Financial New Year’s Resolutions That Work with Peter Mallouk (CEO of Creative Planning)
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guest-friendly, I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. Money Rehabbers, let's talk about planning for a second because I know you want to hit those big financial goals, whether it's buying a home, funding your dream, investing in your future, or just feeling more confident about your financial picture. You need more than a set-it-and-forget-it approach. You need a creative plan.

And yeah, I mean that literally. Creative Planning is a wealth management firm that is all about turning your big dreams into step-by-step plans and then a reality. I am such a big fan of Creative Planning that I actually joined their team as a financial education advocate. And before you ask, yes, Creative Planning's wealth managers are fiduciaries, which you know from Money Rehab is a must-have for financial planning.

With creative planning, you get a comprehensive strategy for all the big pieces of your life, investing, taxes, estate planning, even retirement. So if you're ready to turn those what ifs into heck yes, I did that, check out creative planning. Go to creativeplanning.com slash Nicole, where you can fill out a form to schedule a free 15 minute conversation with a member of the creative planning team who can talk to you about your needs and financial dreams and then connect you with a wealth manager. Your financial future starts today at creativeplanning.com slash Nicole.

I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Money rehab.

Oh, hey there, money rehabbers. I told you you'd be hearing from me while I'm on maternity leave. So as 2024 comes to a close, I wanted to give you a little jet fuel to help propel your financial goals for 2025. And what you're about to hear is exactly that. Today, you're going to hear a new conversation between me and financial rock star Peter Malouk. Peter is the president and CEO of Creative Planning, an award-winning wealth management and investment advisory firm with over $300 billion, yes, with a B, of assets under management or advisement.

You guys know Peter. He's been on the show before and is truly one of the smartest people I know in the industry. I am such a fan of Peter's and the work that he and his team do that I wanted to combine forces and do even more together to help money rehabbers with their financial goals. So I joined Creative Planning as a financial education advocate, and Peter will be sharing his expertise on money rehab every quarter-ish to answer the questions that matter most to you on your wealth-growing journey.

Today, you're going to hear Peter share the best ways to make your financial resolutions stick and the common mistakes that investors make that you should definitely leave behind in 2024. And if you need help putting together a strategy for your financial goals in 2025, I recommend, of course, Creative Planning. You can set up a 15-minute consultation call at creativeplanning.com slash Nicole. Now, here's Peter. Peter Malouk, welcome back to Money Rehab. Great to be back.

So last time we spoke, I was just creative planning's biggest fan. Now I'm a member of the team. So excited. So thrilled to be working with you.

Everyone here is very excited, Nicole, to have you as part of it. You've been an amazing follow, and so it's great to have you in our ecosystem. Thank you. I'm so happy to be talking to you right now because it's the end of the year. It's the time, as you know, people start making all of their New Year's resolutions. So many people, 61%, make money-related resolutions. But honestly, New Year's resolutions...

often get abandoned. What do you think the secret is to making some of the goals truly actionable? I think that the thing with all New Year's resolutions, especially money ones, is that everyone gets motivated and motivation only gets you so far. Motivation is like just getting the engine started, but it's totally different to keep going. And the real way to win isn't motivation, it's the consistency and persistency. So the things you can do

to put that on your side are to make things automatic because inertia is a pretty powerful force. Netflix knows this, the iPhone knows this, the second that we sign up for something, we're probably gonna stay in it forever. So if you're saying, hey, I'm going to save more going into the new year, instead of saying, okay, going forward, I'm gonna start putting money in my investments, make it automatic. Just do one thing, get motivated enough to have $100 or $1,000, whatever it is, go from your paycheck to,

into an investment account every paycheck. And when it automatically happens, that will give you the consistency to succeed. If you don't automate it, the probability you're going to stick with it is going to be pretty low. Yeah. And I think that sometimes people come up with really lofty goals. Hey, Nicole. Hey, Peter. I just want to be a millionaire this year. And

That's great. Having seven figures in your bank account or your brokerage account, hopefully more your brokerage account, is an amazing big goal. But don't you think sometimes people need to make those bridge goals, mini goals to get to the finish line? You have to reverse engineer it. If the goal is to become a millionaire, then you start to back into how much has to be put away to do that.

If you're younger, it could be a much smaller amount because you have the biggest advantage any investor has, which is time. If let's see that your math says you've got to save $500 a month to get where you want to go. If that's over the next 20 years, you may not have to do 500 a month today, right? It could be a smaller amount today. And as your income grows, make it bigger. So we don't have to start really big. We just have to start now and we have to have it be repeatable. And then we can adjust as time goes on. Yeah. How do you eat a millionaire elephant? No.

One bite at a time.

is the five mistakes every investor makes and how to avoid them. I would love to go through these with listeners so they can leave some of these mistakes back in 2024. The first one you mentioned is market timing. You mentioned time just a second ago and how to break down $500 to get to a million dollars. But market timing is something else. Trying to predict these highs and lows is sometimes a problem that people fall into. Why do you think that is?

I think it's human nature. So market timing, like you said, predicting highs and lows. A lot of people think I don't market time because I don't put my money in the market and then take my money out of the market. Some people do that. I saw people when President Obama was elected, they went to cash their market timing. And there's some people when President Trump got elected the first time they went to cash.

And both of those groups made a huge mistake because over the time the market went up. So money going in and out of the market is the most obvious market timing. It's a disaster. It really hurts returns. But a lot of people go, that's not really me. I don't market time. But what they do is they say, I'm going to wait to see who wins Congress or who's the next president, or is there going to be a war? The war in Ukraine going to expand and then I'll invest. That's market timing. All of those things are falling into that trap. And the problem with market timing is the market has a very big upward bias.

Over time, the market tends to go up, just like the price of a ticket to Disney World or a meal at Chipotle goes up over time. There might be little brief periods of time where the prices come down, but in general, inflation carries things. So the more you're going in and out of the market, the more likely you are to underperform

We know statistically 80, 90% of people that market time lose. So the odds you're going to win with that kind of strategy are very low. Once you've identified the goal you're trying to accomplish, it needs to be automatic regardless of where the market is. Just continue to invest, keep buying every pay period that you can.

Yeah, because just like Chipotle or a ticket to Disney World might be at the all time high when you look at the market and you're like, oh, this is an all time high. I know you buy low and sell high. So we're at a high. But if you zoom out five years from now, then that high might actually be below. And so we don't know where we are. So time in the market is.

as we've said before on the show, is better than timing the market. What do you think people should do to safeguard themselves from themselves and their emotional decisions? I mean, the biggest part's education. So Nicole, what you said is spot on. Sometimes what looks high now might not be high in the future. And the reason that's the case is one in 19 days, the market hits an all-time high. Very frequent. So a lot of people go, oh, I'm nervous about investing now. It's at an all-time high. All-time high is generally the norm.

the market is usually at or near an all-time high. And so the best way to safeguard is education. If you really understand, hey, the market does not go up and down. The market goes up with brief periods, sometimes severe and dramatic, but brief periods of pullbacks. Just like prices in the grocery store go up and down,

They go up just over periods of time. They might come down. Right. So if you can educate yourself on that, then you automate your savings. That's the best combination of protecting yourself against that market timing mistake. The next one you say is active trading. You say newbie investors shouldn't constantly buy and sell stocks to make a quick profit. Why is that a mistake? And can you clarify trading versus investing?

So an investor is basically saying, I'm going to buy things. I'm going to hold them for the long run. And a trader is saying, I'm going to buy Coca-Cola today, but next month I'm going to sell it. And then I'm going to buy Pepsi. Then I'm going to sell it. Then I'm going to buy Nvidia. And so you're constantly moving, buying and selling a variety of stocks. The issue with buying and selling stocks is the overwhelming majority of professionals that buy and sell stocks to try to beat the market, lose to the market.

So if we're talking about, depending on what time period we want to look at, 70 to 95% of professionals losing the market over a 10-year period, the odds that the regular retail investor is going to beat it are probably significantly worse. On top of that, you pay a lot more taxes when you're actively trading. You oftentimes find yourself with pockets of cash that are invested while you're trading. You start to add those things and you lag the market even more. So this is a kind of an exercise in futility.

If you're trying to own a bunch of stocks for the long run, you want to find a basket of stocks and you want to own them for the long run. There's a lot of ways to do that. But this idea that you're going to pick and choose and pick and choose and buy and sell, you're going to create a lot of taxes. You're going to have what we call in the industry cash drag. And even despite those things, you'll probably underperform the market over time. So you spend a lot of time to diminish the probability of doing well.

Yeah, and I think it's an important point to say that when you're doing that, sometimes you're not putting that money to work. So you're missing out on the value, the beautiful, amazing force of compound interest over time. So would you say limit your trading potentially to rebalancing your portfolio or responding to some significant changes in your own personal financial situation? That's right. If your own situation, things come up, obviously we have to place trades to meet your needs if that's the situation. But otherwise, rebalancing or

or moving from bonds to stocks in a down market, those kinds of moves, those are disciplined and we're not market timing. We're not buying and selling individual stocks day to day. We're saying, oh, COVID happened, the market went down 35% and I'm with 70% stock and 30 bond and now my stocks are down. I'm gonna rebalance today to get back to 70, 30. That kind of trading makes a lot of sense.

The next one I found super interesting, too, and so important. It's misunderstanding performance. You see investors chasing these hot investments all the time without understanding underlying risks. You talk about metrics that people should keep an eye out for. Which are the ones that are often misunderstood?

Well, I think a lot of people look at volatility and they confuse that with risk. As one example, they go, oh, a stock market is risky or investing in the S&P 500 is risky because look after 9-11 or the tech bubble or 809 or COVID, it went down 34 to 53%. That's really risky. That's really just volatility. That's things going up and down in price. Risk is really the risk of loss. The market went down, it came back and went on to do highs every single time. There's been over 100 market corrections.

Drops of 10% or more. The average correction is 14%. All 100 plus had the same outcome. The market recovered and went to new highs. It's been dozens of bear markets. A drop of 20% or more. The average one's a 34% drop.

Every single one, same exact outcome, recovery, new highs. So confusing risk and volatility is one of those measures that I don't think is relevant. And I think it scares people away from investing that otherwise would do very well if they just understood, hey, this happens all the time and you get these recoveries. Yeah, we've never not recovered from a single recession or depression in US history. So keep that in mind. Hold on to your wallets. Money Rehab will be right back.

Let's be real. Your financial goals deserve more than just a quick boilerplate plan. That's where Creative Planning comes in. Creative Planning is a wealth management firm that is all about personalized investing strategies designed to tackle your goals, not just one-size-fits-all advice.

Creative planning can help you with your financial dreams, whether it's investing in your future, tax strategies to optimize your wealth, making a dreamy retirement plan, whatever it is creative planning has you covered. I am such a big fan of theirs that I proudly joined their team as a financial education advocate.

So if you're ready to get serious about turning your financial dreams into real actionable steps, give creative planning a try. Go to creativeplanning.com slash Nicole, where you fill out a form and schedule a free 15 minute conversation with a member of the creative planning team who can talk to you about your specific needs and financial dreams and then connect you with a wealth manager. Get started and invest in your future at creativeplanning.com slash Nicole. And now for some more money rehab.

Are there any of the metrics that people should keep an eye out for? I think when I think about metrics, I'm looking at indexes and trying to compare your returns to indexes. For example, if you're a large cap investor,

The S&P 500 is an index of large company US stocks. If you're a small cap investor, the Russell 2000 is an index of small stocks. If you're using a low cost manager, you want to compare them to those indexes. If you're using index based investing, which I love, then you want to make sure you're using an index that has high tracking rate. And so really being able to compare apples to apples is the best way to really measure results as an investor.

The next common mistake you say is behavioral biases. These are investing decisions based on emotion, which sound like an obvious error we would never, ever make, right? We know about panic selling. Don't panic sell. But that's not the only emotional kind of bias we have. Buying into trends that maybe your favorite celebrity has, that's an emotional bias too.

You say a way to avoid this is to write an investment policy statement. I love that. What does that look like and why is that helpful? So the idea is to basically put on a piece of paper, here's where I am, here's what I'm trying to do. And based on what I'm trying to do, here are the things I should own. I should have this much in stocks, this much in bonds and so on. And here's how much I'm going to save and put in these buckets over time. And that marries you to a plan that makes sense for you.

versus reacting to the market. If you start reacting to the market, then we're gonna make the behavioral mistakes. So one of the big ones is recency bias, which is people, all I remember is what happened recently. Like with your sports team, whether you might feel more confident or less confident just based on what you happen to see on TV over the last couple of weeks,

Instead of maybe looking at all of the games and all of the totality of what's happened with investing, we tend to look at what's happening right now and we magnify it. For example, 2024, the market went up most of the time. Investors became very confident and started throwing more money at the market. During COVID, the market went down. People freaked out. They started taking money out. That was a big mistake. We also have confirmation bias where we get married to certain ideas. This is why some of your conservative listeners, Nicole, might

read the Wall Street Journal and watch Fox, and some of your liberal investors might read the New York Times and watch CNN. And we go to this place that reaffirms what we're doing, and we ignore the places that disagree with us. And the investors do that. You own a certain stock, you go look for things that validate why you should own that stock. People tend not to look for things that tell them they're wrong, or they should exit something that they want to keep. And so

Warren Buffett famously said when he buys a stock, he just doesn't look for things on why it will do well, but what could go wrong? And he is really looking for counter opinions. And that's a great way to fight that confirmation bias. And then lastly, another and we cover a lot more of this in the book, but another one that's very powerful is.

is the endowment effect, which is once you own something, you don't want to let it go. This is why when you go to a car dealer, they say, hey, do you want to get in the car and go for a drive? Because now you can see yourself owning the car at the jewelry store. They say, hey, go ahead and put these earrings on or put this necklace on because now it feels like it's yours. That endowment effect kicks in.

And that endowment effect is very powerful. If you own a stock, it takes a lot to get you to want to sell it because you feel very married to it. And so if you can become aware of these biases, it makes it easier to become a disciplined investor and stick to your plan.

Yeah, you fall in love with your investments. You're like, I'm on the team. I want them to do well. And the recency bias is so real. I saw it last weekend with my husband. He's a diehard Commanders fan. And they'd been on a winning streak and they just lost the game to the Eagles. And he was so upset. And I'm like,

Honey, they've lost for years. Did you forget that? And now they've been winning. And he's like, I know, but they just lost this last time. And we forget. We have this sort of amnesia around especially things we love. And then we get into that echo chamber. So I think it's really important to be aware of those biases.

and try to detach yourself from that emotional draw. It's really hard though. I'm sure you've fallen in love with a stock or two. You can't help it. Especially if you bought something that's done well, it becomes very hard to part ways with.

So we're leaving those five things behind in 2024, Peter. Is there anything we should make sure we prioritize for 2025 specifically? You mentioned the election and our biases that potentially we fall into an echo chamber of news. With the recent election, is there anything that we should specifically prioritize or keep in mind for the next year? I think there's so much noise. Politics and social media have really...

put a lot of people on edge and it's starting to impact decision-making. And I personally see it with the thousands of clients that we work with at Creative. I see it impact the thinking of some of these clients. And I would just say,

ignore the noise, stand tall, let the wind blow all around you, make your investing about you and your goals and not who's the president, not who's in Congress, not what someone tweeted yesterday. It should really be about what are you trying to accomplish? What do I need to own to accomplish that? And then just put yourself in a pattern where you do it over and over again, no matter what is happening. And that gives you the absolute highest chance of success.

Yeah, we can't predict the future. If we could, we would be in a different industry, I think. But are there any economic changes that the financial industry you think is going to go through under this new administration and anything we can do to prepare for that now or just...

continue to stay the course. I think so one big thing people talk about is taxes, but really for the last 20 years under Bush and Biden and Trump and Obama, the taxes policy has not changed significantly. Income tax rates have barely moved. Capital gains rates have not moved at all. Really, taxes have not changed a lot. And the changes they talk about making are very much

on the periphery. The other big thing that impacts the economy is interest rates. The president, Congress don't control interest rates. The Federal Reserve does. We have the same Federal Reserve under Trump that we had under Biden.

but we do expect rates to come down a little bit more. And when they do, it tends to be very good for the markets because the cost of companies to borrow, to operate goes down. And so it has them do well. The one thing that's interesting is they've got this committee, Elon and Vivek, that are going to be doing apparently cost cutting across the federal bureaucracy. So there's a good way to look at this and a bad way to look at this. The good way is

That if they really did that, that would lower a lot of the expenses of the federal government. And the single biggest crisis the United States faces is the federal deficit. It's not debatable at all. Doesn't matter if you talk to a liberal economist or a conservative economist. This is the single greatest threat to the future of the United States is the deficit. So cutting federal spending would be positive in that regard.

If they really went really over the top and really terminated a lot of people, that would drive unemployment up a little bit. And that can also start to slow down the economy to lose all of this government spending. To me, this is still noise. And as an investor, there's too many things going on in the world. These are just a couple things that'll be fun to watch and fun to follow to see how they play out, but shouldn't change the way someone looks at their personal plan. Oh my gosh, so fun to watch.

Elon in the White House with the Doge that they're calling it, the Doge Department or something. So fun to watch. And I think people are feeling, though, there's this idea of a vibe session, that we're not in a recession, but somehow it feels that way. And yet the market is up and all these economic indicators, unemployment is low. What do you make of that? How people feel versus...

what the numbers are. I think it's because there's two different groups of people, Nicole. So I think that for the group of people that own stocks and own real estate, or they own stock in a business that they're a partner in, everything's great. There was high inflation and what else inflated? Stocks inflated, the home value inflated, your real estate inflated, your business inflated.

But the overwhelming majority of Americans, they don't have those things, right? They go to work, they get a paycheck and they're making $50,000 a year or whatever the amount may be. And then they've got their expenses and their expenses went up 30, 40, 50% at the grocery store and housing and taxes and everything else.

but their income did not go up as much. So we know that for sure that the income inflation for that group was less than their expenses. They are in a severe recession. So the majority of Americans are going to the grocery store or trying to take a family trip or trying to cover the cost of their car and their property and casualty insurance. Everything is rocketed and their pay has not kept up with it. They are in a recession and the rest are in great times. And that's why we have this vibe session. It's just this

It's two different groups experiencing a very different economy right now. Yeah, it's like it's a tale of two economic stories. And I think the idea of inflation is important to keep in mind that we don't want prices necessarily to go down from where they are here because that would be deflationary. So what should people keep in mind about prices moving forward with the power of inflation? And why do we sometimes need inflation?

The dream scenario is inflation is just under control and we can get wages to rise without the price of all these goods to continue to go up at the same pace. And that would solve the problem. And that's what we're really looking to see happen here. That's what we call the Goldilocks outcome. And very rarely is it not too hot or not too cold. I'm sure there will be a few missteps before the Federal Reserve gets it just right.

Well, Peter, I'm excited to talk about the entire Goldilocks saga as it plays out with you with more of these episodes in 2025 to help listeners accomplish all of their financial goals for the new year and keep the motivation going all year long.

It's always great to be with you, Nicole. Happy New Year. For today's tip, you can take straight to the bank. If you're finally ready to make 2025 the year you make a plan for your financial future, go to creativeplanning.com slash Nicole. That's where you can fill out a form to schedule a free 15-minute conversation with a member of the creative planning team who can talk to you about your needs and financial dreams and connect you with a wealth manager. Take the first step toward the financial future you want at creativeplanning.com slash Nicole.

Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.

Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.

This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Well, with the Name Your Price tool from Progressive, you can find options that fit your budget and potentially lower your bills. Try it at Progressive.com. Progressive Casualty Insurance Company and Affiliates. Price and coverage match limited by state law. Not available in all states.