Dissecting the Keys to Successful Investing with Larry Swedroe, #234
In this episode, I’m joined by Larry Swedroe, a thought leader in evidence-based investing and former Chief Research Officer at Buckingham Strategic Wealth.
Larry has authored over 18 books that have shaped the way people think about personal finance, and now, after 28 years in the industry, he’s sharing the most valuable lessons he’s learned in retirement planning and investing.
In this episode, we dive into his latest book, Enrich Your Future: Keys to Successful Investing. Through 40 captivating stories, Larry exposes the myths and misconceptions that many investors hold, often perpetuated by Wall Street, and replaces them with clear, actionable strategies.
From understanding how overconfidence derails financial success to learning how to balance risk as you approach retirement, this conversation offers invaluable guidance for anyone looking to achieve financial independence.
You will want to hear this episode if you are interested in...
[1:33] Larry’s process for writing a book
[7:33] How the industry has embraced passive investing
[17:19] Using tennis to explain the difficulties of active management
[21:20] Why do we think we can outperform the market?
[26:57] What approach is prudent for most people?
[30:08] Should retirees focus on dividend-producing investments?
[35:02] How to determine the amount of risk to take in your portfolio
[39:23] Diving into the concept of indexed annuities
The Tennis Analogy: Winning by Not Losing
Larry’s journey to becoming a better tennis player offers a profound parallel to investing. While taking lessons to improve, Larry’s coach warned him that his occasional “winning shot” was his worst enemy because it encouraged risky behavior unlikely to succeed over time. The lesson? The best strategy is to focus on consistent returns, avoiding unnecessary mistakes.
In investing, many people chase high-risk, “winning strategies,” but the odds of outsmarting the market are slim. Larry advocates for a systematic, disciplined approach that prioritizes steady progress over flashy risks—a strategy most investors can benefit from.
The Myth of Outperformance and Overconfidence
Why do people believe they can outperform the market? Larry points to overconfidence, which often clouds judgment. He highlights a study where accident-causing drivers rated their skills as “better than average.” This same misplaced confidence drives many investors to believe they can beat the market despite evidence to the contrary.
Larry hasn’t bought an individual stock in over 30 years, despite his expertise as a trained security analyst. He explains how systematic investing, combined with low-cost funds, provides better long-term results than active stock picking, which is riddled with hidden costs and risks.
Balancing Risk with Your Financial Goals
Larry explains that determining the right amount of risk involves balancing three factors: your ability, willingness, and need to take risks. A stable income, like that of a tenured professor, allows for higher equity risk, while volatile professions, such as construction, require more conservative strategies.
He also stresses the importance of managing risk as you transition into retirement. Early losses during retirement can be devastating if you’re withdrawing from your portfolio. Larry emphasizes crafting a strategy that aligns with your goals, whether that means saving more, spending less, or adjusting your risk tolerance.
Don’t miss this episode for practical strategies and relatable stories that can transform your approach to investing and retirement planning!
Resources Mentioned
Subscribe to the Retire with Ryan YouTube Channel
Connect with Larry Swedroe on LinkedIn
The Only Guide to a Winning Investment Strategy You'll Ever Need