, it didn't come from one particular thing or a lightning bolt moment. It came from just years of these small micro changes, just one step at a time. And those steps, they started to compound over time, right? We talk about compounding all the time and the cumulative results. And so it came through cumulative improvement over and over again, until it became part of our edge and it got baked into our culture here at the office. And that's exactly how I see wealth creation. Again, when we start from zero, just the small habits that build in the right direction over time. I think that's just so critically important.

• 17:07Speaker 02

  So were we lucky for the things that we couldn't control? We were, you know, being born in Canada and having loving parents, absolutely. But for the smaller items that contributed to our success, I'd say our journey started long before we were financially independent. And, you know, it started with consistently making decent choices with our finances. And what I like to call building the muscle, like the habit of wealth creation. It's like working out, you've got to consistently stay with it. So I don't know, maybe someday I'll write a memo called, I didn't eat the marshmallow and reflect on this a little bit more. But that's the point. My wife and I, we didn't eat the marshmallow and we were probably on our way to, well, I know we were.

• 17:51Speaker 02

  We were on our way to financial independence long before we probably even really knew what it meant, to be honest. And, you know, I guess just to switch gears a little bit, all this chatter just brings me to an idea that I want to really zone in on in today's podcast called Total Wealth Performance. And I did a mastermind community presentation on this and it's really stayed with me. Because I wanted to answer a question, why can a well-crafted average return still make a difference in someone's life? And the answer I think is that wealth creation, it's not just about the return on an investment statement. It's about everything around it. So total wealth performance, it's really three things.

• 18:34Speaker 02

  It's front end performance, what happens before investing even starts? And then there's the compounding engine, you know, what rate are you actually earning on your capital? Once it's invested and we'll talk about that, there's many ways to invest. And then on the back end, what survives after taxes, fees, structure and friction? And, you know, I like to equate it to when someone asks, how was your flight? You know, so many people answer that question by saying, oh, the, you know, the plane performed really well. Maybe there was no turbulence and a smooth landing. But just like investing, there are things that affect you before you even get to the airport and after you land. Like, did you get to the airport on time? Did you breeze through security?

• 19:20Speaker 02

  Did you leave when you were supposed to? And here's the important one that we've all dealt with at some point in our life. Did all your luggage arrive with you on the back end? And investing is very similar. You know, you may look at a broker statement and see an 11% rate of return compounded over the last decade. So say that's your 10 year track record. But was money sitting idle for part of the year, every year before it got invested? Were you trying to time the market? And then on the back end, how much tax did you actually have to pay on your trading decisions? You know, was there fee drag and how much friction was created from the structure that you put in place? And, you know, of course, a lot of people, they manage their accounts in registered vehicles.

• 20:05Speaker 02

  And in Canada, that means you get a deduction, you don't pay tax as it grows. We have a few different accounts like that, RSPs and TFSAs. And there are many countries around the world that have that. But for taxable investors, the ones that have to pay tax on their decisions, you have to consider tax drag. It has to be incorporated into your thinking around your total wealth performance. So you can quickly see how, if you made some behavioral mistakes on the front end and cost you some return, and I'll share some examples on that, and you had some tax drag on the back end, you could go from making, say, a 10 or 11% annualized rate of return to something that looks more like 7 or 8%.

• 20:48Speaker 02

  And then, you know, if you tack on a management fee and maybe you have some fixed income in there, I mean, you could be grinding pretty hard to have your capital compounding at a whopping 5%. And so all of that needs to be considered, Stig. Like, I like to call total wealth performance, it's just, it's attempting to encapsulate all the decisions as it relates to wealth creation, not just one facet. And, you know, that's how I've started thinking about it. You know, portfolio return is just one part of the flight, so to speak. I mean, you know, there's what happens before the capital even gets invested. There's so many things that you can do while it's invested, and then what actually survives

• 21:29Speaker 02

  on the back end. And, yeah, that's just a little bit of my thinking around that. You know, I guess, Stig, when you look at wealth creation, are you able to separate your investment performance from actual life outcomes? And how do you think about this framework?

• 21:44Speaker 01

  Let's take a quick break and hear from today's sponsors.

• 21:47Speaker 03

  Early in my career, I was shipping away at student loans and it felt like it would never end. I'd make a payment, check the balance, and it barely moved. What finally changed my mindset was seeing a real finish line, a date I could actually circle on the calendar. That's what Monarch's debt paydown simulator gives you. It uses your real balances and payments to show your exact debt-free date. Then you can run different scenarios side by side, like adding an extra $100 a month, and instantly see how much sooner you'd be done. Watching that timeline shrink is really motivating, and you're the one in control of the plan. Plus, a quick check-in on your phone or laptop tells you exactly

• 22:27Speaker 03

  where your money stands. It's so important to manage your finances, and I believe Monarch can help you in doing so. Write your own money story with Monarch. Use code WSB at monarch.com to get your first year of Monarch Core half off at just $50. That's 50% off your first year at monarch.com with code WSB. Interested in futures trading and looking for a place to get started? With Plus500 Futures, you can explore some of the world's most active markets, all from one easy-to-use platform. Trade futures on popular assets like the S&P 500, NASDAQ, oil, gold, Bitcoin, Forex, and more. Whether markets are moving in crypto, commodities, or indices, there's

• 23:12Speaker 03

  always something to follow. Plus500 Futures is designed to make trading straightforward, the platform you can access wherever you are, right from your phone. And you can get started with a minimum deposit of just $10. Not ready to trade with real funds? Try the free unlimited demo account first and explore the platform without putting real money at risk. Backed by nearly 20 years of experience and trust by millions of customers worldwide, Plus500 gives you the tools to stay connected to the futures markets. Visit us.plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus500, it's trading with a plus.

• 23:52Speaker 03

  You don't need me to tell you that rent and mortgages are only getting more expensive. That's why Built created three credit cards designed to offer the richest rewards on rent, mortgage, and everything else you spend on. Whether you rent or own, you can earn up to 1.25X points on every housing payment without the transaction fee, no matter where you live. Points can be redeemed for flights, hotels, Lyft rides, a future housing payment, and much more. Turn one of the most unavoidable payments in your life into the most rewarding.

• 24:26Speaker 03

  Find the card that's right for you and apply at joinbuilt.com/tip. That's J-O-I-N-B-I-L-T.com/tip. Use our link so they know we sent you. Terms apply. Subject to approval and eligibility. Built cards are issued by Column NA, Member FDIC, pursuant to license from Mastercard International, Inc.

• 24:51Speaker 01

  All right, back to the show. Yeah, so the first thing I should say is that I wish I had a CPA background, because, you know, they think about taxes. And we're going to talk a bit more here about buying groceries with real dollars. And unfortunately, typically, that means after taxes. And it is a real expense. And I think just, I think for most people, it's just like, just like a black hole. Like, whenever you say, you know, you say taxes, you know, their eyes just glaze over and just like, David, stop talking to me. You said the T-word. Like, I don't wanna go away. Yeah. So, you know, I think the framework that I use resemble yours. And I do think I probably have a simpler framework, and I don't think it should be

• 25:36Speaker 01

  as simple as mine is. You know, Einstein has this wonderful quote where he says that everything should be as simple as possible, but not simpler than it should be. And I think you stroke the right balance. You know, the way I've been thinking about this for the longest time is really to break it down into three components. How much do you save when you invest? What returns do you get? And how long do you keep that compounding uninterrupted? And I think your approach is way more hands-on, whereas I think my framework is probably almost too philosophical at times. But you know, most people think their financial goals make sense, and, you know, other people's goals are ridiculous. And perhaps that's also what people would say whenever they're hearing about my goals. Like, ever since

• 26:21Speaker 01

  I was a child, like, I wanted to become financially independent. And not as in, oh, it would be nice to win the World Cup. Like, no. As in, financial independence is as important as oxygen is to me. Like, I could not fathom a life without. And, you know, they also say about oxygen and money, that is one of those things that it's not an issue whenever you have enough, but whenever you don't have enough, it all of a sudden quickly becomes an issue. But I think some people might be listening to this, and they don't subscribe to the idea that money equals happiness. But I understand where that's coming from, but I would probably say that you need a certain level of wealth, and you have to triangulate those three factors I mentioned before in terms of how much you save, and

• 27:06Speaker 01

  what kind of return, and then how long you compound for to do that. But I would also be the first to say that, you know, some of the happiest people that I know, they by no means are wealthy. But I would also say they are above a certain threshold. And I guess that threshold is different for all of us. But whenever you speak with people, they have this, their own lens of, what do we talk about? For example, if I say, wealth accumulation states, and then everyone would have, oh, you know, that's what happens at this age, and then you save so much money. Like, it's very different from people. And so there's a lot of assumptions that go into this. And so I could assume that most people who listen to this podcast, you know, they are saving up for retirement. And that's

• 27:48Speaker 01

  whenever they want to spend down their NASDAQ. That's sort of like the way the industrial society have sort of like structured it. So, you know, you have stage one, where you're depending on others, typically your parents. Then you have stage two, where others are depending on you, typically your kids. And then we accumulate wealth. And then stage three, that's sort of like, whenever you're quote-unquote free, I don't know if you would call it child free, perhaps that's, that sounds bad to some people, but it's basically like, no one's depending on you, and you can spend down your savings. Now, my wife and I chose a slightly different approach. The way we're thinking about this, the first thing is that we always want to work. Like, some people have this, you know, at 67, or whatever the retirement age is in your country, that's whenever I'm going

• 28:31Speaker 01

  to retire. I, of course, no one can predict the future, but I have this thing, I want to work always. And I understand that there's probably, at some point in time, whenever it won't be possible, my health would deteriorate, and so on and so forth. But that is sort of like how I'm thinking about it. And I'm also very much thinking that I need to create an operating income, typically from a business, and then take the profits from that, and then invest into a portfolio. So that is my investment income. And as long as we underspend the operating income, we can't get too much in trouble, even if the investment returns are at par. And of course, I can give you a song and a dance about, you know, why the

• 29:13Speaker 01

  investment returns would be fantastic. But that's not so much my point, because the investment income can fluctuate quite a bit. Like, just because the market is up, which typically also means that your portfolio is up, it does not mean that you're necessarily a genius, but it also does mean that, you know, you don't know how to invest, because the market is down the next year. And so, that's why it's so important to underspend your income, whether that's from a job, so underspending your salary, or what I would call operating income. So underspending whatever you make in your business. And one of the things why it's so important that you also build up your portfolio is if something happens with your health, then you can hopefully live up your investment income. And, you know, one of the frameworks that you and I, David, have talked about quite a few times

• 29:56Speaker 01

  is that I have this thousand out of a thousand scenarios. And so, I would like to think that my health doesn't deteriorate at all, or at least it doesn't happen before in my 70s, 80s, whatnot. But if I'm thinking realistically, thousand out of a thousand scenarios, there are some, hopefully not a lot, where something goes wrong, and something would happen to my health, even perhaps in my 20s, 30s, and whatnot. And whenever you're thinking about it like that, and perhaps I'm too morbid, but I was thinking about it like that. So I thought I needed to make a lot of money early in my career, and then lean into compounding,

• 30:37Speaker 01

  and optimize a lot more for the first dollar than the last dollar. And so, I graduated at age 26. And, you know, I had then two corporate jobs upon graduation, and then started two companies, one of them, TAP, or with a podcast that you're now listening to. And I felt like it took me eight years for me to sort of like, crack the code to achieve financial independence. And whenever I say financial independence, you're like, in eight years? That doesn't make any sense. It wasn't because I had like, tens of millions of dollars in my bank account. That was not my point. The way that I would define it is, it was the tipping point for me, where I had double the passive income as our expenses in the household. And I also felt I had the blueprint to accelerate that financial journey.

• 31:20Speaker 01

  And so, it took me eight years to do that. And so, whenever I think about it... I think you can reasonably say that my wife and I were financially vulnerable for those eight years. Like if something had happened to me, I think we would be in a world of trouble. But I would also say that if something would have happened, my wife would probably be okay. She's for one, much smarter than me. But also, we would at an age where we could start over if that was needed. And it's sort of like getting back to this point here. You had, David, whenever you were only seven, eight years old, like $40, like for the hot wheels, it's probably the best purchase you ever made. You know, it's it because it really sets you up for being smart with money. And of course, I don't want to revel in how

• 32:04Speaker 01

  you felt as an eight year old, like losing $40. Like that's a, that's all the money in the world. And it feels like the end of the world. But as you alluded to, it's the right time to get those experiences. Because what really breaks my heart is whenever you speak with someone who is newly retired, and they've learned how to save money, but they haven't learned how to manage the money. And so all of a sudden, they're standing there in their early, late 60s, whatnot, with a lump sum of money, and they don't understand the financial markets and how to match that with the consumption. So, you know, all of a sudden, they start doing these crazy things where they're going to do options trading, or whatever, because someone told them that now they need to invest in their retirement, and have all this time on their hands. And perhaps there's something with

• 32:49Speaker 01

  their identity, and what should be doing with their time. And like, it's absolutely horrible. I think we all heard horror stories, but it's always breaks my heart whenever I hear that.

• 32:58Speaker 02

  Oh, man, that would be heartbreaking. And you make an important point, and I've seen this. I mean, some people, they arrive later in life with their capital, but without ever really learning how to become investors. And, you know, having money is one thing, but the knowing how to manage it is a completely other thing. And, you know, that's why I think we need to build investors, not just portfolios. And of course, teaching is so important. And that's why we're doing what we're doing, Stig, where we're trying to educate the world on this stuff. And, you know, I see this so often with business owners, investing can become their second career. But it would be a lot easier to learn if

• 33:41Speaker 02

  the stakes weren't as high, right? And, you know, one of the things I like to talk about with people is the ABCs of front end total wealth performance. And the ABCs stand for availability, behavior, and configuration. And they all play a very meaningful role in reducing this gap of underperformance that can happen in wealth creation. And just to dive into availability a little bit, the some of the mistakes, they can add up pretty quick. You know, have you eliminated your investable savings balance? Are you trying to time the market? Is your investment strategy, is it clearly defined before the money even becomes available? And this is what we're talking about, right? And, you know, delays

• 34:26Speaker 02

  in availability, they create these silent gaps in compounding, that just can never get recovered later. And, you know, it's important to know your action plan before you start. And, you know, there's two client experiences that I had this winter that just passed, you know, as I was reviewing investment statements and preparing the client's financial statements, corporate tax returns that really bring this into into light. I had one client who had about $4 million in a really well balanced index type portfolio that he self-managed. And he also had close to $1.5 million just sitting in a bank account, earning no interest, along with just a small GIC, that's a guaranteed investment certificate, earning just a nominal

• 35:11Speaker 02

  amount of interest. And when I asked him, when we were doing this tax review and financial statements, I asked him what he wanted to do with his savings, or why he was sitting on so much cash. He said he was looking for a better time to buy the market. And I get that, you know, decisions always look obvious in hindsight, but knowing that this person wanted to invest his money in 2025, knowing that he follows a simple index strategy, 2025, Stig, that was a pretty expensive year not to be invested, right? And, you know, this led me to talk to him about the difference between reported performance and actual wealth

• 35:53Speaker 02

  performance. So when I looked at his investment returns, he had compounded at 18.2% on the portfolio that he managed through his ETFs with a little bit of fixed income included in there. And, you know, that's a fantastic return. But if you take into consideration the cash that was sitting outside the portfolio, not being invested, and here's the clear point, knowing that he wanted to invest the money, and knowing that this is a client, like he still has two decades of work ahead of him. His return, it wasn't really 18.2%. It was closer to 15%. And I highlight this, not because those rates of return, they're

• 36:34Speaker 02

  not good. I'm just highlighting it because there's actually a gap. And so, reported performance on a broker statement doesn't necessarily equal the actual outcomes. And that's what I'm trying to hammer home with this. And just to go into this a little bit more, I had another example with a client, she had freshly incorporated in 2024. She makes a very good income and lives modestly, and she had a tremendous savings rate at towards the end of her first year of incorporation. And when she talked about getting her self-directed investment account set up, it took a fair amount of time to do this in 2025. And I won't, I'm not going to get into all the complexities around setting that up and how

• 37:17Speaker 02

  to do it. It's very lethargic, and there can be a lot of paperwork back and forth. And I get that, it is complicated. But what ended up happening is that for almost 11 months, this individual just wasn't invested in 2025, even though she started the year with a significant amount of investable assets. And again, hindsight is brilliant, but 2025 was a really expensive year not to be invested. And had she simply had the money sitting that was in cash on January 1, in her balance index fund strategy, which she is doing in 2025, she probably would have made around 15%. And if you simply compound that one

• 37:59Speaker 02

  year of missed return over the next 40 years, and here, here I am just throwing a rate out, but if we use 8%, just to put some quants around this, you know, it's probably going to be a $3 million mistake or omission on the back end of her career, just from that first year missing returns. Now, fortunately for this individual, it's not going to make a material difference in their life. But it just shows us all the things that Warren and Charlie have been trying to tell us for years about getting invested, staying invested, and here's the big one, not interrupting compounding. And, you know, all this stuff,

• 38:38Speaker 02

  these are the soft skills that it takes to relentlessly compound. And anyway, those are a couple of stories I just wanted to hammer home with availability. But it's not just about money sitting outside the bank. I mean, to your point, Stig, people arrive later in life with their money and through major life events. And, you know, you've got to be ready to invest. And one of the most important investment lessons I have ever learned, and this came from a client a couple of years ago, was from someone who sold their business. And for more than 40 years, she and her husband had built just a wonderfully successful small business. And it was their livelihood, it was really their identity. This happens with so many entrepreneurs. And really, it was the only

• 39:22Speaker 02

  financial world they had ever known. But eventually, they sold it, and they received a multi, multi million dollar payout. And from the outside looking in, Stig, I mean, it looked like a dream come true. You know, financially, they had won, like when you do the math, and they had their number. But a few years later, she said something to me that I've never forgotten. She said, David, sometimes I wish I hadn't sold. And I can remember being taken back by that comment, not because, like, it wasn't because she didn't receive enough money. They did. And it wasn't because the transaction went poorly with a vendor takeback or anything like that. It didn't, you know, the reason was so much

• 40:00Speaker 02

  deeper than that. She had spent 40 years learning how to run her business, but virtually no time learning how to live without her business. And she quickly had to learn how to understand yields and withdrawal rates, read broker statements, manage new conversations with wealth advisors. And quite honestly, it was very overwhelming for their family at this late, late stage in their life. And, you know, that conversation. And you know, the subsequent observations, it just taught me something that I've never forgotten. You don't want to learn investing for the first time when the stakes are the highest. You know, think about this. I mean, they, they received their, their retirement

• 40:45Speaker 02

  nest egg in one lump sum late, late in their career. And you know, this just ties all the way back into availability. And when does your capital actually become available? Because those moments, they matter a ton, you know? Here we are, we're talking about a business gets sold, but you could have an inheritance, or maybe you sell a property, that, that San Francisco property for $3 million that you talked about, or, or heaven forbid, something life-changing or unexpected, like a divorce happens. And then all of a sudden, you're sitting there with a whole bunch of capital. And then the question becomes, well, what do I do now? And, you know, the problem is that some of our biggest financial decisions

• 41:28Speaker 02

  that people often have to make, they happen during some of the most emotional times of their lives. I mean, think of these scenarios, selling a business, getting a divorce, moving across the country. And, you know, when life gets complicated, uncertainty, it's going to create delays. And, you know, I've seen people leave large amounts of money just sitting in cash for years while trying to decide what to do with it, when to invest, how to invest. And that delay, as we know, has a huge cost, you know, cash feels safe. And in the short term, it's always going to feel safe. And it's probably not a bad decision over a few months or so. But over long periods of time, idle cash, it can quietly

• 42:09Speaker 02

  become one of the most expensive decisions people ever make. I mean, the market and compounding isn't going to wait. And your, your future self, you look at yourself in 10 years from now, you just can't get those years back. And, you know, this is one of the reasons I love this Charles Schwab study, does market timing work? I love it. It's super interesting. In the study, Peter Perfect, he was perfectly able to time the market bottom every year for 20 year period and pick the lowest day of that year to invest for 20 years in a row. And perfect timing, perfect entry points. But what fascinated me was not Peter Perfect, because of course, none of us can be Peter Perfect. No one has

• 42:54Speaker 02

  the crystal ball. It was Larry Linger. Larry Linger kept waiting for a better opportunity to invest. And he just assumed lower prices were always going to be around the corner. And then over time, that cost of waiting just became enormous. And, you know, I encourage the listeners to just have a quick peek at that. It's a short memo, talks about Matthew Monthly and Ashley Action, and just how to get invested in the market. And, you know, I think there's a really important lesson in, in all of this, that, you know, wealth creation, it's often less about perfection and more about participation. And, you know, that's why I think the behavioral side of investing is just so important. You know,

• 43:36Speaker 02

  a person can have a fantastic investment strategy, but if the money is just always sitting on the sideline and not getting invested, it just becomes theoretical. And I don't know, Steve, how do you get people comfortable participating when the future is just always uncertain? We will never know what the future is going to look like.

• 43:55Speaker 01

  Let's take a quick break and hear from today's sponsors.

• 43:57Speaker 03

  You know that sinking feeling when a meeting ends, everyone's nodding along, and two days later, you realize that nobody wrote down who was doing what? That's why I use Granola. Granola is an AI-powered notepad that makes your meeting notes useful. It captures what happens in your meetings, and it turns it into clean, structured notes with decisions and action items pulled out and made easy to find. On days with back-to-back calls, like guest prep and team check-ins, community calls, I used to spend the gaps cleaning up messy notes and trying to remember who owned what. Now I stay in the conversation, and weeks later, everything is searchable in one place. Once you try it on a first

• 44:38Speaker 03

  meeting, it's hard to go without. You can try it totally free. Head to granola.ai/wsb. That's granola.ai/wsb to get your time back. Go to granola.ai/wsb and try it on your next call. Interested in futures trading and looking for a place to get started? With Plus 500 Futures, you can explore some of the world's most active markets, all from one easy-to-use platform. Trade futures on popular assets like the S&P 500, Nasdaq, oil, gold, Bitcoin, Forex, and more. Whether markets are moving in crypto, commodities, or indices, there's always something to follow. Plus 500 Futures is designed to make trading straightforward,

• 45:21Speaker 03

  the platform you can access wherever you are, right from your phone. And you can get started with a minimum deposit of just $10. Not ready to trade with real funds? Try the free unlimited demo account first and explore the platform without putting real money at risk. Backed by nearly 20 years of experience and trust by millions of customers worldwide, Plus 500 gives you the tools to stay connected to the futures markets. Visit us.plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. This September, I was in New York for the Intrinsic Value Conference. The talks were great, but what I kept thinking about is what happened around them. On Friday night,

• 46:06Speaker 03

  about 20 of us crowded around a long table at a family-style Italian spot near Times Square. Saturday, we did it again. And Sunday morning, a group of us were still debating Socrates over breakfast before everyone headed home. Many of the people at those tables had only known each other from our calls in the Mastermind community. That is the community I host with Kyle Grieve and Daniel Manca. Each week, we get together on live calls to dig into markets and individual businesses. We bring in fund managers, operators, and authors as guest speakers. And a few times a year, like New York this fall, and Omaha every spring, we meet in person. If you want to think in decades alongside people

• 46:48Speaker 03

  who do the same, apply for free at theinvestorspodcast.com/mastermind. If your application stands out, I'll be the one to reach out to you personally.

• 46:57Speaker 01

  All right, back to the show. Yeah, that, that darn crystal ball. It's, it's always broken. At least mine is. It's terrible.

• 47:08Speaker 02

  Mine is too.

• 47:10Speaker 01

  You know, whenever we're, we're speaking with someone, if there's any way we can point back to the person's lived experiences. And I think that's the best approach. And of course, in a perfect world, that person is journaling, and you can then ask them, you know, hey, go back 10 years and then see what the road, and then what happened since? And of course, the world isn't perfect, and not all of us journal. And, and even if we did, perhaps we don't journal about the financial worries or whatnot that we have. But perhaps we can point back to, say, 10 years ago, how unsure you were of raising your kids, or changing jobs, or moved to a new house, or, you know? And then looking back, what has happened and how you have adapted to that accordingly. But David, many people

• 47:53Speaker 01

  we speak to are, are business owners, and they understand the business really, really well. Less so perhaps the financial markets, and they find them risky, especially because the future is always uncertain. They don't have anything that resembles perfect information. But perhaps we can remind them how many business decisions they've made with imperfect information. You know, it could be hiring people, or starting a new project, moving into a new market. And they're always done that with an uncertain outcome. It was always about, you know, diversifying, playing the probabilities. And in that sense, it's not that different in financial markets. You simply can't wait until everything becomes clear. You know, that, that day never happens.

• 48:37Speaker 01

  You know, you have to manage your risk. That's the way you run the business. That's the way you navigate in financial markets. And of course, most people don't like whenever you throw statistics at them. It's for the same reason that you can't say that, let's say they want people to donate to charity, and then you can talk about, there's 100 million children starving in Africa. Like, that stat is not going to work. It sounds terrible, but it's not going to work. And it's certainly not an argument that's 100 times as effective as saying there's a million kids starving. It just doesn't work like that. But if you can tell a real-life story of, let's say, 10-year-old Amina from Algeria, and, and how her and her mother, you divide the last handful of rice because they're

• 49:22Speaker 01

  two younger brothers, they need to be fed. Like, if you can appeal and say, what can you do to help Amina? Not the 100 million others, but Amina? Then you have a very different case. And I know I'm sort of like going all kinds of directions here, but it's not too different whenever you're speaking to another person. Because you have to figure out what makes them tick, whether it's, you know, in this case, we're talking about personal finance. It's more personal than it's finance. And of course, some people like statistics. You know, some, some people like to see the numbers, and, you know, they want to know what they're buying and selling, and it all makes sense to them. And that is how they want to be informed. But most people are not wired that way. You know, all those people that, that you may speak to, David, they, they don't want to hear

• 50:07Speaker 01

  about all those numbers. They, they might be asking you, how do you invest your wife's retirement? You know, it's like, if it's good enough for David's wife, perhaps it's good enough for mine. You know, it's like, it's something we can, can relate to, and, and we need to, to meet people where they are. You know, back in the day, there were this campaign, it's quite a few years ago now, so I'm going to display my A tier, but like, there was this wonderful campaign called Friends Don't Make Friends Drive Drunk. And of course, I can say here, tongue-in-cheek, that they forgot the addendum, Friends Help Friends Achieve Their Financial Goals. At least that is the campaign that I would have run. And, you know, to your point, David, you don't do that from timing the market.

• 50:50Speaker 01

  You do that from time in the market. And you help your friends stay invested despite uncertainty, because the future is always uncertain. But how do you think about this, David?

• 51:02Speaker 02

  Well, let me go back to your friends help friends achieve their financial goals. I love that. I mean, in many ways, that's been the story of my life, Stig.

• 51:12Speaker 02

  I've been in public practice for over two decades now and, you know, I've seen a hodgepodge of just about every investment you can imagine with small business owners. And, you know, there's so many ways to grow your net worth. And for me, it starts with leading people on their path to prosperity. You know, it's helping people find a way to invest that actually aligns with who they are as an individual. The older I get, that's becoming extremely important to me, not only myself, but understanding clients' temperaments and how they need to invest that's wired for their own composition, because, you know, you have to invest in a way that feels natural

• 51:56Speaker 02

  enough so that when times do get hard, your strategy still makes sense to guess who? You, right? And, you know, for my wife's investment account and now my daughter who started investing, she became 19, you could do that here in Nova Scotia. That means investing in a very methodical index fund strategy. It's simple, it's just easy to follow and it doesn't require a lot of guesswork. And, you know, there are so many ways to compound capital. We have public markets, we have business ownership, real estate, private investments, our own human capital, and the list goes on. And even within the public markets, there's thousands of things that we can talk about there, right?

• 52:39Speaker 02

  And for me, I separate portfolio performance from wealth creation. Portfolio performance, it matters a ton, but wealth creation, it's so much broader than that. And, you know, I root this in practicality because, you know, I also, I like to use net worth as a useful barometer in, for assessing performance for someone, you know, it doesn't, net worth, it captures so much more than just the investment returns. Like, think about what net worth captures. It's going to capture your savings rate, your spending decisions, tax efficiency, your business decisions, debt management,

• 53:22Speaker 02

  investments and lifestyle choices, and the list just keeps going on and on and on and on. And, you know, in other words, when you look at it, it brings your whole financial life into picture. And I get it, like net worth, it isn't, it's not perfect. There's marriage, divorce, you could inherit money, you could be philanthropic and give all your money away, there's health issues, all kinds of things that can affect the number or distort the number. You know, if someone's giving away all their money, maybe we need a separate calculation for that, right? And that would be a fantastic story. But, and with private investments, it's just hard to get accurate valuations. They're never as clean as publicly traded stock portfolio.

• 54:06Speaker 02

  But here's my point, over a long period of time, Stig, say 15 or 20 years, if there's no macro level life distortions, the direction and velocity of your net worth, that can tell a lot about someone. You know, so when I think about my own returns and opportunity sets, I think less about what did this one portfolio return? And more as, is my total net worth compounding in a way that supports the life that I'm trying to build? And that tends to be a very different question. And, you know, that's why I think that net worth, while imperfect, it can be a very

• 54:51Speaker 02

  practical scorecard during the accumulation phase of your life. And, you know, how do you think, Stig, how do you think about a person's opportunity sets? And when you look at wealth creation, how much do you put on portfolio returns versus other ways that you can compound your capital? Here you are, you're an entrepreneur and you're into all kinds of things. Like, maybe just share your thoughts on that.

• 55:14Speaker 01

  Yeah, I absolutely love that question, David. Thank you for asking. You know, I was speaking with a member of our mastermind community here the other day and we discussed portfolio returns and how to track them and so on and so forth. And I told him that I was dollar weighting my investments and he simply could not understand why I would do that. And to me, that makes complete sense. You know, if I have $10 invested in a stock, I give them 10 times the weight of $1 invested in another investment. And to him, it doesn't make any sense at all. To me, it made all the sense in the world. And now we are also back to this thing here about, you know, whenever it comes to personal finance, I'm sorry to say, once again, it's very often just more personal than it's finance. But to me, I'm like, I think the lens that I'm

• 55:58Speaker 01

  watching this through is that, I think the first thing I would say is that my goal of my portfolio is to preserve financial independence. And again, I'm sticking my neck out here and saying that money may not buy happiness in the conventional sense, like can't go down to the grocery store and ask for $1,000 worth of happiness. It doesn't really work like that. But you still need a certain threshold, to cross the certain threshold to have a certain standard of living and then you can build on top with different relationships and so on and so forth. As you can tell, I think way much, too much like engineer perhaps about how I think about optimizing for happiness here. But for some people, above a certain amount of money, it's about winning and it's about

• 56:40Speaker 01

  playing a fun game. And money is just such a great scorecard for knowing how well you play the game because it's so easy to measure. But, you know, I'm pretty pragmatic whenever it comes to looking at a portfolio, the returns of that, and then compounding your net worth. You know, I always start with financial goals. If you reach your goals, it becomes a more intellectual exercise whenever you think about your portfolio returns. You know, one of the things that you alluded to before, David, was that you might have someone who said, oh, I made like 10x or perhaps even 100x on investment. Good for you, like truly good for you. But if you did that with 0.1% of your net worth, like it doesn't matter. And that's also why whenever I'm, for example, looking at my track record, I'm not just saying,

• 57:24Speaker 01

  you know, $10 in one stock and $1 another, I'm also thinking about how much have I invested that year? Because a dollar is a dollar is a dollar. I like to say that I buy my groceries with real money, not imaginary money. And so that's why I dollar weighted my portfolio. You know, I can't go down to the bank and tell them, I identify as a millionaire, so you need to give me a million dollars. Like, I know you can, I know you can identify apparently a lot of things. It sounds very political loaded, but you can't identify as a millionaire and then assume that you'll be getting a million dollars. It doesn't, it doesn't work like that, you know? The grocery store takes real dollars and they don't care, you know, what my relative

• 58:05Speaker 01

  returns, what they are. And so whenever you think about money in those terms, you might think differently about your portfolio. For example, all of a sudden can become less attractive to have all your money tied into illiquid private assets, regardless of what kind of valuation you might put on them, whether it's by you or a third party. So you also have to think differently about the risk you have of pertinent loss of capital. And you also have to consider that, you know, whatever kind of amount of money you're investing, it also needs to make a meaningful difference whenever you compound that money. It goes back to your point about having a lot of money on the sidelines, you know, it's expensive in opportunity cost. And that's also why it makes complete sense to me that

• 58:47Speaker 01

  someone who has, let's say, a $100 million portfolio, they might be happy with a 6% return, especially if there's virtually no downsides, whereas an up and comer, young investor, he might have $100,000 in his portfolio, you know? He's looking all over to see if he can find a 10 bagger and he's way more concentrated. You know, it's different styles, different goals, different people. And that's also whenever you realize how important it is to become multifaceted, you know, and the first step is to live within your means and invest the difference in hopefully a well diversified portfolio. Now, continue speaking about grocery shopping, going back to that example, David. We pay with after-tax dollars locally here.

• 59:28Speaker 01

  So David, I want to tee it up to you, being a CPA. Could you please talk to us about taxes? I don't know how many people would tell you that on a daily basis. Please tell me about taxes, David.

• 59:38Speaker 02

  Oh my gosh, it's my, it's my favorite day. I gotta talk about taxes. But before we, just quickly before we jump into taxes, I want to talk about something that we talked about whenever our mastermind community calls within our inner circle. You've talked about it a few times already about happiness. I mean, one of the members who has been in our community from almost the start, he made a comment about financial independence and happiness that really stayed with me. It actually hit home for me that day when I heard it. He talked about financial independence helping him be a better version of himself for the people around him. And I really connected with that. And, you know, sometimes it's so hard to measure what we don't have and the stress

• 1:00:22Speaker 02

  that you actually don't have to carry. Imagine taking everything that you already do, Stig, everything that you have on your plate, your family, your work, your health, all your relationships. And then you've got to add something that someone very close to you is helping you with, that if they didn't do it, you would have to do it. You have to carry the load. You know, at some point, something's going to give. And at first, it's never obvious. I mean, it could be your creativity, it could be your health. For me, it would probably be my patience. And that's why I think financial independence can be a subtraction formula for happiness. I mean, it doesn't magically create happiness, but it can remove certain pressures from

• 1:01:07Speaker 02

  your life. And sometimes removing pressure, that's just as powerful as adding something new, right? And I think about this with my own life. I mean, my wife has certainly carried far, far more responsibility with the care of our two lovely daughters than I did. And because I knew her attention was there, because I knew certain things were being handled with care, I was able to focus on other things. And I know without a question that if I had to carry what she was carrying, there's no way that I would achieve some of the business success that we've achieved and that I was able to do. You know, sometimes success is created by what we don't have to do because someone else is helping

• 1:01:51Speaker 02

  carry the load. And I think financial independence works a little bit like that. I mean, if you can give yourself some room, it can help you become a better version of yourself. And, you know, maybe that's where some of the happiness comes from as it relates to wealth creation. Boys, we could probably talk a lot about this. There's probably so much more to this conversation. But here we are, I'm going to switch gears. You're going to have a CPA talk about taxes. Listeners, please, it's not time to tune out. Please don't tune out. Just lean in for maybe 10 more minutes here. It has been academically proven that tax drag can cost people between 1% to 3%

• 1:02:35Speaker 02

  of their investment returns and even more and higher turnover portfolios. So why wouldn't we want to pay attention to it? You know, think about that. Just think about whatever rate has you have compounded in your investment portfolio over the last decade. And then add 3% to it and then see what your portfolio balance would be. Like do your future value calculations, take your 10-year IRR and add 3% to it. And then I think that you're going to find that tax matters a ton, right? And I've heard lots of sayings about tax, you know, and I'm always surprised just how little it gets talked about in wealth creation.

• 1:03:16Speaker 02

  Don't let the tax tail wag the investment dog or never make an investment decision solely for tax reasons. And I agree with all of that. You shouldn't turn every investment decision into a tax decision. But the other side is also true. Ignoring tax, it's not wisdom, it's actually leakage. And because at the end of the day, you don't live off your pre-tax returns. And, and like you said, you pay your groceries with after-tax dollars. So being aware of tax is extremely important. And, you know, I'm not going to go into all the research reports around tax drag and that it causes in taxable accounts. But if we can just agree that it's there, tax drag is there and it's worth being aware of,

• 1:04:00Speaker 02

  then even talking about it actually means something, right? And I get there's so many listeners from many different countries around the world. So it'd be very hard to talk details specific to everyone. But I do want to highlight just a couple of observations from, you know, your friendly neighborhood CPA who's been in public practice here for two decades in Canada. Tax cost matters. And for corporate clients that are compounding wealth in taxable accounts, it matters a tremendous amount. And oftentimes, tax on investments, it's just a number that gets wrapped up into total taxes when it's in the same company as the operating business.

• 1:04:42Speaker 02

  I mean, for example, you could have a small business earning business income and in the same company earning investment income inside the same company. And your friendly neighborhood accountant CPA gives you your tax bill at the end of the year. And are you actually associating which parts of the tax relate to business income or investment income? You know, have you gone so far as to determine the tax cost against your investment returns themselves? Stig, 99.9% have likely never done this, right? You know, you said this earlier, like people just accept it, they pay it. And here's the big one, they don't want to talk about it and they just move on.

• 1:05:25Speaker 01

  I'm shocked that people don't want to talk to you about taxes.

• 1:05:28Speaker 02

  They just don't want to talk about it, Stig. And they get the number and they pay it. What are my installments for next year? And, and there it is. But here's the secret sauce in today's conversation on taxes. By paying attention to it, it can change your compounding engine tremendously. That's, that's what we're talking about. It's how do we change the compounding engine? Just by a couple of percentage points. And I'm just going to give you an absolutely crazy example here that's specific to Canadian professionals. I'll try to say it pretty quick, but it just highlights how important it is to pay attention to this stuff. And I get it, paying tax is a first world problem. I mean, it's a privilege. You're making money, but the story, it still holds true.

• 1:06:10Speaker 02

  If you're a professional working in Nova Scotia, say you're a doctor and you're specializing at the hospital and you're saving inside your company for retirement. Maybe you have an ultra conservative investment approach and you have $3,750,000 in fixed income in your company and you're still working and you're still earning $500,000 a year at the corporate level on your regular business income. You know, given your conservative investment regime, your fixed income, you're going to make 4% on it. Now, this is all hypothetical, but I'm just setting up the scenario. You're going to produce an even $150,000 of interest income. Well, here in Nova Scotia, there is a grind on your investment income

• 1:06:54Speaker 02

  that goes against your business tax rate. And here's the crazy thing, the taxes that you are going to pay are going to be more than the $150,000 of interest income that you earned when you take into consideration the loss of the small business deduction. So in fact, the taxes are $170,000 in this scenario. So while your broker statement shows an ultra conservative 4% money weighted rate of return on your fixed income, your after-tax money weighted rate of return is a negative almost 0.5%, so half of 1%.

• 1:07:34Speaker 02

  That is not underperformance. That is what I like to call compounding in reverse. And, you know, you would have been better off not investing at all. And so the point of my entire story is that you live with after-tax outcomes. And you have to be thinking about the totality of your net worth, not just what gets reported on a broker statement, for example. I mean, it's just too easy to brush it off like it doesn't matter. And, you know, listen, there are people who are compounding at significant rates of return and taxes are just a byproduct of those strategies. I mean, it's almost like a cost of goods sold for the people that are into options trading and can generate a 30 and 40% rate of return.

• 1:08:18Speaker 02

  I mean, I always tip my hat off to the people who are consistently compounding at rates that are high enough that they don't even have to worry about taxes. But the reality is that many of us are not emulating Warren Buffett and compounding at 20% CAGR in taxable accounts for two and three and four decades. Therefore, we need to pay attention to it. So just to pick up those couple extra percentage points, that has the ability to move the needle on your net worth. And, you know, we all know what it takes to separate the best professional athletes in the world. You know, it's often these, just these fringe gains and the marginal performance improvements

• 1:09:01Speaker 02

  that separates someone who makes the PGA Tour from someone who never plays on it. And I started this podcast by asking the question, why can someone with an average return still significantly grow their net worth in meaningful ways? Tax awareness is one of these reasons. An average return with less than 1% tax drag can be better than a higher return where the tax drag is greater than the outperformance itself. And so total wealth performance, it's about all of the front end decisions by investing capital as it becomes available. It's configuring your compounding engine that works for you.

• 1:09:44Speaker 02

  That's really important. And ensuring that the capital becomes spendable wealth by using tax efficient strategies. And, you know, when I think of all the decisions that you have to make in investing, finding winners, minimizing behavioral mistakes, scaling your strategy across all your investment accounts. Taxes are one of the easiest ways to make a difference because at least you know, or you can become aware of the rules and use the strategies to compete with them and, and to understand them and, and put them to your advantage. There are like, just think of all of the unknowns and the unknowable in wealth creation.

• 1:10:25Speaker 02

  Taxes doesn't have to be in this realm. We generally know the tax rules when January 1st rolls around and when we start the year. And that's really the point I want to keep coming back to. It's just like your total wealth performance, it's not just about what your portfolio returned. It's what compounds after savings, behavior, taxes, structure and, and life. And I mean, the real goal is just to let simple things compound long enough so that they can become meaningful in your life.

• 1:10:53Speaker 01

  Yeah, I think that's so well said, David. It really goes to your point about, you know, why you might be looking more at the compounding of your net worth than something like portfolio returns. And of course, portfolio returns is a, is a little bit different. I also should say for the record, everyone, it's public information, everyone can look that up for me. But I choose not to publish my net worth, not because it's a secret, it's just private. And I think you sort of like feel the same way. And especially in our community, we actually do talk about net worth. But it's different to do that with a small group of friends than it is to talk about portfolio returns. Because it's sort of like a, a bit more of a living playing field in a way. And it's like, also because perhaps you don't have, doesn't have to think about taxes. I don't know. But you sometimes feel you're exposing yourself a lot more whenever you're talking about net worth

• 1:11:39Speaker 01

  than perhaps portfolio returns, even though that could be difficult enough for, for a lot of people. But hey, if you're still listening now, after we talked about taxes, I mean.

• 1:11:49Speaker 02

  I'm clapping here. If you're still listening, that's fantastic.

• 1:11:53Speaker 01

  I want to get that, David. You know, but there's probably a selection bias that we love talking about taxes. Most people unfortunately don't, but they probably should be thinking at least a bit about taxes. Like the hourly rate, if I can put it in those terms, for anyone thinking about their taxes and acting on it is probably better than anything else they could be spending their time on. And in any case, you, you hopefully get it, you know, at this stage here in the episode, that the game, if you could call it a game, is really about total wealth creation and how that leads into your financial goals, because we spend with our tax money and tax is a real expense. And to your point, David, we, we know the rules of the game. We know that, you know, whenever January 1st runs around.

• 1:12:33Speaker 01

  But if you want to continue the conversation with us, David and I have a website called compound simplicity.com and we'll make sure to link to that in the show notes. And you can find this and all the other podcast conversations we're going to have, well, in the future, but also the one we already had. And then we have a, a library of free educational videos that people can also check out about investing and how to execute on total wealth creation. David, anything else that we need to talk about here before we end the episode?

• 1:13:03Speaker 02

  Yeah. Well, when I was preparing for the episode, I didn't want to like, it's very hard to get into specific details with taxable investors from around the world. Here I am, a Canadian CPA. If anyone in Canada wants to reach out to me and talk about some of the things that I talked about with taxes, the example that I gave about the negative compounding, it relates to aggregate investment income. It's pretty technical. If anyone wants to reach out and have a chat about that, if they're still working and investing and their tax bill is jumping up there, feel free to reach out. You can look me up on LinkedIn, compounding simplicity website or mbfca.com, which is the accounting firm that, that I manage as well. So there it is, Stig.

• 1:13:48Speaker 02

  Thank you so much for today's episode and yeah, can't wait to do the next one.

• 1:13:54Speaker 01

  Yeah, looking forward to doing the next one here next quarter, David.

• 1:13:57Speaker 00

  Thanks for listening to TIP. Follow the Investors Podcast on your favorite podcast app and visit theinvestorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax or legal advice. The content is impersonal and does not consider your objectives, financial situation or needs. Investing involves risk, including possible loss of principal, and past performance is not a guarantee of future results. Listeners should do their own research and consult a qualified professional before making any financial decisions. Nothing on this show is a recommendation or solicitation to buy or sell any security or other financial product. Hosts, guests and the Investors Podcast Network may hold positions in securities discussed and may change those positions at any time without notice.

• 1:14:40Speaker 00

  References to any third-party products, services or advertisers do not constitute endorsements and the Investors Podcast Network is not responsible for any claims made by them. Copyright by the Investors Podcast Network. All rights reserved.