Make Retirement Awesome Again With Jared Dillian

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Jared Dillian talks about his awesome portfolio (0:30) Saving for retirement (2:20) Are we in a new normal? (7:10) Managing money (12:45) Bullish on bonds, bearish on the USD, precious metals bottomed (14:00) Tax consequences (19:05) Portfolio statistics (24:20)

Transcript

Rena Sherbill: Jared Dillian, very happy to have you on Investing Experts Podcast. For those that don’t know, have been in hiding perhaps, and have not afforded themselves your content yet. It’s Jared Dillian, founder and content creator at Jared Dillian Money, also the author of most recently, The Awesome Portfolio.

And very excited to get into that today. Perhaps you’ve read the book, No Worries, How to Live a Stress Free Stress Free Financial Life. Jared, really happy to have you on Seeking Alpha. Really great to have you on Investing Experts. Thanks for making the time.

Jared Dillian: Yeah, thanks for having me. I’ve kind of been in hiding lately, so it’s good to crawl out of my cave and do a podcast.

Rena Sherbill: Always important to peek out and and see what’s happening in the real world, on the online world, both perhaps. So, first of all, why are you out of hiding? Why why poke your head out? Is it is it to talk about the book? Is it for other things?

Jared Dillian: I would say in the last couple of years I’ve been keeping a little bit of a lower profile. I’ve been doing my newsletter for eighteen years, which is a really long time to do anything. And I’ve been focusing more on managing money. I have my other extracurricular pursuits, but yeah, the book, The Awesome Portfolio, is coming out on September 8th.

I am super excited about it. It’s kind of been a not lifelong, but at least since 2019, a mission of mine to get people to save for retirement in a much smarter, low stress way than the way they do it currently. I think the way we do it currently is really a mess and prone to all kinds of problems.

Rena Sherbill: Well, maybe let’s get started there. And I’m curious, coming from the newsletter and creating content, have you always had these ideas in mind to put them out in book form?

Jared Dillian: The one idea that I’ve had is the conventional wisdom around saving for retirement, for most people, is that you put all your money in a low-cost stock market index fund and you dollar cost average it.

And anybody who’s ever sat down with an Excel spreadsheet for the first time and discovered compound interest, if you max out a 401k for 40 years and you dollar cost average it and you get 11% returns in the SP 500, which is what we’ve had for the last 40 years, you’re gonna have a huge number when you retire.

And I think people are kind of seduced by that number. and what they don’t realize is that the path to get there is very rocky sometimes. and that if you’re going to be investing over a 40-year period, there’s probably gonna be at least one instance where you have a 50% drawdown or more, right? And how you behave during those drawdowns is super important.

I think also the conventional wisdom is that stocks always come back and all you have to do is keep dollar cost averaging and do what you always did. some people can’t do that. some people will puke and sell their retirements funds and stop compounding.

And for the people who manage to keep doing it, they’re just gonna be really unhappy until they get back to the high water mark, right? So what I’m proposing is something that, first of all, is going to prevent you from puking.

Second of all, you’re gonna you’re the drawdowns are minimal so you’re never really gonna be in that psychological position where you have to decide of whether of what you’re going to do and you can just let it keep compounding and go about your daily life. And the trade off is very small. Trade off is just a percent or two in returns.

Rena Sherbill: Have you ever seen that picture where it’s like how people envision life and it’s just an uphill or it’s just like a straight kind of like bike ride to the finish line, and then what it’s life is what life is actually like, and it’s like potholes and thunderstorm and what have you.

Like everything is it’s a lot easier said than done in terms of seeing to the retirement finish line. So, what would you what do you encourage investors? I mean, you just spoke a little bit about it, but practically speaking, how do you encourage investors to plan for this part of their lives?

Jared Dillian: Well, first of all, stocks right now are the only game in town. And getting back to your earlier comment about that straight line up, you know, really for the last eighteen years, we’ve had the straight line up. we had the pandemic in twenty twenty, which didn’t last very long. we did have a bear market in twenty twenty two, but it wasn’t that bad.

It was a little bumpy in two thousand eleven, two thousand twelve, but really since two thousand nine the stock market has pretty much gone straight up. So they’re really people haven’t been tested at all, and they think that’s what investing is like all the time.

What I am proposing is that stocks are not the only game in town that you have to diversify across asset classes. So in portfolio theory, you have this concept where if you have asset A and you have asset B, which is not very correlated to asset A or maybe negatively correlated, and you put that in the portfolio with asset A, then the volatility of the portfolio is going to come down.

And if you keep adding assets that are not correlated or negatively correlated, it’s really going to bring the volatility of the portfolio way down. Right. So what most people have right now is they have the S P 500, which is volatile.

It right now it’s a 16 ball. It moves at 1% a day. I really don’t like the idea of my entire life savings moving around on average 1% a day. In crisis periods, it can move five, six, eight, ten percent a day, which is breathtaking volatility.

And I think in the US, we are a nation of risk takers, we’re a nation of gamblers. People in other countries don’t do this. In Europe, nobody puts all their money in the stock market. In Japan, nobody puts all their money in the stock market. We are really the only people that do this and we’ve kind of gotten used to it.

But like I said, the market’s gone up for eighteen years. I don’t maybe goes up more, but who knows, but if history is a guide, it’s gonna get bumpy at some point in the future.

Rena Sherbill: What would you say to people that, to your point of this upward slope in the stock market, and to the point of what the market has looked like this year, the past couple of years, in terms of navigating these challenging moments, but staying, really on the upswing in terms of…

In other words, black swan events or geopolitical events that would have taken the stock market down in previous years are not doing that. And is are we in a new normal? Like as the world is evolving and as investing is changing and evolving, some may say atrophying.

But what would you say to the point of the stock market being the only game in town and that game being a little bit more gamified as the days and years go on?

Jared Dillian: Well, I think what’s different about what’s happened in the last eighteen years is that people’s psychology has changed. And, there’s a whole not even subculture, it’s a culture of investing, whether you want to call it the Bogleheads or anybody else, really this belief, this belief to your core that the stock market always comes back, right?

And for sure, in history, it has, right? Like it it the stock market has always come back, but that’s not really the question. The question is, does it come back in a time frame that is useful to you, right?

So how long can you stay below the high water mark? So in 1929, the stock market crashed and you didn’t get back to the high watermark until 1946. So 17 years, right?

So if you were invested all in stocks in 1929, you and you were like a month before retirement, you were totally screwed, right? Because you lost 89% and you now you have your standard of living in retirement is going to be much lower. 1974, 2000, 2008, those are the four great bear markets.

But really, like what’s changed is that people believe in stocks so strongly. Like, I don’t know how many senior citizens, but we have 80 year olds who have portfolios of all stocks, right? Which is insane.

What we used to say when I when I first started in the business three decades ago, we used to say that your age should be your percentage allocation of bonds. So if you were 70, you should be 70% in bonds.

Nobody does that anymore. Nobody does that. You have people 60, 70, 80 year olds who have all stocks. So I to a roundabout way of answering your question is the psychology of investing has changed so much. It’s not even necessarily that people are bullish, it’s not necessarily that they think stocks are going to go up.

It’s that they believe in the stock market as an institution which never lets them down, right? And, recent history it shows that it hasn’t.

Rena Sherbill: So what what is your what are your like two main points that that you share with people that that are confident that this time that this time is not is is different in the sense that it’s not going to be different for quite some time.

Jared Dillian: I don’t know the answer to that question. As somebody who trades, there’s billions of dollars that come into the stock market every day. I talked to my friend Eric Balchunas today. He’s the head ETF analyst at Bloomberg. And he he gave me an interesting statistic. He said that even in 2022, which was a you know, a decent bear market.

There were 600 billion into ETF inflows that year. He gave me another statistic. In 2008, the year of the financial crisis, Vanguard still had inflows every single month in 2008. Incredible stuff. The point is that there is a persistent bid to the stock market, you know, which has continued for a long time.

And I really can’t predict what’s going to change that. I don’t know what the catalyst is going to be. I’m not bearish, I’m not short. but you know, if just looking back over history, there have been periods of time where people have had that degree of confidence in stocks and it hasn’t worked out. So you have to diversify across asset classes into other stuff. Bonds in particular.

Nobody likes bonds right now, which is funny. Everybody liked them when they were at one percent yields, but nobody likes them at five percent yields. I think bonds at five point three percent look pretty good. I think you should have them as part of your portfolio.

Rena Sherbill: To the point about that high number and the ETFs, that’s I think a a a big reason or a very solid way that people are staying in the market and continuing to be interested in the market. There’s so many specialized ETFs, there’s so many ways to get into the market now. It seems like that’s definitely a lever that’s been pulled and will continue to be pulled in terms of bringing more and more people into the market.

You said that you manage money now? Are you doing that for like a select few that you know? Or how does that work, if you don’t mind me asking?

Jared Dillian: I have a I have a very small commodity trading advisor. not much in the way of assets. I’ve been doing it for two years. It is growing. the returns have been decent up into the last couple of months, which have been tough. but that is that is what I’m doing now.

Rena Sherbill: And why? Why focus on that?

Jared Dillian: Once a trader, always a trader. I got into the trading business in nineteen ninety nine. I worked at Lehman from two thousand one to two thousand eight. I’ve been trading my own money ever since then and I thought it was time to get back in the game.

Rena Sherbill: Like a stand up comedian who’s been on a show and now’s getting back out on the road trying out his material, something like that.

Jared Dillian: Yes. As a CTA is the simplest way I can explain it is it’s kind of like a hedge fund that lives in the futures world instead of the stocks world. So I trade anything that has futures on it, which includes commodities, but also stocks, also bonds, also currencies, it’s a macro discretionary CTA, very top down. So I’m just trading anything that has futures. So

Rena Sherbill: What what are you trading? What are you liking? What are you staying out of?

Jared Dillian: At the present moment I’m very bullish on bonds, especially the front end of the curve. I’m bearish on the dollar. and I think precious metals have bottomed here. And that’s really all I wanna go into on that.

Rena Sherbill: Aanything to say further on why you’re bearish on the dollar and or what gold and silver have done in the past year, kind of the trajectory of that?

Jared Dillian: Well, gold had a twenty-eight percent drawdown. It’s still in a bull market. silver had what a sixty-five percent drawdown, but I still think it’s in a bull market.

As far as the dollar, I think people are misunderstanding Warsh. His first Fed meeting, he was very hawkish. He talked about price stability all the time, and then he declined to raise rates at his second meeting.

And really what Warsh is saying is look, the Fed isn’t going to do much here if, you know, we’re going to let the bond market conduct monetary policy. so the back end sold off, the curve steepened, which actually has an immediate tightening effect on the housing market and capital goods. and actually I think letting the long end do the work actually frees him up to cut rates at some point in the future, cut Fed funds and which is a long way of saying that I think that’s bearish for the dollar.

Rena Sherbill: Anything to add about i the inflationary picture?

Jared Dillian: I think inflation has peaked. I’m actually I don’t think inflation is a problem and if the war ends soon then it’s really not a problem. you saw last month’s data where you had big misses on CPI and PPI and PCE and people just explain those away as if they were outliers or aberrations. I really don’t think it’s an outlier. I think inflationary pressure is decreasing.

Rena Sherbill: And anything to note about, there was a a lot of talk about gold not behaving as a safe haven asset. Anything to note there?

Jared Dillian: Gold is kind of what people want it to be. it’s it’s many different things. People say it’s an inflation hedge, then it doesn’t really act like an inflation hedge.

People say it’s a safe haven asset, then it doesn’t really act like a safe haven asset. the one thing that gold is has the strongest correlation to is budget budget deficits, right?

So if you think that there is any reasonable expectation that we’re gonna significantly cut the deficit or bounce the budget, then you would be bearish on gold. I don’t think that’s gonna happen. I think actually the opposite is gonna happen. so I remain bullish for the foreseeable future.

Rena Sherbill: What are your thoughts about the housing market as it pertains to the broader economy, or what would you add for investors there?

Jared Dillian: I mean, the housing market has pretty much been at a standstill for the last two or three years. Not a lot of transaction volume, but prices have not been coming down. actually I’m not a housing bear. I think prices probably go sideways for a period of many years, but I think the next move is probably up rather than down.

Look, like the affordability problem, houses are very unaffordable because of prices and because of interest rates. And the affordability problem gets better over time if housing returns zero, like if it just goes sideways for 10 years.

If housing goes sideways for 10 years, then housing is going to be more affordable in 2036. And, based on my view on interest rates, I do think rates come down. And I do think in some time we’ll see five, five and a half percent mortgages and that’ll help.

Rena Sherbill: Any sectors or currencies or any angles or or areas of focus that you would encourage investors to take a second look at or think about it in a new way?

Jared Dillian: I really don’t have a view here. I guess the only thing I would say about sectors is that I think energy is probably peaked. The war will end at some point. and when it does, I think crude goes back to the sixty sixty five range.

I think sentiment is very hot on energy. When I talk in my newsletter about cutting back or selling energy, I get a lot of people protesting. I think people are very married to these positions and I think it’s I’m a little bit bearish on energy. I’m specifically referring to the majors, E&P, the refiners, the whole energy complex.

Rena Sherbill: Getting back to the conversation around retirement, we started this series recently with Raul Shah about tax planning for I mean, life in general, but specifically around investing. And his point is that so much is lost just on non-efficient tax planning.

Do you have a point to say about that aspect as it pertains to not only having enough money when you retire, but keeping that money while you’re retired. Many people are living much longer than was anticipated ten years ago, twenty years ago, thirty years ago.

Jared Dillian: In terms of the awesome portfolio, in the book, I do not talk about tax consequences at all. there are some tax consequences to the awesome portfolio.

So the awesome portfolio is twenty percent stocks, bonds, cash, gold, and real estate. And you have to rebalance it once a year. So once a year, you’re going to be selling winners and buying losers. So you will have a tax bill, some kind of tax bill at the end of the year, every year there’s ways to structure that.

I’m looking into this. If you put it in the ETF wrapper, there’s rate ways to structure it where you can defer taxes until you sell the ETF. that’s one thing I’m looking into. but yes, if you just construct the awesome portfolio on your own on your own, there will be tax liabilities.

Rena Sherbill: Does your research involve talking to wealth managers, accountants, just your own research?

Jared Dillian: I don’t talk to wealth managers because they think I’m nuts. Wealth managers in my experience are kind of weather vanes for sentiment about the stock market.

Just to give you an example, my mom retired in 2010, which was basically a year and a half after the financial crisis and she had an advisor, and it her advisor said to put her all in treasury bonds and I said, no, no, no, you’re gonna put her all in stocks.

And I got into a fight with the financial advisor, and I won and we put her all in stocks, and she 3X her money. And then a couple of years ago, I said to the financial advisor, okay, it’s time to put her in bonds.

Then I got into an argument about putting up put what stocks are going up forever, keep keep her in stocks. So I don’t find wealth managers to be a very useful indicator. Well, I mean they are useful actually.

But in terms of the construction of the awesome portfolio, the pushback I usually get from wealth managers is you’re not enough in stocks.

Only 20% in stocks is crazy. 20% gold is also crazy. Like maybe you should do 5% or something like that. 20% in cash is nuts. That’s a drag on performance.

Why would you have 20% in cash? Really when I talk to plain vanilla wealth managers about this, they think the whole thing is crazy.

It’s so divergent, it so goes against everything that they’ve been taught, which is basically you have somebody in something approaching a sixty forty portfolio, maybe eighty twenty if they’re younger. And it there’s the idea that you would introduce these other asset classes into the mix is just anathema.

Rena Sherbill: Would you say that wealth managers are somewhat akin to ETFs in the sense that it’s good for broad strokes and people that don’t want to invest too much of their time and effort into figuring out the story and there’s not much nuance, but it fills a need?

Jared Dillian: I don’t wanna beat up on wealth managers too much because they do serve a really important purpose. Really two purposes.

One, they put people in portfolios that I don’t wanna say they’re safe, but they’re consensus and they generally are are lower risk than what somebody would put together on their own, right?

So there’s some risk mitigation that’s going on. and second, they’re there for behavioral coaching, right? Because look, wealth management is a relationship business. And if the market goes down 20, 30, 40 percent, people are gonna panic. They’re gonna call up their advisor. The advisor is gonna say, don’t jump off the ledge, let’s stay invested here, which is all good advice, and they keep people invested.

I think those are two very important functions. I said some unkind things about them in the beginning, but they really, a lot of them do really good work.

Rena Sherbill: Somewhat like a personal trainer almost. There to keep you on track.

Jared Dillian: Yeah, yeah.

Rena Sherbill: What else would you say about retirement? What else should investors what what’s your kind of one to two main other main takeaways that you would encourage investors to keep in mind?

Jared Dillian: Well, first of all, let me give you a some statistics on the awesome portfolio. So over the since nineteen seventy-one, and I’m gonna use nineteen seventy-one as a starting date because that’s the first point in history at which you can own gold. So we have to start at nineteen seventy-one.

Since nineteen seventy-one, the SP 500 has returned eleven percent over the last 100 years, the SP 500 has returned 10%. So it’s picked up in the last 50 years. The awesome portfolio since 1971 has returned 9%, which is pretty good. A 60/40 portfolio has returned 9.44%. Okay. So it’s a little, it’s a tiny bit worse than the 60/40.

But if you look at the sharp of the awesome portfolio versus anything else, it is much, much higher. It is a much more efficient use of risk. It basically has the highest sharp of any linear combination of portfolios that you could put together. Also drawdowns.

Now, if you’re in the SP 500 in the financial crisis you took a 38% drawdown in 2008. And I don’t even think that was the worst drawdown in the last 50 years.

The awesome portfolio in 2008, you had a 9% drawdown. And the worst year for the awesome portfolio ever in history was down 12%, which was in 2022, right? So you have this thing which has about half the volatility of the stock market.

You have very low in the way of drawdowns, you have this incredible sharpe ratio and all you’re trading off is one or two percent in the way of returns.

Now, one or two percent after 40 years adds up to a lot of money. It’s in the millions, right? Because that one percent compounded over time makes a big difference. But the point I try to make is if you’re just in the SP 500 there’s no way you’re going to be dollar cost averaging that perfectly.

If the market goes down, you will stop contributing. If the market goes up, you will contribute more. You can look at some of the statistics on how Vanguard investors have done on their own without an advisor.

You have a lot of Vanguard customers who are in the S&P 500 fund and a lot of other funds, and they’re basically returning zero because they keep trading in and out of funds. So if you stick with the awesome portfolio, 9% over your investing career is pretty good.

Rena Sherbill: By the way, the book is a great read, so kudos to that. And everybody wondering if they should partake in in reading, much like Jared is himself, a very entertaining and informative read. It was a really easy, easy read, but also full of a lot of really good nuggets to think about and marinate on.

What would you say has been have been some of your takeaways, or if you have one salient takeaway or kind of an evolution of thinking from when you started until now, would you what would you say that is, if anything?

Jared Dillian: The interesting thing is that I came up with the idea for the awesome portfolio in 2019. I was trading notes with one of my subscribers who was a financial advisor. And we we were we kept building these portfolios and we were tinkering with it.

And then I came up with this portfolio that was twenty percent stocks bond, gold, cash, real estate. And I was I was like, wow, this is incredible.

And at that point, I hadn’t really done the research on all the alternatives. And I hadn’t I hadn’t computed the sharpe, I hadn’t done any of this stuff. And then over time, when I started to do that work, do that mathematical work, it really confirmed my priors. I was like, yes, I knew that it was good, and this basically proves it.

And that’s one of the things I like about this book. This is not my most well written book. Not by any stretch of the imagination, but what I like about it, it is a bulletproof argument. So you can read this book and I make the case for the awesome portfolio, and you’re gonna finish the book and you’re gonna say, well, either I believe in this and I’m gonna do it, or you know what, I want the extra one or two percent, I’ll take the risk. And that’s fine. Some people will make that decision.

But I think it’s an airtight case. Like an inescapable case for the awesome portfolio.

Rena Sherbill: What are some metrics or data points that you would encourage that you use heavily and that you would encourage investors to at least think about, if not use on their own?

Jared Dillian: I don’t know about data points, but what I would like people to start doing is targeting risk instead of return.

So if you take a typical retail investor, they’re targeting return. So they say, I want to make 50% a year, so I’m going to buy Bitcoin, or I want to make 11% a year, so I’m going to buy stocks. That’s not the way you should look at it.

You should look at what risk you’re willing to accept first and then back out the returns.

So maybe you’re comfortable with the risk of a five year note, then you invest in a five year note and you get four percent returns. People should think about the risk first and the return later, and people do it in the complete opposite order.

Rena Sherbill: I’ve been asking people at the end of conversations if they have a motto when it comes to investing or life. Do you have one?

Jared Dillian: You really put me on the spot. I have a bunch. Did you ever see the show House? House was one of my favorite shows. I loved Hugh Laurie. He played this crazy genius doctor that solved all these hard cases. And one of his one of his doctors came up to him. They had this patient that was a really good person and bad things kept happening to them.

And he said, bad things happen to good people, good things happen to bad people. People don’t get what they deserve, they just get what they get.

Rena Sherbill: That’s about it. Deal with it. Jared, any final words or any points that we missed or anything you want to highlight specifically for investors, for a sophisticated investor? I’ll leave you with the last word.

Jared Dillian: Like I said, the book comes out September 8th. You can pre order it. It’s a very fast read. It’s about 200 pages, and there’s charts and diagrams and tables in there and stuff, so it goes quick. I mean, really, as an author, you’re put in this horrible position of trying to beg people for publicity for your book, right? Cause you want the book to succeed.

I don’t care if I make money on this book. I just want people to understand that there’s a much smarter way to do things. And I really hope that this idea catches on and people start adopting it nationwide. That’s my goal. That’s really my hope for this book. So please check it out.