Expert Interview with Todd Tresidder on Investing and Money Management for Mint

Todd Tresidder pulled off what many of us can only dream about: He retired at 35, and he did it through investing. Instead of spending the rest of his days on a beach somewhere, Todd instead founded Financial Mentor, a site to teach us the real nuts and bolts of investing. Todd spoke with us about investing, managing your future and how if you're doing it right, investing is as boring as watching paint dry.

What is financial coaching, in a nutshell?

There's no secret to building wealth. Spend less than you earn and invest the difference wisely. Everyone knows that. The problem isn't knowing what to do - the problem is getting it done. Financial coaching bridges the gap between knowledge and action. It can save you time and money by helping you avoid the many dangerous pitfalls and dead-end paths on the road to financial freedom. Financial coaching can also accelerate your wealth building by taking the most efficient, effective actions toward achieving your goals.

Do you feel we're generally well prepared to deal with money as a society, or could we do better in that regard?

The data and research all point one direction - traditional financial advice and our educational system have completely failed to prepare society to handle money. Whether you look at bankruptcy data, debt growth statistics, retirement savings averages or any other number, it all says the same thing.

That is the whole reason I came out of retirement and built FinancialMentor.com - to help close this financial education gap. There is an unsatisfied need. And the viewpoint I share is very different from mainstream teaching.

Finance is governed by math and provable principles. There is little vagary, and the essential truths are not complicated. People just need to learn what is necessary and take action on that knowledge.

What are some misconceptions about investing you see out there?

To keep things simple, let's start with the first and most obvious misconception - that investing is about product. Everyone wants to identify a "good investment" like Microsoft in its infancy or gold before it rises. This is a dangerous self-deception. The truth is that successful investors follow a disciplined process based on mathematical expectancy. They focus on process, not product. Investment products are just the tools used to implement the process.

This is intuitively obvious when you realize that we all have access to nearly the same investment products, yet we will all produce dramatically different investment results over our lifetimes.

The difference is process. That is what smart investors focus on, while the rest of the investment industry spends its efforts trying to find the right investment product (hot stock, mutual fund that will outperform, hot sector, etc.).

What makes an investment worth it to you? What criteria do you use to decide whether to put your money in or take it out?

Investing done right is about as exciting as watching paint dry. The creativity and fascination for investing goes into developing an investment process with a provable, positive, mathematical expectancy. Once that process is developed, then the implementation is simply an administrative task where the criteria for the decision are the inputs to the modeled investment process.

It is important to realize this has little or nothing to do with the news of the day. It is about processing market generated information through the investment model to generate the decisions.

This is an important distinction because you must eliminate human emotion from the decision process to succeed long term. The data is clear that most people will do the wrong thing at the wrong time. It is inherent in the very nature of investing where price (which determines gain or loss) is determined by supply and demand.

Retirement is a huge concern right now. How do you think our view of saving for retirement should change?

I wrote an entire book answering the "How Much Money Do I Need To Retire?" question because so much of what is commonly taught is dangerously inaccurate.

In a nutshell, conventional retirement planning is little more than a mathematical projection of a set of assumptions. The problem is there is no possible way to make those assumptions accurately. For example, every retirement calculator, including mine, requires you to estimate when you and your spouse will die. It's absurd because nodiv knows that answer!

The conventional wisdom is to use life expectancy tables, but that is only valid for large populations like with insurance companies or the Internal Revenue Service. It has zero validity for any one individual.

You are no more likely to die at your average life expectancy then you are ten years earlier or ten years later. This forces you to use a very long life expectancy assumption in the analysis because the risk of being wrong is unacceptable.

Similarly, retirement calculators want you to estimate inflation for 30 to 40 years into the future. This is, of course, ridiculous. Ph.D. economists who have spent a career studying inflation can't predict it accurately just one year into the future, so how can the layperson hope to estimate inflation for decades into the future with even the remotest possibility of accuracy? It is impossible, yet retirement calculators require it.

The same holds true for investment returns and other required assumptions used in retirement planning. The whole process doesn't make any sense when you really understand what is being asked.

In my book, I explain workaround solutions and alternative models that actually make sense. In a nutshell, the key is to realize that the financial industry has fostered a deception that retirement planning is about amassing assets when it is really about amassing sources of cash flow. Assets are just the vehicle through which cash flows are delivered.

When you change your thinking in this way, then you can sort out the deceptions and impossible assumptions into a workable retirement plan.

What's the future of investing, in your view, and why?

The future of investing will be increasingly active - less passive. History shows that the passive approach to investing goes in and out of favor based on recent market cycles. The current lopsided belief in buy-and-hold, passive investing is indicative of the outsized gains accruing to this strategy since 1980.

However, popular investment belief has always been a reflection of what has worked over the recent past, and today is no different. If you are not clear on this, just read I by Gerald M. Loeb published in 1935. This book was a bestseller in its day, and there is not one hint of buy-and-hold or passive investing anywhere to be found. Such thoughts would have been heresy back then.

Similarly, as I write this in August 2014, stocks are at extreme overvaluation and bonds are at extremely low interest rates, meaning mathematical expectancy for a passive portfolio is near historic lows over a 10- to 15-year time horizon going forward.

Given the poor investment returns already accruing to the passive approach since 2000, I expect another 15 years of poor returns will cause people to re-examine mainstream portfolio theory resulting in a less lopsided, more balanced conclusion as to what works, what doesn't and why.

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