At The Money:  When Should Do-It-Yourself Investors Fire Themselves?

DIY investors have been a force in the market, pouring trillions into indexing and remaking asset management. But at a certain point in their lives, their needs become more complex and may require help. How can they tell when it’s time to bring in some professional assistance? Dr. Jordan Grumet is a physician who works at the intersection of money, mortality, purpose, and regret. His work focuses on internal medicine and hospice care. His recent book is “Taking Stock: A Hospice Doctor’s Advice on Financial Independence, Building Wealth, and Living a Regret-Free Life.” 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.

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  Are you a do it yourself investor whose needs have become more complex? Is the world making you concerned about your portfolio? How do you know when it's time to bring in some professional help? To help us unpack all of this and what it might mean for your portfolio, let's bring in Dr. Jordan Grumet, a physician whose specialty is the intersection of money, mortality, purpose, and regret. He's trained and worked in both internal medicine and hospice care. His prior books include Taking Stock: A Hospice Doctor's Advice on Financial Independence and Living a Regret-Free Life, and The Purpose Code.

• 3:01Speaker 04

  So Doc G, let's just start very basically. What does it mean to fire yourself as a DIY investor?

• 3:10Speaker 05

  Well, Barry, I grew up in the financial independence retire early movement. These are the young scrappy people who are trying to save enough so that they never have to work again. And so we were kind of cheap back in the day, right? This idea of why pay someone else to do what you can do for yourself? That was good in a sense because it made us deeply understand our investments. But as I get older, I realize that sometimes it makes sense to fire yourself. In other words, bring in the help when you need it because you can't know everything.

• 3:42Speaker 04

  So I know you've worked with other financial advisors. What has your own experience taught you about what financial advice should and should not address?

• 3:55Speaker 05

  I had Roger Whitney the other day on my podcast, and he is one of the financial advisors I really respect. And we were talking about this idea of the balcony of your life. This idea that you want to stand on that balcony with your financial advisor, look out at your future and start to plan. This doesn't look like, boy, I want my net worth to be this many millions of dollars. It's more a question of how do I see the landscape of my life appearing in the future? That has to do with money, but that also has to do with family. It has to do with travel. It has to do with career. And so it's really this holistic approach. As a doctor, we used to see people and we talked about the bio-psycho-social model, the idea of not just seeing what's hurting a patient, but how they fit in their environment and their needs.

• 4:40Speaker 05

  And I think with a financial advisor, it's actually very similar.

• 4:43Speaker 04

  Huh, really, really interesting. What are the tasks that a smart do it yourself investor can probably handle by themselves? And what areas do they tend to run into trouble?

• 4:56Speaker 05

  So the truth of the matter is, when you are young and you're in the accumulation phase, it's almost hard to mess up, right? You have to do what Nick Madzulie says, just keep buying. And so when we're young, there's lots of room for errors. So starting to understand the stock market, starting to understand index investing, writing out your investor statement or plan, basically accumulation is really something that most people can manage. Now, the caveat is that you have to be able to control your emotions, right? So anyone who's going to sell the minute the stock market drops on any given day probably needs financial advice right away. But assuming that you have the solidity of your character enough to be able to realize,

• 5:40Speaker 05

  okay, the market dropped, but I'm going to stay where I am and leave my money where it is, as long as you can pass that hurdle, a lot of accumulation and being young is quite possible to do it yourself.

• 5:51Speaker 04

  So how can a do it yourself investor recognize the difference between being reasonably capable and becoming overconfident? What are the red flags that they should be paying attention to?

• 6:06Speaker 05

  Well, here's something I think we don't normally think about. When we're talking about building wealth, what we're really talking about is concentrating risk. And for your average person, you're going to be concentrating risk in your career, right? You're going to be building and getting promotions and making more. You're going to be concentrating risk in your business if you're a founder or if you have a side hustle. What you don't want to be doing unless you're a professional is concentrating risk in the stock market. So overconfident people seek alpha, right? They're saying, boy, I don't want to just take what the market has to give me beta, but I'm going to seek alpha. And that's exceedingly hard. So some of the signs are you're zooming in and out of positions.

• 6:48Speaker 05

  You're looking at lots of multiple stocks instead of thinking about index funds. You're falling into the trap of FOMO, right? You're starting to fear missing out, and so you're making very reactive decisions. So, you know, if you're setting and forgetting it and maybe evaluating every six to 12 months, you're probably on the right track. But if you're looking at that stock market every day and buying and selling on a regular basis, you're probably overconfident.

• 7:14Speaker 04

  So this conversation is a giant exercise in confirmation bias for me. I've spent, I don't know, three decades telling people, you can do it yourself, but there's an important caveat. You have to have a plan, you have to be disciplined, and when things start to head south, you must manage your own behavior. Is that oversimplifying advice to do it yourselfers? Or is that more or less a path to success that you've watched in your career?

• 7:47Speaker 05

  No, I think it's a beautiful assessment of how things should be. Really, there are two things you need to watch out for as a young person. The first is your own behavior, which we just talked about. And then the other thing is when you go from accumulation to decumulation, that's a hard stop in my brain. That's when you should really say, okay, do I need some professional help? But when you're a young person, those are really the two red flags. And I think if you can keep those under control, doing it yourself is very reasonable.

• 8:16Speaker 04

  You know, we've built a firm over the past 13 years, and perhaps the biggest surprise to me has been how difficult it's been to get people with plenty of money, lots of runway, they'll never outlive their cash to actually turn around and spend the money when they want, whether it's taking the whole family back to the old country to see where they came from, or buying a vacation property or a boat, or I got a phone call from somebody who wanted to buy a Ferrari, and I'm not exaggerating, he could buy a Ferrari every month for the rest of his life and never run out of money. And so it's shocking to me how challenging that is.

• 9:02Speaker 04

  Why is that decumulation phase? Why is that spending the money that's there to spend? Even if it's setting up trust for your kids and grandkids or giving it to philanthropy, why is that so challenging?

• 9:16Speaker 05

  So I have this theory, and I call it escape velocity. If you listen to personal finance gurus, if you sit there and debate the 4% rule and talk about safe withdrawal rates and all those kinds of things, you're under the assumption that the whole idea behind building a net worth is to have enough money so then you can decumulate during retirement. I think that's all false. I think actually all of our talk of safe withdrawal rates and net worth, all it is is it's the amount of money that gives you enough courage to walk away from the life you don't want and start living the life you do want. Believe it or not, I don't even think that amount of money has anything to do with what you're going to spend.

• 10:00Speaker 05

  It's the amount of money that gives you the courage. What we tend to find is when people finally get the courage to leave the life that they're living that they don't like and then live the life they want to live, it's just actually not that expensive. Like, you can do a lot of the things you love without spending much money. And one thing, it's just not that expensive. The other thing is, we actually like having a safety net. People like having a lot of money in the bank, even to the extent that they will pass up on things they say they want to do because that security and that good feeling, that identity of having a lot of money in the bank actually serves them. So a lot of people see this as negative. And I agree, in a sense, this idea of working so hard and accumulating this much money

• 10:44Speaker 05

  and not not spending it sounds bad at the forefront.

• 10:49Speaker 05

  But I'll tell you, I know lots of happy people who are underspending and yet they're still happy, they're still giving to charities, they're still going on great vacations, they're just not spending everything down. And one thing I think we need to come to peace with is maybe that's okay. Maybe it's fine if you die and you bequeath tons to either your kids or charity and that's just is what it is.

• 11:09Speaker 04

  So I have a family member, I won't mention their name, but they're in the 50s and I don't know, maybe the portfolio is $10 million. And I can't get him, he's constantly asking me about convertibles. And he sees the cars I drive, which are not crazy expensive, but a lot of fun. I can't get him to spend 25 or $50,000 on a convertible that he's jonesing for and will have no impact on his net worth. How do you advise a person like that?

• 11:43Speaker 05

  You know, I just had a conversation with Jean Chatzky, who wrote a book that's forthcoming soon called The Forever Paycheck. And she makes, you know, a brilliant point with some of these people, what you have to do is set up a paycheck so they feel like they have money that they either can spend or have to spend. So you take someone with a net worth of 10 million or 11 million, the idea is to structure their assets in such a way that they feel like they're getting a paycheck every year and they have the freedom to spend that paycheck till it's at zero.

• 12:12Speaker 04

  So a muni bond portfolio or something like that, that just kicks out regular yields?

• 12:17Speaker 05

  So you can do it in so many different ways. You can do it with annuities, you can do it with a mix of annuities, their social security, muni bonds, what have you. Or you can even go the other way, which is have your advisor say, I'm just going to liquidate this much equities every year where regardless of where the market is, and we're going to call that your paycheck. It's funny, this is not a math problem. This is a brain problem. And so the question is, how can you set these things up? A good friend of mine made the joke, he said, well, I have something called the fun bucket, and I put as much money as I think I can spend every year in the fun bucket, and whatever's left, I either spend it, or I have to donate it to a political candidate I hate. And that is the trick he plays on himself to make sure he spends it.

• 13:01Speaker 04

  The fun bucket, I love that idea. So, so you mentioned the transition from accumulation to decumulation. What are the other big transitions? Retirement, inheritance, selling a business, divorce, where the people who are doing it themselves might be most vulnerable?

• 13:21Speaker 05

  So, you know, I think there are really two situations. One is where emotions play a big role, right? And so for some people, retirement, they just get very emotional, they don't make great decisions. A family member dies and they get an inheritance and you tend to make emotional decisions, especially at the beginning. So one is any place, whether it's a divorce, or a death, or even retirement, where you feel exceedingly emotional. This is going to be different for each person. The other time where I think it's really important is when the room for error is small. And so for instance, and this is why I always say, when we go from accumulation to decumulation, we have to be really thoughtful, because you might be depending on healthcare subsidies, right? And if you decumulate incorrectly,

• 14:03Speaker 05

  you may find that those subsidies are no longer there. Or you might be making complex Roth conversions. And if you do that wrong, it can really mess you up and put you in different tax brackets. Or if you have a disabled child, and so you're starting to plan for the fact that you're not going to have any income anymore, the room for error can be very small in those situations. And so that's an indicator that a financial advisor, a professional, even if all they do is look over your work, is important. We tend to forget, like, hiring a financial advisor doesn't mean you hire them and they do everything for the rest of your life. It's a continuum. You can hire a financial advisor to look over your work, you could pay them hourly, they can give you some recommendations, and then you can carry it all out yourself. So there's really a continuum of how we use a financial advisor in the first place.

• 14:47Speaker 04

  Interesting. So you, you mentioned several behavioral mistakes. I'm curious, what do you see as the most common behavioral mistakes from young DIY investors? And what do you see amongst the more financially sophisticated investors?

• 15:04Speaker 05

  I think that in the young investors, it's definitely an overconfidence issue. And again, we talked about this a little bit, it's the seeking alpha when they should be concentrating on beta. It's this idea that I know better than everyone else. And maybe they haven't been around the block enough times to see a stock go to zero. You know, you see this all the time in alternative assets, too. We're experiencing this right now with multifamily syndications. For years, people were telling me and everyone else, you know, multifamily syndications are the way to go, very little work, very little risk. And what are we seeing now? We're seeing some of these go to zero. Literally, people are losing everything. It's overconfidence, and a lot of times, it's seeking alpha. Now,

• 15:48Speaker 05

  as you get older, believe it or not, I think the bigger problem in really mature DIY investors is you get complacent. Like, the world changes. And I, for instance, I'm a big believer in index funds. And I want to believe that index funds will be able to ride that wave for the next 50 or 75 years. But I'm also open to this idea that we can become complacent, and we have to keep our eyes open, and we have to look for how the world is changing. Will index funds be the way to go in 50 years? I don't know. I'm going to keep paying attention. That doesn't mean I'm changing things. That doesn't mean reacting to little changes in the market. But I'm keeping my eyes open, especially as I get older and I'm in decumulation, we're really talking about risk modification. So

• 16:33Speaker 05

  I'm not as worried about returns as I used to be. I'm worried about losses. I want to modify my risk in such a way that I don't have those really deep losses anymore. Whereas, you know, if my money returns 4% one year, or 8% one year, or 6%, but the market does 7, or 7.5, I might be okay with that.

• 16:53Speaker 04

  Really interesting. Last question. As a physician, you compare good advice to a diagnosis. What should the diagnostic process look like before someone either recommends a portfolio, or recommends a change in, in course of financial behavior? Tell us what that looks like.

• 17:13Speaker 05

  So when a person comes into the office and has a medical problem, I can assess that medical problem and give them a quick treatment and send them off. And that's very transactional, and it solves the problem for the moment, but doesn't solve the greater problem. Remember, I talked about this idea, the biopsychosocial model. We need to put a person in the context of who they are, who their family is, what their stressors are, and what their goals are. So when you walk into a financial advisor's office, and you're trying to assess, is this the right financial advisor for you or not? You know, one of the first questions they should be asking you is, tell me about your goals. What are your dreams? It shouldn't be, what is your goal net worth? It shouldn't be like, how many millions do you want to have by the age of 50 or 55? Because that's only

• 17:58Speaker 05

  one of many questions. The bigger question is, you know, what do you want to accomplish? What's important to you? Who are the important people in your life? And what are the must haves? And once you get past then, that, that's when we can start looking at your specific financial goals. What are the trade offs? Is retirement important to you? Or maybe you're willing to work longer to enjoy life more now? All of those are bigger questions. It's equivalent to the biopsychosocial model. We really have to put people in the context. And any good advisor is going to put you in the context of your life, and try to stand on that balcony with you, look across the fields of your future, and try to help you plot out that best life, not just financially, but generally.

• 18:43Speaker 04

  Really, really interesting stuff. So to wrap up, if you're a do it yourself investor, there are a handful of mistakes you need to avoid. When you're younger, you have to be aware of overconfidence and alpha chasing. When you're older, complexity, changes in life, changes in the world, might lead you to seek additional help. You can do it yourself if you're disciplined, have a plan, and manage your own behavior. But there are times when you might need to, various types of help. Lots of it is available across all sorts of different price points. If you need assistance, go find it. I'm Barry Ritholtz, you're listening to Bloomberg's At the Money.

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