SPP: First I was hoping you could tell us a little bit just about your background. How you came to be the Founder of your own successful financial services firm.
Dan Goldie: Well I started in financial services after I retired from the Professional Tennis Tour. So I went to Stanford University as an undergraduate and received an Economics Degree. I was the NCAA Tennis Champion back in 1986. So I turned pro after that after graduation and played professional tennis for five and a half years, got injured in the middle of that period and ultimately retired in ’91.
I had interned with a financial planning firm in college and I’d always found how markets worked to be just fascinating. I really wanted to get back into finance in some way. So in ’91 I interviewed around and ended up basically becoming an independent advisor at that time. Then I did find my own firm until 2009 but I was an independent advisor all the way through to the last 20 years.
SPP: Okay that sounds great. Actually we did see that. You had a pretty successful tennis career. I think Jon wanted to ask you a little bit about that.
SPP: Yeah I had a question. When researching you I saw you were the 1986 you won the Singles Title while at Stanford.
Dan Goldie: That’s right.
SPP: Then you were ranked as high as Number 27. I was going to ask what made you leave tennis and decide to get into financial services, but I guess you said you had an injury. I mean was it completely career ending or was it something that you worked through?
Dan Goldie: It was basically career ending. I developed stress factors on both of my shins and it just didn’t seem to go away. I could play through it but I couldn’t really practice a lot. It happened right after I reached the Quarter Finals of Wimbledon in 1989 and that was sort of in the middle of my tennis career. So for the last two years of my tennis career my ranking declined because I couldn’t practice much and my movement was hampered and I just finally got frustrated and said “Okay enough move on.”
SPP: I mean I know a lot of athletes who have reached the level of that height say that that kind of helped them out in their future in terms of their business career. Do you think you’ve learned some things while competing that have helped you along the way?
Dan Goldie: Oh absolutely. I mean it takes a lot of dedication and tunnel vision and hard work to reach the top levels of any sport. So the lessons that you learn achieving that can be applied to any endeavor. So I think a former athlete who’s well educated and motivated to do well in another pursuit is perfectly suited to do well in something else.
SPP: I agree. We were just interested both kind of athletes at heart. So sorry that might have been a little off topic but we’re interested in that. I guess I wanted to get into talking about the book that you wrote called “The Investment Answer” and I know you coauthored that with Gordon Murray. It’s actually a bitter sweet story of how the book was finally created. Would you mind telling our listeners a little bit about how it came to be?
Dan Goldie: Sure. I initially met Gordon in 2002 when he hired me to be his family’s financial advisor, and that was about a year after he had retired from a 25 year Wall Street career where he was a very successful manager and trader and salesperson of fixed income securities, bonds. So we became friends over a number of years as I was working with him and we both really shared a lot of common interest.
He was a former athlete as well like in high school and became very close. He really became excited about the investment approach that I was using, which is basically what is written in that book. He had wanted over a number of years to put these ideas into a book because he felt that the playing field was not leveled for individual investors. He felt that Wall Street and the financial services industry in general were taking advantage of individual investors too often and that individuals needed some education to protect themselves and to make smart choices.
So we had talked about doing a book for a number of years but we just never had the impotence to do it until Gordon got sick, and particularly towards the end when he was diagnosed with six months to live. That was when I said to him “Gordon we’ve got to write that book now.” That was when we had that clock ticking for me that was the motivation I needed to make it happen because I knew how much he really wanted that book to become a reality and if I didn’t help him do it, it wasn’t going to get done. So when he was diagnosed with six months that was when we started and I had a finished book in his hands after about three months.
Dan Goldie: So we were really happy. I mean everything just seemed to flow really beautifully, we worked together really well. We had a lot of really excellent editing help and some top finance professors and other professionals in the field who really helped us get the book to be accurate and concise and well written. So it was really an effort that we both are really proud of and it was really an enjoyable experience.
SPP: I must say that I really enjoyed this book. Like I said, I have a finance background, I’ve read a lot of finance books, most of which get a little too wordy or preach a little too much, but you did a good job at hitting the points that I think most people need to be aware of, especially these days. I feel like every time I turn on the TV we’re finding out about inside information that was illegally passed along or a CEO who’s committing fraud. I feel like for the common investor the deck’s stacked against us.
Dan Goldie: Well I think most of us feel that way and that was part of Gordon’s mission was to, as I said earlier, educate investors and that became my mission as well. So the reason we wrote this book the way that we wrote it is so that really any investor can read it, finish it all and understand it. Because all too often as you say a lot of investment books are either too long or too technical or too complicated, and we wanted to make this one different. This one is really for every investor. It’s got some pretty important and potentially sophisticated ideas but we’ve written about it in very simple language. And we did that of course by design because of the reasons I mentioned.
Our hope is that a lot of people who normally would not buy an investment book will actually pick this one up because so many of us need this knowledge and we’re not taught about it in school. We don’t get personal finance education or investment education in school most of us. We have to learn it on our own, which is very difficult because you’ll pick up sound bytes here and learn things bit by bit. There’s also a lot of misguided advice out there. So here’s a guide that you can get read it in an hour or two, and have a real good foundation for understanding how markets work and how to make smart choices as an individual investor.
SPP: I don’t want to give too much away because we want to lead people to the book, but we have had request from numerous listeners to try and get somebody on who can kind of give them a little financial advice. Would you mind kind of giving a few pointers that you might have to our listeners?
Dan Goldie: Sure. Well the first thing is, and Gordon thought this was one of the more important points about investing in general, is that it’s very important for all of us as investors to understand the difference between investing and speculating. All too often what we see people doing with their money is really speculating in one form or another instead of long term investing. So the quick and dirty definitions are in our minds that long term investing, prudent investing is all about taking your money and investing it in a way that will enable you to capture the returns that capital markets deliver over the long run. You want to capture as much of that return as markets make available as you can.
To do that you want to cut your cost down, you want to be very widely diversified and you want to stay with the program, don’t get in and out of markets, don’t try to pick a time when you invest and when you don’t invest. Just put the money in some low cost diversified vehicle, stay invested, rebalance your portfolio and stay the course, but that’s not what most people do. Most people are trying to pick stocks or speculate in one way or another. What studies show is that all of that activity tends to dramatically reduce the returns that investors are getting on their money. I think it leaves a lot of us to just ultimately exiting the markets all together because we have such bad results and we get scared and we feel like we just can’t do this.
SPP: For someone who is just getting into investing do you have a recommendation of investing vehicles? I always hear that Vanguards out there, they’re low cost, you hear about IRAs, Roth IRAs, for those listeners out there that might be just getting into investing what vehicles do you recommend to them?
Dan Goldie: Well if you’re just getting started then you’re really only going to be able to invest on your own because if you don’t have an asset base I think it’s unlikely you’ll be able to find an advisor that would be willing to take you on. You might be able to find an hourly based advisor but more likely you’re going to be investing on your own at least initially.
There are some good vehicles that are available to retail investors and Vanguard is a good option. Fidelity is another good option. Charles Swab another option. Any of the big providers of low cost broadly diversified vehicles, whether they be index funds or exchange traded funds or acid class type investment funds, anything like that in my mind is a great place for an individual to start and build a portfolio by regularly investing, having a broadly diversified portfolio so you have different acid classes in your portfolio, meaning large stocks, small stocks, fixed income, international stocks, a variety of different markets.
Then what you’re basically doing is you’re investing your money so that as capital markets grow over time and deliver returns over the long run you’ll be there to capture them.
SPP: I’ve actually become pretty skeptical of investing, as you mentioned a lot of people have. When I see the incredible government spending, increasing deficit, weakening dollar I start to get worried about the United States economy specifically. Do you recommend an international approach? Are you pushing people more towards international investment? What type of things are you recommending to diversify?
Dan Goldie: Well I’ve always recommended holding a global portfolio for diversification purposes. So I try not to focus on the forecasting element of investing because I feel that that’s where a lot of people get into trouble. Potential outcomes and the forecast that you hear aside it makes sense to invest globally regardless.
A lot of people will recommend maybe of your stock market portfolio you might have 30% or 40% of that money outside of the US and I think that’s perfectly reasonable. Well as long as it’s widely diversified as I’ve earlier stated and invested in low cost vehicles it’s a great way to diversify because you have foreign currencies in that portfolio so you have some inflation hedging going on there, particularly if you combine your equity portfolio with very high quality short maturity bonds that are due in say two years or less, then you’ve got your fixed income which will be very stable and very safe.
The equity portion, the stock market portion can be more volatile, and of course will be volatile. The combination of those two will help reduce the volatility of the whole portfolio. That’s the key to managing risk right there is the decision of how much do you put in stocks versus how much do you put in short term bond. The more you have in stocks of course the higher your expected return in the long run, but the more volatile your portfolio will be and the bigger your down turns will be when markets go down.
Then if you have less in stocks your expected return is lower but of course the portfolio will be more stable and won’t go down as much in the down years. So there’s a risk in return tradeoffs and that’s one of the keys of finance is one of that, basic elements of finances risk and return always go together and that’s a point we make in the book as well.
SPP: Even knowing a little bit about finance one thing I didn’t realize until I spoke with an investment professional was there are things you can use, types of insurance policies and things like that, actually as an investment vehicle. Do you have any recommendations on that aspect? Because I feel like even though people might know about diversification they often don’t know about these other types of ways to kind of invest and diversify.
Dan Goldie: What other types of ways are you referring to when you say insurance products?
SPP: Well I know you can buy different like life insurance policies that you can use actually as a type of investment. I’m not too familiar with them so maybe I’m off base or if you had any ideas.
Dan Goldie: Okay. I really feel that people should separate the financial planning need for insurance and investment. I don’t find a lot of good uses for insurance products as an investment vehicle. The reason is that with insurance products you’re paying pretty high costs because there’s always some insurance cost tacked onto the product itself. So I would rather see investors invest money in low cost index funds outside of an insurance product for their investments needs. If they need life insurance or some other insurance based product just buy that separately.
For example with life insurance, just buy a plain vanilla term insurance policy. That way you’re just paying for the insurance cost only and not all the extra stuff that comes with it. I think a lot of those vehicles are sold for the commission by the agent and may not be in the best interest of the consumer.
SPP: That’s what I was wondering so I guess that was a good way of looking at it. The last kind of financial type question I had for you was, what do you think in terms of investing in like precious metals and things as a way of decreasing risks or gives you something tangible? I mean that’s why gold is at such a high.
Dan Goldie: Yes. I know that that’s been popular lately as stock markets have been very volatile and people are talking about the potential for inflation to come back, precious metals. They have also of course performed well recently some people are attracted to that. We write about this in the book as well and we really feel that these kind of alternative investments really are not necessary to have a good investment experience. You could have some of that in your portfolio and I wouldn’t object to it, but I would recommend keeping it small under 10% of your overall portfolio.
Generally with commodities and things like that usually you hear them recommended as a way to hedge inflation, but most commodities, in particular gold are very volatile. Their prices are very volatile. Inflation changes are very slow. So the volatility of inflation is very low and if you’re hedging something you want the volatility of the vehicle that you’re hedging with to have the same volatility as the thing you’re trying to hedge against. So if you’re going to hedge inflation correctly you want something that has the same amount of volatility as inflation, and that turns out to be short term bonds.
Short term bonds and inflation have about the same amount of volatility and they track each other very closely. So I prefer short term bonds to be the primary inflation hedge in the short run. In the long run of course equities outperform inflation so they’re a great long run inflation hedge. You don’t need the metals or the commodities. I really think that’s more in the realm of speculating not investing.
SPP: As we mentioned you have a book out right now called “The Investment Answer”, which is a great book. Is there anything else you would like to pass along to our listeners or guide them or tell them about?
Dan Goldie: Well for those who are interested in the book it should be available everywhere. If they would like to learn more about it there is a Web site for the book. It’s called www.theinvestmentanswerbook.com and we have up there lots of information about the book, the media coverage we’ve received so people can learn more about it. I appreciate being on your show.
SPP: All right Dan, thank you so much. It’s great talking to you.
Dan Goldie: Thank you.