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Peter Lazaroff: Making Money Simple: Getting Your Financial House In Order

We are talking about money and investing with Peter Lazaroff. He is the type of guy that at a young age knew he wanted to get into investing. He is the Chief Investment Officer at two different companies, Plancorp and BrightPlan. Plancorp is no slouch. It manages over $4 billion in assets for its clients.
What makes Peter unique is his personable, big brother perspective and his unique ability to simplify complex issues for anyone.

In this episode, we cover the range here. This one is going to be a fun one for all my money nerds, which is the affectionate term for people that are dedicated to managing and investing their money better, which is all of us if we're reading this blog.

We talked about Making Money Simple, how to get your financial house in order and keep it that way forever. We also talked about what does it look like to be a Chief Investment Officer? What is the day-to-day look like?

We discussed lifestyle creep. If that sounds interesting or maybe disturbing to you, you're going to want to pay attention to that. We also covered the difference between a digital and Robo-advisor versus a traditional advisor. What Peter's opinion of the future looks like. We talked a lot about investing. We talked about money in the show and a whole lot more. If that sounds interesting to you, then let's get to it.

Dustin
Peter, it's your birthday, you're turning twelve years old. When most kids that age get presents, it's video games, clothes and gift cards, but grandma does something different. She hands you a share of Nike stock with your name on it that would shape your future. I'm curious to know why did grandma hand you a Nike share versus probably other shares that she may have had?
Peter
I am so fortunate that she handed me that Nike share for a few reasons. My grandmother was a big believer in investing and took a genuine interest in it, somewhat like a hobby. She thought it would be fun for each of her grandkids starting on their twelfth birthday to give them a share of a stock of a company that they recognized. It's brilliant when you think about it because when you're twelve or even when you're sixteen or eighteen, investing is hard to materialize. It's ownership stake in a company. You are an owner of a brand that you love. You're wearing Nike shoes. You have Nike t-shirts. She gave me a share of stock of a different company for each birthday, things like Disney, GAP or Nokia, which some of these turned out better than others.
I was particularly fortunate that she did Nike the first time. Nike was a wildly successful stock. It split multiple times. For your audience, if they don't know what that means, sometimes when the price of a stock is so high, let’s say Nike stock is at $100, they will cut the share price down to $50 and issue all shareholders another share so that they still own the same amount of the company. Shortly after my birthday, Nike stock split and suddenly I'm told I have two shares of Nike. At that age, I didn't realize I still own the same amount but I had two shares. A few months after that, it split again which is unusual for stocks to split that frequently. Even more interesting to my twelve-year-old mind was the fact that these $1 dividend checks were arriving in the mail every quarter. I didn't have to do anything. People were giving me money and I was hooked. I think it was the dividend checks that did it.
When I received this gift, I have a December birthday, December 20th. I remember sitting in our living room by the fireplace and our stockings are up. We have a Christmas tree. We also have a menorah because my dad is Jewish and my mom is Catholic. My grandmother is handing me this envelope. Grandma giving an envelope often means you're getting a check or maybe a little bit of cash, but here's the certificate and it says Nike on it and it has a swoosh. I'm genuinely confused. She thought it was a little endearing and funny. She laughed and talked about it. It gave us a platform to talk about something that she was interested in but also had a lot of information to share. The success of Nike got me interested fast and the fact that I was getting growing dividend checks. That was the seed that was planted for me that ultimately blossomed into a career in finance, helping other people make good decisions with their money and doing so in a way that they can understand.
Dustin
I’ve got to say grandma was cool. I was very fortunate too to have grandparents that gave me stock, but I got Bethlehem Steel and I was like, “What is that?” I wish I had gotten Nike.
Peter
What's interesting is with my kids on their birthday, if they get money, I put it into an index fund. It's a total market fund. It's low cost. It's the right thing to do. If I had to explain to my six-year-old what it is he owns, it's very difficult. I'm generally not a believer in owning individual stocks as an appropriate or at least the optimal way to grow wealth. I'm fairly certain that the way I'm going to have to formally introduce my children to investing is through individual stock investing in this manner.
Dustin
I am with you on that. I'm curious, do you still have that Nike share?
Peter
It was the last individual stock that I sold. I came to Plancorp, which is the firm where I worked for a few years ago and it was painful. I had been gifting that stock to charity shares. That stock kept splitting over the years and I'd been gifting it. Finally, I know that I don't think owning individual stocks is the right thing for our clients to do or me to do. I see the math on a regular basis. I had only been holding onto it for nostalgic purposes because it was the first one that I ever had. I did sell it a few years ago. I'm strictly diversified mutual funds and ETFs. I will never forget that and I will not even forget the day I sold it. It was a wonderful gift and the fact that I was giving it to charity because the gains were so large over the course of my career, it means that it was a gift that was given to other people too.
Dustin
I'm curious about that. We haven't covered that in the show, the idea that you can gift it. How does that work? Is that a tax write off? Are you taking the hit on the gain there? How does that look?
Peter
Anytime you give to charity, credit tax laws have changed a lot but you are eligible to itemize that gift and get a deduction on your taxes. The cool thing about investing is that your money grows and it compounds over time in such a magnificent manner. The problem is if you go to sell it, you will owe taxes on the gains. However, if you were to take your appreciated security, whether that's an individual stock, a mutual fund or an ETF, and you give the shares directly to a qualifying charity, they're considered a 501(c)(3). If you give that appreciated stock to a charity, then you get the tax deduction for the amount that you donate and you don't have to pay the taxes.
For people who write checks to charity using cash, we always say, “No, gift your stock, then you don't have to pay the capital gains on it. If you write a check, go ahead and reinvest in your stocks so that you reset the cost basis,” which is just a way of saying, “You reset what your tax liability would be,” which is zero. It's a unique way to grow wealth. That's one of those little things that you can do. Everyone has a place in their financial life that they can improve. What's amazing is when you find little small changes and you let the impact compounded over multiple decades, those little changes become enormous outcomes.
Dustin
I want to go back because I find it fascinating. You had gotten the shares of stock throughout your childhood. I can't imagine at twelve you're like, “I'm going into personal finance.” At what point in your life did you know? Was this something in school or in college? Was this something afterwards? When did you know this was the world for you?
Peter
Somewhere in high school, I knew I wanted to do something with stocks, which is pretty nebulous and all-encompassing. What would that help me do is pick a major and a program in college that could fulfill this dream of doing something with “stocks.” In college, I did a number of internships across a number of different financial fields. My favorite one was always for this independent advisory firm who were managing portfolios for families. I was enthralled by it and that's ultimately when I came out of college what I went to do. What I didn't know is that working with stocks is just a very small piece of the pie and personal finance decisions became a passion of mine because it felt like a puzzle that you could solve, like a game that you could win. I'm an ultra-competitive person and if I'm competing with myself on something, I can often achieve amazing things.
I spent so much time learning the ins and outs of different savings accounts. To know that you wanted to do something with stocks in high school could mean anything, I had the good fortune of being roughly correct that this is what I wanted to do. While I gave lots of things thought throughout college, I ended up trying out what is in my mind, just close to working with stocks as I could have been. I was an analyst and a trader right out the gate. It blossomed into a career that is something I enjoy just as much as a hobby. I enjoy reading about investments and financial planning as much as I enjoy reading about baseball. For me, I feel lucky to be one of these people who loves what they do. If I were to win the lottery, I would 100% continue to do what I'm doing. I may work less, but it's been a wonderful opportunity and it's something where you can learn every day. The ability to teach other people is still by far one of the more rewarding parts of my job.
Dustin
I love this line that you say about education. You say in school you are given a lesson and then you're given a test. However, in life you are given a test and then you learn a lesson. This is the Get WealthFit show, so we talk a lot about money. Money lessons can be some of the most expensive lessons out there. It's a mindset shift, but it's also a testament to the system. Do you think the education system ought to be switched or we ought to incorporate a different style of learning to prep us for the real world?
Peter
There are a lot of layers that make this complicated. It's not very black and white. How about we put it that way to start? If you were to teach basic personal finance to students in high school, the challenge is if you're talking about things like credit cards, mortgages, and retirement accounts, it's going to be almost a decade before any of those students use that information. There's a surprising amount of academic research that shows that those classes in high school lead to worse financial decisions because people become overconfident in their knowledge. They say, “I've taken a class. I know about that.” Human beings, in general, are overconfident beings. If you ask a room of people, “Show of your hands who thinks they're above average driver,” and everybody raises their hands, not everybody can be above average. That's not how it works.
We're overconfident species. It's part of what helped us evolve. Generally speaking, the research shows that if you teach at an early age, it leads to more overconfident decisions. On the other hand, nineteen states require some financial literacy or personal finance course as a high school graduation requirement. I don't think it's happening in a way that's effective because our country still gets shockingly low financial literacy scores relative to the rest of the world. If there were a place to teach it, perhaps colleges could teach it to seniors, that's the closest you could get. One of the amazing things that the explosion of the internet, blogs and podcasting has done is that it makes information more accessible. It used to be the information wasn't that accessible and it was controlled by a few big parties that had a lot of conflicts of interest. It changed to you just have to know where to look for good information.
There's good information out there and if you can educate yourself or the audience if they are interested in becoming better versions of themselves. You can't force everybody into that. You can't solve the problem, but I am still surprised somehow that it isn't a bigger part of the curriculum, whether it's from elementary school, high school, or college. You would think somewhere along the way we would teach it to students. What I've come to learn, particularly as a parent of two, is that most money lessons are going to come from your parents. The problem with that is that most parents are not money savvy. How do we fix that? I'm fighting the good fight. You're fighting the good fight, trying to be a megaphone for helping people make good money decisions. If they can feel confident about money, then they can talk to their kids about money and not have it be this off-limit topic.
Dustin
We're definitely in alignment. That's why the Get WealthFit show is around. It's why WealthFit is around. What's interesting is you’re spot on. I don't know what kind of parents people grow up with, but not a majority of society come up with money-minded parents. They're doing the best they can. The other thing that's interesting is you can't learn personal finance from a teacher. Teachers are great people, but these people make at best $40,000 to $50,000 a year. They don't have a lot of resources to invest themselves. For them to teach, it's a challenging system. We're grateful for people like you to put out information and continue to fight the fight.
Peter
You're doing just as big a part as me. We will do it together.
Dustin
You mentioned starting off as a stock analyst and a trader. I'm curious, what did you learn while you were there about stocks and trading on a whole?
Peter
The biggest thing I learned and the idea that I try to convey to most people is that the amount of competition in markets is very difficult to comprehend. It is incredibly high. Every time you trade, whether it's an individual stock or an ETF, there's somebody who's on the other side of that trade. Just to use the Nike stock, if I go buy Nike stock, that means somebody is selling it. You have to think, “What does that person maybe know that I don't know?” When I was an analyst in tax with finding individual stocks to buy because I thought they would maybe go up in value over time or to sell because I thought they were more likely to go down in value. What my job role implied at least was that market prices are wrong. You can find these inefficiencies and find ways to outsmart everyone else around you. You can earn money by being smarter than everybody else.
Everybody else is brilliant when you think of the fact that there are millions of people out there trading hundreds of billions of dollars every day. What those people are doing, the big companies, they have PhDs, they have CFAs, they have these Bloomberg terminals that give them more access than you can ever imagine. If you’re some well-funded outfits, they will use satellite imagery to look at farmland, forest, and oil tankers. I've even met with a firm, and this is wild, they have a mobile app that is a game exclusively for truck drivers. They have better inventory and shipping data than the companies themselves because the truck drivers are playing this game. They know where they are and they're trading on it.
I know lots of smart people. There are a lot of people out there who run funds. They say they're going to beat the market and limit the losses you experience. In reality, it doesn't matter how smart you are because prices are set by everybody and it's a complicated topic. I do get into the book and I take my time with it. Something that's important to realize is that if your goal is to earn a return better than what you would get by owning the entire market, you probably have the wrong goal because you probably don't understand how competitive it is out there to earn those extra returns.
Dustin
I want to dive in and I definitely want to talk about your book, Making Money Simple. This has come up so early. In the beginning, you got handed the Nike stock and you had individual stocks. You're a fan of owning the whole market. What do you say to this classic idea of if you buy certain stocks and hold onto them for 30 years, you're going to make 6% a year or you're going to ride ups and downs but you're going to be good versus what I hear you advocating is hold out the whole market. What is the benefit of what you are a fan of or what you subscribe to?
Peter
When it comes to owning individual stocks, it is a lot of fun. It's fun to own things like Amazon and Facebook, but if you look at the entire US stock market, there's a benchmark called the Russell 3000 Index. All that means is that it owns the 3,000 biggest companies in the US and it makes up about 98% of the total stock market. When you look at the returns of the individual stocks going back to 1980, two-thirds of all individual stocks trailed the broad index. There are things out there called index funds that are low cost, just track the whole US market. If you buy individual stocks, two-third of them will trail that index. That alone tells you your odds are not good. Even worse, if you look at that same period, about 40% of all stocks experienced a decline of at least 70% or more.
Maybe some of these stocks do well in the long-term, but can you handle watching yourself lose 70% of your money? What I benefited from was a mixture of luck in terms of life experiences and getting exposed to good and smart people. When you take an approach that owns the whole market, what that means is that you're going to focus on things that you can control. You can control your costs. You could buy funds that are cheap. You're going to buy funds that aren't trying to beat the market by predicting the future. They don't say, “We're buying this security because inflation's going to rise or the Federal Reserve is going to do this, or economic growth is going to be X. This geopolitical issue is going to occur and as a result, make these types of stocks go up in value. The world is changing so we need to own this sector of the economy.”
When you own the whole market, you're focusing on owning as much of the publicly traded markets as you can in the United States, overseas, through international and emerging markets and doing so at a low cost because the only certainty in investing is cost. The more you pay for something, the less of the return you keep. It's the opposite of anything that happens in our life. Typically we say, “You get what you pay for,” when you look at anything other than consumer-based purchases. Here, you get what you don't pay for. The goal is to be broadly diversified and trust that over time markets grow and they provide unbelievable returns over long periods of time. The compounding is phenomenal and yet there are billions of dollars dedicated to trying to do better than what the broad market does.
We're all trying to beat the market. Why not own the market? There are nuances that you can go into to not only earn those returns but perhaps improve the journey. Generally speaking, the investment section of many personal finance books operates is just a strict how-to, whereas I do spend some time explaining why you would invest this way? If you believe in the philosophy, philosophy is all that's there to hold things together when things look bleak. When you are a stock investor, you will lose money no matter what you do. The key to investment success though is simply a matter of minimizing mistakes and staying out of the way of compound interest. Those losses do often make people feel like doing silly things that are mistakes and eventually interrupting compound interest.
Dustin
Is the strategy then to buy into the market as a whole and ride that for a while? Are you in an out on a short-term or are you sticking with this for some length of time?
Peter
Never in and out for long-term goals. The only reason I'm coming out is that I may be investing for a goal and that goal has a specific timeframe on it, perhaps buying a home. I might be invested in a conservative mix of stocks and bonds. I say conservative, that means you'd probably owed more bonds because bonds values don't fluctuate that much, but over time they earn a little bit more in inflation. That would be the only time I'm coming out. For a long-term goal like retirement or your kid's education, I tell people to keep buying no matter what, never sell. You're holding on for as long as you need the money. I don't think there are any twenty-year periods where the stock market was down. You look at any twenty-year period, not just January to December but if you pick a random date, March 20th to March 20th of a given year, you look at all rolling twenty-year periods.
You're always going to see gains. That's important because these returns are not free. They come at the cost of temporary losses and if you get in and out in response to these losses, you're probably going to miss some of the biggest return days that make up these big returns. Earning an average return is not easy. It's a lot like my family. We used to drive to Colorado from St. Louis growing up. When you drive across Missouri and Kansas, it's flat, a lot of farmland. I remember holding a child size map and by the time you got to Colorado you'd be like, “I know about how long this will take based on the experience I had with those previous two states and how long they take.”
You see the mountains and you say, “We're going to go over those mountains, no big deal.” Then you're on the mountains driving around the pass, you're going slowly and you know it's going to go slower. When you're there in the moment, it is not comfortable. I hate driving in the mountains. I loved the mountains, but it's one of those things that it's so much easier to look at an average return and say, “Yes, please, I will take that.” With the stock market, you can look at high returns and say, “That's great, that's going to help me meet my goals.” It's important to acknowledge that losing 10% or 20% is incredibly normal. It's a healthy part of a well-functioning market and those losses are what you pay in exchange for the higher expected returns that stocks provide and help you in meeting your goals faster.
Dustin
You're the Chief Investment Officer at two different companies. You mentioned Plancorp and the other BrightPlan. I want to talk about that. I'm really curious to understand when someone places money with you or moves money over, is there some benefit in terms of economies of scale? If I'm doing it myself or using some online tool to invest myself, am I missing out by coming over to one of your firms because you have $4 billion under management? Does that give you power, economies of scale or added benefit that other people don't get access to?
Peter
Yes, in many ways. First of all, costs. We're able to negotiate the lower cost of the funds we use than you'd be able to get on your own or that other firms would be able to achieve. We take our assets to a mutual fund manager and say, “We have a lot of assets with you. If you don't drop your costs, we're going to take them all away,” and they drop costs. That's one thing. The other thing is when you have a scale and size, you can invest in your people. That's the most underrated thing that people don't think about. Here we have a $4 billion firm. That means we can support 70 people. As a result, if you need a very specific type of expertise, we can build a custom advisor team for your needs.
We have a former hand surgeon on staff who works with all of our doctors. We have CPAs for people who have complex tax issues. We have people who are strong investment analysts to come in when their unusual partnerships are difficult to deal with, investment portfolios for conversions. These are all people layered on top of our highly trained wealth managers. When you get access to true specialists at the same cost that you would be paying at a firm with lesser assets, that's a unique value add. The bench is super deep. If your advisor retires or something horrible happens to them where they no longer work or they may be moved cities because their spouse got a job or they want to be closer to parents, there's a deep bench of talent in a firm our size that allows to seamlessly continue and is not reliant on just one or two people.
Dustin
I mentioned the title and most people get what a CEO is and a CFO. You're a Chief Investment Officer. What is that and what is your day-to-day look like?
Peter
My role as Chief Investment Officer is all about developing and communicating our investment policy. We manage $4 billion all according to the strategy that I and my colleagues on our investment committee set. That means that we are constantly evaluating other investment options. Not only the options but the ways to implement them. What or how often do we trade? Where do we place certain investments and what types of accounts, to get the biggest bang for our dollars from a tax perspective? That's the development of the policy and the execution of the policy. The communication for my role stems in a number of things. I would like to think I act somewhat as a megaphone for what we believe in here at Plancorp and in BrightPlan. I write articles for the Wall Street Journal and Forbes. I do speaking engagements. I have my own personal website. I go on CNBC as well as some local TV stuff to try to spread the word. Our clients can see that and shoot videos that we send out to clients.
I'm in client meetings and then I coach the advisors here. That communication piece of my job has a lot of different branches. It's probably one of the more exciting things in my job. If I were always doing research on the management of our money, I would probably get a little bit bored. This book, Making Money Simple, that's something that helps us project our message. We like it when clients come to us having already heard something, somewhat self-selecting because when you come in educated, you already buy into what we're doing. We just hit the ground running and then we have a mutually beneficial relationship with our clients where they like what we do and we like what they bring to the table. For my job, like anybody, it looks different every day but those are certainly the high points.
Dustin
When someone reads, invest the time and shows up, it's a lot better conversation, just from my experience. I got to imagine, it's a little tricky because you've got a lot of clients and you're communicating and coming up with investment strategy. However, some people have different wants and different needs. How do you balance knowing what the right strategy is versus people saying, “I want something a little bit quicker?” How do you communicate to them like, “Just hang in there, trust us?” How do you solve that?
Peter
It's a lot of education and a lot of handholding. You can get investment advice pretty cheaply through digital advisors or Robo-advisors, whatever you want to call them. Our biggest value adds on the investment side is that of being the behavioral babysitter. We are going to make sure you don't do anything silly. Most investment success comes down to minimizing mistakes in not interrupting compound growth. We can earn a lifetime of our fees in a single bear market or by preventing you from doing one thing that over time would have been extremely detrimental. Everyone's needs are different. That's where the financial planning component is important. What's interesting about Plancorp is it started in 1983, it's been around for a while but we didn't invest money for the first decade we were in business.
It was what you would consider now to be a fee-only financial planning firm, which means the only money we make is that with which the clients pay us directly. There are no kickbacks from the mutual funds. There are no referral fees from any other specialists. We’re only paid by the client and we only worked for them. We advocate for their needs and try to make the best decisions for them possible. What's interesting about the model back in 1983 is fee-only financial planning wasn't a thing. I certainly live in an echo chamber but it seems like I'm surrounded by the word fee-only financial planning all the time now. When you do financial planning comprehensively and in proactively, it does allow you to offer investment solutions for an individual that are customized to their needs.
Investing is hard. It's simple if you are emotionally in control and you know what you're doing. Everything about our DNA and makeup makes us bad investors. There's no such thing as a perfect portfolio. I say that all the time. The only portfolio that matters is the one that you can stick with for the longest period of time. Our job is to discover what that portfolio is. It's my job to have the philosophy to provide these portfolios for our clients. It’s our wealth managers’ jobs to be aware of their ability and willingness to tolerate risk and to stay with a program for as long as possible.
Dustin
Is it the wrong mindset to come into a firm like yours and say, “I'm happy to do business, but you should cover your fees? Is that a bad mindset to walk in with or is it the right thing?
Peter
I think it's fair. If you're going to pay for something, you ought to get value out of it. The value of an advisor is lumpy. If you're going to pay an advisor, let’s say 1%, first of all that 1%, roughly 0.3% of it, that's the cost of investment management these days because they're online platforms that will do it for that. They will look at how you diversified and low-cost funds. They will rebalance for you. They will do some tax stuff for you. There's 0.7% of that initial 1% that we need to find in value. It's not like you're going to earn that every single year. It's lumpy. I mentioned in a bear market, you can earn a lifetime of fees. What you're looking for is you want people who can do comprehensive planning and the proactive planning that's going to save you money on taxes, save you money on insurance, whether it's life, disability, home, auto or whatever that you're going to be saving more efficiently so that you're reaching your goals more quickly.
It's hard to show the value of that but it exists. If you expect to out-earn the market by 1% a year, that is a recipe for disaster because there is nobody on the face of the Earth that is taking anybody's money, who's out-earning the market by 1% per year. The people who are beating the market year-in and year-out or even over long periods of time, but not necessarily year-in and year-out, they aren't taking outside money and you can count them on your fingers. There aren't that many out there. The only reason it's the wrong mindset is if you want people to earn that percent through your portfolio. You should absolutely expect value from your advisor. They should earn their fee.
Dustin
You mentioned BrightPlan, and my understanding is that it is a digital advisor or what people call Robo-advisor. Is that right?
Peter
Yes, it's a sister company of Plancorp. We created a holding company to own the two entities in different proportions. I am a dual employee like many of the other employees here at Plancorp in leadership roles. BrightPlan is a lot like other Robo-advisors except that we built it much like Plancorp as a planning first platform. You can be a client of BrightPlan without investing a dollar. You can use our financial planning models and do all sorts of cool analysis, goal setting, and progress tracking when you link your accounts to them, even if you aren't investing. That mimics a lot of what we do for our clients. It isn't as customized because we can't ask the same types of questions. The space of digital advice is meeting a tremendous need of the public for people who, if you didn't have $500,000 or $1 million to work with someone like Plancorp, then you are forced to go to a provider of advice that's paid in a way that doesn't necessarily align with your best interests.
With something like BrightPlan or many of the other digital offerings out there, we're democratizing fiduciary advice. Throwing out the word fiduciary. A fiduciary legally is for putting your clients' interest first all the time. BrightPlan is the only digital adviser to be certified by the Center of Fiduciary Excellence, which is an external independent group that goes in on an annual basis to make sure that fiduciary practices are being held up. Whereas otherwise, it's just the SEC. The SEC doesn't necessarily audit people regularly. We're proud of what we've done. We think that we can share expertise in a way that can meet a lot of needs. Generally speaking, I still show up to Plancorp. My business card says Plancorp, but having the two companies has been an exciting project. It gives you that startup feel. We have a whole team of engineers who are building this stuff that's digitizing our three decades of financial planning experience.
Dustin
There are a lot of disruptions going on in the world, not just in the finance field but everywhere. With this Robo-advisor, these things coming on online, are you a little nervous? Is there a place for both to co-exist? Will one eat into the other business? What's your thought on the future?
Peter
There is a place for both to exist without a doubt. What the Robo-advisor solution has done has met a big need that doesn't necessarily overlap with the traditional human advisor. The traditional human advisor just gave investment advice. That will need to change if you want to stay relevant. Part of the reason I came to Plancorp was due to that view. I felt like you needed to go somewhere where there was comprehensive financial planning. A lot of Robo-advisors are now offering calls with an advisor with a CFP, which is a Certified Financial Planner. BrightPlan does the same thing and you get a Plancorp CFP. I took a couple of those calls because I wanted to make sure I understood the process. I am a CFP myself and I used to be a wealth manager.
The thing that those platforms will never be able to match what the human advisor does is when you have one of these calls with the client, you get a limited amount of information, you have a limited amount of time and there's a limited amount of feedback. You can't get as in depth, you can't be as proactive and you certainly can't do as advanced of planning techniques. That’s what differentiates us being Plancorp from our competition in the first place. There's always going to be a place for both. I do think you will see the evolution of a financial advisor be less investment-centric, more planning-centric and more concierge service level type of attention with clients.
Dustin
I want to get into the book, Making Money Simple. You talk about having a system that takes the pressure or guesswork out of having to make important financial or life decision. What does that system look like to make things easier for us?
Peter
It’s a very basic system. We've been focused on the investments, which can be quite complex sometimes. In the first four chapters of the book, I lead with building a system to help you make good financial decisions. That doesn't require a lot of ongoing maintenance. The system is focused off of worksheets that I had been using almost since the day I had graduated college, my wife and I used. I use it with clients, friends and family. Even so, it has been incorporated into BrightPlan. Those worksheets are all throughout the book and they're very simple.
Let me give you an example. You maybe have a New Year's resolution, “I'm going to start working out more.” You go to the gym once. You run for 30 minutes and then you're done. You have to keep going back to the gym if you want that six-pack eventually. Whereas with these worksheets, it's like a 30-minute exercise that gives you a six-pack with no attention after the fact. By going through the worksheets, what the book does is step-by-step, walks you to a system that shows you, “Here are my goals. Here's how I'm going to fund those goals. Now let's automate it all.”
I give very specific instructions for automation. Everybody says, “I know how to automatically save for certain goals,” but you do need a cash buffer. Your cash buffer prevents you from overdrawing or having the automation turned on you. That's different from your emergency fund. The way that you treat your primary checking account can be more efficient if you take the advice that I gave you there. By systematically saving for your goals and automating them, what you do is you make a bunch of good intentional decisions. You don't have to think about it anymore. The more decisions you make, the more chances you give yourself the opportunity to make a mistake.
I've said this already three or four times, the biggest key to financial success is not magic, it's engineering. You have to minimize mistakes and stick with the program. I'm a big systems person and process person through all areas of my life. I led the book with this because I'm realistic, in that I know that most people who start books look at the statistics and don't finish them. If you only read the first four chapters, you could get a saving system in place right away that would change your life and that would make it for the better. That was important to me with leading there. It would take a whole other hour to explain every different pieces of the system, but certainly the step-by-step makes it crystal clear for anybody to do it themselves.
Dustin
You believe there are three crucial elements to having a strong financial house. Is the system one of those crucial elements?
Peter
Yes. If I had to go in order, although I don't say it that way in the book, intentionality is one. The intentionality is addressed through the worksheets and through goal setting. The second would be systematically implementing that saving system and automating as much as humanly possible. The third is trying to understand who are the right people to help you along the way. We can all theoretically do this ourselves. It's not rocket science. It's more like mowing the lawn. If I hire somebody to mow my lawn, it's got to look better than when I do it, but I'm perfectly capable of mowing the lawn. The problem is you don't know what you don't know. I myself hired Plancorp to be my financial advisor.
I am perfectly capable of doing it myself but having an objective third party to bounce ideas off of as well as someone who's proactively going to keep me on task is pretty valuable. These three areas that I focus on the book is not formally divided into thirds. The intentionality of setting goals, automating, investing for the future and then focusing on these bigger onetime events or less frequent events that you have. To make decisions with that can have big financial implications and it's important to get them right. That's the framework of the book for getting you to a place that you can feel confident. You're not only just doing the right thing with your money, but you're doing the best thing.
Dustin
I agree with you 100% around paying a third party, a coach or it could be an accountability group. I'm a big believer in that. Even though we can do it ourselves and we know what to do, having that outside perspective is how you play the game at a higher level I believe.
Peter
Athletes get specialized trainers. The world's best pianist still has a piano teacher. It's no different. I do cringe when people make it seem like it's so complex that you can't do it without an advisor. It isn't about that. It's about having time and this is my craft. This is what I practice every day and I'm going to find the blind spots that you don't know exist. When I say I, I mean the team.
Dustin
You also mentioned a term that is very interesting to me. You talk about lifestyle creep and you can get it from context clues, but I would like you to define it. Why should we pay attention to lifestyle creep?
Peter
Let me give you a little bit of example. If you place your hand in a bowl of lukewarm water and you start heating it up, you're unlikely to notice how the temperature's going up. If I'm making spaghetti and I'm trying to test the water, I don't know why I would stick my hand in the water when I'm making spaghetti, but eventually it's going to boil and you will notice. It will burn you. Let's say you got your hand in this warm pot of water and then you dunk into a bowl of ice water. You're definitely going to notice the difference and it isn't going to feel good.
Lifestyle creep happens to us in our financial lives much in the same way. People get some raise each year. They earn a little bit more and if they don't plan to save that raise, then it's easy to add up by adding some luxuries over time. Whether that's premium cable channels, a nicer bottle of wine, maybe more elaborate vacations, better seats at a baseball game or whatever. Individually, those things aren't harmful, especially as you're starting to earn more, but little things have a way of adding up. Before you know it, you adapt without even noticing. This lifestyle creep is what happens like this way when you don't notice your hand in the bowl of water that's warming up. If you get to the point where your lifestyle has expanded so much that it makes it difficult for playing for big goals, then you're going to have to dunk your hand into cold water and that's not the best.
Most of your raises come into your 30s and 40s and it peaks in your 50s, your income. It's important to have a plan for saving those raises. As much as you can automate that, it's great. Automatically escalating your savings. When I started in the business many years ago, I had to manually escalate my savings. There weren't a lot of platforms out there that allowed you to automatically save more without having to go backwards. Financial technology has gotten so easy to take something so simple. You can't know how much your income is going to go up from year to year, but automatically escalating something can help stomp out that lifestyle creep.
We work with clients of all ages, but when people come to us five to ten years away from retirement, they generally don't have a great grasp on their expenses. They guess something that's usually low relative to what it actually is. That is lifestyle creep inaction. They have not noticed all the little tiny luxuries they have added over time. When you're doing these worksheets, there's a point at which you could say, “The amount of money I need to save towards my goals is not the same as the amount of money I have available to save.” I have some exercises that aren't so much about cutting the spending but finding the expenses that you didn't know exist as well as trying to prioritize your spending so that you're spending on the things you value most. That lifestyle creep is a real sneaky phenomenon and it happens to all of us. Some lifestyle creep is fine but being aware that it's there and having a system to try to minimize the impact it has is important.
Dustin
I want to move us into WealthFit round. It’s essentially my way of saying rapid-fire questions. What’s your most worthwhile investment?
Peter
Books in learning.
Dustin
What's the investment you don't want to talk about? Where is that misstep that Peter took?
Peter
I bought a MidCap two times leveraged ETF. I have talked about it a little more publicly now because someone has asked me. It's not a huge secret, but I learned a lot about how leverage works by buying an ETF that earned you two times the return of a MidCap index. It also lost you two times the return of a MidCap index. That's definitely the worst investment I've ever made.
Dustin
When you're not making an investment like that, you're making great investments, life is good and you want to treat yourself to something nice. What is your splurge or your guilty pleasure spend?
Peter
I'm going to cheat and give you two. I love Bourbon and I don't have a problem buying nice bottles of Bourbon. I won't make them the daily Bourbon that I might drink. I have a glass of Bourbon after my kids go to bed every night. I have a glass of Bourbon while I write. That's where a lot of writing happens after 8:00 PM. I don't mind but I can splurge. They're great to have for celebratory reasons but the other thing is shoes. I love shoes. If I won the lottery, I feel like I would buy so many pairs of shoes, one for every occasion.
Dustin
Are you an athletic sneaker guy? Are you a dress shoe guy?
Peter
I love them both. I love tennis shoes. I love both functional tennis shoes as well as like now there are dressy tennis shoes. Not just dressy but more limited-edition things that you wouldn't wear on a hike. I love dress shoes. I think they're great too. I love it all.
Dustin
What have you become better at saying no to in the last few years?
Peter
Anything that requires a time commitment, my default answer used to be yes because I wanted to be out helping people. Whereas now my default answer is no. It's important with charitable stuff, particularly when it pertains to time. I served on a lot of boards and committees. I serve on two and they're important to me. I would have to get rid of one to add another. I say no to stuff like that all the time. It’s similar at work. It's easy when your inbox is everyone else's to-do list. The way that I say no to my inbox is I don't open it until one of two things have happened. I have written 500 words about anything. It could be about life. It could be creative writing. It's very rarely creative writing. It could be about something that I'm working on for the firm or if it's 11:00 AM. When you open your inbox, we're such slaves to email. I've effectively said no to email by not opening it in the morning because it's when I'm most productive and creative. Otherwise, you spend your whole day working on everyone else's to-do list. Where's the time for your own to-do list?
Dustin
Fear and self-doubt often prevent people from getting where they want to go and achieving goals. What do you do when you feel some fear or maybe some self-doubt?
Peter
I have never had more self-doubt than when I wrote a book. I don't know why I kept going. It's a vulnerable experience. When I'm feeling self-conscious or fearful of a situation, I talk to my wife or I talked to one of my friends. There are a few people I know I can go to and not feel ashamed of sharing these feelings. Even if I'm not using the words, “I'm afraid of this happening.” Although I do get self-conscious about things that my closest friends and my wife know. I say, “Is this a silly thing to be self-conscious about?” When they don't know the answer, you ask somebody else. With the books, since I mentioned it, it's a strange thing to ask people to buy your book. It's a big commitment.
I didn't tell a lot of my friends that I was writing a book because in case I didn't finish it, I didn't want them to know I might fail. Even when I was done, it felt like a burden like, “Please go spend $20 on me to see what I poured my heart into.” It felt like a big ask. I've since been reassured it's silly and all authors apparently feel this. People are almost insulted that you don't tell them and so having a core group of people you trust that are strong personalities themselves, that's probably my biggest recipe for getting over those things.
Dustin
Peter, thank you big time for sharing your wisdom, for writing the book and helping empower people. For people that want to keep tabs, maybe check out Plancorp, BrightPlan, the book and you and what you're up to in the world, where's the best place for people to go?
Peter
I have a website, PeterLazaroff.com. I will also point your audience to an assessment I developed. It's called SmartMoneyQuiz.com. There are nine questions. It gives you a place to start right now. I will identify at least three and sometimes four areas where you can make a difference and I will point you in the right direction too. If you are interested in improving where you are financially and everybody has something they can do better, head on over there and check it out. The feedback has been tremendous and the engagement with it has been tremendous. If you go to my website and send me an email, I answer every email I get eventually. On Twitter, it’s @PeterLazaroff, Instagram, @PeterLazaroff, Facebook, Peter Lazaroff. It's all consistent if you can figure out how to spell my last name.
Dustin
I want to thank you for being on the show and sharing what you shared. I can't wait to have everyone back on the next show.

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