#195: The Psychology of Wealth: Emotional vs. Rational Investing
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Welcome back to another episode of The Richer Geek Podcast! Today, we’re joined by Jonathan Blau, founder and CEO of Fusion Family Wealth, a Long Island-based, fee-only registered investment advisory firm. Jonathan shares his expertise on behavioral finance and the techniques he uses to help clients make rational, well-informed financial decisions—even under stressful market conditions.
Jonathan breaks down the psychology behind wealth management, explaining why many investors struggle with emotional decisions and how he guides his clients to avoid common pitfalls. He shares powerful insights on the difference between currency and money, a fundamental concept that can reshape how you view wealth and investment.
Whether you're just starting your wealth journey or looking to refine your approach, this episode is packed with actionable advice that can help you navigate financial decisions with confidence.
In this episode, we’re discussing…
The distinction between "currency" and "money" and why it matters for financial planning.
Emotional Investing is Harmful: Emotional responses to market fluctuations can lead to poor decision-making and significant financial losses.
Focus on Long-Term Goals: Prioritize long-term financial goals over short-term market noise.
Diversification is Key: A diversified portfolio can help mitigate risk and improve overall returns.
Professional Advice: Consider consulting with a financial advisor to develop a personalized financial plan.
Educate Yourself: Continuously learn about personal finance and investing to make informed decisions.
Resources from Jonathan
LinkedIn | Fusion Family Wealth
Resources from Mike and Nichole
+ Read the transcript
Mike Stohler
Hey everybody, welcome back to another episode of the Richard geek Podcast. Today we have Jonathan Blau. He's the founder, CEO of Fusion Family Wealth, a Long Island-based company. I have to say it that way. You know, Long Island-based fee only. He's a registered investment advisory firm. His investment philosophy centered on helping shape positive money behavior. We're going to get into the behaviors and things like that. And he's teaching wealthy people to consistently make rational financial decisions, which I think if you can ask, get Washington to do that also, no matter who's there.
Jonathan Blau
Above my pay grade, Mike.
Mike Stohler
There you go. But how are you doing, Jonathan?
Jonathan Blau
Everything's good. Thanks. By the way, I just want to answer by teaching wealthy people how to make rational money decisions when under conditions of uncertainty.
Mike Stohler
Yeah, right. There you go. And it must be orange day. We're both wearing orange.
Jonathan Blau
So, yeah, I got the memo. I got the orange.
Mike Stohler
Orange Tuesday. My God, you guys oversee approximately 1.1 billion in assets under advisement and management.
Jonathan Blau
Actually, since I wrote that now the market appreciation is a new business, we're at about $1.3 billion already.
Mike Stohler
$1.3 billion? That's unbelievable. So let's talk a little bit about how you get to where you're at with the Fusion Family Wealth?
Jonathan Blau
I'd love to share with you and your audience. Again, thanks for having me today as a guest, sir. I started in the business after I graduated with a degree in finance and having worked for firms like Lehman Brothers and Smith Barney as an intern when I was 18 & 19 years old during the summers. I developed an interest in the investment advisory business, but I decided I didn't want to be a salesman, which was what many of the people I was being trained by weren't particularly trained to analyze and advise. They were trained to sell. And I didn't want to be a salesman. I wanted to be a salesman. I think we're all salesmen in one way or another if they're going to succeed in life, but I want to be primarily a salesman. I wanted to learn the technical aspects of what wealthy families had to deal with when planning for their financial future, so estate planning and retirement planning and all those sorts of things, trust planning. So I decided to go back and pursue a master's of science and tax and an MBA in accounting from Fordham University in Manhattan. And then I wanted to work for one of the Big 6 accounting firms today. They call them the Final Four, that used to be there when I started out, it was one time the Big 10. So it's shrinking dramatically. So now they have the Final Four. But I worked for a firm called Arthur Anderson. After graduating from graduate school, they taught me a lot on the technical side. I was in what was called the family wealth planning division, doing everything for wealthy families, from trust planning, retirement planning and everything in between, tax planning in general. And then I went and joined a firm called Sanford C.Bernstein and Company, which now is owned by AllianceBernstein. It's called The Alliance bought them out in 2000 and at Bernstein at the time, they were the largest in 1996 when I joined them, a privately owned investment management firm, and they were highly regarded, so I learned the internal workings of money management in that firm.
After a few years there, I moved on to some firms where I could get diversification for clients, as Bernstein was very focused on one style, known as value investing. So during the late 90s, they didn't own any of the dot-coms or things like AOL and Cisco systems. And they were right, but, nonetheless, for a few years, it was painful for me as a young person to be out of that. So we moved on to Smith Barney, Morgan Stanley, and a couple of other firms to diversify for our clients outside of just the one style, Bernstein ad, and then eventually started Fusion in 2013. What I learned over the years, starting at Bernstein in 1996. I built up my practice with about $100 million at the time, over a few years of client assets that were entrusted to us, only to see half of it disappear from 2000 to 2022 during the dot-com bubble and the terrorist attacks on the back of that and then rebuilt it to about 150 million by 2007 only to see it go down by by about 150 million during the 60% decline that occurred because of the credit crisis in 2007 to nine. When I saw that, I saw that I was spending every day talking my clients off the same emotional cliff that I talked them off a month earlier, a week earlier and the day before. I said, "There has to be a better way to help people and run a practice than doing this, rather than cliff walking every day." So that's when I remembered my two day training program out of six months at Bernstein when I was brand new 29 in the business, I remember they did behavioral finance, and it just hit me like a ton of bricks that that's how you help people. You've got to teach them what to expect, meaning, do the lifeboat drill. If it's a boat long before the bow touches the water and goes under, you've got it. So this way they know, it's just a wave. It's okay. But that's when we adopted behavioral finance. Weunderstood that the only way to help people was to, I always say surprise, as the mother of panic, was to teach them not to be surprised by the regular occurrences that one needs to accept as an equity successful equity investor, which is to say, 15% annual declines as the average since 1980 and the S&P 500, and twice that amount, about 33% decline one year and five or six. If you can't accept those things, you shouldn't be an equity investor, because it's going to happen and you'll fail. Just put it in CDs. So we adopted behavior, and that changed our whole client experience, for the clients as well as for us as a from a practice management standpoint, and that people began to become immune to what other people are surprised by. Because I always surprise the mother with panic. Well, we taught them to expect 15% annual declines and 33% every five or six years, so they were never surprised anymore. And they're very successful as our firm is because of that approach.
Mike Stohler
You know, it's funny. I see some people say, "Hey, what are you doing?" "Oh, checking the market every day." Every day, every day. And I'm like, "Why are you doing that? You're not retiring for another 20 years."
Jonathan Blau
Well, it's actually worse than that. Think about this.
Mike Stohler
Yeah.
Jonathan Blau
For someone not retiring for 20 years. Say the average retirement age in our country, Mike is 62 years old. So this is a 40 year-old you're talking about.
Mike Stohler
Yeah.
Jonathan Blau
So they've arguably, they've got a 40 to 50 year time horizon, given the average life expectancies approaching 90. So now I say to them, so I understand what you're doing. I say it facetiously. You're checking your portfolio every day, your plan every day, to make sure that your 40 year plan is on target in an environment that goes up and down and sideways every day, it's such a waste of time, and worse is one the more. There have been studies that show that people who check their portfolios more often actually underperform dramatically than people who don't, and it's because when you check your portfolios, all the things we'll talk about on the podcast today. Which are these? What are called behavioral biases, or systematic meaning, predictable errors that we make just because of how human nature is programmed.
Mike Stohler
Yeah.
Jonathan Blau
We're all susceptible to it, that they're magnified when you look, and your emotions are then ignited because of what you see, either positive or negative, and you make horrible decisions because you react to what you see by reflecting your fear or excitement in your portfolio strategy the next day or that day, and so, it's critical not to look often.
Mike Stohler
Yeah, you know? And that's why a lot of us diversify.
It's like, "Oh, look, put all this money with the advisors this part in real estate. I'll do this, I'll do that, and then it's just somehow, hopefully, I'll cross my fingers and it all washes out or does something." I mean, it was interesting, before we hit record, that you're talking about the beliefs and behaviors, and it's almost by how you're raised, maybe who your generational parents were, what generation you can almost say, "I bet you have this type of belief and this type of behavior." And let's talk about a little bit about those beliefs and behaviors, how it drives certain aspects of your life, as far as the finances, and why it's good or bad, depending on which behavior it is, sure.
Jonathan Blau
Actually, what I'm referring to, when you're reading and talking about what I described there, actually there's a belief system we all have regardless of how we were raised. So two different issues, which we talk about later, how we're raised and influenced, that our parents money beliefs because of whether they went through the Depression, wherever it influenced our decisions, two different things, but we have a flawed belief system and a flawed behavior system when it comes to investing, so that there's two flawed beliefs that we have one one is actually, I'll show you something, and it's not a trick.
What I'm about to show you is just the first thing that comes to mind, without thinking too much about it. If I hold up a ten-dollar bill like that, and I say to you in one word, what's the first thing that comes to mind is that I'm holding up just one word.
Mike Stohler
Money.
Jonathan Blau
Right? So, 99% of people say money, and that's the first flawed belief that we have. And this belief is embedded with all of us. Doesn't matter if we're successful entrepreneurs,MBA in Finance or we just inherited money and didn't get out of high school yet. Same belief, this is not money, this is a currency unit. It's a peerless medium of exchange, so that I don't have to go to the Tesla dealer and say, "Hey, how many financial plans do I need to give you for a Tesla?" We don't need to barter because of this medium of exchange. But by thinking it's money, which we, almost everybody does, we actually think of it as a store of value. So if somebody has a million of these $10 bills at retirement, either from saving it or selling a business, they'll come to somebody like me seeking one thing. I narrow it down, they're seeking certainty as much as they can get about their financial future as it relates to this 10 million and what it will do for them for the rest of their life. And so what they need to understand is, is the difference between money and current. To me, the only rational definition of money is purchasing power, right? Which the currency unit loses 3% every year to inflation. The disease, I say, of money, right?
And what happens is, when we don't understand that this is not so, think about the average person with $10 million they'll come to someone like me and say, "Jonathan, whatever you do with this $10 million, we can't lose it." So whatever strategies you're going to just remember, this is it for me. I don't get another chance. I sold my business. This is it. Can't lose it. So I don't really even care if it just stays in the mattress for 10 years. That's better than losing it for 30 years. So what they failed to recognize is that in 30 years, this $10 million to buy what it buys today, I will need almost 30 million. And so by keeping it just the way it is, buying a bond with it that pays me five or seven or even 10% a year, in 30 years, I will have lost over 70% of my money, my purchasing power because of inflation.
What happens in our industry, and what we believe as investors is that risk and safety as it relates to the $10 million should be measured in terms of protecting the principle of the $10 million itself, not just from disappearing, but even from fluctuating. That's the second flawed belief. The second flawed belief says not only that money is money and currency the first belief, but the second belief says that risk is volatility, or up and down movements around the long term uptrend has nothing to do with risk, and I'll explain that. But risk, really, when it comes to investing, is the chance that our last dollar might leave us before our last heartbeat, that we outlive our money, that's the real risk. That's the only risk. So volatility doesn't cause that to happen. So those two flawed beliefs cause us to make a whole bunch of terrible mistakes. So how if risk and Safety shouldn't effectively be measured in terms of protecting our principle? How should it be measured in terms of protecting our purchasing power, purchasing power, because that's the only way to run out of money in a multi decade retirement. The industry and the average person out there, successful and otherwise, believes that the enemy of their money are the temporary fluctuations associated with being owners of companies as stockholders. That's what they think, when, in fact, the real risk of their money comes in the industry, conventional wisdom advises that as you get older, have more bonds to protect against what I call the illusory risk of volatility. Have more bonds, and what those bonds do the average person at retirement is you've heard of the 60/40, stock to bond portfolio, right?
The average person is advised to have 40% in bonds. Well, with 40% in bonds, they're telling you to take 4 million of your 10% and freeze it for the rest of your life, in the face of 3% compound inflation that's eating away at the value every year. So they're killing you the only way possible. So the challenge that we have as behavioral investment counselors is not only to teach that to clients, but you're teaching them something that's not different from everything they've ever learned. You're teaching them something that's directly opposed to everything they've ever learned. In other words, investments that lead to the growth and accretion of purchasing power through dividend growth and asset growth, stock investments, those are safe because they grow your purchasing power for the rest of your life, investments that lead to the freezing, diminution and destruction of your purchasing power.
Bonds, those are risky, so you're not just teaching them something different than what they've ever learned. You're teaching them the opposite. So those are the first two in the flawed belief system. Then there are three flawed general categories. The first one is, is a behavior that is not psychologically motivated or catalyzed. It's actually autonomous. We have these at the base of our brain, these organs, I don't even heard of them, called the amygdala,
Mike Stohler
Sure.
Jonathan Blau
Have you heard of that? So that those are also known in common vernacular, the fight or flight, your sensors, right? So the trouble is, when we were roaming the lands millions of years ago and there's a bear in the woods, or even before there was a bear, we were hominids roaming. And we heard of rushing in the bush, on Sunday, because there's no football. So that's what they did. They walked around on Sunday looking at them and said, "Oh, they heard something in the bush." He said, "Oh, that's just the wind." The second hominid screams lion, and he's in the next county. In three seconds, we descended from that hominid because the first guy never made it, and so the amygdala that we descended with are the fastest, responding, most sensitive. The problem is it doesn't know the difference between amygdala, fear, fear sensor, ignition, it doesn't know the difference between a bear in the woods or a bear market. A bear in the woods could kill us, and the bear market is a temporary decline. It can't hurt us unless we succumb to it, meaning we sell into the temporary decline, making it a permanent death to our money, permanent.
Mike Stohler
And it becomes emotional, right?
Jonathan Blau
All emotional.But this first thing is not this. First thing is actually worse, and it's autonomous. It's literally our sense of saying, "Get out of the way of the bear in the woods." But it's a bear market. I don't know the difference between permanent risk and temporary. So I'm just telling you, sell the actual opposite of what you need to do to survive in this financial risk lifetime, as opposed to the bear in the woods, death and life and death scenario. So that's the first thing is, is the autonomous fight or flight amygdala? The second thing I like to talk about in the flawed behaviors this one is I call a cultural phenomenon. It's actually, to me, the most fascinating. So you think about how we react to any kind of economic offer, right offer, opportunity, the input that we react to, meaning the price, if the price of something is going up and rising, we're repelled by it. We want to go and find something else. We don't want to pay the high and rising prices. If the price of something is low and falling on sale, in other words, we're attracted to it, right? The cheaper it is, the more and so that behavior is called counter cyclical economic behavior. It's normal rational behavior, meaning our demand is counter to the price. Price goes down, demand goes up, counter. Price goes up, demand goes down, counter. And we behave that way with every financial and economic input except one. What do you think that one is?
Mike Stohler
No idea.
Jonathan Blau
Price of stocks. When the price of stocks is high and rising like 1999, human nature thinks that the risk of buying at these higher prices somehow is declining, and that my future claim on this company's earnings and asset growth will be higher, my return will be higher if I pay these higher prices. Conversely, when the price of stocks is low and falling, investors don't realize the value of those investments is higher because they're paying a lower price for the future earnings and assets. But no human nature thinks my risk is increasing buying at these lower prices, as is my future return declining. So not only is reality different in this case than what human nature thinks, it's again, the opposite, right? But in just that one way we behave economically, what's known as procyclicality. We're repelled by lower prices and we're attracted to higher prices. And there's not one person listening to that that would deny that, if they're being honest, right, that they didn't chase every.com in the late 90s and sell everything that was on sale to do it right, and vice versa, or sell summer all of their deeply discounted equities in the credit crisis during '08, '09, because they wanted to cave into that. So that's the economic behavior that's flawed. I call it cultural thing. The third thing is the emotional part. There's, I'm not I can't go into all of them, but there's two major the strongest emotions that we have, emotional biases.
One is called loss aversion bias. And what that is, it's proven that the pain of a loss to us, financial or otherwise, is felt two and a half times greater than the pleasure of the gain is felt pleasurable. And so because of that right, we would much rather seek out strategies in life financially enough otherwise that minimize our chance of short term regret or loss. And we'd also because the other thing that's involved with that is we're also much more sensitive not to how much assets we have at the time, ten million let's say, but to the change in the Assets we're sensitive to. So if I have 10 million, and I have nine and a half million and I have 10.2, I know I'm okay. I did it, I made it. But if I go down, if someone says to me, forget what you have, but you lost 400,000 yesterday in the market, right? Wow, am I sensitive to that? The change is what I'm sensitive to. Doesn't matter now that I have 9.6 I lost 400,001 days. So what happens is, because we're sensitive to losses two, two and a half times more than we're sensitive to gains, and because we're sensitive to change, we seek out strategies that minimize short term loss and short term change in value downward, and those are the same strategies, ie bonds and gold and cash that minimize our chance for long term wealth, right?
Mike Stohler
But it's safe. It feels safe.
Jonathan Blau
It feels safe exactly when, in fact, it's the riskiest thing one can do over the long haul. And so give you a quick example. So some clients say to us investors, so you don't believe in bonds then, and that is not the case. I don't believe in bonds for the same reason the industry and average investor wants to believe in them, which is to control that temporary up and down movement called volatility. I don't believe in that at all. Volatility doesn't hurt us. There was a movie. One of my favorite movies is with Patrick Swayze's Road House. I don't even saw it, he goes to the doctor and he has got a knife wound. And, you know, the Elizabeth, whatever her name is, that that pretty female doc that he ended up having relationship with said, "I'm going to give you a general anesthesia, a local anesthesia." He said, "No, thanks. "She said, "You know it's going to be painful." He goes, "Pain don't hurt." And volatility don't hurt. That's my motto.
At the end of the day, if we understand that volatility is not the real threat to our money, but that, in fact, bonds to control that what I call lucid risk, volatility frees our purchasing power. For the rest of our lives. That's our real threat. So the reason I believe in bonds is not to protect against volatility, but to protect against the only real risk I see having all stocks, right? If someone had all stocks, and that's when you go into retirement, I tell our investors, you should have two to three years of your money outside of stocks to protect against what I call sequence of return risk. What does that mean? Means I retire today, the market goes down 35% which happens one year and five or six unpredictably. You don't know when it's gonna happen. And so if I had all stocks, even though my long term returns from all stocks will be better than not having all stock if I have to liquidate them during those first two years of a 40% decline at a loss to supplement my living expenses. That's bad. So while we know over multi decade periods, stocks are likely to make eight to 10% a year, it's almost always over, over, over multi decade periods, what they've made, what we don't know is what each year in between now and the 40th year or 30th year of my retirement is going to be, is it going to be up or down into what magnitude? And so to protect against that. And why is it two to three years worth of spending money outside of stocks? Because the average from a peak in the S&P 500, the stock market to a trough and back to a previous peak since the 1920s that has taken about 40 months, so three years. So as long as one has three years living expenses set aside, they won't likely have to dip in meaningfully at all to that. So in my model, just to give you a practical example, versus the industry model, the guy with 10 million or the woman with 10 million is told to have 40% by the industry, generally speaking, in bonds, because they that extra 30 is there to protect against that, what I call illusory risk of volatility. That's an extra $3 million bucks. That extra $3 million over 30 years, if it just earns 7% a year below trend. Equity returns in 30 years, it's $24 million. With the industry advice, it's $3 million. Still, that's probably worth $1.30 million after inflation. So that's how you kill wealth. What the typical advisor in the industry does, and I used to do it, frankly, before I learned the way to advise, the way I do now is they're looking to protect you against something that's not a real threat. And in looking to protect you against the threat, they hoist on you. The only real threat there is the systematic killing of your purchasing power. So they're 15 years into retirement, you either switch to cash food or run out of money by year 20, right? Because you have to start unwinding the principle to make up for the fact that your income has been frozen for so long, while your expenses require you to get more and more income. It's very important to understand what the real risk is and what the real risk isn't. But imagine the magnitude of wealth destruction, when you would have 25 million versus 3 million in 30 years. So what the industry is doing is they're trying to hand back the client who's seeking certainty, the illusion of certainty. How do they do it? Well, we're going to tell you how many analysts we have, how many economists we have. That's going to allow us to tell you when to get in and out of the markets just in time, and it's going to tell you which sectors are about to go in favor and out of favor just in time. No one can do those things consistently, but that's what they do. They hand the illusion of certainty. What we do in response to their request, the client's request for certainty about the financial futures. We tell them certainty doesn't exist, not only here, but anywhere, is a condition in nature. So we're going to do, rather than hand you back an illusion of certainty, we're going to teach you how to make rational decisions that you're given, that you're always faced with uncertainty, and that's why we got into behavior.
Mike Stohler
So that's how you can modify the behaviors. For instance, may or may not be my wife, extremely, extremely the most conservative person I've ever met in my life. As far as investments, if it was up to her, money markets, bonds, just, I'm not losing anything. I'm not losing I'm maybe losing, like you're saying that, yet she's using everything. She's losing everything, losing everything because of inflation,
Jonathan Blau
Just taking a long time for her to recognize.
Mike Stohler
Well, she doesn't recognize. And here I am. I was like, buy this real estate. Buy this real estate, pump millions on this and this, you know. And I'm all over the place with smart decisions. But for her, I'm a lot to her, I'm a lot more risky, even though I say, Well, real estate's probably the most, one of the most secure things. But how do you change that behavior where, even though she thinks she's so conservative, she's doing something smart.
Jonathan Blau
So that's a good question. I mean, really, what, what you have to start to try to do is, is to ask them a lot of questions. Don't tell them why. It's bad behavior. Ask them so say, say when you say that you feel that you're not taking risk, right? And your strategy? How do you define risk? What does risk mean to you? Do you feel that taking on a strategy that has a high probability, one of the highest of causing you to run out of money or change your lifestyle downward in your lifetime, is that something you consider as a risk? Oh, yeah. Well, understand, then what you're doing now is one of the approaches that voice that risk on you more than anything else, and the things you're avoiding are the things that can help you alleviate and reduce that risk more. No. Was anything else, and then you explain to them how, right? So say if you have a million dollars today, and let's see if I'll tell you what the number comes to. So a million dollars today, and in 30 years, you still have a million dollars, someone like your wife, and most people feel I've done okay, at least I didn't lose my million dollars. I still got it right, and I made 50,000 a year in interest from it all along. Right? So if I take that million dollars and I say 30 years is the time frame I'm looking at, and 3% is the inflation rate, it's worth 400,000 so say, do you realize that in 30 years with your strategy, you're guaranteeing that you will lose 60% of your money, guaranteeing, do you realize there's never been a 30-year period in investing in the S&P 500, where you've lost anything, but you're you're taking strategy, calling conservative, that guarantees that you're going to lose 60.
Mike Stohler
That's interesting. You see people nowadays keep cash,especially when it's volatile, it's like, "Hold, keep cash. "Go get us safe. Put cash in there. Take it out. You see some big people on the news channels, keep cash.
Jonathan Blau
Yeah. There are some good ones. But you know, the news media and the big firms, like the UBS is a Merrill Lynch'sthey're in collusion. So if you put on CNBC on any given day, one person. And I don't mean to call out UBS, but I'm just using two big names, they're all the same. So one person might be from UBS on the right side of the screen, and one person on the left side of the screen might be from Merrill Lynch, and this could have been yesterday. So they'll ask a question. CNBC, they'll say, "Hey, Mr. UBS, let me ask you a question. The 3% decline today, a 4% decline, is that the beginning of a real down movement in the markets? Or is it, or is it a buying opportunity? "And then you got one talking head. I'll say one thing, the other talking head, the other thing, and whichever consumer of the news, which is the investor, believes more, they're going to change their portfolio based on that person. And neither of them knows a darn thing. It's an unanswerable question. You can flip a point. Is this the next buying opportunity or the next big bear market, where people need to understand the media like any other news, that when it comes to reporting and news, there's a saying that says, If it bleeds it leads, right? The plane crash is what's going to lead, not the person who just got married to the most successful person. So it's the same thing in financial media, you know? So their goal is not to teach you how to be a good investor. They don't know the first thing about that really, they don't. Their goal is to get you to click on their stories on the Internet so they can increase their ad revenues. That is it. And if you can't accept that, don't watch it then, because that's what it's all about. And so they've probably destroyed more investors than the person who called volatility risk in his model in the 50s, a guy named Markowitz who invented the capital asset pricing model, or efficient frontier. He decided that we can't compare investments the way they used to do before his work, because studies, just by looking at past returns of this group of investment, there's another and thinking which one might be better. We needed something, an element of risk. And he decided to choose variance or volatility. Up and Down is a risk. And because of his work, the whole industry adopted that as the measure of risk. Started telling you to have bonds to protect against that illusory risk and killing wealth one one person at a time. So it's crazy, but that's what goes on in our industry.
Mike Stohler
Yeah, one last question. And ladies and gentlemen, against Jonathan Blau, it's August 6. And the last couple days have been a recession? No, it's not again. One talking head here, one talking head here. Inflation, we can't keep it going. We've now officially hit recession, and we're and the world's going to end over here. It's like, well, this is the buying time. No, it's not, this is, we haven't experienced this at any time. They can't control. I need all these different three or four things, because people are still spending, and we've never seen this, what are you seeing and how are you telling people? Because people, I'm sure, people, on the news every night, the last this year, on just the inflation and the interest rate and all these things.
Jonathan Blau
Talk about inflation and the interest rates and recession. So the first thing about recessions, which is interesting is I always say everyone seems to forget about every 5 or 6 years that we have a recession about every five or six years. So every five or six years, everyone forgets that every five or six years we seem to have a recession that's as common as the cross town bus and it's meaningless. Think the average market performance, s, p during recession is positive 1% so it's not what people think. You know recession is just means an economic two quarters of economic contraction. That's all. It's not cancer, God forbid, it's not. It's nothing like that. So that's the first thing. The second thing is, nobody knows the recession that they're talking about now, I call it the Godot recession. Like waiting for Godot, because they've been talking about this recession now since 2022 All right, so it's going on three years. I call it the Godot recession. Eventually Godot will show up, but they're still waiting for Godot. It says no, but nobody knows, and people who who don't understand one thing that my anyone's real investment plan order. Have as its time frame, 20 plus years, right? Someone who's even 65 they've got a life expectancy that's going to be 20 years. So anyone's multi decade plan, their focus of it should be the next 20 years, plus the 10 years on either side of it. And you have to say to yourself, What in the world does whether or not the Fed reduces rates this month or in September, have to do with my plan 20 years down the road zero, and you could say the same for who's going to be the president next year, or whatever else. So, so what I do is, I'll give you an example. Tell me What month and year you were born, if you don't mind?
Mike Stohler
'69.
Jonathan Blau
Okay, so you were born two years after I was born. So which is interesting. So the reason I'm showing you this, I'm going to tell you briefly and answer this question, and take a couple of minutes, but it's worthwhile. So in January 1969 the S&P was 100; today it's 5,500. So a million dollars is $55 million. I haven't told you a couple of important things. One, is $55 million today, good from investing a million. Then the only way to know that is, what does it cost me today to buy what a million bought. Then inflation went from 35 to 300 so it went up less than 10 fold. So, man, I went up 50 fold my investment in equity. So I didn't just keep up with inflation. I went up more than five times. My standard of living went up five times greater than inflation because I was a patient equity investor at the same time, the dividend yield when you were born was 3% so that million dollars that you invested grew to over 50 million. But when it was making 30,000 or 3% in dividend, the cash dividends you got as a shareholder from the s, p to the dividends, dollar amount weighted average, the average of all the 500 companies was $3 today, it's 72 so the dividends have gone up 24 almost 25 times. What that means is that 30,000 in income today is 750,000 in income. It's like having a bond paying you 75% but even better, the Bond didn't stay at a million at maturity today, when you rolled it over, it's 50 million. So think about it. If I said to someone when you were born, Your other option is buy a 10% triple tax free bond that matures today, most people would say, I'm going to take that. I get 100,000 a year in income and I'm safe though today, instead of having 50 million as an equity investor to have a million returned to them, and they made 100,000 last year, instead of three quarters of a million, even taxable. That's worth over half a million on dividend tax rates. So, now here's the remarkable thing, because you asked about all these events, and how do you deal with it? So in your lifetime and mine, there have been three times, 1973 and four, 2000 202 and 2008 and nine, where the S, p5, 100 halved in value or more or more, meaning 73 and four was 50% down. Oh, 2000 oh two the tech bubble and terrorist attacks, 50% Oh, wait, no, nine, 60% it have at the same time since you were born and I was born, we've had about nine or 10 recessions, maybe 11 or 12 bear markets, including the three that have no more with all of that, what one had to do to turn a million into 50 million is to basically invest in the s, p or a diversified portfolio and do nothing else the people who reacted to all of these events. And by the way, to get from a million to 50 million. You know what the returns were? Seven and a half percent a year with dividends 10 and a quarter. Long term average returns. That's all it was. But compounding is looking to get an average return, not the best. I can't figure out what's going to be the best, but the highest average return that I can sustain for the longest time, time does all the heavy lifting for the for the people understanding compounding, not finding what the next in the video is going to be, and then getting out of it when it crashes and going into the next thing. So hopefully that answers your question right. During the period you were born, not only all those havings and recessions, we had Democrats and Republicans. We had interest rates as low as zero and as high as almost 20% in the 70s and everything in between, and what one had to do is to not respond by changing their portfolio in response to their fears or the Feds that tempted them during those 60, almost 60 years.
Mike Stohler
Wow.
Jonathan Blau
Hopefully that answers the question.
Mike Stohler
It does. I mean, that's absolutely amazing. Well, we're up to our time period. Ladies and gentlemen, Jonathan Blau, Fusion Family Wealth. you've had a plethora of information and knowledge today, and I'm sure people will be interested in learning more. How can they learn more?
Jonathan Blau
Appreciate it. Thank you. This is what you can tell. This is my passion, so I enjoy the opportunity to talk about it. So yeah, fusionfamilywealth.com and all my information is on there, our office phone or cell phone. If people want to click in and read how we help our clients contextually during periods like this, they'll see our most recent newsletter under the Insights section, which are really well received, so your audience can get into those and then in the fall, around October, Crazy Wealthy Podcast. So be on the look after that, and hopefully you'll be a guest as well, Mike, in our podcast.
Mike Stohler
it depends. It's like, "Do I want to know those things, but I want to reveal them, or do I want to reveal them?"
Sir, thank you very much, and I'll look forward to being on your podcast. Have a great evening.
Jonathan Blau
You as well. Thanks again. Mike, okay.
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ABOUT JONATHAN BLAU
Jonathan is the Founder and CEO of Fusion Family Wealth, a Long Island-based, fee-only investment advisory firm. Specializing in behavioral finance, Blau guides clients in making rational financial decisions, especially during uncertain times, by helping them recognize and adjust biases that often lead to poor money choices. His firm oversees approximately $1.1 billion in assets, emphasizing the importance of investor temperament over intellect for long-term success. Jonathan lives on Long Island with his family and actively supports the local business community and Sunrise Day Camp.