Bullshit on Stilts: Tackling the bullshitology of financial decisions.

Chicken Little's Guide to Terrified Investing (and Why It Fails)

• Keli Alo & Mark Robinson • Season 2 • Episode 5

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What if everything you thought you knew about investment risk was wrong? That's the fascinating premise we explore in this eye-opening episode that challenges conventional wisdom about what makes investing "risky."

Most people equate risk with volatility—those stomach-churning ups and downs in your 401(k) statement. But as we unpack through lively discussion and real-world examples, that volatility is only risky when mismatched with your time horizon. For long-term investors, those same market fluctuations actually generate the superior returns that build substantial wealth over decades. The true danger lies in ourselves—our behaviors, perceptions, and emotional reactions that sabotage even the soundest investment strategies.

We dive deep into the many faces of investment risk: market risk, credit risk, interest rate risk, inflation risk, liquidity risk, and concentration risk. But we don't stop there. We explore how social media algorithms create echo chambers that reinforce harmful financial beliefs, and how propaganda and misinformation shape our investment decisions in ways we rarely recognize. As financial behavior expert Charles Ellis wisely noted, "The problem is not in the markets but in ourselves and our reactions to the market."

For those seeking solutions, we examine practical approaches to managing risk—from traditional diversification strategies to innovative risk transfer mechanisms through insurance products. Whether you're a seasoned investor or just starting your financial journey, this episode provides clear, actionable insights to help you make investment decisions aligned with your true goals rather than driven by fear or misunderstanding. What's your relationship with risk? Your answer might reveal more about your financial future than any market forecast ever could.

We love to hear your thoughts, questions, and ideas. Send us a text!

Developing your financial bullshit sniffer one episode at a time.

Keli Alo:

Welcome to Bullshit on Stilts. We're back for season two and let's just say it's as popular as a fart in a high-rise elevator. We're still barking at financial fairy dust like a dog and a mailman, and in this season we're serving up a fresh batch of debunking financial sales tactics and ads you never asked for, all while helping you sharpen your own bullshit sniffers for those life-changing financial decisions. So grab your favorite drink, bring your sense of humor and don't forget your calculator. Join us on our quest to expose the financial shenanigans that even your grandma would call bullshit on. It's time to get sniffing. Let's get after it.

Keli Alo:

Welcome to Bullshit On Stilts. I'm your host, kelly Aulo, and my co-host, the beautiful and ravishing Mark Robinson, is with us today again, which is fantastic. Today we're going to talk about investment risk and all sorts of different types of risk that kind of fall into that bucket. We'll shape the conversation around short versus long-term investing goals, and then we'll wrap up the episode with a little discussion on how to transfer risk investing risk to someone else. All right, so that's today's episode, thanks. Thanks for joining in. We're in episode five, season two.

Keli Alo:

Let's get after all right, we're back on and we're gonna kind of, we're gonna see what comes out of that first recording dude boy this is risky that was fantastic that was probably some of the best conversation we've had and well, god, since I before I knew you, some of the conversations we had well before 2014 were my best conversations I've ever had with you. That's true. They were fulfilling, they were lucid you don't know where to go. You're like I don't know where to go with this. Where's he going with this?

Mark Robinson:

I'm just going to start off with talking about risk, and we use risk in a lot of different ways and use other words to describe risk. So there is risk that is inherent. There's risk that we kind of bring on ourselves. Most of that would fall into behavior. In a context of the market and investing, we have a tendency to confound ourselves with our behaviors, our perceptions and our reactions to our perceptions when we either attempt to take on risk or avoid risk, and it shows up in many different ways. We often equate volatility with risk, and we'll talk a bit about that. We can talk about risk that shows up in how we put together portfolios, from highly concentrated to highly diversified, and the risk based on certain rates of return and the mismatch often between the types of investments we have for the time horizon and the goals that we have. So there's a lot here that we can start with. So I'll allow you, kelly, to pick door number one, two, three or the box that Jay's bringing down the hallway right now.

Keli Alo:

That's right. Yeah, I think when we were talking about this, the idea was to discuss that risk-reward stuff that's out there. It's just part of financial decision making for people and it runs the gambit right Across all sections of finance. And certainly I'd like to talk about the investment side of risks, right. Just kind of the pure persons thinking about their 401k. They want do something that. That those risks are, I think, what come to mind quickly for us, certainly. And uh, I see the cat's starting to rip your coat, that's by the way. We don't warrant any damaged coats by cats around this studio, okay, so believe me, I'm familiar with cats.

Mark Robinson:

I am, you know, hemming's.

Keli Alo:

House in Key West they have like a bunch of cats, six-toed cats. We're the same here. We're kind of Hemingway North with about 100 cats here in the studio. You know you've been really handling them well, by the way.

Mark Robinson:

You know, I just when I default to using the cat box here, it's my only option. I've been meaning to say you know, last time you were here.

Keli Alo:

It took me an hour to clean that mess up. What the hell did you have to eat the day before. Oh my God, you know. Next time just make sure you hit the box.

Mark Robinson:

That's all.

Keli Alo:

I'm asking All right. So, when it comes to investing, I think there's investors out there, right? 401k participants, mom and dad and all that. They're out there, right, 401k participants, mom and dad and all that. They're out there and they're just trying to figure out how do I allocate what investment funds should I put my money into? Why does my advisor do it this way and so forth. But when the investment world generally talks to a participant of a 401k plan and they say risk, what do they mean?

Speaker 3:

by that Risk means losing all of my money Me too. What do they mean by that risk means losing all of my money too. What do they?

Keli Alo:

mean by that mark? What are they? What are they really saying when they say risk when it comes to 401k investment funds, as an example?

Mark Robinson:

all right. So in the context of an investment fund, risk usually means potential volatility so it's not losing every penny up and down. The big term for that is standard deviation or variance, how much it can go up or how much it can go down over a particular time period, and so really risk means volatility.

Keli Alo:

So it's like the roller coaster ride, yeah, Over time, of what that fund might go up and down in terms of value the price of the fund, right and down in terms of value the price of the fund right, yes, okay, yeah, okay.

Mark Robinson:

So the problem is is that when you separate that from a time horizon or a given goal, that volatility can actually be good. Wait what Volatility is good? So really, the risk in that regard isn't really a risk. It really is just your ability to manage or handle the volatility, the ups and the downs.

Speaker 3:

That makes sense over long time frames, because volatility goes both up and down.

Keli Alo:

So you're equating that to what? To the time frame that you're invested? Sure, okay, let me give you an example.

Mark Robinson:

I'll give you a specific example. If I need to have my money absolutely necessarily in six months and understanding that the market inherent in the stock market stock market specific here is volatility, meaning ups and downs that can be huge swings one way or another, it's probably not a good idea to put my money into the stock market if I absolutely necessarily need it in six months. Now, if my time horizon is, say, 10 years or 15 or 20 years in retirement, that volatility is my friend, because the very volatility that can take it to new lows over a six-month period of time is the very volatility that has the market now at what. Where's the market now?

Keli Alo:

Dude, it's been in a pretty good correction here 20, 30, 40? Oh, dow-wise, yeah, I don't know, it's like 35, 36.

Mark Robinson:

Yeah, all right, so 35, 36,000, because I remember back in 2012, it was, I don't think, around 4,000 or something like that. So that very volatility that we're experiencing right now is a very volatility that took it to where it came from. So, in that way, volatility is my friend and it is not a risk If I'm matching it up to a particular time horizon and a goal that says I need return. Therefore, I need the volatility, or risk as we call it.

Speaker 3:

Oh, I get it. So I need the up volatility and I need to hold through the downward volatility just to earn the average expected returns of my allocation plan.

Keli Alo:

So, in other words, if my time horizon, like a retirement savings time frame, might be 20, 30, 40 years, I can accept, theoretically at least, a more volatile roller coaster ride in my investment savings account, because over time it just becomes a statistic. Right, it's just, you want that up variation, you just don't want to get creamed on the down.

Keli Alo:

But over time markets go up historically at least us markets, that's right go up they go up more often than they go down conversely, if I, if I want a smoother ride, a safer roller coaster ride, like the little caterpillar roller coaster ride, then I can invest my money that way and certainly in certain instances, if it's a short-term goal, I I kind of want that low, no risk, because I need my money and I know when I need it. For the six month time horizon in this case give me almost no color roller coaster ride.

Keli Alo:

why do I keep saying Kohler Roaster, no roller coaster ride, and I get that. So how does a person in their 401k plan or in their brokerage account decide which way to go? Like, if I'm just if I'm a 30 year old, should I just always have my money and the highest gaining investment opportunity that's offered me like 100% stock, just because I'm 30?

Mark Robinson:

Absent me. Bringing in the behavioral risk, maybe so. Do you want, over a 20 or 30 year period, that investment that throughout history has always performed the best, or do you want the second or third best performer? Then you have to put in the behavioral component of that. Are you able to hang in there Like my belly, can I actually?

Keli Alo:

handle that roller coaster? Can you actually handle?

Mark Robinson:

it understanding you've got a 30-year time horizon.

Keli Alo:

Do you find, when you were practicing, that most people were able to handle the roller coaster Because when they said, hey, I can handle it, I want 10% plus returns, I can handle it, I want 10% plus returns, I can handle the roller coaster what percentage of those people that you worked with actually demonstrated the capacity to handle the down of the roller coaster? That scream part of it when your portfolio is all of a sudden 20, 30, 40% lower.

Mark Robinson:

I'm going to answer it this way they had the capacity to handle it, in that they did not, for the most part, sell out. Did they bitch about it? Absolutely yeah, but they did not sell out, yeah okay.

Mark Robinson:

Okay, yeah, and sometimes you've got to do that, you've got to complain about it and talk it all out and you just hang in there, right? No, that's true, all right. So let's stay on this for just a minute and kind of reframe this and summarize it. So we've been talking about risk, but really what we mean is volatility. So the volatility presents a risk from a behavioral standpoint If you are investing in a higher volatility investment like 80 to 90% stock allocations.

Mark Robinson:

Because you want it to go up. I understand you've got to go through some down periods over a long period of time. You want that excess return over something that is lower volatility, so-called lower risk.

Speaker 3:

That might be something like zero to 30% stock allocations.

Mark Robinson:

But that's for a long-term time horizon. If it's a short-term time horizon and you absolutely necessarily need your money, why are we even talking about volatility? You just get a CD or a money market account or something that comes due at or before the time you need that money. So in that context, we don't even have to talk about interest rate risk or things of that nature. You need the money. Interest rate risk or things of that nature, you need the money. So I think it's good to, when we talk about risk through all of this, we frame it into what is the potential realized outcome that we're afraid of. And is that realistic? Is that a probability or not?

Keli Alo:

Yeah, I'm trying to think through this from just a very kind of organized way to talk through this right. So if I have a short term goal with my money, the most important thing is a return of my money not a return on the money.

Mark Robinson:

Yes, fair enough.

Keli Alo:

And so I'm going to most likely, if I'm a normal person want my money in something safe savings account, a CD right, something safe. Take no risk If I move out to a long-term investment-.

Mark Robinson:

Let's reframe that, let's not even say safe An instrument that has the highest probability of being a whole dollar plus any interest, by the time you need it.

Keli Alo:

Yeah, safe, I mean, if we're talking to CFAs, I agree with you, but this is someone driving home, and do we really have to sparse it down to that degree?

Mark Robinson:

Well, because I would say that the safest investment for me to maximize whatever that terminal value is going to be out 30 years from now, my safest investment is a well-diversified stock portfolio of index funds.

Keli Alo:

Well, yeah, and that depends on the circumstances, doesn't it? That's what I'm saying. So it would be safe only if you require that return level. But what if you won the lottery and you didn't require that return? That doesn't necessarily need to be the kind of risk you take, okay, but you could be all bonds and very safe quote unquote stuff. Sure, I get your point right In terms of the, the return. The required return determines how much safety you can afford to take or not. And if your required return is nine and you're invested in safe stuff quote unquote, like a CD and you're making four quote unquote, like a CD and you're making four, you're never going to achieve your goal.

Mark Robinson:

So that CD, while safe from a volatility is unsafe from a aggregate sum of compounded returns on your investment over 30 years right, and the other is a safer investment from the probability of having a higher terminal point.

Keli Alo:

Yeah, the stocks would be yeah, yeah, yeah.

Mark Robinson:

Yeah.

Keli Alo:

All right. So one of the problems with risk when it comes to financial, is there's all sorts of different types, versions and definitions of risk. Right, yes, there are. We did some, some work and you work and you can quickly come to a double digit list of different types of risks. So some of them and I'm just going to list out a few so that as we're talking today, it might kind of blend into making some sense here so risk, market risk is a risk. What's market risk? Real quick.

Mark Robinson:

It's an inherent risk and it is the risk that just comes, systematic risk, of being in the stock market itself.

Keli Alo:

Yeah, so just investing in financial markets, yes.

Mark Robinson:

There's inherent risk.

Keli Alo:

There's an inherent risk, which is volatility, which is volatility.

Mark Robinson:

Yes, and perhaps default companies going out of business. But for the most part it's just the market risk.

Keli Alo:

Just being invested in the market. You accept risk. Yes, Then there's credit risk. What's credit risk?

Mark Robinson:

Credit risk is the risk of a particular investment being downgraded, therefore losing value, maybe even going out of business, is basically what credit risk is the credit worthiness of a particular company affecting the price of that particular bond.

Keli Alo:

Let's say so one company is rated as high quality and company B rated as low quality yeah if I invest, if I own both those bonds or even company stock. What could I expect from the high quality security versus the lower quality security?

Mark Robinson:

so well a lower default rate lower default rate yeah and a lower probability of it going out of business or being missing an interest payment.

Keli Alo:

Also maybe the ability to pay a dividend or continuing to pay the existing dividend rate as an example would be a little bit of that credit risk, interest rate risk kind of tied a little bit to that credit risk.

Mark Robinson:

Yeah, it is, yet it is separate. The interest rate risk certainly has an impact on the value of a bond. From the risk standpoint. If I have, in most recent experience here, 10-year treasuries at 1% and 2% and 3% and suddenly in two or three years the new issues on 10-year treasuries are at 6%, 7% and 8%, well, certainly the value for the remaining time period of those 10-year bonds that you bought several years ago they're going down in value. Why? Because you can get three times the yield on it right now.

Speaker 3:

So what you're saying is that issued bond prices, so those bonds currently in circulation, will drop as the general interest rate environment goes up and the bonds price will go up when interest rates decline.

Mark Robinson:

Yeah, the new bonds are paying a higher interest than your bonds, and so the bonds that you may have I'm talking individual bonds or even within a portfolio the value of them go down so that they match whatever the current yield is on that. So, for example, if I had a 7 percent, if the going rate now current market was 7 percent on a 10-year treasury, making all of this up and yours were all three times that bond gets marked down to where the price of it for the coupon, that 3% coupon, equals a 7%. Yeah, that's a long way down on that price. Yeah, sure it is.

Keli Alo:

Well, the other thing, another way that interest rate risk would play, is if you're leveraged and you're borrowing money and you have long-dated borrowing and you're going to have to roll that portfolio over and you're going to have to take on a new level of loans with a new level of interest rates. The cost of money, which can choke a lot of things. Well, it can choke an economy, right? Typically, we choke off the money and guess what happens? Recessions follow, so to speak.

Mark Robinson:

Now you're doing what you were scolding me for doing, See am I Shit?

Keli Alo:

Okay, all right, All right. Next one Inflation risk. What's inflation?

Mark Robinson:

risk. Inflation risk is where my value, the purchasing value of my money, goes down. In other words, I can I buy less with a dollar. That's, in effect, it, which is what we went through. Where were we up at nine, ten percent inflation, at a yes or so nine point six.

Keli Alo:

I think yeah, nine point six percent or so, month over month, or yeah, yeah, yeah, yeah.

Mark Robinson:

So you know, something that was for five dollars it's suddenly 550. Yeah, whenever I.

Keli Alo:

Yeah, Whenever I think of inflation. In 1977, I went to Star Wars the first Star Wars movie. It was 99 cents to get into the movie and I think for $2.50 more I got a soda and a popcorn, free refills. So what $3.50 all in and that might have been steep. Maybe it was more like $2.50 all in when I think it was the last star wars that went to the movie theater, like skywalker rises or whatever. Nine I took myself and my two daughters, and I think the bill for entry individually was close to about 20 bucks ahead. That's inflation so the movie hasn't changed.

Keli Alo:

I mean the experience has changed. You know the seats recline, you know you got this leather, you got cup holders, you got all sorts of things. You even reserve your seats. Couldn't do that in 77, but almost 20, almost 60 bucks to go see that with popcorn and sodas, yeah, but then I think those prices have gone up in excess of inflation.

Mark Robinson:

also, I remember Tom, who we both know was talking about how much he used to be able to buy a McDonald's the equivalent of a Happy Meal, a French fries and a hamburger and a soda back in late 60s, early 70s and I was like boy is, is that cheap? And you know what I did I ran the numbers, yeah, with the inflation yeah, and it was just slightly ahead of inflation, but not huge yeah, no, no.

Keli Alo:

So that's the insidious thing about inflation. Yeah, yeah, it's always instructive to look at that anyway yeah, well, we don't follow.

Mark Robinson:

Follow that we. Once again, I follow women's lacrosse.

Keli Alo:

I digressed, well, yeah that was a really good digression um okay, liquidity risk what's liquidity risk?

Mark Robinson:

I need my money and I can't get it. That's what it boils down to. That's right. You can't get all that's right. And where typically does that show up? I'll tell you.

Keli Alo:

Well or with penalties or with penalties.

Mark Robinson:

You can get at it first.

Keli Alo:

Typically, it's your alternative investment world. Yes, private placement, hedge funds they all have these some limited partnerships yeah.

Keli Alo:

Yeah, where they can gate people from taking money out. But certainly there are investment products out there that will penalize you from taking money out. But certainly there are investment products out there that will penalize you for taking money out. So sending you less than what it says on your contract value or your account value or whatever it is Mutual funds can do that. I think they've really gotten rid of those mutual funds, the B shares that had a back-end commission charge on it if you took your money out too soon. But certainly annuities have surrender charges, right, um, even life insurance policies have surrender charges, even cds. Do cds? Do you actually forfeit your interest and sometimes you pay a penalty yeah, so it is kind of a liquidity risk.

Mark Robinson:

But I think you nailed it with the first couple where you're just gated out or there is a window and if you need your money and that window isn't open for redemption.

Keli Alo:

Yeah, definitely a real world thing to think about that liquidity and oftentimes, when a sales professional is in front of you promising outsized wonderful gains, there's almost always a catch, whether it's surrender fees, penalties or the potential to be gated at precisely the moment you don't want to be gated you know?

Mark Robinson:

Yeah, I think that's a truism.

Keli Alo:

Yes, all right. Next one Sector risk. What's sector risk?

Mark Robinson:

Well, so we have industries and then we have sectors. I'm talking about S&P, that type of stuff. So you have a sector like the health care sector, financial sector, technology sector.

Speaker 3:

For clarity. The S&P 500 Index divides the markets into 11 sectors.

Mark Robinson:

And the risk in that is the performance of that sector, either above or below the market as a whole, w-h-o-l-e. So it's the risk of being in a given sector when the whole market is doing quite well, but yours is running into some trouble and so you're at the effect of that single sector and that risk can be quite onerous because sometimes those sectors can stay down for quite a while. So that's really what sector risk is. Simply, it's just a portion of that market in a particular sector. Probably sometimes people understand that more of an industry. You're going to have multiple industries within a sector, yes, to where it's just falling on sort of out of favor, let's say for multiple reasons. Maybe some of the other risks we've talked about interest rate risk, for example, or geopolitical risk, and you're just kind of stuck there because you're not diversified.

Keli Alo:

Yeah.

Mark Robinson:

And that's not offset by something else that is doing, another sector that's doing well. So that sector risk and we can get into that because it keeps going down that becomes to industry risk and then specific risk of a stock within that, yes, particular industry I sometimes think of it as a baseball team.

Keli Alo:

You have a sector risk, so in baseball you have different positions on the on the playing field right pitcher, second baseman, shortstop don't forget the cute college kid that fields a foul ball off the third.

Mark Robinson:

Yeah, but they're not on the field so they don't count.

Keli Alo:

So so it's just the players right first base, second base, third base. But the point is is that in a sector there's 11 sectors in the s&p 500 index. Each of those sectors are sort of like one of those players on the field. The player we're looking at might be a right hander, six foot or above, and there are a whole bunch of left-handers that are, you know, shorter than six foot playing the same position. And now we start getting into that industry example that you're talking about so health care, health care equipment, health care delivery service providers, pharmaceutical all sorts of different stocks are inside that sector.

Keli Alo:

Fair enough, yep. Okay, let me see. We'll talk a little bit about concentration risk, concentration risk.

Mark Robinson:

really to summarize, this is when you're counting on just a very concentrated few investments to kind of pull all the weight for you, and there's a risk to that. A lot of small cap funds, particularly on small cap mutual funds, would take very concentrated risks on a bet that, through security selection, they would outperform the small cap market, let's say like the Russell 2000 or the s&p 600. Yeah, so concentration risk again is too few bets, hoping to get excess returns out of that. Yeah, then on making a lot of bets across a particular sector or industry or or a market right, asset class so.

Keli Alo:

so most people, main street, just people that save money and it goes into a 401k or whatever. They're typically taught or communicated to be diversified, fair, yes, concentration risk. Sounds like someone's not diversified, is that?

Mark Robinson:

fair, yes, okay.

Keli Alo:

When I think of concentration, I always think of individual stocks. You know having 510 stocks and I'm concentrated? Yes, because I only have 10 bets on the table, like you're talking about. Whereas if I buy one fund let's say just again S&P 500 index fund of some sort, I'm going to have at least a couple hundred, maybe upwards of three, four or even 500 stocks inside of that fund. So, compared to the 10 stock account, I'm completely diversified and I'm not concentrated in that measurement. Is that correct? Yes, that's right. But would you say I'm concentrated if I'm comparing my S&P 500 index fund the only thing I own to someone that has stocks and bonds and small cap and maybe developed non-US and some high yield bond?

Mark Robinson:

That's a good. Who's concentrated now? Yeah, well, it's. If you are in multiple asset classes and sectors within those asset classes, then you are still less concentrated than the individual who has just one asset class or one sector or 15 stocks so it's almost like you can equate this to a well-balanced meal, right?

Keli Alo:

If you're only eating chicken legs every day all the time, that concentrated diet is probably going to come with some risk, some volatility in your health. I'm guessing yes, it would. Versus if you have a well-balanced some salads, some veggies, a little protein and blah, blah, blah. Your presumed level of risk is now lower, is that fair?

Mark Robinson:

That's fair. And so that's why it's called a balanced diet. It is, that's right. I eat raw nowadays, yeah, which is like a balanced portfolio, a combination of stocks and bonds and diversification within that.

Keli Alo:

Which is probably why that's the primary thrust of retirement funds, retirement-dated funds they're all totally diversified.

Mark Robinson:

It was funny. We got it so right with that Just buy broad markets low cost and leave it alone. Yet here's that other behavior risk and it's the pour over on all of this.

Keli Alo:

So let's get to that behavior risk. What is behavior risk?

Mark Robinson:

Behavior risk is. Well, there's all sorts of behaviors we can get into that, whether it's let's narrow it just to the investment savings here conversation we're having.

Keli Alo:

Let's not talk about your choice of which pumps to wear depending on what time of day it is.

Mark Robinson:

Oh okay, Whether hats are okay or social behavior In sun or not. Frequently certain nightclubs and that kind of risk.

Keli Alo:

That's right, that's right, yeah, oh, okay.

Mark Robinson:

Yeah, I guess I can go there.

Keli Alo:

So behavior risk.

Mark Robinson:

Yeah Well, we've got all sorts of that and a lot of it comes down generically to in investing, overriding greed, overriding fear, how we like to game recent memory, anchoring on certain things, most recent information that we have. There's all sorts of things that impinge on that. But I think generically and correct me if I'm wrong on this, it's a fresh thought is it comes down to how we react to fear or greed. I think I could put a lot of these others under those two categories.

Keli Alo:

They would all be subsets of that From the behavior standpoint as the overlay to how we think about money, our relationship with money.

Mark Robinson:

Yeah, and there's all sorts of rationalizations within them, of biases, prejudice, unexamined opinions. All of that come under, whether you're in the fear camp at that particular moment or the greed camp.

Keli Alo:

Yeah, I get that I wonder if fear grows by virtue of your environment, right, by virtue of your environment, right? So if your environment can instill a fearful view of the world, then if the natural, normal person, without that view, just a normal view, let's say just a well-balanced view of life, some things happen sometimes. It's good, not so good, whatever versus someone else.

Mark Robinson:

That is really just views life through fear. Are they more or less likely to invest money into a growth or aggressive growth investment? Great question, because you can't pull people kicking and screaming into something that they that might be in their better interest and this comes down to metaphysics, there are those of us is this ron l Hubbard thing?

Keli Alo:

No, go on.

Mark Robinson:

Okay, go on. What was I talking about? Metamucil.

Keli Alo:

Yeah, metaphysical world, oh, metaphysics oh yeah when.

Mark Robinson:

There are those of us that we think we are just this hapless, helpless chip, buffeted about by universal forces we have no control over. Then you have the other that says, yeah, shit happens, but for the most part I'm bigger than my circumstance. And if I were to graph out my life, it has a little bit higher rise than it does run. In other words, it's an upward incline, because I presume that I'm ultimately bigger than or can surmount whatever my circumstances are. So for those of us that are truly dwelling in fear, you're not going to dwell in the stock market at all, because it'll just confirm it anytime there's a downside and you'll revert to Henny Penny.

Speaker 3:

What the hell is Henny Penny? You don't know. You exhaust me. It's like being a chicken, little you know, like everything is bad, like the sky is falling and life sucks, kind of an outlook.

Mark Robinson:

Whereas others that are saying, yeah, we've got to put up with this stuff, but it'll all work out, or at least has. Yes, they're probably better suited behaviorally for taking on the volatility, the short-term volatility.

Keli Alo:

So let's stay with this for a second. So if you're a person that is inherently fearful or stressed when it comes to finance, when it comes to so a chicken little volatility in my investment account, I don't like seeing you know x in losses. I don't like my account when it goes backwards. In fact, I don't like it so much. I'm not going to invest this way anymore as an example, or I need something safer, less volatile.

Mark Robinson:

Well, there's a workaround on that.

Keli Alo:

What is it?

Mark Robinson:

Invest more.

Keli Alo:

Ah, 100%. That's like we were like bonded, like mentally right there, dude.

Mark Robinson:

We were. That's what I was going for. I thought that you were going to get it wrong. I thought you were going to say like cotton candy or something. I was very good at passing notes back in fifth grade.

Keli Alo:

That's right. Well, good at passing notes back in fifth grade, that's right.

Mark Robinson:

Well, I did. I just kicked that little triangle football with a note on it that, yeah, that's, that's right. Oh, 100, I remember doing that when the teacher would turn around and then you'd part of the game was not getting caught kicking the field yes across to your buddy, and you know, from one grade to another, it truly was advances in technology, how we got better and better and better, and then tricking them out, yep, yep, and then making the indent on them so you could get a little bit more. That's right, yeah yeah, absolutely.

Keli Alo:

You know, back then the brain was a powerful tool. It was back then we could figure stuff out, man, yeah, no, that's exactly what I was going for. The way to reduce the amount of investment risk you are required to take is to save more of your money.

Mark Robinson:

Sure.

Keli Alo:

In other words, live on less than what you earn, and I know everybody's like I can't do that. Oh yeah, thanks a lot, but it's like when you go into the water and you go underneath, you're going to have to hold your breath. I can't fix that for you. That's just what it is.

Mark Robinson:

Yeah, got to live on less. So, for example, if you don't want to take on the 10% rates of return for the market and 5% is cool for you you can invest twice as much money.

Speaker 3:

Are you okay with that? My favorite chicken little Be quiet Trying to listen over here, To achieve a terminal point?

Keli Alo:

Yeah, equal the same value at some future date? Yeah, absolutely. And that's where I think people get caught up. A lot of people that we've worked with in the past haven't gotten serious about that discipline, just chalking a few shekels away every day, starting with your first job, not when you're 30, not when the kids are off to college, not when you're 30, not when the kids are off to college, not when you're 10 years away from retirement. But it's just part of it. As they say, if it's not there, you don't miss it, and so there's an awful lot of validity. And if you're a good saver, ie that person that saves first, spend second you can have your cake and eat it too. You really can. And if you decide to save more and sort of invest in a moderate or a moderate growth fashion 40%, 50%, 60% in stocks or whatever over the course of 20, 30, 40 years, you'll have that much more. Statistically, the probabilities are pretty damn high, do you?

Mark Robinson:

know who summed this up quite well. His name is Charles Ellis and he wrote, and I'm paraphrasing, that the problem is not in the markets but in ourselves and our reactions to the market. That is the correct answer. Really, the problem is always ourselves, it's not the markets, because the markets, in their unpredictability, are kind of predictable as to what they do. Sure, yeah, yeah, it's we. When we enter into that, we're the ones that bring all the confounding aspects of it. Even back to the liquidity issue, I'm gated out. Yeah, that was a risk, and you know what the risk was, and it just came home to roost. You didn't read the offering memorandum or the prospectus.

Keli Alo:

Yeah, or you were sweet-talked.

Mark Robinson:

Yes, and that this was sort of the sweet talk of the salesman. That's another risk.

Keli Alo:

That's right. It never happened, it's not going to happen. It's really the market.

Mark Robinson:

Yeah, it's like how animals are If you get bit by a dog or something or something like this. Often it's what you did, not what they did I got bit by a dog.

Speaker 3:

What were you doing? I tried to take away a bone that the dog was chewing on. Definitely your fault.

Keli Alo:

I would have bitten you too. Our behaviors when it comes to money and when it comes to financial decisions are a prime ingredient and key variable to us being successful not successful.

Mark Robinson:

Yes, key factor, absolutely.

Keli Alo:

Because one of the things we've talked about time and time again is it's really about people being exposed to the information around financial decisions and getting them to be more and more comfortable with understanding and viewing that decision in a manner that's more constructive, rather than just someone selling me something. Someone's selling me something, and you know there's always going to be people selling stuff. There's nothing, and they're critical players in a marketplace, no doubt. But this is really about helping people start getting their hands around making decisions, financial decisions and maybe in this case, we're talking about risk reward and, right now, about behavior. But what are your behaviors that have stopped you from doing? I'm guessing, at least five things, when it comes to financial peace of mind, that you still haven't done. It might be just getting a will because you have minor children. It could be that you haven't gotten true life insurance coverage because, well, you got a $50,000 policy through your employer.

Mark Robinson:

You just gave some very good examples of what Charlie Ellis was saying.

Keli Alo:

Problem's not the markets, it's us, that's right.

Mark Robinson:

Our perception of them and our reactions to them. That's right. But some of this other stuff you want to talk about risk, it always is us. Just mentioned the life insurance, you mentioned the wills, so really overarching all of this is us.

Keli Alo:

There's so many other things. When it comes to risk, it just pops into my brain If I'm not creating a monthly budget and trying to follow that budget and validate the budget, I'm accepting risk that I'm wasting money I don't know where, but I'm spending more than I'm aware of somewhere without any intention, just spending. That's a risk, right, that's the risk of not getting as much, in economic terms, utility out of the income coming into your household. Yes, right, I think I. I think I nailed that, I think you did. The econ professor might be pretty proud of me right there. So it's funny how it's all over the place.

Mark Robinson:

And the unintended consequence of that, yes, big time.

Keli Alo:

I've met with some that I know and they're very afraid of financial market, so much so that for their entire working life, one of their retirement accounts has been left in a stable value fund. So in other words, it's a retirement accounts short term bond fund. Right, it's very low risk, very kind of low return compared to other investment options. And so she achieved her goal. I didn't want to lose any money to the stock market. Problem is the amount of money there is dramatically below where it should be and could have been had it been in just an average run-of-the-mill, properly diversified one of the funds in there. And it was her fear that stopped her from doing it. But guess what? Her new fear is? That's replaced losing money in financial markets because of corrections. The new fear is did I save enough for my retirement? How can I possibly retire on this amount? That's not enough, but that's a result in large part not solely, but in large part to being afraid of volatility across stocks, bonds, cash, alternative REITs and so forth.

Mark Robinson:

It's a great example of we're our own worst enemy, like Ellis is essentially saying right, yes, yeah, yeah and it's that very fear of volatility or of the unknown that often, with that kind of mindset, keeps you from maybe doing what you really want to do in life getting a job that's really matched because you always are doing the okay. What about what if the internal veto, whatever it is it, keeps you from that, and here it is manifesting in the marketplace.

Keli Alo:

Yes, yeah.

Mark Robinson:

So you can be 60, 70 and saying what the hell happened to my life and, in this case, 60 cents of what the hell happened to my portfolio. That's right. It didn't achieve what I wanted, just like me.

Keli Alo:

Yeah, there's so many phrases, right? You miss a hundred percent of the shots you don't take, right? You got to show up in order to just play. I mean, just on and on and on. So when it comes to behavior, right, I think we're getting this idea, but how could the herd behavior affect me, an individual, when it comes to, let's say, saving for retirement in my company?

Mark Robinson:

Oh, that's a real good question, because if we go back a long period of time, the herd mindset was if everybody in the herd is wild-eyed and starting to move, the impulse, the survival impulse, is to start running with them, because the best-case scenario is okay, you're tired, you just ran a half a mile for no reason whatsoever. The other side is, you got eaten by the saber-toothed tiger, and so it's always flight first, flight run. Worst case, you're out of breath.

Keli Alo:

It sort of comes with a presumption that I don't know why, but this is what I'm doing.

Speaker 3:

Yes.

Keli Alo:

I park my logic, but if nobody's going to save money in the 401K, why should I?

Mark Robinson:

Yeah, that's true. So it doesn't go through the wiring of the visual cortex to the uh-oh. I see something wild-eyed moving to the amygdala that says holy fucking shit, I'm scared. It doesn't go through the hippocampus, this is. Wait a minute, wait a minute. I got memory on this, we've seen this before. And then it goes to the frontal cortex and says, huh, maybe this is a time to run the other way. Yeah, in this case, buy, buy more. Yeah, does that satisfy you from a I think so biochemical?

Keli Alo:

yeah, I think so I mean, you talked about the hippocampus, so yeah, I'm with you now. So I think the big one that's affecting most people today when it comes to and most people, anybody that has a smartphone in their hand and looks at it periodically, especially the social media, Facebook, tiktok, whatever, but those people, that's who I'm talking about. Oh, a big issue, those people, those people so like my mom, who's not with us anymore, but she didn't look at her phone and she never, scrolled on it, yeah.

Keli Alo:

So she wasn't that part of the group.

Speaker 3:

She's not those people. Apparently, I'm one of those people.

Keli Alo:

It's like us. Frankly, I think we all fall into that group, my and my daughters, and they're you know. Okay. How does the psychological behavioral finance confirmation bias? How is that sort of hijacking, with today's social media and algorithms, people's beliefs and their willingness to even put money into a 401k?

Mark Robinson:

account Boy. It could be a complete hijack, Because what happens is it compounds on itself and the more you are getting confirmation bias or the algorithms are pushing more and more that confirm whatever your notion is, the more certain and entrenched you become in that and there ain't no escape because it just keeps coming. That's right.

Keli Alo:

Yeah, these smartphones. Right, if I touch a thing on Instagram and it's a purple tiger, I guarantee you that I'm going to present it a couple more colored maybe not tigers, but they're going to be animals and they're going to be different colors. And eventually, if I touch one of those, I'm going to get more. And that's confirming my bias in an example probably a really bad one, but nonetheless, those algorithms will feed you exactly what you're willing to look at in the store of social media, so to speak. If you grab that jar of peanuts butter off that social media and look at it, guess what? You're going to get hit with peanut butter advertising, and maybe it's peanut butter stock prices and maybe it's on and on and on, but that's what those algorithms do.

Keli Alo:

So if you believe that my dad told me never to put money into 401k, it's all bullshit, because he had a pension and he never needed one, and and you know your uncle, joe, well he died when he was 43 and if he put all that money away, he would have never have had that money. You need to live while living's good. That might be a bias that you take with you now forever. And when you're looking at your social media. What have you done? You're paying attention to people that tell you why a 401k is a ripoff. The government owns 50% of it. Blah, blah, blah, blah, blah. It's a bias. I think I just went on a rant. Let me get off my soapbox.

Mark Robinson:

Yeah, but you know what, and it's not really a rant, because even back before all the Internet, you had all of the publications that were you know whether it was Money Magazine. There were several of them that just were all pushing buy, buy short-term, short-term, short-term returns, you know, buy the company with the best, you know eight-week return, annualizing that. You know that kind of stuff. So it is out there and it's tough to fight. Yeah, it is, it is tough to fight. I don't know whether there's a solution for it.

Keli Alo:

I don't know either. I mean left up to its own devices. There is none. I mean the algorithms will reign supreme with informing you of whatever you show the modicum of interest in. That gets to another thing, which is the framing effect, right?

Keli Alo:

And how that affects these commercials that are out there, these talking heads that are out there and listen. Some of them are probably wonderful people and great at what they do, and some of them probably are not so wonderful, but the framing effect right, which is describing an investment in terms that. I think you once again talk about this glittering generality, these hard-to-believe claims of you never lose your money or a tax-free Roth conversion, and all of these statements which are really false, but they're not so false that they can't be run on an advertisement. You know the legal counsel has got around that so they don't get slapped on their head from the FCC or the SEC or any of these other regulatory bodies. Do you have any thoughts more on that? Thoughts more on that.

Mark Robinson:

Just that. If my investment time horizon where there is the most volatility, therefore the most newsworthy components of markets up, markets down, big time down, big time up there's a smoothing effect that can take place both psychologically as well as in the markets itself. If I'm grabbing enough data, all that volatility gets smoothed out into average annualized geometric rates of return. If that's my time horizon and I set that, why am? I trafficking in all this short-term shit. That's precisely correct.

Keli Alo:

We get drawn in to headlines yeah, and we've been trained the daily burlesque of the market? Absolutely, we've been trained. Why are we doing that? And, unlike the past when, yeah, and we've- been trained.

Mark Robinson:

The daily burlesque of the market?

Keli Alo:

absolutely, we've been trained and and, unlike the past, when we were kids, there was some editor-in-chief that was saying, yes, no, you know, there was the pursuit of of a greater degree of truth and fact back in the day. Today, you know, it's very different. It's all about a position. Right or wrong, that's irrelevant. It's about the position that matters most. They're framing their spot around first, be fearful, and second, we have things to replace the fear. So here's your hero, 10 bonus tax free.

Mark Robinson:

So they're the the risk here, the risk here, particularly over the last couple of minutes here, is the risk of falling prey to propaganda, misinformation, disinformation and not full disclosure. That's right Withholding. That's right Withholding of critical information.

Keli Alo:

Yeah. So the point was, the point is these commercials are fantastic? Is these commercials are fantastic? You might talk to someone. That's really good, but without asking really damn good questions, without understanding your own risks, without understanding your own behaviors, that might detract from you making really lucid decisions on behalf of yourself, your family and so forth. Boy, you're, you're, you're kind of left up to the sales professionals way they want to engage you, what they want to engage you, what they want to sell you. Don't be afraid to say bullshit, throw that on the flag on the play and make them re-explain it or answer these questions. And we help people when they need help on making decisions. We help them look at that stuff we're not selling. We're just there to help them not make mistakes.

Mark Robinson:

Really, you'll protect them from their greatest risk, and that's themselves yeah perceptions and reactions to their perceptions. Salesperson risk goes up there big time. Huge propaganda, the disinformation, the misinformation, just the chatter of, uh, what you find on social media? Yes, just mindless, insipid, banal chatter. Yeah, from suddenly, people that are experts in the market yeah, that's really the biggest risk because these markets, even in their unpredictability, have a predictability and they're not really the problem. It's how we choose to dance with them, that's right. It's how we interact with them.

Keli Alo:

All right. One last thing we want to tackle before we wrap this recording up is about transferring financial risk and the actual ability to get rid of pieces of risk, if you so choose to get rid of that risk. And typically when we talk transferring risk, we're talking insurance companies. So you want to take a stab at kind of, let's say, let's talk annuities just for a second. We're going to do this kind of clean. How do I transfer retirement risk?

Mark Robinson:

to an annuity. Well, I transfer the risk of me running out of money over to the insurance company who, for a cost, will make sure that I have a fixed amount of money or, with a ride or two that adjusted to inflation, that I won't run out of money. Maybe it's me, and maybe it's also my spouse they don't run out of money. Maybe it's me, and maybe it's also my spouse, they don't run out of money.

Keli Alo:

That's right and, in fact, if you're wondering how do you run out of money if you're not in an annuity, all a person has to do is look up what's called sequence of return risk as it relates to retirement income.

Speaker 3:

What is sequence of return risk?

Keli Alo:

It refers to the fact that the order and timing of poor investment returns can have a big impact on how long your retirement savings last what's called sequence of return risk and you will find the answer as to what can happen in an invested portfolio that you're trying to live on in retirement while it's in a roller coaster ride in the financial markets Compounded with also longevity risk. Longevity risk. Yeah, Things change. When Social Security started, the average age or mortality in the US was like 68, 69 years old.

Mark Robinson:

Yes, and the average pensioner didn't live seven years past.

Keli Alo:

Now people are usually and customarily living into their late 80s and 90s. My mom did. I have no idea how, but she did Her husband was 85.

Mark Robinson:

That's because you moved away, Kelly.

Keli Alo:

That was, yeah, I mean, she finally started doing her own mowing, anyway, but 90 years old. We have relatives and our family history is more like 70s, but everybody is in their 80s, going into their 90s. So that kid born in 2015, the likelihood of him or her reaching the age of 100, I think the probability, is astronomically higher than when you or I were born. I mean, you were born in what? 1924?

Mark Robinson:

yeah, I just am thinking about that with my daughters. Yeah, think of all the pile up of uh that are brought to my grave site for another 120 years. Yeah, I know, holy, just from that standpoint.

Keli Alo:

Well, what's surprising is you think they're bringing flowers, but still it might be hamburgers.

Mark Robinson:

Yeah, me too.

Keli Alo:

It could be your favorite chili mac recipe. I put it in a bowl there. You know Chinese do that. They give food offerings to their ancestors.

Mark Robinson:

I didn't know that. I think of all those Thai carry-out cartons all over stacked up high on my Is Thailand part of China?

Keli Alo:

No, it's not part of China. It's a totally different country Leaving off on the bottom, so they stick together. So, yeah, so we're talking. That's how we transfer a financial risk of running out of money in retirement with an annuity. How do we transfer the risk of God? Maybe I don't make it home tomorrow night and I have loved ones that I feel financially responsible for, sure well, that's a loss of income and you can transfer that with some type of insurance life insurance, whether it's generically life term or cash value, whole life.

Mark Robinson:

So if something does happen to you let's say you're in your 30s or 40s you've got another 30 years perhaps of earned income, and if you're making 100 gr a year, yeah, that's a lot of money to replace a lot of money that all of a sudden, yeah, vanishes from the future of the household.

Keli Alo:

right here's. Here's an interesting thing how do I transfer the the financial risk of wasting my money in an insurance policy by just paying the premiums? What the risk is? I wasted my money. I lived until I was 100, as an example, why did I have the life insurance? I didn't leave a spouse here, I didn't. Do you know? There's a lot of fear around wasting your money in life insurance? How do you transfer that risk? I don't know. Cash value life insurance do you transfer?

Mark Robinson:

that risk. I don't know cash value life insurance yeah, of course I thought you were tricking me. Nope, nope, I just popped into my brain. I'm like that is a risk, and that's a true risk, like why did I?

Keli Alo:

waste my money on a 30-year term. I spent, in this example, 90 000 over 30 years for a life insurance policy that I left. Why, well, the answer is a cash value policy where you could grow and accumulate cash in your policy. You could borrow from it, you could use it for retirement supplement.

Mark Robinson:

You can do all sorts of things with that cash, but you know what that's the cost, though, kelly, I put that under the cost of just being cautious or mitigating risk. Do you think you're going to mitigate risk all the time? No, and it's at no cost to you. No, and you're always going to win.

Keli Alo:

No, but there is a risk that I can transfer of wasting money on a term policy. Yes, because I think the statistics are still 2%. 3% of policy owners that have temporary insurance actually collect on it. That means that 97% of people with term outlive the policy. Sure.

Mark Robinson:

But was it worth it? The peace of mind, was it worth it? Yes, and on that, measurement.

Keli Alo:

It may well be On the flip side. You don't have to lose the $90,000 a month. That's right. You can have it accumulate and blah blah blah.

Mark Robinson:

The only reason I'm bringing that up is I just don't want to think if it's not a cash value and you can bail out of it at some point that insurance is not of value, even if there's no payout. On the cash value no on any type of insurance, whether it's term or whatever, if you didn't get a return off of it and you had the risk mitigation. Yet you get out of jail free or there's no cost to you. I don't know how many things in life work that way.

Keli Alo:

Yeah, no, and I agree with you.

Mark Robinson:

How do I?

Keli Alo:

transfer risk when it comes to my vehicle or my home.

Mark Robinson:

You buy insurance, there you go, Whether it's property home auto yeah yeah.

Keli Alo:

You do the same thing, Even umbrella yeah, yeah yeah, and that's awfully expensive.

Mark Robinson:

That's right, as we both know, with daughters, it's very expensive. Yes, yeah, you know, there's no break even on that.

Keli Alo:

No, there isn't Usually.

Mark Robinson:

No, there isn't, Because even have some gap insurance there to cover what If you owe something on that thing?

Keli Alo:

Yeah, yeah, exactly. So, anyway, the idea of this transferring financial risk is where that insurance world plays and that's what it does. And for someone that's risk-averse they don't like the roller coasters, they don't like the idea of losing money, they don't want to waste money, they don't want to idea of losing money, they don't want to waste money, they don't want to boy. The insurance industry does a pretty damn good job of designing solutions to help you, really surgically, if you want to narrow in on, what specific risk are you trying to get rid of? It's pretty, it's pretty, uh, brilliant. Just so long as you, hey, you know how to trust. But verify that recommendations and or what you own right now is is still well within um, your area and arena of needs.

Mark Robinson:

Getting back to salesperson risk, it's not the insurance product, no, it's who's selling it to you, indeed, again. So here we had. Those are where the big risks are, yes, again, behavioral or the interaction of salespeople with the consumer the hapless consumer.

Keli Alo:

Those are the biggest risks still, I think we've kicked this horse pretty hard a number of different ways. We'll go to the drawing board for what do you want to talk about next episode?

Mark Robinson:

Well, I'd like to do just a variant of this, where we do talk about risky behavior outside of the marketplace and bring in the risque, which I believe is a french word.

Keli Alo:

Oh yeah, it is. Yes, yeah, risque interesting. Yeah, burlesque maybe yeah, are you? Still performing in that burlesque no, no, no, no, no.

Mark Robinson:

Uh yes, idiot manager pointed out that I'm starting to develop cellulite on the back of my thighs.

Keli Alo:

Is that what it was? Yeah, interesting. Well, that kind of yeah. I see I wasn't going to say anything, but I get it yeah.

Mark Robinson:

That's all right, peloton, maybe I just kind of got bumped on that, but it was time for me to go anyway. You know it really was.

Keli Alo:

You were much taller than everybody else. I for me to go anyway, you know it really was. You were much taller than everybody else.

Mark Robinson:

I mean, for that matter, I don't know. Yeah, yeah, you know, it's kind of.

Keli Alo:

so Well, listen on that note. I think that wraps up this episode of Bullshit on Stills. I think it does Outstanding. Hey, till next time and your eyes wide open, man. Good stuff, no, no, keep your eyes open, keep your eyes open and your sniffers down yeah.

Keli Alo:

Read the small print. Thanks for tuning in to another episode of Bullshit on Stills. We hope you enjoy Season 2 and find it as refreshingly honest as ever, because who needs financial fluff when you can have some facts? Remember, we're here to help you navigate through the financial fog and come out the other side with a clear head. A big thank you to our talented content creators from bensoundcom, upbeatio and pixabaycom, who make this journey a little bit funkier. Special shout out to Andre Rossi's Funky Street and upbeatio for providing the groovy theme music that's been setting the tone for our season two adventures. Got a topic you want us to tackle or a financial myth you're curious about? Drop us a text and let us know what's on your mind. Until next time, keep your detectors on and your sniffers down.

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Keli Alo

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Mark Robinson

Co-host