This Scientist Studied 38,000 People and Says Your Money Habits Are Genetic

You've probably spent a lot of time thinking about how to make money because most founders have. But something you've probably thought a lot less about is the same traits that make you a great founder are likely the exact traits that will make you a bad investor. The conviction, the concentrated bets, the biased action, the optimism, all of it flips when the wire actually hits your account. My guest today is Henrik Krunkvist. He's a behavioral finance professor who has spent 25 years running the exact science and why smart, successful people make irrational decisions with their money. He did his PhD at the University of Chicago under Richard Thaller, the Nobel Laureate who basically invented the concept of nudges and behavioral economics. He published research that has been cited over 7,000 times and covered everywhere from the Wall Street Journal to Harvard Business Review. One of his most striking studies used data from 38,000 to twins to figure out how much of your investment behavior is actually hardwired into your DNA. And the answer surprises a lot of people, including him. The episode isn't about how to make money. It's about what the science says, about what you're probably going to do with it and why that's going to be bad and what you can actually do to protect yourself from your own brain. This is MoneyWise. Let's get into it. Welcome back to another episode of MoneyWise. Today we have a really special guest Henrik Krunkvist who joins us as a behavioral finance experts, which I'm going to have you Henrik actually explain what that is. If you could actually jump off here right into the episode and give me kind of your one sentence breakdown that tells us what you do. Sure. First of all, it's really a pleasure to be on today. I'm a big fan of the podcast. It's really an honor to be on and chat with you today and audience as well about behavioral finance and founders and all of those kind of topics. So what is behavioral finance? Well, it's at the end of the day. It sounds very fancy, but at the end of the day it is that we take a couple of different ingredients. We take a little bit of finance and economics and we mix that with a little bit of psychology and then we get behavioral finance. It really started back in the 80s as a discipline within finance research. Then a bunch of people have popularized it. Many people have read books like Nudge or thinking fast and slow. That's what behavioral finance is about. Okay, so tell me why let's say someone just sold their company for $20 million. Why should that person care about behavioral finance? I think they should very much care what makes many people successful entrepreneurs and founders and startup people. Maybe exactly the type of characteristics that make them more challenged as an investor in the stock market. So what am I talking about? Well, if you think about conviction, that's not we want founders to have strong conviction. We want them to be optimistic. We want them to take a concentrated bet. And many of those things actually flips when it comes to investment. And just to give one example on concentrated bets, we have one of the biases that we have identified in behavioral finances. What we call the home bias people tend to hold a lot more stocks in their home market than in other international markets. That may be okay if you're in America. But if you're in my home country of Sweden, a very small country that is maybe less than 1% of the world economy, then you can end up with a very concentrated portfolio. And in finance and in the stock market, we should diversify and we should be in many different stocks and securities. So that may be something that is counterintuitive to many founders. Yeah. And when before we jump into the research, when you think of someone messing up with money, because I feel like behavioral finance, you've studied so much about what people do well with their money, what people do, of course, poorly with their money. What made you start studying this? How'd you end up in a career and research about this specific topic? Yeah, it's a long story. It is short version of it is that I came to America in 1999 to do my PhD at University of Chicago. And I got really attracted to this field of behavioral finance. It actually started not to bore anyone, but it started with when I was writing my dissertation. I went back home to my home country of Sweden. I still remember I was coming out of the subway, coming up to the ground floor. This is around year 2000. And I realized that it looked like someone had carpet bombed the entire city of Stockholm with advertisement for different mutual funds. So I was like, "Okay, well, what's going on here?" And I took that back to my advisor at University of Chicago who told me, "Oh, that's sort of interesting. You should look into that more and see what's going on." And the research step more. So that's how it all got started. Behavioral finance is the study of why people make irrational decisions with their money. It combines economics with psychology and the field really took off in the 2000s when researchers started noticing that even smart, educated investors were consistently making the same predictable mistakes. Today, it's used by everyone from the world's biggest banks to the apps on your phone, often to understand you better than you understand yourself. How you're going to invest, what's going to cause you to invest or sell your stocks, and really all about the way that you think about money based on who you are. It's a really fascinating study. That's very cool. And you've been researching now behavioral finance for how many years? Too many, probably. 25 years or so. Time flies, man. Tell me like a real story of a pattern you've seen with wealthy investors that maybe shocked you or you maybe didn't expect once you saw the data and you correlated that with some of your hypotheses. Tell me like a real story that the listeners can really resonate with. Sure. I think one of the things that we have researched is about, and I think how you and I got connected as well, is about genetics and the DNA that people have and how that is related to people's investment behavior. That is something that is pretty interesting. So we started by studying twins, so identical twins and fraternal twins, and try to understand how much of your behavior as an investor you're hardwired with and how much of that is driven by the environment. I think we all learn in school about nature and nurture, right? It's more complicated than that. It's sort of nature through nurture, but in any case, that was one of the research projects that we started to kick off, and we have some pretty interesting findings there. And you studied 38,000 twins. So that's a total amount of twins. They're all in Sweden. Yes, they are. But it's sort of your device, Swedish twins. It just turns out in Sweden in my home country, we keep really good track of data on the twins. And so that's why we ended up working with what is called the Swedish twin registry, which is a lab in Stockholm, Sweden, and they have data on, as you say, tens of thousands of different twins. It was originally used for medical research back in the day when people tried to understand things like what is the role of genetics for cancer and things like that. So we took all of these twins and then we matched them up with the data from the tax registry on what kind of investments that these twins have made. And the point is, if you think about it, those identical twins have the same DNA, and then the fraternal twins, they share about 50% of their DNA. So then the way you go about this is that you compare how similar are the identical twins in their investment portfolios to the fraternal twins. And what we found is that the identical twins, their investment portfolios are a lot more similar than the fraternal twins. And then that enabled us to conclude that part of how you behave in the stock market is because of how you're wired. It's part of it. It's biology, part of it's DNA. Henrich's twin study is one of the largest of its kind ever conducted by comparing the investment portfolios of identical twins who share 100% of their DNA against fraternal twins, who share about 50% researchers were able to isolate exactly how much of your financial behavior is inherited from literal genetics. And the answer was roughly one-third. That means if your dad was a panic seller, there's a real chance you are too. And no amount of reading is going to fully rewire that. So would it be appropriate to say that according to research, your investment choices and your personal spending and the way you think about building wealth is actually just genetic and that there's no real control over it? So that's not really true. So we find that about a third of the variation across different people is explained by genetic factors. So about a third, that leaves two thirds if you think about it for being influenced by other things like family, friends, other relationships and things that happen to you. And I think also we got a lot of questions about this and it's sort of like what does this mean? Does it mean that because this is in your DNA, your doomed [BLANK_AUDIO] And that's not what you should conclude from this research. And because one, it explains only about one third of the variation. And number two is that I like the parallel with diabetes. So if you learn that you have a predisposition to diabetes or to high blood pressure or whatever it might be, that doesn't mean that you're doomed, but it does mean that you may be aware of those conditions. And then you can take actions to counter that. And it's the same thing here with your investment behaviors. It's not like you're doomed, but when you know what type you are, you may want to think about how you behave in the stock market and your investments based on that. That's very interesting. So you've studied identical twins for turnal twins, their DNA and specific decision philosophy that is correlated with, sounds like a third of their genetics. So I guess my question is if you're predisposed as a founder or someone building wealth to make certain decisions based on your genetics, then what is there for a wealthy founder or maybe a recently exited founder out there to help train or change some of these decision processes they have with what they do with their money? Yeah, sure. I think if you are just got liquidity as a founder, then the first thing that you probably should do is to do nothing. So meeting that, when you're in that state that you've sold your company, then that process is for most founders that I've ever talked to. It's a pretty emotional process. Could be good emotion. It could be bad emotion, but it's a pretty emotional process. So I think the first thing that you want to do when you have made an exit, I got a liquidity event is to wait, you can wait 90 days, wait some time and get out of that emotional space. And if the stock market in the meantime goes up by 10%, that's okay because by you rushing into a particular investment strategy at that point, I think the price of that could be a lot bigger than losing out on the 10% that the stock market may be going out. And so I think that that is something that is important to be calm and there's the old expression, that don't go grocery shopping when you're hungry. And I think it's sort of a similar kind of thing for founders when you had the liquidity event and to first get out of the emotional state before you start to think about what should be your allocation, what should you do with the money. - That's very interesting. And is this, does this play into your research around loss of version as I was looking at some of your research papers, there's a lot of conversation about home bias, which you mentioned, loss of version, overconfidence, performance chasing, walk me through some of the ways that emotions and genetics play into some of this and also define them for us. What is loss of version in this instance? - Sure, yeah, people don't like losses. I mean, none of us like losses, that's sort of obvious. But the point is that people hate losses a lot more by a bigger factor and by a much bigger factor than they appreciate gains. So that means that when we have a loss on a stock in the stock market, for example, a lot of people they just don't want to realize that loss and go to Robin Hood and hit the cell button, but they wait for the stock to try to come back, at least into a positive territory. And that's what we mean by loss of version and a lot of us display that. - Yeah, you mentioned there's many other behavioral biases as well. So performance chasing would be one, for example. And a lot of us, we look back at the performance of stocks in the recent past and then we extrapolate that into the future, which may or may not be a good idea. If we were standing in, I mentioned before, year 2000, we were at a similar time, maybe, as we are now with the dot com and now we had the AI revolution. And if you stand there and you extrapolate the past performance to the future, things could go wrong. But a lot of us do that. We had this behavior of performance chasing. - Very interesting. And I would love for you to help me understand. Let's say, so recent guests we just had, they sold their company for $10 million. They had a $2 million upfront with an $8 million earn out period. Let's say that that founder put half of their liquidity into the stock market and those stocks dropped 20% three months later. Walk me through what's happening in that person's brain during that time that the stocks drop. - I think it hurts, man. That's the simple, maybe non-scientific explanation for that. The question is then what to do about that. I think that's where maintaining the con and not immediately act on any loss that is happening in the stock market. That's the key thing. But a lot of successful entrepreneur, they have a biased reaction. They are people that get stuff done and they may take action quicker than what you should in the stock market, which is about the longer term. I think also when you put the money into the stock market, if you've been a founder and now you have your liquidity event, then I oftentimes get the question about indexing. So putting money into an index fund, and I think the short answer to what you should do is for sure, a lot should probably be indexed. Indexing had a bad rep in the sense of, isn't that incredibly boring? So if you think, there's no entrepreneur that I know that is striving to become average. I'm going to become an average entrepreneur. No, of course, everyone wants to be in the top quartile, want to be in the top 10%, you want to be a winner. But the indexing is how extremely boring and it sounds like you are targeting the average. That's not really how to think about it. Because if you look at all actively managed mutual funds, and there's hundreds, thousands of them out there, if you look at all of them and you see, where does the S&P 500, which is this boring index, where does that fall in that distribution? It's in the top 10%. So that means that investing in the index that beats like 90% of the actively managed mutual funds over a 20-year period. That's amazing. Most people want to be in the top 8% of a lot of things. So that's the way to think about it, rather than trying to target the average. Does your research show that someone even against logic is actually predisposed to thinking differently about what you just said, just 100% based on genetics and upper range? It's the nature and nurture. And I think, yeah, that's, if you go back to what we actually look at in the genetics studies, we actually look at, we started with the first choice you have to make. So if you're a founder that is now getting liquidity, the first choice is, okay, so how much I'm going to consume versus going to save for the future, right? And so how many lambdas am I going to have now versus saving for my family or for my retirement or whatever? So that's the first thing. And we looked at that choice, save versus spend. Actually, it turns out that that also has a genetic component. It's about one third there as well, of the variation that is attributable to the choice of being more of a spender versus being more of a saver. And then once you decide, okay, well, I'm going to save X%, then the question becomes, what kind of risk profile are you most comfortable with? And that's where we started to study risk aversion and how much people put in equity versus other kind of investments. And we found that that is also driven by about one third or so 20% to 40% is driven by your genetic factors. And then overlaying on top of all of this is what we have talked about, which are these cognitive biases that may influence you to do things that may seem irrational. But I think one point that is important to make is that what we talk about today in the modern society as maybe looks irrational, you had to look at it from the perspective of like evolution and biology. So we have been as humans, we had evolved over thousands of years, right? This fall will be four years since the chat GPT movement. That's like a sliver of history that is not even showing up anywhere. So as humans, we had evolved over this very long period of time and we had got collectively like properties as humans that makes us survive. And we have successfully survived as a species on this planet for many, many years. But some of the factors that have driven the selection of what traits we have, they will make you go wrong in the area of investments, right? We talked about performance chasing. For many things that we do in life, looking at the past quality or the past performance of any product is a great thing. For go to a restaurant, I like it, I go back because the past quality of that restaurant is usually pretty good. predictor of the future quality of that restaurant. By a BMW, I like it. I am by another BMW in the future, because past quality predicts future quality. Stock market is different, and that means that we're not really wired all the time to to see those kind of behaviors, if that makes sense. It does. I want to ask you about a paper you published where you kind of dove into CEO's personal mortgage behavior and how that behavior predicts the way that they're going to run their company's finances. And so I'd love for you to explain to me, like I'm a founder who just took his first $5 million distribution. How is my behavior with that money going to be impacted by the way that I've lived my own personal finance life when it comes to mortgage or rent or my personal housing? Yeah, psychologists have this concept that they call behavioral consistency. And the idea is that we have a personal life and a personal domain, and we exhibit certain behaviors there. And then we have a professional life, leadership, corporate life. And so the question is, is there like a correlation? Is there similarity between how people behave in those different domains? And so one interesting domain that we decided to look at is, and that was stimulated by the fact that I know so many people that had different attitude to how much debt or leverage you want to add. And so some people, they really, really do not like having any debt or having mortgage. And I'm, of course, I'm talking about people that have the luxury of having that choice. Some people they don't have that. And then it's a different story. But even for people that can have more or less leverage or debt, they have a different view on it. And so what we were doing in this particular research article that you mentioned is that we tried to correlate that. So we looked at CEOs or publicly traded companies. And we looked at how much debt mortgage do they use in their houses? Because how do you know that? Well, there's public data that is available that we could collect and look into how much leverage that they have. So that some of them have no leverage, no debt at all, no mortgage, and others have much more debt. And these are wealthy CEOs. So for them, it's a choice whether or not to have any debt. And then we were looking at, okay, well, what about the firm that they are at the top of that firm as the top leader? Is there a correlation then between how they behave with a personal debt situation and the corporate debt situation? And we found very strong positive correlation between them. So that is sort of consistent with this behavioral consistency phenomenon and concept. So say I'm a founder and I guess what do I do with that? Should I, if I'm a debt avoidor personally, should I be more or less worried about my company's balance sheet? Yeah, I think the way you think about your own personal situation with respect to debt that will be reflected in the firm and I guess vice versa. Yeah, so if you're a person that you really hate debt, then probably the way you will grow your business is also with taking on relatively less of that external financing and less debt which could impact the growth of the firm. So there is this sort of, and this effect is probably stronger if you run a smaller business because then you have more control over it. Actually, what we studied were big publicly traded companies where you would expect there to be a lot of other factors that also influence this. And so as a founder of a smaller company, there's probably even stronger link between those. And the solution to these concepts that are, it sounds like deeply wired in a founder's psyche. How do they go about learning these behaviors about themselves so that they can be at least one mindful and, you know, in best case, two, like proactive about potentially solving their propensities to be one way or another? Yeah, it's interesting because for the genetic effect, we ask the very basic question, what about education? So if you have more education, I mean the education space. So we asked, does that reduce these genetic effects? But we didn't find that. So we thought that was pretty interesting. But if you think about, you can be really highly educated, it could be a chemical engineer with a master's degree, but you don't know that much about finance. And so in that case, the education doesn't really matter that much. Which we did find that matters is experience in the financial domain. And so if you work in finance and you've seen the in and out of how things are being done in finance, then that actually reduces the influence of the genetic effect. But of course, not everyone has that experience because they don't work in the finance industry. But by being able to educate yourself on financial matters, that could be helpful. That would be one of the implications of what we found. Okay. Let's shift gears to more practical. We've had founders on the show who had a huge exit and then immediately bought super expensive houses, maybe started angel investing and their buddies startups, put the rest into familiar stocks. A lot of different decisions someone would make when they come into eight or nine figures. Just on your research, what happens psychologically when someone is doing what I just described right after they come into a lot of money? Maybe they haven't had that money before. And they're now for the first time experiencing extreme wealth. What's happening to them in their brain? And how is that correlated with maybe genetics? I think it's what you say is very common in my experience as well. So a couple of concrete things that we can do about it. So the first one I would say is don't rush into something right away. With once you have a liquidity event and exit, then take your time and give it night to days, give it three months. As I said, don't go grocery shopping when you're hungry. And out of that emotional state before you make any commitments. And then another thing that I would say is to have an investment policy statement and it sounds incredibly boring, but it can be successful. And thinking through what should you do with your money? How should you allocate it? And if you look at in my world of universities, so Yale University had a chief investment officer for many years. He's passed away now, but he's incredibly famous. David Swenson. And he had a couple of different principles that Yale used to grow their endowment. And if you think about it, during the time that he was the CIO for Yale's investment, grow from something like maybe about 1 billion to over 30 billion. That's an incredible growth over the decades. And that was not because they were like timing the market and try to get into certain stocks that they were thinking about going up or getting out of certain sectors. But because they developed a policy document and then they were sticking to that. So I think once you get this money from the exit, develop a policy document where you think through how much are you going to save for the future versus how much are you going to consume now? And what is the risk profile that you're comfortable taking on? And what are some of the asset classes that you're going to invest in? Those will be some concrete things that I think founders can do. Okay. And do they read books or should they ask friends or do they, you know, delve deep into themselves? Like, I guess what should they do really on that day? They get the money. So one interesting example of one successful founder, Ankur Nankpal, I don't know if you know him. He had a company teachable, right? I think he did basically the equivalent of A/B testing. So he took some of the money that he got from an exit and then he gave it to some top tier asset manager and then he took another fraction of that money and he decided to manage that by himself. And of course, then you have to read up if you're, if you're going from being a founder, specializing in building companies to now being into investment, you have to read up and try to understand how should you allocate the money. I thought I always thought that was a pretty cool idea of basically doing an A/B testing on your money. Yeah. He was the very first guest we had on money wise. And if you haven't listened to that episode yet, go back and check it out. All of our episodes are at money wise wherever you get your podcast. And if you're a founder who wants to be part of this community that inspired the show, check out Hampton at joinhampton.com. Oh, for those. Oh, he is cool. He'll go back and listen to his exit story. It's great. I've talked to him a few times and he's, he's great. So I think that's a great example. I wanted to ask as well, there's a study about brokerage screens and the design tendencies to use red versus green when stocks go up. up its green when stocks go down its red and some of the effects that it has for people's behavior to buy or sell stocks that some of the fear and uncertainty that comes from a red stock that's down. And I'd love to understand what the research says about one, why people behave that way when they see red and green. And then two, how if and why some of these companies like the stock brokerages were familiar with lean into that. I mean, that's a design choice. They're using red and green very specifically. Tell me about what the research says about that. Sure. It's pretty interesting. So if you think about the color red, so you know, biologically we have been set up in such a way that red tends to sing now to us caution. You should be, you know, aware of the environment. Think about the stop sign. Think about red lights. Many different things that are red blood. If you're out in the old, old days on the seven and you see red, you see the blood, you know, then you better watch out. Gotta be extra careful. So what we look at in our study is if you give people a choice of different gambles that they can take on in an experiment. And then if you present to people the potential losses that they can make, if you used red for the font versus you use black for the font, that's that actually matter. It turns out that it does matter. So if you present losses to people in red, people get more risk averse. And if you show people a graph with returns, so think about the stock return graph. And if you show that graph in red color and you ask people to make a prediction about the future, people are a lot more pessimistic about the future just because of the color red. So it's sort of like programmed in us that red is associated with with danger. And sort of one follow up to to that study, which is interesting for people that are also interested in in different cultures. So I used to live and work for for three years in China. And in China, red color has a bit of a different connotation than in Western culture. It's the color of the flag is the color of the festivals and so on. So we redid this study using Chinese participants in China, where by the way, if you're in China and on a day when the stock market goes up, the board is all red because they use red color for for a good day. And yeah, so actually what we found is not that the effect of reversed, but we did find that in the cultural context of China, the effect of red went away. It was not no longer significant. And so what do we take away from this? I think that a lot of ways that the information is presented to investors. It matters. You know, for Robin Hood had for many years, they had their confetti. When you did a trade, there was like this confetti and then they got rid of that because maybe that will lead to excitement around trading and may not be and the individual investor is best interest. But anyways, there's small things in the design can actually have a pre-interesting and important effect on people. So should wealthy people just not look at their brokerage account during correction? We shouldn't look at our brokerage account too much. On the other hand, we should also sometimes look at it. So there's a fine balance there. I think one of the issues is that maybe we look too much at the brokerage account and we get too much information, too much excitement or too much emotion. And then we act on that too quickly. On the other hand, in one study that we did show that a lot of investors, they don't log in at all to their retirement account over a very long period of time. They don't look at the portfolio at all. Of course, that's great if you originally made a choice that makes sense. But if you originally happened to make a choice that was not that great then leaving it alone for 16 years is probably not a good idea. You make wake up in your midlife and realize that this doesn't look good. But on a serious note, there has been a lot of development in that space that have helped people over the last 25 years, basically during my career. If you look at the default in retirement plans, it's much more sensible that default right now than it used to be 25 years ago. So if you take no action in your pension plan, 401k plan, your money automatically get into what is called a default. And the defaults that we are used now by most companies are much more sensible than back then. Because if you default into say a very low bond fund, what if you for the next 16 years don't pay much attention to that? You have really lost out a lot during that period of time. But if you instead default into like a life cycle fund that will adjust their allocation of the fund depending on your age, then as you get older, your equity exposure may be reduced automatically in the fund. And so there's a lot of positive things that had happened because of I think research in behavioral finance that is really helping people out for the longer term. And it sounds like some of the genetics that are play here will probably say whether or not someone's presposed to taking a bit more control over that 401k or retirement plan or just kind of letting it be and not touching it for 20, 30 years. Is that right? Right. So we didn't actually look too much on that whether you look into your investments or not to what extent that is driven by the genetic effect. So we were sticking with we're looking at how much you're saving, how much risk you take and what kind of cognitive biases that people have. Okay. There's a topic that comes up all the time on money wise and it's the post exit emotions that people feel that actual moment the wire hits the found ourselves the money hits and instead of you know feeling great sometimes we've found counterintuitive they actually feel lost or depressed or almost like they've given up some part of themselves. Does behavioral finance research say anything about that moment in a founder's life? Part of that is probably loss aversion in the sense of you do when you have the exit of course you get a big check right or that's the whole point so you have a liquidity event but you do lose something you lose your business maybe if you if you don't have any control anymore and that's painful and we know that because of loss aversion and so that is incredibly painful to lose that and so that that is part of what's going on why people have that feeling that's one thing the second thing is there's always we always many of us believe that we need in order to get to happiness however that is defined we need a lot more money than probably we do need and there's a lot of research related to that that shows that happiness in in life the money that would lead to that is probably lower than most people think it's not that number is not a billion dollars or a hundred million dollars or even ten million dollars is a lot lower than that and I think that that is also the reality that kicks in for a lot of founders. Is there a number that research says is is kind of the threshold number once you get this that happiness like according to research happiness doesn't change after more comes. Yeah I think that there are some numbers that I my research has not estimated those numbers but the impression that I have is that those numbers are a lot lower than we may think that they would be. Yeah, that makes sense knowing everything we've discussed so far about genetics biases and some of the inertia of someone's buying propensity and some of the way they think about finances is there something anyone can actually do about their behavior or is research effectively saying you're you're wired a certain way because you're genetics so just accept this is the way you're going to behave. Yeah you don't have to accept it for sure so that's not what we are reporting but we say that genetics plays an important role in how much risk you take on and how you make the decision between how much to to spend right now and say for the future but I always like the parallel with say diabetes or heart disease just because you know that you may have that propensity to develop those kind of conditions that doesn't mean that you have to be passive and not do anything about it you can eat less sugar and have fewer donuts if you have a tendency to have diabetes in your family and so same thing for the for the risk taking depending on what type you are so a lot of entrepreneurs may be the more the risk taking type right that's what made them successful as an entrepreneur as a founder and you should be aware of that then when it comes to the stock market by doing a lot of indexing in your portfolio that can be an excellent choice and it's not a boring choice and it's not going for the average but if you index a big portion of your portfolio then you would you will still be in the very top distribution across all the different investment opportunities that would be available to you. So, S&P 500 as an index, if you look at over a 20-year period, S&P 500 is basically in the top 8 percent among all actively managed mutual funds. To put that in perspective, there are thousands of actively managed mutual funds in the United States. Teams of professional analysts, portfolio managers, and researchers whose entire job is to beat the market. According to data going back 20 years, a basic S&P 500 index fund outperforms roughly 92 percent of them, and it charges only fraction of the fees. I put a lot of my money in the S&P 500 and a lot of people I respect who are incredibly wealthy also put their money in the S&P 500. Obviously, this is not investment advice, but the data definitely points to the S&P 500 being a fund that's worth looking at. I think a lot of people would like to be in the top 8 percent, right? And then I think another thing is in the finest industry, one thing that can be countering to it is that it's not always that higher price, meaning higher fees associated with a product will necessarily lead to something that is better. There's a lot of research that is indicating the opposite. Some products that have really low fees, mutual funds, or ETFs, and different investment vehicles that have low fees actually perform better on an after fee basis. That's also something that is perhaps a little bit counter-intuitive to a lot of people, because from any products, we think, okay, higher price, higher quality. My honest fear, I feel like in general that I'm the exception to the rule. That's just how I live my life. Oh, yeah, that's what the research says, but that doesn't apply to me. So my honest fear is I know about the biases from what you've been talking about. Let's say I've read some of the books about how to think through investments and wealth. Your research tends to suggest that that doesn't always help. And so what's I guess me, and anyone who feels similar, what's the actual defense if knowing better doesn't make me better? I think knowing more and reading up about finance, I think, is always a good idea. You can always do a combo of some of it is to outsource some of your money management. If you're a founder, you make $100 million to do sort of an A/B testing. So some of it you may farm out to an advisor that you trust and see how they do. And then you take another part of it, and you really start to understand the very basics of how investments work, which is a different all game than to be an entrepreneur and a founder. And then you see what is doing best in that A/B testing. Of course, the company that you're farming out somewhere today would like to manage all your money. So you would then have to keep some of it to yourself, and then really think through at a deeper level how to go about those investment decisions, including how much should go into equities, how much should go into bonds and lower risk, how much should be indexed, and how much should go into different assets classes. So that's one concrete thing that founders can do. I noticed you said online recently that it's probably one of the most difficult times in history to stay rational with your money. Why now specifically what's changed? I think it is difficult because of the revolution, the AI revolution that we're going through now. There's some parallels back to the dot com period for those that are old enough to remember that, but there's also a lot of things that are entirely different. And prediction about the future is so incredibly difficult. That is why we need to pursue strategies that are diversified, and that have a good mix, and that have low fees associated with your investment vehicles, and do all of those basic rules that were in place 25 years ago during the dot com period, they are still in place now. And so that will be a part of how I think founders and others should think about the world in this very unusual point in time when so many things are changing so quickly. So anyone who says they can tell the future don't tell us into them. Yeah, we're recording this episode with Henrik in the middle of what many people are calling the AI revolution. A lot of that energy now feels similar to the dot com boom of the late 1990s. It once in a generation technological shift that made everyone feel like they had an edge back then the NASDAQ dropped 78% from the peak, and that's not a real prediction about what happens next. It's just a reminder of what Henrik has spent 25 years studying. The most dangerous time to trust your instincts with money is when everyone around you feels certain. Well, we have a lot more ways these days to think about the future. There's prediction markets and many different things, which is a whole different kind of can of worms, I guess. But but that doesn't it is, but the interesting point, I think, is despite the existence of all of those markets, not sure that we really truly know a whole lot more about the future than in the past. But I guess future will tell right on that. That's right. The future will tell. There's a really interesting study. So I'm a dad. I have two kids and you did a study on how a CEO having daughters changes the way that he operates his company's social responsibilities and the way he operates his company in general. I wanted to ask you like, what does your research say about how kids change the way founders or company leaders think about money? We looked at whether CEOs of big publicly traded companies, whether they had a daughter or not, whether that impacted their attitude towards social responsibility and stakeholders other than their shareholders. And the short version of what we found is that CEOs that have a daughter, they tend to be more socially responsible and we got some different metrics from a data provider to analyze. And this is controlling for many other factors that can influence that. So there's something about it, not only having kids or not having kids, but in this particular case, what we found is that having a daughter that may seem to make these CEOs more pro societal in their decision making. And it's an interesting finding that I think there's a lot of research teams that have followed up on it to really try to nail down and understand what exactly is the mechanism behind this finding? What is the mechanism? What do you think that is? Why is there a correlation truly or is it coincidental? I think definitely there is the correlation. So I think that is not the issue. When it comes to the mechanism, then if you have a daughter, you may have different kind of experiences as a dad than if you don't have any daughter at all. Because you see when the kids are growing up, you get to see both as kids, but then also as young adults and as adults and how they may be treated in the labor market and at school. And you get a more first hand glimpse into that than if you don't have a daughter. So we think that it has to do with those lived experiences are different for in this case that we study CEOs that have daughters versus those that do not. And this phenomenon about different kind of lived experiences that people have, that is a much bigger research topics that a lot of people have looked at. And depending on if you grow up in the great depression, for example, how does that shape you? So there's a lot of research about those kind of lived experiences and how they matter for how you behave later on in life. And even as a top leader of a big company, that's what we find. Yeah, that's so fascinating. I mean, I think every day about how being a dad shapes the way I think about building companies, money in general, my own money, the world. I mean, how the world chooses to spend money. And so it's certainly resonates with me. And I'm not surprised. The surprise me is daughter specifically, not just being a parent as a CEO, but the daughter specifically, I think that correlation is incredibly surprising to me. And probably even in the more equal society now than many decades ago, there may still be that the type of experiences that we face as we go through life are different. And depending if you have a son or a daughter, and as a parent, you're closer to and see more firsthand those experiences, then if you don't have that. And it's one thing to hear about. It's one thing to talk about it. It's another thing to experience it. And I think that that is what matters here. And I think that's what our result is pointing to. Yeah. Okay, last one. I want you to think of every founder, exited founder, you know, wealthy person listening to this episode right now. Tell them one specific thing they can do in their lives this week today. with their money based on the research that you found in your 25 years researching behavioral finance. Yeah, sure. I think it definitely thinking through what their investment policy should be like. Again, it sounds pretty boring and it sounds very institutional or corporate, but even for an individual to think that through and have an investment policy for yourself, where you think through where your money is going to go and what kind of buckets is it going to be in? And the distribution of risk that you're going to have, I think that's something that is for every founder, something that they should think through either items themselves or with the help of some advisor or someone that they can really trust. There's a lot of competing thoughts on whether or not to use a wealth advisor or financial planner. I've heard both sides of the spectrum, someone who is 100 million dollar exit, they have 70 million liquid, they don't use financial planners at all. They manage it entirely themselves. And then on the other side of the spectrum, they don't want to think about it. They trust whoever is thinking about it. They know getting into the weeds is likely not going to beat the market anyways. And so they're really just index and financial planner approach. What do you think the exited founder should do with that information? Should they have a wealth planner so they're not affecting the outcome with their genetics or is it unrelated? First of all, I think that there is not one answer for everybody. So I think it depends. That's the short version of it. It depends what you're comfortable with. I think that there are many wealth managers that are really excellent, that add a lot of value to helping out their clients with many things, including finance, but other things in life as well. There's no question about that. Of course, like with every industry, there's also something that are not so great. That's sort of on the financial advisor side. Then also for you as a person, it also depends on your interest. So to really, if you are the big portfolio, if you're talking about tens of millions of dollars to manage part of that by yourself, that takes some effort. If you don't have the knowledge and the interest, if you're successful founders, you have created wealth of tens or hundreds of millions of dollars. I'm comfortable saying that you will be able to learn and understanding about finance as well and get up to speed, but some people just don't are not interested in that. So I think that's the side of the individual. So it's both. That's why there's not one story that will apply to everybody. Yeah, there are enough. Henrik, this has been really fascinating. I honestly, before this episode, before researching who you were, had no idea, genetics and psychology played as much as it does into the way that founders manage their money and spend even their company's money. It's really, really fascinating research you've been doing. I really appreciate the opportunity to chat about these topics, which has been part of my life for a quarter of a century. That's one way of putting it. Sounds like really old and very long. 25 years sounds way better than quarter of a century. Depending on what point you want to make, right? It's all about, as we say in psychology, it's all about the framing and I really appreciate the opportunity to talk about these topics. Thank you very much. No, absolutely. Thanks so much for coming on one wise. We'll look forward to chatting again soon.