Jason interviews author Doug Goldstein, CFP.

Doug Goldstein is the author of four books about investing, including the best-selling Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing, which he co-authored with world chess champion Grandmaster Susan Polgar. He’s also a 25-year Wall Street veteran who specializes in cross-border investing, helping people outside the United States open and maintain investment and IRA accounts. He talks about how to invest money on his radio show and podcast called “The Goldstein On Gelt Show.”

To learn more visit: www.goldsteinongelt.com

Below is the full transcript:

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Announcer: Welcome back America, to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for, and transition through, retirement. And now, here is your host, Jason Parker.

Jason: America, welcome back to another round of Sound Retirement Radio, so glad to have you on the program with us. As you know, we’re always looking to bring experts onto this program who we believe are gonna make your life better as you’re preparing for and transitioning into and through retirement. It’s my good fortune to be bringing Doug Goldstein onto the program, which I’ll do in just a minute. But before we get going I’d like to start the morning right by renewing our mind, and I’ve got a couple of verses for you this morning.

This is Proverbs 2, verses one through five; “My son, if you accept my words and store up my commands within you, turning your ear to wisdom and applying your heart to understanding, indeed, if you call out for insight and cry aloud for understanding, and if you look for it as for silver, and search for it as for hidden treasure, then you will understand the fear of the Lord, and find the knowledge of God.” that’s awesome.

And then, my next joke, of course we wanna give you something if you’re gonna go visit with the grandkids, to be able to put a smile on everybody’s face. So, how did Benjamin Franklin feel when he discovered electricity? He was shocked. Okay, all right, let me bring out Doug Goldstein.

Doug: Not bad, not bad. Now I got something.

Jason: They you go Doug, make your life better.

Doug: All right, yeah, that was good. Let me stop laughing so I can say hello properly. How are you doing?

Jason: I’m doing good, but let me give our listeners your bio here, so they know a little bit about you. If you’re driving down the road this morning in Seattle, remember, this is episode 141. We archive all these programs for you, you can listen to them online at SoundRetirementPlanning.com.

Doug Goldstein is the author of four books about investing, including the bestselling Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing, which he co-authored with world chess champion, grandmaster Susan Polgar. He’s also a 25 year Wall Street veteran who specializes in cross-border investing, helping people outside the United States open and maintain investment and IRA accounts. He talks about how to invest money on his radio show and podcast, called The Goldstein On Gelt Show. Doug Goldstein, glad to have you on the program with us this morning.

Doug: Jason, it’s great to be here, and let me just let people know that I am honored, because you have previously been a gust on my show, The Goldstein on Gelt Show, and if people can’t get enough of you they should just come and check it out at GoldsteinonGelt.com.

Jason: Yeah. Hey man, we want people to tune into the work that you’re doing. I’m fascinated by this book that you wrote; how did this come about? I mean, why chess? Are you a big chess player?

Doug: So, it’s actually a great story. I am a really enthusiastic chess player, which does not mean that I have any skill, but two of my kids were chess champions, and so I was a real chess dad. And, you know, when you’re a chess dad you have to get into it a little bit. And we got started actually, researching the book, before I even met Susan Polgar, who’s the first woman to even win the title of grandmaster in chess. I got started just because I noticed that all the things that my kids’ chess coach used to tell them to prepare them for tournaments, they were exactly the same things that I would sell to clients in my financial planning practice, and so, I said, “You know, there’s something here. There’s a lot we can learn from chess to become better investors.”

Jason: So you had a chance to sit down with Susan and talk about chess strategy, and be able to take what you learned from chess and apply it to investing, which I wanna get to in just a minute. But what was that experience like, meeting with Susan and just getting to pick her brain, and understand how she becomes this champion of chess?

Doug: So it’s, first off, totally amazing to speak to someone who is such a genius, and I feel it was a great honor for me to just be able to spend so much time with her. But the interesting thing was, that a lot of the ideas in finance were things that she’d never really dealt with, ’cause that wasn’t her space, and the way we did a lot of our research is I would say, “You know Susan, one of the characteristics of investors, or one of the mistakes that they make, is x, y, z,” and she would say, “You know, I’ve seen that so many times in other chess players, or in myself, or … Now she’s the coach of the number one college chess team in America, so she says, “I’ve even seen it in my own students who are playing.”

Jason: So what is it that makes great chess players like great investors?

Doug: So, I’ll tell you what it isn’t, first of all, and I’m gonna go back to … I know that you always like to quote something from the Bible, so I’ll bring something back too. You know, a lot of people, when we were writing the book, used to say to us, “What a great idea. You’re comparing chess to investing, and just like chess players have to plan ahead so investors have to plan ahead.” And I used to think, “You know, if that was all there was to it we could have just made a bumper sticker that said, ‘Plan ahead, it wasn’t raining when Noah built the ark.'”

Jason: Yeah, that’s pretty good.

Doug: It turns out there’s … Yeah, definitely a lot more than that in the idea. You know, probably something that you’ve seen and dealt with a lot is the issue of behavioral finance, which has actually developed as a new study in the past few decades; the guy who won the Nobel prize, Daniel Kahneman, actually originally from Israel, he was not an economist, but he won the Nobel prize in economics for the work he did in realizing that people so often, when handling their money, even when they know the right thing to do they’ll do the wrong thing. And interestingly, it’s very similar in chess, that even when people, the right move is in front of them, they’ll just do the wrong thing.

Jason: So just like our emotions … Now, I’m a horrible chess player, I have to tell you, I enjoy the game, but I’m not very good at it. And I was at a barbecue a couple of years ago, and there was this 12 year old boy that was on the chess club, and I sat down with him, thinking “I’m gonna whoop this kid,” and it may have been three or four moves and I was check mated. The game was over, very humiliating, humbling day. So controlling emotions, in chess and investing, how do you do that? How do you create an investment strategy where you are removed emotionally from what’s going on?

Doug: You know, that’s the same question that I asked Susan. I said, “Susan, you are literally one of the greatest minds on Earth. Coach.” And she said that, very interestingly, “Coaches and players are two very different personalities,” in the same way that investment advisers, like you, are probably a little bit of a different personality from the player, that is your clients, because at the end of the day people are, no matter what, they’re emotionally tied to their money, and I don’t know about you, but even from my own money I find myself emotionally tied, and probably 95% or more of my investments I outsource to institutional money managers to handle, because I don’t want to deal with the day to day operations, because like everyone else I’ll be hit with the emotions of greed and fear.

And of course, because I’m in the field, and I’m licensed, and I have been doing it, all think that I’m so smart and that, you know, of course I’m smarter than everyone else I know, and the answer always is, no one’s smarter than everyone else, and don’t assume that you can do better. Which is why you should have both a chess coach, Jason, if you decided to get into tournament chess, and you should have a financial advisor, if you are someone who is dealing with managing money.

Jason: Let me ask you this Doug, because a lot of the people that we serve are either about to retire or they’ve recently retired, and so, obviously people are thinking different about their money once they hit that retirement game, because now what they have is what they have, often times they’re not working anymore, they’re not contributing anything more to their money, and many times they’re drawing money out of those accounts to help supplement their income. So, I think, you know, becoming emotionally … making emotional decisions about your money is easier to do in retirement, because you’re much more dependent on it. So, what do you say to folks that are just getting ready to make that transition into retirement? How do you invest in a way that’s gonna give you the greatest amount of confidence?

Doug: You know, if ever you watch a chess game, towards the end sometimes it goes very, very fast. You know, each side, all the pieces mostly are off the board, each side obviously has a king, and maybe has one or two other pieces, maybe a queen, or a bishop, but that’s it, the board is pretty empty. And when you watch professional chess players, there is no art at that point, everything is science. And in fact, the great Russian coaches would always start by teaching new students the end game. They wouldn’t start with the board all set up, they would put down a king for each side and give each one, let’s say a queen, or a knight, and say, “Okay, what can you do?”

So the students would start learning the science of the end game, and I think the mistake that a lot of people make when they retire, is they try to be a little bit artsy. They say, “Well, interest rates are so low, I thought I would get 6% on my bank deposits, instead of 0.6%, let me see if I can be creative and come up with a great strategy.” And if there is one thing a retiree should learn from chess is, the end game is not about trying to find some new brilliant way to make money, it’s about following exact rules. That means you have to have a really good budget, you have to do a really tight financial plan, you have to understand what you have. And you can’t try to do some magic, it’s not the mid game, or the beginning of the game, where if you make a mistake you have time to recover. Follow the rules.

Jason: I like that Doug. If you’re just tuning in folks, you’re driving down the road this morning, remember, you’re listening to episode 141. I have Doug Goldstein on the program, he is the author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing. He also has a podcast called The Goldstein on Gelt Show, which I encourage you to check out.

Doug just said something that’s really important, he said you gotta have a good budget and a good plan. Retirement is an exercise in spending, that’s why we created the retirement budget calculator, find it online at RetirementBudgetCalculator.com to help you create a better budget as you’re preparing to retire.

Doug, I wanted to ask you about the stock market in terms of where it is today, because some people are saying that the market’s very high, that they are looking at things like the price to earnings ratio on a cyclically adjusted basis. They’re saying that there’s concern that earnings, just, it’s gonna be hard for companies to continue to break through these earnings barriers over, and over, and over again, as prices have continued to climb. How do investors decide when to sell an investment? Should they ever sell an investment?

Doug: How to decide when to sell. I have to say, if people are focusing so much on the fact that the market has hit new highs and they’re looking around the corner to try to figure out what’s gonna happen and making a major decision about investing, those are people who probably should not be in the stock market at all. When someone is retired, it’s true that that person, hopefully, will have many, many decades in retirement, and therefore it’s reasonable to have a piece of the pie invested in the stock market.

The bulk of the money shouldn’t be there, because if you don’t have confidence, and I don’t mean that you just believe that the market’s gonna do well, but if you don’t have a real good reason to believe that you are going to be okay paying the bills month to month … And that of course goes back to how you can look at Jason Parker’s retirement budget calculator, but if you’re not confident you’re gonna be able to pay the money, then you cannot be risking money in the stock market. So I’m gonna parry on your question, because I think that the question for people who are retired shouldn’t be, “Where’s the market today, and should I buy or sell?”

Jason: Should people, you know, it wasn’t … Only until recently have people become so dependent on the stock market, Doug. It used to be a lot of people had pensions, and between pensions and social security income they could live pretty comfortably. Now people are much more dependent on their 401k’s and their IRA’s. Do you feel that all of people’s money should be in the stock market?

Doug: You mean 100% of an investor’s money in the stock market, or all people should have some exposure?

Jason: Well, 100%, should all of their retirement savings be in the stock market?

Doug: I’m thinking no, unless they’re very young. For younger people I don’t mind, if they’re comfortable with the risk. Listen, not to get political, there’s a lot of potential in what could happen if of course the government would lay off business and let people get to work. If that happens, and which I think is the optimism that people on Wall Street are seeing, which is why the market has literally gone up thousands of points in the past few months. But that’s a big if, you know, if we’re gonna let business be free to really grow, and not be burned by taxation regulation, there are great opportunities.

But I actually think the great opportunity for people today, and a lot of people bemoan the fact that they don’t have fixed pensions, but I see it the opposite way. Look at some of these pension funds, they are going out of business. You know, start with California, which is having major problems, and go all the way from the west coast to the east coast, and there’s a real risk with the pensions. I would much rather that people educate themselves, take care of themselves, save for themselves, and yeah, invest some of their portfolio in the stock market, under the watchful eye of a brilliant investment advisor.

Jason: I was at a conference recently, and the gentleman that was presenting showed that a piece of a glacier sticking up through the water, and then he said, “You know, here’s what people see of this glacier,” and then he showed … or, is an iceberg I should say, and then he showed how big this chunk of ice was; it was floating under the water, the part that nobody could see. And I know that this is often the case with investing too. So what is it that investors, maybe they don’t see that they should, or that they should be thinking about, that can cause them to lose?

Doug: Yeah, I think the biggest issue is when people don’t realize the expenses that go along with retirement, and they’re still used to earning money, literally for decades, then they retire and then they don’t have anything to do, because unless they’ve planned carefully for activities in retirement, all of a sudden they find they have a lot of free time, and hopefully they’re still healthy, and they wanna go do things that cost a lot of money, and they’re income is not sufficient to cover it.

So, it’s not necessarily that they’re gonna get hit by an iceberg, it’s that there’s something gonna be slowly chipping away at their core investment portfolio, and after a few years they’re gonna discover that if they haven’t saved enough money, they’re really gonna go out of business.

Jason: Doug, you’re a certified financial planner, you help real people with money decisions. One of the concepts that’s popular in retirement … There’s two actually, when it comes to retirement cash flow, some people believe in this idea of bucketing, or diversifying your money across time. And so, you take less risk with the money in the short term, and more risk with the money in the long term. The other camp, the other folks out there, there are some people that believe more in a total return approach, where you have all of your money in this big bucket, and then you’re maybe pulling out a 4% withdrawal rate. What do you think about those two strategies, the total return approach and the 4% withdrawal rule, or more of the bucketing and the time segmentation?

Doug: I actually think that they are two sides of the same coin. They’re very similar, they’re just different ways of looking at it. As a financial planner I tend to look more holistically, and so I will look at a client’s overall asset allocation model, because I never want a client to make a decision about lifestyle based on the stock market. Meaning, I don’t want someone to say, “Well, you know, I had my vacation bucket, and I invested in the stock market but it went down, and now I can’t go on that cruise with my wife or my grandchildren.” I would never want someone to say that.

I’d rather look at the whole picture, and when we do financial plans we use all sorts of simulations that can test many, many different market scenarios, and we’re looking to make sure that the client’s specific spending goals can be met based on everything he has, not just on what’s in a specific bucket. That being said, I understand that some people it’s just easier to conceive of a bucket, and I’ll give you one example that I learned from my in-laws. When they were younger they would do laundry in their house, they kept a cup on the washing machine. And every time they would do a load of laundry they would throw a quarter into the cup, and the reason they did this is, they said, “Because one day our washing machine is gonna break, and then we’ll have the money to buy a new one.” And that was their model, and that’s kind of like the quintessential bucket, and I think, you know, it worked for them. So whatever forks for you, as long as you have a plan that you stick to.

Jason: I like that, that’s pretty cool. So, you’re the author of this book, Rich as a King. Who’s better at chess, women or men, and I guess same, who’s better at investing, women or men, from your research?

Doug: Well, from my research, as far as investing, it’s what I’ve read the researchers are doing, I’ve had a lot of them on my show also, talking about this; women statistically are better investors than men. Very likely it’s because they’re more patient, maybe it’s that they’re not taking as many risks, and possibly they just don’t suffer from the same level of overconfidence that men suffer from.

But I did ask that question in the chess world, I asked Susan why was it that it took until the 1970’s for a woman to become a grandmaster in chess, and before that it was really just a men’s game, and she said, it turns out that the pressure against women competing was very strong, and to this day it’s still, there’s a lot of pressure against women. She said, you know, at a certain point they go on, they wanna have a real life, and one of the things that happened to her when she was defending her world championship title, was she had a baby, and the people at the world federation of chess, that organized the world championships, they were not very sympathetic.

She said, “Listen, I need to take a little time off,” and they said, “Sorry, you’ve gotta defend your title in two months.” She had a new baby, and she couldn’t defend her title under those circumstances. So, there are a lot of practical considerations that made it that … She made what I believe is a very correct decision, that family before anything, and she said, “I’m gonna take care of my baby rather than compete in the chess world.” But that did affect her being able to defend her world championship title.

Jason: That’s fun, I’m sure we’re gonna get a bunch of comments on Facebook, and replies to the podcast here, because most of our listeners.

Doug: Bring it on.

Jason: What’s the trick to setting goals, Doug? What have you found works really well for people?

Doug: Talking to your spouse, don’t do it on your own. Too many people live in their own financial bubble, which is fine when you’re like 17, but once you’re a little older, and you’re married, and you have kids, you have to sit down regularly and communicate about money. I would say that the biggest failure that people have, at all stages of life, is they don’t communicate. And my anecdotal evidence to this, and I have not done any studies, but usually, I found, in having spoken to thousands of people in my career, the men usually take charge of the money in a family, even today, which shocks me, and they’re making all the decisions, and the women are not involved, which is a huge, huge mistake. You have to talk, you’ve gotta talk together about goals, and then actually about managing the money together.

Jason: If you were to boil down retirement planning to one idea, what’s the most important thing people need to be thinking about?

Doug: I think the number one thing to think about is spending less than you earn at all stages of your life.

Jason: I appreciate that. [inaudible 00:20:52] you know, I just wanna get back to and plug the retirement budget calculator again, because it is a spending exercise. You didn’t know I was gonna ask you the question, I was curious what you’d say, but I think most financial advisors, professionals, agree that retirement is all about spending. If you don’t have cash flow you don’t have retirement, you gotta know where the money’s going. So, in terms-

Doug: Hey Jason, I know … Sorry, I just wanna comment one more thing on this, ’cause I know we’re running out of time, but I wanna give one more answer to that question, which I was deciding which one I would give. But, I mean, I certainly hold that you should spend less than you earn, but the other critical thing, I think, is that you have to make sure that part of your budget, and you’ve build it into the retirement budget calculator, is giving charity. And I don’t just mean giving a couple of dollars here and there, I mean making charity a significant part of what you spend.

And apart from the good, you know, the eternal good it brings to the world, which I’m sure we don’t have time to talk about today, the practical good of being someone who gives charity … And I’m talking, again, about giving 10-20% of what you earn to charity, is it changes the way that you look at money. Money no longer becomes something that you’re trying to accumulate as much as you can because that’s how you’re measuring yourself, it becomes a tool to do good in the world.

And my experience, again, has been … And I haven’t done academic studies on this, but anecdotal studies, is that the wealthiest people I know are the biggest donors to charity, and many, many of them have told me that when things are getting rough they give more to charity, and that usually seems to turn it around. So, take that however you wanna take that, but I believe that, apart from, of course, the good that it brings to the world, but I really do believe that people who are very charitable, and not just a little charitable, very charitable, do better in managing money.

Jason: Doug, I love that, I wish we had more time, because I would have loved to dig into your story to learn how you learned about giving, because that’s not something that comes naturally, and it’s a wonderful gift once you learn to release and open your hand, and not hold so tightly, not cling.

I’ve had Doug Goldstein on the show with us, this is episode 141. Doug, thanks for being a guest on Sound Retirement Radio.

Doug: Hey, Jason, I really appreciate it, I hope to speak to you again soon.

Jason: Thanks, take care.

Announcer: Information and opinions expressed here are believed to be accurate and complete for general information only, and should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates, have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are a subject to the claims paying ability of the company. Investing involves risk, Jason Parker is the president of Parker Financial, an independent, fee based wealth management firm located at 9057 Washington Avenue North West, Silverdale, Washington. For additional information call 1-800-514-5046, or visit us online at SoundRetirementPlanning.com.