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Maria Bruno: Hi. I’m Maria Bruno, head of U.S. Wealth Planning Research here at Vanguard.

Joel Dickson: And I’m Joel Dickson, global head of Advice Methodology at Vanguard. Welcome to our podcast series, The Planner and the Geek, in which we will discuss topics that are important to individual investors.

Maria Bruno: And we’ll have some fun along the way.

Joel Dickson: Hello, Maria.

Maria Bruno: Hi, Joel, how are you today?

Joel Dickson: Are you ready for this?

Maria Bruno: Ready.

Joel Dickson: It’s our inaugural episode of this new podcast.

Maria Bruno: Woo hoo!

Joel Dickson: The Planner and the Geek.

Maria Bruno: The Planner and the Geek.

Joel Dickson: Have we decided who’s who yet?

Maria Bruno: No. We’ll let our listeners figure this one out.

Joel Dickson: Yes. I don’t think it’s going to be too hard to figure that one out.

Maria Bruno: I don’t think so either.

Joel Dickson: But maybe there can be a debate on it later.

Maria Bruno: How did we get here, Joel?

Joel Dickson: How did we get here? That’s a darn good question. Well, actually, it is interesting. Later in this segment, in this first episode, we’re going to hear from Mel Lindauer, who kind of manages and is a leader of a social network called the Bogleheads. And in many ways, this podcast started from their discussions and approach. They come and visit here at Vanguard once a year as a group of about 200, and you and I did a little discussion for them on financial planning and investing topics. And we’re kind of like, “Hey, maybe we can bottle that up and do it in a different format.” And so, hence, The Planner and the Geek comes alive.

Maria Bruno: Yes, it was interesting, I remember that one panel. I guess we didn’t realize how informative and funny that we can be.

Joel Dickson: Wait, don’t set expectations too high.

Maria Bruno: Seriously, happy to be here with you.

Joel Dickson: Yes, what should we talk about this first episode?

Maria Bruno: Well, I think this one it makes sense—since it’s the beginning of our podcast series—to talk about starting an investment program. And we’ll talk a lot throughout our series in terms of different types of investing topics, retirement topics, planning, discussions, and things like that. We’ll have some special guests along the way. We’ve got Mel today joining our podcast.

But I think if we start talking about, well, how do you approach investing, and when to start investing.

Joel Dickson: Yes, I mean we’re not new investors.

Maria Bruno: We’re not.

Joel Dickson: You and I are not.

Maria Bruno: Right. This isn’t our first rodeo.

Joel Dickson: Do you know anyone that is?

Maria Bruno: Yes, this one actually hits home, this investing early topic.

Joel Dickson: Really? How so?

Maria Bruno: Well, my nephew graduated from college last Spring.

Joel Dickson: Oh, congratulations.

Maria Bruno: Yes, so it’s exciting, and he started his first full-time job in the summer.

Joel Dickson: Do you remember when we graduated from college?

Maria Bruno: Yes, I do, it wasn’t that long ago.

Joel Dickson: It sure seems long ago.

Maria Bruno: So we sat down and we had the talk.

Joel Dickson: The talk. Aren’t you supposed to have the talk before going to college?

Maria Bruno: That was a different talk.

Joel Dickson: What talk are you talking about?

Maria Bruno: So when he started working we sat down, we had the investing talk.

Joel Dickson: The investing talk.

Maria Bruno: The investing talk.

Joel Dickson: So what is included in the investing talk?

Maria Bruno: Well, first was take advantage of your employer-sponsored plan.

Joel Dickson: Why? Why is that important?

Maria Bruno: Tax-advantaged growth. And he was fortunate in that not only does he have the plan, but he has an employer-sponsored match. So, it’s like, okay, invest in your plan at least up to the company match. If not, you’re leaving money on the table.

Joel Dickson: So, for example, if you have a 6% contribution that gets matched 50 cents on the dollar, you would have 6% that you contribute and 3% that the company contributes. Overall, think of it as 9% of your income. Is that what we’re thinking of?

Maria Bruno: Right. And it’s deducted from your paycheck, so you don’t have to do anything.

Joel Dickson: Well, the 6%.

Maria Bruno: Right, yes. So the talk was really just pick what the defaults that your employer picked for you. And, typically, what you’ll see is, you’ll see a deferral with a company match with an automatic increase. So it got him set on his way. He was defaulted in a target-date fund, which is a balanced, diversified fund. So I said, “Look, don’t think about it, just set it up as an auto enrollment, auto escalation, and go do other things.”

Joel Dickson: Now, does he understand the importance of saving?

Maria Bruno: Yes. I mean, actually, when I think about even myself growing up, I got this from my parents early in life in terms of the importance of saving. Part of the talk is: it’s not what you make, it’s what you save.

Joel Dickson: Well, yes, and why do you say that the saving early on is important?

Maria Bruno: Because, really, if you start early, even if it’s a bit, it’s just, through time it’s compounding. And you could run the numbers and that a little goes a long way in terms of investing. So if you start small and you increase that over the years, you’d be surprised in terms of the power of compounding, especially in tax-advantaged accounts.

Joel Dickson: Yes. Actually, there’s something called the “Rule of 72.” You can now quite quickly figure out who’s the Planner and who’s the Geek, right?

So the rule of 72 basically says your money doubles whenever you’ve gotten sort of years of return that add up to 72. So if, for example, you have a 7% return per year, then about every 10 years or 10¼ years, you would expect your money to double.

Well, doubling then is you make a contribution today and in 10 years it’s doubled, in 20 years, 4 times that, and 30 years, 8 times that. And you can sort of very quickly see how it grows the longer that it’s in there.

I always like to think of the rule of 72.

Maria Bruno: Yes, that’s good. Yes. I just also add that his mother’s an accountant and his father’s an engineer, so to say no more there.

But the other neat thing is that we talked about not only investing in the company plan but, also, he’s putting money through payroll deduction into his Roth IRA, and we talked about that a bit.

Joel Dickson: Wait, wait, whoa, whoa. So employer-sponsored plan, Roth IRA. Is that an employer thing or…?

Maria Bruno: No. So he’s saving outside the 401(k) in his IRA. So it’s an account that he opened, his individual retirement account.

Joel Dickson: Oh, okay. So he’s investing even more than this amount that he’s doing through his paycheck, if you will, or through the employer plan that is offered.

Maria Bruno: Yes.

Joel Dickson: Huh, it sounds like he’s setting himself up fairly well.

Maria Bruno: Yes. So, anyway, it was a good talk, and now he’s got these investing programs set up automatically, so he doesn’t necessarily have to think about it. He’s diversified.

Joel Dickson: In terms of the investments.

Maria Bruno: Yes, yes.

Joel Dickson: I mean, I always do think, when you think about saving earlier, or starting to save early, I think sometimes people don’t necessarily understand or realize how responsible they are for their own retirement or retirement spending and so forth, or longer-term goals. Years and years ago, our parents’ generation, a lot of times there were pension plans provided by the company where you worked that would give you income, and then there was reasonably generous Social Security element to that as well. And while Social Security is still around, the pension system, at least in the U.S., has changed quite a bit where, now, investors are kind of responsible for their own saving and retirement, and it’s not as much an employer sort of piece of providing you when retire.

Maria Bruno: Right, Joel. I mean, I think what we’re seeing, and we’re seeing this with individuals who are entering retirement now, and probably going forward, is that they’re leaving the workforce with larger defined contribution plans than their predecessors. So they had to accumulate this bucket of retirement money and then manage that throughout retirement.

So, certainly, if you have the talk, you want to have the talk early on, right, so you build that solid foundation and disciplined investing along the way so that when you do hit that retirement goal, you’re well on your way.

But, when we talk about my nephew, he may not be the typical young investor, for instance, or even as you think about individuals who are going through life. I often say that life happens, so when you start investing, your goals will change along the way. Your life situation changes along the way as well.

Joel Dickson: Kids or, you know.

Maria Bruno: Or going back to school even, or getting married, having kids, buying a home. So your situation changes over time, it’s not once and done. But sooner that you think through what your goals are and start a disciplined investing plan, then you can be more fluid along the way to adapt that plan.

Joel Dickson: Yes. I mean, that also gets into things like how do you—you mentioned like going back to school, and there are certain things that may be investments. I think of, also, spending around making investments, whether it’s investing in your company plan, but it might be an investment in yourself. And borrowing to go back to school may not necessarily be a bad thing. Borrowing to consume additional amounts might put you into a harder position down the road.

Maria Bruno: Yes. I mean, when we think about investing for retirement, one of the common guidelines that we talk about is earmarking 12%–15% of your income for retirement.

Joel Dickson: That sounds like a lot.

Maria Bruno: Yes. When you think about rules of thumb, or a watermark level and, certainly, if you can go higher than that, that’s great. But if you use that number with a young investor, you just get that eye roll, right? So it’s like, you lose all credibility if you talk to someone who’s just starting working that they need to save 12%–15% of their income for retirement because many are paying down student debt and things like as well, too.

So the key there is really to stretch yourself. Make it hurt a little bit and then go on a disciplined investing program. And then, I often say, “Hey, if you’re 25 years old and you’re saving 5% in your 401(k) with a 3% match, for instance, that’s 8% that’s being saved for retirement right off the bat. If you do an automatic 1% increase, by the time you’re 30 you’re there.” So get there in a way where you stretch yourself a bit.

But for many that are just starting out—

Joel Dickson: Sorry. You mentioned an automatic increase. You’re talking about where your savings kind of gets increased as a percentage each year?

Maria Bruno: Right, right. So you can set that as a default option. Many, most employer plans will offer that.

Joel Dickson: Well it’s an interesting approach, too, because if you think about that most people continuously, if you’re continuously working, you probably get a raise each year of around inflation. So if inflation is 2%, you’ve increased your contribution 1%. In essence, your take home pay is still increasing but you’re also increasing your savings.

Now, I mean, you have to adjust for inflation and all that, but.

Maria Bruno: It’s just take it off the top, right.

Joel Dickson: Exactly.

Maria Bruno: You don’t have to think about it, it goes on autopilot if you will.

Joel Dickson: I think it’s interesting that that idea of is it a particular number, target, and so forth? Or is it, as you’ve been talking about it, Maria, is it a saving first mentality? Because I think so often what we see is clients and so forth, that saving is kind of, well if there’s anything left at the end of the month, then I may save it. As opposed to, hey, can we establish a discipline or a saving first approach. And I often like to just sort of think, “Hey, you know, I have to fund this for my future self,” because now in this day and age, as we were talking about, in many ways, through your own investing, you have to figure out how you are going to have enough—whatever enough means to you—in the future.

And thinking about it from your future-self standpoint and imaging that, I think can really be helpful from a sort of savings first mentality because it’s not that my income is just to meet my needs today. It also has to meet my needs 20 or 30 years from now.

Maria Bruno: And it doesn’t have to be that difficult. I think, I often get the question of how simple can it be or how difficult does it need to be? And it doesn’t have to be difficult. Through balanced funds for instance, you can get a globally diversified portfolio at low cost. So global diversification is very easy to achieve. So it doesn’t have to be that difficult. The keys is to start, and start in a very thoughtful and prudent way.

Joel Dickson: What do you hear from clients when this topic comes up?

Maria Bruno: The question that I probably get most frequently is, “How do you manage saving for retirement but, also, pay down debt?” And the big elephant in the room for young investors is student debt. So it’s usually that balancing act.

If you look at the numbers, the numbers are a little alarming. The College Board published some stats recently. The average outstanding Federal student loan debt, for instance, was $27,500, so that’s a pretty big number. So when you think about someone who is graduating from school, starting to work, and they’re paying down this debt, living expenses, and also saving for retirement, it can be a little difficult, like you said, this willingness or maybe this desire to pay down this debt. And while that is a good mentality to have, you don’t necessarily want to focus all of your dollars towards that and not save for retirement. So it really is a balancing act. And I think the retirement needs to come first while also paying down debt and, also, considering living expenses.

Joel Dickson: You know, I may differ a little bit with you there in thinking about this because I definitely have no problem funding the retirement plan but I look at it from a sort of, “Hey, where’s my highest return that I may get on my investing dollars or my savings dollars?” And paying down debt is saving. Reducing negative savings is savings.

Maria Bruno: I don’t disagree with you, absolutely.

Joel Dickson: But when I think about, let’s take the case of your nephew again, if your nephew has a match on his contributions to his employer plan, that’s almost by default the first thing you would consider doing.

Maria Bruno: Yes, I agree.

Joel Dickson: Because the return on that, if I contribute, for example, one dollar and I get 50 cents extra, I’ve kind of gotten an immediate 50% return.

Maria Bruno: Yes, I think that’s pretty basic. I think most individuals get that, right. You’re leaving money on the table if not.

Joel Dickson: After that I think it gets a little more interesting about, if I’m paying a private student loan and it’s at an 8% interest rate, well, I can think of that as kind of an 8% return if I pay that off relative to what I would have to pay or what debt would accrue at that rate going forward. And getting an 8% return on investments is pretty good. So I think, as you said, it’s a balance, but I do think it’s worth thinking about where the most bang for the savings buck can occur because if that student loan is a government subsidized one, it may have a very low interest rate, then maybe you just try to make the minimum amount of payments and then continue to invest in a tax-favored sort of way outside of that. I think it is a little bit more complex to think about that.

Maria Bruno: Oh yes, I would agree. But I think my point there is that it’s not all or nothing and that many investors, regardless of their life stage, in fact, balance saving and either spending, paying down debt or whatnot, so it really is. I mean, with financial planning broadly it’s a series of tradeoffs.

Joel Dickson: Oh no doubt, no doubt.

Maria Bruno: So let’s talk a little bit around, you know, we talked about young investors and the importance of saving early, and that’s a good discipline to have certainly. But what about—and I know I field a lot of these questions—in terms of “Well, I’m approaching retirement, is it too late, or what do I need to think about?” So the focus of the conversation shifts a bit as we start to think later through investing as you start to approach retirement.

Joel Dickson: Yes, and, normally, when we hear this it’s, “Hey, I’m only 5 or 10 years from retirement and I’m getting really nervous that I don’t have enough saved and what can I do at this point?” And being able to save more is never a wrong response if you‘re doing it. Although, as we talked about earlier, sort of the benefits of compounding over long periods of time become less beneficial if you have just a short window. I mean, in essence, you have to rely more and more on savings and less and less on investment returns, you know.

Maria Bruno: And the stakes are higher too.

Joel Dickson: Yes, no doubt. Though you also have more information at that point. You may have more information.

Maria Bruno: Right. And reality, too, you also have probably greater financial means as well, right? So you think about it, you’re in your peak earning years, so you probably have a little bit more flex in terms of being able to, hopefully, ratchet up those savings to allow for additional compounding.

Joel Dickson: Yes, though that’s also where then people end up having to make some tough decisions, because there’s been some academic work recently out of Stanford University that looked at, hey, if you upped your percentage of savings by 1 percentage point 10 years before you were hoping to retire, before your retirement date, how much additional work—that is, if you were to defer your retirement date by a bit—how much longer would you have to work to make up the same sort of benefit to your retirement income that saving 1% more for the last ten years would give you. Any idea what that number is?

Joel Dickson: It’s actually about one month. Yes, so saving 1% more starting ten years prior to retirement is about equivalent to just working one month longer than what your retirement date was.

So instead of, you were going to turn 65 in January of whatever year and you were going to retire, if instead you just work until February, that’s kind of the equivalent. That’s the benefit of the compounding, because if you do that 1% more saving starting 30 years prior or 40 years prior, that is a much bigger difference to where you could retire.

Maria Bruno: Yes. I think this goes back to the point I was trying to make earlier, in that it doesn’t always have to be that difficult. Some of this is—I hate to say common sense—but it is pretty practical thinking and practical approaches that you can apply. So stretching yourself, investing a little bit more is certainly going to go a long way. So those are tried and true principles.

I mean the other thing we talk about at Vanguard, too, is really focusing on the things that you can control. And then you think about that in investing, really, the two things that you can control are costs. And when I think about costs it’s not only investment cost but also taxes, because that is a cost to us as investors.

Joel Dickson: And you have some sense of that, your own tax situation.

Maria Bruno: Correct, right. You can make some active decisions to improve your tax efficiency overall.

And then, lastly, is really how much are you controlling in terms of savings, or if you’re spending from the portfolio as a retiree. Those are other tools in your tool box. As we say, you can’t control the markets but you can control some of the decision making around that.

Joel Dickson: I do want to get back to that, you know, you mentioned tax efficiency and controlling taxes. I think sometimes people and investors think when you talk about that, it just means certain types of accounts or savings outside of tax-advantaged vehicles like your company-sponsored plan, like IRAs and so forth. But, in fact, the most tax-efficient savings approach for most investors will be to maximize those tax-advantaged savings opportunities. So contributing, for example, to a Roth IRA where you pay taxes on your contribution but, then, assuming you meet the conditions of the Roth IRA of being older than 59½ and then holding it for at least five years, when you take the money out, you don’t have any additional tax on either the contributions or the earnings.

Well you can see right there that if you compare that to making an investment in a taxable account where you don’t have that tax-advantaged wrapper, you’re still making the contribution after tax but, now, each and every year you may have some tax liability, and when you go to sell it, whenever you’re going to spend those proceeds, you may have additional tax liability. The Roth IRA is clearly better, even though there might be good tax efficiency in the investments that you choose in the taxable account.

So I’m just, I mean, maximizing those tax-advantaged savings is kind of a key long-term approach.

Maria Bruno: Absolutely! And we’re getting into Roth and, you know, that’s going to be another podcast; you know that because we can really spend 45 minutes just talking about Roth, but I just want to go back because I think some individuals think that ”Oh, well, I am saving for retirement, I’m saving in my 401(k).” That’s fine, but you can also save in an IRA.

I think sometimes individuals think, “Well, if I do one, I can’t do the other.”

Joel Dickson: Well, there are some rules around that that they need to be aware of.

Maria Bruno: Yes, but as long as you have earned income, you can always invest in an IRA. The question is whether it’s, with a traditional IRA, whether or not the contributions are deductible. Or whether, if you’re thinking about a Roth IRA, whether your income exceeds those income limitations. Certainly, there’s a way to achieve that through investing in the traditional IRA and then, potentially, converting. But, as long as you have earned income, you can invest in a traditional IRA.

Joel Dickson: Right, exactly. Well you mentioned all of these sort of things that you can control and that, in some ways, to get a lot of the way there in terms of a successful sort of long-term investing approach, managing those things you can control, and there are just a couple of simple things that you can talk about.

Maria Bruno: Yes. And I think, Joel, that’s a pretty good segue. So we’ve got Mel Lindauer teed up from the Bogleheads, so let’s chat a little bit about that because I think this really leads nicely into the Bogleheads’ philosophy of investing. So let’s talk about that a little bit because I know you talked to Mel when he was in.

Joel Dickson: Yes. So every year, I mentioned at the beginning, the Bogleheads, which is this kind of social group of investors dedicated to investing along the lines of how Vanguard’s founder, Jack Bogle, talks about successful investing and, certainly, Vanguard’s own stated investment principles, that idea of focusing on diversification, low cost, broad market representation, long term investing perspectives. This group of many investors have sort of just cropped up over the years and created this really amazing social network where they help each other; it’s a peer network in many ways, helping each other in terms of investing and other sort of financial health, financial life issues

Maria Bruno: But they also talk about everything.

Joel Dickson: Oh, they do.

Maria Bruno: For individuals who have seen the site, I love going to the site because if you need to buy a power washer you can get opinions on a power washer or food items, everything; they run the gamut, but the premise is financial advice. The one thing that, when I think about the Bogleheads, is that they are a very opinionated group but they’re proud of their opinions and they’re proud and respectful of each other’s opinions. So it’s really a community to help learn, and some of it’s through their own mistakes and learnings through investing. But it’s really a very nice way to look at other different perspectives and make your own individual choices.

Joel Dickson: And, really, it touches on the very things that we’ve been talking in this podcast about. How do we think about saving early, sort of the benefits of it and so forth. And so, I’m really happy to have Mel Lindauer to be able to talk to. He is one of the moderators and one of the really initial people that started the Bogleheads and is a moderator on the site, and spends a lot of time organizing the group. And he’s the one that, in many ways, interacts with us at Vanguard when talking about the Bogleheads community. So why don’t we listen to the discussion that we had with Mel when he was here a couple of months ago.

Joel Dickson: Hi, I’m Joel Dickson of Vanguard’s Investment Strategy Group. And with me today it’s a great pleasure to have Mel Lindauer, one of the leaders of the Bogleheads, a group that follows the investing principles espoused by our founder, Jack Bogle.

Mel, good to see you. Glad you could be with us today.

Mel Lindauer: Glad to be here. Thanks for having me.

Joel Dickson: You bet. So, what is this thing the Bogleheads? If you could tell us a little bit about the group and your interaction with it.

Mel Lindauer: Well, we used to have a group on Morningstar that was a mutual fund, just called Mutual Funds. And there were so many people that were asking for a separate forum for the Bogleheads. They wanted to be called the Bogleheads, but Morningstar thought that was a derogatory term because people used to make fun of us and call us Bogleheads in a derogatory manner.

So, anyway, they refused to call the new forum the Bogleheads. They called us instead the Vanguard Diehards, and the subtitle was “Bogleheads unite! Talk about your favorite fund company.”

Joel Dickson: So, when was that that you started sort of the forum on your own?

Mel Lindauer: 2007.

Joel Dickson: Yes, and where is that today? How has that grown?

Mel Lindauer: We get 70,000 to 90,000 unique visitors a day from all over the world. We get up to 4 million hits a day. So, it’s quite an accomplishment. We’ve got, I think, over 3 million posts on the forum now since then. So, it’s become probably the, we think it’s the best investing forum for unbiased information on the Internet.

Joel Dickson: Now you mentioned a moment ago Taylor as well. I mean what’s the story of you and Taylor? Who’s Taylor, who’s Mel, and how does this all fit together?

Mel Lindauer: All right, well Taylor was the obvious leader of the Bogleheads when he came over from the other forum. When I first joined, the forum had just started on Morningstar, and I stayed in the background trying to take it in to see who’s who, but there were a lot of questions on annuities that nobody knew how to answer. So, I thought, well, I’ll take those.

Taylor liked what I did. He contacted me and said, “Mel, we ought to work together.” So, Taylor lived in Miami and I used to be a snowbird in Florida. And one year I made a post about happy Thanksgiving—we felt like we were a family—and Taylor posted that he was thankful for his wife and his kids and so forth, and then he posted, “And I’m thankful to Jack Bogle who founded Vanguard and let me live in” he calls it “the house that Jack built.” He has a 35th floor condo overlooking Biscayne Bay in Miami.

Joel Dickson: Yes, exactly. How would you characterize being a Boglehead or that sort of approach or philosophy?

Mel Lindauer: Well, I think the basic thing is to follow Jack’s philosophy of indexing, low cost, and staying the course. I think that’s the main thing. But then there are different levels. You’ve got people who have already made all the mistakes, like I did in the early days of investing, and we try to help them get straightened out. We’ve got other people who are just getting started, so we try to get them on the right path.

Joel Dickson: Yes, it seems to me like when I go out and I sort of interact a bit with the forum, I can’t do anything directly, but when I sort of see the posts and the reactions and so forth, it seems like part investment club, part Facebook for low-cost investing people. I mean there’s that whole social aspect and helping the community piece of it, isn’t there?

Mel Lindauer: Well, of course, the theory, I mean, basically, Taylor and I started this to do our volunteer work. And it was our way of giving back. I thought it was a neat way to do it. I’m not into manual labor, Habitat for Humanity, anything like that, but with the forum, I can go on at any time and the questions are there. If I can help, I answer it. And if not, somebody else answers it. So, basically, it’s our way of giving back in an area where we feel we can help people.

Joel Dickson: Yes. And you mentioned the 20 that it started with. And the reason that you’re, in large part, here today with me, is because it is the annual Bogleheads meeting that now pretty much every year for the last number of years has been here in Philadelphia on Vanguard’s main campus. How many people are here today for that meeting?

Mel Lindauer: A little over 200, we could have sold out Yankee Stadium, but we had to cut it off.

Mel Lindauer: We like to keep it at a level where the people who come feel they get to interact with Jack and Gus and Bill Bernstein and the authors that they’ve read and so forth rather than have a great big thing where they just feel lost in the crowd.

Joel Dickson: Yes, and every year there’s like a mix of people that have been at previous ones and then completely new ones, right?

Mel Lindauer: Yes, we try to get somewhere around half and half, but it tends to be slightly more people returning and normally it might be 60/40, like a balanced fund.

Joel Dickson: Mel, what would you do? If you could go back, what would you tell your younger self on terms of how to invest?

Mel Lindauer: I would change everything that I did because I made every investing mistake that you could possibly make. I had a college friend who was a broker, and he convinced me to start investing with him, which was good because it got me started early. But he sold me loaded funds, high-cost active funds. And the only good thing that I got out of that was I learned about dollar-cost averaging, and I learned to stay in the market because you were buying low. And I went through the ‘70s down markets, and I just kept sending money in but I was buying. I looked at it as a buying opportunity.

Joel Dickson: And that idea of dollar-cost averaging of just putting in a little bit regularly every time.

Mel Lindauer: Exactly. Yes, so then I slowly started in my business, I was more successful in my business, and I thought, well, I better start learning how to take care of my money. And I started reading. And I went through performance chasing. I never read about a fund I didn’t like. I had funds that overlapped. Every mistake you could possibly make.

And then I just started reading more and studying more. And the more I read the more indexing made sense to me. And so, I finally became a convert, and now I’m preaching the gospel, so to speak.

Joel Dickson: Yes. No, it’s very interesting to see how people get to different paths and so forth. And I mean you see the diversity in the community of the Bogleheads. They may have acquired money in different ways or wealth in different ways. They may not have acquired wealth in different ways. Different political spectrums, different ages, different everything, but yet this common thread of, hey, how do I meet my goals, my financial goals long term? And having a community to try to bounce those ideas off of I think people found a lot of comfort and help from.

Mel Lindauer: Well I think finding, talking to people who’ve been there and done it is important. One of the other things that we try to teach, and I think it’s really important, if they can’t learn to live below their means, I don’t care how much they make, they’re not going to have any money to invest. So that’s the first step is that you have to learn to live below your means. And then you take the balance and invest. And we try to get them to start early and invest in low-cost index funds on the market and low-cost funds like Vanguard has.

Joel Dickson: The idea of controlling what you can control, right?

Mel Lindauer:

Joel Dickson: Yes. Performance is relative literally and figuratively.

Mel Lindauer: Yes, and by the time you read in the financial publications about some star manager or something, he’s already made his run and chances are he’s going to revert and end up in the bottom, so you end up buying high and selling low, and that’s a recipe for financial disaster.

Joel Dickson: There’s certainly a lot of debates about investment philosophy among the Bogleheads and so forth.

Mel Lindauer: Oh sure.

Joel Dickson: So, it’s always interesting to sort of see different perspectives. I think there’s still a lot of element of, hey, how can I game this system in some way or another—

Mel Lindauer: Well, of course, you’ve got the slice and dice crowd.

Joel Dickson: And what you mean by that is?

Mel Lindauer: Buy the large-caps and the small-caps and ignore Mel’s unloved mid-caps.

Joel Dickson: Look, you branded that. I love that, Mel.

Mel Lindauer: No, well, it got branded on the internet because on Saturdays in the old Morningstar forum, Larry Swedroe and I used to have a debate, and we’d take one side or the other. And, of course, Larry’s a slice and dice, you know, large-cap and small-cap.

Joel Dickson: Yes, doesn’t factor pieces. Just keep it low cost.

Mel Lindauer: So, I used the Morningstar database and looked at the mid-caps, which seemed to be ignored by everybody who’s talking about slice and dice. This was in 2000 I guess. I looked at the 15-year performance of mid-caps versus slice and dice. And any combination, mid-caps beat them.

So, what I was trying to say is that you’ve got the small-cap mania, and you got Large-Caps can get overvalued because they get run up. Mid-caps are kind of the nice blend between the two. But I didn’t want to tell people to invest that way even though I was doing it, but I wanted to put the information out there.

Mel Lindauer: So just every time it came up, people started saying, “You’re forgetting about Mel’s Unloved Mid-Caps,” or “You ought to talk about Mel’s Unloved Mid-Caps or you’ve got to look up, do a search on Mel’s Unloved Mid-Cap.” So that’s what they’re known as now.

Joel Dickson: No, that’s terrific. Now, of course, that’s the beauty sometimes of taking a total market approach. You’ve got those unloved mid-caps in there with everything else, right?

Mel Lindauer: Exactly, exactly. Yes.

Joel Dickson: You don’t have to make that call.

Mel Lindauer: Yes. And I think it’s great that it’s the standby fund for a lot of plans now, that it’s the default in a lot of retirement plans. It’s the default selection. And I like that. I think it’s great for people who are just starting out.

Joel Dickson: Yes. You know, Mel, I really appreciate you being able to spend some time with us, as you do this year after year and coming back to Vanguard, and I assume it doesn’t get old. You keep coming back.

Mel Lindauer: We call it visiting our money.

Joel Dickson: I love that! That may be the title of this podcast, “Visiting our Money”. Mel, appreciate you coming by. Thank you very much for joining us today.

Mel Lindauer: Well, thanks for having me. It’s been a pleasure.

Maria Bruno: Joel, that was really good. Sorry I missed it. A lot of really good takeaways there. The one thing that was kind of fun for me listening to you and Mel was this, your younger self. What would tell your younger self? What would you?

Joel Dickson: Oh, about finances?

Maria Bruno: Yes, yes, yes. It’s an investing podcast.

Joel Dickson: Oh, okay, because there’s lots of things that I’d love to go and flog my younger self for but—

Maria Bruno: Just focus on investing.

Joel Dickson: Focus on investing, yes.

I, actually, looking back, had really good retirement plan options during my working career, and having studied a lot of these topics in school, I kind of got the saving early on, and so that one wasn’t too much of a problem.

Maria Bruno: So you were a geek from an early age, okay. All right.

Joel Dickson: Yes, I was a geek from an early age.

Maria Bruno: Okay. I’m glad we cleared that up.

Joel Dickson: I would say that one thing I would have done differently is probably think a little bit more about just what I’m trying to accomplish, kind of what’s the goal and what’s the best way to do it. That focus on control what you can. Because, early on, there were times where I’d be like, “Oh well, I don’t know that the market is so attractive right now,” or do a little bit of market timing or hedging or, you know.

Maria Bruno: Did you do that at a younger age?

Joel Dickson: A little bit on the margin. I mean, I still had sort of the corpus of it but—

Maria Bruno: Did you have a spreadsheet?

Joel Dickson: No. I do spreadsheets for taxes but not for investment projections. So that’s the one thing I would say to my younger self. How about you, what you tell your younger self?

Maria Bruno: Yes, when I was listening to the interview, I thought about it. Actually, I didn’t do so bad. I was investing in the 401(k). I actually had an IRA as well. You know, the other thing is, is I may not be the typical investor at that age because I got my CFP® certification; I was 27 when I got that, so I started planning pretty early.

Joel Dickson: CFP being a Certified Financial Planner®.

Maria Bruno: Certified Financial Planner certification, yes, and then I became a practitioner. So I just added myself as the Planner in this duo. But I think, foundationally, that really got me on a good start.

Now, could I have made improvements? Yes. And I think it was probably more on the decision making around the investments. I don’t think I really thought about it with a top down approach. I was probably just like, “Oh, this looks like a good fund.” And then I adjusted that pretty quickly as my acumen increased.

You know, the other thing I would say is, yes, while I saved, when I think back, I probably did my fair share of spending and probably spending on crap that I probably didn’t need at the time. But, when we think back, that’s just growing up, right?

Joel Dickson: Yes, exactly, that’s growing up. That’s fun stuff. That’s just the way it is, right?

Maria Bruno: Yes, so I look back, I feel pretty good, yes.

Joel Dickson: But that’s an important point, right, because, I mean, savings is just the other side of spending in many ways.

Maria Bruno: Oh, that’s so profound.

Joel Dickson: Isn’t it? But so many times you hear these recommendations about, well, if you just cut out $5 a week or something like that, you could save this much more for retirement.

Maria Bruno: That’s always the Starbucks; it’s always that if you cut out that latte once a week.

Joel Dickson: Right which, at the end of the day, people aren’t going to do once it’s established. I mean, we can tell them that, it makes sense, but, behaviorally, it just really doesn’t happen. That’s why, when we were talking about it earlier about if you’re saving off the top and have the saving first mentality, now your spending is what’s left after you have saved.

Maria Bruno: Right.

Joel Dickson: And, then, you’re already setting yourself up for potentially better success and approach.

Maria Bruno: Right, completely agree.

Joel Dickson: It’s funny because we see all sorts of behavior with clients and fellow crew members or employees here at Vanguard and so forth. So the spectrum of how people approach this is really fascinating to me.

Maria Bruno: Oh, yes. I’ve got this running joke at work that no one really has an interest in what I do until something happens, whether they have a kid and then they want to come over and talk about 529s or—

Joel Dickson: College savings plans.

Maria Bruno: Right, right, right. Or come over and want to talk about insurance or things like that. So it’s funny but, you know, the reality of it is, is that investing is emotional.

Joel Dickson: Oh yes, very much so.

Maria Bruno: And it changes through life as your family situation changes, your goals change, your financial situation changes. But, at the end of the day, it is emotional.

Joel Dickson: And you mentioned insurance there. I mean, I think in many ways, some of the biggest risks for investing are not the investments themselves. It’s that the idea or your vision of the future doesn’t pan out in some way. And, for example, you’re planning to work until age 65, for example, but maybe in your late 50s you are caring for an aging parent, and so you’re out of the workforce in a different way. Well, now, all of a sudden, those projections, if you will, whether actual projections or in your head, may not be met in the same way, and you’ve exited the workforce earlier. Or, the big risk for many people is disability or health issues of their own personal thing.

So the whole insurance component of the small probability of a catastrophic event, in terms of meeting your retirement sort of goals and needs, I think is another element of this that is extremely important.

Maria Bruno: Yes, I think that’s a really good point.

Joel, so I told the story about my nephew. Any stories that you want to share in terms of—

Joel Dickson: Oh, I was just going to say, we see a lot of different behaviors from folks, and I think it’s funny because I think you and I both got a little bit excited with a new crew member and he’s telling a story, a new employee at Vanguard, is telling this story about when he was working in school and he took his first paycheck and opened a Roth IRA.

Maria Bruno: And we wanted to hire him on the spot.

Joel Dickson: Yes, sort of like, “Let’s hire you right now.” Because he had done his own little modeling and he was like, “Oh, this is the best investment vehicle for me at my age, and taking into consideration what I want to do.” So, anyway, no, we see that.

Joel Dickson: But, at the same time, we see a lot of people that are like, “Oh, it’s so far off, 30, 40 years from now, I have other things.” And we mentioned, talked about it, student loans or just sort of living life, and it’s just that vision of what my future self might need, it’s just not well formed, and you see that. I mean, I have relatives that got to retirement age and have less than $30,000 in wealth outside of sort of monthly Social Security payments. So it is something that that starting early, that discipline of really doing that and saving can really make a big difference.

Maria Bruno: Yes. I think in tying it together, hearing Mel talk about the Bogleheads’ philosophy, and then what we talked about today, I think it really kind of lends itself nicely to focus on the things that you can control as an investor, make yourself a priority, and then I always say, “Be fluid along the way, right?” So it’s okay to adapt that financial plan, but always make sure that your investing goal, whether it’s retirement or whether it’s a combination of retirement and paying down debt and things like that, that you think through that and make sure that you have the saving priorities.

Joel Dickson: Yes. The thing I often will tell people when they ask for something concrete and specific along these lines, is that savings and investing isn’t necessarily that difficult. Yes, it’s complicated, there are lots of choices, there are lots of different rules and approaches, but you can sort of get a large part of the way there if you do kind of three things. If you do something like save off the top, say it’s 10%. Save 10% off the top, maximize use of tax-advantaged accounts, like 401(k)s, IRAs, and within those accounts invest in all in one low-cost, broadly diversified funds based on your risk horizon, your risk tolerance and your time horizon. You do those three things, yes, there’s a lot of other things that you can do and, as you mentioned, as life changes, you might want to, need to consult with a financial advisor and think about what are the goals and how do I best achieve that? I might have different types of accounts, I might have different needs when kids or other relatives or other goals come into the future. But, just those three simple things at the beginning can get you on the right path.

Maria Bruno: Absolutely, yes. And I think just do it, right, and you will make mistakes along the way, and that’s okay. You learn from that. We heard that from Mel.

Joel Dickson: Yes, exactly.

Maria Bruno: And even through our stories. So, all right, good stuff.

Joel Dickson: Terrific.

Maria Bruno: Well, Joel, I think this was good. We covered a lot of information. Hopefully, our listeners learned a few things through our discussion today and had some fun. So I look forward to the next one.

Joel Dickson: Yes. Well, I want to come back, so at least that surprised me.

Maria Bruno: And I’m a planner, so I’m planning for the next one.

Joel Dickson: There you go. We survived the first one so we’ve got to keep it going now.

 Maria Bruno: We hope you enjoyed this episode of The Planner and the Geek. Just a reminder that you can find more episodes of The Planner and the Geek on iTunes and on

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