Can AI Build A Confident Portfolio?

Our 2 Cents – Episode #254

Can AI Build A Confident Portfolio?

Our 2 Cents is back with you favorite hosts, Steve and Gabriel Lewit! This episode, we’re talking wealthy birth months, an AI portfolio experiment, and whether beating the market is even possible. Don’t miss it.

1. The Wealthiest Birth Months:
   • Find out which months are tied to financial success and whether yours made the cut.
2. Portfolio Powered by AI:
   • Should you turn to AI for investment advice? This reporter put it to the test by letting it manage a stock portfolio—here’s what happened.
3. Beating the Market:
   • Can anyone beat the market? The Lewits unpack the financial mindset behind the question.

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Podcast Transcript

Announcer: You’re listening to Our 2 Cents with the team from SGL Financial, Building Wealth for Life. Steve Lewit is the President of SGL Financial, and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.

Gabriel Lewit: Well, hello, everybody. Welcome to another episode of Our 2 Cents here with Gabriel Lewit and Steve Lewit. We are ready to rock and roll with you here today. We’re excited. Steve’s done his vocal warm-ups. I have. I have. You should have heard him fall lying here or whatever he was doing a little bit earlier just a moment ago.

Steve Lewit: What do you do to wake up your voice? So, I did a little voice waking up stuff. And you were doing rubber buggy baby bumpers? Rubber buggy bumper. And you well you listen, you chimed it with Peter Piper picked a pack of pickle peppers. And I did it a lot faster than you. You can. Yes, I sure did.

Gabriel Lewit: Yeah, you your lips really you can really speak quickly. I’m not quite like a I’m not a rapper or anything, but I can do some of those little things like that. You don’t want to know why? I actually used to do those with my kids a lot. So, I have more recent practice than you.

Steve Lewit: Yeah. Oh, well, that’s we all have our skills, sets, and some of us are not notary no. Some of us have not notarization.

Gabriel Lewit: I think you should have done more exercises before the show here. I think my brain needed some. My brain needed some extra. We might as well go into the topics that our listeners are waiting for. Money and finance. Yeah, I think we’ve got some cool stuff lined up for you all today. I’m excited to chat through here with you. Hopefully you’re staying warm in this, at least around us here, cold spring. It’s just been I love this weather. I don’t know. I want summer. I’m ready for summer.

Steve Lewit: I love this weather.

Gabriel Lewit: Well, so last time we had our show, Steve wanted to talk about the wealthiest birth months that have been revealed. We didn’t get a chance to do it, so we’re going to do that here today.

Steve Lewit: This is so important. He’s very excited for this. I’m very excited about this.

Gabriel Lewit: Um, I’m excited for the next topic.

Steve Lewit: And a little depressed.

Gabriel Lewit: I’m excited for the next topic after that, which is you know, everyone’s very familiar with AI. Everybody likes to experiment with AI. I use AI. A lot of people use AI. Yep. A lot of people have been emailing me saying something X, Y, or Z that they found from ChatGPT related to financial advice. Uh oh, be careful. All right. So, uh we’ve got some some interesting research on that uh to share with you and why, yes, you may want to be careful as Steve. Be careful. Be careful. Yep. And then we’re gonna talk about people and the money biases just briefly uh that we talked about last show and how it impacts people who are looking to constantly beat the market with their investments and what does that really mean? And that might take us all the way through to our target time here for the show today. Sounds good.

Steve Lewit: I’m sorry, I just took a sip of my coffee and I got caught in between. But yeah, that’s I love these topics.

Gabriel Lewit: All right, all right. So, let’s get going. Yeah, so let’s talk about these wealthiest birth months. Yeah, what are they revealed?

Steve Lewit: What are they?

Gabriel Lewit: Well, what they one that it isn’t is your birthday month. Let’s start right there. You know, can I I’m gonna tell you a story. So, if you’re born in December, that means you apparently will not be wealthy.

Steve Lewit: So, a long time ago, when about 130 years ago, when I was younger, uh, I went to an astrologist. Mm-hmm. You know, and I got my chart read, and and the chart said, Steve, she said she looks at me seriously. She says, Steve, you’re never gonna be you’ll always have plenty of money, but you’re never going to be really, really wealthy. And now this thing comes out and it says, My birth month says I’m not gonna be wealthy.

Gabriel Lewit: Okay, so here’s here’s the lead-in here. It says, have you ever wondered why some people seem to attract money with ease? And some say it’s all about hard work and smart money and management, while others believe wealth is written in the stars. Literally, that’s right, your birth month may play a role in your financial prosperity.

Steve Lewit: Well, there you go. You see, this is factual.

Gabriel Lewit: So astral yes, very factual based with astrologer Rebecca Gorton. Evidence-based. Right? So, yes, astrology, uh if you believe in it, says a lot of people do, man. Says your birth month offers powerful insights into your personal finances. It can denote your personal attributes and abilities. Yep. And each birth month month is unique in the flavor it adds to one’s overall vibe.

Steve Lewit: Okay. I’m gonna tell you another story. You know, another thing that you don’t know about your father. Uh I don’t know if I want to know. So, when I was younger, about 140 years ago, uh, I used to make money reading tarot cards.

Gabriel Lewit: Oh, yeah? Yeah. Oh. Okay. It all makes sense now.

Steve Lewit: And well, tarot cards are like the astrology, you know, the cards and it was so much fun. I mean, and I I actually was pretty good at it. Did you believe it? Well, uh you know there’s stories about everything and all tarot cards. Did you go to tarot school? I actually did go to tarot school. So, I have my decks.

Gabriel Lewit: Is it a new SGL service?

Steve Lewit: I’m going to bring this listen, folks, if you would like your financial tarot cards read Sunday morning. Steve will be Steve will be here for you.

Gabriel Lewit: I’ll be there. Place no bearing on any of the results that come from that.

Steve Lewit: I forgot all about that. But it’s the same thing. You read somebody’s cards, you intuit certain stuff, just like astrology says that the movement of the planets and the magnetic fields all have an effect on us.

Gabriel Lewit: Yes, I believe on your tarot card it’ll say you may or may not make a lot of money today. And it is indeed accurate.

Steve Lewit: I’m going to pull a card tonight and see what it says.

Gabriel Lewit: All right. Well, let’s get to the months for it. I’ll share it with the case. This wasn’t meant to be a super long drawn out topic. Yeah, so you’ve got January says you are goal-oriented and disciplined with a strong focus on resolutions, saving, and long-term financial success.

Steve Lewit: Yeah, beginning of the year. That’s why.

Gabriel Lewit: Yep. May says you are, which is my birth month. Thank you very much. Persistent and grounded combines creativity with determination and values, financial stability to support a comfortable lifestyle.

Steve Lewit: You see, that’s you. I mean, that’s it. It’s really you.

Gabriel Lewit: That does actually, that does fit with me.

Steve Lewit: Yeah, astrology can be amazing because it does kind of tell you who you are.

Gabriel Lewit: Yes. August says your confident, charismatic leaders often rise to prominent, high-paying roles and leverage personality for success. Kate, you’re on your way, man. Producer Katie’s got her birthday in August here. She’s she’s got her bank account open. Put the money in. September says you’re detail-oriented and hardworking, driven by security and fear of scarcity, which pushes strong saving and wealth-building habits. Are you September? Is that accurate? Producer Gabby says it’s accurate. She’s got a September birthday.

Steve Lewit: We should hire an astrologist. Oh my goodness. Okay. October gets an astrologer.

Gabriel Lewit: Last month, October, strategic and intuitive, good at recovering from financial setbacks and rebuilding wealth. So yeah. We have no October birthday.

Steve Lewit: No Octobers here? No. So we’ve that’s a person that fails a lot but picks themselves up and moves forward. Maybe, yeah.

Gabriel Lewit: Says they’re strategic intuitive, which if they were intuitive, they wouldn’t fail a lot.

Steve Lewit: Strategic intuitive. That’s interesting, yeah.

Gabriel Lewit: Well, so let’s recap. January, May, August, September, October says these are the wealthiest birth months. That does not mean, folks, you cannot be wealthy in a different month. But the stars are against you in this example here. Yeah, that’s five out of twelve. So, if you feel like it’s harder than it should be, that’s because the stars or God or whatever you don’t have a wealthy birth.

Steve Lewit: I keep looking for a reason I don’t win the lottery, and now I know.

Gabriel Lewit: There it is. There it is. Okay. Fun facts or semi-facts. The very important or opinions.

Steve Lewit: I hope you folks are writing this down.

Gabriel Lewit: Yeah. Well, let’s switch to something that is a little bit more factual here, uh, which is ChatGPT managing your stock portfolio and some research that was done on this. Uh, how do you think it did? Is the question here, folks. How do you think ChatGPT scored? Not too good. Well, you do know the article here, right? Uh no, I actually didn’t have it.

Steve Lewit: Oh, you didn’t even look at it? I didn’t have it. I read other research, though. There’s some new research out because Anthropic or somebody did a big thing in trading, and uh I was reading that the results weren’t great.

Gabriel Lewit: You caught me mid-drink of coffee as well. We’re even so well, yes. Let me give you the the summary points first that we’re gonna delve into here. And the first is that AI investing tools are improving, but they’re still unreliable for real financial decisions. Okay, here’s our Cliff Note versions. They make errors and often lean towards riskier, more complex strategies like market timing or options. AI tends to be overly agreeable and may reinforce what you hear. We’re gonna talk a little bit about that one, actually. That’s an important one. Right, best use today, research and idea generation, but not acting as a financial advisor or replacing a fiduciary on your behalf. Okay, now the one that I thought was interesting here, AI tending to be overly agreeable and may reinforce what you hear. Well, most people out there are familiar with this concept called your personal algorithm. Okay, I think so. So, if you’re not sure, if you haven’t been on social media, whether it’s Snapchat or Instagram or Facebook or whatever you’re on, even LinkedIn, I think. I think it’s all of them these days, they all track, even Yahoo News, everything tracks what you read, what you watch, what you click, so they can feed you more of that.

Steve Lewit: Big brother is watching you.

Gabriel Lewit: Okay, because they think, okay, if you like this, then if we give you more of this topic that you like, you’ll come back more and we’ll get more views and more ad revenue and blah, blah, blah, blah, blah. Okay, so that’s called your algorithm. Well, it’s interesting because AI, they’ve trained it to try to uh you know, talk to you in a way that you like.

Steve Lewit: You can actually ask it to talk to you in different ways.

Gabriel Lewit: Yeah, but by default, it’s it’s starting it’s trying to get to know you, and like if if I do a lot of queries, queries, I forget that it’s a query. Yeah. Anyways, it knows that I’m a financial advisor querying a lot of financial stuff, and so it starts to try to morph what it’s saying to better fit, you know, knowing me, right? But the problem with that is it can start to be called uh the same problem with um with the uh social media is it’s called echo chamber.

Steve Lewit: Yes.

Gabriel Lewit: Okay, where things just echo back to you what you are already feeding into it, aka your algorithm. So, if you like to search up houses, you’re gonna get lots of houses. If you like to search up guns, you’ll get lots of guns. If you like to search up, you know, X, Y, or Z, it starts to feed you more of what you’re looking because it thinks you’re interested in it, and that can start to skew the data that you see in the worldview that you get.

Steve Lewit: Got to be very careful. So, I use uh ChatGPT a lot as uh just part of the beginning of research, like where should I go here and say here and here. But sometimes I’ll use it like I’m fine. I’m writing and I have a trouble with uh how to express something, I’ll I’ll put it in chat and say, how would you say this? And then it’ll tell me how it says it, and I’ll say, well, you know, I was thinking maybe it should be the other way, and then Chad will say, Yeah, I agree with you. I think it should be the other way too. And then I’ll say, you know, but maybe we should look at it this way. And Chad will say, you know, you have a thought there, you know, maybe we should look at it that way. So overly agreeable? Overly agreeable. It never says, nah, that’s a bad idea.

Gabriel Lewit: Yeah, I mean, well, that’s a whole other world when it really starts talking to you with its own personality and that doesn’t care what your per personality is, right? That’s uh that’s going down some deep rabbit hole that I don’t think the world’s ready for, right?

Steve Lewit: But so, I gotta tell this story. So Gabriel and I are talking about ChatGPT, and I had put in a query about something, and I said, he said it’s this, and Gabriel said, please do not call it a he.

Gabriel Lewit: Yes, and it. Yeah, please don’t start. Yeah, if you haven’t seen the movie Her with uh Joaquin Phoenix way back when he develops a romance with an AI chat companion who is Scarlett Johansson, I think. Uh the voice at least. Anyways, yeah, you know, I was I told Steve, please don’t start calling it he or she or give it a name. So, uh but yeah, well, anyways, if you if you’ve already started doing that, I don’t think so be nothing.

Steve Lewit: I think chat is terrific. Uh I think these are resources, but they’re not accurate. Okay.

Gabriel Lewit: So, let’s get into the the study here, right? So this was a research article by a Wall Street journalist here uh who said over the past few months I’ve asked ChatGPT to act as my financial advisor, and he experienced uh the experience he has holds some key lessons for everyday investors whom about apparently 30% of people are already using AI to help manage their portfolios. Now, I don’t have the study in front of me, I’m gonna try to find it for next time to reference, but there is a study talking about how AI traders, right? Stock traders are substantially underperforming real life traders. Not that you should be a stock trader anyways, but you know, the point is there’s there’s risks here, right, in trying to use AI for everything. It’s just not quite ready yet. So, the researcher here consulted with Andrew Lowe, who’s a professor of finance at MIT, and he’s been studying AI’s impact on investing. So, a lot of cool info coming out of this here. Now, first uh is the guy from MIT said, treat your AI investing companion similar to how he once treated an exceptional teaching assistant. I just thought this was funny. Okay. Apparently, the teacher assistant was whip smart, but there was one issue. He tended to smoke too much weed. Okay. And as a result, the this MIT professor took everything that his TA said with a bit of a grain of salt. Okay. And he says, that’s what you should do with AI. This was his example, okay, not mine that I came up with, right? So, uh a AI open AI spokesperson said that ChatGPT can be a helpful tool for exploring options, preparing questions, and making topics easier to understand, but it is not a substitute for licensed financial professionals. End quote on that one. Okay. Uh so guys, I think this is really important. And so here are some actual feedback from uh examples of advice that ChatGPT has provided. And these are edited and condensed a little bit here. Uh so uh one time a prompt was asking ChatGPT what what they should hope to accomplish as an investor. Okay, and it was a made-up uh scenario that they had one million dollars to put to work. They asked the ChatGPT to be a fiduciary and to tell the uh the researcher here what he should do as an investor. Okay. Um and here’s what it said, okay. It recommended a broader, more diversified fund such as the Vanguard Total Stock Market Index ETF, and he said that it that would be better than the popular Invesco QQQ trust and to uh avoid using muni bonds was the advice it gave. But it didn’t know anything about the when it spit this out, it didn’t know or ask anything else about the about the client. So, the hypothetical client.

Steve Lewit: Yeah, and addressed that field.

Gabriel Lewit: Yeah. Yeah. Now was that bad advice? Yeah. It was very generic.

Steve Lewit: It’s not bad or good. All right, I don’t know where it’s a good idea. It’s hard to know, right?

Gabriel Lewit: I mean, unless because what was it missing that a normal advisor would do an overall financial plan first? What’s your goal to help position it? What was your goal? What’s your time horizon? What’s your risk? Do you need income?

Steve Lewit: Are you a risk taker? Are you conservative?

Gabriel Lewit: Okay, so that that one was interesting, right? Another thing is the researcher found that it made some simple arithmetic errors early on, keeping more of the portfolio in cash. So, you can say, give me a portfolio breakdown, it’ll spit out percentages for you. Um, right, and those those can have big implications.

Steve Lewit: And if you point that out to chat, if you say, hey, why you know you’re keeping a lot of stuff in cash here, chat will say, Oh, thank you. That’s a good point. Thank you for pointing that out. Yes, you are correct. Yeah. We should change that.

Gabriel Lewit: Yeah, exactly. And uh, when the war with Iran started, uh, the researcher prompt uh prompted ChatGPT here, because of course the markets had tanked briefly, and uh they did rebound, of course, after that. And he asked the ChatGPT prompt what to do to navigate the war, and it recommended trimming some of his international stocks and adding a quote unquote hedge sleeve. Okay, so if you’re in the middle of a market downturn and you query this, it’ll say add trim international and add a hedge sleeve. Yeah. Is that good advice? Uh no. I mean that’s outright bad advice. While the market was already down, the hedge now, yeah, right, with whatever a hedge sleeve is, which we’ll get to. All right, and trim international. You know, that’s not a uh well, we’re gonna get into one of the downsides here, which is ChatGPT tends to give a lot of active stock trading type advice, right? Which is considered very speculative, very risky.

Steve Lewit: Because the question that you’re asking it is what should I do now? So, it goes into due to it means I gotta take an action.

Gabriel Lewit: Yeah, it’s saying use options and hedges sparingly if downside protection is affordable. What does that mean? Okay.

Steve Lewit: Thank you.

Gabriel Lewit: Yeah. Um so when uh when there was last previous fall, when there was a trade war, or last year when there was a trade war, ChatGPT said that uh he should make shifts to the portfolio such as potentially adding bonds or once again options.

Steve Lewit: Yeah, so so this is like meaningless uh this is like calling the California psychic hotline.

Gabriel Lewit: And also said to buy defense stocks like Lockheed Martin that it thought might outperform, and since that mid-October advice, it’s lagged the SP’s gain. Yeah. Right? The Lockheed Martin position. Okay. But that’s also called market timing, right? Hey, something’s down, go buy Lockheed Martin. Like how how does ChatGPT know that? And why why would we just car blanch believe it?

Steve Lewit: Well, ChatGPT doesn’t know anything. What is it? What does it do? It goes into this billions and billions and billions of bytes of data, and it kind of tries to find the things that are relevant, and it just pulls arbitrarily out what it thinks is relevant.

Gabriel Lewit: Yeah.

Steve Lewit: I mean, that’s understand how it works. It doesn’t know anything.

Gabriel Lewit: Yeah. So, uh he asks, you know, you can ask it stuff about uh things you’re interested in, like the researcher asked it about leverage ETFs. It did warn that the products were dangerous. That’s good.

Steve Lewit: You see, that would that chat does well. It’ll it’ll give you an overview of a specific product, and it does a pretty good job on that.

Gabriel Lewit: Yeah. And and so, you he apparently he pressed ChatGPT, who then said uh monitor the path of bond yields and stocks after an upcoming jobs report to decide whether to buy the dip or fade the move around the report.

Steve Lewit: Yeah. Yeah, there you there you go. Market timing at its worst.

Gabriel Lewit: Yeah, and and so this other researcher here at the University of Florida said, again, models can just be very sycophantic, right? Um although you can apparently give it you can prompt ChatGPT to give you a candid setting where it doesn’t tweak itself to your preferences.

Steve Lewit: For for us folks that uh aren’t as verbally aware as you, sycophantic means what?

Gabriel Lewit: Um I believe it’s when you what is the exact I’m not gonna be able to I know exactly what this is, I just don’t know how to phrase it the right way. When you kind of suck up to somebody. Excessively fawning, ingratiating, or insincere. Yeah. Typically used to gain favor or advantage. So, ChatGPT wants you to like him or her it. Yep. Right? Okay. So, what was interesting about this is this thing ready for prime time financial? That’s the question here, folks.

Steve Lewit: Not today, but I will tell you something, Gabriel. In in ten years, I I think the world is differently different because of AI.

Gabriel Lewit: It definitely will be different. It definitely will have its uses, but it’s certainly, folks, I guess the takeaway from my side is, and I’m not saying this just to be self-serving here, but don’t use it to replace your financial advisor just yet. If you want to get a couple of ideas that you can then delve deeper in and research, it’s good for that. But please don’t just Hey, what stock should I buy and then buy that stock? I mean, it’s not it’s not a good it’s not a good strategy. So, uh I did have one person that I I read online that followed its advice and so and it came out ahead, and they were using that to say, see how great it is. Well, you can always cherry pick examples, like you could find anybody that throws some darts and picks the right trades. It’s like in the the you know, the final four brackets, right, during men’s basketball. So, one guy randomly picks a bunch and out of ten million people he wins. Do you think he really knew? He knew, right? The universe the universe told him. I don’t think so a little bit though.

Steve Lewit: But here’s the thing also, you can train chat to think a certain way. For example, like I do a lot of questions with chat on our planning process, uh, and it’s gotten to know it’s really interesting. It’s gotten to know our planning process, and it will tell me things it’ll say, like, well, Steve, in your planning process, this is the way you would normally approach it, and this doesn’t quite fit, or something like that. And it’s really interesting how it gets to know you.

Gabriel Lewit: Yeah, which is also why it can be dangerous because it’s not thinking outside of the box, it’s trying to echo back to you exactly what you put in stuff you’ve already put in.

Steve Lewit: Exactly. Exactly.

Gabriel Lewit: Well, if you have questions on that, if that peaks anything, if you’re looking to speak with a non-AI advisor, of course we are here for you. Uh, you can call us anytime, 847-499-3330 to set up a complimentary time to talk. Uh let’s get to know each other, let’s help you with questions you have, and and really do a plan first, because that’s one thing AI is a real plan. Then we can help you position your your suggestions with that context.

Steve Lewit: I have a friend. Who ditched her therapist and is using Claude as her therapist, and she says he’s great.

Gabriel Lewit: She loves Claude. Interesting. Interesting. Yes. All right. Well, let’s uh let’s to to kind of round out our show today, let’s talk about beating the market.

Steve Lewit: Why does everyone want to beat the market? Well, not everybody does, but this does pop up.

Gabriel Lewit: Yeah, and last last episode we talked about money scripts, you know, mindsets that you have that were generated likely from a young age. And we just as a quick review had reviewed those as being, let’s see here, uh, hold on, I have it here right in front of me. One second, one second. Just angling for it. Money avoidance, money worship, money status, and money vigilance. Okay, and we won’t rehash what these were. If you’re interested in that episode, it was a I thought it was a very good one. We can head back and listen to that at any point in time. Well, let’s say that your goal is always to beat the market. Yep. And let’s just unpack that a little bit. What does that really mean? I mean, in very simple terms.

Steve Lewit: In simple terms, it means your portfolio outperforms, let’s say, the SP. Mm-hmm. Yeah.

Gabriel Lewit: Some people think it’s the Dow, some it’s the SP. Yeah, yeah.

Steve Lewit: It’s outperforming some yardstick that you think is really, really important.

Gabriel Lewit: Yeah. Most I’d say are thinking the SP 500. Yes. You know, US large caps. Dow, of course, is a much smaller basket of stocks. Uh the NASDAQ is tech stocks, not really considered the market. So I’d say most people are thinking, can I beat the SP?

Steve Lewit: Can I beat the S P. Okay. We we get that question with the potential clients come in and say, well, how did you do against the S P? Yeah. And I say, well, you we’ll tell you what we say in a second.

Gabriel Lewit: Yeah, and so you know, one of the things that’s interesting is when let’s see, let me phrase it this way. When you get to retirement, right, you’ve been for probably thirty years in a phase of your life that we call the accumulation phase. Well more. Okay. Which is when you’re trying to grow your money as aggressively as possible for the goal of retiring at some longer-term time horizon. And you’re getting a paycheck every yeah. And you’re getting paycheck and you have money coming in. So generally speaking, you can afford to take more risk. The goal there generally should be keeping up with the market or beating in the market. We’re actually going to talk about how beating the market itself is very difficult to do, okay, and why that’s the case. But also when you shift into retirement mode, this is what we call the deaccumulation side of the fence, where you’re typically shifting focus from heavy accumulation to income, income distribution, income generation, and also you have a much shorter time horizon than when you were 30, right? For for life expectancy or longevity, or before you went you might need the money. So general consensus is you should be a little bit more conservative when you get to retirement. A lot of people have a struggle reconciling this. They don’t they want to get more conservative because they recognize the risks, but what do they still want to do?

Steve Lewit: How can I beat the SP taking less risk, Gabriel?

Gabriel Lewit: Yes, yes. I’d like less, a lot less risk. I’m comfortable losing maybe 15%, but I’d like to beat the SP for returns.

Steve Lewit: I often ask people, Gabriel, I said, look, you’ve got plenty of money. You’re never going to run out of money. You’re in great shape. You won the game. You won the retirement game, and yet you’re still you’re in the locker room celebrating your victory, and yet you walk back on the field to play the game again. Yeah, beating the market.

Gabriel Lewit: The example I give often there is you’re up, you’re in the fourth quarter of a football game, 50 to 10. 10, okay. Right, and you’re still chucking Hail Marys, which you can risk getting intercepted, right? And if you’re really unclear, because there have been some real big comebacks in football. I think there was a couple for the Bears last season, right, where they were down like 30 points in the fourth quarter, and they somehow came back and win, which in this case, if you were up, that means you lost when you were way far ahead. Usually because you made mistakes, played you know loosely, you know, not cautiously, right? And you gave up the big lead. And so, the goal of retirement planning, number one, is to build a plan. We always emphasize that. The plan might show that you could be wildly successful with returns that are less even than the market. And so, it’s about number one, reframing this question do you even need to beat the market anymore? Is that your goal?

Steve Lewit: And and if you beat the market, where does that money go? I mean, what what use is that money? Because most people can’t spend all the money they have to begin with. Yeah, I mean that’s exactly if they’ve done a good job of saving and and we’ve shown people how they can spend twice as much as they’re spending now, and they say, no, no, I don’t want to do that. I’m really comfortable with what I’m spending. So why do you want to beat the market? I don’t know. It’s just going to your kids.

Gabriel Lewit: Well, I think that’s where these money scripts come in, right? Especially if one of your mindsets is money worship.

Steve Lewit: Yep.

Gabriel Lewit: Okay, where it’s an ego thing, it makes you feel good, you feel like you’ve got to to talk to your friends, you know. Um, you may not even know that that’s driving you, right? But the downside with taking so much focus on beating the market is that also means you’re going to be in a very aggressive portfolio. Because to tie back into what we were talking about earlier, you can’t if you could just beat the market with half the risk, I mean, everybody would just be lined up around a hundred blocks to get into that investment option. You bet. Right? So, we always talk about two sides of the coin for investments, risk and return. So, if you want something that has really high return, you’re gonna have higher levels of risk.

Steve Lewit: This is so simple. This is really so simple. People somehow do not get that. They think you can have more returns at lower risk. Yes. Well, sometimes you can. That’s more about efficiency, though. But generally, if you aim for higher returns, you’ve got to take more risk.

Gabriel Lewit: Yeah, if you want half the ret half the risk of the S P 500. In other words, you don’t want a portfolio that can drop 40%. You want a portfolio that can drop 20%.

Steve Lewit: Well, yeah.

Gabriel Lewit: You’ve got to change your expectations for return lower than the market.

Steve Lewit: Look, I have people come in and say, I’m getting 8% on bonds. I say, okay, well, you’re buying junk bonds. They say, what do you mean I’m buying junk bonds? Well, you’re taking a lot of risk to get that 8%. And they say, “Well, it’s a bond. Yeah. Well, not all bonds are the same.

Gabriel Lewit: Yeah, some bonds are very volatile. Exactly. Right? The ones that pay, you know, junk bonds, high, high, uh, high yielding bonds tend to be lower graded, a lot of risk, default risk. You know, we we could get more into that. But but yeah, I think that’s the main takeaway here, right? If you want to beat the market, there is ways, there are ways of doing that.

Steve Lewit: But yeah, but ask yourself why. Why am I so dead set on beating the market?

Gabriel Lewit: The other thing I would say, yes, it’s a great question to ask, is make sure you’re not doing it with money that you would need to cover your retirement lifestyle. So, we we call it a two-bucket approach, very simply put, where we carve out the money we know you’re going to need for income. That becomes safe and predictable, and you have a different benchmark for that. Right? Your benchmark might be beating bonds, right, with better safety. Uh right, you’re no longer beating the market, right? And so, bonds have average, you know, three to a half, three percent, four percent, depending on the exact time range. Can you do better than that with better safety? The quick answer is yes, that’s not the goal of the show, right? But you know, then you can separate out the money that you’ll never need for income, and if you feel like still trying to beat the market with it, we could come up with you or on your own, right? Very aggressive portfolio models. Absolutely. And at least we’ve separated that out, so it doesn’t have the risk of uh upsetting your entire retirement plan.

Steve Lewit: It’s like playing with house money. You go into this casino, you use this a lot, Gabriel. You know, you’re winning, you’re winning, you’re winning. Take your winnings off the table, invest that conservatively, and play with the house money. Yeah, you take as much risk as you want. Exactly.

Gabriel Lewit: And uh, whether that has to do with your money scripts or money beliefs or just it’s smart planning, uh, it’s a combination of both. You know, we can look at how you feel about money, what what’s the skull for you, you know, adjust it if needed. But if you want to stay ultra-aggressive, let’s make sure it fits well within your plan. Yes. And uh now, for one minute, how do you beat the market? Well, there’s not a lot of ways. The market tends to do very well, but there are different asset classes right out of the gate that over a long enough time frame tend to beat the S&P 500. So, tech stocks, right? A tech fund. Um, we’re not gonna get into specifics here. Some of these on their own can beat the market, but what do they have? Concentration risk and much higher risk. Much higher risk. Right. So again, that’s that risk return trade-off. We don’t tech we don’t recommend trying to time the market. Active trading, daily trading, market timing. You know, this stuff has as much of a chance of backfiring on you as it does succeeding. And actually, the research shows that most people that do active market timing, trying to beat the market, what do they do?

Steve Lewit: Lose.

Gabriel Lewit: They substantially underperform the market. Because it’s very hard to be an active market trader.

Steve Lewit: And it’s not only timing. Uh, Gabriel, we see a lot of portfolios that are self-designed and they’re all U.S. oriented because that’s where the technology is. And you know, the U.S. isn’t the only productive country or stock in the world. 50 uh, what is it, 48% of the stocks are international. So international before the war was actually outperforming the U.S. And a lot of people missed that because they were dominant in U.S. So, there are theories, folks, evidence-based theories on investing, uh, one of them called modern portfolio theory, which was Nobel Prize winning research in 1965, which have proven over the years there are principles of investing that can be productive and and up your probability of winning in market. None of those are based on market timing. Typically not. Typically, yeah.

Gabriel Lewit: Well, we hope this was interesting. Maybe you picked up something or two about ChatGPT beating the market. Do you need to beat it? Planning.

Steve Lewit: I’m I’m still upset in the month I was born.

Gabriel Lewit: And of course, if we can help you with any and all questions you might have, give us a call anytime.

Steve Lewit: December is a great month. I I don’t know why. It’s amazing. Us December’s don’t you worry.

unknown: Yeah.

Gabriel Lewit: Call us anytime, 847-499-3330. Email us info at sglfinancial.com or go to our website, sglfinancial.com. Click contact us on the website.

Steve Lewit: Why would they do that to me?

Gabriel Lewit: All right, we get it.

Steve Lewit: Man.

Gabriel Lewit: All right. You you good over here? You need to go pout in the corner? I’m gonna go cry. All right. All right, folks. Have a wonderful rest of your day. And we will catch you on the next show. Stay well, everybody. Bye-bye. Bye now.

Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847) 499-3330, or visit us on the web at sglfinancial.com, and be sure to subscribe to join us on next week’s episode.

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