 Ah, the art of thinking smart. We have today David Chang. He's a guy who thinks smart. He operates Wealthbridge, his company right here in Pioneer Plaza. Yeah, exactly, right? Been around, been chair of the Republican Party for a time. It's been the past, right? And a graduate of West Point. And he is going to be a host, and he's going to host a show called The Art of Thinking Smart. Let me say how important that is, you know. If you look around, you see the successful people. There are various common denominators. And you want to identify what those things are. One of them is they have to be able to talk on their feet. That's really bad. Can't do that, you know. In other words, they've really got to, you know, wrestle with complex issues and stay with it and make it happen. Right. And so this show that David's going to do is going to be about being smart in the business community, being smart at home. What do you see the show to do? I grew up in an immigrant family. Came from Korea. And we didn't have much growing up. My parents worked really, really hard. And I was very blessed that they try to get us into good school districts. You're going to see that a lot. And at an early age, I saw that there were people that were successful and there were some that were not. And I was always a reader. I wanted to see what is it that makes people smart and successful. Hard work is important, but just working hard constantly 18 hours a day is not going to always do it. And one of the things that I did... How come you didn't tell me this before? You know what? You stopped plenty of time. And it didn't just come to money. Money was a big component of it. But it's fulfillment in life, their career, their family lives of how they define success was very important. But the one thing that I found that linked everything together, however you define success, was the ability to think smart quick on your feet as you mentioned. Just because you think smart, what does that mean? Well, the thing you're smart is making the right decisions when you need to. And life throws things at you, curveballs that you just can't anticipate sometimes. And the people that are successful aren't the ones that avoid them, but the ones that can react to it and hit that home run when that curveball comes. If it's a fastball, curveball doesn't matter. They're prepared for it. And so growing up, reading up a lot, I loved history. So I always read about General Lee Eisenhower, Grant, McArthur, a lot of our great U.S. generals. They all graduated from West Point. So I was 11 years old. We're not talking about the admirals here. Exactly. And I said, they went to West Point so I got to do so as well. And I've been blessed to graduate 2002 from the Bicentennial class. So West Point was founded in 1802, graduated 2002. Instead of going straight into the military, and when I was a senior, we're called the firsties as senior at West Point, that's when September 11th happened. And we were the first class since Vietnam, knowing that we're going to go straight into combat. What a time that must have been after West Point at 9-11. And to know the country was entering into another chapter right now. And many people don't know that West Point is only a mile or an hour north of New York City. So it's very close. It hit near and dear to us. Instead of me going straight into combat right after graduating, I was selected as East West scholar. And that's when I came to Hawaii to get my master's degree in political science, Asian politics. So as you mentioned, I'm involved in politics. I really enjoy it. Once you turn them off for me. I got political science, Asian politics from University of Hawaii as East West scholar, MBA from UCLA, executive MBA there. Got a master's in theological studies and divinity. So working on those types of degrees in very different fields, I realized that a lot of people think, you know what? Being smart, I don't know this industry or you know what, I'm not familiar with that. And good, smart people wherever environment they're put in are able to absorb their environment and still make smart decisions even when they may not have been born in that or raised in it. And inherent in that is the confidence to believe that you can do it. Exactly. And to do it and not to worry that you're going to fail. Right. Because you've got to be smart in terms of failure also. Exactly. We're going to talk about that. But today when I wanted to focus on, as you mentioned, I've been a wealth manager for a number of years. Last year I was chosen for the under 40 in America by Investment News. What's a wealth manager, David? So I help people with their financial planning, their investment planning, and then work with their CPAs and tax planning attorneys and state planning. So in sum, I want to help people meet their financial goals in life. And you know, you would think that, oh, that's an easy thing to do. Well, you just call David Chang. I guess so, right. I don't have to be smart. But here's the thing. And I want to show this first graph here. And this first graph shows the average investor, this is from 1995 to 2014, received only 2.5% returns. This is the average investor in America. That barely kept up with inflation, which is 2.4%. Now, if you had just done nothing and stayed in the market, you could see the S&P 500 over that 20-year span returned 9.9%. Now, here's a kind of a funny story. Fidelity, it's an investment company, did a analysis of which accounts did the best of all the thousands of clients they had. And interestingly, as a joke, it was the clients that had died or the people who had forgotten they had accounts. Because they never touched it. So maybe there's something smart about that. Part of it. And one of the things that I have found is that managing your money, that's something that people have to be very smart about. Because if you're constantly in debt, if you're unable to provide family or for basic living, really, it makes life difficult. So for today's first show, I wanted to focus on the most important question I believe I get as a wealth manager is what is the smartest investment or financial decision that I can make? But you're not limiting your show to that. Can we take a moment to digress for a moment and talk about where the show is going to range as it goes forward? So I'm still in the Hawaii Army National Guard. So I've done, let's see, seven years active duty, combat veteran operation, Iraqi freedom. And I'm still in the Hawaii National Guard. Interestingly, I am the G2. I am the vice chief of staff of intelligence for the Hawaii Army National Guard. Intelligence and smart. Military intelligence. People say that's an oxymoron, but it's not. We have very smart people in military. I'm very proud of those that I've served with and got to really know and partner and be mentored by a lot of top generals that we've had that come up through the ranks and are now still leading our army and also have retired. Why did you get out, David? Well, active duty wise, I got out because I'm a serial entrepreneur. And part of the show is the different business failures I've had, successes, and I've been mentored by some of the top business people in the world. I've been mentored by top military leaders in the world, non-profit. And part of the show, as you mentioned, is that I want to bring a lot of these mentors on, top folks that I think have so much to offer. And so The Art of Tiki Smart, I actually have a blog, ArtofTikiSmart.com and I've written for mid-week here in our local paper every week, with the blog I've had 400,000 readers. It depends on which which edition obviously that comes out. So I've about 400,000 readers per week, I guess that's one of the data that I got with my blog in the weekly article written for tons of national and local magazines and have done a lot of speaking engagements. And so... You sleep? I don't have any kids. And my wife, my beautiful wife, she's the house minority leader for the Hawaii State House of Representatives. So we both have very busy schedules and I'll be excited to have her on. Because being involved in politics, like I mentioned, and being out the upper echelons of politics meeting with presidents, I traveled to Korea with President Bush, got to spend some time with him. And even the non-profit side, that's what I want to really have the show about, is no matter what background you come from you can still learn how to think smart and what did these my mentors or people that I work with do in certain situations and how I think in today's world it's not about big or small because you can ask blockbuster or borders where are they now? How fast or slow in today's economy? And millennials... Everything changes. Millennials, for example, there's a quote that every two years they're moving on to a new job. There's no longer that 30-year pension that you're going to get. And if you look at General Electric, one of their top companies in America, I respect the tremendously, they've got 200,000 plus employees. But then you've got Google, I think twice as large or larger than GE who has only, I think, 50 to 60,000 employees. So what we see is that the future of thinking smart is not what happened in the past but having to be flexible and moving quickly and navigating through what the future has to hold with technology with how our economy is going. And that's what I want to talk a little bit today about the smart investment decision you can make. That's today's show and I'm very excited about what we have and I think we've written several hundred articles on my blog and on different speaking engagement and other magazine articles that I've written. So yeah, let's talk about that. And I mentioned that the average investor only got 2.5% from 1995 to 2014. If I bring in 15, it's the same. And no matter what, because we don't have the pensions that we did 30, 40 years ago, right? Not when you enter the workplace. Well, after, right? I'm not telling you. Exactly, right, right. But people don't have that financial security. So it used to be where you stay at one job, you work there 20, 30 years and you're going to be taken care of. Now it's reversed where it's on the employee, the workers that they have to save for themselves. Either they're 401K, 403B and job security isn't there as much as there used to be and when you're jumping from job to job it makes it very difficult to build up wealth and I think part of thinking smart is building enough wealth so you can do what you love to do. In a perfect world, your job is what you love to do so it's not work to you. Yeah, but a lot of people just don't do that these days. I think that somebody, maybe you don't call Sam, somebody is going to take care of them. It's not true. And here's one thing to note. So our national debt is around $17 trillion. If we had to split it between each taxpayer in America it comes out to $150,000, $160,000 per person. So we have a lot of debts. There's just taxpayers. If you divide it by all Americans I think it goes down to like $30,000,000. That's still a lot, right? And Social Security is the main income source for a majority of seniors. It was never intended to be that way. Social Security was created in the 1930s. It was actually the average age that Americans lived was 65, 62, 65 and 62 is when you could get Social Security. But within a couple generations, the average age of Americans living in some cases in the 90s. We have an issue that Social Security may not be there the way it is today for people in my generation, especially even for those that are just being born. Yeah. The age limits get higher all the time and all the restraints and obligations of Social Security program gets tougher all the time. Right. So it ain't what it used to be. Exactly. And in the future it may not be at all. Exactly. This is why it's on us to manage our finance as well. Excuse me, we're not doing that. There's a lot of information out there and there are a lot of people that just try to make money and they may not have the best interest. That's the first issue, isn't it? Recognizing the problem. Right. A lot of people don't recognize the problem. Right, exactly. And so coming back to the question, what is the smartest investment decision anyone can make? So any of those listening or watching the show and it sounds like a big word but I'm going to say it's two words why not just buy S&P index funds? Okay, that's part of it. They were the best thing on your chart. That was and I'm going to talk about that. Acid allocation, when I look at it, I don't mean just only the investment portion but usually your entire life. And asset allocation, really if I were to just sum it up in a few words is just the optimal mix of investments. That's right for you. And unfortunately sometimes they put all their eggs in one basket. People always say that right for you. What's right for me is as much money as possible. And it's right for the guy down the road too. He says as much money as possible. Why does it have to be tailored? What I say it's right for you is it's got to be tailored is because everybody has a different risk tolerance. So some people, and the question I ask is if 2008 were to happen again and you have this invested portfolio and you were going to lose 30, 40, 50% could you sleep at night? I ask that question. If they can't, then most likely that portfolio is not right for them. So your risk tolerance is important. Your financial goals are important. Also what's important is your time horizon. Time horizon? Time horizon. It's time to take a break. Hi, I'm Chris Letham with Think Tech Hawaii and I'd like to ask you to come watch my show The Economy and You each Wednesday at 3pm. Aloha, my name is Danelia D-A-N-E-L-I-A and I'm the other half of the duo. John Newman, welcome. We are co-hosts of a show called Keys to Success which is live on the Think Tech Live Network series weekly on Thursdays at 11am. We're looking forward to seeing you then. Aloha! Aloha, my name is Reg Baker and I'm the host of Business in Hawaii with Reg Baker. Business in Hawaii is a program that is positive stories about business in Hawaii. We're tired of hearing a negativity and why it's the wrong place to have a business. We talk about the positive reasons for having a business in Hawaii and how to be successful. We broadcast live every Thursday at 2 o'clock. We look forward to seeing you. Aloha! The art of thinking smart. Bingo, we're back. Now David Chang is going to tell us what kind of vitamin pills he takes to have this level of energy. It isn't easy. What do you do for that? You know what? That is just my personality. I really enjoy what I do and there's that famous quote Do you live to work or do you work to live? Yeah, exactly. And so I definitely live to work and that's one thing thinking smart is about. Is people out there, life is short to do what you love, do what you're passionate about. That's what we do here, David. No kidding. That's good. That's great. And that's why I'm excited to and bring on a lot of great guests excited about that. And as we were talking about the smartest decision financial decision people can make an asset allocation. And there's always a time factor. And there's always a time factor, right? So we talked about your risk tolerance, your goals and this next graph is a little bit of busy graph and Is that a graph? Yeah, a chart I guess. Looks like Paul Clay painting with lettering on it. Let me tell you what this means. The top is the year. So you have 1996 all the way up to 2015. And the top row is the asset class and an asset class is a class of investments. So you have, let's say, emerging markets Brazil, Russia, India, China. You have maybe U.S. large cap stocks, small cap stocks. You've got bonds. So you have different asset classes and what you see is that the top lot are the highest performing asset classes. And then at the bottom is the bottom asset classes. Now, what this graph shows I know it's just very busy is that nobody knows which asset class is going to perform the best. Now it may look like, okay, hey, emerging markets are doing well, but you could see 2008 it was at the very bottom. So it wasn't 2011 and 2012-13. So what we see that when I talk about asset allocation is that because nobody knows which asset is going to do the best. And you mentioned early in the show. Wait, let's not leave that chart. Can we have that chart back? Can we zoom in on that chart so we can see a little detail of what those individual boxes are saying? Can we do that? And they can go to my blog, ArtifikiSmart.com and they'll see it. Let's see what those boxes say. Pick one. You talked about the blue. The S&P 500 value. You see it and then in that particular year did 15.71% and now we're zooming into the Russell 2000. So the S&P 500, you mentioned, hey, why not just invest in that? Now that's one asset class. The issue is that one year could do very well the other year it may not do very well. So asset allocation means we're going to take almost not all necessarily, but a nice group of each of those assets and combine them for you. Why not take all of them? You can't. Some people do, right? But they found that if you have more than 15 asset classes, then the benefits it does. The benefits usually aren't there as much as if you had maybe 8 to 9. I usually keep around 13 to 11, maybe even the lowest 3 or 4. Do I know enough to make the choices about which of those colored boxes I want? Some people don't. I do that for our clients even if you're just starting out by doing some research you could find out what is the best fit for each person. And coming back to the asset allocation the important thing is once you choose it you want to stick with it. Now I showed in the first chart why the average investor does so poorly. Why? It's because we are actually very, very bad at choosing investments. Personally because we're such emotional people. How many people at the bottom of 2008 sold their investments? Right? How many people A lot of people. Exactly. Otherwise they would have gone down like that. They should have been buying at that time. But they were selling at that time and then people ended up buying right before the crash. So again, that's one of the reasons we do so poorly is because we don't make smart investment decisions. Even if you're really smart and say it's 2008 and you see it going down, you're seeing your nest egg shrink and shrink. Now it's 75 percent of it was and 60 and 50 and 40. At some point you've got to sell isn't that true? Okay so here's an example so I want to show the next chart. The next chart is very important where it shows there that the variance in your portfolio performance what this means here that the gains that you have how much of it is it to selling or buying that you talked about market timing? Market timing only makes up 1.8 percent of the variance in your portfolio. How well and how poorly it performs. 4.6 of it is the stocks that you choose or the investments you choose over 90 percent. 91.5 percent is the asset allocation. It's the optimal mix of the different asset classes. Buy and hold in the asset allocation. Now it's not just buying and holding because you want to rebalance as well. I want to go to the next graph that we have here. This one here is performance of $10,000 from 1995 to 2014 in the S&P 500. I didn't use an asset allocation to make it easy. I just didn't want to ask the class. If you're fully invested your $10,000 would become over $65,000 about a 9.85 percent or 9.9 percent return. If you missed the 10 best days during those 20 years just the 10 best days out of those 20 years your return would only be 6.1 percent. So that means you lost half of what you could have gotten if you had just stayed in those 10 days. Right on the truth. If you go on the next 20 best days it's another half 6 to 3 percent. The market timing doesn't pay. Exactly. If you missed the best 40 days you actually lost money if you missed the best 60 days out of 20 years you lost 4 percent so your $10,000 investment would only become about $4,600. So this is why even if it's going down and we know our companies are profitable in America we're looking at the long term we're not looking at short term so your asset allocation needs to reflect the long term. If you were going to retire within one or two years your asset allocation should not have had so many stocks which are aggressive. It should have been heavily geared towards bonds. What I hear you're saying is that you make these decisions based on historical evaluation and there are certain axiomatic rules to follow like hold as much as you can and rebalance from time to time and all that. But you also said David and I want to get a handle on this and maybe they're changing more, more sweepingly more quickly now than they ever did not only here but in the world and the whole thing is interdependent now anyway so you know Brexit had a big effect on the market. Terrorism has a big effect on the market. Things like happen in 2008 that can happen again. They will happen again and climate change with big storms lots of destruction, failure of insurance companies. How do you build that into this smart model? And part of being smart, think you smart is not letting your emotions drive decisions. That's the unfortunate thing that happens because nobody knows what the future will hold that's why asset allocation is even more important because Brexit. So when Brexit happened Britain left the EU, the stock market just crumbled. Within a week we were back to where we were beforehand. So let's just say you sold right after Brexit when it was at a loss right and you missed that five days of it coming back up. Like the chart says. So preparing for the future is number one you want to invest the safe because the purpose of investing and I want to kind of bring it full circle what is the reason people should invest? The reason for investing is not to gamble but it's to have your money work for you because there's only 24 hours in a day. If I get paid an hourly wage let's just say I can only work a certain number of hours before I burn myself out. But by investing you're having a pot of money make money for you while you're still sleeping. Those are smart thinkers that they are leveraging what other people are doing. By investing you're investing in companies where other CEOs are building up that company and you're going to take advantage of that knowledge, that smart thinking. Leveraging what other people do. So part of investing is it to grow assets sort of. In 2008 there were a lot of multimillionaires billionaires, there were a lot of real estate but they didn't have any income or cash because people couldn't pay their rents or they left or they moved out and they had to declare bankruptcy. So when I say what is the purpose of investment the purpose of investment is to create income for life once you decide you're going to turn on that speed and say I'm no longer going to work because I have enough investments that are going to provide income like your ATM machine so that I can do what I enjoy doing. Oh absolutely, I think it's very important to develop a stash and at the end of your work life which may come sooner than you like that you're prepared to live and one of the things that we learn on these shows you know is that there's lots of homeless out there and a disproportionate number of them are middle class people who didn't have the money to deal with illness and didn't have a retirement fund to draw down from and who wind up with no money and having lost everything and in the nuclear age this is a bad scene it's happening more and more so the problem is that if you tell them this and you offer them this advice and this smart advice and all that is it soon enough in their lives so that they can become aware of the problem deal with the problem and avoid the homeless scenario. So very good question the best time to invest may have been in the past but the second best time to invest is today, right? And so it's never too late we're living longer and it's important that and I always say this kind of to my team and staff we're going to work full time part time so we can work part time full time in the future that means is part time now in these next 10 20 years we work really hard so the next 20 years afterwards you only need to work part time because you don't need to have to work full time and because you need the money so investing now in this last chart that I have this graph got it compounding it why it doesn't pay to wait if somebody from age 21 or 41 puts in $24,000 by the time they reach an age of 67 they have close to $500,000 but if you wait until age 47 to 67 $24,000 only becomes about $60,000 so it doesn't pay to wait so that's why young people now need to see the importance of even stocking away $10, $20 keeping that asset allocation don't let the world problems impact your investing decisions you're going to get the word out there David a lot of people do not know this this is not only smart this is critical this is a requirement in our time the government is not here to help you sorry I said that you better help yourself now that's what the show is going to be about looking forward to the show David I want to meet all your guests see what you're going to do hopefully if I really concentrate maybe I can get smart too you're already there