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Dentists Who Invest

Episode 251

The Principles of Portfolio Design

Hosted By: Dr. James Martin

James: 

Fans of the Dennis who Invests podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dennis who Invests podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome, welcome to the Dentists who Invest podcast. Welcome back, everybody, to another episode of the dense who invest podcast.

James: 

We have been a little light on the actual investing content these days, so we are going to pivot, and I’ve reached out to my good friend, adam hughes from the dental business dba, dental business alliance alliance. There we go I knew it was the dental to come up somewhere the Dental Business Alliance and Adam is here today to talk to us about investing in stocks, the theories, philosophies, things that we can do in order to undertake that. Adam, how are you today? I’m very good, thanks Yourself. Really good, mate, I’m always good. So, adam, a few things we want to cover today. We’re going to talk about investing in stocks.

James: 

Obviously, that is the wider perspective that we are coming at this podcast from, but it’s not just as simple as that. Everybody just thinks, oh, I’m going to buy stocks, I’m going to be rich. But we’re here to talk about how. That is not always the case and you have to educate yourself in order to do it properly, and I think a lot of people think that as long as you have the stocks and shares, isa, you’re good and you’re investing. Actually, it’s what you do within that ISA that determines your success.

James: 

So we wish to talk about one of the main things that I’m interested in, and one of the philosophies that is propagated these days, is what does it mean for our portfolios if we have 100% stocks in terms of funds, in terms of indexes? That is conventionally the wisdom which will say that if we orientate our portfolio correctly towards that, that we will have the most gains, the biggest capital appreciation, but that’s not always a good idea. So my question to you, adam, is, first of all, can you tell us a little bit more about that philosophy, what it means, how it can be used by dentists, and then what we’ll get on to a little bit later is when and when not that philosophy does apply 100% stocks.

Adam: 

Whenever I hear that, that screams to me a huge amount of volatility. Naturally, with the stock market, it’s going to go up and down. With 100 of your money in stocks, it’s going to 100, go up and down, um, and that seems to me somebody that needs to be ready, uh, and suitable for that as well. Uh, because we talked about balanced funds. Uh, you know, is there still a place for balanced funds and balanced funds? What that means is you’re not 100 stopped. You may be sort of 60%, 70% stock market and then you have an element of, say, bonds and property and cash within that. So, whatever the stock market does, how that goes up and down, it’s not going to affect the entire amount of your portfolio.

Adam: 

The 100% stocks theory. So that’s all about long, long-term growth. So if you’ve got money which you’re willing to put away and we’re talking eight to ten plus years now uh, that’s when you know having a large amount of your money in stocks will come to fruition in the long term. If you’re somebody who thinks you can access that money in the next year or two hundred cent stocks is probably not far off a gamble, but let’s be honest about it. Um, you know, unless you’re keeping on it and you live in it.

Adam: 

And and that’s the whole thing is when we went through COVID, we had what we called the Zoom boom, where we all thought we were specialist fund managers because we all bought it when the world markets had collapsed overnight. We all bought these stocks at cheap, cheap prices. They all naturally went up and we all thought we knew what we were doing, you know, and that was across the world. You know, we’re all at it on these apps. And I think now a lot of these people are starting to realize, okay, there’s more to it than this, you know, especially going to the times we are now. And that’s when I think people start to realize you’ve got to live it to be able to fully understand it all the time.

James: 

Well, a bull market makes a genius out of everybody. As they say, there’s only so far down things can go. And, as they say, there’s only so far down things can go. And what you’ll tend to find is the market’s like a pendulum. It overreacts each way.

James: 

Yeah, the pendulum, you’ve got the center where it should be. You give that pendulum a little bit of momentum and it swings the other side. Then it swings back and forth, back and forth, like this. And when there’s peak fear and peak greed, what you’ll usually find is it’s really really way too far away from its center and it can only go one way back. And that is the theory as to why so many people did well from the zoom boom, as you put it, and crashes that have occurred, you know, ever since the beginning of time, because it is something that happens over and over and over again. So, based on what you’re saying, 100% stocks, 100% funds that contain equities, that are yeah, well, those stocks are solely funds, are solely consisted of equities. Those are better for people who are younger because they’re further away from retirement.

Adam: 

Yeah, yeah, exactly. So you know, when I speak to people who are in their 20s and say early 30s and we’re talking a long, long time before potentially needing this money for retirement, you know that’s when you should put your pension. You know high risk as you can possibly go getting the maximum amount of time to get the maximum amount of growth out of those funds, and when it becomes really important and this is why, doing what I do, you’ve got to know the ins and outs of that person, exactly what they’re going to do in the future, what they want to do, their objectives, because you have to structure their money around that. Because if I, for example, went to somebody, come to me, look, I want to retire in five years. I got this, what should I do with it? And I said put it 100 stocks six months before he wants to retire. We have another COVID.

Adam: 

That’s extremely poor advice for myself, because I know that there’s a possibility that could happen and I’ve advised him to do it.

Adam: 

So that’s when you know you have to know exactly who you’re dealing with, the ins and outs of that person, which is why the fact-finding process is very important and you build that fund around what their needs and objectives are for some people.

Adam: 

They come to me and they say, look, adam, I just want to keep pace with inflation, so if I go stick% stocks, I’m going away from what they’ve asked me to do, and then that’s poor advice, you know. For them it would be a case of a balanced fund which has a nice, safe, soft underbelly of bonds, cash and property with an element of equities that can just keep pace with inflation. That’s a bit different now because we’ve got inflation around 7.5% and that’s another sort of subject for holding too much cash at the moment. There’s never been a more sort of dangerous time to be holding far too much excess cash in your account because the spending power is dropping by over 7% a year Even in the good times at 2.5%. That’s dangerous to have too much in Again, which is why you’ve got to look at your expenditure, your incomes and what you’re happy to have as an emergency fund, trying to check your incomes and what you’re happy to have as an emergency fund.

James: 

Yeah Well, inflation on average is usually around the 4% mark. So I mean, here’s the thing there’s a school of thought that people say inflation is here to stay and it’s going to get higher. Who really knows, is the short answer on that one. So it’s not something that we can say for certain, but let’s hope it’s a little bit of a flash in the pan on that one.

Adam: 

Yes, yeah, well, I was looking at a few studies and a couple of people and you’re talking big furniture, jp Morgans. They seem to think there’s going to level off around 2024 and work its way back down to normal levels. You know, again, these are just studies and it’s all crystal ball scenarios. But you know, this is what you mean. You’ve got to hedge your bets when it comes to investing, you’ve got to spread it, spread your risk, and that’s what diversification is all about. So you have to plan for every scenario, basically at the same time as having those needs and objectives.

James: 

So when we’re looking at portfolios that are purely equities let’s say we’re invested in funds that reflect huge indexes like the S&P 500, ftse, etc what sort of returns can you typically expect from those? Now, I know that that’s a really hard question to answer because it depends completely on the portfolio, but I suppose what I’m asking is in your experience, what may we expect from those sorts of portfolios? A rough ballpark figure, capital appreciation. Obviously, volatility is in the mix. So what we’re taking is we’re taking capital appreciation, consistent returns over long periods of time. We’re taking the beginning and the end of the evaluation of the portfolio and dividing it over a period of, say, five years, 10 years.

Adam: 

So what you’re looking at with some huge indexes like the S&P 500, and they are incredibly resilient indexes. What we’ve got now is about 100, 120 years of data on these type of indexes Go back with and just see. Look, every time there’s been a world event or a crash, how has it reacted? We’ve got a lot of data now to see how these index react. So, to give you an example, I’ve got a graph that I use which shows I’m going back to 1989. Now, if you put a hundred thousand pounds into the s&p 500 1989 and you left it in there and you did absolutely nothing but just sit there and let it roll. And we you think about since 1989 we’ve had first gulf war, second gulf, we’ve had 9-11, we’ve had the 07-08 huge market collapse, we’ve had COVID and we’ve had the dotcom bubble all these different types of huge world events where the S&P has gone up and down. 100,000 would be about 1.6 million today.

Adam: 

By doing nothing, purely by just letting it grow in that index, just letting it grow in that index, you know you’re looking the S&P with a huge amount of volatility. You’re looking around about 10%, 8% to 10% a year return on a sort of 5% to 8% to 10% year period. So you know a good index to be in a strong index. The downside to the S&P 500, it is massively backed up by a few tech companies. Your Amazons, your Apples, your Teslas make up a huge proportion of the S&P right now and that is where you have the risk element to it, which is great when those companies are doing well which they are currently doing. When those companies start not doing so well, it has a big effect on even a big index like the S&P 500.

James: 

Yeah, yeah, yeah, yeah yeah.

Adam: 

Have you heard of the what’s it calledy hart’s?

James: 

podcast maven money. Yeah, yeah, he is a huge proponent of the 100 equities philosophy not for everyone, of course. Obviously. As you go further along in life you need some. You need to balance that out with some capital preservation, and not always. Appreciation. Preservation comes more from bonds, as we know. Maybe even have a little bit of cash on there, depending on your expectations. But yeah, he is a massive proponent of that theory. So would you say that you’re necessarily aligned with him in that you reckon it should be something. How often do you recommend it to your clients, I suppose. How often would you say to them listen, the thing for you is full on 100% capital appreciation. Are those clients few and far between? Are they common in a certain age group? What’s the split?

Adam: 

So I’d say for those type of clients, it would be, like we said earlier, a younger type of client, but also somebody who’s got a bit of experience. For myself as an advisor, I could never come across somebody and meet somebody for the first time who has no idea what the stock market is all about and say 100% stocks. That’s suicide in my turn of things. And this is where balanced funds can come into it. You just gradually show them how it works, give them a little bit of volatility and the more they understand it, the more experience you can start to move your way up. Not that I would ever advise it, but my compliance team would take my head off if I started advising 100% stocks for a brand new rookie investor. So yeah, there is a place for it. It all comes to do with objectives, age and experience.

James: 

There are three things I would look for before um doing that sort of investment absolutely so it’s not always looking at it purely from the perspective that you want to attain pure gains and pure growth for this individual, you have to balance it with their temperament as well, and still yeah, oh, absolutely.

Adam: 

you know they say you would never believe, um, how some people react to these scenarios, you know, and that’s where you’ve got to educate them from the start. I know I still have clients who will literally log on to their accounts at breakfast every morning and find out how their funds are performing. And that’s fine, you know, there’s nothing wrong with that. And I have people that will look once every six months. You know you’ll never know one from the other it’s just, it’s all.

Adam: 

Psychology isn’t at the end of the day, um? But some people do react to it very differently. They fully understand that. They know they’re not touching it for a long time. They just like to know, um, and you know you’ve got to work at that person and work out whether it’s suitable for them real quick, guys.

James: 

I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdenisoninvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details the seven most common issues. However, most importantly, it also shows you how to fix them Really. Looking forward to hearing your thoughts. I love that. I absolutely love that. I absolutely love that. That’s so cool.

James: 

You know, I heard a really interesting analogy about the stock market the other day, and it was to look at it in terms of the fact that you’re buying units all right, appreciating units and you’re exchanging your depreciating units of value, which are cash, for appreciating units of value. But the thing about it is, you know, here’s, here’s the thing, right, the stock market fluctuates and it goes up and down. Okay, but that’s because that we’re using the same yardstick all of the time the value of the stock market, which is cash, and is that the fluctuations in the value of the cash or is that the fluctuation in the value of the stock market? But the problem is we’re using the same meter stick Because that’s our meter stick. Whether it gets bigger or smaller, that’s always going to reflect in the valuation of the other thing. Right?

James: 

Here’s one quick analogy on that one. If I have a house and the house is 10 meters long, right, I take a meter stick and I measure it One, two, three, four, all the way up to 10, right, that doesn’t change. What if I take the meter stick and I cut 10 centimeters off the end, but I still call it a meter stick? Yeah, the exact same analogy, except cash is the meter stick. It’s going up and down in terms of its valuation. We’ve still got the same object, but because we’re using a meter stick which is inherently faulty, the valuation, or the length length, the length of the valuation of the house is fluctuating. Have you heard that one before?

Adam: 

yeah, no, that’s brilliant and and that’s how you’ve got to explain to these guys is this although I’m up this much, I’m down this much, I’m like it’s. It’s in theory, yes, but until you crystallize it, there’s no gain or loss almost at all. You know the crystallizing. That’s the important part about it is when you pull that out of that investment. That’s the crucial bit. And for myself, like I said to you, if you’re somebody that likes to look at the valuation of your investments at breakfast every morning and if you’re down by five, six grand, if that’s going to ruin your day, 100% stocks is not for you. Simple as that. If your day is going to be ruined by the fluctuations of the stock market, it’s not for you.

James: 

Awesome, that’s cool. Here’s a question. There’s lots of rules of thumb out there about when we should start decreasing our exposure, divesting from stocks and investing in things that are a lot more stable and more likely to preserve our capital in the short term because they have less volatility. One of those is the rule of 100, or sometimes called the rule of 120. You’ve come across that, I’ve no doubt.

Adam: 

So yeah, we’ve got the 100 theory. So basically what we look at there is 100 minus your age and then that’s the split we like to have between what we class as our more higher risk investments or your equities, and then offset that against our sort of what we class as safer investments with your bonds and your property and your cash, et cetera. So 100 minus your age and then that is the split, because obviously the older we get, the sort of less risk we want to be naturally. And then how I use that into my own theory is the three buckets. So you’ve got bucket one, which is your cash holdings, bucket two, which would be a safer type of investment, which would be your bonds, your property and your cash, and bucket three, which is your equities, and what we like to do is just drip feed from bucket three, the bucket two, the bucket one, into your back pocket, so whenever you need it. So that’s about a three-year process.

Adam: 

So what you like to have is if somebody needs that money within three years, it’s not in equities, but it’ll either be lower end of the bonds or in cash ready to access it. So whatever happens in the stock market today has no massive real effect or worry on you about accessing your money, because that money that’s going up and down you’re not going to need for at least three years. So what that does is alleviate any worries for the client. So say they’re taking an income from the investments from their pensions. They’re taking an income from the investments from their pensions. You know you want to make sure that they’re not having to take income from a fund that’s just dropped overnight by 10%, because that’s when funds start running out very quickly.

James: 

I see Interesting. So you’ll actually effectively segregate that money and you’ll say listen, mr Smith, if you want to withdraw X amount year on year from your investments, you take it purely from your bonds bucket or your cash bucket, which has been filled from the equities bucket as time has went on, or do they just take three buckets simultaneously?

Adam: 

no. So we always drip feed it. So think of three, think of three buckets and the equities buckets on the top. It just drip feeds all the way down into the pocket of the person that needs that money then. So they’re never actually taking the income. Say they want two grand a month. They’re not taking that income from the equity bucket, they’re taking it from the cash bucket. So whatever’s going on in the world, whatever’s going on in the stock market, has no effect on the income they can take, and that alleviates a lot of worries for a lot of clients.

James: 

What do you think of the DIY investor right there, just simply painting with broad strokes, using the rule of 100 and withdrawing that money from all of their investments, their whole portfolio, but simply maintaining the balance? Because they have, say, they’re 60 years old and they’ve got, yeah, 100 minus your age minus. If you take away 60 from 100, there’s 40 left over. So therefore, if you’re following that, you should have 40 percent equities and 60 percent bonds. What do you think about the diy investor just taking what they need from that pot, maybe using the rule of four percent, something like that which you’ve got, yeah yeah, and that’s.

Adam: 

I know that’s a good enough. 4% is what I would work to. I think is a very good amount, you know. But it’s called sequencing risk, which is the risk of taking money from investment to which you’re on the downhill, basically, and when you put it into graph form, it’s mind-blowing how many years it can take off, how much income you can take from that investment if you take it at the wrong time.

Adam: 

So, as a DIY investor, all well and good invest in your money, but the important part, like I said earlier, is when you crystallize it. That is the important part. That’s what gives you the longevity of your investment and the income you take in retirement. So, diy investors, don’t get me wrong, it’s brilliant. You see, on your Facebook group, there’s an awful lot of knowledge out there and some brilliant things said in there and you can see people really study it and get to know it. But you’ve also got to learn. Yeah, okay, it’s all well and good making money, but how do I utilize that in the best way possible and also tax efficiently? That’s something we don’t always talk about.

James: 

Absolutely. So you think the rule of 100 is something actionable that people could use? Again, not getting into financial advice. Advice, of course we’re totally away from that, but that isn’t that you. You, broadly speaking, you think that’s a nice rule of thumb that works, or at least. Yeah, hang on, let me reverse actually there. Maybe not works, but it’s got some validity to it it has some validity to it.

Adam: 

Yes, you know, but like anything I’ll say is again, not putting my advisor hat on here. Um, you’ve got to understand the risks you are taking as a DIY investor. You know you have to. You know there’s a reason why fund managers retire early and it’s because it’s not an easy job. You know you’ve got to completely live this lifestyle, haven’t you? So yeah, as long as DIY investors, I think as long as you are investing money which is not your lifeline, as long as you are investing money which is not your lifeline, you know, if you’re playing DIY investing with your pension pot, I think that’s taking quite a considerable risk, especially if you are, like I say, a dentist or a practice or an associate. You’ve got another job to do. You’ve got other things to think about no-transcript.

James: 

Yeah, well, that’s why I made the group the way that I did, because there was just so much misinformation out there and I feel like in this day and age, that more racy, almost gambling style of investing is even more popular and people tend to think that that’s how it looks. But what you’re actually doing, what we should be doing, is okay. We can maybe have some of that on the side, I get it, yeah, but the main stage should always be what has consistently generated people wealth over the years. Yeah, but having said that, my argument would be on the flip side.

James: 

Why we shouldn’t solely focus on that is because it takes so flipping long for people to become wealthy using those methods. You know, which is fine. You know it’s better to have some, it’s better to have some skin in the game on that one, than not be an investor at all, you know. But I actually like there for the right person, for the right temperament, for somebody who has maybe some spare cash, that there are other things out there that can potentially but not a guarantee pull that retirement date forwards, or maybe not retirement date we use, but financial independence date, financial freedom date, to better terms.

Adam: 

No, but do you know what? The biggest enemy, though, with DIY, investing and all of us as human beings in general, is greed. Okay, oh, we really struggle with greed, so it’s never enough. You know, I have a friend a good example who put a considerable amount of money into Bitcoin going back quite a few years, and I can promise you if he had doubled that say, initial investment was 50,000, it guarantees you that day that he put 50 grand in. If he thought he was going to get 100 grand back, he would have been over the moon.

Adam: 

You know that investment today is worth about 1.3 million, but the psychology of it he cannot bring himself to take that money out. He can’t do it because he thinks it’s going to keep going up. I’ve made this much. It’s going to keep going up again and going up again. He can’t bring himself to crystallize any of that money, and that’s purely greed. And I tell him that. You know that’s that’s what we get stuck in is that we’ll make gains, we’ll make gains, we’ll make gains, but then that’s the problem is when greed sets in, we start taking higher risk, more risks, and then that’s when it can end up in tears. So that’s why you’ve got to have serious amount of. You’ve got your thoughts. You’ve got to be very strict and disciplined so that, yes, I have these targets, I’m going to stick to them regardless of what happens. Obviously, always keep an element of it where that investment is, just take out a little bit so things go wrong. You’ve still got enough to hold full backup yeah, totally.

James: 

You know what I mean, because what you’ll tend to find is like, say, the, let’s say you’ve got the, you’ve got your traditional assets and then you’ve got digital assets and they’re on the block, right? So if we take the cold, hard data of bitcoin and we extrapolate that over a period of time since bitcoin began, bitcoin is given anybody who’s invested it purely buy and hold, like what you said an average return of 200 a year. That’s three times your money, right? That’s the average. Now, what we’ve got to bear in mind is that there’s the up years, but there’s also the years where there’s volatility and that scenario is not quite as the same or as good Are you with me? But that’s the average. But yeah, you’re totally right. What you’ll often find is, with people who have digital assets is they’ll start out with 5% of their portfolio in digital assets, right, and then all of a sudden, that’s flipping 50% of their portfolio.

James: 

And then at that point you know you need to de-risk’t you.

James: 

So yeah, one 100 what you said your friend, if he’s listening diversify, and that’s coming from someone who loves crypto. Okay, me right here. What you’ll often find is here’s the thing, adam it’s when you take traditional investing logic not anything fancy everyone wants to be traders. We’re talking about investing here, buy and hold DCA, et cetera. If you take those traditional investment tools or mindsets or methodologies and you put them in the crypto world seriously, if you are just consistent and you have the right mindset, I personally think that you can do well. But the problem with the crypto world is it’s where everybody thinks the gunslingers live Are you with me? And that’s what everybody tries to do, and then greed kicks in. It takes a person who has serious mastery of themselves as an individual to be able to do that, and the right pair of eyes as well. So, yeah, 100% to your friend who’s listening Diversity, diversity, yeah 100%.

Adam: 

Won’t listen to me. Listen to you. I hope he does.

James: 

You can play this back to him seriously, because that’s the thing, you know, that that’s the thing. Whilst, uh, whilst that’s happening, you know he could be securing his cash in another means, and particularly if he needs that, it brings in a whole other conversation. How old is he? When does he want to retire, you know? And if he’s going for out and out gains, then maybe having all of his well, sorry, sorry. If he’s not going for out and out gains and he wants to preserve some of his capital, maybe having his wealth in one place in crypto is obviously correlated to stocks and then, therefore, a risk asset, maybe that’s not the best bet no, but what?

Adam: 

that is the perfect example of a vip investor who’s just who’s just gone off track a bit. He’s lost sight of what the goal and objective was, and I think that’s so important, even if it’s just every 12 months. You sit there and you write out what your goals and objectives were. Right, am I on track, am I not okay? And then we’ll make a decision from there, because I think that’s what you’ve got to really work out if. If you want to invest, invest for the long term, try and work out what is it you’ll need, what is it you’re aiming to get, and see if you’re on track every year. Otherwise, you’re putting money into something for what purpose?

James: 

Absolutely Well, this is it. You have to have the end goal inside. You really do. That’s actually as fundamental as actually buying things in the first place. You know what I mean. Yeah, yeah, yeah. Interesting when now let’s refer to the maven money podcast, again, andy hart that really, for most people who are thinking about financial independence, really what you want to do is get a financial advisor involved, maybe 15 years before you’re thinking about downing tools as a dentist. What’s your take on that one? Is there a set period of time? Is there a rule of thumb? Is there a time that you would ideally see someone before they’re thinking about moving on financial independence?

Adam: 

for me, I don’t think it is ever too early to see a financial advisor, purely because I have people that sometimes come to me 15 years before they want to retire. It’s just, it’s too late. You need as much time as you can possibly can to allow those investments to grow over such a long period and be tax efficient for that time as well. You know there’s no point going to advisor 10 years before you want to retire with nothing to show. There really isn’t, because you’ve run out of time at that point. So you need to start as soon as possible.

Adam: 

You know, if you understand what you’re doing yourself, then okay, that’s fine. You see an advisor every ad hoc. If you want, go see one every five years just to make sure what plan you put in place. Get somebody who’s got the knowledge and expertise just to run over your plan and say, yeah, that’s quite a good plan, see you in five years. But if you are that person who likes that backup, likes that constant review process, make sure everything’s on track all the time then there isn’t ever too soon to see one, really.

James: 

Yeah. Well, here’s the thing. Here’s where the DIY investor thing slightly falls down. You know how you were saying earlier about being tax efficient and how to structure that stuff. There’s certain things that you can do to pretty good standard on your own, but then after that it’s beneficial to have some expertise, and one of them is you have all this cash, do you put it? You know what actually are your goals with it. Is this something you want to live off? Do you have a surplus and you want to give it to your kids? Is it something that you want to do is donate it to a charity or an organization? And that’s where those conversations are nice and that’s where it can be helpful to have a little bit of expertise on your side. That conversation becomes a lot more complex and necessary the further we progress in life.

Adam: 

Yeah definitely Because people associate financial advisors with just investing, and obviously that is an aspect of it, but it’s just a part. There’s so many different like, say, the tax planning side of things, the ISAs. So I do an awful lot of ISAs as well, but for kids, you know, as soon as a kid is born, bang, we’re banging money into junior ISAs. What better gift can an 18 year old have in 18 years time than a big lump sum of money to buy a car, go to uni with intergenerational, intergenerational wealth planning, you know, inheritance tax, all these different types of things that people won’t think about, or a lot of times people think about how much can I grow my money to? Uh, but the the aspects around that and how you can utilize the money you’ve already gave is is massive.

Adam: 

And cash flow planning that’s what I will not. Pretty much not do a meeting without doing any cash flow planning, because numbers on a sheet, numbers on a screen, mean absolutely nothing to people unless you put it into perspective. And that’s what cash flow planning does create as many different scenarios as you want and find it right. I’ve got this amount of money. If I grow it by this amount and I spend this much. How long is it going to last? When am I going to run out? Until you actually see that that’s how you create your, your goals and objectives cool good stuff.

James: 

Food for thought. Food for thought. Adam, you’ve been super generous with your time today. You do, of course, represent the dental business alliance, and we can find you on the group. Maybe you can share a little bit more information about that before we part ways for today.

Adam: 

Yeah yeah, so the dental business alliance. If you just google dental business alliance, you’ll find it. So we are a group of specialists who deal with dental dentists, dental practice owners and associates as well, and we have specialists in finance, accountancy, websites, social media. We’ve got decontamination specialists in the group. So I think about it as a an all-in-one, one house sort of uh way to approach dentistry, really, and everything you can think about outside of outside of the practice tough stuff, so much food for thought and so many gems in that podcast today, particularly for people who are new to the investment game.

James: 

But even if you have got a little bit of how can I say a little bit of, uh, knowledge and experience, then certainly there’s some stuff in there that you can use to recalibrate. And you know, I always feel like there’s almost two opposing sides. There’s the FAs and then there’s like the DIY guys. Right, yeah, but actually, like you’ll find often in life, there’s red, there’s blue and the answer is most often purple.

Adam: 

Yeah yeah, no, I say, and that’s one thing I think we have to get across is the advisors and the diys. We’re not enemies. You know, I understand people can be very passionate about what they do and they think what they do is the right thing. At the end of the day, I think, you know we, everyone, can learn off each other and we’ve got to share what our experiences as well.

James: 

At the same time, yeah, I think I feel like that particular that conversation is particularly more useful the closer we get to retirement, just as we were we were highlighting earlier. But yeah, for someone who has the stomach and for someone who’s younger, 100% equities can be something that’s useful. 100% stocks when I say 100% equities, I don’t mean a hundred percent of your money in Amazon just to know we’re talking about funds, funds that represent the valuation of indexes here.

James: 

So definitely, as I say somewhere to some food for thought, that we’ve given everybody on this podcast today something to recalibrate your investing expectations. And, Adam, thank you so much for coming on the show. We will catch up very soon. Cheers, thanks a lot.

James: 

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James: 

Fans of the Dentists Who Invest podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentists Who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome, welcome to the Dentists who Invest podcast. Welcome back, everybody, to another episode of the Dentists Who Invest podcast.

James: 

We have been a little light on the actual investing content these days, so we are going to pivot, and I’ve reached out to my good friend, adam hughes from the dental business dba, dental business alliance alliance. There we go I knew it was the dental to come up somewhere the Dental Business Alliance and Adam is here today to talk to us about investing in stocks, the theories, philosophies, things that we can do in order to undertake that. Adam, how are you today? I’m very good, thanks Yourself. Really good, mate, I’m always good. So, adam, a few things we want to cover today. We’re going to talk about investing in stocks.

James: 

Obviously, that is the wider perspective that we are coming at this podcast from, but it’s not just as simple as that. Everybody just thinks, oh, I’m going to buy stocks, I’m going to be rich. But we’re here to talk about how. That is not always the case and you have to educate yourself in order to do it properly, and I think a lot of people think that as long as you have the stocks and shares, isa, you’re good and you’re investing. Actually, it’s what you do within that ISA that determines your success.

James: 

So we wish to talk about one of the main things that I’m interested in, and one of the philosophies that is propagated these days, is what does it mean for our portfolios if we have 100% stocks in terms of funds, in terms of indexes? That is conventionally the wisdom which will say that if we orientate our portfolio correctly towards that, that we will have the most gains, the biggest capital appreciation, but that’s not always a good idea. So my question to you, adam, is, first of all, can you tell us a little bit more about that philosophy, what it means, how it can be used by dentists, and then what we’ll get on to a little bit later is when and when not that philosophy does apply 100% stocks.

Adam: 

Whenever I hear that, that screams to me a huge amount of volatility. Naturally, with the stock market, it’s going to go up and down. With 100 of your money in stocks, it’s going to 100, go up and down, um, and that seems to me somebody that needs to be ready, uh, and suitable for that as well. Uh, because we talked about balanced funds. Uh, you know, is there still a place for balanced funds and balanced funds? What that means is you’re not 100 stopped. You may be sort of 60%, 70% stock market and then you have an element of, say, bonds and property and cash within that. So, whatever the stock market does, how that goes up and down, it’s not going to affect the entire amount of your portfolio.

Adam: 

The 100% stocks theory. So that’s all about long, long-term growth. So if you’ve got money which you’re willing to put away and we’re talking eight to ten plus years now uh, that’s when you know having a large amount of your money in stocks will come to fruition in the long term. If you’re somebody who thinks you can access that money in the next year or two hundred cent stocks is probably not far off a gamble, but let’s be honest about it. Um, you know, unless you’re keeping on it and you live in it.

Adam: 

And and that’s the whole thing is when we went through COVID, we had what we called the Zoom boom, where we all thought we were specialist fund managers because we all bought it when the world markets had collapsed overnight. We all bought these stocks at cheap, cheap prices. They all naturally went up and we all thought we knew what we were doing, you know, and that was across the world. You know, we’re all at it on these apps. And I think now a lot of these people are starting to realize, okay, there’s more to it than this, you know, especially going to the times we are now. And that’s when I think people start to realize you’ve got to live it to be able to fully understand it all the time.

James: 

Well, a bull market makes a genius out of everybody. As they say, there’s only so far down things can go. And, as they say, there’s only so far down things can go. And what you’ll tend to find is the market’s like a pendulum. It overreacts each way.

James: 

Yeah, the pendulum, you’ve got the center where it should be. You give that pendulum a little bit of momentum and it swings the other side. Then it swings back and forth, back and forth, like this. And when there’s peak fear and peak greed, what you’ll usually find is it’s really really way too far away from its center and it can only go one way back. And that is the theory as to why so many people did well from the zoom boom, as you put it, and crashes that have occurred, you know, ever since the beginning of time, because it is something that happens over and over and over again. So, based on what you’re saying, 100% stocks, 100% funds that contain equities, that are yeah, well, those stocks are solely funds, are solely consisted of equities. Those are better for people who are younger because they’re further away from retirement.

Adam: 

Yeah, yeah, exactly. So you know, when I speak to people who are in their 20s and say early 30s and we’re talking a long, long time before potentially needing this money for retirement, you know that’s when you should put your pension. You know high risk as you can possibly go getting the maximum amount of time to get the maximum amount of growth out of those funds, and when it becomes really important and this is why, doing what I do, you’ve got to know the ins and outs of that person, exactly what they’re going to do in the future, what they want to do, their objectives, because you have to structure their money around that. Because if I, for example, went to somebody, come to me, look, I want to retire in five years. I got this, what should I do with it? And I said put it 100 stocks six months before he wants to retire. We have another COVID.

Adam: 

That’s extremely poor advice for myself, because I know that there’s a possibility that could happen and I’ve advised him to do it.

Adam: 

So that’s when you know you have to know exactly who you’re dealing with, the ins and outs of that person, which is why the fact-finding process is very important and you build that fund around what their needs and objectives are for some people.

Adam: 

They come to me and they say, look, adam, I just want to keep pace with inflation, so if I go stick% stocks, I’m going away from what they’ve asked me to do, and then that’s poor advice, you know. For them it would be a case of a balanced fund which has a nice, safe, soft underbelly of bonds, cash and property with an element of equities that can just keep pace with inflation. That’s a bit different now because we’ve got inflation around 7.5% and that’s another sort of subject for holding too much cash at the moment. There’s never been a more sort of dangerous time to be holding far too much excess cash in your account because the spending power is dropping by over 7% a year Even in the good times at 2.5%. That’s dangerous to have too much in Again, which is why you’ve got to look at your expenditure, your incomes and what you’re happy to have as an emergency fund, trying to check your incomes and what you’re happy to have as an emergency fund.

James: 

Yeah Well, inflation on average is usually around the 4% mark. So I mean, here’s the thing there’s a school of thought that people say inflation is here to stay and it’s going to get higher. Who really knows, is the short answer on that one. So it’s not something that we can say for certain, but let’s hope it’s a little bit of a flash in the pan on that one.

Adam: 

Yes, yeah, well, I was looking at a few studies and a couple of people and you’re talking big furniture, jp Morgans. They seem to think there’s going to level off around 2024 and work its way back down to normal levels. You know, again, these are just studies and it’s all crystal ball scenarios. But you know, this is what you mean. You’ve got to hedge your bets when it comes to investing, you’ve got to spread it, spread your risk, and that’s what diversification is all about. So you have to plan for every scenario, basically at the same time as having those needs and objectives.

James: 

So when we’re looking at portfolios that are purely equities let’s say we’re invested in funds that reflect huge indexes like the S&P 500, ftse, etc what sort of returns can you typically expect from those? Now, I know that that’s a really hard question to answer because it depends completely on the portfolio, but I suppose what I’m asking is in your experience, what may we expect from those sorts of portfolios? A rough ballpark figure, capital appreciation. Obviously, volatility is in the mix. So what we’re taking is we’re taking capital appreciation, consistent returns over long periods of time. We’re taking the beginning and the end of the evaluation of the portfolio and dividing it over a period of, say, five years, 10 years.

Adam: 

So what you’re looking at with some huge indexes like the S&P 500, and they are incredibly resilient indexes. What we’ve got now is about 100, 120 years of data on these type of indexes Go back with and just see. Look, every time there’s been a world event or a crash, how has it reacted? We’ve got a lot of data now to see how these index react. So, to give you an example, I’ve got a graph that I use which shows I’m going back to 1989. Now, if you put a hundred thousand pounds into the s&p 500 1989 and you left it in there and you did absolutely nothing but just sit there and let it roll. And we you think about since 1989 we’ve had first gulf war, second gulf, we’ve had 9-11, we’ve had the 07-08 huge market collapse, we’ve had COVID and we’ve had the dotcom bubble all these different types of huge world events where the S&P has gone up and down. 100,000 would be about 1.6 million today.

Adam: 

By doing nothing, purely by just letting it grow in that index, just letting it grow in that index, you know you’re looking the S&P with a huge amount of volatility. You’re looking around about 10%, 8% to 10% a year return on a sort of 5% to 8% to 10% year period. So you know a good index to be in a strong index. The downside to the S&P 500, it is massively backed up by a few tech companies. Your Amazons, your Apples, your Teslas make up a huge proportion of the S&P right now and that is where you have the risk element to it, which is great when those companies are doing well which they are currently doing. When those companies start not doing so well, it has a big effect on even a big index like the S&P 500.

James: 

Yeah, yeah, yeah, yeah yeah.

Adam: 

Have you heard of the what’s it calledy hart’s?

James: 

podcast maven money. Yeah, yeah, he is a huge proponent of the 100 equities philosophy not for everyone, of course. Obviously. As you go further along in life you need some. You need to balance that out with some capital preservation, and not always. Appreciation. Preservation comes more from bonds, as we know. Maybe even have a little bit of cash on there, depending on your expectations. But yeah, he is a massive proponent of that theory. So would you say that you’re necessarily aligned with him in that you reckon it should be something. How often do you recommend it to your clients, I suppose. How often would you say to them listen, the thing for you is full on 100% capital appreciation. Are those clients few and far between? Are they common in a certain age group? What’s the split?

Adam: 

So I’d say for those type of clients, it would be, like we said earlier, a younger type of client, but also somebody who’s got a bit of experience. For myself as an advisor, I could never come across somebody and meet somebody for the first time who has no idea what the stock market is all about and say 100% stocks. That’s suicide in my turn of things. And this is where balanced funds can come into it. You just gradually show them how it works, give them a little bit of volatility and the more they understand it, the more experience you can start to move your way up. Not that I would ever advise it, but my compliance team would take my head off if I started advising 100% stocks for a brand new rookie investor. So yeah, there is a place for it. It all comes to do with objectives, age and experience.

James: 

There are three things I would look for before um doing that sort of investment absolutely so it’s not always looking at it purely from the perspective that you want to attain pure gains and pure growth for this individual, you have to balance it with their temperament as well, and still yeah, oh, absolutely.

Adam: 

you know they say you would never believe, um, how some people react to these scenarios, you know, and that’s where you’ve got to educate them from the start. I know I still have clients who will literally log on to their accounts at breakfast every morning and find out how their funds are performing. And that’s fine, you know, there’s nothing wrong with that. And I have people that will look once every six months. You know you’ll never know one from the other it’s just, it’s all.

Adam: 

Psychology isn’t at the end of the day, um? But some people do react to it very differently. They fully understand that. They know they’re not touching it for a long time. They just like to know, um, and you know you’ve got to work at that person and work out whether it’s suitable for them real quick, guys.

James: 

I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdenisoninvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details the seven most common issues. However, most importantly, it also shows you how to fix them Really. Looking forward to hearing your thoughts. I love that. I absolutely love that. I absolutely love that. That’s so cool.

James: 

You know, I heard a really interesting analogy about the stock market the other day, and it was to look at it in terms of the fact that you’re buying units all right, appreciating units and you’re exchanging your depreciating units of value, which are cash, for appreciating units of value. But the thing about it is, you know, here’s, here’s the thing, right, the stock market fluctuates and it goes up and down. Okay, but that’s because that we’re using the same yardstick all of the time the value of the stock market, which is cash, and is that the fluctuations in the value of the cash or is that the fluctuation in the value of the stock market? But the problem is we’re using the same meter stick Because that’s our meter stick. Whether it gets bigger or smaller, that’s always going to reflect in the valuation of the other thing. Right?

James: 

Here’s one quick analogy on that one. If I have a house and the house is 10 meters long, right, I take a meter stick and I measure it One, two, three, four, all the way up to 10, right, that doesn’t change. What if I take the meter stick and I cut 10 centimeters off the end, but I still call it a meter stick? Yeah, the exact same analogy, except cash is the meter stick. It’s going up and down in terms of its valuation. We’ve still got the same object, but because we’re using a meter stick which is inherently faulty, the valuation, or the length length, the length of the valuation of the house is fluctuating. Have you heard that one before?

Adam: 

yeah, no, that’s brilliant and and that’s how you’ve got to explain to these guys is this although I’m up this much, I’m down this much, I’m like it’s. It’s in theory, yes, but until you crystallize it, there’s no gain or loss almost at all. You know the crystallizing. That’s the important part about it is when you pull that out of that investment. That’s the crucial bit. And for myself, like I said to you, if you’re somebody that likes to look at the valuation of your investments at breakfast every morning and if you’re down by five, six grand, if that’s going to ruin your day, 100% stocks is not for you. Simple as that. If your day is going to be ruined by the fluctuations of the stock market, it’s not for you.

James: 

Awesome, that’s cool. Here’s a question. There’s lots of rules of thumb out there about when we should start decreasing our exposure, divesting from stocks and investing in things that are a lot more stable and more likely to preserve our capital in the short term because they have less volatility. One of those is the rule of 100, or sometimes called the rule of 120. You’ve come across that, I’ve no doubt.

Adam: 

So yeah, we’ve got the 100 theory. So basically what we look at there is 100 minus your age and then that’s the split we like to have between what we class as our more higher risk investments or your equities, and then offset that against our sort of what we class as safer investments with your bonds and your property and your cash, et cetera. So 100 minus your age and then that is the split, because obviously the older we get, the sort of less risk we want to be naturally. And then how I use that into my own theory is the three buckets. So you’ve got bucket one, which is your cash holdings, bucket two, which would be a safer type of investment, which would be your bonds, your property and your cash, and bucket three, which is your equities, and what we like to do is just drip feed from bucket three, the bucket two, the bucket one, into your back pocket, so whenever you need it. So that’s about a three-year process.

Adam: 

So what you like to have is if somebody needs that money within three years, it’s not in equities, but it’ll either be lower end of the bonds or in cash ready to access it. So whatever happens in the stock market today has no massive real effect or worry on you about accessing your money, because that money that’s going up and down you’re not going to need for at least three years. So what that does is alleviate any worries for the client. So say they’re taking an income from the investments from their pensions. They’re taking an income from the investments from their pensions. You know you want to make sure that they’re not having to take income from a fund that’s just dropped overnight by 10%, because that’s when funds start running out very quickly.

James: 

I see Interesting. So you’ll actually effectively segregate that money and you’ll say listen, mr Smith, if you want to withdraw X amount year on year from your investments, you take it purely from your bonds bucket or your cash bucket, which has been filled from the equities bucket as time has went on, or do they just take three buckets simultaneously?

Adam: 

no. So we always drip feed it. So think of three, think of three buckets and the equities buckets on the top. It just drip feeds all the way down into the pocket of the person that needs that money then. So they’re never actually taking the income. Say they want two grand a month. They’re not taking that income from the equity bucket, they’re taking it from the cash bucket. So whatever’s going on in the world, whatever’s going on in the stock market, has no effect on the income they can take, and that alleviates a lot of worries for a lot of clients.

James: 

What do you think of the DIY investor right there, just simply painting with broad strokes, using the rule of 100 and withdrawing that money from all of their investments, their whole portfolio, but simply maintaining the balance? Because they have, say, they’re 60 years old and they’ve got, yeah, 100 minus your age minus. If you take away 60 from 100, there’s 40 left over. So therefore, if you’re following that, you should have 40 percent equities and 60 percent bonds. What do you think about the diy investor just taking what they need from that pot, maybe using the rule of four percent, something like that which you’ve got, yeah yeah, and that’s.

Adam: 

I know that’s a good enough. 4% is what I would work to. I think is a very good amount, you know. But it’s called sequencing risk, which is the risk of taking money from investment to which you’re on the downhill, basically, and when you put it into graph form, it’s mind-blowing how many years it can take off, how much income you can take from that investment if you take it at the wrong time.

Adam: 

So, as a DIY investor, all well and good invest in your money, but the important part, like I said earlier, is when you crystallize it. That is the important part. That’s what gives you the longevity of your investment and the income you take in retirement. So, diy investors, don’t get me wrong, it’s brilliant. You see, on your Facebook group, there’s an awful lot of knowledge out there and some brilliant things said in there and you can see people really study it and get to know it. But you’ve also got to learn. Yeah, okay, it’s all well and good making money, but how do I utilize that in the best way possible and also tax efficiently? That’s something we don’t always talk about.

James: 

Absolutely. So you think the rule of 100 is something actionable that people could use? Again, not getting into financial advice. Advice, of course we’re totally away from that, but that isn’t that you. You, broadly speaking, you think that’s a nice rule of thumb that works, or at least. Yeah, hang on, let me reverse actually there. Maybe not works, but it’s got some validity to it it has some validity to it.

Adam: 

Yes, you know, but like anything I’ll say is again, not putting my advisor hat on here. Um, you’ve got to understand the risks you are taking as a DIY investor. You know you have to. You know there’s a reason why fund managers retire early and it’s because it’s not an easy job. You know you’ve got to completely live this lifestyle, haven’t you? So yeah, as long as DIY investors, I think as long as you are investing money which is not your lifeline, as long as you are investing money which is not your lifeline, you know, if you’re playing DIY investing with your pension pot, I think that’s taking quite a considerable risk, especially if you are, like I say, a dentist or a practice or an associate. You’ve got another job to do. You’ve got other things to think about no-transcript.

James: 

Yeah, well, that’s why I made the group the way that I did, because there was just so much misinformation out there and I feel like in this day and age, that more racy, almost gambling style of investing is even more popular and people tend to think that that’s how it looks. But what you’re actually doing, what we should be doing, is okay. We can maybe have some of that on the side, I get it, yeah, but the main stage should always be what has consistently generated people wealth over the years. Yeah, but having said that, my argument would be on the flip side.

James: 

Why we shouldn’t solely focus on that is because it takes so flipping long for people to become wealthy using those methods. You know, which is fine. You know it’s better to have some, it’s better to have some skin in the game on that one, than not be an investor at all, you know. But I actually like there for the right person, for the right temperament, for somebody who has maybe some spare cash, that there are other things out there that can potentially but not a guarantee pull that retirement date forwards, or maybe not retirement date we use, but financial independence date, financial freedom date, to better terms.

Adam: 

No, but do you know what? The biggest enemy, though, with DIY, investing and all of us as human beings in general, is greed. Okay, oh, we really struggle with greed, so it’s never enough. You know, I have a friend a good example who put a considerable amount of money into Bitcoin going back quite a few years, and I can promise you if he had doubled that say, initial investment was 50,000, it guarantees you that day that he put 50 grand in. If he thought he was going to get 100 grand back, he would have been over the moon.

Adam: 

You know that investment today is worth about 1.3 million, but the psychology of it he cannot bring himself to take that money out. He can’t do it because he thinks it’s going to keep going up. I’ve made this much. It’s going to keep going up again and going up again. He can’t bring himself to crystallize any of that money, and that’s purely greed. And I tell him that. You know that’s that’s what we get stuck in is that we’ll make gains, we’ll make gains, we’ll make gains, but then that’s the problem is when greed sets in, we start taking higher risk, more risks, and then that’s when it can end up in tears. So that’s why you’ve got to have serious amount of. You’ve got your thoughts. You’ve got to be very strict and disciplined so that, yes, I have these targets, I’m going to stick to them regardless of what happens. Obviously, always keep an element of it where that investment is, just take out a little bit so things go wrong. You’ve still got enough to hold full backup yeah, totally.

James: 

You know what I mean, because what you’ll tend to find is like, say, the, let’s say you’ve got the, you’ve got your traditional assets and then you’ve got digital assets and they’re on the block, right? So if we take the cold, hard data of bitcoin and we extrapolate that over a period of time since bitcoin began, bitcoin is given anybody who’s invested it purely buy and hold, like what you said an average return of 200 a year. That’s three times your money, right? That’s the average. Now, what we’ve got to bear in mind is that there’s the up years, but there’s also the years where there’s volatility and that scenario is not quite as the same or as good Are you with me? But that’s the average. But yeah, you’re totally right. What you’ll often find is, with people who have digital assets is they’ll start out with 5% of their portfolio in digital assets, right, and then all of a sudden, that’s flipping 50% of their portfolio.

James: 

And then at that point you know you need to de-risk’t you.

James: 

So yeah, one 100 what you said your friend, if he’s listening diversify, and that’s coming from someone who loves crypto. Okay, me right here. What you’ll often find is here’s the thing, adam it’s when you take traditional investing logic not anything fancy everyone wants to be traders. We’re talking about investing here, buy and hold DCA, et cetera. If you take those traditional investment tools or mindsets or methodologies and you put them in the crypto world seriously, if you are just consistent and you have the right mindset, I personally think that you can do well. But the problem with the crypto world is it’s where everybody thinks the gunslingers live Are you with me? And that’s what everybody tries to do, and then greed kicks in. It takes a person who has serious mastery of themselves as an individual to be able to do that, and the right pair of eyes as well. So, yeah, 100% to your friend who’s listening Diversity, diversity, yeah 100%.

Adam: 

Won’t listen to me. Listen to you. I hope he does.

James: 

You can play this back to him seriously, because that’s the thing, you know, that that’s the thing. Whilst, uh, whilst that’s happening, you know he could be securing his cash in another means, and particularly if he needs that, it brings in a whole other conversation. How old is he? When does he want to retire, you know? And if he’s going for out and out gains, then maybe having all of his well, sorry, sorry. If he’s not going for out and out gains and he wants to preserve some of his capital, maybe having his wealth in one place in crypto is obviously correlated to stocks and then, therefore, a risk asset, maybe that’s not the best bet no, but what?

Adam: 

that is the perfect example of a vip investor who’s just who’s just gone off track a bit. He’s lost sight of what the goal and objective was, and I think that’s so important, even if it’s just every 12 months. You sit there and you write out what your goals and objectives were. Right, am I on track, am I not okay? And then we’ll make a decision from there, because I think that’s what you’ve got to really work out if. If you want to invest, invest for the long term, try and work out what is it you’ll need, what is it you’re aiming to get, and see if you’re on track every year. Otherwise, you’re putting money into something for what purpose?

James: 

Absolutely Well, this is it. You have to have the end goal inside. You really do. That’s actually as fundamental as actually buying things in the first place. You know what I mean. Yeah, yeah, yeah. Interesting when now let’s refer to the maven money podcast, again, andy hart that really, for most people who are thinking about financial independence, really what you want to do is get a financial advisor involved, maybe 15 years before you’re thinking about downing tools as a dentist. What’s your take on that one? Is there a set period of time? Is there a rule of thumb? Is there a time that you would ideally see someone before they’re thinking about moving on financial independence?

Adam: 

for me, I don’t think it is ever too early to see a financial advisor, purely because I have people that sometimes come to me 15 years before they want to retire. It’s just, it’s too late. You need as much time as you can possibly can to allow those investments to grow over such a long period and be tax efficient for that time as well. You know there’s no point going to advisor 10 years before you want to retire with nothing to show. There really isn’t, because you’ve run out of time at that point. So you need to start as soon as possible.

Adam: 

You know, if you understand what you’re doing yourself, then okay, that’s fine. You see an advisor every ad hoc. If you want, go see one every five years just to make sure what plan you put in place. Get somebody who’s got the knowledge and expertise just to run over your plan and say, yeah, that’s quite a good plan, see you in five years. But if you are that person who likes that backup, likes that constant review process, make sure everything’s on track all the time then there isn’t ever too soon to see one, really.

James: 

Yeah. Well, here’s the thing. Here’s where the DIY investor thing slightly falls down. You know how you were saying earlier about being tax efficient and how to structure that stuff. There’s certain things that you can do to pretty good standard on your own, but then after that it’s beneficial to have some expertise, and one of them is you have all this cash, do you put it? You know what actually are your goals with it. Is this something you want to live off? Do you have a surplus and you want to give it to your kids? Is it something that you want to do is donate it to a charity or an organization? And that’s where those conversations are nice and that’s where it can be helpful to have a little bit of expertise on your side. That conversation becomes a lot more complex and necessary the further we progress in life.

Adam: 

Yeah definitely Because people associate financial advisors with just investing, and obviously that is an aspect of it, but it’s just a part. There’s so many different like, say, the tax planning side of things, the ISAs. So I do an awful lot of ISAs as well, but for kids, you know, as soon as a kid is born, bang, we’re banging money into junior ISAs. What better gift can an 18 year old have in 18 years time than a big lump sum of money to buy a car, go to uni with intergenerational, intergenerational wealth planning, you know, inheritance tax, all these different types of things that people won’t think about, or a lot of times people think about how much can I grow my money to? Uh, but the the aspects around that and how you can utilize the money you’ve already gave is is massive.

Adam: 

And cash flow planning that’s what I will not. Pretty much not do a meeting without doing any cash flow planning, because numbers on a sheet, numbers on a screen, mean absolutely nothing to people unless you put it into perspective. And that’s what cash flow planning does create as many different scenarios as you want and find it right. I’ve got this amount of money. If I grow it by this amount and I spend this much. How long is it going to last? When am I going to run out? Until you actually see that that’s how you create your, your goals and objectives cool good stuff.

James: 

Food for thought. Food for thought. Adam, you’ve been super generous with your time today. You do, of course, represent the dental business alliance, and we can find you on the group. Maybe you can share a little bit more information about that before we part ways for today.

Adam: 

Yeah yeah, so the dental business alliance. If you just google dental business alliance, you’ll find it. So we are a group of specialists who deal with dental dentists, dental practice owners and associates as well, and we have specialists in finance, accountancy, websites, social media. We’ve got decontamination specialists in the group. So I think about it as a an all-in-one, one house sort of uh way to approach dentistry, really, and everything you can think about outside of outside of the practice tough stuff, so much food for thought and so many gems in that podcast today, particularly for people who are new to the investment game.

James: 

But even if you have got a little bit of how can I say a little bit of, uh, knowledge and experience, then certainly there’s some stuff in there that you can use to recalibrate. And you know, I always feel like there’s almost two opposing sides. There’s the FAs and then there’s like the DIY guys. Right, yeah, but actually, like you’ll find often in life, there’s red, there’s blue and the answer is most often purple.

Adam: 

Yeah yeah, no, I say, and that’s one thing I think we have to get across is the advisors and the diys. We’re not enemies. You know, I understand people can be very passionate about what they do and they think what they do is the right thing. At the end of the day, I think, you know we, everyone, can learn off each other and we’ve got to share what our experiences as well.

James: 

At the same time, yeah, I think I feel like that particular that conversation is particularly more useful the closer we get to retirement, just as we were we were highlighting earlier. But yeah, for someone who has the stomach and for someone who’s younger, 100% equities can be something that’s useful. 100% stocks when I say 100% equities, I don’t mean a hundred percent of your money in Amazon just to know we’re talking about funds, funds that represent the valuation of indexes here.

James: 

So definitely, as I say somewhere to some food for thought, that we’ve given everybody on this podcast today something to recalibrate your investing expectations. And, Adam, thank you so much for coming on the show. We will catch up very soon. Cheers, thanks a lot.

James: 

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