#72: Post-Covid Predictions and Investing Tips with Peter Mallouk

Hala Taha:

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[00:02:00] at young and profiting podcast today on the show we're chatting with Peter Mallouk, the president and chief investment officer at creative planning, a registered investment advisory firm with over 27 offices
throughout America, creative planning manages over $45 billion in assets and is routinely named by Barron's as the number one independent wealth management firm in America. Mallouk's leadership in the industry has not gone unnoticed either. He's the only person who have ever ranked number one on Barron's top 100 independent financial advisors in America's list for three consecutive years.
For more info on Peter's accomplishments. Head over to creativeplanning.com. Tune into this episode to hear Peter's predictions on how the economy will shake out in a post COVID world. Get his guidance on how you should be investing during the coronavirus and hear his perspective on speculative investments like cryptocurrency.
Hey Peter, welcome to

[00:03:00] young and profiting podcast. I'm so excited to talk to you today.
Peter Mallouk: It's great to talk with you.
Hala Taha: So I want to kick it off, giving my listeners some background about your career journey and how you got to being such a successful financial advisor. So to give everybody some background, you are the president and chief investment officer of the wealth management firm called creative planning.
And you manage over $45 billion in assets and you hold. Accomplishments like being the number one independent financial advisor in Americas on Barron's top 100 list. You can head over to creative planning.com. If you guys are interested to learn more about that. And so you have so many different accomplishments, I could rattle them all off, but I'll do that in your formal intro.
There is no small feat there you've accomplished so much in your life. But based on my research, I found out that you actually started your career as a lawyer. And, you got your JD MBA. And, you started off as a lawyer, but

[00:04:00] now you're in finance. Obviously you're one of the biggest and most successful, independent financial advisors in the world.
So how did you go from like lawyer to who you are today?
Peter Mallouk: I would start by just saying it wasn't intentional. So I think a lot of people that you find that have success in a job or a career or starting a business, it wasn't necessarily the first thing they wanted to do or that they thought about. You always hear about
the teenager and the garage and the best, some stuff we're programmed, but that's really not the norm. And I think my journey was much more typical while I was in college. I was just having a good time and I didn't know, I didn't want to go home. And so I went off and got an MBA and a lot of GRI. And then from there, I had a job for a couple of years and then I wound up being an estate attorney and as an estate attorney, That just means you're doing wills and trusts for people.
If you're over 18, you should have some basic documents, like a healthcare power of attorney that says who will make healthcare decisions for you. If you can't or a financial power of attorney that says who will make financial decisions for you, if you can't. I did stuff like that. And

[00:05:00] financial advisors would hire me to do that for their clients because financial advisors would be managing money doing financial planning.
And this is related to the getting kind of your financial house in order being an adult. So they would bring me in. And I got to see the whole industry for the first time. I never had any relatives that worked in it didn't have any friends that worked in it. Wasn't familiar with it at all. Did not even know what a certified financial planner was or that financial planning was a profession.
And this isn't like me at 18. This is me at 29. So at that point I got to see the profession and I did that for about eight years before I said, there might be a better way to do this. And started to look at how I could build a firm that would be able to do it in a different way.
Hala Taha: Very cool. So for everybody, just to understand what is creative planning exactly. What are the types of things that you do on a day to day as a creative planner?
Peter Mallouk: So if somebody has 50,000 or more, creative planning works with them to build a financial plan. So what that means is looking at your assets and liabilities.
If you have a job, you have a 401k.

[00:06:00] Some people own part or all of a house. Some people have a rental property. Some people have an IRA, or Roth IRA is creating a list of those assets and a list of liabilities, like student loans and a mortgage or car loan, and coming up with the net worth. That's what we would call the starting line and financial planning, and then building out paths to your goals.
So some people, they have young kids and they want to pay for their college are part of it. So running projections to figure out well. How much do you need to save and what's the best place to save it and what are the best investments to buy? And the best time to start planning for retirement is when you just start your career.
And so we're running projections on how much do you have to put away to accomplish your goals? If you're young, you don't have to put away a lot. And so it's building out those goals, like what do you dream to do in the future and creating a deliberate way to get there? That's basically what financial planning is.
Hala Taha: Interesting. Yeah, I think it's very important for everybody to do some sort of financial planning, whether it's on their own or with a professional, especially as you get to like your thirties. And you're really starting to establish

[00:07:00] yourself and make some real money. I think that's super important. So I want to get straight to business.
You have a wealth of knowledge that I want to uncover right now. People are really concerned with the economy, The coronavirus pandemic. Everybody's really worried about job security. If they still have a job, people are unemployed and more than ever, people are really concerned with their financial features.
So I want to know if you have any predictions of the economy. So what would a post COVID world look like to you?
Peter Mallouk: What a post COVID world looks like in terms of how business works and then predicting the market. I would put those are two different things. So I think that one part would be. The post COVID world is just everything that was gonna happen anyway, happening faster.
So everyone's just moving. To more virtual work, faster, more people are using video conferencing faster. All of this stuff was happening anyway, it's just happening faster. People have never got around to using Amazon are now using it. People that were never doing video conferencing are now

[00:08:00] doing it. And it's also forced adaptation of an older generation, that 65 plus that was just never gonna bother.
Now they're all in. And so but in all these recessions. And recession has happened for all kinds of reasons. Is your generations. I think first recessions, if some of your generation might've experienced a little bit of o eight or nine, but what all recessions do is they're basically, cleansings like all these businesses that were gonna go away anyway, they go away faster.
And then all these businesses that were gonna emerge faster. And we're seeing that happen right now. So you'll see more people working remotely, more people doing video conferencing, more people using things online, doing business online. All of that is just moving at a more rapid rate than what otherwise subsequently was gonna take 10 years is gonna be done in 18 months. .
Hala Taha: That makes sense.
Peter Mallouk: And so from an investing standpoint, betting on those is, is a different deal. So if you look at say the market's just, it's gonna go up over time. If you buy your listeners by say the S and P 500, which is 500 of the biggest companies in America and the world, they represent all kinds of

[00:09:00] different industries, whether it's technology or consumer goods and things like that.
If you buy the S and P 500 over time, it's almost certainly not. There's never a guarantee, but almost certainly gonna go up over the long run and there will be winners and losers that rotate in that space. And so today losers are everyone in the travel industry and winner is big tech as people use.
Watch more Netflix and use zoom and use Google more and Facebook more because they're all stuck at home. You're gonna see some of the winners, but the winners and losers, they're constantly rotating for different reasons all the time. If you own that big basket of diversified assets over the long run, it goes up into the right.
It just generally works now.
Hala Taha: So there's something I specifically wanted you to cover. You talk about the V-shape, U shape, an L-shape recovery. And I thought that maybe you could break that down for our listeners, because I think people are really curious to know how experts think that, our economy will shape out in the near future.
Peter Mallouk: So whenever the market tanks, eventually it recovers, right? So

[00:10:00] we've had probably a hundred corrections since the beginning of the market and the correction just a drop of 10% or more happens on average every year. And we have bear markets about every five years, those are drops 20% or more happens all the time.
Like your listeners are gonna have probably 10 to 12 more of these in their lives. So you're getting scared now. Then you just gonna find a way to get used to it, or you're never gonna win with investing, but whenever there's those huge drops, those bear markets, we eventually have a recovery.
And the question is, what does it look like? If you go. Down. And then it just immediately goes up just as fast as it went down, we call that a V-shape recovery. If it goes down and stays down for a while and that the problem gets solved and everything goes back up, we call that a U shape recovery, and sometimes things go down and they stay down for 10 years.
Like the great depression, which is, before most people, but all of your listeners time before my time. Things tanked. They stayed down for years and years before they recovered, this was starting to look like a

[00:11:00] V-shaped recovery. Everything went down very sharply than the federal government came in and gave everybody free money and printed money and did all this stuff to protect the markets.
And then on top of that, it looked like we might have the coronavirus under control. Five and a hundred people weren't gonna die, maybe one in a hundred and that they, there were older people or people with pre-existing conditions. And so young people like your listeners felt safe to go and do their business.
The market felt pretty good about that and started to become like a V-shape recovery. But now that we're seeing they spread again. Now that we're seeing they spread again, the markets are paying a lot more attention and we might wind up. And then I swear, I'll stop with the letters with a w which is where we go back down again, and then come back up later.
If you know where what's gonna happen with coronavirus, what's gonna happen with the markets. No one knows what's gonna happen with coronavirus. That's very unpredictable.
Hala Taha: Okay, so I think best case scenario is either a w or a U shape. And we're no longer seeing a V shape. Is that correct?
Peter Mallouk: I think, this has been pretty close to a V. So I think that if people wear masks and we get this thing under control

[00:12:00] again, I think you'll see a pretty healthy recovery. If this mutates into something more dangerous or. It becomes significantly worse than the fall. They don't have any treatments, development like develop.
Like we expect, then it's gonna be very painful.
Hala Taha: Ooh fingers crossed that we get a nice recovery and the economy kind of kicks back. So you mentioned that we're in a bear market, just some education for my listeners, a bull market is when things are going good and the stock prices are going up.
A bear market is when, things are receding and going down a bear market is specifically a drop of 20% or more. So we've been through multiple downturns like this in the past, we had the tech bubble, 9, 11 0 8 0 9. How does coronavirus compared to the previous economic downturns that our country has taken?
Peter Mallouk: So in some ways, this shock people, it's not as bad, like nine 11, the market went down about 48%.
And with the tech bubble, it was down in the forties. And with 0 8 0 9 crisis was down 53%. This one, I think we were down about

[00:13:00] 34% and it's recovered a lot of those losses. And part of it is things were so strong coming in. So there was no fundamental breakdown. It was like a snow storm and everyone has to go inside.
So people feel like when the snow storm passes and everyone goes back outside, things will go back to normal. That's not how we felt in 0 8 09 or in previous bear markets. In other ways it's worse. I think psychologically it's much worse because there's no distractions, right? So there's no sports to watch.
There's no concerts to go to plus everybody's home. So trapped at home. Plus it's the first bear market we had when widespread social media and technology. So you can get all the negative news around the clock on TV, around the clock, on your phone. Social media is amplifying, disinformation, misinformation, stress, anxiety.
You don't have to go very far to find it. So here we are with nothing to do. And bad information coming to us as much as possible and to add to all of it, it's life and death, right? It's not so serious health issue. And so I think from a psychological perspective

[00:14:00] is much more traumatizing. But from an actual financial perspective, it's not as bad.
Hala Taha: That's so interesting. It's so true. It's like we're in an echo chamber. Everybody's obsessed with the coronavirus. That's, it's everything that everybody's talking about and it might not actually be as bad as previous economic downturns that we've taken. So I think that's really great insight. So in terms of investing advice
that's why we have you on the show. I know you can't give anything super specific because there's regulations around that. But I know that age is a really big factor when it comes to the type of investments and how you should plan for your financial feature. So for our younger listeners, everybody at young and profiting who listens to young and profiting, we have listeners of all ages
were young at heart. But we do have younger listeners for sure. So if you are, let's say in your twenties, how should you think about investing during the Corona virus? What would your advice be?
Peter Mallouk: Somebody in their twenties has, is the number one thing that any investor wants and that's time,

[00:15:00] nothing drives future wealth as much as time.
So if somebody is even saving a hundred a month, now it's better than a 65 saving a thousand. It is so powerful to have money on your side. If you can earn about 7% on your money doubles every 10 years. So let's just take a 20 year old and they somehow piece together $5,000, right at 30 it's, 10 40 it's 20 at 50 it's 40 at 60 it's, 80, 70 it's 160,000, just that saving that five grand because they had time for it to grow.
You take somebody who. Say 60 and they say 50 grand. It's 70, it's a hundred, it's much, much harder to make it work without time on your side. So young investors have such a huge opportunity. My biggest advice to them is to find some amount, whether it's $5 or a hundred dollars and invest it every single month and also start rooting for the market to do bad.

[00:16:00]
Because you don't want it to go up today. You want it to be higher when you need the money when you're in your sixties or seventies, or if you want to retire in your forties or fifties. So you want the market prices to stay low. You want to be buying every month at low prices, and then you want it to go up later.
The best case scenario for somebody in their twenties is the market stays horrible for 10 years and you're saving for those 10 years. And then it goes up because you're accumulating all these shares at the lower prices. Invest when you're really early invested in a diversified way and don't root for the market to go up.
You want to go up later?
Hala Taha: We're gonna dig into all of that. Don't you guys worry? So how about older listeners? So let's say you're in your fifties, sixties. How should you. Invest during the Corona virus.
Peter Mallouk: So certain principles still apply you any time you can invest in the best time to invest was yesterday.
We don't have yesterday more. So the next best is today. So it gets started. And you have to get started and you have to have a plan. You have to know where you are and what you're trying to do. And then

[00:17:00] by diversified very good investments that are gonna make it through any bear market. And do it deliberately intentionally every single month, keep adding towards that goal.
You have to take some action to make this happen so that a lot of people think it's the trading. That's the action. The action is having a plan in place and investing deliberately. The trading is actually not helpful at all right. You just want to invest in hold in high quality things. You don't have to pay attention to it.
You have to do is pay attention to getting off your ass and getting this thing going today instead of waiting a year from now or two years from now, because you really need all the time you can possibly get right away.
Hala Taha: Yeah, I think that's excellent advice. I want to go into a use case. It's a personal one.
So at the beginning of the coronavirus, I was heavily invested in stocks. So I probably had 70% of my money in stocks. I took a lot of risk and I did really well. I had like over 50% returns on my portfolio and I did it all by myself and right when the

[00:18:00] coronavirus. Started and things started to tank.
My portfolio went to 30% profits and I was like, I'm gonna sell everything. And I sold everything. And so now I'm like sitting on a whole bunch of cash, which you and your own words have said is a disaster. And so I wanted to know your thoughts about holding onto cash during the coronavirus.
Cause I know there's some very smart people like Warren buffet who is reportedly holding onto $137 billion worth of cash right now. And so there are smart people who are holding onto cash. So I wanted your perspective. Why do you think that cash is such a disaster? Could you explain that to our listeners?
Peter Mallouk: So cash was not doing anything for you, it's just sitting there and it's earning nothing. So let's start with the idea that the market will probably be higher later. So if we go back to 0 8 0 9 which was epically horrible. It was the worst market drops as the great depression. The market went down about 53% from top to bottom.
I think it had been around 14,000 or something. And then it went down to 6,700 or so now let's

[00:19:00] just assume you were sitting in cash and you're trying to decide. Wow. Do I get in when it's at the Dow is just an index of stocks in the U S do I get in when it's at 14,000? Do I get it when it's 11,000, Do I get in
when it's 12,000, it seems like a big deal at the time. But it's really not the way to think about things today. The Dow is at 24,000, right? It doesn't matter if you bought, when the Dow was at 14, which was the high at the time, or if you got super lucky and bought when it was at 10,000, who cares? Today
it's a 24,000. The people that got burned or the people that waited and it got away from them, it went to 15, 16, 17, 18. It's too late. Now you want to get your money in the market. Go buy the S and P 500 that's one fund you buy that owes the 500 biggest stocks. And just leave it alone. Don't ever go to cash.
Don't ever trade it just wait 10 years. It will probably work out very well. And that's really what the key to long-term success is just buy as soon as possible. And don't make the mistake of going to cash and waiting. That doesn't mean that you're listening. You could take all that money. You did a great

[00:20:00] job with you can go invest in the S and P 500 a day.
The odds next year, you will have lost money or one in four. You can lose money for year. But you're not touching it next year. We're putting it in a time machine and we're gonna go take it out for you probably 30 or 40 years later. So I am very confident. If you go put all your money in the market today and you open up the time machine 40 or 50 years later, the Dow is gonna be in the hundreds of thousands.
And it won't matter if you bought a doubt 24, 22 or 18 or whatever price it may be is. It's just gonna get time on your side. Get invested. Leave it alone.
Hala Taha: Yeah. So the idea here is that when you're investing in stocks, it's really a long-term play. You're not trying to just like time the market perfectly where you're entering at the perfect time and exiting at the perfect time.
Could you explain to us why that's an unrealistic strategy?
Peter Mallouk: Like it's fun, to have a Robin hood account and trade in it and whatever, that's totally fine. And I'm not against people having fun and speculating and trading, but figure out what you need to scratch that itch. And

[00:21:00] set that aside that money and say, okay, this is the money I'm gonna have fun with.
And just know, sometimes you're gonna do a ton better than us would be 500. And sometimes you're gonna do a ton worse, but over 30 years, the odds are very high. You will do worse. So take your serious money and get it invested because the way you lose is by accidentally being out of the market at the wrong time.
So get your money invested, let it do its thing, and then take your play account, whatever that is, whether it's 5% of your money or 20% of your money. Put it in your Robinhood account and have fun with it, the serious money that should be invested in diversified portfolio for the long run and just don't play with it.
Hala Taha: Got it. That makes sense. And so you're basically saying the risk of being out of the market is greater than the risk of being in it. No, no matter what
Peter Mallouk: That's right. Let's say you go in today in the markets, whatever it's at 24,000 25,000 you think I would know, i t just shows you that you are managing $50 billion.
And I can't tell you exactly where it's at today, but there are a lot of people that probably know exactly where their Hertz stock is today

[00:22:00] that are playing with it on Robin hood. You shouldn't be really paying attention to it day to day. So let's say you invested in the Martin, the Dow's over 25,000.
So let's say that you invest today and it was just the worst advice ever tomorrow. Some horrible thing happens, let's say in North Korea and the market goes down to 10,000 points. It doesn't matter to you because when we opened the time machine, 30 years from now, it will have gone from 24 to 15, up to hundreds of thousands, let it just do its thing.
Now let's say in reverse, you decide after this podcast to stay in cash and they come out with a vaccine for coronavirus, they announced it's gonna be ready in December. The market's gonna go up thousands of points. It may never come back down again. So the problem with being out of the market, Is the market can go up and never give you the opportunity again, if you're in it and it goes down, that's temporary, not a big deal. So that's the difference.
Hala Taha: So everybody paying attention right now, if you're holding on to extra cash, stocks are like half price right

[00:23:00] now. And I heard you say this before, Peter, that everybody likes a sale, but when stocks are on sale, nobody wants to buy them. Why is that? Why don't people like the evidence
is there, everybody knows that you should buy low, sell high. So why do you think that people don't actually go ahead and do what they've heard so often in terms of buying stocks, when they're low
Peter Mallouk: I guess it's human behavior. It just, we're just wired in a way where bad feelings hurt a lot worse than good feelings.
Like seeing, we know that it takes seven compliments to offset an insult, and we know that the average person who looks at Instagram for every extra hour, they look at it, they become more depressed, right? We just have this human behavior where we know we do things that we know aren't in our best interests, because we're driven a lot by investing fear and greed.
We want all upside, but we get really scared when it's down, when it's down and we go, I got to wait for things to calm down when it comes down. It's too late. It's back up against. We can read every book in the world that after the great depression, after nine 11, after the seventies, after eight or nine, after the tech bubble, the market recovered, recovered
but

[00:24:00] every time we go watch this Will Ferrell movie that has the same plot. One time he's a basketball player and one time he's a stepbrother and now he's a year of vision. It's always the same plot. We know how it's gonna start. We know it's gonna have in the middle. We know it's coming to the end, but the story is just a little bit different.
And we get all freaked out about how the story is gonna end. So I think in every crisis, there's a whole huge group of people that panic, and it doesn't matter how long they've been doing it. Fidelity released something saying that their average adult older investor took part or all of their portfolio to cash in March.
So think about you saving your whole life. March was the bottom. It was the worst time you could possibly sell. It's just, it's the same thing over and over again. So you gotta find a way to get your emotions uncheck to really be able to succeed at this.
Hala Taha: Yeah. So talking about emotions, let's say that I didn't get rid of my stocks and let's say I didn't overly invest in stocks in a risky way, and I didn't need that money in the future.
What kind of mental dialogue should I

[00:25:00] have had with myself to talk me out of selling my stocks?
Peter Mallouk: Think one would be, Hey, I bought things that are high quality. I knew this was gonna happen. So I knew there are gonna be corrections. I knew there were gonna be more markets and here we are in one, I knew this was gonna happen.
And that's why I own this diversified group of high quality stocks. And then next, I would say, where you remind yourself, this money's for when I'm retiring is it's not money. I've saved for something for next month. It's not money I've saved for three years from now. This is money I've saved for the long run.
And in the long run, I know what happens here. So remind yourself that you had a plan that you had a goal that you knew this was gonna happen. Where you're going and that'll get help. A little bit and getting you to stay where you're at.
Hala Taha: I love that. So anybody who is holding onto stocks still, you heard Peter's advice.
I would definitely take heed. So you mentioned diversification a bunch of times. I think my listeners are, have a financial literacy that's across the board here. So what is diversification?
Peter Mallouk: Diversification means

[00:26:00] owning a bunch of different things. So for example, when you buy one company, you have what's called company risk.
So if you bought Hertz stock it went bankrupt. So you lost all your money because Hertz didn't do well. Other car rental companies are doing better, but Hertz went bankrupt. That's company risks. Also with investing, you have industry risks so for example, you could have diversified your airline stocks, but they're all in the same industry.
So all of them are in trouble now because no one wants to get on a plane. All of them could probably won't, but all of them could go bankrupt that's industry risk. And then there's market risk, which is you could own a bunch of different stocks in a bunch of different industries. But if you're in the stock market, all of it can go down together.
So when you invest in the market, you always get market risks, but you don't have to take industry risk and company risks. If you buy something like this S and P 500, you now own companies and technology and energy and financials and consumer cyclicals and travel. So sometimes like in a crisis like this technology does well, because everyone has to use it

[00:27:00] traveled as poorly because the circumstances and it works out for you in the long run.
And so being diversified. You don't have to worry about going under losing all your money because one company goes away or one industry goes away.
Hala Taha: Yeah. Okay. I understand that. So a lot of people are interested in what's called speculative investments, like Bitcoin, Ethereum, other cryptocurrencies, gold, silver.
These are all examples. Could you define what a speculative investment is for us and give your opinion in terms of, if it's a smart idea to think about during this economic climate?
Peter Mallouk: So what we would call a traditional investment is one that pays you something, right? So if you and some friends team up and you go buy a duplex and you run it out, You're collecting rent checks, right?
And so you take that rent check, you pay your mortgage, you pay the maintenance, pay the insurance. You have money left, you have money to put in your pocket, like actual money to go do stuff with, if you buy a stock. The stock usually pays you dividends to the company that when you buy McDonald's stock, McDonald's actually selling real stuff to

[00:28:00] real people making real money and they pay some of that out to you.
And you can go do stuff with that money, speculum investments. That's not the case, speculative investments. We are just a hundred percent counting on somebody paying more for that later. And that doesn't mean it won't work. It just means it's speculative. So examples of that would be art, right? You could buy a painting.
And where does counting on somebody else paying more for the painting later, the paintings not gonna pay you while it sits on your wall. It's not gonna pay you all. It sits in the storage. We just really need people to like that painting down the road. And sometimes that works out awesome.
Sometimes it doesn't, maybe one day just everyone stops buying that stuff who knows Bitcoin falls in that cryptocurrencies fall in that because there's no income coming. It doesn't mean it's not gonna work out right now. I think there's over 3000 cryptocurrencies. I think it's pretty safe to say.
99 point something percent of those are going to zero, not down, not gonna suffer a little bit, but to zero. Will there be one or two or seven that

[00:29:00] work out? Maybe? One of those, the Bitcoin, maybe. So if you buy Bitcoin, you're speculating, but it doesn't mean that it's wrong. It just means do it knowing
it's probably not gonna work out. If does mean not gonna work out, but speculative investing is just much more dangerous than investing in things that actually bring money.
Hala Taha: Yeah, I think that makes a lot of sense. I think that when you get into cryptocurrencies, like he said, it's really risky.
So I did like my episodes, number two and three, if you guys are really interested, I went really deep into cryptocurrencies. So you can go check that out, but it's really interesting. It's really cool technology. I think you really need to understand it before you get into it. And I think, like you said, it's very risky.
So you might want to use like money that you're not really worried about that you just want to see if you can get high risk for high reward.
Peter Mallouk: And I can just tell you, because a hundred percent of the time when I talk about this, I get blasted by a ton of people on LinkedIn. And there are a lot of people that disagree with me on that.
There's a lot of people that think it's not

[00:30:00] speculative at all. It's the new standard it's gonna work out. Awesome. I'm not in that camp, but I understand the reasoning of that very passionate group of people.
Hala Taha: Yeah, totally. So I know that you can't give very specific investment advice. Like what exact stocks, we should put our chips on, but would you mind giving us some insight into the asset types or the sectors that you think are underrated right now that we should take advantage of?
Peter Mallouk: I think it's really easy for your crowd. Your crowd should be until they get to $50,000, a hundred percent of their money should go in the S and P 500. You now own 500 of the world's best companies. That's about 80% of the market capitalization. So there's thousands of companies, but those companies are bigger than all the other ones, right?
So like even apple in the S and P 500 is bigger than probably the bottom hundred companies in the S and P 500 is so big to be on the S and P 500. You get company diversified industry diversify. You're tied to the market that tends to work out very well over the long

[00:31:00] run. That's really what anybody with less than 50,000, that doesn't need their money for 10 years or more, I think should be putting their money
in something like that, once you get over 50,000 probably makes sense to talk to somebody and say, okay, what else should I be doing to compliment this? But until then, that's really it take that whatever amount of money you need the trade. Cannabis stocks or herd stock on Robin hood or Bitcoin or whatever it is, or if you just want to trade stocks, apple, Amazon, all that take whatever that money is on this side, but the rest should go in the S and P 500 until you get to that benchmark.
Hala Taha: And can you talk about how the S and P 500 what's the typical rate that it goes up every year. And how does that compare to what you would make putting your money in a savings account or something like that.
Peter Mallouk: So a savings account is like zero. So if you're super lucky, it's barely more than zero. S and P 500
It depends on how far back in history we look. But traditionally it's been around eight to a little over 8% to a little over 10% a year. There's a lot of people think it's gonna be a lot better. Cause

[00:32:00] we're innovating and the demographics are better. And all of those things there's a lot of people will think it will be worse for a variety of reasons as interest rates are low and so on, but that just historically what the ranges then.
You compare that to bonds, which is, two or 3%, you compare it to cash, which is close to 0%. That's a lot of upside, but the trade-off is in a savings account. Never goes down, right? Bonds rarely go down. But stocks, if you own them this year, the odds are one in four. They'll be down. You really need time to take away that risk over three years, most of the time, it's up over 10 years, it's up 98, 99% of the time.
So you need to be in the it's time in the market, not timing the market that makes it work.
Hala Taha: So why would somebody ever invest in a bond? And if you could explain what that is to our listeners versus if they could just always invest in the S and P 500 and make more money on their money.
Peter Mallouk: So with a stock, you own part of a business.
So let's just take a Nike, if I want to own part of Nike, I can go buy part of it. And I literally

[00:33:00] own part of Nike. It's not hypothetical or theoretical. I'm an owner of Nike. So like I own creative planning. I could sell stock to you and you would be an owner in creative planning. We're a private company, but it's still in stock, right?
So instead you can loan money to Nike and Nike has to pay you back. Unless Nike goes bankrupt, you're going to get your money back. So if you loan money to Nike at 3%, every year, you're gonna get your 3%, you know what's gonna happen. And the only thing you have to worry about for the most part is that they go bankrupt.
If you own Nike stock, You've got to worry about a lot of other things how's Adidas doing. How's under armor doing as, are they gonna do something that makes people boycott their brand? Is there something that they could make them go out of business? Cause if they go out of business, you're not gonna get anything, but on top of that, it can go down and just stay down for a long time.
And that's the key difference with the bond is a publicly traded company. You can just not do well. It can stay in business. But not do well for decades. It's a very

[00:34:00] competitive world out there. So you could put your money in a company and have it just suffered for a long time and not go up. So that's why you want to own a group of companies because in general, as a group, some of them will do amazing.
Amazon and apple have done. Some of them will do very poorly like Hertz, which went under let a lot of companies go bankrupt or maybe some movie theaters are gonna go bankrupt, two notes. So but as a group over time, Belton the average seven to 10% and earn you triple what you would earn in the bond.
But the bond, there's no drama. There's very little suspense. When the stock you've got all this stuff that comes with being an owner.
Hala Taha: And how long do you keep a bond for isn't there like a certain like expiration date on them.
Peter Mallouk: So every bond comes with an expiration date, so you can load money to a company or even the government.
You can loan money to. New York city or California, that's called a municipal bond. And if you loan money for one year, let's say you loan money in the federal government. That's called the treasury. If you loan the money for

[00:35:00] one year, it's called a short term fund. If you loan it for 30 years to somebody that's called a long-term bond.
And so every single bond, it has a date when it's over. So if you loan a thousand dollars at 3% every year, you get your 3%. And when it's over, you get your thousand back too. So that's how the bond we call that maturing.
Hala Taha: Very interesting. Okay. This might be a really stupid question, but I'm gonna ask it, how do you like buy a bond?
Cause I know everybody my age, like we're used to, going on E-Trade Robin hood, where do you buy a bond from? Like, how does that work?
Peter Mallouk: If I was advising somebody your age, I would say don't buy bonds. Just buy stocks, diversified for the long run. It's gonna work out most likely much, much better for your listeners.
So stocks, I would not be buying bonds. Bonds are for things for, if you need to take money from your portfolio in the next 10 years, we need to have bonds, right? Because stock market can go down and stay down for a long time. But if you wanna buy bonds the best way for a listener to do it is through a bond fund.
So there are

[00:36:00] what are called exchange, traded funds or mutual fund companies like Vanguard and fidelity, where you can go buy one thing that owns a whole bunch of bonds. So now you have a portfolio of loans rather than loaning money to one company. Just like you might, let's say you have five brothers and sisters.
One of them is probably really likely to pay you back. And one of them probably, you would never expect to get paid back. So if you loan to the, all of them together, it's not gonna kill you. If one of them doesn't work out, that's how a bond fund works out. You allow, it allows you to get diversified in a really simple way, but by recommendation to anybody that's far away from retirement, especially your listeners would be to own stocks.
Hala Taha: Got it. I think that makes sense. And then another civil question, S and P 500, it's like like buying shares in a stock, right? So how do you purchase an S and P 500 index? Stock share. I don't even know what to call it.
Peter Mallouk: I don't think so. First of all, I don't think any of your questions are stupid. And this is probably I do a podcast.
This is one of the best ones I've ever done. You're doing a great job. And I actually thinking about sharing this

[00:37:00] with a lot of people that I think would really benefit from it. So if you want to buy Nike, Google and so on, those are stocks that you can just, it's very easy, right? You're buying one company.
You get it. If you want to buy the S and P 500. There are companies that put together that group of stocks for you. So for example, I'll just give one example. There's a ticker symbol, S P Y S as in Sam, P as in Peter, Y as in, yes, you can go by that, the way you would buy a stock and all of a sudden you own.
The 500 biggest companies in the country all put together in a basket for you. So they have those that are very broadly diversified. S and P 500, which I'm recommending that somebody young getting started. If you wanted to gamble, you could go buy one that specializes in just airlines. For example, there are also exchange traded funds that just take little tiny tiny spaces as well.
Hala Taha: Very cool. I think that's great advice. When I was investing in stocks, I really just picked my own. I made really good choices. I went with like the companies that I really like, like Amazon,

[00:38:00] apple, Facebook, those kinds of companies that I already was like a customer and thought there's no way that these people are gonna go down or go out of business.
So I just put my chips on them. And I did really well, but the S and P 500 is really smart because like you said, it basically averages out the 500 biggest companies in America. And unless you're betting that America's economy is gonna completely tank in the future, you'll be in good shape.
Peter Mallouk: Yeah. And if it does completely tank and the S and P 100 goes to zero, we've got some bigger problems. No, everyone's gonna be worried about their account. That'll be the, they're gonna be worried about other things.
Hala Taha: Cool. So, let's talk about overrated asset types. Everybody's really into real estate people, really like hedge funds.
Could you talk to us about some of the asset types that you think might be a little bit overrated that we might want to stay away from?
Peter Mallouk: I think real estate is a good investment because it's, you're just like a company you're buying a building or a duplex or whatever, apartment whatever, and you're collecting actual rent.
So it's a real asset that pays real income,

[00:39:00] historically. It doesn't do as well as the stock market does, but it's pretty close. And you can buy it publicly traded. So you could buy an exchange shared fund that owns a bunch of real estate, and that's a way to get exposure to real estate. So I like real estate as an asset class.
Good diversifier. I'm just not a fan of things that don't pay income. I'm not a fan of things like cryptocurrencies. I think if you're doing them, you've gotta be doing them for fun or like cannabis startup companies where there's just a ton of risks. Laws and regulations changing. And is there gonna be a Walmart of cannabis that comes in and just destroys everybody?
Try not to get dragged into the most sexy, hot, new thing. And instead just focus on quality companies. Like we're pretty sure that these huge American companies. Like McDonald's and Chipotle and Walmart and Google. They're probably gonna be here down the road. Those are the types of things I'm interested in and investing in.
Hala Taha: Thank you for your advice. So I know that there's a lot of

[00:40:00] talk in terms of financial advisors and the fact that we gotta be careful when we work with these people, because they're actually a lot of the times not working in our best interest. I did find out today that a new regulation came out. It is called the regulation of best interest.
Do you know anything about this new regulation and how it impacts brokers versus financial advisors?
Peter Mallouk: Yeah, so the space is an absolute mess in terms of trying to figure out what advisor has to act in your best interest in which doesn't. And I just to simplify it as best as I can, there's hundreds of thousands of advisors in America.
So all of your listeners know somebody who's doing this right? And so there's 330-380,000 advisors. About 90% are brokers. And about 10% are independent advisors. By law an independent advisor has to act in the best interest of their clients. A broker does not need to do that all the time. So the

[00:41:00] broker can get paid.
What's called revenue sharing. They can recommend an investment and then collect money back from the company. They can maybe sell something on a commission. They can maybe sell something that their company owns, where they maybe charge you a fee, but then they also get a fee in the fund because their company owns the fund.
Those are all the conflicts that come potentially with working with a broker. When you're with an independent advisor, the advisor by law has to act in the client's best interests. That makes it a little bit easier to get at least advice that's in your best interest. So a lot of people look at the broker's role to go while there they manage so much money.
I feel safer there, the independent advisors, they tend to manage smaller amounts of money, maybe 500 million or something like that. Where creative planning is a firm that we manage a lot of money and we're in the independent space. I think we checked both boxes, but there are other firms that do too.
And I'd encourage your listeners that when they get serious about things and they wanna have an advisor to look for somebody as an independent advisor, because just like a doctor doctors by law accountants, by law lawyers by law have to act in their patients and clients' best interest.

[00:42:00] It's not the case with all financial advisors.
So try to get that box checked.
Hala Taha: That's really interesting. I feel like that's something that people like really have no idea about. So definitely pay attention to that. Make sure that the person who is advising you and your money is actually an independent financial advisor and not a broker. I think that's really important and no offense to any brokers out there.
I'm sure you're
Peter Mallouk: Oh believe me, we just offended a lot of them. True. We'll get some messages about that.
Hala Taha: So tell us about your personal investing style. How would you describe that?
Peter Mallouk: So I'm invested at the exact same custodians our clients are. So my money sits at places like Charles Schwab and TD Ameritrade. And then I buy the exact same investments our clients do.
So I, that S and P 500 fund. I recommend it to your listeners. That's a top holding of creative planning and it's my personal top holding. That's where most of my money is invested. And then I invest globally just like our clients do. Baskets of stocks all over the world. And I think that's a big part of it.
And we

[00:43:00] also, for people that are more affluent, we have what are called alternative investments, where you can own things like private equity, private lending, private, real estate. Those are the private version of public things. So there's probably traded stocks, but you could also buy private companies.
Most publicly traded bonds that you and I have talked about, but you could also do private lending where you're loaning money to businesses. You can buy publicly traded real estate, or you can go buy actual properties on your own. So for people that have 5 million or more, a lot of our clients are invested in things like those.
And I'm invested in a lot of those things too alongside of them.
Hala Taha: Those are some big balling moves right there. So let's talk about private equity, just so people understand what that is. I know that public would be buying stocks and things like that, but how would you go about like private equity? I know this is most of us aren't in this wheelhouse yet, but hopefully in the future
Peter Mallouk: And your listeners should not be in that wheelhouse and they should not be even thinking about buying it. I didn't own any alternative investments like that until being in this profession for 10 or 20 years. You have to first, the first of all,

[00:44:00] most people, you can't do it unless you have a net worth of 5 million or more. You can't get into most of these things. So the government has a law called the qualified purchaser rule that you have to be worth a certain amount before they think you can go into these types of things because your money tends to be trapped for a long period of time.
Some of them are available to people that have a million or more, but really the building block is S and P 500 to 50,000 than other public investments. Even in the millions. And then if you wanna get even a little bit further where you're buying things, where your money is trapped for a long time, They have some potential to make your portfolio perform better.
Hala Taha: Interesting. Okay. So that's way longer term. We'll concentrate on the S and P 500, like you mentioned, and also playing around with our stocks. If we try to learn more and have fun there. Great advice. Let's talk about saving money. I heard you on Tim Ferriss' podcast. He's one of my idols. I hope one day to be the female version of Tim Ferris.
Peter Mallouk: I think you're on your way.
Hala Taha: Thank you. So I heard you talking about how you have some clients that they save and save. They don't spend their money. And then you told the

[00:45:00] story about how a guy passed away the day that he retired. And it was a big lesson in terms of you have to, you only live once you also need to spend your money in addition to investing it and saving it.
Could you talk to us about your perspective on saving money and what's too little and too much when it comes to saving your money?
Peter Mallouk: Yeah, I'm actually not one of those PBMs. You'll hear a lot of people say, oh, you forego the coffee and save that money and you should save saves. I'm not a believer in that at all.
We don't know how long God's given us. We don't know how long we're gonna be here. Some of us are gonna die at 20. Some of us are gonna be a hundred and the most of us in between, but we don't know. We don't come with a very clear expiration date. And so you see all these people save, and really deprive themselves a lot.
And then they get to a certain age and they're gone, or their spouses gone, or one of them becomes disabled in a way where they can't continue to travel or do the things they wanted to do. You can't really go, I'm gonna save. And then when I'm 65, I'm gonna start having fun. You have to have fun on the journey.
So just you have to budget

[00:46:00] in enjoying yourself along the way. And so I think it's important to save early because if you save early. You can save a smaller amount and accomplish your goals and then spend the difference. If you save later, you have to go, you know what? I'm not gonna do anything else. Cause I've got to save so much to catch up.
One thing, your generation, your listeners have figured out, I think better than any other generation is that experiences bring more happiness than things. I think that if you look at the boomer generation above me, not all of them, but as a group, they were consumers, they bought a lot of things more than any generation in history.
And I'm in between these generations, they get down to your generation more than any in history is really valuing experiences. Now, part of it is you have the luxury to enjoy experiences because the greatest generation a long time ago started this whole up revolution that made this
made it possible to enjoy experiences, but today your generation can choose between things and experiences and they choose experiences and experiences. We know now from research results in a lot more

[00:47:00] happiness than owning things, which actually create more anxiety because you become responsible for them and all this stuff that goes with it.
So I would encourage your listeners to not save every dollar, either just budget, a little bit to save every month to accomplish your goals. If you have to scratch an itch, set aside a little bit to, you do Robin hood or whatever, trade your stocks, but also budget fund, enjoy in the form of experiences and sometimes things that will make you happy too.
So you can enjoy your life because there's no sense of not enjoying yourself from your twenties to your sixties, because you might not get there. Your spouse might not get there, or you might not get there in a position to really enjoy yourself. So merely, take the time along the way to enjoy the journey. If you're thinking you're not gonna be happy and you get to the top of the mountain going to be happy, that is not how it works.
You have to enjoy the hike. You have to enjoy the path.
Hala Taha: I love that. I think that's excellent advice. Everybody should take heed to what Peter just said. Make sure that, I know that so many of my listeners out there, we're all such hard

[00:48:00] workers. We work so hard. Many of us have multiple jobs side hustles, spend some of your money, have some fun.
I just bought a new BMW and I'm happy about it.
Peter Mallouk: That's probably, that's pretty impressive. And I'm sure a lot of your listeners can't go out and do that today, but it's a great example of making sure you have fun along the way.
Hala Taha: Yeah. Okay. So the last question I ask all my guests is what is your secret to profiting in life?
Peter Mallouk: I would say it's not a money thing. I think that one of the things I've just learned from my family and friends, but also from my clients is really trying to be very intentional about what makes me happy. And then how can I do more of those things and less of everything else. So most of us tend to do what's presented to us, we get up and the world tells us what to do all day long.
And I think that part of how I think I profit from life is I really try to say no, I'm gonna control my day. There's certain things I have to do, but I really pay attention to, I wanna spend as much time with my

[00:49:00] family as possible. I wanna spend time with my best friends, not everybody that I know, but my best friends as, as much as possible.
And I want to have as many wonderful experiences as I possibly can. And so I tend to think a lot about that. And you think about things, then you start to make those things happen. And so I think being very intentional about that, you extract more joy out of life. And I think that's, I think where I profit the most now I would tell your listeners.
It helps to have a job that gives you flexibility and where you can make a good living so that you can start to do some of those things. And I think that, I've been fortunate enough to be in a career that allows for that too.
Hala Taha: That's amazing. It's so true. You really need to prioritize your values.
And like you said you like to be in control of your life. I think that's great. So where can our listeners go to learn more about you and everything that you do?
Peter Mallouk: So you can follow me on Twitter @petermallouk. I'm on LinkedIn. I don't think any of your listeners are on Facebook, but I'm there too, but mainly Twitter and LinkedIn.
I've got a new book coming out that you can, pre-order on

[00:50:00] Amazon called the path. If your listeners want to check that out, there'll be an audio version too. And you can find out more about [email protected].
Hala Taha: And when is that book come out?
Peter Mallouk: October 13th.
Hala Taha: Okay. We'll have to have you come on again so I can talk to you just about that book.
I'd love to do that. All right. Thank you, Peter. Thanks so much. It was such a pleasure to have you.
Peter Mallouk: It was a good time. Thank you.
Hala Taha: Thanks for listening to young and profiting podcast. If you enjoyed this episode, please consider leaving a review on apple podcasts or comment on Youtube sound cloud or your favorite platform. Reviews make all the hard work worth it.
They're the ultimate thank you to me and the YAP team. The other way to support us is by word of mouth. Share this podcast with a friend or family member who may find it valuable. Follow YAP on instagram @youngandprofiting and check us out at youngandprofiting.com. You can find me on Instagram @yapwithhala or LinkedIn, just search for my name Hala Taha. Until next time, this is Hala, signing off.

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