00:00:00
Renting versus owning a home is the
00:00:01
biggest financial decision most people
00:00:02
make in their life. So, we're going to
00:00:04
talk about all of the unreoverable costs
00:00:05
[music] of owning a home, including
00:00:07
property taxes, maintenance costs, which
00:00:09
is the one that I think people
00:00:10
underestimate the most. And then there's
00:00:12
also emergency costs. I've got a whole
00:00:14
stack of them, as well as a 5% rule to
00:00:16
figure out if renting is a better
00:00:17
financial decision. We'll go through
00:00:18
that. What else have we got?
00:00:19
>> So, this is something that people just
00:00:20
don't think enough about, which is the
00:00:22
top 10 financial mistakes that I think
00:00:24
people make. For example, tax planning
00:00:26
opportunities. Like there are simple
00:00:28
things that people can [music] do to
00:00:29
minimize the amount of tax they're
00:00:30
paying. We'll go through those.
00:00:31
>> Ben Felix's firm manages the money of
00:00:33
more than 3,000 people, ranging from
00:00:36
people with huge amounts of money and
00:00:38
not so much money. His whole thesis is
00:00:41
giving people money advice that is based
00:00:43
on academic research.
00:00:44
>> Our brains, our psychology absolutely
00:00:47
gets in the way of making good long-term
00:00:48
financial decisions.
00:00:49
>> And today we're going to answer the big
00:00:51
money questions like what should I
00:00:53
invest in? A lot of people believe that
00:00:55
they need to have a lot of background
00:00:56
information before they can start
00:00:58
investing, but I would argue that people
00:01:00
who know just a little bit, they will be
00:01:01
better long-term investors. There's a
00:01:03
ton of evidence supporting that this
00:01:04
will outperform most other investment
00:01:06
strategies. And also, what is the
00:01:08
mentality, the mindset of people that
00:01:11
end up making money over the long term?
00:01:13
>> Psychology is important for determining
00:01:14
what your financial goals are. So, this
00:01:16
is a framework that we developed to
00:01:18
elicit higher quality goals.
00:01:20
>> What would you say to young people that
00:01:21
are thinking about their financial
00:01:23
strategy? A lot of young people feel a
00:01:24
lot of pressure to save, but there is
00:01:26
research suggesting [music]
00:01:27
that it's probably suboptimal for young
00:01:29
people to save, which we'll talk more
00:01:30
about later. And then, in a world of AI
00:01:32
where everything is changing so quickly.
00:01:34
What should I be doing with my money
00:01:36
right now? Ben Felix has the answers.
00:01:40
This is super interesting to me. My team
00:01:42
given me this report to show me how many
00:01:43
of you that watch this show subscribe.
00:01:45
And some of you have told us according
00:01:46
to this that you are unsubscribed from
00:01:48
the channel randomly. So, favor to ask
00:01:50
all of you. Please could you check right
00:01:52
now if you've hit the subscribe button
00:01:53
if you are a regular viewer of the show
00:01:54
and you like what we do here. We're
00:01:56
approaching quite a significant landmark
00:01:58
on this show in terms of a subscriber
00:01:59
number. [clears throat] So, if there was
00:02:00
one simple free thing that you could do
00:02:03
to help us, my team, everyone here to
00:02:05
keep this show free, to keep it
00:02:06
improving year over year and week over
00:02:08
week, it is just to hit that subscribe
00:02:10
button and to double check if you've hit
00:02:11
it. Only thing I'll ever ask of you, do
00:02:13
we have a deal? If you do it, I'll tell
00:02:15
you what I'll do. I'll make sure every
00:02:17
single week, every single month, we
00:02:19
fight harder and harder and harder and
00:02:20
harder to bring you the guests and
00:02:21
conversations that you want to hear.
00:02:23
I've stayed true to that promise since
00:02:24
the very beginning of the D of Sio, and
00:02:26
I will not let you down. Please help us.
00:02:28
Really appreciate it. Let's get on with
00:02:30
the show.
00:02:31
[music]
00:02:36
[music]
00:02:38
Ben, there are lots of people out in the
00:02:41
world talking about personal finance and
00:02:43
investing and all these adjacent
00:02:44
subjects. What is the approach you take
00:02:46
that you think is different to lots of
00:02:50
the other sort of finance experts that
00:02:52
are on YouTube that are giving people
00:02:54
advice? What I think and the approach
00:02:56
that I've always tried to take is what
00:02:58
can we take from academic literature,
00:03:00
very smart people who spent a lot of
00:03:02
time thinking about these things. What
00:03:04
can we take from them and apply to
00:03:05
making good financial decisions for a
00:03:07
typical person?
00:03:08
>> And what are the key questions that
00:03:10
you've sought to answer for the
00:03:11
audiences that you have
00:03:13
>> is renting versus owning a home. So,
00:03:14
that's always been big. Asset allocation
00:03:17
is another big one. How much should you
00:03:18
invest of of your long-term money that
00:03:20
you can afford to take some risk with?
00:03:23
And another important question people
00:03:24
wonder about is uh why should I not do
00:03:27
this other investment strategy that
00:03:28
seems very attractive?
00:03:30
>> And who who are we appealing to with
00:03:32
this conversation? Is it just people
00:03:33
that have lots of money or is it
00:03:35
>> No, I think these questions need to be
00:03:36
answered. I mean, the the renting versus
00:03:38
owning a home one is applicable to
00:03:39
pretty much everyone because that is the
00:03:41
biggest financial decision most
00:03:42
households will make in their lives
00:03:44
regardless of what their net worth is.
00:03:46
But investing, what should you do with
00:03:48
your long-term investments? That's
00:03:49
applicable to anybody. Anybody that's
00:03:51
going to be saving for their future,
00:03:52
whether they have $10,000 or $10
00:03:55
million, the same principles apply.
00:03:57
>> And how much of this game of investing,
00:03:59
making money is comes back to
00:04:02
psychology.
00:04:03
>> So, I like to say investing has been
00:04:04
solved. We're going to use index funds.
00:04:06
That's it. The hard part is actually
00:04:08
doing that because our brains, our
00:04:11
psychology absolutely gets in the way of
00:04:13
making good long-term financial
00:04:14
decisions where our brains are designed
00:04:17
for survival. They're not designed for
00:04:20
thinking about long-term abstract
00:04:22
concepts like taking your money today,
00:04:24
investing in the stock market, ignoring
00:04:26
all the stuff that happens in between
00:04:27
and then having money left over later uh
00:04:30
to to fund your retirement. That's so
00:04:33
interesting because a lot of the time
00:04:34
people talk about tactics and strategies
00:04:36
but I guess underpinning your ability to
00:04:38
execute on any of those tactics or
00:04:39
strategies are one's own psychology and
00:04:41
is there academic research about the
00:04:43
best sort of mental approach to take
00:04:45
towards money in finance and investing.
00:04:47
So one of the best approaches and it's a
00:04:49
little bit counterintuitive is to not
00:04:51
look at your investments. There is an
00:04:53
academic paper showing that the more
00:04:55
people look at their investments the
00:04:57
less risk they take and the lower
00:04:59
returns they earn. Because when you look
00:05:02
at your investments every day, the stock
00:05:03
market goes up and down. We know that if
00:05:06
you're looking every day at your
00:05:07
portfolio and it's down 5%, up 6%, and
00:05:09
going up and down all the time, that can
00:05:11
be very stressful and it makes it seem
00:05:13
like the stock market is very risky. And
00:05:16
so people will invest less in the stock
00:05:18
market. In reality, for for long-term
00:05:20
investors who can invest in stocks, buy
00:05:22
and hold for a very long period of time,
00:05:24
that they're a lot safer than people
00:05:26
think.
00:05:26
>> So, [clears throat] we've got some props
00:05:28
here for some demonstrations we're going
00:05:30
to do. Could you just give explain to me
00:05:31
the high level of what these things are
00:05:34
on the table and the different
00:05:35
frameworks we're going to go through?
00:05:36
>> Sure. So, we have a bunch of things
00:05:38
here. Uh this is one of my favorites
00:05:41
that I bring up in a lot of my videos.
00:05:44
So, this is the the perma model which
00:05:46
comes from positive psychology.
00:05:48
Psychology is important for investing
00:05:49
well, but it's also important for
00:05:51
figuring out what your long-term
00:05:52
investing strategy should be.
00:05:54
>> We'll go through that. What else have we
00:05:55
got here? This is the top 10 financial
00:05:58
mistakes that I think people make. Uh
00:06:01
this is the the three steps for
00:06:03
investing your first $10,000.
00:06:04
>> Okay. And we've got $10,000 there. So
00:06:06
you're going to talk me through how we
00:06:08
do that. Yeah. As well.
00:06:09
>> We're going to talk about all of the
00:06:10
unreoverable costs. Got a whole stack of
00:06:13
them that you incur when you own a home.
00:06:17
>> Okay. And I I guess this begs the
00:06:18
question, who is Ben Felix? What is your
00:06:21
background? and what is the education,
00:06:23
the reference points, the experiences
00:06:24
that you're drawing upon to give us this
00:06:27
information today?
00:06:28
>> Probably where it starts for for being
00:06:30
relevant is I I did a degree in
00:06:32
mechanical engineering at Nor Eastern
00:06:34
University. And I say that's relevant
00:06:37
because when I came into finance, I
00:06:40
wanted to approach it like an engineer.
00:06:43
And a lot of finance, a lot of financial
00:06:45
services of of investing and wealth
00:06:46
management is not approached like an
00:06:49
engineer. uh it's approached like a I
00:06:51
feel almost bad saying this but it's
00:06:53
approached like a like a car dealership
00:06:54
like selling selling product uh so I was
00:06:57
disappointed in that and and had to find
00:06:59
my find my own way
00:07:01
>> they haven't got my best interest at
00:07:02
heart
00:07:03
>> in in a lot of cases I don't think so
00:07:05
>> I started spending a lot of time reading
00:07:07
through academic literature so that I
00:07:08
could be very confident and comfortable
00:07:10
that the advice that I was giving to
00:07:12
people was good high quality advice
00:07:14
>> and where is the best place to start is
00:07:17
it in the psychology is it one one of
00:07:18
these frames marks is it somewhere else?
00:07:20
Is there a background understanding of
00:07:21
the economy one needs to to get going?
00:07:24
>> That is a great question. I don't think
00:07:26
so. And I think that's where a lot of
00:07:28
people get stuck where they believe that
00:07:30
they need to have a lot of background
00:07:31
information before they can start
00:07:32
investing. Uh they may do research on
00:07:35
specific industries. They may look at
00:07:36
like the energy sector so they can build
00:07:38
out an energy portfolio as one example.
00:07:41
But investing the way that I would say
00:07:43
is sensible for most people which is
00:07:44
just using lowcost index funds capturing
00:07:46
market returns. the the market returns
00:07:49
have been there and they're going to
00:07:50
continue to be there. They should
00:07:51
continue to be there in the long run. Uh
00:07:53
doing that doesn't require a lot of
00:07:55
background knowledge. I would argue that
00:07:58
people who know just a little bit, just
00:08:00
enough. They just know that index funds
00:08:02
are sensible and they have enough
00:08:03
conviction they can stick with that they
00:08:04
will be better long-term investors than
00:08:07
someone who knows enough to hurt
00:08:08
themselves.
00:08:09
>> What What would you say to young people
00:08:10
that are thinking about
00:08:13
their financial strategy? Would you say
00:08:15
that someone in their early 20s, 21
00:08:18
years old, should adopt a completely
00:08:19
different approach to money based on
00:08:22
what you've just shown me versus someone
00:08:23
that's 51 years old?
00:08:25
>> It's going to be different for sure. I I
00:08:27
think and this is a it's a tricky
00:08:29
subject, but a lot of young people feel
00:08:30
a lot of pressure to save and that might
00:08:33
be saving for their retirement. It might
00:08:34
be saving to buy a home, but they feel a
00:08:36
lot of pressure from their parents uh
00:08:38
and just from society in general that
00:08:39
they need to be saving money and that if
00:08:41
they're not saving money, they're being
00:08:42
irresponsible. But again, if we come
00:08:44
back to academic research, there is
00:08:46
research suggesting that it it's
00:08:49
probably suboptimal for young people to
00:08:50
save. General point is that you should
00:08:53
save more when you have a higher income
00:08:55
and save less when you have a lower
00:08:56
income. And what that ends up meaning is
00:08:59
that young people may not need to save
00:09:02
or may not need to save as much as they
00:09:04
feel pressured to save. The reason this
00:09:06
topic is tricky is that while what I
00:09:08
just said is true, it can cause bad
00:09:11
habits where if people spend all of
00:09:13
their income and then don't have that
00:09:15
shift towards saving at some point, then
00:09:18
they'll they'll end up in a difficult
00:09:19
position later on in life. Someone who's
00:09:22
50, it's going to depend on their
00:09:24
situation. If they're the person who I
00:09:26
just mentioned who never saved, they're
00:09:28
in a tough position and they are going
00:09:29
to need to save a lot in order to have
00:09:32
some wealth later on in life. But if
00:09:34
they've already saved and they have
00:09:36
wealth, then they can focus more on some
00:09:38
of these topics.
00:09:40
>> And you've got the the 10 money mistakes
00:09:42
people make here. Can you run me through
00:09:44
those ones and just let me know if any
00:09:46
of them are particularly pertinent or
00:09:48
interesting that we should dive deeper
00:09:49
into?
00:09:50
>> So, this this one's controversial. It's
00:09:53
not earning enough money. A lot of
00:09:56
people feel like they
00:09:58
don't have an option. that they're not
00:10:00
earning enough money because that's just
00:10:02
the way things are and there's nothing
00:10:04
that they can do about it. I don't think
00:10:06
that's necessarily true. Investing in
00:10:07
your human capital and that can be
00:10:09
formal education, it can be gaining
00:10:11
skills, it can be becoming an
00:10:12
entrepreneur. Those are all ways to make
00:10:14
your your own self a more valuable asset
00:10:18
to increase the value of your human
00:10:20
capital and allow you to earn more
00:10:22
money. So that's that's a big one. I
00:10:23
think people who get stuck in the in the
00:10:27
feeling or the thought that they do not
00:10:28
have the ability to increase their
00:10:30
income and that this is just the way
00:10:31
things are. I think that can be very
00:10:33
problematic. I've always thought of it
00:10:35
across these sort of five buckets. The
00:10:37
first two buckets that we attempt to
00:10:39
fill when we're starting our careers are
00:10:41
our knowledge and then our skills. And
00:10:43
kind of like when knowledge is applied,
00:10:44
it becomes a skill. And these two first
00:10:46
buckets are so imperative because they
00:10:49
can almost never be unfilled. Whereas
00:10:51
the other three buckets, which is your
00:10:52
resources, your network, and your
00:10:54
reputation, you can have career
00:10:56
fluctuations and earthquakes that cause
00:10:58
those buckets to unfill. So, as like you
00:11:00
were saying earlier on about young
00:11:01
people, one of the things I've always
00:11:02
thought is like when you're young, just
00:11:04
like optimize for filling your knowledge
00:11:05
and skills as much as you possibly can.
00:11:07
And actually, I guess the the level of
00:11:08
nuance there is acquiring a rare but
00:11:12
complimentary stack of knowledge and
00:11:14
skills that the market values. And I
00:11:17
think over the long term, you know, this
00:11:19
doesn't apply to everybody because
00:11:20
things happen in life and bad things can
00:11:22
happen, but over the long term, I think
00:11:24
life tends to land you pretty much in
00:11:27
and around the value of and the rarity
00:11:30
and the compl complimentarity of those
00:11:32
knowledge and skills as it relates to
00:11:34
the market's demands.
00:11:35
>> That's absolutely true. There's data on
00:11:37
this too where we know that there is a
00:11:39
mechanical relationship at least
00:11:40
historically. We can talk about the
00:11:42
future but historically there has been a
00:11:44
mechanical relationship between formal
00:11:46
education or trade ed education and
00:11:49
lifetime earnings and we also know that
00:11:51
certain degree types like engineering,
00:11:53
finance, uh business, some other
00:11:56
sciences have higher lifetime earnings
00:11:58
than other degrees. So it's you're I
00:12:00
think you're absolutely right. There are
00:12:01
and the hard part is we don't know what
00:12:03
exactly those degrees and skills that
00:12:05
are going to be the highest paying in
00:12:06
the future are going to be. 10 years ago
00:12:08
we might have said software developers.
00:12:09
Today we might not. But even you as an
00:12:12
example, so you did engineering and then
00:12:13
you did finance and now you've added
00:12:16
this other string to your bow which is
00:12:17
you know how to make content on YouTube
00:12:19
and that makes you as a finance expert
00:12:22
and professional and CIO so extremely
00:12:25
rare. It almost makes you like one of
00:12:29
100 on planet earth maybe and this is
00:12:32
what I mean by rare and complimentary
00:12:33
skills. You could have just learned more
00:12:35
finance and I don't think that would
00:12:36
have moved you up this sort of earning
00:12:38
ladder, but because you added this
00:12:40
really rare skill of being able to make
00:12:42
content to the your other skill stack,
00:12:45
I'm guessing it made you money.
00:12:47
>> It did. It has. And I I continue to be
00:12:49
paid well. And you know, it was
00:12:53
Please don't. But if you were to go back
00:12:54
and watch my old videos, which are still
00:12:56
up, I'm so rigid and nervous and I and I
00:13:00
was. And it took probably years of
00:13:02
recording and we do a podcast too. So
00:13:04
just being in front of the camera for me
00:13:06
to feel pretty good. I mean I it
00:13:08
probably took me three years to smile on
00:13:10
camera
00:13:10
>> really. [laughter]
00:13:12
>> So yes, that was a skill that I acquired
00:13:14
through just practice. I guess
00:13:17
>> I say this because I really want people
00:13:18
to think about how rare their skill
00:13:19
stack is. It's not something we're
00:13:21
taught. And then also one of the things
00:13:22
I noticed I used to work in a a biotech
00:13:24
company for a little while while I was
00:13:26
in between things and we were looking
00:13:28
for a writer, a biotech writer. Now the
00:13:31
other writers that we'd hired at our
00:13:33
other companies might have been paid I
00:13:34
know $50,000 whatever it is for a
00:13:36
biotech writer we would pay them a
00:13:38
quarter of a million and all the only
00:13:41
difference is the biotech writer had
00:13:42
like some base they didn't have to go to
00:13:45
medical school. They just needed
00:13:46
experience in writing about biotech.
00:13:48
>> Yeah.
00:13:49
>> And it 5xed their earnings. So this
00:13:51
other point is you might have a skill
00:13:53
stack but are you selling them on the
00:13:55
right market and even me first part of
00:13:58
my career was marketing. I was helping
00:14:00
Uber and fizzy drinks company and
00:14:03
dressellar company sell their dresses.
00:14:06
As I just said the second little stop I
00:14:08
took in my career was helping biotech
00:14:10
companies with marketing that are about
00:14:12
to IPO. [laughter]
00:14:14
My first contract with one of those
00:14:16
companies was worth eight million, six
00:14:17
months work. And I it was a real pivotal
00:14:20
moment in my career where I go, it's not
00:14:22
just the skills you have, it's like
00:14:23
where you the the market and industry
00:14:25
where you sell those skills can wildly
00:14:28
change your your as you say on that
00:14:30
card, your earning potential.
00:14:31
>> Yeah. And as you say that this is
00:14:33
something that you don't have full
00:14:35
control over because you could do all of
00:14:36
those things and not find work as a
00:14:37
biotech writer, but putting yourself in
00:14:39
that position I think does increase the
00:14:41
odds.
00:14:41
>> What's the second one you've got there?
00:14:43
Second one is not saving enough.
00:14:48
Touched on this a little bit. Young
00:14:49
people maybe don't need to save, but at
00:14:51
some point you do have to start saving.
00:14:53
And the tricky thing about saving is
00:14:55
that wealth compounds over time. And if
00:14:57
you're not saving out enough, you're
00:14:58
missing out on compounding. And it gets
00:15:00
a lot harder to catch up with the amount
00:15:02
of savings you would have otherwise had
00:15:04
if you started earlier. Uh so that
00:15:07
that's a big one. And some people will
00:15:09
wake up when they're 50, 55, maybe even
00:15:11
60 and realize they haven't saved
00:15:13
enough. But by that time, there's
00:15:15
nothing that you can do about it or very
00:15:17
little that you can do about it. There's
00:15:18
a lot of parallels with health here
00:15:20
where if you eat poorly and don't
00:15:21
exercise, you can wake up when you're 55
00:15:23
and you can have heart disease. That is
00:15:26
very difficult to reverse and it's the
00:15:28
same effect. It's compounding over time.
00:15:30
I think health and wealth have a lot of
00:15:31
parallels anyway. So, not saving enough
00:15:34
can be very problematic because it is so
00:15:36
hard to reverse the effects of it once
00:15:38
you've realized it's a problem.
00:15:39
>> Interesting. I read a book um called The
00:15:41
Slight Edge by I think it's Jeff Olsen
00:15:44
when I was 18 which talks exactly about
00:15:46
that. I think it uses one of the
00:15:47
analogies it uses is like brushing your
00:15:48
teeth. Don't brush them today, it's
00:15:50
fine. Don't brush them every day this
00:15:51
week, you're fine. Don't brush them
00:15:52
every day this month, you're fine. But
00:15:53
in 5 years, you're [ __ ]
00:15:54
>> That's right. [laughter]
00:15:55
>> In 5 years time, you can't like stop
00:15:57
brushing them then you're in a dental
00:15:59
chair having them ripped out. And I
00:16:00
guess finance is the same in this
00:16:01
regard. Exactly. Yeah. Number three is
00:16:03
not setting financial goals. And that's
00:16:06
we talked a little bit about this
00:16:07
earlier as well. If people don't set
00:16:10
goals, they will do things like think
00:16:13
they need to earn more money because
00:16:16
because because that's what you do. Or
00:16:18
they'll think they need to buy a house
00:16:19
because that's what you're supposed to
00:16:20
do. But they won't step back and reflect
00:16:22
on what are the components of a good
00:16:24
life for them. What do they want their
00:16:26
life to look like? And what would they
00:16:28
need to do to achieve that? And if you
00:16:29
don't go through that exercise, you can
00:16:31
end up spending years or dollars
00:16:34
achieving things that don't really
00:16:37
matter to you. And again, because of
00:16:39
compounding, by the time you realize
00:16:40
those things didn't matter, that's time
00:16:42
and money that you can't get back.
00:16:43
>> So, how do I go about setting good
00:16:45
financial goals? What is the process
00:16:46
there?
00:16:47
>> So, this is the the process that we
00:16:49
created
00:16:51
is three steps.
00:16:54
List your goals.
00:16:56
>> Okay. So, [clears throat] what does that
00:16:57
look like? So, you're going to sit down
00:16:59
with a piece of paper or we we built an
00:17:01
app for this uh that we use with with
00:17:02
clients. Uh you just list out your
00:17:05
goals.
00:17:06
>> So, I could say, "I want to be a dad. I
00:17:08
you know, I want to buy a Ferrari."
00:17:10
>> Yep.
00:17:10
>> We want to go on holiday to Cancun.
00:17:12
>> Yep.
00:17:14
>> I want to be able to retire at 50. Those
00:17:16
kinds of goals.
00:17:17
>> Yep. Now, step two. So, you've got your
00:17:18
list of goals. You're going to double
00:17:20
the list.
00:17:21
>> Double it.
00:17:22
>> Yeah.
00:17:23
>> Why?
00:17:23
>> So, you came up with I think four goals
00:17:24
just now. you're going to write down
00:17:25
eight goals because this forces you to
00:17:27
think harder about what other important
00:17:30
what other goals might be important to
00:17:31
you and research does show that this
00:17:33
elicits more goals that people later
00:17:35
identify as being at least as meaningful
00:17:37
as the initial goals that they listed.
00:17:38
And then the last thing we're going to
00:17:40
come back to the perma model. So the
00:17:41
perma model is a five factor model of
00:17:43
human flourishing. If you have these
00:17:48
components contributing to your life,
00:17:50
there's a very good chance that you'll
00:17:52
live a good satisfying life. I think
00:17:54
you've you've lived through this
00:17:56
experience where you've seen that wealth
00:17:59
does not lead to a good life.
00:18:01
>> Mhm.
00:18:02
>> And so what does Well, there's there's a
00:18:04
whole bunch of really good research on
00:18:05
this and it does suggest that positive
00:18:08
emotion is one big piece of it. What
00:18:10
does that mean? It's literally enjoying
00:18:12
what you're doing and feeling good
00:18:13
throughout the day. engagement. You
00:18:16
could probably argue that we're getting
00:18:17
some of that right now where you're
00:18:19
doing something that you enjoy doing
00:18:21
that's maybe a little bit challenging,
00:18:22
but it's at your skill level. It's the
00:18:24
idea of getting into flow. I know I get
00:18:26
that when I do podcast interviews, when
00:18:28
I do research, when I'm sitting down and
00:18:30
writing a video script.
00:18:32
>> Relationships [clears throat] is is
00:18:33
having good strong relationships with
00:18:35
with people who are close to you in your
00:18:37
life. And that can be friends, it can be
00:18:38
family members, it can be colleagues.
00:18:40
Meaning is being part of something that
00:18:42
is bigger than yourself.
00:18:44
That can be a lot of different things.
00:18:45
For some people it's religion. For some
00:18:47
people it's community. For some people
00:18:48
it's their own business.
00:18:51
>> And accomplishment is achieving hard
00:18:55
things, setting goals and achieving
00:18:56
them. You're going to look at the items
00:18:58
of the perma model. You're going to look
00:19:00
at those as categories and think about
00:19:02
what other goals you may have that fit
00:19:03
into those categories. That's called a
00:19:06
categorical prompt. And again, there's
00:19:07
evidence behind that helping people
00:19:09
elicit more meaningful goals.
00:19:11
>> So, one of the things I said is buy a
00:19:12
Ferrari. Again, these aren't my goals. I
00:19:13
don't care about Ferraris, but in case
00:19:14
they want to sponsor the podcast, then I
00:19:16
care about Ferraris. Um, but say the
00:19:18
Ferrari thing. Do do I have to find
00:19:20
where it sits with in terms of positive
00:19:22
emotion, engagement, relationships,
00:19:23
meaning accomplishment?
00:19:24
>> It would be wise to, and this is why I
00:19:26
think this framework is so important
00:19:28
because you might realize that a Ferrari
00:19:29
does not contribute to any of these
00:19:30
things. It might though, like maybe you
00:19:32
take it to the track and you spend hours
00:19:35
racing it
00:19:35
>> and that would be engagement.
00:19:36
>> That would be engagement.
00:19:38
>> Maybe you have a bunch of buddies who
00:19:39
have Ferraris and you want to be part of
00:19:40
that friend group. So that's
00:19:42
relationships. Yeah.
00:19:43
>> Okay. I mean, positive emotions, but
00:19:45
that might only last a couple of days.
00:19:46
>> Yeah. Well, it's the hedonic treadmill
00:19:47
idea. That's exactly it. Yeah.
00:19:49
>> And then accomplishment. I mean, it's
00:19:52
not really an
00:19:53
>> If it was a goal that you've had since
00:19:54
you were 5 years old, maybe that you
00:19:56
could call that accomplishment. Maybe.
00:19:57
>> Okay. So, I fit my my financial goals,
00:20:00
my life goals into the perma model as a
00:20:02
way to understand
00:20:04
what my financial goals should be.
00:20:06
>> Yeah.
00:20:07
>> Okay. How many people in the general
00:20:09
public do you think have actually
00:20:10
thought about what a good life for them
00:20:12
looks like?
00:20:13
>> Not not enough. Not many. I think
00:20:15
everyone's people are so busy with their
00:20:17
day-to-day lives. And I know this is
00:20:19
true for me and my family too. It's
00:20:20
really really hard to step back and have
00:20:22
this kind of thoughtful discussion about
00:20:24
what you actually want your life to look
00:20:26
like. Cuz I was just thinking about
00:20:27
that. I was thinking I don't even know
00:20:29
if I've got um really clearly defined
00:20:32
life goals for myself. Like I think most
00:20:34
of us just kind of act on how we feel.
00:20:36
>> Yeah.
00:20:37
And that can somewhat dri drift us
00:20:40
towards the short term. Like if I just
00:20:42
Yeah. What's going to make me feel good
00:20:43
today and do that every day? I don't
00:20:45
know. Some might argue that you have to
00:20:48
be a bit more long-term thinking.
00:20:50
>> It can it can help, right? Because it it
00:20:51
can help you from making decisions that
00:20:53
you might regret in the future.
00:20:55
>> Mhm. Yeah. Cuz when I look at this perma
00:20:57
model, there's some things on here that
00:20:58
I've optimized for which have sacrificed
00:21:00
the other things that
00:21:01
>> That's it. That's it. Yeah. like I might
00:21:02
have I might have overindexed on this
00:21:04
like achieving things but might have
00:21:06
cost me some relationships.
00:21:08
So what's the fourth mistake people
00:21:10
make?
00:21:10
>> Yeah. So this is related to what we were
00:21:12
just talking about but it's it's
00:21:13
overspending on the wrong things.
00:21:15
>> Okay. When you think about what is a
00:21:18
good life for you and you realize, if
00:21:21
you realize that you're spending on
00:21:22
things that are not contributing to
00:21:23
that, which is resulting in you not
00:21:25
being able to save toward things that
00:21:27
would contribute to what you want your
00:21:29
life to look like, that's probably not a
00:21:30
great position to find yourself in. So,
00:21:32
it could be spending $12 on a an iced
00:21:36
coffee every morning and not enjoying it
00:21:38
because you could get positive emotion
00:21:39
out of that, but you're like rushing to
00:21:41
work chugging down the $12 coffee every
00:21:42
day. That's probably not contributing to
00:21:45
a good life.
00:21:47
Number five
00:21:49
might be one of the bigger ones,
00:21:53
which is not taking investment risks.
00:21:57
And that's really the stock market has
00:21:59
delivered these incredible long-term
00:22:01
returns and on expectation it should
00:22:03
continue delivering strong returns for
00:22:06
investors. Not participating that in
00:22:08
that is a huge mistake and it's a
00:22:10
mistake that many many people make. A
00:22:12
lot of people don't invest in stocks at
00:22:14
all and a lot of people who do invest in
00:22:16
the stock market don't invest enough in
00:22:17
stocks. They have very conservative
00:22:19
portfolios and that has a very large
00:22:22
implicit cost. By not participating in
00:22:25
the stock market when you could be,
00:22:26
you're giving up a huge amount of of
00:22:28
economic gain.
00:22:29
>> How do you quantify that for the average
00:22:31
person in terms of what kind of gain
00:22:33
they're giving up or the size of the
00:22:34
gain they're giving up? Well, you can
00:22:35
look at the historical returns on
00:22:37
stocks. Uh, and you can also look at the
00:22:40
expected returns on stocks. So, let's
00:22:43
say it's let's say it's 7% that we
00:22:45
expect stocks to to earn in in the long
00:22:47
run. And if you could get 2% by sitting
00:22:52
in cash, that 5% difference is your
00:22:54
opportunity cost of not investing in the
00:22:56
stock market when you otherwise could
00:22:58
be. 5% compounded over the long term is
00:23:01
enormous.
00:23:03
So, say I have $10,000
00:23:06
uh and I invest it
00:23:09
in the stock market and I'm getting what
00:23:11
did you say? 8%.
00:23:12
>> Seven say 7%.
00:23:14
>> How much money is that? Let's have a
00:23:18
look. So, I've done $10,000 which is
00:23:21
what we have here.
00:23:22
>> Mhm.
00:23:23
>> Invested in the stock market at 7%
00:23:24
return over 40 years. That would be
00:23:28
$150,000.
00:23:31
Do you know what's um Do you know what's
00:23:33
quite scary when I think about that is
00:23:34
does that that kind of means that today
00:23:36
if I spend $10,000 I'm actually spending
00:23:39
$150,000.
00:23:41
>> Yes.
00:23:43
>> Which makes me not want to spend any
00:23:44
money on anything.
00:23:45
>> Yeah.
00:23:46
>> Cuz if you buy I don't know what cost
00:23:47
what cost $10,000 like a a small car.
00:23:51
>> Yeah. Maybe. Yeah. you're actually
00:23:52
spending $150,000
00:23:54
when you factor in the fact that if you
00:23:55
put that $10,000 into the stock market,
00:23:58
you could have made 7% a year and it
00:23:59
would have turned into $150,000.
00:24:01
>> Yeah, that's that's one side of the
00:24:03
coin. I think you also have to think
00:24:04
about any enjoyment or utility that you
00:24:07
get out of that car. If that car lets
00:24:09
you drive to a job you couldn't have
00:24:10
otherwise done, it may have a
00:24:12
significant economic value to in the
00:24:14
long run.
00:24:15
>> As one example,
00:24:16
>> you know, I've got a coffee here. Some
00:24:17
people spend $10 on a cup of coffee with
00:24:21
frappa chappa toppings and all that
00:24:23
stuff. Looking at that over the long
00:24:25
term, in 40 years, if you had not bought
00:24:28
that coffee and put it into the stock
00:24:30
market and got just 7% return, you would
00:24:33
have had $150.
00:24:35
So when you buy that $10 coffee, you're
00:24:37
actually theoretically
00:24:39
spending $150 in 40 years time.
00:24:41
>> So you better really enjoy the coffee.
00:24:44
>> Is there a bit of a fear that it makes
00:24:45
us not want to spend money on anything?
00:24:47
And therefore we end up having a shitty
00:24:48
life in the near term.
00:24:49
>> No, I think that's why this this
00:24:51
framework that's why the the perma
00:24:53
framework for thinking about these
00:24:54
decisions is so important because you do
00:24:56
want to have positive emotion and
00:24:57
engagement, relationships, meaning and
00:24:59
accomplishment. Those are all really
00:25:00
really important. And yes, that money
00:25:02
could be worth more in the future, but
00:25:04
it can also be worth a lot today if
00:25:06
you're optimizing on the right things.
00:25:09
>> What else? Number six,
00:25:10
>> it's another big one. So not taking
00:25:12
enough risk is is important. taking the
00:25:15
wrong risks with your investments. So, I
00:25:17
we we just ran some numbers about a 7%
00:25:20
stock market return. You can basically
00:25:22
get that using an index fund.
00:25:25
The problem is a lot of people don't
00:25:26
invest in index funds. They pick
00:25:29
individual stocks hoping to earn really
00:25:32
high returns. They trade individual
00:25:33
stock options. Uh they trade crypto
00:25:36
tokens and all that kind of stuff. And a
00:25:38
lot of those types of risks have
00:25:40
negative expected returns or they have
00:25:42
high costs if you're doing a lot of
00:25:43
trading and that can really erode
00:25:45
long-term investment growth.
00:25:49
>> What about buying a house?
00:25:52
Is that a good investment?
00:25:54
>> I wouldn't consider buying a house to
00:25:56
live in an investment. It's sort it sort
00:25:59
of is. You get an asset, but you're
00:26:01
really you're buying an asset that funds
00:26:04
your housing consumption. It kind of
00:26:06
pays you a dividend. That's sort of like
00:26:09
getting rent from the house that you
00:26:11
own. But when you do the sideby-side
00:26:13
comparison, which I think is the only
00:26:14
way to think about this, if you compare
00:26:17
buying a house, so that means in in
00:26:19
Canada, you'd usually save up for a 20%
00:26:22
down payment. So you put 20% down in
00:26:24
your house, uh you take out a mortgage
00:26:26
to finance the rest. You're now living
00:26:28
in the house, you're paying your
00:26:29
mortgage payment, you're paying for some
00:26:31
maintenance costs, you're paying for
00:26:32
property taxes. Alternatively, you could
00:26:35
have rented the house. That 20% that
00:26:38
went into buying a home could have been
00:26:41
invested in the stock market. So again,
00:26:42
we're back to the idea of opportunity
00:26:43
costs. And the other important thing
00:26:45
here is that renting typically has lower
00:26:48
cash flow costs than owning. So these
00:26:50
are the unreoverable costs of owning a
00:26:53
home. Mortgage interest. So that's when
00:26:56
you buy a house and you borrow to to
00:26:58
fund the purchase. You're paying
00:27:00
interest to the bank. That's a I call
00:27:02
these unreoverable costs. That's money
00:27:03
that you're paying for the use of money
00:27:05
in this case. And you're not going to
00:27:07
get those dollars back. It's gone.
00:27:12
Opportunity costs. So that's what I just
00:27:14
mentioned. Whatever equity you have in a
00:27:16
home is equity that you could have
00:27:19
otherwise invested in the stock market.
00:27:21
The capital portion, the principle, the
00:27:23
the price of homes has increased around
00:27:27
inflation at the rate of inflation maybe
00:27:29
a little bit higher. Historically,
00:27:30
stocks have far outpaced inflation. So
00:27:34
by having money sitting in a house as
00:27:36
opposed to invested in the stock market,
00:27:38
you have what is called an opportunity
00:27:39
cost. You're not earning returns you
00:27:42
could have otherwise been earning. So
00:27:43
that opportunity cost is one of the
00:27:46
largest costs of owning a home.
00:27:49
So I've got mortgage interest, the
00:27:52
opportunity cost of equity. Property
00:27:54
taxes are another big unreoverable cost.
00:27:57
Property taxes vary depending on where
00:27:58
you are, but it's say between 0.5% and
00:28:01
1% maybe some sometimes a little bit
00:28:03
higher. You get utilities and some
00:28:05
services in exchange for it, but it's
00:28:06
again it's an unreoverable cost. You pay
00:28:08
that, you've got nothing left
00:28:09
afterwards.
00:28:11
>> Then we've got maintenance costs.
00:28:13
>> Oh, this is the annoying one.
00:28:14
>> This is the it's it's the annoying one,
00:28:16
and it's the one that I think people
00:28:17
underestimate the most.
00:28:18
>> Mhm.
00:28:19
>> I started making content about renting
00:28:21
versus owning a home years ago. I used
00:28:23
to say 1% was a reasonable estimate of
00:28:25
maintenance costs and people would push
00:28:27
back and say that's way too high.
00:28:28
There's a bunch of academic literature
00:28:30
on this too. That's it says it could
00:28:32
well be over 2%. I think that's probably
00:28:33
a more reasonable estimate. Having been
00:28:35
a homeowner now for 6 years after
00:28:38
renting prior to that, I'm fairly
00:28:40
confident, at least in my case, that
00:28:42
maintenance costs are far higher than 1
00:28:44
or 2% of the property value per year.
00:28:46
>> Yeah. I mean, I I bought my first home a
00:28:49
while ago and uh [ __ ] hell. I I
00:28:52
didn't think about the gardening and the
00:28:54
pool pump gets broken and then there's a
00:28:56
crack in the the patio outside and then
00:28:58
the heating system breaks and then
00:29:00
everything just seems to break
00:29:02
>> and it's always breaking.
00:29:03
>> It's always breaking every time I go
00:29:04
back there which is it's in a different
00:29:05
country. I'm the first week I'm just
00:29:08
spent looking at the things that have
00:29:09
broken since I was last here like making
00:29:11
a list of the new expenses and it's
00:29:13
never cheap.
00:29:14
>> No.
00:29:15
>> And if I was renting that wouldn't be my
00:29:16
problem.
00:29:17
>> No. There's also like another cost here
00:29:19
which we don't talk about which is like
00:29:21
the time you waste
00:29:23
on the maintenance like when we think of
00:29:27
maintenance cost I imagine people are
00:29:28
thinking about the fees to fix things
00:29:31
but actually the time I spend having
00:29:33
phone calls and speaking to people for
00:29:35
me is is worth a lot more than just the
00:29:36
costs but anyway yeah maintenance cost.
00:29:39
Yeah, the coordination is huge and you
00:29:41
could outsource that, but that would be
00:29:43
expensive. And depending on how valuable
00:29:46
your time is, it could make sense to
00:29:47
outsource it, but I I agree with you. I
00:29:49
do the same thing. I spend time on the
00:29:50
phone finding which contractor is going
00:29:52
to come in and fix this thing.
00:29:53
>> Mhm.
00:29:54
>> And then you have to wait for them and
00:29:55
then maybe they're late.
00:29:57
>> Yeah. So, that's maintenance costs. We
00:30:00
have emergency cost here, which is
00:30:02
really a subset of maintenance costs.
00:30:04
So, you can have big things like the
00:30:05
roof needs to be redone, the foundation
00:30:08
cracks, whatever. Those can be very
00:30:09
significant. And one of the challenges
00:30:11
with those types of big costs is that
00:30:13
you kind of have to have liquidity
00:30:15
available to fund them.
00:30:17
>> And that means that you have to have
00:30:18
cash sitting somewhere or at least some
00:30:21
liquid assets sitting somewhere. So
00:30:23
probably not invested in the stock
00:30:24
market, which also has an implied cost
00:30:26
to it,
00:30:27
>> which is more opportunity cost, right?
00:30:28
>> More more opportunity cost. Exactly. And
00:30:29
then this one's this one's interesting,
00:30:32
and this is one that I don't think I
00:30:33
appreciated until I own my own home,
00:30:35
>> which is renovation spending. We talked
00:30:38
about maintenance. When you fix
00:30:39
something in your house, you don't just
00:30:41
fix it to get it back to the baseline
00:30:43
level that it was at before.
00:30:44
>> Yeah.
00:30:44
>> You make it a little bit nicer.
00:30:45
>> You're right. I never did that when I
00:30:47
was renting. So, the side by side.
00:30:49
>> So, you run the sideby-side comparison.
00:30:52
You account for all of those
00:30:53
unreoverable costs the owner has. You
00:30:54
account for the renter investing in the
00:30:56
stock market and investing the cost
00:30:58
difference, the cash flow cost
00:30:59
difference between renting and owning
00:31:01
each month or or whatever frequency. And
00:31:04
what you'll find, and I've done this
00:31:06
with projections, so looking at expected
00:31:08
stock returns and expected real estate
00:31:09
appreciation, you can very easily show
00:31:11
that there is an equivalence. There is a
00:31:14
level of rent where you are indifferent
00:31:17
between renting and owning. I did a
00:31:19
video years ago that has millions of
00:31:20
views now where I I came up with this
00:31:23
idea called the 5% rule. So, I took some
00:31:25
of those costs. I took property taxes,
00:31:27
maintenance costs, and the cost of
00:31:30
capital, which is the the opportunity
00:31:32
cost and the cost of of borrowing. I
00:31:35
wrapped all that up and said we've got
00:31:37
roughly 1% for property taxes, roughly
00:31:39
1% for maintenance costs, which is
00:31:41
probably way too low as we just talked
00:31:42
about. And I said 3% for opportunity
00:31:44
cost, which I think is also on the on
00:31:46
the low end. And you put all that
00:31:49
together and you get 5%. So I said,
00:31:51
"Okay, if you divide the price of a home
00:31:55
by 5%." And then divide that number by
00:31:58
by 12, you will get the monthly rent
00:32:00
that has equivalent that is equivalent
00:32:02
to the unreoverable cost of owning that
00:32:04
home.
00:32:05
>> Okay, so let's do that. So I'm thinking
00:32:07
of buying a $300,000 house. What What's
00:32:11
the method I need to do to figure out if
00:32:12
it's better to rent?
00:32:13
>> Multiply by 5%. And then divide by
00:32:16
divide that by 12.
00:32:17
>> Divide it by 12. Okay.
00:32:19
>> You're brave. I usually have a rule to
00:32:20
never do math live on a podcast.
00:32:22
>> I can edit. So, just in case. [laughter]
00:32:25
>> Okay. The result is 1,250.
00:32:28
>> There you go. 1,250 is the equivalent
00:32:31
rent where you're roughly break even
00:32:34
between renting and owning.
00:32:35
>> So, if I could rent for 1,250 instead
00:32:38
>> or less
00:32:38
>> or less, I should rent.
00:32:40
>> Renting is a better financial decision.
00:32:42
So, this is an important part of this
00:32:43
topic. We can show financial equivalence
00:32:46
and that just that is important. like we
00:32:48
can show that there is financial
00:32:49
equivalence between renting and owning.
00:32:50
I've done more uh robust versions of
00:32:53
this analysis since then. We have PWL
00:32:55
has a calculator on our website where
00:32:57
you can see the the break even by
00:32:58
putting specific numbers in instead of
00:33:00
just doing this rough rule of thumb
00:33:02
because things will change it. For
00:33:03
example, if your asset allocation is
00:33:05
more conservative or more aggressive,
00:33:06
that opportunity cost number can be
00:33:08
different. If you're a taxable investor,
00:33:11
meaning that you're taxed on your
00:33:13
investment gains by investing in the
00:33:14
stock market or the bond market, your
00:33:16
opportunity cost decreases because the
00:33:18
after tax expected return on stocks and
00:33:20
bonds decreases relative to uh home
00:33:22
ownership. 5% is a very rough rule of
00:33:26
rule of thumb. Do you think for the
00:33:28
average young person, let's say
00:33:30
someone's, I don't know, 25 years old,
00:33:31
they should and they're thinking about
00:33:33
building their wealth over the long
00:33:34
term, do you think they should buy be
00:33:36
buying a house as an investment or
00:33:39
should they be doing something else? I
00:33:40
think for young people, it's really
00:33:42
tough. And it's tough for a couple
00:33:43
reasons. One is because home prices are
00:33:45
high. You have to save up a lot of money
00:33:47
to buy a house. Another one is that it
00:33:48
can limit your mobility. We've seen in
00:33:51
in Toronto, in Canada, where I'm from,
00:33:54
uh prices, condo prices in particular,
00:33:56
have plummeted. They've fallen off of a
00:33:58
cliff. If you bought a condo in Toronto
00:34:01
and you get a job offer somewhere
00:34:03
outside of Canada, what are you going to
00:34:04
do with that condo that's that's at a
00:34:06
big loss?
00:34:08
>> You're kind of stuck.
00:34:09
>> Yeah.
00:34:10
>> Or you're have to try to rent it out and
00:34:11
now you've got this this just difficult
00:34:13
situation to deal with. And plus, there
00:34:15
are big transaction costs if you're if
00:34:17
you're selling a place. So for young
00:34:19
people, I do think that home ownership
00:34:21
can be tricky because it can limit your
00:34:22
mobility, your your ability to go and
00:34:25
find maybe higher paying work. It
00:34:27
introduces a risk that you probably
00:34:29
don't need in your life because you may
00:34:30
end up moving somewhere else. And then
00:34:33
people often move up where they want a
00:34:36
condo today, but they're going to want a
00:34:37
house later. For my family, I I met my
00:34:40
wife. I was renting a place. The first
00:34:42
place we met in a second place, a third
00:34:44
place, and a fourth place. We rented
00:34:45
four different places as we were having
00:34:47
our family. We have four kids and so our
00:34:49
needs were changing over time. We needed
00:34:50
a bigger a bigger condo and then we had
00:34:53
a townhouse and then we had a house. Uh
00:34:54
but we just the lease ended and we gave
00:34:58
notice and we left. We found a better
00:34:59
rental that was more suitable for our
00:35:00
needs. If we had been homeowners, the
00:35:02
amount we would have paid in transaction
00:35:03
costs to do that would have been insane
00:35:05
or we would have had to buy the house
00:35:07
that we were going to have forever much
00:35:09
earlier, which would have introduced
00:35:10
significant opportunity costs. That's
00:35:12
one of those things that's just
00:35:12
impossible to measure and because it's
00:35:14
so intangible, but like the psychology
00:35:16
of feeling like you can't easily move.
00:35:20
And I see this a lot actually with
00:35:22
people that apply for jobs in our
00:35:23
company.
00:35:24
>> Is in the interview process, they'll
00:35:26
say, "Well, I've just bought a house in
00:35:28
insert city." And you can see this their
00:35:30
sort of psychology is is um holding them
00:35:33
back from taking an opportunity because
00:35:35
they've made an investment in a
00:35:37
particular city. And so they might lose
00:35:40
as you say like an opportunity in New
00:35:41
York or LA or London because mentally
00:35:44
they feel committed to a place.
00:35:46
>> Yeah. Now the flip side of that is that
00:35:49
if you're really sure that you want to
00:35:51
stay in one place, one of the best ways
00:35:53
to accomplish that is buying.
00:35:55
>> Who can be sure?
00:35:56
>> Yeah, you can't. But if if someone was
00:35:58
really sure, maybe someone has maybe
00:35:59
like me, I have four kids, they're all
00:36:01
in the same school. It's very unlikely
00:36:03
that we would move.
00:36:04
>> The other big mistake I think I made is
00:36:06
I bought a holiday home. That was a
00:36:08
terrible Well, I shouldn't say terrible
00:36:10
idea, but kind of a terrible idea. In
00:36:12
part because of the same reason. In part
00:36:13
because it means you go you only go on
00:36:14
holiday to one place.
00:36:16
>> Yeah. [laughter]
00:36:16
>> Which is like defeats the point of a
00:36:18
holiday.
00:36:19
>> Yeah. And it's I I have not done that.
00:36:21
And the main reason is the mental
00:36:22
overhead. I don't like having to think
00:36:25
about one property.
00:36:27
>> Mhm. [clears throat]
00:36:27
>> I can't imagine having to think about a
00:36:29
second one that I'm not at.
00:36:31
>> Such a dumb idea. I don't like it. I
00:36:33
don't know why I did it. Especially when
00:36:34
you're like young. It's like the whole
00:36:36
point is you can still walk up mountains
00:36:38
and do things. You don't want to be
00:36:39
sitting in a in the same house every
00:36:40
day.
00:36:41
>> Yeah.
00:36:42
>> Are homeowners happier than renters.
00:36:46
>> Depends how you slice the data. If you
00:36:49
control for property types and
00:36:51
neighborhoods and all that kind of
00:36:52
stuff, no, they're not. If you don't
00:36:55
control for those things, I think owned
00:36:57
homes do tend to be a little bit nicer
00:36:59
and better maintained. They do tend to
00:37:01
be in better neighborhoods. So
00:37:03
uncontrolled renters are a little bit
00:37:05
less happy. There's a there's multiple
00:37:07
studies on this. Statistics Canada has a
00:37:09
really good one that does exactly that.
00:37:10
They have controlled and uncontrolled uh
00:37:12
life satisfaction differences for
00:37:14
renters and owners. If you're a
00:37:15
professional who is thinking about
00:37:17
buying a house in a nice neighborhood or
00:37:20
renting a nice house in a nice
00:37:21
neighborhood, it's unlikely that you'll
00:37:23
be happier in either case. If you are
00:37:26
forced to be a renter in a not very nice
00:37:28
neighborhood because it's all you can
00:37:29
afford, you may be less happy. But it's
00:37:32
not necessarily the renting that's
00:37:33
making you less happy.
00:37:35
>> Is there any particular group of people
00:37:36
that you think should be buying a house?
00:37:38
>> Yeah. So people who are very riskaverse,
00:37:40
people who want to stay in one place for
00:37:42
a very long time
00:37:43
>> because they have a family or something.
00:37:44
>> Yeah.
00:37:45
>> Yeah.
00:37:45
>> And you don't want to be priced out of
00:37:46
of of the market that you live in. This
00:37:47
did happen in in some cities in Canada
00:37:49
in recent history. It's now reversed,
00:37:52
but there were people who were getting
00:37:54
priced out of their market. They've been
00:37:55
renters for a long time and rents went
00:37:57
up so quickly that they they just
00:37:59
couldn't keep pace. It depends on your
00:38:01
rental market. Some rental markets are
00:38:03
controlled where that's less of an
00:38:04
issue. So, you do have to think about
00:38:05
things like that. But, yeah, if you want
00:38:07
to stay in one place, owning your home
00:38:09
is is the way to do that. But, it's a
00:38:12
double-edged sword because if you
00:38:13
realize you want to leave, you might be
00:38:16
you might be stuck. Uh, and then the
00:38:18
other big one for who should own a home
00:38:20
is taxable investors with with high tax
00:38:23
rates. And again that comes back to the
00:38:25
opportunity cost where if you're paying
00:38:26
a lot of tax on your investments whereas
00:38:28
real estate tends to be tax preferred in
00:38:30
Canada gains on your primary residence
00:38:32
are taxfree US has a I believe unamount
00:38:36
and so that's that's another thing to
00:38:37
think about where the opportunity cost
00:38:38
changes depending on your specific tax
00:38:40
situation. When we have these
00:38:42
conversations about buying a house or
00:38:43
not buying a house, one of the things I
00:38:44
see a lot in the comment section is
00:38:46
people um sharing their case studies of
00:38:48
them buying a house 30 years ago and now
00:38:50
it went from being worth $100,000 to
00:38:54
$600,000 and they're they're asserting
00:38:56
that that's evidence that it's a good
00:38:58
idea.
00:39:00
>> You probably see this.
00:39:01
>> Oh, this is this is the thing. This is
00:39:02
the example. Uh, and everyone has the
00:39:04
family member that bought a house for
00:39:06
$70,000 and sold it for a million.
00:39:09
>> I'm just going to read you the top four
00:39:10
comments and I'd like to get your
00:39:11
response on them. The first one is the
00:39:13
not buying a house does not work in the
00:39:15
UK as 90% of rents are higher than a
00:39:17
mortgage cost. Also, if you want to
00:39:19
start a family, you need a stable place
00:39:21
to raise your children. And with
00:39:24
renting, you can be kicked out within a
00:39:26
few months notice and your whole life
00:39:27
could be turned upside down.
00:39:30
I personally think there are ways around
00:39:32
that. And I, as I mentioned earlier, I
00:39:33
did rent for six years of my life with a
00:39:36
wife and an increasing number of kids.
00:39:39
The two things that I always made sure
00:39:41
to do were to rent from professional
00:39:43
landlords. We did have one experience
00:39:45
renting from a a sort of mom and pop
00:39:48
person who had bought a condo and rented
00:39:49
it out and that that wasn't great. But
00:39:52
after that, we we were very careful
00:39:53
about vetting our landlords and only
00:39:54
renting from professionals. And then the
00:39:57
other thing that we did which addresses
00:39:59
at least in Canada addresses one of the
00:40:01
other points there is we would sign long
00:40:03
leases. If we want to stay in a house
00:40:05
for a few years we would sign a
00:40:06
multi-year lease and landlords do tend
00:40:09
to to like that. The other point that
00:40:11
was was in there that I think is really
00:40:12
important is that rents are higher than
00:40:15
mortgage payments. I think this is one
00:40:17
of the biggest mistakes that people make
00:40:18
when they're making the rent versus own
00:40:19
comparison is they'll say this is my
00:40:21
mortgage payment. This is my rent. If
00:40:24
the mortgage payment is lower, owning
00:40:26
must be better. But that's not the case.
00:40:28
As we talked about a minute ago, you
00:40:30
have property taxes, maintenance costs,
00:40:33
potential renovation spending that you
00:40:34
wouldn't do otherwise, and the
00:40:36
opportunity cost of of capital. When you
00:40:38
add all that up, the cost of owning a
00:40:41
home is far more than the mortgage
00:40:43
payment. This guy here said, "I bought a
00:40:46
house. It's the best thing I ever did.
00:40:47
It's launched my mindset in new
00:40:49
directions. Remember that having your
00:40:51
own space has profound psychological
00:40:54
impact and can be life-changing for some
00:40:57
of us that want to live in a healthy
00:41:00
environment. What do you make of that
00:41:02
point? Is it have profound psychological
00:41:04
impact? If someone believes that it does
00:41:07
and they've really taken the time to
00:41:09
reflect on their life and has decided
00:41:11
that yes, it it is in fact true that it
00:41:13
has had a profound psychological impact,
00:41:15
of course that person should own a home.
00:41:17
Of course they should. Is it true for
00:41:19
everybody?
00:41:20
>> I don't think so.
00:41:21
>> Dawn said, "My experience, I purchased a
00:41:23
house in 2013 with 20% down payment
00:41:26
deposit. My total payment, including
00:41:28
taxes, insurance, HOA,
00:41:31
homeowners insurance, um is $1,800
00:41:36
a month. As of today, the exact same
00:41:38
house is renting for $4,000. The
00:41:40
property value has also gone up 3x. I'm
00:41:43
glad I bought my house."
00:41:44
>> Yes. So there are cases where real
00:41:48
estate allows you to use leverage very
00:41:49
easily as as Don mentioned and if you
00:41:53
end up buying in a market that goes up a
00:41:54
lot in a short period of time, it can be
00:41:56
really really good. However, and this is
00:41:58
what we've seen in Canada more recently,
00:42:00
it hasn't touched other markets yet,
00:42:02
although of course the US has had their
00:42:03
own declines and so have other
00:42:05
countries, but Canada's right now in one
00:42:07
of the biggest real estate price draw
00:42:09
downs when you adjust for inflation
00:42:11
going back to 1975.
00:42:13
And so if you had bought yes seven years
00:42:16
ago and then well and then looked at the
00:42:18
price in 2022, you'd think, "Wow, I'm a
00:42:20
genius." Of course, everybody should
00:42:22
buy. But if you had bought in I think
00:42:24
it's 2021 was the was the kind of peak
00:42:26
and you look at at today you're thinking
00:42:28
like, "Wow, I've ruined my life."
00:42:30
[laughter] So yes, there are examples
00:42:32
like that for sure, but that that is not
00:42:34
what people should expect every time
00:42:35
that they purchase a home. So are you
00:42:37
saying that the future is not going to
00:42:39
be as like as the past
00:42:42
>> for this? I know the Canadian market
00:42:44
best, but I think these it generalizes
00:42:46
outside of Canada. We've seen record
00:42:48
decreasing interest rates, although
00:42:50
that's that's changed a little bit now,
00:42:51
but for a period of time, we had
00:42:52
interest rates going down, down, down.
00:42:54
In Canada, we had a ton of immigration.
00:42:56
I have no problem with immigrants. Uh
00:42:59
but we had levels of imig immigration
00:43:01
that were just not compatible with the
00:43:02
amount of housing that we had in in
00:43:03
Canada, which was contributing to prices
00:43:05
going up. We have housing supply just
00:43:08
not growing uh quickly enough which are
00:43:10
all things that Canada's addressing now
00:43:12
but all that causes price cause prices
00:43:14
to go crazy which is I think why they've
00:43:16
come down in such an extreme way. So I'm
00:43:18
not I'm not saying necessarily that
00:43:19
we're never going to see high house
00:43:21
prices again or house prices going up at
00:43:23
an extreme rate again but in Canada at
00:43:25
least that has now normalized or at
00:43:27
least started to normalize. I don't
00:43:29
think it's reasonable to expect
00:43:32
stocklike returns from real estate
00:43:34
forever, even though we did see that for
00:43:36
for some years.
00:43:37
>> So for most people then you think if
00:43:39
their goal is to make money and they
00:43:41
care about mobility, being able to get
00:43:43
up and go if opportunity arises, a
00:43:46
better investment decision would
00:43:47
probably be just investing in an index
00:43:48
fund which gives you exposure to the
00:43:51
stock market.
00:43:52
>> Yeah, I think the mobility piece is key
00:43:54
there because remember just from a
00:43:55
wealth perspective, we can show that
00:43:57
hey, these are pretty close to
00:43:58
equivalent.
00:43:58
>> Mhm. [clears throat] But if mobility
00:43:59
matters to you, yeah, I think that that
00:44:01
matters a lot. If you have unique
00:44:03
investment opportunities, that that can
00:44:05
be another reason where your opportunity
00:44:06
cost is really high. Like I had an
00:44:08
opportunity to buy equity in my company
00:44:10
years ago and if I had been a homeowner
00:44:14
at the I think I actually had just
00:44:16
bought a house and I think I even had to
00:44:17
reduce the amount of equity I bought
00:44:18
because our I think our well pump broke
00:44:21
like around the same. Anyway, it was a
00:44:23
whole thing. It's
00:44:23
>> annoying, isn't it? But that's like
00:44:24
there's opportunity cost in the stock
00:44:26
market which is you know call it 7% or
00:44:28
whatever but there's other opportunity
00:44:29
costs that can be a lot higher like in
00:44:31
that specific situation.
00:44:34
>> And the next one there is number seven.
00:44:37
>> Yeah missing tax planning opportunities.
00:44:40
This is something that I think people
00:44:42
just don't think enough about but it's
00:44:45
not terribly complex but there are simp
00:44:48
simple things that people can do to
00:44:50
minimize the amount of tax they're
00:44:51
playing paying. For most people, it's
00:44:53
just optimally using things like in
00:44:55
Canada, we have the RRSP and the TFSA.
00:44:57
In the US, it's the the Roth and
00:44:59
traditional IRA and and 401ks. Using
00:45:03
those things optimally make a lot of
00:45:05
sense. And then the rest other types of
00:45:07
tax planning tend to get more country
00:45:09
specific. There tend to be lots of
00:45:10
things particularly for higher income
00:45:12
people that you can do to pay a little
00:45:14
bit less tax. And I think
00:45:15
>> what about for lower income people? For
00:45:17
lower income people, the government
00:45:19
accounts that are provided uh
00:45:21
>> like the ISA in the UK.
00:45:22
>> Yeah, exactly. Those are probably the
00:45:24
best thing for people to be focusing on,
00:45:26
but even then I don't like people are
00:45:27
often not using them optimally.
00:45:29
>> One of the things people don't talk
00:45:30
about enough is all the ways that rich
00:45:32
people do things to avoid paying tax.
00:45:35
They have like they hire people so that
00:45:37
they don't have to pay tax. And I hear
00:45:38
about all these crazy stories of like
00:45:40
I've started this business on the side
00:45:41
here so I can get a real estate license
00:45:42
and if I get a real estate license I
00:45:44
don't have to pay the same tax on this
00:45:45
thing here and I move the money around
00:45:46
here and I flip it around there and then
00:45:48
I don't have to pay any tax. Most people
00:45:50
like the average people don't have any
00:45:53
loopholes that they can they jump
00:45:54
through.
00:45:54
>> Yeah, it's true.
00:45:56
>> And even one of the crazy ones I learned
00:45:58
about when I got some money was that you
00:46:00
can take a loan against your stocks and
00:46:03
there's no tax on the loan. So, if I
00:46:05
have a million dollars of Facebook
00:46:08
stock, I can go to a bank and get 500K
00:46:11
in cash
00:46:13
loaned against that stock without having
00:46:15
to sell it. And then on that 500K, I
00:46:18
have no tax to pay. And I can just hold
00:46:20
that Facebook stock. And when it goes up
00:46:22
to 2 million, I can go back to the bank
00:46:23
and say, "Give me another 500K."
00:46:26
>> You could, but if it goes down, you get
00:46:27
margin called. They have to come up with
00:46:28
the cash to
00:46:30
>> Don't they just sell? Don't they just
00:46:32
sell the stock?
00:46:32
>> They might, but then you're selling
00:46:33
after it's come down. So, it's not risk-
00:46:36
free, but yeah, that is a thing that
00:46:37
people do.
00:46:38
>> I guess everybody could do that, right?
00:46:40
Most people could if they invested in
00:46:41
the the S&P 500, they could go and get a
00:46:44
loan against that investment and that
00:46:47
loan would be taxfree.
00:46:48
>> Yeah. Same same rules for everybody, but
00:46:51
I would still say that you're you're
00:46:52
taking a lot of risk by borrowing money
00:46:54
against risky assets like that.
00:46:56
>> Okay. So, tax planning, there's nothing
00:46:58
else to cover there in terms of the
00:47:00
average person.
00:47:01
>> Yeah, I don't think so. But it is an
00:47:02
important thing for people to think
00:47:03
about. If they're thinking about what
00:47:04
mistakes might I be making in my
00:47:05
financial plan, they should definitely
00:47:07
be thinking about are there tax planning
00:47:08
opportunities that I am that I'm
00:47:10
missing.
00:47:10
>> How would they find out?
00:47:12
>> It's a tough one. A a good CPA,
00:47:15
>> what's a CPA?
00:47:16
>> An accountant, a good tax professional
00:47:18
should be able to identify tax planning
00:47:20
opportunities for you. Good financial
00:47:22
planners similarly should be able to
00:47:23
identify good tax planning opportunities
00:47:25
for your situation. But as you said
00:47:27
earlier, the reality is there aren't
00:47:28
that many things that people can be
00:47:30
doing. And it's really things that you
00:47:32
could figure out how to optimize once
00:47:34
and then you're kind of set.
00:47:36
>> Much of the reason most people haven't
00:47:38
posted content or built their personal
00:47:39
brand is because it's hard and it's
00:47:41
timeconuming and we're all very very
00:47:43
busy. And if you've never posted
00:47:45
something before, there's so many
00:47:47
factors in your psychology that stop you
00:47:50
wanting to post. What people will think
00:47:51
of you am I doing this right? Is the
00:47:53
thing I'm saying absolutely stupid? All
00:47:56
of these result in paralysis, which
00:47:58
means you don't post and your feed goes
00:48:00
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00:48:09
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I'll see you over there. Who does need a
00:49:38
financial advisor? probably a lot of
00:49:41
people, but the financial advice
00:49:45
profession has a lot of challenges. We
00:49:47
were chatting about the the sales nature
00:49:50
of the financial services industry. And
00:49:52
I do think that's a big problem because
00:49:54
if someone has here's Ben say, "Okay,
00:49:57
Ben said I should have a financial
00:49:58
adviser and they go to a bank or they go
00:50:01
even to some random firm, uh there's a
00:50:04
good chance that they're going to be
00:50:06
sold products that they don't eat.
00:50:09
And I don't have a solution for that.
00:50:11
Like that's a it's a difficult situation
00:50:13
when that is the state of the financial
00:50:15
advice industry.
00:50:16
>> I guess to get around that, one might
00:50:18
ask their friends and family who does
00:50:20
their financial planning and then go
00:50:22
with a trusted referral.
00:50:24
>> Yeah. But people often trust people that
00:50:27
aren't giving them great advice. Like
00:50:28
it's just really it's really
00:50:29
problematic.
00:50:31
>> I I think a lot of people can benefit
00:50:32
from financial advice. It's just finding
00:50:34
the right person. And a lot of people
00:50:36
don't need financial advice because you
00:50:38
do pay fees for it.
00:50:39
>> What's the next one? Number eight.
00:50:41
>> Eight is it's kind of a similar
00:50:43
discussion what we just talked about,
00:50:44
but it's it's missing out on estate
00:50:46
planning.
00:50:47
>> What does that mean?
00:50:48
>> Figuring out how your assets are going
00:50:50
to be distributed to the people that you
00:50:52
want them to or the entities that you
00:50:54
want them to when you die.
00:50:57
>> This is an interesting one because
00:50:58
nobody's Well, most people aren't
00:50:59
expecting to die anytime soon.
00:51:02
>> Yeah.
00:51:02
>> So, they haven't really thought much
00:51:03
about this. Yeah. And you know, some
00:51:06
might also say, "Listen, I'm I'm not
00:51:08
going to be here, so why should I care?"
00:51:11
Especially people that I guess that's a
00:51:12
mindset of someone that doesn't have
00:51:13
kids, but
00:51:14
>> yeah, it can cause a lot of problems if
00:51:15
you don't think through and plan for the
00:51:17
way you want your estate to be
00:51:18
distributed. You can pay a lot more tax
00:51:20
than you otherwise would have and your
00:51:22
estate can go to people that you may not
00:51:24
have wanted it to go to.
00:51:25
>> You can pay more tax
00:51:27
>> if you don't have things set up
00:51:29
properly. And again, this is going to be
00:51:30
country specific, but yeah, there
00:51:32
there's cases where you would pay more
00:51:34
tax if things were not set up properly
00:51:36
than if they were.
00:51:37
>> Do you think everybody should write a
00:51:38
will?
00:51:39
>> Everybody that has any dependence should
00:51:42
write a will. I've heard an estate
00:51:44
planning lawyer joke that everybody has
00:51:45
a will, but it's the government's
00:51:47
default will, uh, which you may not
00:51:49
actually agree with.
00:51:50
>> It's like prenups.
00:51:51
>> Yeah, kind of like that. Yeah, it's
00:51:53
exactly like that. You could say
00:51:54
everybody should have a will because it
00:51:56
can help from having a big mess for
00:51:58
other people to clean up. But for sure,
00:51:59
if you have kids, if you have
00:52:00
dependence, I think having a will is
00:52:02
really important.
00:52:02
>> And on that point of prenups, number
00:52:04
nine is about who you marry.
00:52:07
>> Yeah, this is this is a tough one. It's
00:52:10
a tough one because
00:52:12
>> I mean, this is front of mind for me
00:52:13
because as you can see from these
00:52:14
photos, I just I just uh proposed to my
00:52:16
fiance.
00:52:17
>> Yeah. And um I mean this is not the ring
00:52:20
but because this is a bit extra but um
00:52:22
>> that's awesome.
00:52:23
>> Oh my god, they put my face in the team
00:52:25
put my face in the box. That's but yeah.
00:52:27
So why is this so important who you
00:52:29
decide to marry as it relates to how
00:52:31
rich you'll be or or won't be?
00:52:33
>> Well, it's not just how rich you'll be,
00:52:35
it's how satisfied you'll be with your
00:52:38
life and with your marriage. Academic
00:52:41
research has identified two spending
00:52:43
profiles that you can categorize people
00:52:45
into. One is tight wads. It's people who
00:52:48
don't like to spend money. And one is
00:52:50
spend thrifts. That's people who do like
00:52:52
to spend money. The names are kind of
00:52:53
funny, but that's just that's what the
00:52:54
research calls them.
00:52:56
And the crazy thing about this is that
00:52:59
tight wads and spend thrifts are more
00:53:01
likely to end up marrying each other
00:53:04
than to marrying someone who has the
00:53:06
same profile as them. So two a tight wad
00:53:09
and a spenthrift are more likely to get
00:53:10
married than a tight wad and a tight wad
00:53:12
or a spenthrift and a spenthrift.
00:53:13
>> Why do you think that is? The the
00:53:15
research on this talks just about kind
00:53:17
of opposites attracting and there may be
00:53:18
some sort of thrill to the to the
00:53:20
differences um initially, but tight ones
00:53:24
and spent thrifts as they go through
00:53:26
their marriages do tend to be less
00:53:28
satisfied in their marriages and have
00:53:30
more marital conflict around money. And
00:53:33
again, that's based on an academic
00:53:35
paper.
00:53:35
>> Now, that's the reasons why the marriage
00:53:37
might not last. But in terms of how it
00:53:40
might impact your financial success, if
00:53:43
you really want to save, if you have if
00:53:45
you go through your goal setting
00:53:46
exercise and your perma model and you
00:53:49
have have a vision for the life that you
00:53:50
want to live that requires saving and
00:53:53
you have a spouse that wants to spend a
00:53:54
lot of money today, that can be very
00:53:57
very difficult. It can make it a lot
00:53:59
harder for you to achieve your goals. I
00:54:01
don't think it's insurmountable. I think
00:54:02
a tight wad and a spanthrift can work. I
00:54:04
mean, it's not like all of them end up
00:54:06
getting divorced, but it does require a
00:54:08
different level of coordination and
00:54:10
communication and being on the same
00:54:12
page.
00:54:12
>> Do you have to speak to clients about
00:54:14
this often?
00:54:15
>> Uh, it it comes up a lot. We have lots
00:54:18
of clients who were single and end up
00:54:20
getting in relationships and then
00:54:21
getting married and we have to all have
00:54:23
all kinds of conversations about
00:54:24
marriage contracts or prenups, um,
00:54:26
estate planning.
00:54:27
>> Do you think everybody should get a
00:54:28
prenup? Going back to what you said
00:54:30
earlier where you said you if you don't
00:54:31
write your own, the government will give
00:54:33
you theirs.
00:54:33
>> Yeah. Which just to simplify that if you
00:54:36
don't write your own prenup then you are
00:54:39
the default position is the government
00:54:41
will decide through the law how your
00:54:44
assets are divided at a time when you
00:54:46
get when you break up. Problem is people
00:54:48
find prenups to be really unromantic.
00:54:50
>> That's right.
00:54:51
>> And they also think there's an
00:54:52
implication that we're assuming we're
00:54:55
going to break up which is also not so
00:54:56
sexy.
00:54:57
>> Right.
00:54:58
>> Do you think people should get them
00:55:00
>> if both partners are on the same page
00:55:02
and comfortable with it? it's not going
00:55:03
to cause a major rift. And if it does,
00:55:05
maybe that's a red flag.
00:55:06
>> Do you know what I mean? Why would it
00:55:07
cause a rift? Do you know what I mean?
00:55:09
And it's not to say that I'm just
00:55:10
keeping all my stuff and you're keeping
00:55:11
yours. It's just to say, let's agree now
00:55:14
what would happen in the like 50%
00:55:17
probability that this doesn't work out.
00:55:19
>> Yeah, we've seen both. We've seen
00:55:20
clients come up with very creative and
00:55:23
interesting uh marriage contracts that
00:55:25
have, you know, specific formulas for
00:55:26
how things are going to work. And
00:55:27
depending on how many kids they have,
00:55:28
it's, you know, it's kind of an
00:55:30
interesting exercise. And in that case,
00:55:31
it was kind of fun. and they they were
00:55:33
engaged in the process and didn't cause
00:55:35
an issue. And we've also seen people who
00:55:37
did not have anything in place and have
00:55:39
had very bad divorce outcomes from a
00:55:42
financial perspective.
00:55:43
>> I had a friend go through a divorce
00:55:45
recently and he's a very successful
00:55:47
person. His wife was there from the
00:55:49
beginning. She took looked after the
00:55:50
family while he was off gallivanting
00:55:52
around the world building his his
00:55:53
businesses all over the place. So
00:55:55
obviously she you know they she's
00:55:57
contributed hugely to his success. What
00:56:00
I noticed though is it's destroyed what
00:56:04
could have otherwise been a good
00:56:06
relationship as they separated. They now
00:56:09
really really hate each other because
00:56:10
lawyers have stood in between both sides
00:56:12
>> and basically caused tension because
00:56:14
that's their job. They're going to get
00:56:15
paid more and the her lawyers are
00:56:18
incentivized to squeeze every single
00:56:20
penny they can out of this separation.
00:56:23
And so I think he said it had been like
00:56:25
six or seven years since they decided to
00:56:27
divorce and he's still in court arguing
00:56:30
with lawyers about how they separate and
00:56:33
it's destroyed their relationship.
00:56:34
They've got two kids.
00:56:36
>> You just think gosh like if you had a
00:56:37
prenup this would have been
00:56:39
>> quick and it could have saved the
00:56:40
relationship. Okay. Anything else to say
00:56:43
on this this point of marriage and
00:56:45
compatibility?
00:56:46
>> The academic research on this does have
00:56:48
a a short quiz. I don't know if we have
00:56:50
it kicking around anywhere here.
00:56:51
>> I think this is it. It's called the
00:56:53
tight word and spend thrift quiz
00:56:55
developed by researchers at Carnegie
00:56:57
Melon and the University of Michigan.
00:56:58
>> Yeah,
00:56:59
>> this scale measures the pain of paying,
00:57:01
the emotional distress some people feel
00:57:03
when spending money. Uh, and here's a
00:57:06
quick DIY version of that quiz. Question
00:57:08
number one is, you see a highquality
00:57:10
coat on sale for $100, which is usually
00:57:13
$300. You need a coat and you have the
00:57:15
money. Do you buy it? Answer A, no. $100
00:57:19
is still a lot of money. I'll wait for a
00:57:21
better deal. B. Yes, it's a great value.
00:57:23
I need something. C. Yes. And I might
00:57:26
buy a scarf to match since I save so
00:57:28
much. Which one are you?
00:57:30
>> I mean, if I need the code, I'm B.
00:57:32
>> I think I'm C. [laughter]
00:57:37
But actually, to be fair, I just don't
00:57:38
buy stuff, so I don't even know if I'd
00:57:40
buy it. Anyway, question two. You are at
00:57:43
a restaurant with friends. The bill is
00:57:45
being split evenly, but you ordered the
00:57:47
cheapest item. How do you feel? A.
00:57:50
physically pained. I'll likely mention
00:57:52
that I should pay less. B a bit annoyed,
00:57:55
but I'll pay it to keep the peace. Well,
00:57:57
C, fine. It all will even out in the
00:57:59
end.
00:58:01
>> I'm between B and C. Really? I might I
00:58:03
might feel a little bit annoyed.
00:58:04
>> Really?
00:58:05
>> But I wouldn't I wouldn't cause a fuss
00:58:06
about it.
00:58:07
>> I'm C again. Fine. It'll even out in the
00:58:09
end. Number three, which statement
00:58:11
describes you best? A, I have trouble
00:58:13
spending money even on things I actually
00:58:15
need. B, I balance my spending and
00:58:18
saving pretty well. or C, I often spend
00:58:21
more than I intended and regret it
00:58:22
later.
00:58:24
>> I think I'm B.
00:58:26
>> You said B, which is I balance my
00:58:28
spending and savings pretty well. Um,
00:58:32
I would say I'm C again. But again, the
00:58:34
caveat here is I actually don't h I
00:58:36
don't spend money on stuff anymore.
00:58:38
>> I don't buy stuff anymore, [snorts]
00:58:41
>> but I can spend it on like travel and
00:58:43
experiences and stuff.
00:58:44
>> Yeah.
00:58:45
>> Last question. When you buy something
00:58:47
expensive, your primary emotion is A
00:58:50
anxiety or regret, B satisfaction in the
00:58:53
utility of the item or C excitement and
00:58:55
a rush. I think I'm B again. I I reckon
00:58:59
I'm be as well there. So, scoring your
00:59:01
results. If you're mostly A's, then
00:59:04
you're a tight wad. If you're mostly
00:59:06
B's, you are the unconflicted. And if
00:59:09
you're mostly C's, you are the spend
00:59:11
thrift. So, I guess with that, you you
00:59:13
are a unconflicted. You're in the
00:59:15
middle. You have a healthy relationship
00:59:16
with money where you can save when
00:59:18
necessary but enjoy the fruits of your
00:59:19
labor without guilt. And I am a C which
00:59:22
is you feel very little pain when
00:59:24
spending. You enjoy the moment but you
00:59:26
might struggle with long-term saving
00:59:27
goals or buyers remorse. That's so
00:59:30
[ __ ] true. [laughter]
00:59:31
Everyone should do that at home. Okay,
00:59:33
that makes sense.
00:59:34
>> So we we know that that tight and spent
00:59:36
thrift are incompatible. Uh I I do think
00:59:38
it's an interesting concept like how do
00:59:42
you have that discussion with a
00:59:43
potential partner or do you just observe
00:59:45
it and kind of infer
00:59:46
>> on on a date you can say say to your
00:59:49
partner say oh there's this great
00:59:50
podcast on YouTube called the diver we
00:59:51
should listen to it then listen to this
00:59:53
episode they're listening with you know
00:59:54
right now if this you've done this and
00:59:56
then just play along play along with
00:59:58
your partner are you looking for your
00:59:59
partner to be the opposite then because
01:00:01
you said opposites attract
01:00:02
>> no time no opposites end up together but
01:00:06
then have conflict because of that.
01:00:08
>> Oh, okay.
01:00:10
>> Yeah.
01:00:10
>> Interesting. [clears throat]
01:00:12
>> Yeah. I think if you're if you're a
01:00:14
tight wad, being with the same is
01:00:16
probably good. If you're a spend thrift
01:00:18
and you end up with another spend
01:00:19
thrift, I think you have to be really
01:00:20
careful about your like finances.
01:00:22
>> Yeah. I don't think my partner's a spend
01:00:24
thrift. I think she's in the middle with
01:00:25
like you.
01:00:26
>> Yeah.
01:00:26
>> Doesn't really care.
01:00:27
>> Yeah.
01:00:28
>> Which is useful.
01:00:29
>> We do have one more Okay.
01:00:31
>> card in the mistakes uh which is
01:00:32
underinsuring catastrophic risks.
01:00:36
And I think that's one particularly for
01:00:39
people who are not currently financially
01:00:40
independent that's really really
01:00:42
important if if your household income
01:00:46
relies on your income to maintain the
01:00:50
lifestyle of the household. It's really
01:00:52
important to have sufficient life
01:00:53
insurance where if you die, your your
01:00:55
human capital, your ability to earn
01:00:57
income in the future is replaced by the
01:00:59
insurance and also disability insurance
01:01:02
where if you lose your ability to work,
01:01:04
you have insurance to replace that
01:01:05
income.
01:01:06
>> Do many people think about this?
01:01:08
>> Probably not enough. And it's cheap.
01:01:10
Well, disability insurance is not always
01:01:12
cheap. Life insurance is generally
01:01:14
pretty cheap if you're buying lowcost
01:01:16
term life insurance, which is what most
01:01:18
people need.
01:01:19
You made a video called the most
01:01:20
controversial paper in finance.
01:01:23
>> Yeah.
01:01:23
>> What paper was that?
01:01:24
>> That was a paper we we didn't have it
01:01:26
out here, but that was a paper on uh
01:01:29
life cycle asset allocation.
01:01:31
>> What does that mean?
01:01:31
>> So, it's answering the question of how
01:01:34
should your mix of stocks and bonds
01:01:36
change throughout your lifestyle.
01:01:39
Conventional wisdom says that you should
01:01:41
start out riskier in stocks and then
01:01:43
move towards safer bonds as you get
01:01:45
older. This paper took a huge amount of
01:01:49
data. They had data from 39 countries
01:01:51
going back as far as 1890. I believe
01:01:55
they sampled from that large set of data
01:01:57
to simulate a million potential sort of
01:02:00
hypothetical lifetimes that you could
01:02:01
live through. And then they asked the
01:02:04
question of in this simulated data which
01:02:06
asset allocation gives the best outcomes
01:02:09
and they tested target date funds which
01:02:12
increase the weight in bonds over time.
01:02:14
And those are a lot of people have those
01:02:16
through their retirement accounts. So
01:02:18
it's just one fund and it starts out
01:02:20
when you're younger with more equities
01:02:21
and then transitions to bonds over time.
01:02:23
That's a target date fund. They tested I
01:02:26
believe a 6040 60% stock 40% bond asset
01:02:29
allocation. There might have been some
01:02:31
other stuff in there too. They might
01:02:32
have tested only domestic stocks. And
01:02:35
what they find in this paper is that the
01:02:37
optimal portfolio from the perspective
01:02:39
of a retirement uh consumption utility
01:02:43
and and and bequest utility.
01:02:46
>> What does that mean?
01:02:46
>> It's like the satisfaction you get from
01:02:48
retirement spending.
01:02:49
>> Okay.
01:02:50
>> Measured in a with a formula um so that
01:02:52
it can be studied. And then likewise for
01:02:54
the amount of money that you have left
01:02:55
over at at death. Uh they they measure
01:02:58
the probability of running out of money
01:02:59
as well. There's a whole bunch of
01:03:00
different metrics they look at and they
01:03:02
find that a 100% equity portfolio with
01:03:06
uh a big chunk in international stocks
01:03:09
is optimal
01:03:11
is a one-/ird domestic 2/3 international
01:03:14
stocks.
01:03:15
>> When you say domestic, what does that
01:03:16
mean?
01:03:17
>> That's a great question. So the way they
01:03:19
set up domestic in the paper is that it
01:03:21
it can be any country. So the way they
01:03:23
do the simulations is that for each
01:03:25
draw, so they're drawing uh it's on
01:03:28
average 10 years of returns. We're say
01:03:30
we're in the US, they'll draw the US
01:03:32
returns measured in US dollars for a
01:03:34
10-year block. That's the domestic
01:03:37
return. And then the international block
01:03:40
is going to be 10 years on average of
01:03:42
all the other countries samples returns
01:03:44
measured in US dollar. So I've got the
01:03:47
domestic return, the international
01:03:48
return. The next block might be 10 years
01:03:51
from Italy measured in uh whatever the
01:03:54
Italian currency was at the time. And
01:03:57
then the international portion is going
01:03:58
to be all the other countries excluding
01:04:00
Italy measured in Italian currency. And
01:04:03
so they're weaving together all these
01:04:04
blocks. That's called bootstrap
01:04:05
simulation. So domestic to answer your
01:04:08
question is whatever country you live
01:04:10
in.
01:04:11
>> So the outcome or the conclusion from
01:04:12
this should be that you should invest. I
01:04:15
mean, if we're following this and if it
01:04:16
was 100% accurate, what 60% in whatever
01:04:20
country you live in, in the stocks of
01:04:21
whatever country you live in,
01:04:22
>> 30% domestic. So, yeah, one third
01:04:24
domestic, 2/3 international.
01:04:26
>> Okay. So, if I'm in the United States,
01:04:28
one So, I get 30% of my capital and
01:04:31
invested in the American companies.
01:04:35
>> Yeah.
01:04:35
>> And then 60% in international stocks.
01:04:38
>> Yeah. Well, yeah. 67%. Yep. Yep. So that
01:04:41
one important finding in the paper and I
01:04:43
talk about this in the video is that the
01:04:45
the curve for how optimal the domestic
01:04:49
amount is is pretty flat if I remember
01:04:51
correctly between sort of 10% and 50%.
01:04:54
So they do say in the paper that for a
01:04:55
US investor you don't necessarily have
01:04:58
to be a third domestic. Even if you're
01:05:00
50 or even if you're just market cap
01:05:02
weighted which is currently around 60 or
01:05:03
65% that's probably fine. But for a
01:05:06
Canadian investor or someone who's in a
01:05:08
country other than the US, one-third in
01:05:10
your domestic country ends up being a
01:05:12
pretty big home country bias. In these
01:05:14
simulations, are they saying that you
01:05:16
need to invest in international stocks
01:05:17
because sometimes in the simulations
01:05:19
your domestic country, your home country
01:05:22
has problems?
01:05:23
>> Yeah. High inflation tends to be bad for
01:05:26
retirement consumption that you're
01:05:27
spending a lot more and for domestic
01:05:29
stock returns and international stocks
01:05:31
protect against that.
01:05:33
>> So it diversifies you a little bit.
01:05:34
>> Yeah. Well, that's exactly what it is.
01:05:36
Diversification. And that paper was it
01:05:38
was controversial. I mean, we had the
01:05:40
co-author on our podcast twice to talk
01:05:42
about it, but it it was met with a lot
01:05:44
of controversy from everybody, from a
01:05:47
lot of professionals, uh, from other
01:05:49
academics.
01:05:50
>> Why?
01:05:52
>> It's an extreme finding. the
01:05:54
conventional wisdom that you should be
01:05:55
allocating more toward bonds throughout
01:05:57
the life cycle is so ingrained in
01:05:59
everyone's thinking that uh a finding
01:06:02
like this that shows that that's
01:06:03
basically wrong of course it's going to
01:06:05
be met with controversy but at the very
01:06:08
least I think it's an interesting paper
01:06:10
it's telling us that stocks are a little
01:06:11
bit safer for long-term investors than
01:06:13
we probably thought and bonds which are
01:06:16
typically considered safe are actually a
01:06:18
little bit riskier than we may have
01:06:19
thought for long-term investors. The
01:06:20
reason being that during periods of high
01:06:22
inflation, bonds get absolutely
01:06:24
decimated.
01:06:25
>> What's a bond?
01:06:26
>> A bond is a debt instrument. So, you're
01:06:29
effectively lending money to a
01:06:30
government and you're receiving interest
01:06:32
payments over time and then your
01:06:33
principle back at the end.
01:06:35
>> What is the uh the most important thing
01:06:37
we haven't talked about that your
01:06:38
audience come to you to understand?
01:06:40
>> Oh, well, a lot of a lot of the things I
01:06:43
talk about are financial products that
01:06:44
you should not invest in.
01:06:45
>> Okay, tell me some of those.
01:06:46
>> Which I always think is fun. A big one
01:06:48
that I spent quite a bit of time on last
01:06:50
year, I did three videos on it, was on
01:06:52
on covered calls.
01:06:54
>> What's that?
01:06:54
>> So, that's where you you own a stock and
01:06:57
then you sell a call option, which is
01:06:58
the option to buy the stock. You're
01:07:00
selling that option to somebody else,
01:07:02
which gives you a an option premium. And
01:07:05
so, you get some income from having sold
01:07:07
the call option. But it also means that
01:07:09
if a stock that you own appreciates
01:07:11
sufficiently, you are required to sell
01:07:13
it to the person who bought the call
01:07:15
option from you uh at a at a preset
01:07:17
price. So the stock's whatever $40 and
01:07:21
you you sold a call at $50 and the stock
01:07:23
goes to $60, you have to sell it at 50.
01:07:25
>> So you're giving up a big chunk of your
01:07:27
upside. And this plays on one of the big
01:07:29
biases that investors have, which is a
01:07:31
preference for income. Uh it's the
01:07:33
mental accounting bias where investors
01:07:34
separate capital and income. And so
01:07:37
there's a a huge proliferation now of
01:07:39
covered call products where they do that
01:07:42
that strategy that I just described
01:07:44
inside of an ETF. They charge usually a
01:07:47
higher fee and these are being marketed
01:07:49
really heavily to investors on the
01:07:51
premise that you're going to get
01:07:52
appreciation, capital appreciation, and
01:07:54
you're also going to get income. But I
01:07:56
think my my view on this and what I
01:07:58
tried to explain in those videos is that
01:08:00
you're giving up so much upside that I
01:08:03
don't think most investors realize that
01:08:04
they're giving up that the implied cost
01:08:06
of these products is enormous. On that
01:08:08
point of fees, I've got this graph here
01:08:09
which I think is pretty pertinent to
01:08:11
what you're saying because when we start
01:08:13
investing in ETFs and various index
01:08:16
funds, we often don't think about fees.
01:08:19
It'll say, "Oh, 0.5%." We think, "Okay,
01:08:21
whatever. 0.5%'s fine, 1% fine. Small
01:08:24
numbers, but when you look at that
01:08:26
graph, you see how that can impact your
01:08:28
outcome over time.
01:08:30
>> Yeah, fees compound. Any rate of return
01:08:32
that compounds over long periods of time
01:08:34
can be very impactful in dollar terms.
01:08:37
>> And and some people choose to keep their
01:08:39
money in cash
01:08:41
um because most of us are never educated
01:08:43
on this subject of inflation and what
01:08:45
inflation means. So some of us, you
01:08:47
know, we might keep $10,000 under the
01:08:49
bed. What do you say to those people?
01:08:52
>> Yeah. So, inflation is it's everywhere.
01:08:54
It's it's been around for for uh
01:08:57
throughout history and it's probably not
01:08:59
going to go away. We have central bank
01:09:01
policies in most developed countries
01:09:02
that actually target a low but stable
01:09:04
rate of inflation.
01:09:06
And there's there are reasons for that.
01:09:07
But what it means is that if you have
01:09:09
money sitting under your mattress, its
01:09:10
purchasing power will decrease over
01:09:13
time. And that can be very damaging to
01:09:14
your wealth. You can maybe keep pace
01:09:17
with inflation using short-term
01:09:19
government debt instruments which are
01:09:21
going to pay you a little bit of an
01:09:22
interest rate. Uh but again, periods of
01:09:24
high inflation can cause even that to to
01:09:27
decline in real value. So, one of the
01:09:29
best ways to fight fight inflation for
01:09:30
long-term investors, something we've
01:09:32
been talking about is just investing in
01:09:34
lowcost index funds to avoid the fee
01:09:36
issue uh and participate in the stock
01:09:38
market, which throughout history has far
01:09:40
outpaced inflation.
01:09:42
One of the smartest things a business
01:09:43
can do is build like a bigger company
01:09:46
without actually hiring like one. But
01:09:49
the problem we all face is that most
01:09:50
companies don't have every skill in
01:09:52
house. So when I look at the businesses
01:09:53
seeing real success today, the
01:09:55
consistent pattern with all of them is
01:09:57
how quickly they move. They bring in
01:09:59
specialists with skills and emerging
01:10:00
areas to keep themselves ahead. Even in
01:10:02
our company, we've spent the last year
01:10:04
pulling in talent across areas like AI
01:10:06
native strategy, no code builds, and
01:10:08
product workflows. And we find this
01:10:10
talent through our longtime partner
01:10:11
Fiverr Pro. Their premium service only
01:10:14
shows you vetted talent, so you've
01:10:16
always got the safeguard that anyone you
01:10:18
pull in to help you with a complex
01:10:20
project has the skills that you're after
01:10:22
and will deliver to the same high
01:10:24
standards as your internal team. And
01:10:26
most importantly, they'll keep up with
01:10:27
the pace. It's a simple strategy, but it
01:10:29
lets us stay agile without compromising
01:10:31
on quality. So if you need these kind of
01:10:32
skills in your business, head to
01:10:34
pro.fr.com to find pioneering talent to
01:10:36
fill your business's gaps. That's
01:10:38
pro.fr.com. fiverr.com.
01:10:40
This is something that I've made for
01:10:42
you. I've realized that the direio
01:10:44
audience are striv
01:10:47
goals that we want to accomplish. And
01:10:49
one of the things I've learned is that
01:10:51
when you aim at the big big big goal, it
01:10:54
can feel incredibly psychologically
01:10:57
uncomfortable because it's kind of like
01:10:58
being stood at the foot of Mount Everest
01:11:00
and looking upwards. The way to
01:11:02
accomplish your goals is by breaking
01:11:03
them down into tiny small steps. And we
01:11:06
call this in our team the 1%. And
01:11:08
actually this philosophy is highly
01:11:10
responsible for much of our success
01:11:12
here. So what we've done so that you at
01:11:14
home can accomplish any big goal that
01:11:16
you have is we've made these 1% diaries
01:11:19
and we released these last year and they
01:11:21
all sold out. So I asked my team over
01:11:23
and over again to bring the diaries back
01:11:25
but also to introduce some new colors
01:11:27
and to make some minor tweaks to the
01:11:28
diary. So now we have a better range for
01:11:32
you. So, if you have a big goal in mind
01:11:35
and you need a framework and a process
01:11:37
and some motivation, then I highly
01:11:39
recommend you get one of these diaries
01:11:40
before they all sell out once again. And
01:11:43
you can get yours at the diary.com.
01:11:46
And if you want the link, the link is in
01:11:47
the description below.
01:11:49
Is this broadly accurate? This graph
01:11:51
here shows the impact of inflation on
01:11:53
cash kept under the mattress over 30
01:11:55
over 20 years. And you start with
01:11:57
$10,000
01:11:59
in terms of purchasing power. And 20
01:12:01
years later, if that cash is under the
01:12:02
mattress, you have $5,336.
01:12:05
It doesn't show me the inflation rate.
01:12:07
Oh. Um, that's at 3% inflation.
01:12:10
You're leaving losing half of your money
01:12:12
effectively. And the source here is St.
01:12:14
James Place.
01:12:16
So, a lot of people who are just holding
01:12:18
on to cash don't really realize that
01:12:20
over a 20-year period, assuming a 3%
01:12:21
inflation rate, they're halfing their
01:12:23
money. Uh it ties back to I don't
01:12:24
remember which number was but it ties
01:12:25
back to one of those biggest mistakes in
01:12:27
in personal finance we talked about
01:12:29
which is uh yeah not not investing not
01:12:32
taking the right kinds of risk with your
01:12:33
investments
01:12:34
>> and just hoarding cash.
01:12:35
>> Hoarding cash is is it's in its own way
01:12:38
taking a type of risk.
01:12:40
You you you don't have an expected
01:12:42
return when you hold cash. You in real
01:12:44
terms have a negative expected return.
01:12:46
>> Do you think we should all be thinking
01:12:48
about retirement planning?
01:12:50
I think it ties into the perma thinking
01:12:53
and designing the life that you want to
01:12:54
live, but at some point it it I mean at
01:12:57
some point we can't work anymore. It's
01:12:59
rare for somebody to be able to work
01:13:01
into their, you know, I don't know, 80s.
01:13:03
I think that it's it's sensible to plan
01:13:05
for for that. But beyond that, a lot of
01:13:08
people don't want to have to work
01:13:09
forever. People might choose to work
01:13:12
forever, but they might choose to do
01:13:13
lower paying work. Uh but the idea that
01:13:15
you will be forced to work forever, I
01:13:17
don't think is very attractive to
01:13:18
anyone. So from that perspective,
01:13:19
building financial independence by
01:13:21
saving and planning for retirement.
01:13:22
Yeah, I think it's important for every
01:13:24
everyone to think about.
01:13:25
>> Is the is the sort of social contract of
01:13:27
retirement changing based on how the
01:13:29
economy is changing? Because I hear a
01:13:30
lot of people saying you're not going to
01:13:31
be able to retire and get a pension
01:13:33
because there's not enough money or
01:13:35
you're going to have to work later than
01:13:36
ever before.
01:13:37
>> I think the onus has been put back on
01:13:39
individuals.
01:13:41
The pensions used to be much more common
01:13:43
uh from companies and and governments.
01:13:46
So retirement's changed from that
01:13:49
perspective for sure, but I I don't know
01:13:51
if we can say we're in a crisis. I think
01:13:52
people have more personal responsibility
01:13:54
now than they've had in the past. But
01:13:55
they also have better tools than have
01:13:57
historically been available. 30 years
01:13:59
ago, we we were just starting to get
01:14:01
lowcost index funds proliferating and
01:14:03
being readily available to everybody.
01:14:04
Prior to that, you were paying 2% or
01:14:06
more to invest in a mutual fund.
01:14:09
>> So the tools people have available to
01:14:10
them are better today than than they've
01:14:12
been in the past. But it's also there's
01:14:16
also a lot more responsibility people
01:14:17
have to take for their own personal
01:14:18
finances.
01:14:19
>> You you're naming the things that people
01:14:21
shouldn't invest in. The first is that
01:14:24
call thing.
01:14:26
>> Yeah, covered calls.
01:14:27
>> Covered calls. What else?
01:14:28
>> Another one that I think is really
01:14:30
problematic is thematic ETFs. And so
01:14:33
that's like an AI ETF or I don't know a
01:14:36
space or energy like any any specific uh
01:14:39
ETF that's targeting a specific theme.
01:14:42
>> Why? What tends to happen with thematic
01:14:44
ETFs is that something becomes really
01:14:46
hot. So maybe it's AI, maybe it's
01:14:48
cannabis, electric vehicles was another
01:14:51
one.
01:14:51
>> Sustainable energy.
01:14:52
>> Yeah, that was another good one. Clean
01:14:53
energy. And so what happens is asset
01:14:55
prices in that theme go up because
01:14:58
there's a lot of interest in it.
01:14:59
Everybody wants to invest in that space.
01:15:01
Asset prices go up. An index provider
01:15:04
creates an index for that hot theme. And
01:15:08
then an ETF gets launched. But it gets
01:15:10
launched when the asset prices are up
01:15:12
here.
01:15:13
>> And what tends to happen is the asset
01:15:15
prices come down and the returns on
01:15:18
thematic funds tend to be very poor.
01:15:20
>> Ah okay. Yeah. I think I was guilty of
01:15:22
that in my early career was like, "Oh my
01:15:24
god, a sustainable energy ETF. I believe
01:15:25
in sustainable energy. I should invest
01:15:27
in that."
01:15:28
>> But you're right. They created that when
01:15:30
it was hot. So, you should have invested
01:15:32
I guess you're saying just invest in the
01:15:34
Footsie 100, the S&P 500 instead or
01:15:38
technology, which is a broader basket.
01:15:40
>> Technology is tough. Technology has
01:15:42
performed so incredibly well, but it is
01:15:45
still one sector.
01:15:46
>> Okay,
01:15:46
>> I have trouble saying you should invest
01:15:48
in tech. If you had invested in tech for
01:15:50
the last 20 years, well done. Should you
01:15:53
choose to invest only in tech or or have
01:15:55
a big concentration in tech today, I
01:15:57
think that's a lot less obvious. One
01:15:59
would say, well, look, all this AI stuff
01:16:01
there. How do I invest in all the AI
01:16:02
stuff? A lot of it's private right now.
01:16:04
Although, a lot of the public companies
01:16:05
do own chunks of of some of these
01:16:07
private companies. We'll see how that
01:16:09
plays out. But that's another one that's
01:16:11
been tough recently where a lot of
01:16:13
investors are interested in investing in
01:16:15
in investing in some of these private
01:16:16
companies. A lot of them AI related, but
01:16:18
SpaceX is another one. And it's really
01:16:20
hard for retail investors to get access
01:16:22
to those types of things. But there are
01:16:24
companies who are creating products that
01:16:27
say that they can give you access to
01:16:28
these to these things. They're charging
01:16:30
high fees. Uh it's not obvious that
01:16:34
they've been able to buy the underlying
01:16:35
securities that they're saying they have
01:16:36
access to at good prices. But it's just
01:16:39
another example of financial companies
01:16:42
preying on the the desires and biases of
01:16:46
investors. Financial firms are very good
01:16:48
at seeing what investors want even if
01:16:51
that thing is not good for them. and
01:16:53
then creating a product to fulfill that
01:16:55
desire.
01:16:57
>> So, if someone listening now is, let's
01:17:00
say they're 50 years old and they've got
01:17:03
$20,000
01:17:05
in savings in cash and you had to be
01:17:09
decisive. You don't know the nuance and
01:17:11
the the detail of their life. You don't
01:17:12
know their perma framework necessarily,
01:17:14
but your job was just to make the money
01:17:16
in the next 10 years. What how do you
01:17:18
think you would allocate that? Let's say
01:17:19
$10,000, it's easier. $10,000 in cash.
01:17:22
How would you allocate it?
01:17:23
>> That's a that's a tough question in
01:17:25
>> I don't know if it's answerable,
01:17:26
especially over 10 years is tough.
01:17:28
>> What about 20 years [laughter]
01:17:32
>> if they have a long time horizon? So I I
01:17:34
can tell you personally I I like to
01:17:37
invest in stocks. I I have a a globally
01:17:40
diversified stock portfolio with a
01:17:42
Canadian home country bias kind of like
01:17:43
what that that paper the controversial
01:17:45
paper found. Uh we were doing that prior
01:17:48
to that paper coming out. Uh but I think
01:17:51
that general concept of a globally
01:17:53
diversified portfolio maybe with some
01:17:55
home country bias makes a lot of sense
01:17:57
for most people including for retirees.
01:18:00
But there are so many like what's what's
01:18:02
his risk tolerance? If he's going to
01:18:04
panic when the market goes down and sell
01:18:05
everything then it wasn't a very good
01:18:07
idea and he's not going to get the
01:18:08
outcome the good long-term outcome they
01:18:10
may have otherwise gotten.
01:18:11
>> And would you go all in on stocks
01:18:13
>> all at once?
01:18:15
>> Yeah.
01:18:15
>> Like dollar cost averaging versus lump
01:18:17
sum.
01:18:18
>> Yeah. Like how would you invest? Would
01:18:19
you go 100% in stocks or would you even
01:18:21
diversify there?
01:18:22
>> Yeah, that's what I'm saying. I I think
01:18:24
100% stocks is personally
01:18:28
a a portfolio that I'm very comfortable
01:18:29
with and I I'm not I'm not old enough to
01:18:32
be thinking about retirement, but it's a
01:18:33
portfolio that I don't expect to change
01:18:35
throughout my personal life cycle.
01:18:38
>> Is that how you allocate your personal
01:18:39
finances now? You I know you have a
01:18:41
home, but otherwise the money you do
01:18:43
invest is in the stock market.
01:18:45
>> Yeah. So, I've got my home. I have my
01:18:47
stock market investments. And I do have
01:18:48
a pretty significant chunk of equity in
01:18:50
the company that I work for.
01:18:54
>> No crypto.
01:18:55
>> No crypto.
01:18:56
>> No crypto.
01:18:56
>> I never touched it.
01:18:57
>> Never touched it.
01:18:58
>> That's not true. I I when I was
01:19:00
researching uh Ethereum and Bitcoin,
01:19:03
remember when that was? It was a few
01:19:04
years ago. I bought $1,000 of each just
01:19:07
so I could feel like I was
01:19:09
>> participating [clears throat] while I
01:19:10
was learning about it.
01:19:11
>> What do you think of Bitcoin and
01:19:12
Ethereum and other cryptocurrencies?
01:19:15
Uh I I think that they they solved a
01:19:18
really interesting problem. The the
01:19:20
premise of digital cash is something
01:19:22
that the cipher punk community, the kind
01:19:24
of libertarian community of of uh
01:19:27
privacy focused computer nerds where
01:19:29
they were trying to solve this problem
01:19:30
for for many many years of digital cash.
01:19:33
How do you create digital cash that
01:19:35
doesn't require a trusted third party to
01:19:37
mediate transactions? And they they
01:19:39
solved that. Satoshi Nakamoto solved
01:19:41
that in uh that was cool. and he used a
01:19:45
bunch of different pieces like you can
01:19:46
kind of see in the paper how he used
01:19:47
Adam's back Adam backs ideas that he had
01:19:49
created to stop email spam and it's how
01:19:51
it all came together unbelievable
01:19:53
fascinating story the technology was
01:19:54
really interesting I think it has become
01:19:58
uh an ideological
01:20:00
vehicle where people who believe that
01:20:03
the world should be a certain way or
01:20:05
believe that government's role in money
01:20:07
should be a certain way they can invest
01:20:10
in Bitcoin and feel really good about it
01:20:11
I think it's it's got that component to
01:20:13
And then the other component that it has
01:20:15
to it is that it's a speculative asset.
01:20:18
People buy Bitcoin because they think
01:20:20
it's going to go up.
01:20:23
>> So it's not a good investment. Is that
01:20:25
what you're saying?
01:20:25
>> I I I personally wouldn't. We don't
01:20:28
allocate to it for our clients at PWL.
01:20:31
We manage quite a bit of money for quite
01:20:34
a lot of people and we've decided not to
01:20:36
touch it and I personally don't touch
01:20:38
it. So
01:20:39
>> I had a phone call actually from a
01:20:41
friend of mine. She she's very well
01:20:42
known in the UK and she was um cuz
01:20:45
there's lots of wars going on everywhere
01:20:47
and there's the straight of Hmuz is
01:20:48
closed and there's Russia Ukraine
01:20:50
there's all of this stuff going on she
01:20:51
was she was asking me for financial
01:20:53
advice on what she should do in such a
01:20:55
moment I don't know why she was calling
01:20:56
me
01:20:58
I just thought I'll ask you when you
01:20:59
come here but but it's interesting
01:21:00
because my my team found this article
01:21:02
from 1847
01:21:04
which was in a magazine and it almost
01:21:06
sounds like today the article says this
01:21:10
things are bad all It is a gloomy moment
01:21:12
in history. Not in the lifetime of any
01:21:14
man who reads this paper has there ever
01:21:16
been so much grave and deep
01:21:18
apprehension. Never has the future
01:21:21
seemed so dark and incalculable. In
01:21:23
France, the political cauldron sees and
01:21:26
bubbles with uncertainty. England and
01:21:29
the English Empire is being sorely tried
01:21:31
and exhausted in a social and economic
01:21:33
struggle. The United States is behind
01:21:38
industrial and commercial chaos
01:21:39
drifting. We know not where. Russia
01:21:42
hangs like a storm cloud on the horizon
01:21:44
of Europe, dark and silent. It is a
01:21:46
solemn moment and no man can feel
01:21:49
indifference.
01:21:50
Of our own troubles, no man can see the
01:21:53
end. An apt description of things. Very
01:21:56
apt. And that was on October the 10th,
01:21:58
1847
01:21:59
magazine. That very much sounds like
01:22:01
today.
01:22:01
>> It could be today. Yeah.
01:22:04
So, as we zoom out on the cycles, the
01:22:06
big sort of economic cycles, the
01:22:07
geopolitical cycles, my friend that
01:22:09
called me and said, "Listen, there's
01:22:10
lots of stuff going on in the world.
01:22:11
Should I be thinking about my money
01:22:12
differently, my investing strategy? What
01:22:14
the hell's going on?" What would you say
01:22:15
to those people?
01:22:17
>> Yeah. Well, as as the clip that you read
01:22:20
suggests or or or tells us, the world
01:22:24
has been through a lot of crazy stuff, a
01:22:27
lot of crazy times, a lot of wars, a lot
01:22:28
of turmoil, a lot of polit political
01:22:30
upheavalss,
01:22:31
and we've come out okay. In general,
01:22:34
it's there there's been pain and
01:22:35
suffering and and not everybody's had
01:22:37
good outcomes, but generally speaking,
01:22:40
here we are. And if we think about that
01:22:42
that from the perspective of financial
01:22:43
markets, stock returns have been
01:22:46
positive despite all the craziness going
01:22:48
on in the world. There's lots of
01:22:49
interesting charts that overlay news
01:22:52
headlines about all the madness going on
01:22:54
in the world on top of the stock chart
01:22:55
that's just going up. Doesn't mean the
01:22:57
stocks are always going to be up. They
01:22:59
will go down when when things get crazy
01:23:01
like when when this war started. Stock
01:23:03
returns did get a little bit negative
01:23:05
for a while. They've since come back,
01:23:07
but there will be volatility in
01:23:08
financial markets. Volatility up and
01:23:10
down daytoday, but in the long run,
01:23:13
stock returns, they they should continue
01:23:15
to be expected to be positive. So for
01:23:19
your friend, I I don't know how their
01:23:22
assets are set up. Um, but someone who's
01:23:24
globally diversified, exposed to the
01:23:26
stock market, they don't have to make
01:23:28
changes to their portfolios when the
01:23:30
world's getting crazy. I remember what
01:23:31
she said to me. She said that she was
01:23:33
going to remortgage her house because I
01:23:36
think she'd paid it down and she was
01:23:38
wondering what to do with that money.
01:23:41
She was saying, "Do I just go buy
01:23:42
another house or do I invest it in the
01:23:44
stock market?" Now, my my bias is the
01:23:47
stock market, but I don't know what what
01:23:49
would you say to someone in that
01:23:50
situation? I'd want to know why she's
01:23:51
mortgaging her house, but given there's
01:23:54
a good reason for that, I would I would
01:23:55
probably go in the stock market, not
01:23:57
into real estate.
01:23:58
>> Do you think people shouldn't remortgage
01:23:59
their houses?
01:24:01
>> This is a tough question. Leverage, kind
01:24:04
of like how exposure to the stock market
01:24:05
is good. Borrowing money to invest in
01:24:07
positive expected return assets like
01:24:09
like the stock market is actually kind
01:24:11
of a good thing on paper. Borrowing
01:24:14
money generally improves long-term
01:24:16
expected outcomes, but it's stressful.
01:24:19
You can you can have bad outcomes where
01:24:21
you lose all of your money. So, should
01:24:25
people borrow money to invest? Should
01:24:27
people mortgage their house to invest?
01:24:28
That's it's a very personal question.
01:24:30
It's kind of like the stock bond
01:24:31
question. Should you invest in stocks or
01:24:33
bonds? Should you invest in stocks with
01:24:34
leverage or not? It really depends on
01:24:37
your goals and your situation. Uh but
01:24:40
generally speaking, if we just look at
01:24:41
what what what do the data say about
01:24:42
borrowing money to invest, it's not it's
01:24:45
not a terrible idea. One of the things
01:24:47
we haven't talked about is AI. And does
01:24:50
AI change any of this equation? A lot of
01:24:53
people are worried at the moment about
01:24:54
losing their jobs. Anthropic released a
01:24:55
report who are one of the big AI
01:24:57
companies saying that entry- levelvel
01:24:58
people in particular are going to have a
01:25:00
hard time. And I think they said they're
01:25:02
already seeing 13% of entry-level jobs
01:25:05
being disrupted because of these new AI
01:25:08
and AI agents.
01:25:10
I'm to be clear not a labor economist.
01:25:12
Um it's not my area of expertise. I do
01:25:15
think though that when we look back
01:25:16
through history, I like looking at at
01:25:18
history, there have been lots of
01:25:20
technological revolutions that have been
01:25:23
major major upheavalss to the entire
01:25:26
economy. Yes. So, ATMs, ATMs are one of
01:25:30
those fascinating examples. People
01:25:32
thought that ATMs were going to wipe out
01:25:35
bank tellers because ATMs could do
01:25:38
everything the bank tellers do, but it
01:25:39
was automated and you didn't have to pay
01:25:41
a person to do it. So there was a lot of
01:25:43
concern and what what ended up happening
01:25:46
was very counterintuitive is that the
01:25:50
cost of operating a bank branch
01:25:52
decreased because you needed fewer
01:25:55
people to do all the bank teller stuff
01:25:56
because you had the ATMs and banks
01:25:59
opened more branches because it cost
01:26:01
less and their customers liked that and
01:26:04
the end result was that there were
01:26:06
actually more bank teller drops at the
01:26:09
end of the day. So the cost of providing
01:26:11
the service decreased which caused it to
01:26:13
proliferate more provide that service to
01:26:15
more people and it expanded the market
01:26:18
instead of shrinking it.
01:26:21
>> Similar story with Jeban's paradox and
01:26:23
um it's the same concept.
01:26:25
>> What's that story where coal became
01:26:27
cheaper at a time when they used coal to
01:26:29
ship freight on trains and the coal
01:26:33
engine got more efficient with coal.
01:26:35
Coal industry panics. We're screwed. But
01:26:38
then what it meant is people used trains
01:26:40
not just for shipping freight but also
01:26:42
for other things like travel and people
01:26:44
started traveling on trains because it
01:26:45
got cheaper. So the coal industry
01:26:47
actually boomed in the end.
01:26:48
>> That's it.
01:26:49
>> I have thought a lot about this Jevans
01:26:51
paradox idea and I think it's I think
01:26:53
it's going to be true for artificial
01:26:54
intelligence for sure. I there will be
01:26:56
lots of other jobs created and actually
01:26:58
companies like mine if we save money we
01:27:00
invest it in something else which then
01:27:02
would would probably create jobs
01:27:03
whatever that is. The part that I
01:27:05
sometimes struggle with is the speed of
01:27:09
adoption in AI and then also when you
01:27:11
factor in robotics like my car in LA
01:27:14
drives itself and I think one of the
01:27:16
biggest employers on earth is driving in
01:27:18
all its forms but then if you look at
01:27:19
warehousing and supply chains a lot of
01:27:21
those are ran by people all over the
01:27:23
world and there was a video that I
01:27:24
played the other day we can throw it up
01:27:25
on the screen which shows that in
01:27:26
factories in certain parts of the world
01:27:29
now they're having their labor force
01:27:31
wear cameras on their head showing what
01:27:33
they're doing with their hands because
01:27:35
robots are ultimately going to replace
01:27:37
that labor force. And I just I I haven't
01:27:40
I guess this is maybe something that
01:27:41
happens in history. I haven't been able
01:27:42
to think about where those people go and
01:27:45
what they then can go on to do,
01:27:48
especially if it happens in short order.
01:27:50
>> Yeah. So, I've heard you I've heard you
01:27:51
ponder this in your other episodes and I
01:27:53
I I agree that the speed of this is
01:27:55
likely to be different. As you've said,
01:27:58
it's we're talking about the internet.
01:27:59
So, you can deploy these things at the
01:28:01
snap of a finger and that is different.
01:28:03
But where do those people go? This is
01:28:05
one of the interesting things. I don't
01:28:06
know. We we don't know.
01:28:08
>> And through history, we didn't know
01:28:10
>> exactly. Through history, it's been the
01:28:12
same sentiment where people worry about
01:28:14
where are these people going to go? And
01:28:15
they might be unemployed for a while and
01:28:16
there might be hard times, but things
01:28:18
have worked out. And so two ways to
01:28:20
think about it. One way is as a as an
01:28:22
individual, what should you be doing? We
01:28:24
talked about earlier uh having
01:28:26
complimentary skills that make you very
01:28:28
unique I think is important. Personally,
01:28:30
content as you mentioned has been a big
01:28:32
part of that for for me. Not everybody
01:28:34
can necessarily do that. But finding
01:28:36
those things that you can do when
01:28:38
combined better than anybody else in the
01:28:40
world, I think is very valuable. And
01:28:42
then the other perspective is as an
01:28:43
investor, how should we think about
01:28:45
this? And there I would come back to
01:28:47
again, we have seen many technological
01:28:50
revolutions that have changed the world.
01:28:53
They've changed financial markets.
01:28:54
They've changed our culture. They've
01:28:56
changed the way we interact with each
01:28:57
other. The world has changed so many
01:28:59
times due to technology and the same
01:29:01
cycle has repeated itself. Uh there
01:29:04
there has been unemployment. There has
01:29:06
been social unrest. There has been
01:29:08
wealth inequality. But this happens
01:29:10
every time. Are you expecting the stock
01:29:13
market to collapse because there's been
01:29:15
a huge overinvestment in artificial
01:29:17
intelligence? And at some point, the
01:29:18
investors that put their money into
01:29:20
these sort of speculative AI startups
01:29:24
that raised tremendous amounts of
01:29:26
capital at crazy valuations, at some
01:29:28
point through history, doesn't the
01:29:29
market always contract at some point?
01:29:31
There's a great book by an economist
01:29:33
named Carla Perez. Uh the book is
01:29:35
technological revolutions and financial
01:29:38
capital. And she documents this exact
01:29:40
cycle throughout history. And yes,
01:29:42
that's part of it. Part of it is asset
01:29:44
prices getting really high and then
01:29:46
coming back down. Now, am I worried
01:29:48
about a catastrophic market collapse? I
01:29:51
think that's always a concern. I think
01:29:53
that's part of the risk of investing in
01:29:54
stocks. We never know when it's going to
01:29:56
happen or what the trigger is going to
01:29:57
be. So, it's not something that you can
01:29:59
do anything about. You need to have an
01:30:01
ass allocation that you can stick with
01:30:03
even if that outcome is going to
01:30:05
materialize. And in that book is does it
01:30:09
suggest that the writing is on the wall
01:30:10
for the current economy and the way that
01:30:12
we're heavily investing in AI and data
01:30:14
centers and you know a couple of years
01:30:16
ago everyone was investing in crypto and
01:30:18
web 3 and NFTTS and all this stuff and
01:30:21
all of the money seems to have been
01:30:23
sucked out of that industry really
01:30:24
honestly sucked out of almost every
01:30:26
industry and into AI.
01:30:29
Um
01:30:30
>> I remember when DeFi was going to kill
01:30:32
banking and finance.
01:30:33
>> Yeah. [laughter]
01:30:34
And that was only a couple years ago. In
01:30:36
fact, a lot of the developers have moved
01:30:37
from that industry into the AI industry.
01:30:39
But I but I think I do think about this
01:30:41
a lot. I've got a few startup friends
01:30:42
who are getting a little bit nervous and
01:30:45
are raising a lot of money now because
01:30:47
they think that in the next couple of
01:30:48
years, maybe in the next 24 months,
01:30:50
there's going to be a big market
01:30:51
contraction. When investors who invested
01:30:53
in some startup idea that had a hund00
01:30:55
million valuation realize that they're
01:30:57
losing their money and some domino
01:31:00
usually falls in the market, some
01:31:01
catalyst moment means that there's a
01:31:02
contraction. stock markets go down, it
01:31:05
be gets really hard to raise money.
01:31:06
Yeah.
01:31:07
>> Clients who you might be relying on now
01:31:09
to pay your advertising budget, start to
01:31:11
lower their budgets.
01:31:13
And in such a scenario, you're going to
01:31:14
want to wish you'd prepared a little
01:31:16
bit. Some people are.
01:31:17
>> This is part of the cycle. The the cost
01:31:19
of capital for bubble companies, we'll
01:31:22
call them. I don't love the term bubble,
01:31:23
but for companies who are in the
01:31:25
industry that becomes the focus of a
01:31:27
technological revolution. So now we're
01:31:29
talking about AI. the cost of capital
01:31:31
gets really low which means asset prices
01:31:33
get really high and a lot of people want
01:31:34
to invest in that space but those asset
01:31:37
prices are not typically sustainable and
01:31:39
they do tend to come down does that mean
01:31:41
a total market collapse or catastrophe
01:31:43
or or or panic for diversified investors
01:31:46
no
01:31:47
>> oh is the writing on the wall
01:31:49
>> I don't think we can say that if the
01:31:50
writing were on the wall that the way
01:31:51
that I view financial markets is that if
01:31:53
the writing were on the wall prices
01:31:55
would reflect that today
01:31:57
>> okay
01:31:57
>> if we thought market prices were going
01:31:59
to drop in the future they would drop
01:32:01
today.
01:32:02
>> So So it happens at a time when no one
01:32:04
is expecting it.
01:32:05
>> That's exactly right. You mentioned
01:32:07
>> writing is never on the wall.
01:32:08
>> That's right. Some some new piece of
01:32:10
information, something changes and
01:32:12
that's what causes uh prices to come
01:32:14
down.
01:32:15
>> My brother said something to me. He's a
01:32:16
very smart person. He he's worked in
01:32:17
sort of investing for the last 15 years.
01:32:19
He said something to me early in my
01:32:20
career. He said, "Stephen, when you go
01:32:23
to invest in something, assume that the
01:32:27
price you're paying for that investment,
01:32:28
so say I'm investing in Facebook stock
01:32:30
at $10,
01:32:32
is the total accumulation of everything
01:32:36
everybody on the planet knows about that
01:32:38
company, and they've priced in
01:32:39
everything the world knows about that
01:32:41
company today." And he was like, "So
01:32:43
even if you think it's going to go up,
01:32:45
that's also, by the way, priced into
01:32:46
today's price. So, you better know
01:32:50
something that no one else knows when
01:32:52
you're thinking about buying in an
01:32:54
investment. I've totally butchered what
01:32:56
he said.
01:32:56
>> No, you didn't. You didn't. That he he
01:32:58
is describing the concept of an
01:33:00
efficient market.
01:33:01
>> An efficient market is a market where
01:33:02
prices always and this is a sort of a
01:33:04
theoretical concept. It's not actually
01:33:07
true, but in theory, an efficient
01:33:09
market, a perfectly efficient market is
01:33:10
a market where prices always fully
01:33:12
reflect all available information,
01:33:14
including your thoughts about what the
01:33:16
price
01:33:16
>> Yeah. might do really if you trade on
01:33:18
those thoughts.
01:33:19
>> So what are you investing in then? If
01:33:20
it's if the futures already priced in
01:33:22
and all the information about the
01:33:24
company's already priced in, what are
01:33:25
you investing in?
01:33:26
>> You're investing in discounted future
01:33:27
cash flows. Companies produce cash
01:33:30
flows.
01:33:31
>> Mhm.
01:33:31
>> They earn they earn profits. When you
01:33:33
invest in a company, you're buying those
01:33:35
expected future profits at a discount.
01:33:37
That that's called the discount rate.
01:33:39
It's getting pretty nerdy again, but
01:33:40
that's that's how it works in finance.
01:33:41
What is what is the value of a stock?
01:33:43
It's its discounted future cash flows.
01:33:45
Riskier stocks will tend to have higher
01:33:46
discount rates, but you buy this asset
01:33:49
and now you've got this discounted
01:33:51
bundle of cash flows which you then hold
01:33:52
and you receive the discount rate as a
01:33:54
rate of return as you continue to hold
01:33:56
the asset. So, a lot of people will
01:33:58
invest in Tesla. They'll go, "Listen, I
01:33:59
I've got a Tesla. It's amazing. I'm
01:34:00
going to buy some stock. What is the
01:34:03
fault in my thinking there
01:34:05
>> in buying Tesla stock?"
01:34:06
>> Because I I've got a Tesla. I think it's
01:34:08
a great car and I think I'll do well in
01:34:10
the future. So, I buy the stock.
01:34:12
>> They It's what we just talked about.
01:34:13
that information is already included in
01:34:15
the price. Every everybody knows that
01:34:17
it's a pretty good company making pretty
01:34:18
good cars that are selling really well
01:34:20
>> and that's why it cost $10 today,
01:34:22
>> right?
01:34:22
>> Whatever it costs today,
01:34:23
>> whatever the price is. Yeah. If you look
01:34:25
at uh the data on professional money
01:34:28
managers who are trying to beat the
01:34:30
market, most of them don't. And the ones
01:34:33
that do, this is a crazy part, the
01:34:35
managers who do beat the market over a
01:34:36
period of time don't tend to go on to
01:34:39
beat the market in the future. And these
01:34:42
are professional investors who are, you
01:34:44
know, and and you can look at this
01:34:45
before or after fees. The data are are
01:34:47
actually pretty similar. It's worse
01:34:48
after fees, but the distribution is is
01:34:51
pretty similar.
01:34:51
>> So what's the point in a money manager?
01:34:53
>> Well, ones that are trying to beat the
01:34:55
market by picking stocks and timing the
01:34:56
market. I don't think that there is one.
01:35:00
That's why I talk about just just buy
01:35:02
index funds. Buy buy the market. Let the
01:35:04
give take the market's return. Accept
01:35:06
the market's return, which has been very
01:35:08
good.
01:35:08
>> And then don't do anything. Don't check
01:35:09
the [ __ ] thing. Don't check it. Don't
01:35:11
open the app. Lose the password. I said
01:35:12
this about my my fiance. I said she's
01:35:14
really good at investing cuz she always
01:35:15
forgets the password. And then we four
01:35:17
years later, we'll be like, "Well, babe,
01:35:18
you should check your investment." And
01:35:20
she goes, "I don't know the password." I
01:35:21
go, "Fucking." And then we have to do
01:35:23
the whole password reset thing every
01:35:24
[laughter] And then we open it. We go I
01:35:26
go, "Babe, you're rich.
01:35:28
>> That's probably good."
01:35:28
>> And she goes, "Oh, amazing." And then
01:35:29
she forgets the password again. And then
01:35:31
four years later, we take a look again
01:35:32
at her investments. I
01:35:34
>> I like to say you you want to focus on
01:35:35
the things that you can control.
01:35:38
>> You can't control markets. you can't
01:35:39
control uh your performance relative to
01:35:41
the market and trying to outperform
01:35:44
tends to make you worse off rather than
01:35:45
better. But the things that you can
01:35:46
control are a lot of the things we
01:35:48
talked about. Having having an an
01:35:50
appropriate financial plan, having
01:35:51
having the right goals set, having an
01:35:52
asset allocation that makes sense for
01:35:54
you even if markets do decline, having
01:35:56
emergency savings, tax planning. Those
01:35:58
are things that you can control and
01:36:00
that's what people should focus on.
01:36:01
>> Do you think women are better investors
01:36:02
than men? I'm I'm not super good on
01:36:05
these data, but I believe what the data
01:36:06
say are that women tend to be a little
01:36:08
bit more riskaverse.
01:36:10
Uh but they tend to be a little bit less
01:36:13
overconfident,
01:36:15
>> which I assume gets better results.
01:36:16
>> Yeah, I I think women are probably
01:36:18
better investors. I'm just going to give
01:36:19
I'm going to give the simple answer
01:36:20
right there.
01:36:21
>> I've just got some numbers here.
01:36:22
Fidelity said that across 5.2 million
01:36:26
accounts, women beat men with their
01:36:29
investments. War business school women
01:36:31
outperformed men by 1.8%
01:36:35
per year over a three-year period. UC
01:36:37
Berkeley men traded 45% more often than
01:36:40
women leading to annual returns that
01:36:43
were 1.4% lower than women's and
01:36:46
Revolute which is a big bank founded out
01:36:48
in the UK is says that women's
01:36:50
investments in the UK outperformed men's
01:36:53
by 4% over.
01:36:55
>> Incredible. I believe it.
01:36:57
>> Give your money to your wife. Uh-huh.
01:36:59
Well, one of those data points is
01:37:00
specified. Uh, but I would assume that a
01:37:02
lot of that is related to overtrading.
01:37:04
>> Yeah.
01:37:05
>> Men tend to be overconfident. They tend
01:37:07
to trade more. They try to pick stocks.
01:37:08
They think Tesla stocks going to go up
01:37:10
because they like the car.
01:37:12
>> They're also the the biggest gambling
01:37:13
addicts in the world are men as well.
01:37:15
So, it's kind of correlates.
01:37:16
>> For sure. It is. Yeah.
01:37:17
>> Ben, we have a closing tradition on this
01:37:19
podcast where the last guest leaves a
01:37:20
question for the next not knowing who
01:37:21
they're leaving it for in the diary of
01:37:23
the CEO. And the question that has been
01:37:26
left for you is what experiment can you
01:37:30
propose whose outcome could completely
01:37:33
contradict your current beliefs.
01:37:37
Oh man,
01:37:39
[sighs]
01:37:42
an experiment that I could run
01:37:45
if I take my current beliefs as one of
01:37:47
the big things that we talked about is
01:37:48
markets being efficient and it being
01:37:50
quite hard to outperform the market. Uh,
01:37:54
I mean the best the best experiment that
01:37:56
we can run is is trying to beat it.
01:37:58
>> People have done that,
01:37:59
>> but it's being run all the time.
01:38:00
>> Isn't there a story in the psychology of
01:38:02
money by Morgan Hel where like was it
01:38:05
Warren Buffett bet someone?
01:38:07
>> Yeah. Warren Buffett bet Ted Ted Sites
01:38:09
who we've actually had on our podcast.
01:38:11
Uh, he bet him that his index fund
01:38:15
portfolio, which I believe was just the
01:38:16
S&P 500, could outperform any hedge fund
01:38:20
portfolio that Ted picked. And they had
01:38:23
a specific timeline. It
01:38:25
>> was 10 years, wasn't it?
01:38:26
>> Yeah. And then they were going to donate
01:38:27
the the an amount of money at the end of
01:38:30
the period and Ted lost the bet. Uh
01:38:33
Warren Warren won. But that that was one
01:38:35
of those instances where the world kind
01:38:38
of got to see, hey, this this index fund
01:38:40
thing Buffett has been a big advocate
01:38:42
for index funds, but that was a big
01:38:44
example where uh I think a lot of people
01:38:46
were exposed to that idea.
01:38:48
>> Where do people find you? You know, I've
01:38:50
got your YouTube channel here, Ben
01:38:52
Felix, which I'll I'll link below for
01:38:53
anyone that wants to continue to follow
01:38:56
you on YouTube. Is there anywhere any
01:38:58
other resources that we should direct
01:38:59
people to?
01:39:00
>> Yeah, another place where I post
01:39:02
actually a little bit more frequently uh
01:39:04
with longer form stuff is the rational
01:39:05
reminder podcast.
01:39:07
People can check me out there. And then
01:39:09
I do have some interesting tools for the
01:39:11
rent versus buy calculation. We have a
01:39:13
goal setting app. I don't think it's up
01:39:15
yet though. And we've got some other
01:39:16
really interesting tools on uh the PWL
01:39:19
Capital website,
01:39:20
>> pwlc capital.com. I'll link all of that
01:39:22
below for anyone that's interested. Um
01:39:24
and the rational reminder podcast
01:39:26
rationalre.ca/mpodcast
01:39:29
and your YouTube channel will be linked
01:39:31
below as well.
01:39:32
>> Awesome. Thank you so much, Ben. Thank
01:39:34
you for doing what you do because um
01:39:35
finance is such an important part of our
01:39:37
life and I think a huge percentage of
01:39:38
the population for whatever reason
01:39:40
choose to avoid the subject altogether
01:39:42
cuz it causes a little bit of anxiety
01:39:43
but also we just don't get taught about
01:39:45
finance in school which I think is a
01:39:46
great shame and in in my case you know
01:39:48
it wasn't until I destroyed my credit
01:39:50
rating my credit score um that I started
01:39:52
to figure out what finance was and by
01:39:53
then kind of like brushing your teeth
01:39:55
I'd done a lot of damage and so since
01:39:57
then from doing this podcast and
01:39:58
speaking to smart people like you that
01:39:59
are good at demystifying complex things
01:40:01
um but also in your case that use acade
01:40:03
ademic research as the basis for the
01:40:05
claims they're making. It has helped to
01:40:07
turn the lights on for me. And in this
01:40:10
domain, I think control or like
01:40:12
understanding and information is power
01:40:14
really like knowledge is power and a lot
01:40:16
of people are disempowered because they
01:40:18
don't have the knowledge and they kind
01:40:19
of they're on that sort of roller
01:40:20
coaster of their life circumstance and
01:40:22
they don't feel like they have control
01:40:24
especially considering that the world
01:40:25
feels so uncertain right now. So, thank
01:40:27
you for doing what you do, Ben. Really,
01:40:28
really appreciate it and I hope to speak
01:40:29
to you again sometime soon.
01:40:30
>> Thanks so much. YouTube have this new
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crazy algorithm where they know exactly
01:40:34
what video you would like to watch next
01:40:36
based on AI and all of your viewing
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this video is the perfect video for you.
01:40:44
It's different for everybody looking
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bet you you might love
