Rebecca Hotsko (01:58):

Georgia, it’s great to have you here today. So you started a wealth management firm called Modernist Financial. Can you talk a bit about what led you to start your company and what makes it different from other wealth management firms?

Georgia Lee Hussey (02:13):

Sure. So Modernist is a B Corp wealth management firm, and the way we talk about our mission is that we help people structure their wealth around their progressive values. And so really the founding of the firm came from my own history, I was actually an artist before I went into finance, a sculptor and a writer, and so I’m very much inspired by performance art and punk aesthetics, and these ideas of making that which does not fit new again, in a way that actually fits us more meaningfully and more supportively. And so because of that, one of the things that makes us different is that we love a manifesto around here, so we have a manifesto that guides a lot of our business strategy decisions, and one of the things we talk about is that we’re building a new money consciousness with modernist. We also talk about the last line of the manifesto is we believe in plenty, we believe in enough.

And I think those two ideas are very essential to the work that we do, and when I started in the business I just knew that the financial industry could do better. I thought that the industry was mediocre, quite honestly, in the way that it approached integrity within the work, values, so we aim to walk our talk in how we do business. We’re a B Corp, which is extremely unusual in the industry, we’re fee only, which means we only get paid by our clients. In addition to that we don’t accept referral fees or kickbacks of any kind, which some fee-only people do but don’t say they do. We’re a fiduciary, so we can only consider our client’s interest when we make recommendations. I’m a CFP, which to me is a minimum for anybody who’s going to give advice in this business, and then we also practice financial life planning, which is a more integrated way of considering financial decisions that includes our humanity in our decision making, who we are as human beings, what is most important to us.

And then we do things like donating 3% of our revenue to organizations that are impacting racial wealth inequality, because finance and investing markets negatively impact racial wealth equality, so it is important to us that we be part of that solution and we lift up the heroes that are trying to fix these systemic issues. So I think those are big pieces, I think what’s also interesting about the firm is that most of our clients are either inheritors, post-sale entrepreneurs, or some retirees. A lot of our clients, just to give you a sense of the kind of folks I work with, or we work with, most of our clients have investible assets of about two and a half to 10 million. They’re living very interesting lives, and they really want a partner to collaborate with and delegate to who will help them figure out how they make sense of their wealth in a deeply inequitable world, and so that’s what we do, and it’s super fun.

Rebecca Hotsko (05:02):

I love everything you mentioned there, and I’m really interested about the piece of who the majority of your clients are. So I’ve noticed that it seems like over the years, with the rise of discount brokerages, it makes investing a lot easier and more accessible to younger people, but it doesn’t really seem like there’s the same trend where younger people are also seeking out financial advisors to help them really make that investment roadmap for themselves. So I know for myself, I’ve been investing since I was 18, but I really only sat down and made myself a financial plan last year at 25. So I’m just wondering, why do you think people don’t prioritize the financial planning aspect as much as the investing part, and then in your experience, what are the major downfalls investors may face later on by not having that more comprehensive plan in place?

Georgia Lee Hussey (05:56):

Yeah, I’ll just ask a question back to you, did your family have a financial planner?

Rebecca Hotsko (06:01):

No.

Georgia Lee Hussey (06:01):

Did you know what Wall Street was?

Rebecca Hotsko (06:03):

Yes, yeah.

Georgia Lee Hussey (06:04):

So I think this is the problem, we talk about money and wealth within a context of markets, culturally. I think that is the story we tell about wealth, and I think this is a common misunderstanding, is that investing is how we get where we want to go, when in reality it’s usually the planning that gets you where you want to go, investing is just the engine. So it’s misconstruing that the engine is actually the car, or the path, or the journey more likely. And so I grew up, and I had never heard of a financial planner before I started researching, I was like money coach, how do people do this? Because I looked around, and my community was deeply underserved around money, and that’s when I found out about certified financial planners and really was inspired to start my career in this area.

So I think that’s the main problem. I think what’s important about financial planning is that it gives us context for our life decisions, and it puts the investment management within a purpose. And what I often hear from folks who are excited about investing is I don’t hear a why behind their investing, and I don’t hear what is done look like? It’s like more is more, and that’s just not true. There is plenty, there is enough, and defining those things for ourselves are really important. Because investing’s interesting, I actually don’t find investing very interesting, to be honest, I think it’s pretty cut and dry to the points you’re making about, we have a lot of evidence about what good investing looks lik,. I think when it’s too exciting we’re not doing it right, there’s a boring quality to investing and that’s really important to cultivate, and personally I find the other questions, the human based questions, more interesting.

So what I think where things can go off track for folks is if they don’t have a financial plan they don’t really have a reason for what they’re doing, so it makes making decisions harder, because you don’t know what the goal is, you don’t know what the context for these decisions is. And in my mind I think of the, the investments are just one of, I don’t know, six or seven categories that we need to be intentionally cultivating and focusing on in order to be able to make good choices, or not good, balanced choices.

Rebecca Hotsko (08:10):

I really like what you mentioned there, because I think that investors need to know their why, why are they investing? What are they investing for? Before they even think about what to invest in, and it’s often the reverse, we start investing, but then maybe a few years down the road we figure out why, what we’re really trying to fund, which is our future consumption, but there’s lots of other reasons, and so I really like what you mentioned there. You also mentioned there’s six aspects, so I’m just curious, could you explain briefly what is the difference between an investment plan and then a financial plan?

Georgia Lee Hussey (08:47):

Yeah. So financial planning has, I believe it’s six, maybe seven, depends on who you are. So I always start with cash flow, as we say around here, cash is queen, and you better take really good care of her, because that’s what everything, all the entire plan is based on. That’s our savings now, and our spending now, and in retirement, can include things like lending strategies, leverage, things like that. Investments, also an important part of a financial plan. How are we allocated now? How are we expecting to allocate in our retirement? Insurance needs or risk management, it is way easier to buy a cheap term insurance policy than it is to try and ensure against your own passing using cash, for example.

Estate planning, where do you want this money to go when you die? Because you will die, it will happen, hopefully it will be a very long time and you’ll be so lucky to grow quite old, maybe we’ll all be so lucky, but we have to consider where the money’s going, and that, in my mind, naturally flows into generosity planning. What does generosity mean? What does it mean today? What does it mean at our desk? What does it mean in between? And so a lot of that charitable giving planning is important.

Tax planning is essential. I’m actually very pro-taxes, I’m a progressive person, I believe in paying my fair share in order to fund an equitable society, and it’s a very complex problem solving project every year, sometimes multiple times a year. So that’s a very integral part of the work we do with our clients, and then business strategy, if you own a business, the businesses role in your own financial plan cannot be overstated, and I feel like a lot of what we end up doing for those clients, those business clients, is really helping to build a bridge between the business and their personal life, and if they need this, they want this in their personal life, it’s finally making the business fund that properly, because normally most folks with fast growing businesses just keep reinvesting in the business. And we always joke, you got to throw money over the wall. You got to pretend that money’s not there anymore, that becomes the family’s money, and the business can keep clicking along.

So those are the elements of a financial plan. Then we add in financial life planning, which is really taking ideas of behavioral finance, family of origin theory, theories of adult learning and saying, how do people actually make decisions? Because CFP work, certified financial planners, we have all these categories I just mentioned, but then we have humans who are trying to make choices and engage in behavioral change likely, because you go in to see a financial planner, what’s happening right now is likely not what you want to have happen in the end and there’s changes that have to happen. So acknowledging that the idea of a rational investor is a complete myth, it’s been totally disproven. We are driven by our emotions, and that’s a good thing. That’s not a bad thing, it’s a thing to be embraced, and that being self-aware and developing self-awareness about your money stories, and the values that guide your decisions, makes for better decision making, because it comes from a place of self-awareness.

So that’s all the planning stuff, and really an investment plan is the structure that you put in place to define the parameters of the portfolio. It’s pretty cut and dry, I mean, it’s somewhat interesting, because you can look at capital market assumptions, if that’s your thing, you can understand what potential risk and return is for different asset classes, et cetera. But it’s not a thing that moves around and changes, usually. Usually you set an investment policy for the next 10 to 20 years. Sure, there are shifts that happen over time, but generally it’s not something that changes a ton.

So the investment plan is really about building the engine, and then sometimes for our clients we’ll also build some policies around satellite investments, so how much are they investing in satellite holdings? Usually we max out at 5% as a recommendation, so that’s crypto, private business loans, impact investments, venture capital, and then how do we integrate the performance of other assets into your long-term plan, businesses, real estate, because they all have values, they all have risk, they all have potential return, and how do you understand those things within your plan? So that’s how I define the difference.

Rebecca Hotsko (12:43):

I really like that, and I think maybe one way to sum it up is that a financial plan is changing, it changes with the course of your life, it’s evolving, but then your investment strategy, like you mentioned, you should have this philosophy that is core to you and it’s unique to your risk tolerance, your time horizon, your situation, but it really shouldn’t change. So I think that’s a really good distinction and way to think about it.

So I also heard you say something in that piece, money stories. Can you tell us what money stories are and how they influence our financial decision making?

Georgia Lee Hussey (13:22):

Oh my, yes. It’s one of my favorite topics because when I first got into the business I was noticing in myself that I could understand the theoretical concepts around money, but my own behavior was diverging from those concepts. I could know what was best, but I couldn’t necessarily act on it. And so what I realized was that my decisions were actually grounded in what I now call my money story, and money stories are the unconscious financial plan we’re all operating from. And it’s personal, familial, cultural, it helps us understand our habits and behaviors that we evidence because we can look back on our family history, we can see what does your mom teach you about money? What does your father teach you about money? What is your mother’s mother teach her about money. I can go back to my grandparents and see stories that I’m still acting out today, my great great grandparents actually.

And so that’s very interesting and important. It can be historical, religious, these stories that are told to us but we aren’t even aware that they’re defining how we can show up in systems of value and resources. And I also think it’s important to acknowledge that a lot of these money stories are grounded in racism and sexism. Who can control value and resources? Who inherits? Who is told that they can inherit? I have multiple clients over my career who have been women of a certain age, I would say women over 70 or so, who have been told by their advisors that they can’t actually make decisions about their own money when they are their own trustee. And really what’s happening is the lawyers around that person, and the financial advisors, don’t trust them to make choices so they tell them something that is actually not legally true. So there’s a disenfranchisement from systems of value that I think is important to acknowledge. And then there’s generational wealth or lack of generational wealth, who do we think we can be in relationship to these concepts?

And so what’s interesting about this is everybody’s is different, and in my experience in relationships, in partnerships, they’re often opposite. And that’s so interesting, it could be a place of conflict, or it can be a place of great understanding and a sense of, oh, I have a tendency to over save, you have a tendency to spend on experiences, instead of me calling you bad and you calling me annoying, why don’t we just instead learn from the other person’s skills and learn to talk about how these differences bring value to the way that we engage around these systems of value together. So I think that’s the core ideas of it, and we have a ton of resources on our website, that you can download tools and download conversation structures so that you can have these conversations with your family and friends to start to dig in to these questions, because I think they are more likely to be driving our investment decisions than alpha, or sharpe ratios.

Rebecca Hotsko (16:23):

That is so interesting. I have a follow up question for you about that, how can we identify what our personal money story is? What questions can we ask ourselves to really understand how this personal money story might be influencing our financial decisions and we don’t even know it?

Georgia Lee Hussey (16:43):

Yeah, we have a ton of resources on our website that we’ve spun out from the work we do with our clients, because one of our beliefs is that as a firm that works primarily with high net worth people, it is our responsibility to provide resources to the entire income spectrum. And so we basically do all the stuff we do with our clients, we also send out into the world, so please use them. But it really starts with awareness building, and some of those questions are, the ones that I spoke about earlier, what did my mother teach me about money? What did my father teach me about money? When do I feel stressed about money? When did I feel most satisfied in a financial decision I made? It’s really wide ranging. What do you remember about the first time you earned money? That always gets some fascinating stories happening.

Telling stories from the family can be really interesting. So there’s a theory of ascending and descending narratives in families and how unhealthy they are. So the ascending narrative is we started with nothing and then we built more, and then we built more, and there’s this sense of being at the end of generations of folks building wealth, this is a very common immigrant story, and it can be disconcerting for the current generation because they feel like they’re stuck on the edge of a cliff, because they’re scared they’re going to be the one that messes it up and they lose everything. So that’s not very helpful.

The alternate one is, this is very much my family’s story, because I’m from the south, and I don’t know if you’ve ever read any William Faulkner, but it’s this very strong story of we had money once, we were rich once back in the day and we want to get back to being there. And so rather this sense of being at the bottom, it is now your job to push the boulder up the hill to get back to what once was true.

And I think what is more helpful, or what the research is showing is more helpful, is actually telling stories to ourselves that are complex, that say my family came to this country, and then Uncle Harold bought a factory and it was going really well, and then there was a fire, but then Aunt Irma went and started this side business, and then that became really successful, and this went well, and that went poorly, and that went well, and that went poorly, because that starts to build a sense of self-efficacy that we’re capable of overcoming hardship and managing success. And I think that’s what a lot of people, really at the core that’s what we’re doing with clients, is helping build a sense of financial self-efficacy, that you can manage, you can manage what comes at you, and have a plan to support what we know is coming.

Rebecca Hotsko (19:05):

I’m going to switch gears a little bit here now to your investment strategy. So I was really excited when I saw that you’re partnered with the Dimensional Fund Advisors, which for the listeners that don’t know, Dimensional is an investment firm that uses an empirical evidence based investing strategy. I’m a big fan of David Booth, the founder, and he’s influenced my personal investing approach a lot. So I’m wondering if you could talk a bit about why you believe an evidence based investing approach is best for your clients, and just maybe what it is more for those listeners that don’t know.

Georgia Lee Hussey (19:45):

So I think the reason we work with Dimensional, and we also work with Vanguard and then a firm called Parametric for some values based stock portfolios, but I think first of all it started with realizing that our expertise is working with individuals, it’s not nerding out with spreadsheets and how much Malaysia we need to own, and what constitutes a sell signal for a value stock. That’s not our expertise, there are people with that expertise and they’re called CFAs, not CFPs. So I think it starts with knowing that I’m not going to try to build portfolios and model capital market assumptions if that’s not my expertise. So then we go out and we want to hire experts, that’s one of our primary things to do, it’s why clients hire us, and that’s what we do to fulfill all of the various skills that are needed to serve our clients well.

And so Dimensional Funds is one of the folks we use because basically I believe in hiring the biggest nerds I can find, always, and Dimensional definitely fits that bill. I mean, there are multiple Nobel Laureates associated with the organization, Eugene Fama, Robert Merton, Clarence Skalls, Ken French, I mean there’s a ton of them, so that’s good for nerd qualification. And then really what that allows us to do is to lean into what we call planning driven investment management, which to me always starts with evidence based. And investment management, in my mind, the investment priorities for an evidence based portfolio are constructed in science, and at the appropriate risk exposure. We want to take on only as much risk as we have to meet our goals, and we want to maintain that risk throughout as long a period as we can in the specific asset class we’re choosing to invest in, and Dimensional does that very well.

We also want to keep costs low, we want to be efficient for tax purposes, we want to diversify as broadly as we can, we want to rely on historic data, that again goes back to academic research, because we’re looking for trends that happened over very, very, very long periods of time, not what’s happened over the past 10 years, or even the past 20 years, we want to be looking at very long term trends. So that’s one of the reasons that we use DFA, and our investment committee that we hire consistently chooses them, but they go to market every single year looking to make sure that they’re the best provider for the particular asset class we’re looking to have exposure to.

Now with all that being said, I love Dimensional, but because we regularly review it it’s important because we need to always make sure that Dimensional, or Vanguard, or any of these other managers, aren’t getting distracted by market forces. It can be really compelling to get into a new market because it’s interesting, or there’s a lot of net cash flows into those market segments. But what I want to make sure is folks don’t go chasing dollars, but instead hue to their own investment philosophy. And that’s the other thing I like about Dimensional, they have a specific philosophy and that’s all they do, and that is essential to me. You don’t want to see a manager who has 10 different theories, that’s not helpful.

Rebecca Hotsko (22:39):

I definitely agree with all that, and that’s one of the reasons why I love the approach so much, it is completely based on research, science, what has happened in history, and I think that it is very useful for investors to educate themselves on different strategies, and ones that are backed by science and research.

So one of the core beliefs of evidence-based investing is that outperforming the market is hard, and there’s lots of research showing that most active managers tend to underperform the market in the long run, which is very unreliable for someone trying to financial plan. But instead of trying to beat the market by stock picking, evidence-based investing suggests that there are still ways to build portfolios with higher expected returns, so can you speak a bit on what those are and what drives those higher than expected returns?

Georgia Lee Hussey (23:32):

Oh, I think it always starts with those basic tenants, diversify, keep costs low, manage taxes. It’s basically, and then I think the other thing that’s important, when we say evidence-based investing we are also, I think, implicitly saying that we know that active managers have lost the argument. To your point, when you look at, there’s a standard reports study that showed performance between 2009 and 2019, and only 11% of active US stock managers beat the index. So that’s taking a gamble, in my opinion, to bet on the 11% of managers that are going to beat the market. So basically I’m just throwing that out the window, that’s not helpful any longer, there’s no evidence to support that.

So what we do know is that we can rely on diversification, we can rely on a few key factors of additional return, and here’s the shorthand I use with clients, what I give them is basically their cocktail answer when they’re stuck in a conversation about investing that they don’t want to be in, because our clients are not that interested in investing, they’re sort of into it, but not that much. I say, “Here’s the sentence, we buy stock on sale and small companies, just a little extra,” and that’s basically what it is.

Our portfolios are allocated across all markets, diversified as broadly as possible, and then we buy a little extra stock, because you don’t buy bonds for growth, there’s no evidence to support that that works, high yield bonds, just stay away from them. We buy small companies, because they’re more likely to become big companies. They take some extra risk, but over time we have seen that they tend to outperform the general market, and then we buy stock on sale, or value companies, because they tend to eventually some of them will come back to their fundamental value and we will have made a profit, we can sell them and we can reinvest in the general market.

So I think those are the three simple ways of explaining it, and then I think with bonds, it’s just keep it as boring as possible. Bonds that really not a place to be excited, so keep the duration super short, keep it high quality, and if you need cash, keep it in cash, don’t try and invest it. If your time horizon for needing cash is less than five years you should definitely not be buying stock, and I would question what kind of bonds you should even be purchasing in order to be able to fulfill that cash flow need, because you don’t want to take a risk you’re not going to be rewarded for.

Rebecca Hotsko (25:50):

So you mentioned some of the main factor premiums that historically have led to higher than expected returns. You also mentioned diversification as a key aspect. So most of our listeners are based in the US, and people tend to have a home country bias and invest mostly in companies in their own country. Can you explain why global stock market diversification is key to an evidence-based strategy, and why you think it’s important to include in your client’s portfolios?

Georgia Lee Hussey (26:21):

Yeah, happy to. This is actually one of my favorite money stories. I can almost guess the age of the person whose portfolio I’m looking at based on the allocation to US stock, because there is a very, and maybe I’m wrong, maybe there’s new evidence having younger people also buying primarily US stock, I know it’s the easiest one to buy individual stock, so that can be a reason why you end up owning a lot of US stock, because it’s the easiest to buy. So the first risk that we take when we don’t invest internationally is that we’re losing potential future returns from these developing markets, or developed markets. So that’s the first issue that I have.

I think also if you look at data, it’s very interesting to me the propensity to invest in US markets at the end of one of the strongest returns by the US market. So to me that’s actually when you don’t want to be investing in US stock, when it’s had a really good run is not when you want to buy in. But if you look back, so 2011 to 2020, one of the highest returns was the US. In 2001 to 2010 it was the fourth worst performer out of all countries. I remember picking up The Wall Street Journal and it said, “The lost decade, there’s no reason, why are we even investing in US markets anymore?” And now the story we’re hearing is literally the exact opposite.

So this is just so interesting the way these stories get told, and then we’re not looking at the evidence to confirm that the story is true, to your point earlier. What’s interesting is in that period, so 2001 to 2020, US was actually the fifth best performer, because these past 10 years have been so positive, after Denmark, New Zealand, Australia, and Hong Kong. So were those the other four that you guessed were going to be the ones to perform well? So the question to me is just diversify, don’t try to guess, you can’t guess, you don’t know, we don’t know, nobody knows, just buy across the global markets and you have a higher likelihood of being right.

Rebecca Hotsko (28:20):

That was a really great answer. So I want to move on to some money mistakes. You’ve been in the financial planning industry for a while, working with a lot of different clients, so what are some of the most common money mistakes that you see people make?

Georgia Lee Hussey (28:36):

So we talked about not defining plenty and enough, that’s a huge one. I often will talk to people and they’re talking to me about their portfolio and I’ll be like, “Yeah, but what are you investing for?” And there’s a silence that appears and I think, well, that’s the first mistake. If you don’t know what your goal is, it’s very hard to align your risk and return with that goal. I think having a very narrow definition of wealth is problematic. I think it keeps us making financial choices that are not supportive of our long term satisfaction.

And I’m playing around with this idea of wealth as having five areas that we need to pay attention to. Money, sure, that’s an important one, but I think time, relationships or social capital, skills and mastery, and wellbeing are the five areas we need to think about, and I think this comes into play when we make money’s mistakes like taking a job that offers a higher wage but actually offers us lower amounts of time, or removes us from connection with the people we care about, or is not helping us grow as thinkers and workers and people who have skills that we’re looking to grow, or that negatively impacts our wellbeing or our health or our stress levels. So I think it’s very easy in our culture to think that money is the reason we do things, and it really should not be the reason we do things, there’s usually more, we have more wealth than we acknowledge, and that shows up in all kinds of way, how we value people, why we listen to Elon Musk, for some God forsaken reason. So I think that’s a big one.

The other one I’m really interested in is ungrounded emotional responses to money when it’s due to too much financial noise. So the biggest recommendation I say to clients is just turn off the news, go for a walk, have a nice meal with somebody you love, you cannot control anything that’s happening out there. What you can control is how you react, and the best way to react to noisy markets is to ignore them. And then I think also, and this relates to the theories of wealth, is understanding what your values are and then making the audacious decision to apply them to the decisions you make.

So I think one of the things I see happen for folks is there’s this underlying sense of dissatissfaction that is unspoken, but is present in a sense of anxiety, they bring into their financial choices and it’s often, so I’ll give you an example, let’s say somebody’s really worried about climate change at some core level, but their portfolio doesn’t reflect that worry. Subconsciously they may undermine their own investing decision making because they know they’re profiting off of their own anxiety about the future of humanity. So I see that happen a lot, and it’s not just investing, it can be tax planning, it can be generosity, it can be a variety of areas, but I think our values have the opportunity to be the most wise guide in how we make choices.

And then finally, I’ll just say, cash, cash, cash, cash, cash, all day long, cash flow is so essential. It is the primary driver of financial plans, how you spend it or don’t, how you save it or don’t, and the ability to learn how to make projections about the income you’re going to need in the future, it’s so essential, and it’s one of the ways that we’re different as a firm is that we teach people how to manage their cash flow. I have clients who make $80,000 a month, and they’re still managing their cash flow in the same way our pro bono clients who make $1000 a month are managing their cash flow. And so it’s this way of understanding where your money is going, and that, I think, creates so much dissatisfaction, or it can create significant satisfaction, to understand just where is your money going on a day to day basis?

Rebecca Hotsko (32:09):

That is such a great point. I can say that once I started tracking where my money was going I was able to see where I was making mistakes and where I was spending too much that didn’t align with my values, and then it was so easy to be like I don’t actually care about spending $600 a month on a car payment, so I eliminate that. But to some people maybe that matters to them so they don’t, but then they find something else in their life to eliminate. And you just have to figure out what aligns with your personal values, and it really is liberating because then it makes it so easy to save. So I have a question for you, why do you think that rational people make these poor financial decisions?

Georgia Lee Hussey (32:52):

I find this question so interesting, Rebecca. I think the basic assumption that there are rational people is, I’ve never met one. I have never met a rational financial decision maker in my life. And I think that’s part of why the money stories work is so important, because the majority of our decisions are emotional, and that’s not bad, that’s just how humans guide themselves. And I think there’s this dominant story that if we just had the right pie chart or Excel spreadsheet we will know the right choice, and we will make the right choice, but what really happens is we know what we want to do and we massage the Excel spreadsheet or pie chart to support what we already know we want. And so I think it’s all about awareness. If we’re not aware of how we’re moving in the world, what we really want, what we’re scared of, what we’re anxious of, what we adore and love, it’s very hard to make rational choices because we get really distracted by the outside world and we’re not driving from our own inner awareness.

Rebecca Hotsko (33:52):

So in your experience, what are the best ways that we can prevent our emotions from influencing our financial decisions?

Georgia Lee Hussey (34:01):

First you just have to acknowledge that you can’t, that instead of preventing our emotions from influencing our decisions I think we should embrace our emotions and allow them to influence our emotional decisions, but watch it happening. So I think what I find regularly is that, again, this comes back to money stories, I think there’s a spectrum of financial decision making in my mind, and on one side are the people who save and invest, and they are good in our culture. And then on the other side we have the people who spend and have experiences, and they are not good in our financial culture. And in my mind neither of them are particularly grounded.

This person may have a lot more money to spend than they realize, that this is actually an anxiously driven behavior of saving and investing more than they absolutely need to, and my experience is folks who overspend also have an anxiety that maybe the future feels tenuous and they better just enjoy it while they can, or they saw their parents lose all their money, or who knows what the story may be. And so really what we’re aiming to do is to find a middle way in which we can consciously say, okay, I feel anxious, I feel like I want to save, oh, my partner is a spender, maybe we can find a middle ground where we go on a great date night and we make sure we fund our 401ks, or whatever the goals are of the family.

Rebecca Hotsko (35:20):

That makes a lot of sense. So I have a couple more questions for you. It has been a tough year in the market, so far the S&P 500 index rebounded a bit recently, but it’s still sitting about 10% down from the peak, and a lot of investors may have made the mistake of emotionally panic selling at some point along the way down. So can you talk a bit about what the data says typically happens after a steep decline in the markets, and why that could have been the worst decision they made?

Georgia Lee Hussey (35:52):

Yeah, I mean, this is actually what worries me about robo-advisors in the rise of low cost investing and the easy access of technology. Quick, anxious decision making does not make for a good investor, so the ability to sell at all in the middle of the night is not a good move. One of the biggest values advisors bring, whether they’re financial planners or life planners like I am, or anything else, is basically being a buffer between you and your sell button, or buy button for that matter. I’ve definitely talked some people out of some, “Why are you buying Tesla at the top of the market? No.”

But we know that markets tend to bounce back, and they usually deliver positive returns at the 1, 3, and 5 year mark after a steep decline. I don’t even know if we’re in a steep decline, I mean, we were in a bear market, but we bounced it out of it pretty quickly. I’m expecting we could go back down again, we could go back up again, we could stay flat, I don’t know what’s going to happen, but I know that markets will tend to reward investors who weather, the ups and downs, stay committed, ignore what’s happening. If that means you have to hide your password to your investment portfolio, I don’t know what needs to happen, but just really resist, because it’s hard to make up those losses.

I also think it’s important to think about the language we’re using around losses in the market, because you’ve only lost something in the market if you sold. Markets are just down, and that’s natural. And I think that’s the other piece that I’d like to pull forward is that down markets are normal, recessions are normal, it would be weird if it was summer and harvest all the time. That’s not natural. We need winter, we need early spring, we need to digest growth in order to grow again in the next cycle. And so I think that’s an interesting underlying assumption in the media, is that there’s something wrong when we’re in a down market. What is wrong to me is that we’re thinking about markets and not thinking about the people who can’t afford food right now. That is really important to me. And so I think there’s just a way of reframing for ourselves what’s really happening.

Rebecca Hotsko (37:50):

I have two things I want to follow up with on that. I really liked how you pointed out the market cycles, and I think that really speaks to the importance of why diversification is so important in a portfolio too, because even if the US stock market is down, it doesn’t mean all Asian, European, South American, Australian, everywhere else is down too. In fact, half the time when one is really bad, it’s booming in another, and so I think that’s an important thing to point out on the diversification aspect.

Georgia Lee Hussey (38:21):

I agree, I couldn’t agree more, and that is important to look at the data regularly, because then if you look at what we call a Skittles charts, because it looks like a bunch of Skittles thrown across a desk, is you look at different asset classes and their performance over multiple years, we usually look at the 20 year, it’s like, you cannot guess where real estate is going to end or start, you can’t guess where the US market’s going to end or start, you just buy it all.

Rebecca Hotsko (38:44):

Exactly. And then I guess the second thing I want to ask you is that if someone was up in the middle of the night freaking out that their investment was down, would you say that they just are in a risk inappropriate portfolio and that if that’s the case maybe they should look to just revisiting their investment portfolio and maybe go into safer assets?

Georgia Lee Hussey (39:08):

I think it’s more likely that they need education to understand the context of the moment they’re existing within. Because I’m 43, my portfolio is basically 100% stock because I won’t need my money for 20 years. It would be riskier for me to be in a 60/40 portfolio than it is for me to be in a high equity portfolio because I have a long time horizon, I have a lot of time to be able to deal with the ups and downs in the market, and I’m going to capture the higher risk as return and then compound it. As I had one client said, I want the pile of bunnies to make more bunnies, that’s the job.

And so if they’re young and feeling that way then I think it’s really important to understand that risk is your friend, and when markets are down you should buy. If you want to do anything, buy. If you can’t make a decision, don’t do anything. If you need the money now, then that money should never have been invested in the stock market. It’s all about time horizon, it’s When do you need the money? We talk about this all the time.

So a lot of our clients, for example, that have businesses, or high liquidity needs, or they want to buy a house in a certain period of time, or invest in a commune, I don’t know what they want to do. We often have they have a retirement portfolio and they have a liquidity portfolio. The retirement might be 75 to 80% stock, and the liquidity portfolio is 20% stock. So they’re getting a little bit amp up when the markets are going well, but they’re not taking as much risk as they would with their retirement portfolio, because again, you need to line up the risk of the portfolio with the time horizon.

But let’s say you’re in a situation where you’re like, oh wait, I do need that money to buy a house, and I did put it in stock. I would be like, “Okay, you’re probably going to have to put off buying a house, but don’t sell. Put off buying a house, figure out a way to take care of your own situation, your living situation, and wait, because it will come back, you just have to be patient.” So that’s the reallocation I would do, is wait, and then when markets come back, then you can reallocate to something that’s more appropriate for the time horizon and risk tolerance.

Rebecca Hotsko (41:08):

Georgia, that was fantastic. That’s all I have for you today, we flew through those questions. Thank you so much for joining me. Before we close out the episode, where can the audience go to connect with you and learn more about your work?

Georgia Lee Hussey (41:25):

Sure, so the firm itself is on modernistfinancial.com. You’ll find on the front page a sign up for free tools for the people. That’s a bunch of money stories, toolkits, conversation starters for family and friends. Great for the holidays, when they’re coming up, it can be a great way to start interesting conversations with the people you care about. Our newsletter is actually really fun. There’s always a song about money, we highlight nonprofit leaders that we’re really excited about and doing great work in the world. Obviously we have market updates in there as well. And then you can also follow me or the firm on LinkedIn, and then of course we’re on Instagram.

Rebecca Hotsko (42:02):

All right, I hope you enjoyed today’s episode. Make sure to subscribe to the show on your favorite podcast app so that you never miss a new episode. And if you’ve been enjoying the podcast I’d really appreciate it if you left us a rating or a review, this really helps support us and is the best way to help new people discover the show. And if you haven’t already, be sure to check out our website, theinvestorspodcast.com. There’s a ton of useful educational resources on there, as well as our TIP finance tool, which is a great tool to help you manage your own stock portfolio. And with that, I will see you again next time.

Outro (42:40):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires via The Investors’ Podcast Network. Every Wednesday we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses go to theinvestorspodcast.com. This show is for entertainment purposes only before making any decision consultant a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.