Critical Thinking Required

Charlie Munger and Warren Buffett are Nathaniel's all-time favorite investors.  As always, they offered a lot of wisdom (and a couple of zings) at the 2023 Berkshire Hathaway annual meeting.  Tim and Nathaniel discussed the duo's take on: 1. Why are they against "diversification" when everyone else thinks it's the golden rule, and the importance of building up your circle of competence; 2. The pair called Elon Musk a "brilliant, brilliant man", but may "overestimate himself" sometimes; and 3. This is one of Nathaniel's favorite quotes: "You should write your obituary and figure out how to live up to it."  Overall, their take on life is simple, and yet requires a lot of self-discipline: "You spend less than you earn.  Invest shrewdly.  Avoid toxic people and toxic activities.  Try to keep learning all your life.  And do a lot of deferred gratification.  If you do all of those things, you are almost certain to succeed."

For this episode, we asked ChatGPT and Google Bard: "Write a podcast outline on how will ChatGPT/Google Bard change the financial planning industry?"  Here is the second part of each chatbot's outline.

Discuss potential concerns and limitations of using ChatGPT in financial planning:
o Make mistakes that could lead to financial losses.
o Be biased in its advice, which could lead to people making poor financial decisions. 
o Not be able to understand all of the nuances of a person's financial situation, which could lead to bad advice.

Overall all, we believe that AI technology is good at gathering, processing, and analyzing raw data.  It will help advisors to scale their practice rapidly.  But as always, a brilliant plan is only great when executed correctly.  Until the machine learns to feel (oh man, we hope not), we will always need a human touch in the financial planning industry.  Because most of the time, people choose not the best plan, but the one that makes them feel complete, relaxed, and happy.

For this episode, we asked ChatGPT and Google Bard: "Write a podcast outline on how will ChatGPT/Google Bard change the financial planning industry?"  Here is the first part of each chatbot's outline.

From Chat GPT:

I. Introduction 
A. Introduce the topic of how ChatGPT is poised to revolutionize the financial planning industry 
B. Briefly explain what ChatGPT is and its capabilities
II. Background on the financial planning industry
A. Discuss the traditional model of financial planning 
B. Identify the limitations of the traditional model 
C. Explain how technology has already begun to disrupt the financial planning industry
III. The role of ChatGPT in financial planning
A. Explain how ChatGPT can improve upon the traditional model of financial planning 
B. Highlight some of the specific ways ChatGPT can help financial planners and their clients 
1. Streamlining data collection and analysis
2. Providing personalized investment recommendations
3. Automating routine tasks
4. Improving communication and customer service

Google Bard:

I. Introduction 
Introduce the topic of Google Bard and how it can change the financial planning industry.
II. Discuss the potential benefits of using Google Bard for financial planning.
A. Save more money by creating personalized budgets and investment plans. 
B. Make better financial decisions by providing access to unbiased information and advice.
C. Reach their financial goals sooner by taking advantage of automated investing and other features.

In the second part of the episode next week, we will discuss the rest of the outlines created by ChatGPT and Google Bard, which focuses more on potential problems and challenges.

In this episode, Ying and Nathaniel discussed the fight between Disney World and the state of Florida.  Back in 2022, the state of Florida passed the Parental Rights in Education bill, aka “Don't Say Gay” law.  Because of Disney World’s pushback, the Governor of Florida sought to take away Disney’s special tax district until he realized that the abolishment of the district would require taxpayers in Orange and Osceola Counties to pick up the tab for services paid by Disney World like fire protection and road maintenance, and more than $1 billion in debt.  Instead, a new bill was passed to take control of the special zone’s board.  The Governor also implied that the government wanted more control over Disney’s content within the parks.  In response, Disney passed a Declaration which essentially took control away from the future board and gave it back to Disney, the company.  There is a unique time period term “King Charles III clause" assigned to the Declaration, which makes the new Declaration valid virtually forever.  We believe any company has the right to make a stand on social matters; but at the same time, the power balance between the government and corporations is quite delicate.  It will be interesting to see how this event will continue to unfold, mostly at the cost of Florida’s taxpayers and Disney.

Many studies have been done from quality and quantity perspectives on whether money can buy happiness.  It can, to a certain level.  Caroline recommended reading the book: "Happy Money: The New Science of Smarter Spending" by Elizabeth Dunn and Michael Norton.  The authors discussed 5 ways to actually increase happiness with money: 1. buying experiences; 2. buying time; 3. making it a treat; 4. paying now and consuming later; and 5. investing in others.  How does all that tie in with financial planning?  We don't care where you spend your money (well, as long as it's legal). What we do care about is whether you understand your spending patterns?  Is it sustainable?  Do you have enough cash to be prepared for unexpected life changes?  And lastly, is your spending matching your ultimate life goals?

In today's world, with social media's help (or curse?), we are beyond "keeping up with the Joneses."  Billions of people on the internet are our "neighbor Jones" that we are trying to keep up and compete with, from the five bedrooms house in the Valley to the new Porsche, from traveling to Naples on a whim with some friends to the new Birkin special order.  Social pressure spending can get out of control fast.  Dan gave some chilling data: did you know 40% of millennials have gone into debt to keep up with their friends?  Oh my... Gary gave some tips on keeping your FOMO ("fear of missing out") spending in check.  One of my personal favorites: practice gratitude!

Nathaniel and Tim discussed the collapse of Silicon Valley Bank: what happened and what went wrong.  First, unlike most banks, most of SVB's clients are not retail individuals/small businesses, but VC-funded tech/crypto startups.  As you know, they are having a tough year.  They are burning through cash and thus taking significant deposits out of SVB.  SVB had to sell its long-term bonds/Treasuries at a loss to cover its withdrawals.  The snowball started to roll from there.  Because most of its clients are VC-funded startups, the average account is a whopping $4.2 million, far over the FDIC's threshold of $250,000 per account per bank (the definition is more complex than this).  Therefore, when the snowball got going, depositors had a legitimate worry that they may not get their money back, creating a feedback loop that exacerbated the situation.  We believe this is an isolated situation because of SVB's unique client base and its management's apparent risk management oversight.   Of course, nothing is risk-free (not even U.S. Treasuries), but the average person's accounts are likely safe.

Caroline and Tim discussed some highlights of SECURE ACT 2.0 and how it impacts us:
1. The age changes of RMDs (Required Minimum Distributions).
2. Allowing direct transfers from 529 plans to Roth IRAs under certain circumstances.
3. Changes with 401(k)s.
4. 401(k) catch-up contributions.
5. New Roth SIMPLE/SEP IRAs for small businesses and self-employment.
6. Employer's match for emergency savings.
All these new rules have nuances/circumstances built around them; please consult an Advisor and see if they make sense for you.

1.Free estate planning documents.
2.Guardianship for minor children (or your pets!)
3.Is Trust right for me?
4.Burial instructions.
5.End-of-life instructions (Living Will).
6.POAs.
7.Asset distribution.
8.Knick-knacks.
9.Communicating with your loved ones about where you store your documents.
10.Routine review.

Some people say that with today's technology, there's no need to have a financial advisor anymore.  Robo/AI advisor has its uses: it's relatively cheaper, it can work 24/7 without any vacation, and the algorithms make objective investment decisions without bias.  But does this mean we no longer need a human touch in financial decisions?  Absolutely not!  We are the information generation, and there's certainly no lack of data or information.  But then what?  How do I interpret the data?  How do I apply the solution to myself?  How do I put all the different pieces together and compile the complete financial picture of my household?  And most importantly, how do I FEEL about my money and my life?  Robo/AI advisors can't tell you these answers.  The algorithms can calculate data and present you with possibilities, but it's still up to a human who is capable of empathy to interpret the data and advise.