Alison Southwick and Robert Brokamp, CFP

Dec 20, 2019 at 11:48AM

It's Motley Fool Answers' fifth-anniversary show, and it has been a doozy of a half-decade in the worlds of investing and finance. So much has happened, in fact, that it's almost too much for just two cohosts to cover. So for this retrospective episode, Robert Brokamp and Alison Southwick have brought back a special guest who was there right at the beginning: former Motley Fool editor Dayana Yochim. They'll consider some of the more interesting trends since that first episode, including the rise of the robo-advisors, the free-trading revolution, and the infamous latte backlash.

To catch full episodes of all The Motley Fool's free podcasts, check out ourpodcast center. To get started investing, check out ourquick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Dec. 17, 2019.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick...

Dayana Yochim: Wait, wait, wait, wait, wait, wait, wait. Like, I thought you invited me here, to do drunk history. No?

Robert Brokamp: That's coming.

Southwick: I mean, are you already drunk?

Yochim: Yeah! I had a roadie to get ready for this. OK, do whatever you're going to do.

Southwick: Bro! Guess what! It's our fifth anniversary episode...

Brokamp: Congratulations to us!

Southwick: ...and who better to reminisce with us about what has changed in the last five years in the world of money -- and other trends -- than Dayana Yochim, our own Stu Sutcliffe.

Brokamp: Who's that?

Southwick: Thank you, Rick! Rick appreciated that. It's the fifth Beatle.

Yochim: Wow, that's really embarrassing.

Southwick: Left before the Beatles became big.

Yochim: Yeah! Yeah! I launched you guys.

Brokamp: You did, and you are the composer and performer of our theme song, "From Beneath Your Blankets."

Yochim: Right!

Southwick: Is that your band name?

Yochim: Actually, that's a really good band name. No, no, no. For acoustical purposes we had to put a blanket over our heads when recording so that the xylophone sounded just as sweet...

Southwick: And it does.

Brokamp: And it does!

Southwick: It sounds so perfect. Well, Dayana, thanks for joining us! Thanks for getting the band back together!

Yochim: It's so great to be here!

Southwick: All that, and more, on this week's episode of Motley Fool Answers.

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Southwick: Roughly five years ago I had an idea, and the idea was to hang out more with the people I liked at work, and so I finagled Bro, Dayana, and Rick into doing a podcast and getting our bosses to sign off on it; thus, Motley Fool Answers was born. Aw! So 262 episodes and 10 million downloads later, here we are. And so much has happened in the last five years, such as...

Yochim: Bitcoin!

Southwick: AI!

Yochim: PharmaBro!

Southwick: Brexit.

Yochim: Pot stocks.

Southwick: So much good TV.

Yochim: Equifax hack.

Southwick: IPOs and FAANG became a what?

Yochim: Uh, let's see. Oh, loved ones who passed away. Sorry. Not loved ones.

Brokamp: Well, I loved some of them.

Southwick: So tell me. Tell me about your relationship with both of them I didn't know about, Dayana.

Brokamp: We all loved Bogle.

Yochim: And other stuff happened.

Southwick: Yes, it surely did, but we thought that we'd bring you back, Dayana, here some five years later from launching this podcast, to talk about what were some of the biggest trends and things that happened in the last five years in the world of money. Er.

Brokamp: Money things.

Southwick: Money things.

Brokamp: Money events.

Southwick: So we have what? Five of them?

Brokamp: Five, maybe six. We'll see what happens.

Southwick: I guess before we start, Dayana, you are at HerMoney.com.

Yochim: I am. I'm working with Jean Chatzky, who you know from the Today show.

Brokamp: One of my all-time favs.

Yochim: She's awesome. She's really delightful in real life, too. Yup, I'm working with them at the site HerMoney.com and all sorts of other projects that we do and it's awesome.

Southwick: Yay! Well, I'm thankful that you were able to come back and join us, even though you're off to bigger and better and awesome things. You still remember us, when.

Yochim: I do. The little people.

Southwick: Yeah. Bro, how about you kick us off?

Brokamp: Well, over the last five years, big events. Number one, stocks! So our very first episode...

Southwick: Stocks!

Yochim: Stocks!

Brokamp: Our first episode aired on December 16, 2014. At that point the S&P 500 was at $1,973. As of this taping it's at $3,190. Throw in dividends at the 75% -- total return almost 12% a year. That's pretty good. I'm not saying that we're responsible for that good performance. But it's probably not just a coincidence, either. A couple of other figures for you. International stocks have not done quite as well. A 5.8% average over the past five years.

Yochim: Alison's fault.

Brokamp: Alison's fault.

Southwick: To be fair, we only went to a couple of other countries, so we didn't really do our part to stimulate the international economy.

Brokamp: That's true. We've got to work on that. And then good old bonds returned 3% a year. There are three notable investing milestones -- at least to me -- over the last five years. We'll go through those very quickly.

Southwick: What?

Brokamp: Yes. However, because stocks have done so well this year, what you have now if you invested that $10,000 in a bond fund you'd have $25,500 and $31,000 in stocks. But that outperformance of stocks is all due to just this year since 2000. It's just another reason why we, here at The Motley Fool emphasize that you have to be a long-term investor. And that's number one.

Southwick: All right, Dayana.

Yochim: I think a notable thing that happened in the past five years was the rise of the robo overlords. Our robo overlords took over our portfolios. And a robo-advisor, for those who don't know, is an automated investing service that manages a portfolio. It's based on your timeline, how long you have to invest, and your risk temperament. They do the quiz and they automatically build a portfolio, typically of index investments and ETFs, that's well diversified and they rebalance it on a regular basis so that basically you don't have to do anything. You let them manage your portfolio. The fees...

Southwick: And by them you mean the robots.

Yochim: Yes.

Southwick: Some sort of AI or something. Computers, don't worry about it.

Yochim: Just computers. That's the answer to all of this. You'll pay, typically, 0.25-0.50% as a portfolio management fee. It's pretty low but, here at The Motley Fool, I know you guys really take a hard look at fees and individual investors can probably do better than that. But again, this is a convenience and it is a low-cost way to really be hands-off but still be an effective investor.

At the end of 2015 robos were managing about $60 billion in assets. Today they manage just shy of $1 trillion, and they're expected to cross the $1 trillion milestone just next year, so the growth of consumers using robo-advisors has been huge. And it's not just fintech companies.

Southwick: Betterment. Wealthfront. All these are start-ups.

Yochim: The biggest robo-advisor is actually Vanguard's Personal Advisor Services. They manage more than $100 billion compared to Betterment, which is the largest fintech that's a robo-advisor and they manage around $15 billion. So the big guys got in on the action, and that can account for a lot of the growth, but also financial planners or wealth management services. This was a great way for them to manage client portfolios, to cut their costs of doing so, but also provide that service for folks.

I think we will continue to see a growth in robos and also a growth in the sophistication of the types of services they offer.

Brokamp: Along the lines of that you've also seen the rise of target date funds. One of the broader themes is that people are offloading more of their investment management. I love target date funds. The benefits of the robos are that [with] the robo you take a questionnaire so that your outside allocation is very unique to you, at least based on your risk tolerance. They also claim that they're more tax efficient, which probably is true. But you add that into the growth of index funds and people are just taking more of a hands-off approach to investing.

Southwick: Bro, number three.

Brokamp: The Latte Factor backlash.

Yochim: Ooh! Go buy a lot of hate.

Brokamp: For those of you who don't know The Latte Factor, it probably started back in the 1990s with a guy named David Bach who was a Morgan Stanley financial advisor before he became a financial author. The principle is that depending on which book or article you read, that if you give up your daily coffee that costs you $3-5 a day and you invest that money, over 40 years you'll have $2 million or something like that.

Southwick: I mean, the math works.

Brokamp: The math works. Well, sort of.

Southwick: We've gotten emails from listeners who argue very strongly that you should forgo the latte.

Brokamp: Right. And again, it's associated with David Bach, but a lot of other people have jumped on that. Kevin O'Leary of Shark Tank fame told CNBC in 2017, "Do I pay $2.50 for coffee? Never, never, never do I do that. That is such a waste of money for something that costs 20 cents. I never by a frappe latte, blah, blah, blah, woof, woof, woof."

Southwick: It should be, "But will I spend $250 on a bottle of wine." Yes, absolutely.

Yochim: And my suit cost more than half a year of mortgage payments.

Brokamp: Well, we'll get to that, too. And then earlier this year, Suze Orman came out with a video and said, again, the same sort of deal. If you give up your coffee and invest it, you'll have $1 million. She said, "You are peeing $1 million down the drain after drinking the coffee."

Southwick: Colorful, Suze!

Brokamp: "Do you really want to do that? No, make coffee at home. Every penny counts. It's not a need -- it's a want." And she said, "I don't even do that, and I can afford it and chances are you can't." Thus began the backlash. The backlash. So lots of articles came out about it. In a span of a month two articles came out with the "F" word in it. One was Barry Ritholtz, financial advisor and journalist wrote an article entitled, "Buy Yourself an F*ing Latte," and then a month later Sallie Krawcheck, the CEO of Ellevest, wrote, "Just buy the F*ing Latte."

Yochim: I believe on HerMoney there was the F*ing latte is just a metaphor, people.

Brokamp: So the criticisms came down to this. First of all, some people did criticize the math, either it being inaccurate or overly optimistic because they assumed you would earn like 12% a year, which is a little bit more than the stock market has done over the long term.

Two, it's focusing on small things, but not focusing on the big, systematic issues like wages not increasing very much. Like the increasing cost of healthcare, and college, and school loans. The gender pay gap. The cost of child care. All these things that are really important and are really explaining why people have trouble getting ahead. And yes, the advice is coming from people who have expensive clothes and have their own private islands like Suze Orman.

And then the other one was -- from Sallie Krawcheck in particular -- that it's sexist. The way it's explained it's not like give up your six-pack. It's not give up your martini. It's not give up your [...]. It's focusing on the latte. The stats do show that women drink lattes more than men do, so they saw it as a lot of mansplaining.

As for me, personally, I'm mixed on it. I understand that there are these systematic issues that do need to be addressed. Things like the defined benefit pension has certainly been tough on people. That said, if you are among the millions of Americans who don't even have $1,000 in your bank account or is behind in your retirement savings, if giving up your coffee means you can invest another $1,000 a year; doing that for 10, 20, or 30 years will make a difference.

Yochim: But totally give up avocado toast.

Brokamp: But one is less domestic, right? That's what it's moved to.

Yochim: Yes, that's the new version of the latte. I agree with you. The problem with giving up the latte is -- besides the math issues we have behind it -- are you really going to save that money? It is a small luxury people have. Better to spend your energy every day lamenting the fact that you're drinking the awful coffee from work is to look at your biggest expenses and sweat the big stuff.

Brokamp: I totally agree.

Yochim: You can save months' worth of latte money by calling your insurer and negotiating a better rate on that. By doing the research before you buy a home. By making very conscious decisions on these big-ticket items that will make a significant difference in your personal finances over time.

Southwick: Dayana, No. 4.

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5 Big Changes in Investing From the Last 5 Years - Motley Fool