Stock Expert: Becoming Rich Is Simple, But You Won’t Do It!

0:00 Renting versus owning a home,

0:01 the biggest financial decision most people make in their life.

0:03 So, we're going to talk about all

0:04 of the unrecoverable costs [music] of owning a home,

0:07 including property taxes, maintenance costs,

0:09 which is the one that I think people underestimate the most.

0:11 And then there's also emergency costs.

0:13 I've got a whole stack of them,

0:14 as well as a 5% rule to figure out if renting is a better financial decision.

0:18 We'll go through that.

0:18 What else have we got?

0:19 So, this is something that people just don't think enough about,

0:21 which is the top 10 financial mistakes that I think people make.

0:25 For example, tax planning opportunities.

0:27 Like, there are simple things that people can do

0:28 [music] to minimize the amount of tax they're paying,

0:30 and we'll go through those.

0:31 Ben Felix's firm manages the money of more than 3,000 people,

0:36 ranging from people with huge amounts of money and not so much money.

0:39 His whole thesis is giving people money

0:41 advice that is based on academic research.

0:44 Our brains, our psychology,

0:46 absolutely gets in the way of making good long-term financial decisions.

0:49 And today, we're going to answer the big money questions,

0:52 like what should I invest in?

0:54 A lot of people believe they need to have

0:56 a lot of background information before they can start investing,

0:58 but I would argue that people who know just a little bit,

1:01 they will be better long-term investors.

1:03 There's a ton of evidence supporting

1:04 that this will outperform most other investment strategies.

1:07 And also, what is the mentality,

1:09 the mindset of people that end up making money over the long term?

1:13 Psychology is important for determining what your financial goals are.

1:16 So, this is a framework that we developed to elicit higher quality goals.

1:19 What would you say to young people

1:21 that are thinking about their financial strategy?

1:23 A lot of young people feel a lot of pressure to save,

1:25 but there is research suggesting [music] that it's

1:28 probably suboptimal for young people to save, which we'll talk more about later.

1:31 And then, in a world of AI where everything is changing so quickly,

1:34 what should I be doing with my money right now?

1:37 Ben Felix has the answer.

1:40 This is super interesting to me.

1:41 My team gave me this report to show me

1:43 how many of you that watch this show subscribe, and some of you have told us,

1:46 according to this, that you are unsubscribed from the channel randomly.

1:49 So, favor to ask all of you,

1:51 please could you check right now if you've hit the subscribe button.

1:53 If you are a regular viewer of this show and you like what we do here.

1:56 We're approaching quite a significant landmark

1:58 on this show in terms of a subscriber number.

1:59 [clears throat] So, if there was simple free thing that you could do to help us,

2:03 my team, everyone here, to keep this show free,

2:06 to keep it improving year over year and week over week,

2:09 it is just to hit that subscribe button and to double check if you've hit it.

2:11 Only thing I'll ever ask of you.

2:13 Do we have a deal?

2:14 If you do it, I'll tell you what I'll do.

2:16 I'll make sure every single week, every single month,

2:19 we fight harder and harder and harder and harder to bring

2:20 you the guests and conversations that you want to hear.

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2:25 and I will not let you down.

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2:28 Really appreciate it.

2:29 Let's get on with the show.

2:32 [music] [music] Ben, there are lots of people out in the world

2:41 talking about personal finance and investing and all these adjacent subjects.

2:45 What is the approach you take that you think is different to lots

2:50 of the other sort of finance experts

2:52 that are on YouTube that are giving people advice?

2:55 What I think, and the approach that I've always tried to take,

2:57 is what can we take from academic literature,

3:00 very smart people who spent a lot of time thinking about these things,

3:03 what can we take from them and apply

3:05 to making good financial decisions for a typical person?

3:08 And what are the key questions that you've

3:10 sought to answer for the audiences that you have?

3:13 Is renting versus owning a home.

3:14 So, that's always been big.

3:16 Asset allocation is another big one.

3:17 How much should you invest of your of your long-term

3:20 money that you can afford to take some risk with.

3:23 Another important question people wonder about is,

3:26 why should I not do this other investment strategy that seems very attractive?

3:30 And who who are we appealing to with this conversation?

3:32 Is it just people that have lots of money,

3:34 or is it No, I think these questions need to be answered.

3:37 I mean, the the renting versus owning

3:38 a home one is applicable to pretty much everyone,

3:40 because that is the biggest financial decision

3:42 most households will make in their lives, regardless of what their net worth is.

3:46 But investing, or what should you do with your long-term investments,

3:48 that's applicable to anybody.

3:50 Anybody that's going to be saving for their future,

3:52 whether they have $10,000 or $10 million, the same principles apply.

3:57 And how much of this game of investing,

3:59 making money, is comes back to psychology?

4:03 So, I like to say investing's been solved.

4:04 We're going to use index funds.

4:06 That's it.

4:07 The hard part is actually doing that.

4:10 Because our brains, our psychology,

4:11 absolutely gets in the way of making good long-term financial decisions.

4:15 Our brains are designed for survival.

4:19 They're not designed to thinking about long-term

4:21 abstract concepts like taking your money today, investing in the stock market,

4:26 ignoring all the stuff that happens in between,

4:27 and then having money left over later to to fund your retirement.

4:32 That's so interesting,

4:33 cuz a lot of the time people talk about tactics and strategies,

4:36 but I guess underpinning your ability to execute on any

4:38 of those tactics or strategies are one's own psychology.

4:41 And is there academic research about the best sort

4:44 of mental approach to take towards money and finance and investing?

4:47 So, one of the best approaches, and it's a little bit counterintuitive,

4:50 is to not look at your investments.

4:52 There is a an academic paper showing

4:54 that the more people look at their investments,

4:57 the less risk they take, and the lower returns they earn.

5:01 Because when you look at your investments every day,

5:03 the stock market goes up and down.

5:05 We know that.

5:05 If you're looking every day at your portfolio and it's down 5%,

5:08 up 6%, and going up and down all the time, that can be very stressful,

5:12 and it makes it seem like the stock market is very risky.

5:15 And so, people will invest less in the stock market.

5:18 In reality, for for long-term investors who can invest in stocks,

5:22 buy and hold for a very long period of time,

5:24 that they're a lot safer than people think.

5:26 Mhm.

5:26 So, [clears throat] we've got some props

5:28 here for some demonstrations we're going to do.

5:30 Could you just give explain to me the high-level of what these things

5:34 are on the table and the different frameworks we're going to go through?

5:36 Sure.

5:37 So, we have a bunch of things here.

5:39 Uh this is one of my favorites that I bring up in a lot of my videos.

5:44 So, this is the the PERMA model, which comes from positive psychology.

5:48 Psychology is important for investing well,

5:50 but it's also important for figuring out

5:51 what your long-term investing strategy should be.

5:54 We'll go through that.

5:54 What else have we got here?

5:56 This is the top 10 financial mistakes that I think people make.

6:00 Uh this is the the three steps for investing your first $10,000.

6:04 Okay.

6:05 And we've got $10,000 there,

6:06 so you're going to talk me through how we do that as well.

6:09 all of the We're going to talk about all of the unrecoverable costs.

6:12 Got a whole stack of them that you incur when you own a home.

6:17 Okay.

6:17 And I I I guess this begs the question, who is Ben Felix?

6:21 What is your background, and what is the education, the reference points,

6:23 the experiences that you're drawing upon to give us this information today?

6:28 Probably where it starts for for being relevant is I

6:31 I did a degree in mechanical engineering at Northeastern University.

6:36 And I say that's relevant because when I came into finance,

6:39 I wanted to approach it like an engineer, and a lot of finance,

6:44 a lot of financial services of of investing

6:46 and wealth management is not approached like an engineer.

6:49 It's approached like a I feel almost bad saying

6:52 this, but it's approached like a like a car dealership,

6:54 like selling selling product.

6:56 So, I was disappointed in that and and had to find my find my own way.

7:00 So, they haven't got my best interests at heart.

7:03 In in a lot of cases, I don't think so.

7:05 And I started spending a lot of time

7:07 reading through academic literature so that I could

7:09 be very confident and comfortable that the advice

7:11 that I was giving to people was good, high-quality advice.

7:14 And where is the best place to start?

7:17 Is it in the psychology?

7:18 Is it one of the one of these frameworks?

7:19 Is it somewhere else?

7:20 Is there a background understanding of the economy one needs to to get going?

7:24 That is a great question.

7:25 I don't think so, and I think that's where a lot of people get stuck,

7:28 where they believe they need to have a lot

7:30 of background information before they can start investing.

7:33 Uh they may do research on specific industries,

7:35 they may look at like the energy sector so

7:37 they can build out an energy portfolio as one example.

7:40 But investing the way that I would say is sensible for most people,

7:44 which is just using low-cost index funds,

7:46 capturing market returns, the the market returns have been there,

7:49 and they're going to continue to be there.

7:51 They should continue to be there in the long run.

7:53 Uh doing that doesn't require a lot of background knowledge.

7:57 I would argue that people who know just a little bit,

7:59 just enough, that just know that index funds are sensible,

8:02 and they have enough conviction they can stick with that, they will

8:04 be better long-term investors than someone who knows enough to hurt themselves.

8:09 What would you say to young people

8:10 that are thinking about their financial strategy?

8:14 Would you say that someone in their early 20s, 21 years old,

8:18 should adopt a completely different approach to money

8:21 based on what you've just shown me, versus someone that's 51 years old?

8:25 It's going to be different, for sure.

8:27 I I think, and this is a it's a tricky subject,

8:29 but a lot of young people feel a lot of pressure to save.

8:32 And that might be saving for their retirement, it might be saving to buy a home,

8:36 but they feel a lot of pressure from their parents and just

8:38 from society in general that they need to be saving money,

8:41 and that if they're not saving money, they're being irresponsible.

8:43 But again, if we come back to academic research,

8:46 there is research suggesting that it it's

8:49 probably suboptimal for young people to save.

8:51 General point is that you should save more when you have a higher income,

8:55 and save less when you have a lower income.

8:57 And what that ends up meaning is that young people may not need to save,

9:02 or may not need to save as much as they feel pressured to save.

9:05 The reason this topic is tricky is that, well what I just said is true,

9:10 it can cause bad habits.

9:12 Whereas people spend all of their income,

9:14 and then don't have that shift towards saving at some point,

9:17 then they'll they'll end up in a difficult position later on in life.

9:22 Someone who's 50, it's going to depend on their situation.

9:25 If they're the person who I just mentioned who never saved,

9:28 they're in a tough position, and then they are going to need to save a lot

9:31 in order to have some wealth later on in life.

9:34 But if they've already saved, and they have wealth,

9:36 then they can focus more on some of these topics.

9:40 And you've got the the 10 money mistakes people make here.

9:43 Can you run me through those ones, and just let me know if any of them is

9:47 particularly pertinent or interesting that we should dive deeper into?

9:50 So, this this one's controversial.

9:53 It's not earning enough money.

9:56 A A of people feel like they don't have an option.

10:00 That they're not earning enough money because that's just the way

10:03 things are and there's nothing that they can do about it.

10:05 I don't think that's necessarily true.

10:06 Investing in your human capital, and that can be formal education,

10:10 it can be getting skills, it can be becoming an entrepreneur.

10:13 Those are all ways to make your your own self a more valuable asset,

10:18 to increase the value of your human capital, and allow you to earn more money.

10:22 So, that's that's a big one.

10:23 I think people who get stuck in the in the feeling

10:27 or the thought that they do not have the ability to increase their income,

10:30 and that this is just the way things are,

10:32 I think that could be very problematic.

10:34 I've always thought of it across these sort of five buckets.

10:37 The first two buckets that we attempt to fill when

10:40 we're starting our careers are our knowledge and then our skills.

10:43 And kind of like when knowledge is applied, it becomes a skill.

10:45 And these two first buckets are so

10:47 imperative because they can almost never be unfilled.

10:51 Whereas the other three buckets,

10:52 which is your resources, your network, and your reputation,

10:55 you can have career fluctuations and earthquakes

10:57 that cause those buckets to unfill.

10:59 So, as like you were saying earlier on about young people,

11:02 one of the things I've always thought is like when you're young,

11:03 just like optimize for filling your knowledge

11:05 and skills as much as you possibly can.

11:07 And actually, I guess that the level of nuance there is acquiring

11:11 a rare but complementary stack of knowledge and skills that the market values.

11:16 And I think over the long term, you know,

11:19 this doesn't apply to everybody cuz things

11:20 happen in life and bad things can happen, but over the long term,

11:23 I think life tends to land you pretty much

11:27 in and around the value of and the rarity

11:30 and the complement complementarity of those knowledge

11:32 and skills as it relates to the market's demands.

11:35 That's absolutely true.

11:36 There's data on this, too,

11:37 where we know that there is a mechanical relationship, at least historically.

11:41 We can talk about the future, but historically,

11:43 there has been a mechanical relationship between

11:45 formal education or trade education and lifetime earnings.

11:50 And we also know that certain degree types, like engineering, finance,

11:54 business, some other sciences have higher lifetime earnings than other degrees.

11:59 So, it's you're I think you're absolutely right.

12:01 There are and the hard part is we

12:02 don't know what exactly those degrees and skills

12:05 that are going to be the highest paying in the future are going to be.

12:07 10 years ago, we might have said software developers.

12:09 Today, we might not.

12:11 But even you as an example, so you did engineering and then you did finance.

12:15 And now you've added this other string to your bow,

12:17 which is you know how to make content on YouTube.

12:19 And that makes you as a finance

12:22 expert and professional and CIO so extremely rare.

12:26 It almost makes you like one of 100 on planet Earth, maybe.

12:31 And this is what I mean by rare and complementary skills.

12:34 You could have just learned more finance.

12:35 And I don't think that would have moved you up this sort of earning ladder.

12:39 But because you added this really rare skill of being

12:41 able to make content to your other skill stack, I'm guessing it made you money.

12:47 It did.

12:47 It has and I I continue to be paid well and, you know, it was Please don't,

12:53 but if you were to go back and watch my old videos,

12:55 which are still up, I'm so rigid and nervous and I when I was.

13:00 And it took probably years of recording and we do a podcast, too,

13:04 so just being in front of the camera for me to feel pretty good.

13:08 I mean, I it probably took me 3 years to smile on camera.

13:10 Really?

13:12 [laughter]

13:12 So, yes, that was a skill that I acquired through just practice, I guess.

13:16 So, I say this because I really want people

13:18 to think about how rare their skill stack is.

13:20 It's not something we're taught.

13:21 And then also, one of the things I noticed,

13:23 I used to work in a a biotech company

13:24 for a little while while I was in between things.

13:27 And we were looking for a writer, a biotech writer.

13:30 Now, the other writers that we'd hired

13:32 at our other companies might have been paid,

13:34 I don't know, $50,000, whatever it is.

13:36 For a biotech writer, we would pay them a quarter of a million.

13:40 And all the only difference is the biotech writer had

13:42 like some base They didn't have to go to medical school.

13:45 They just needed experience in writing about biotech.

13:48 Yeah.

13:49 And it 5x their earnings.

13:51 So, this other point is, you might have a skill stack,

13:53 but are you selling them on the right market?

13:56 And even me, first part of my career was marketing.

13:59 I was helping Uber and fizzy drinks

14:02 company and dress seller company sell their dresses.

14:05 As I just said, the second little stop I took in my career

14:09 was helping biotech companies with marketing that are about to IPO.

14:14 [laughter] My first contract with one of those companies

14:16 was worth 8 million, 6 months' work.

14:18 And I it made it was a real pivotal moment in my career where I go,

14:21 it's not just the skills you have,

14:22 it's like where you the market and industry where you sell

14:25 those skills can wildly change your your, as you say on that card,

14:30 your earning potential.

14:31 Yeah.

14:32 And as you say, that this is something that you don't have full control over

14:35 because you could do all those things and not find work as a biotech writer,

14:38 but putting yourself in that position, I think, does increase the odds.

14:41 What's the second one you've got there?

14:43 Second one is not saving enough.

14:48 Touched on this a little bit.

14:49 Young people maybe don't need to save,

14:50 but at some point, you do have to start saving.

14:53 And the tricky thing about saving is that wealth compounds over time.

14:57 And if you're not saving enough,

14:58 you're missing out on compounding and it gets a lot harder to catch up

15:02 with the amount of savings you would

15:03 have otherwise had if you'd started earlier.

15:06 So, that's a big one.

15:07 And some people will wake up when they're 50,

15:10 55, maybe even 60 and realize they haven't saved enough.

15:13 But by that time, there's nothing that you can do

15:16 about it or very little that you can do about it.

15:18 There's a lot of parallels with health here where [laughter]

16:56 [clears throat] if you eat poorly and don't exercise, you can

18:07 that positive emotion is one big piece of it.

18:10 What does that mean?

18:11 It's literally enjoying what you're doing and feeling good throughout the day.

18:14 Engagement, you could probably argue that we're getting some of that right now

18:18 where you're doing something that you enjoy

18:20 doing that's maybe a little bit challenging, but it's your skill level.

18:23 It's the idea of getting into flow.

18:25 I I know I get that when I do podcast interviews,

18:28 when I do research, when I'm sitting down and and writing a video script.

18:31 Mhm.

18:32 Relationships [clears throat] is is having good,

18:33 strong relationships with with people who are close

18:36 to you in your life and that can be friends,

18:37 it can be family members, it can be colleagues.

18:40 Meaning is being part of something that is bigger than yourself.

18:44 That can be a lot of different things.

18:45 For some people, it's religion.

18:46 For some people, it's community.

18:48 For some people, it's their own business.

18:50 Mhm.

18:51 And accomplishment is achieving hard things.

18:55 Setting goals and achieving them.

18:57 You're going to look at the items of the PERMA model.

18:59 You're going to look at those as categories and think about

19:02 what other goals you may have that fit into those categories.

19:05 That's called a categorical prompt.

19:07 And again, there's evidence behind

19:08 that helping people elicit more meaningful goals.

19:11 So, one of the things I said is buy a Ferrari.

19:12 Again, these aren't my goals, I don't care about Ferraris,

19:14 but in case they want to sponsor the podcast, then I care about Ferraris.

19:17 But say the Ferrari thing,

19:19 do do I have to find where it sits with in terms of positive emotion,

19:22 engagement, relationships, meaning, accomplishment?

19:24 It would be wise to and this is why I think this framework is so

19:27 important because you might realize that a Ferrari

19:29 does not contribute to any of these things.

19:31 It might, though.

19:32 Like maybe you take it to the track and you spend hours racing it.

19:35 And that would be engagement.

19:37 engagement.

19:38 Maybe you have a bunch of buddies who have Ferraris

19:39 and you want to be part of that friend group.

19:42 So, that's relationships.

19:43 Yeah.

19:43 Okay.

19:44 I mean, positive emotions, but that might only last a couple of days.

19:46 Yeah, what's the hedonic treadmill idea?

19:48 That's exactly it.

19:48 Yeah.

19:49 And then accomplishment, I mean, it's not really an acco- If it was a goal

19:53 that you've had since you were 5 years old,

19:55 maybe that you could call that accomplishment, maybe.

19:57 Okay, so I fit my my financial goals,

20:00 my life goals into the PERMA model as a way

20:02 to understand what my financial goals should be.

20:06 Yeah.

20:07 Okay.

20:08 How many people in the general public do you think have

20:10 actually thought about what a good life for them looks like?

20:13 Not enough.

20:14 Not many.

20:14 I think everyone's people are so busy with their day-to-day lives.

20:18 I know this is true for me and my family, too.

20:20 It's really, really hard to step back and have this kind

20:23 of thoughtful discussion about what you actually want your life to look like.

20:27 Cuz I was just thinking about that.

20:28 I was thinking I don't even know if I've

20:29 got um really clearly defined life goals for myself.

20:33 Like I think most of us just kind of act on how we feel.

20:36 Yeah.

20:37 And that can somewhat drift us towards the short-term.

20:41 Like if I just Yeah, what what's going to make me feel good today?

20:44 And do that every day.

20:45 I don't know.

20:47 Some might argue that you have to be a bit more long-term thinking.

20:50 It can help.

20:50 It can help, right?

20:51 Cuz it it it can help you from making

20:53 decisions that you might regret in the future.

20:55 Mhm.

20:56 Yeah, cuz when I look at this PERMA model,

20:57 there's some things on here that I've optimized

20:59 for, which have sacrificed the other things that I care That's it.

21:01 That's it.

21:01 Yeah.

21:02 Like you might have I might have over-indexed on this, like achieving things,

21:05 but might have cost me some relationships.

21:08 So what's the fourth mistake people make?

21:10 Yeah, so this is related to what we were just talking about,

21:12 but it's it's overspending on the wrong things.

21:15 Okay.

21:17 When you think about what is a good life for you,

21:19 and you realize if you realize that you're spending

21:22 on things that are not contributing to that, which is resulting

21:25 in you not being able to save toward things that would

21:27 contribute to what you want your life to look like,

21:30 that's probably not a great position to find yourself in.

21:32 So that could be spending $12 on a an iced

21:35 coffee every morning and not enjoying it,

21:38 cuz you could get positive emotion out of that.

21:40 But you're like rushing to work, chugging down the $12 coffee every day.

21:43 That's probably not contributing to a good life.

21:47 Number five might be one of the bigger ones,

21:53 which is not taking investment risks.

21:57 And that's really the stock market

21:59 has delivered these incredible long-term returns,

22:02 and on expectation, it should continue delivering strong returns for investors.

22:06 Not participating that in that is a huge mistake,

22:10 and it's a mistake that many, many people make.

22:12 A lot of people don't invest in stocks at all, and a lot of people who do invest

22:15 in the stock market don't invest enough in stocks.

22:18 They have very conservative portfolios.

22:20 And that has a very large implicit cost.

22:23 By not participating in the stock market when you could be,

22:26 you're giving up a huge amount of of economic gain.

22:29 How do you quantify that for the average person

22:31 in terms of what kind of gain they're giving up,

22:34 or the size of the gain they're giving up?

22:35 Well, you can look at the historical returns on stocks,

22:38 uh and you can also look at the expected returns on stocks.

22:42 So let's say it's uh let's say it's 7%

22:45 that we expect stocks to turn in the long run.

22:48 And if you could get 2% by sitting in cash,

22:52 that 5% difference is your opportunity cost of not

22:56 investing in the stock market when you otherwise could be.

22:58 And 5% compounded over the long term is enormous.

23:03 So say I have $10,000 uh and I invest it in the stock market,

23:11 and I'm getting what did you say, 8%?

23:12 7 Say 7%.

23:14 How much money is that?

23:17 Let's have a look.

23:19 So I've done $10,000, which is what we have here.

23:22 Mhm.

23:23 Invested in the stock market at 7% return over 40 years, that would be $150,000.

23:31 Do you know what's um Do you know what's quite scary when I think about that?

23:34 Is does that kind of means that today if I spend $10,000,

23:38 I'm actually spending $150,000.

23:41 Yes.

23:43 Which makes me not want to spend any money on anything.

23:45 Yeah.

23:46 Cuz if you buy I don't know what cost 10 What does What cost $10,000?

23:48 Like a a car, small car?

23:51 Yeah, maybe.

23:51 Yeah.

23:51 You're actually spending $150,000 when you factor in the fact

23:55 that if you put that $10,000 into the stock market,

23:58 you could have made 7% a year, and it would have turned into $150,000.

24:01 Yeah, that's that's one side of the coin.

24:03 Yeah, I think you also have to think about any

24:05 enjoyment or utility that you get out of that car.

24:08 If that car lets you drive to a job you couldn't have otherwise done,

24:12 it may have a significant economic value to you in the long run.

24:15 As one example.

24:16 You know, I've got a coffee here.

24:17 Some people spend $10 on a cup

24:20 of coffee with frappachappa toppings and all that stuff.

24:23 Looking at that over the long term, in 40 years,

24:27 if you'd not bought that coffee and put it

24:29 into the stock market and got just 7% return, you would have had $150.

24:35 So when you buy that $10 coffee,

24:36 you're actually theoretically spending $150 in 40 years' time.

24:41 So you better really enjoy the coffee.

24:44 Is there a bit of a fear that it makes us not want to spend money on anything,

24:47 and therefore we end up having a shitty life in the near term?

24:49 No, I I think that's why this this framework That's why

24:52 the the PERMA framework for thinking about these decisions is so important,

24:55 because you do want to have positive emotion and engagement,

24:58 relationships, meaning, and accomplishment.

24:59 Those are all really, really important.

25:01 And yes, that money could be worth more in the future,

25:04 but it can also be a worth a lot today if you're optimizing on the right things.

25:09 What else?

25:09 Number six.

25:11 It's another big one.

25:11 So not taking enough risk is is important.

25:14 Taking the wrong risks with your investments.

25:17 So I we we just ran some numbers about a 7% stock market return.

25:21 You can basically get that using an index fund.

25:25 The problem is a lot of people don't invest in index funds.

25:28 They pick individual stocks hoping to earn really high returns.

25:32 They trade individual stock options.

25:35 Uh they trade crypto tokens and all that kind of stuff.

25:38 And a lot of those types of risks have negative expected returns,

25:41 or they have high costs if you're doing a lot of trading.

25:44 And that can really erode long-term investment growth.

25:49 What about buying a house?

25:52 Is that a good investment?

25:54 I wouldn't consider buying a house to live in an investment.

25:58 It's sort It's sort of is.

25:59 You get an asset, but you're really you're

26:02 buying an asset that funds your housing consumption.

26:05 It kind of pays you a dividend that's sort

26:08 of like getting rent from the house that you own.

26:12 When you do the side-by-side comparison, which I think is the only way to think

26:14 about this, if you compare buying a house,

26:18 so that means in Canada, you'd usually save up for a 20% down payment.

26:22 So you put 20% down on your house.

26:25 Uh you take out a mortgage to finance the rest.

26:27 You know, living in the house, you're paying your mortgage payment,

26:30 you're paying for some maintenance costs, you're paying for property taxes.

26:33 Alternatively, you could have rented the house.

26:37 That 20% that went into buying a home

26:40 could have been invested in the stock market.

26:42 So again, we're back to the idea of opportunity costs.

26:44 And the other important thing here is that renting

26:47 typically has lower cash flow costs than owning.

26:50 So these are the unrecoverable costs of owning a home.

26:55 Mortgage interest.

26:56 So that's when you buy a house and you borrow to to fund the purchase,

26:59 you're paying interest to the bank.

27:00 That's a I I call these unrecoverable costs.

27:03 That's money that you're paying for the use of money in this case,

27:06 and you're not going to get those dollars back.

27:07 It's gone.

27:12 Opportunity costs.

27:13 So that's what I just mentioned.

27:15 Whatever equity you have in a home is equity

27:18 that you could have otherwise invested in the stock market.

27:21 The capital portion, the principal,

27:23 the the price of homes has increased around inflation at the rate of inflation,

27:28 maybe a little bit higher historically.

27:30 Stocks have far outpaced inflation.

27:34 So by having money sitting in a house

27:35 as opposed to invested in the stock market,

27:38 you have what is called an opportunity cost.

27:40 You're not earning returns you could have otherwise been earning.

27:43 So that opportunity cost is one of the largest costs of owning a home.

27:49 So I mean, the mortgage interest, the opportunity cost of equity,

27:54 property taxes are another big unrecoverable cost.

27:57 Property taxes vary depending on where you are,

27:58 but it's say between 0.5% and 1%.

28:01 Maybe some sometimes a little bit higher.

28:03 You get utilities and some services in exchange for it,

28:06 but it's again, it's an unrecoverable cost.

28:07 You pay that, you've got nothing left afterwards.

28:11 And then you've got maintenance costs.

28:13 Oh, this is the annoying one.

28:14 This is the It's It's the annoying one,

28:16 and it's the one that I think people underestimate the most.

28:19 Mhm.

28:19 I started making content about renting versus owning a home years ago.

28:23 I used to say 1% was a reasonable estimate of maintenance costs,

28:26 and people would push back and say that's way too high.

28:28 There's a bunch of academic literature on this, too,

28:30 that's says it could well be over 2%.

28:33 I think that's probably a more reasonable estimate.

28:35 Having been a homeowner now for 6 years

28:38 after renting prior to that, I'm fairly confident, at least in my case,

28:42 that maintenance costs are far higher than 1

28:44 or 2% of the property value per year.

28:46 Yeah, I mean, I I bought my first home a a while ago,

28:50 and uh hell, I I didn't think about the gardening,

28:53 and the pool pump gets broken,

28:55 and then there's a crack in the the patio outside,

28:58 and then the heating system breaks, and then everything just seems to break.

29:02 And it's always breaking.

29:03 It's always breaking.

29:03 Every time I go back there, which is it's in a different country,

29:06 I'm the first week I'm just spent looking

29:08 at the things that have broken since I was last year.

29:11 Like making a list of the new expenses, and it's never cheap.

29:14 No.

29:15 And if I was renting, that wouldn't be my problem.

29:17 No.

29:18 There's also like another cost here which we don't talk about,

29:20 which is like the time you waste on the maintenance.

29:26 Like when we think of maintenance cost,

29:28 I imagine people are thinking about the fees to fix things,

29:31 but actually the time I spend having phone calls and speaking to people,

29:34 for me is is worth a lot more than just the costs.

29:38 But anyway, yeah, maintenance cost.

29:39 Yeah, the coordination is huge,

29:41 and you could outsource that, but that would be expensive,

29:44 and depending on how valuable your time is, it could make sense to outsource it.

29:48 But I I agree with you.

29:49 I do the same thing.

29:49 I spend time on the phone finding which contractor

29:52 is going to come in and fix this thing.

29:54 And then you have to wait for them, and then maybe they're late.

29:57 Yeah.

29:58 So, that's maintenance costs.

30:00 We have emergency cost here, which is really uh a subset of maintenance costs.

30:04 So, you can have big things,

30:05 like the roof needs to be redone, or the foundation cracks, whatever.

30:08 Those can be very significant.

30:10 And one of the challenges with those types of big costs is

30:13 that you kind of have to have liquidity available to fund them.

30:17 And that means that you have to have cash sitting somewhere,

30:20 or at least some liquid assets sitting somewhere.

30:22 So, probably not invested in the stock market,

30:24 which also has an implied cost to it.

30:27 Which is more opportunity cost, right?

30:28 More more opportunity cost, exactly.

30:29 And then this one's this one's interesting.

30:32 And And this is one that I don't think I appreciated until I owned my own home,

30:35 which is renovation spending.

30:37 We talked on maintenance.

30:38 When you fix something in your house, you don't just fix it to get it back

30:42 to the baseline level that it was at before.

30:44 Yeah.

30:44 You make it a little bit nicer.

30:45 You're right.

30:46 I never did that when I was renting.

30:48 So, the side-by-side.

30:49 So, you run the side-by-side comparison.

30:52 You account for all of those unrecoverable costs that the owner has.

30:54 You account for the renter investing

30:56 in the stock market and investing the cost difference,

30:58 the cash flow cost difference between renting

31:00 and owning each month or or whatever frequency.

31:03 And what you'll find, and I've done this with projections,

31:07 so looking at expected stock returns and expected real estate appreciation,

31:10 you can very easily show that there is an equivalence.

31:13 There is a level of rent where you are indifferent between renting and owning.

31:18 I did a video years ago that has millions of views now,

31:22 where I I came up with this idea called the 5% rule.

31:25 So, I took some of those costs.

31:26 I took property taxes, maintenance costs, and the cost of capital,

31:30 which is the the opportunity cost and the cost of of borrowing.

31:35 I wrapped all that up and said,

31:36 "We've got roughly 1% for property taxes, roughly 1% for maintenance costs,

31:40 which is probably way too low as we just

31:42 talked about." And I said 3% for opportunity cost,

31:45 which I think is also on the on the low end.

31:47 And you put all that together and you get 5%.

31:51 So, I said, "Okay, if you divide the price of a home

31:55 by 5% and then divide that number by by 12,

31:58 you will get the monthly rent that has equivalent that is equivalent

32:02 to the unrecoverable cost of owning that home." Okay, so let's do that.

32:07 So, I'm thinking of buying a $300,000 house.

32:10 What what's the math that I need to do to fit figure out if it's better to rent?

32:13 Multiply by 5%.

32:15 And then divide by by by divide that by 12.

32:17 Divide it by 12.

32:18 Okay.

32:19 You're brave.

32:19 I usually have a rule to never do math live on a podcast.

32:22 edit, so just [laughter] Okay, the result is 1,250.

32:28 There you go.

32:29 1,250 is the equivalent rent where you're

32:32 roughly break even between renting and owning.

32:35 So, if I could rent for 1,250 instead, or less, or less, I should rent.

32:40 Renting is a better financial decision.

32:42 So, this is an important part of this topic.

32:44 We can show financial equivalence.

32:46 And then just that is important.

32:47 Like, we can show that there

32:48 is financial equivalence between renting and owning.

32:50 I've done more uh robust versions of of this analysis since then.

32:54 We have PWL has a calculator on our website where you can see the the break

32:58 even by putting specific numbers in instead

33:00 of just doing the rough rule of thumb, cuz things will change it.

33:03 For example, if your asset allocation is more conservative or more aggressive,

33:06 that opportunity cost number can be different.

33:09 If you're a taxable investor, meaning that you're taxed on your investment gains

33:13 by investing in the stock market or the bond market,

33:16 your opportunity cost decreases because the after-tax expected return

33:20 on stocks and bonds decreases relative to uh homeownership.

33:23 5% is a very rough rule of rule of thumb.

33:27 Do you think for the average young person,

33:29 let's say someone's under 25 years old, they should, and they're thinking about

33:33 building their wealth over the long term,

33:35 do you think they should buy be buying a house as an investment,

33:38 or should they be doing something else?

33:40 I think for young people it's really tough, and it's tough for a couple reasons.

33:43 One is because home prices are high.

33:45 You have to save up a lot of money to buy a house.

33:47 Another one is that it can limit your mobility.

33:50 We've seen in in Toronto, in Canada,

33:53 where I'm from, uh prices, condo prices in particular, have plummeted.

33:57 They've fallen off of a cliff.

33:59 If you bought a condo in Toronto and you

34:01 get a job offer somewhere outside of Canada,

34:04 what are you going to do with that condo that's that's at a big loss?

34:07 Mhm.

34:08 You're kind of stuck.

34:09 Yeah.

34:10 Or you're have to try to rent it out,

34:11 and now you've got this this just difficult situation to deal with.

34:15 And plus there are big transaction costs if you're if you're selling a place.

34:18 So, for young people,

34:19 I do think that homeownership can be tricky because it can limit your mobility,

34:23 your your ability to go and find maybe higher-paying work.

34:26 It introduces a risk that you probably don't need

34:29 in your life because you may end up moving somewhere else.

34:33 And then people often move up where they want a condo today,

34:37 but they're going to want a house later.

34:38 For my family, I I met my wife, I was renting a place.

34:41 The first place we met in, the second place,

34:43 the third place, and a fourth place.

34:45 We're at the four different places as we were having our family.

34:47 We have four kids.

34:48 And so, our needs were changing over time.

34:50 We needed a bigger a bigger condo,

34:52 and then we had a townhouse, then we had a house.

34:54 Uh but we just the lease ended and we gave notice and we left.

34:58 We found a better rental that was more suitable for our needs.

35:00 If we had been homeowners, the amount we would have paid in transaction

35:03 costs to do that would have been insane.

35:05 Or we would have had to buy the house

35:07 that we were going to have forever much earlier,

35:09 which would have introduced significant opportunity costs.

35:11 That's one of those things that's just

35:12 impossible to measure in because it's so intangible,

35:15 but like the psychology of feeling like you can't easily move.

35:20 And I see this a lot actually with people that apply

35:22 for jobs in our company is in the interview process they'll say, "Well,

35:26 I've just bought a house in insert city."

35:29 And you can see this that sort of psychology is

35:31 is um holding them back from taking an opportunity

35:35 because they've made a an investment in a particular city.

35:38 And so, they might lose, as you say, like an opportunity in New York or LA

35:42 or London because mentally they feel committed to a place.

35:46 Yeah.

35:47 Now, the flip side of that is that if you're

35:49 really sure that you wanted to stay in one place,

35:52 one of the best ways to accomplish that is by Who can be sure?

35:56 Yeah, you can't.

35:56 But if if someone was really sure, maybe someone has maybe like me.

36:00 I have four kids, they're all in the same school.

36:03 It's very unlikely that we would move.

36:04 The other big mistake I think I made is I bought a holiday home.

36:08 That was a terrible Well, I shouldn't say terrible idea,

36:10 but kind of a terrible idea.

36:11 In part because of the same reason,

36:13 in part because it means you only go you only go on holiday to one place.

36:17 [laughter] Which is like defeats the point of a holiday.

36:19 Yeah.

36:19 And it's I have not done that, and the main reason is the mental overhead.

36:23 I don't like having to think about one property.

36:27 Mhm.

36:28 [clears throat]

36:28 I can't imagine having to think about a second one that I'm not at.

36:31 That's a dumb idea.

36:31 I don't know why I did that.

36:33 I don't know why I did it, especially when you're like young.

36:35 It's like the whole point is you can still walk up mountains and do things.

36:38 You don't want to be sitting in a in the same house at

36:42 Yeah.

36:41 Are homeowners happier than renters?

36:44 Mhm.

36:46 Depends how you slice the data.

36:49 If you control for property types and neighborhoods

36:51 and all that kind of stuff, no, they're not.

36:54 If you don't control for those things,

36:56 I think owned homes do tend to be a little bit nicer and and better maintained.

37:00 They do tend to be in better neighborhoods.

37:02 So, uncontrolled, renters are a little bit less happy.

37:05 There's a There's multiple studies on this.

37:07 Statistics Canada has a really good one that does exactly that.

37:10 They have controlled and uncontrolled life

37:12 satisfaction differences for renters and owners.

37:14 If you're a professional who is thinking about buying a house

37:18 in a nice neighborhood or renting a nice house in a nice neighborhood,

37:22 it's unlikely that you'll be happier in either case.

37:25 If you are forced to be a renter

37:27 in a not very nice neighborhood because all you can afford,

37:30 you may be less happy,

37:32 but it's not necessarily the renting that's making you less happy.

37:34 Is there any particular group of people that you think should be buying a house?

37:38 Yeah, so people who are very risk-averse,

37:40 people who want to stay in one place for a very long time,

37:43 because they have a family or something.

37:44 Yep.

37:44 Yeah.

37:45 And you don't want to be priced out of of of the market that you live in.

37:47 This did happen in in some cities in Canada in recent history.

37:50 It's now reversed, but there were people

37:53 who were getting priced out of their market.

37:55 They've been renters for a long time,

37:56 and rents went up so quickly that they they just couldn't keep pace.

38:00 And it depends on your rental market.

38:02 Some rental markets are controlled where that's less of an issue.

38:05 So, you do have to think about things like that.

38:06 But yeah, if you want to stay in one place,

38:08 owning your home is is the way to do that.

38:11 But it's a double-edged sword because if you realize you want to leave,

38:15 you might be you might be stuck.

38:17 Uh and then the other big one for who should own

38:19 a home is it a taxable investors with with high tax rates.

38:23 And again, that comes back to the opportunity cost,

38:26 where if you're paying a lot of tax on your investments,

38:28 whereas real estate tends to be tax preferred.

38:30 In Canada, gains on your primary residence are tax free.

38:33 US has a I believe an amount.

38:36 And so, that's that's another thing to think about,

38:37 where the opportunity cost changes depending on your specific tax situation.

38:41 When we have these conversations about buying a house or not buying a house,

38:44 one of the things I see a lot in the comment section is

38:45 people um sharing their case studies of them buying a house 30 years ago,

38:50 and now it went from being worth $100,000 to $600,000.

38:55 And they're they're asserting that that's evidence that it's a good idea.

38:59 You probably see this a lot.

39:01 is this is the thing.

39:02 This is the example.

39:03 Uh and then everyone has the family member that bought

39:05 a house for $70,000 and sold it for a million.

39:09 I'm just going to read you the top four comments,

39:10 and I'd like to get your response on them.

39:12 Now, the first one is, "The not buying a house does not work in the UK

39:15 as 90% of rents are higher than a mortgage cost.

39:18 Also, if you want to start a family,

39:20 you need a stable place to raise your children.

39:23 And with renting, you can be kicked out within a few months' notice,

39:26 and your whole life could be turned upside down." I personally

39:31 think there are ways around that, and I as I mentioned earlier,

39:33 I did rent for 6 years of my life with a wife and an increasing number of kids.

39:39 The two things that I always made sure

39:41 to do were to rent from professional landlords.

39:44 We did have one experience renting from a a sort

39:47 of mom-and-pop person who had bought a condo and rented it out.

39:50 And that that wasn't great.

39:51 But after that we we were very careful

39:53 about vetting our landlords and only renting from professionals.

39:56 And then the other thing that we did, which addresses at least in Canada,

40:00 addresses one of the other points there, is we would sign long leases.

40:04 If we want to stay in a house for a few years, we would sign a multi-year lease.

40:08 And landlords do tend to to like that.

40:10 The other point that was was in there that I think

40:11 is really important is that rents are higher than mortgage payments.

40:16 I think this is one of the biggest mistakes that people

40:18 make when they're making the rent versus own comparison is they'll say,

40:21 this is my mortgage payment, this is my rent.

40:23 If the mortgage payment is lower, owning must be better.

40:27 But that's not the case.

40:28 As we talked about a minute ago, you have property taxes, maintenance costs,

40:33 potential renovation spending that you wouldn't do otherwise,

40:36 and the opportunity cost of of capital.

40:38 When you add all that up,

40:39 the cost of owning a home is far more than the mortgage payment.

40:44 This guy here said, I bought a house, it's the best thing I ever did.

40:47 It's launched my mindset in new directions.

40:49 Remember that having your own space has profound psychological impact and can be

40:55 life-changing for some of us that want to live in a healthy environment.

41:01 What do you make of that point?

41:03 If it have profound psychological impact.

41:05 If someone believes that it does, and they've really taken the time to reflect

41:09 on their life and has decided that yes,

41:11 it it is in fact true that it has a had a profound psychological impact,

41:15 of course that person should own a home.

41:17 Of course they should.

41:18 Is it Is it true for everybody?

41:21 I don't think so.

41:21 Don said, my experience,

41:22 I purchased a house in 2013 with 20% down payment deposit.

41:27 My total payment including taxes, insurance, HOA home owners insurance?

41:32 Yeah, yeah.

41:32 insurance.

41:33 Um is $1,800 a month.

41:36 As of today, the exact same house is renting for $4,000.

41:40 The property value has also gone up 3x.

41:43 I'm glad I bought my house.

41:44 Yes.

41:45 So there are cases where it a real estate allows

41:48 you to use leverage very easily as as Don mentioned.

41:52 And if you end up buying in a market

41:53 that goes up a lot in a short period of time, it can be really really good.

41:57 However, and this is what we've seen in Canada more recently,

42:00 it hasn't touched other markets yet, although of course the US has had

42:03 their own declines and so have other countries,

42:05 but Canada is right now in one of the biggest real estate price drawdowns,

42:09 when you adjust for inflation, going back to 1975.

42:13 And so if you had bought, yes, 7 years ago, and then, well,

42:18 and then looked at the price in 2022, you'd think, wow, I'm a genius.

42:21 Of course everybody should buy.

42:22 But if you had bought in, I think it's 2021 was the was the kind of peak,

42:26 and you look at it today, you're thinking like, wow, I've ruined my life.

42:31 [laughter] So yes, there are examples like that, for sure.

42:33 But that that is not what people should

42:34 expect every time that they purchase a home.

42:37 So are you saying that the future is not going to be as like as the past?

42:42 Uh for this I know the Canadian market best,

42:44 but I think these it generalizes outside of Canada.

42:46 Where we've seen record decreasing interest rates.

42:50 So that's that's changed a little bit now,

42:51 but for a period of time we had interest rates going down down down.

42:54 In Canada we had a ton of immigration.

42:56 I have no problem with immigrants,

42:59 uh but we had levels of immigration that were just not

43:01 compatible with the amount of housing that we had in in Canada,

43:04 which was contributing to prices going up.

43:06 We we have have housing supply just not growing uh quickly enough,

43:10 which are all things that Canada is addressing now,

43:12 but all that causes price cause prices to go crazy,

43:14 which is I think why they've come down in such an extreme way.

43:17 So I'm not I'm not saying necessarily that we're never going to see

43:20 high house prices again or house prices going up at an extreme rate again,

43:24 but in Canada at least,

43:25 that has now normalized or at least started to normalize.

43:29 I don't think it's reasonable to expect

43:31 stock-like returns from real estate forever,

43:34 even though we did see that for for some years.

43:37 So for most people then you think,

43:39 if their goal is to make money and they care about mobility,

43:42 being able to get up and go if opportunity arises,

43:45 a better investment decision would probably be just investing

43:48 in an index fund which gives you exposure to the stock market.

43:52 Yeah, though I think the mobility piece is key there, because remember,

43:54 just from a wealth perspective, we can show that hey,

43:57 these are pretty close to equivalent.

43:58 Mhm.

43:59 [clears throat]

43:59 But if mobility matters to you, yeah, I think that that matters a lot.

44:01 If you have unique investment opportunities,

44:04 that that can be another reason where your opportunity cost is really high.

44:07 Like I had an opportunity to buy equity in my company years ago,

44:11 and if I had been a homeowner at the I think I actually had just bought a house,

44:16 and I think I even had to reduce the amount of equity I

44:18 bought because our I think our well pump broke like around the same anyway,

44:22 it was a whole thing.

44:23 isn't it?

44:24 But that's like there's opportunity cost in the stock market,

44:26 which is, you know, call it 7% or whatever,

44:29 but there's other opportunity costs that can be

44:30 a lot higher like in that specific situation.

44:34 And the next one there is number seven.

44:37 Yeah.

44:38 Missing tax planning opportunities.

44:40 This is something I think I think people just don't think enough about,

44:44 but it's not terribly complex, but there are some simple things that people can

44:49 do to minimize the amount of tax they're playing paying.

44:52 For most people, it's just optimally using things like

44:55 in Canada we have the RRSP and the TFSA,

44:57 in the US it's the the Roth and traditional IRA and and 401Ks.

45:03 Uh using those things optimally make a lot of sense.

45:05 So then the rest other types of tax planning tend to get more country-specific.

45:09 There tend to be lots of things for particularly for higher income

45:12 people that you can do to pay a little bit less tax.

45:14 And I think What about for lower income people?

45:17 For lower income people, the government accounts that are provided uh are

45:21 ISA in the UK?

45:22 Yeah, exactly.

45:23 Those are probably the best thing for people to be focusing on.

45:26 But even then, I don't like people are often not using them optimally.

45:29 One of the things people don't talk about enough is all

45:31 the ways that rich people do things to avoid paying tax.

45:35 They have like they hire people so that they don't have to pay tax.

45:37 I hear about all these crazy stories of like I've started

45:40 this business on the side here so I can get real estate license.

45:42 And if I get a real estate license,

45:43 I don't have to pay the same tax on this thing here.

45:45 And I move the money around here and I flip it

45:47 around there and then I don't have to pay any tax.

45:49 Most people like the average people don't have

45:52 any loopholes that they can they jump through.

45:54 Yeah, it's true.

45:56 And even one of the crazy ones I learned about when I got some money was

45:59 that you can take a loan against your stocks and there's no tax on the loan.

46:05 So if I have a million dollars of Facebook stock,

46:08 I can go to a bank and get 500k

46:11 in cash loaned against that stock without having to sell it.

46:15 And then on that 500k, I have no tax to pay.

46:19 And I can just hold that Facebook stock.

46:21 When it goes up to 2 million,

46:22 I can go back to the bank and say, give me another 500k.

46:26 You could.

46:26 But if it goes down, you get margin called and you have to come

46:28 up with the cash to Don't they just sell?

46:31 Don't they just sell the stock?

46:32 They might, but then you're selling after it's come down.

46:35 So it's not risk-free.

46:36 But yeah, that is a thing that people do.

46:38 I guess everybody could do that, right?

46:39 I mean most people could, if they invested in the the S&P 500,

46:43 they could go and get a loan against that investment.

46:46 And that loan would be tax-free.

46:48 Yep, same same rules for everybody.

46:51 But I would still say that you're you're taking a lot

46:53 of risk by borrowing money against risky assets like that.

46:56 Mhm.

46:56 Okay, so tax planning,

46:58 there's nothing else to cover there in terms of the average person.

47:01 Yeah, I don't think so.

47:01 But it is an important thing for people to think about if

47:03 thinking about what mistakes might I be making in my financial plan,

47:07 they should definitely be thinking about are there

47:08 tax planning opportunities that that I'm I'm missing.

47:10 How would they find out?

47:12 It's a tough one.

47:13 A a good CPA.

47:15 What's a CPA?

47:15 Uh uh an accountant.

47:17 A good tax professional should be able

47:19 to identify tax plan planning opportunities for you.

47:21 Good financial planners similarly should be able

47:23 to identify good tax planning opportunities for your situation.

47:26 But as you said earlier,

47:27 the reality is there aren't that many things that people can be doing.

47:30 And it's really things that you can figure out how to optimize once,

47:34 and then you're kind of set.

47:36 Much of the reason most people haven't posted content or built

47:38 a personal brand is because it's hard and it's time-consuming.

47:42 And we're all very very busy.

47:43 And if you've never posted something before,

47:46 there's so many factors in your psychology that stop you wanting to post.

47:50 What people will think of you.

47:52 Am I doing this right?

47:53 Is the thing I'm saying absolutely stupid?

47:55 All of these result in paralysis,

47:57 which means you don't post and your feed goes bad.

48:01 I'm an investor in a company called Stan Store,

48:03 which you've probably heard me talk about.

48:04 And what they've been building is this new tool called Stanley that uses AI,

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48:18 And sometimes what we need when we're thinking about

48:20 doing a post for our social media channels is inspiration.

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49:37 Who does need a financial advisor?

49:40 Probably a lot of people.

49:42 But the financial advice profession has a lot of challenges.

49:47 We're chatting about the the sales nature of the financial services industry.

49:52 And I do think that's a big problem.

49:54 Because if someone's has Here's Ben say,

49:56 "Okay." Ben said I should have a financial advisor.

49:59 And they go to a bank or they go even to some random firm,

50:04 there's a good chance that they're going to be sold products they don't need.

50:09 And I don't have a solution for that.

50:10 Like that's a It's It's a difficult situation when

50:13 that is the state of the financial advice industry.

50:16 I guess to get around that one might ask their friends and family

50:19 who does their financial planning and then go with a trusted referral.

50:24 Yeah.

50:25 But people often trust people that aren't giving them great advice.

50:28 Like it's just really It's really problematic.

50:31 I I think a lot of people can benefit from financial advice.

50:33 It's just finding the right person.

50:35 And a lot of people don't need financial advice because you do pay fees for it.

50:39 What's the next one?

50:40 Number eight.

50:40 Yeah.

50:41 Eight is It's kind of a similar discussion to what we just talked about,

50:44 but it's it's missing out on estate planning.

50:47 What does that mean?

50:48 Figuring out how your assets are going to be distributed to the people that you

50:52 want them to or the entities that you want them to when you die.

50:57 This is an interesting one cuz nobody's Well,

50:58 most people aren't expecting to die anytime soon.

51:02 Yeah.

51:02 So, they haven't really thought much about this.

51:05 Yeah.

51:05 And you know, some might also say, "Listen, I'm I'm not going to be here,

51:08 so why should I care?" Especially people that I guess That's

51:12 the my mindset of someone that doesn't have kids, but Yeah.

51:14 It can cause a lot of problems.

51:15 If you don't think through and plan

51:17 for the way you want your estate to be distributed,

51:19 you can pay a lot more tax than you otherwise would have.

51:22 And your estate can go to people that you may not have wanted it to go to.

51:25 You can pay more tax.

51:27 If you don't have things set up properly.

51:29 And again, this is going to be country specific.

51:31 But yeah, there there's cases where you would pay more tax

51:34 if things were not set up properly than if they were.

51:37 Do you think everybody should write a will?

51:39 Everybody that has any dependents should write a will.

51:43 I've heard a an estate planning lawyer joke that everybody has a will.

51:46 But it's the government's default will, which you may not actually agree with.

51:50 It's like prenups.

51:51 Yeah, kind of like that.

51:52 Yeah.

51:52 It's exactly like that.

51:54 You could say everybody should have a will because it can

51:56 help from having a big mess for other people to clean up.

51:59 But for sure, if you have kids, if you have dependents,

52:01 I think having a will is really important.

52:02 And on that point of prenups, number nine is about who you marry.

52:07 Yeah, this is this is a tough one.

52:09 It's a tough one because I mean,

52:12 this is front of mind for me because as you can see from these photos,

52:14 I just I just uh proposed to my fiance.

52:17 Yeah.

52:18 And um I mean, this is not the ring, but cuz this is a bit extra.

52:22 But um That's awesome.

52:23 Oh my god, they put my face in the They didn't put my face in the box.

52:25 That's creepy.

52:27 But yeah, so why is this so important who you decide to marry

52:30 as it relates to how rich you'll be or or won't be?

52:33 Well, it's not just how rich you'll be,

52:35 it's how satisfied you'll be with your life and with your marriage.

52:40 Academic research has identified two spending

52:43 profiles that you can categorize people into.

52:45 One is tightwads.

52:47 That's people who don't like to spend money.

52:49 And one is spendthrifts.

52:51 That's people who do like to spend money.

52:52 The names are kind of funny,

52:53 but that's just That's what the research calls them.

52:56 And the crazy thing about this is

52:58 that tightwads and spendthrifts are more likely to end

53:02 up marrying each other than to marrying

53:05 someone who has the same profile as them.

53:08 So, two A tightwad and a spendthrift are more likely to get

53:10 married than a tightwad and a tightwad or a spendthrift and a spendthrift.

53:13 Why do you think that is?

53:15 The the research on this talks just about kind of opposites attracting and there

53:18 may be some sort of thrill to the to the differences um initially.

53:22 But tightwads and spendthrifts as they go through their marriages do tend

53:27 to be less satisfied in their marriages

53:29 and have more marital conflict around money.

53:32 And again, that's based on an academic paper.

53:35 Now, that's the reasons why the marriage might not last,

53:38 but in terms of how it might impact

53:40 your financial success If you really want to save, if you have If you go through

53:45 your goal-setting exercise and your PERMA model and you

53:49 have have a vision for the life that you want to live that requires saving,

53:52 and you have a spouse that wants to spend

53:54 a lot of money today that can be very, very difficult.

53:58 It can make it a lot harder for you to achieve your goals.

54:00 I don't think it's insurmountable.

54:02 I think a tightwad and a spendthrift can work.

54:04 I mean, it's not like all of them end up getting divorced.

54:07 But it does require a different level of coordination

54:09 and communication and being on the same page.

54:12 Do you have to speak to clients about this often?

54:15 I It It comes up a lot.

54:17 We have lots of clients who were single

54:19 and end up getting in relationships and then getting married.

54:22 And we have to all have all kinds

54:23 of conversations about marriage contracts or prenups, um estate planning.

54:27 Do you think everybody should get a prenup?

54:29 Going back to what you said earlier,

54:30 where you said you you If you don't write your own,

54:32 the government will give you theirs.

54:33 Yeah.

54:34 Which just to simplify that if you don't write your own

54:37 prenup then you are the default position is the government

54:41 will decide through the law how your assets are divided

54:45 at a time when you get when you break up.

54:47 Problem is, people find prenups to be really unromantic.

54:50 That's right.

54:51 And they also think there's an implication

54:53 that we're assuming we're going to break up, which is also not so sexy.

54:57 Right.

54:58 Do you think people should get them?

55:00 If both partners are on the same page and comfortable with it,

55:03 it's not going to cause a major rift.

55:04 And if it does, maybe that's a red flag.

55:06 Do you know what I mean?

55:07 I wouldn't want to cause a rift.

55:08 Do you know what I mean?

55:09 And it's not to say that I'm just keeping all my stuff and you're keeping yours.

55:11 It's just to say, "Let's agree now what would happen

55:15 in the like 50% probability that this doesn't work out." Yeah.

55:19 We've seen both.

55:19 We've seen clients come up with very

55:22 creative and interesting marriage contracts that have,

55:25 you know, specific formulas for how things are going to work.

55:27 And depending on how many kids they have,

55:28 it's you know, it's kind of an interesting exercise.

55:30 And in that case, it was kind of fun.

55:32 And they they they were engaged in the process.

55:34 And it didn't cause an issue.

55:36 And we've also seen people who did not have anything in place

55:38 and have had very bad divorce outcomes from a financial perspective.

55:43 Oh, I had a friend go through a divorce recently.

55:45 And he's a very successful person.

55:47 His wife was there from the beginning.

55:49 She took looked after the family while he was off gallivanting

55:51 around the world building his his businesses all over the place.

55:54 So, obviously she you know, they She's contributed hugely to his success.

55:59 What I noticed though is it's destroyed what could

56:04 have otherwise been a good relationship as they separated.

56:08 They now really, really hate each other

56:10 because lawyers have stood in between both sides.

56:12 Yeah.

56:12 And basically caused tension because that's their job.

56:15 They're going to get paid more.

56:16 And her lawyers are incentivized to squeeze every

56:20 single penny they can out of this a separation.

56:23 And so, I think he said it'd been like

56:24 six or seven years since they decided to divorce.

56:28 And he's still in court arguing with lawyers about how they separate.

56:33 And it's just ruined their relationship.

56:34 They've got two kids.

56:36 You just think, "Gosh, like if you had a prenup,

56:38 this would have been quick and it could have saved the relationship." Okay.

56:42 Anything else to say on this this point of marriage incompatibility?

56:46 The academic research on this does have a a short quiz.

56:49 I don't know if we have it kicking around anywhere here.

56:51 I think this is a It's called the tightwad and spendthrift

56:54 quiz developed by researchers at Carnegie Mellon and the University of Michigan.

56:58 Yeah.

56:59 This scale measures the pain of paying,

57:01 the emotional distress some people feel when spending money.

57:05 Uh and here's a quick DIY version of that quiz.

57:08 Question number one is you see a high-quality coat on sale for $100,

57:12 which is usually $300.

57:14 You need a coat and you have the money.

57:16 Do you buy it?

57:17 Answer A, no.

57:19 $100 is still a lot of money.

57:20 I'll wait for a better deal.

57:21 B, yes, it's a great value.

57:23 I need something.

57:24 C, yes, and I might buy a scarf to match since I saved so much.

57:29 Which one are you?

57:30 I mean, if I need the coat, I'm B.

57:32 I think I'm C.

57:35 [laughter] But actually, to be fair, I just don't buy stuff,

57:39 so I don't even know if I'd buy it anyway.

57:41 Question two.

57:43 You are at a restaurant with friends.

57:44 The bill is being split evenly, but you ordered the cheapest item.

57:48 How do you feel?

57:50 A, physically pained.

57:51 I'll likely mention that I should pay less.

57:53 B, a bit annoyed, but I'll pay it to keep the peace.

57:56 Or C, fine.

57:58 It all will even out in the end.

58:01 I'm between B and C.

58:02 Really?

58:02 I I might I might feel a little bit annoyed.

58:04 Really?

58:05 But I wouldn't I wouldn't cause a fuss about it.

58:06 I'm C again.

58:08 Fine, it'll even out in the end.

58:09 Number three.

58:10 Which statement describes you best?

58:12 A, I have trouble spending money even on things I actually need.

58:15 B, I balance my spending and saving pretty well.

58:19 Or C, I often spend more than I intended and regret it later.

58:24 I can be.

58:26 You said B, which is I balance my spending and saving pretty well.

58:30 Um I would say I'm C again.

58:34 But again, the caveat here is I actually don't Hmm.

58:36 I don't spend money on stuff anymore.

58:38 I don't buy stuff anymore.

58:41 [snorts] But I can spend it on like ex- travel and experiences and stuff.

58:44 Yeah.

58:45 Last question.

58:46 When you buy something expensive, your primary emotion is A, anxiety or regret.

58:51 B, satisfaction in the utility of the item.

58:54 Or C, excitement and a rush.

58:57 I think I'm B again.

58:59 I I reckon I'm B as well there.

59:00 So, scoring your results.

59:02 If you're mostly A's then you're a tightwad.

59:05 If you're mostly B's, you are the unconflicted.

59:09 And if you're mostly C's, you are the spendthrift.

59:12 So, I guess with that, you you are a unconflicted.

59:15 You're in the middle.

59:15 You have a healthy relationship with money where you can save when necessary,

59:18 but enjoy the fruits of your labor without guilt.

59:21 And I am a C, which is you feel very little pain when spending.

59:25 You enjoy the moment,

59:26 but you might struggle with long-term saving goals or buyer's remorse.

59:29 That's so true.

59:32 [laughter] Everyone should do that at home.

59:33 Okay, that makes sense.

59:34 So, we we know that that tightwads and spendthrifts are incompatible.

59:37 I I do think it's an interesting concept,

59:40 like how do you have that discussion with a potential partner?

59:44 Or do you just observe it and kind of infer?

59:46 On on a date, you can say say to your partner say,

59:49 "Oh, there's this great podcast on YouTube called The Diary of a CEO.

59:51 We should listen to it." Then listen to this episode.

59:53 They're listening with you know right now if this you've done this.

59:56 And then just play along.

59:57 Play along with your partner.

59:58 Are you looking for your partner to be

1:00:00 the opposite then because you said opposites attract?

1:00:02 No.

1:00:02 They don't do well all the time.

1:00:04 Opposites end up together, but then have conflict because of that.

1:00:08 Oh, okay.

1:00:10 Yeah.

1:00:10 Mm, interesting.

1:00:11 [clears throat] Yeah.

1:00:12 I think if you're if you're a tightwad, being with the same is probably good.

1:00:17 If you're a spendthrift and you end up with another spendthrift,

1:00:20 you'd be really careful about your like finances.

1:00:22 Yeah.

1:00:23 I don't think my partner's a spendthrift.

1:00:24 I think she's in the middle with like you.

1:00:26 Yeah.

1:00:26 Doesn't really care.

1:00:27 Yeah.

1:00:28 Which is useful.

1:00:29 We we do have one more Okay.

1:00:31 card in the mistakes, which is under insuring catastrophic risks.

1:00:37 And I think that's one,

1:00:38 particularly for people who are not currently financially independent,

1:00:42 that's really really important.

1:00:43 If if your household income relies on your income

1:00:48 to maintain the lifestyle of the household,

1:00:51 it's really important to have sufficient life

1:00:53 insurance where if you die, your human capital,

1:00:56 your ability to earn income in the future is replaced by the insurance.

1:01:00 And also disability insurance, where if you lose your ability to work,

1:01:04 you have insurance to replace that income.

1:01:06 Do many people think about this?

1:01:08 Probably not enough.

1:01:09 And it's cheap.

1:01:10 Well, disability insurance is not always cheap.

1:01:12 Life insurance is generally pretty cheap

1:01:14 if you're buying low-cost term life insurance, which is what most people need.

1:01:19 You made a video called the most controversial paper in finance.

1:01:22 Yeah.

1:01:23 What paper was that?

1:01:24 That was a paper we we didn't have it here,

1:01:27 but that was a paper on life cycle asset allocation.

1:01:31 What does that mean?

1:01:31 So, it's answering the question of how should

1:01:34 your mix of stocks and bonds change throughout your lifestyle?

1:01:39 Conventional wisdom says that you should start out riskier in stocks

1:01:43 and then move towards safer bonds as you get older.

1:01:46 This paper took a huge amount of data.

1:01:49 They had data from 39 countries going back as far as 1890, I believe.

1:01:55 They sampled from that large set of data to simulate

1:01:58 a million potential sort of hypothetical lifetimes that you could live through.

1:02:03 And then they asked the question of in this simulated data,

1:02:06 which asset allocation gives the best outcomes?

1:02:09 And they tested target date funds, which increase the weight in bonds over time,

1:02:14 and those are a lot of people have those through their retirement accounts.

1:02:18 So, it's just one fund and it starts out when you're

1:02:20 younger with more equities and then transitions to bonds over time.

1:02:23 That's a target date fund.

1:02:25 They tested, I believe, a 60/40, 60% stock, 40% bond asset allocation.

1:02:30 They might have been some other stuff in there, too.

1:02:32 They might have tested only domestic stocks.

1:02:35 And what they find in this paper is that the optimal portfolio

1:02:39 from the perspective of retirement consumption

1:02:42 utility and and and bequest utility, What does that mean?

1:02:46 It's like the satisfaction you get from retirement spending.

1:02:49 Okay.

1:02:50 Measured in a with a formula so that it can be studied.

1:02:54 And then likewise for the amount of money that you have left over at at death.

1:02:57 They they measure the probability of running out of money

1:02:59 as well as a whole bunch of different metrics they look at.

1:03:02 And they find that a 100% equity portfolio

1:03:05 with a big chunk in international stocks is optimal.

1:03:11 It is a a 1/3 domestic, 2/3 international stocks.

1:03:15 When you say domestic, what does that mean?

1:03:17 That's a great question.

1:03:18 So, the way they set up domestic in the paper is that it it can be any country.

1:03:23 So, the way they do the simulations is that for each draw,

1:03:26 so they're drawing it's on average 10 years of returns.

1:03:29 We're saying we're in the US.

1:03:31 They'll draw the US returns measured in US dollars for a 10-year block.

1:03:36 That's the domestic return.

1:03:38 And then the international block is going to be 10 years

1:03:41 on average of all the other countries samples returns measured in US dollar.

1:03:46 So, I've got the domestic return, the international return.

1:03:48 The next block might be 10 years from Italy

1:03:52 measured in whatever the Italian currency was at the time.

1:03:56 And then the international portion is going to be

1:03:58 all the other countries excluding Italy measured in Italian currency.

1:04:03 And so, they're weaving together all these blocks.

1:04:04 That's called bootstrap simulation.

1:04:06 So, domestic, to answer your question, is whatever country you live in.

1:04:11 So, the outcome or the conclusion from this should

1:04:13 be that you should invest I mean,

1:04:15 if we're following this and if it was 100% accurate,

1:04:18 well, 60% in whatever country you live

1:04:20 in, in the stocks of whatever country you live in.

1:04:22 30%.

1:04:24 30%.

1:04:23 Domestic.

1:04:24 So, yeah, 1/3 domestic, 2/3 international.

1:04:26 Okay, so if I'm in the United States, one So,

1:04:29 I get 30% of my capital and invest it in the American companies.

1:04:34 Yeah.

1:04:35 And then 60% in international stocks.

1:04:38 Yeah.

1:04:38 Well, 67%, yeah.

1:04:40 Yeah.

1:04:41 So, that one important finding in the paper talked about in the video is

1:04:44 that the the curve for how optimal the domestic amount is is pretty flat,

1:04:50 if I remember correctly, between sort of 10% and 50%.

1:04:54 So, they do say in the paper that for a US investor,

1:04:57 you don't necessarily have to be a third domestic.

1:04:59 Even if you're 50 or even if you're just market cap weighted,

1:05:02 which is currently around 60 or 65%, that's probably fine.

1:05:06 But for a Canadian investor or someone who's in a country other than the US,

1:05:10 1/3 in your domestic country ends up being a pretty big home country bias.

1:05:14 In these simulations, are they saying that you need to invest

1:05:16 in international stocks because sometimes in the simulations,

1:05:19 your domestic country, your home country, has problems?

1:05:23 Yeah.

1:05:24 High inflation tends to be bad for retirement consumption where

1:05:27 you're spending a lot more and for domestic stock returns.

1:05:30 And international stocks protect against that.

1:05:33 So, it diversifies you a little bit.

1:05:34 Yeah, well, that's exactly what it is.

1:05:36 It's a diversification.

1:05:36 And that paper was it was controversial.

1:05:38 I mean, we had the co-author on our podcast twice to talk about it,

1:05:43 but it it was met with a lot of controversy from everybody,

1:05:47 from a lot of professionals, from other academics.

1:05:50 Why?

1:05:51 It's an extreme finding.

1:05:54 The conventional wisdom that you should be allocating

1:05:56 more toward bonds throughout the life cycle is

1:05:57 so ingrained in everyone's thinking that a finding

1:06:01 like this that shows that that's basically wrong,

1:06:04 of course it's going to be met with controversy.

1:06:07 But at the very least, I think it's an interesting paper.

1:06:09 It's telling us that stocks are a little

1:06:11 bit safer for long-term investors than we probably thought.

1:06:14 And bonds, which are typically considered safe,

1:06:17 are actually a little bit riskier than

1:06:18 we may have thought for long-term investors.

1:06:20 The reason being that during periods of high inflation,

1:06:23 bonds get absolutely decimated.

1:06:25 What's a bond?

1:06:26 A bond is a debt instrument.

1:06:28 So, you're effectively lending money to a government,

1:06:30 and you're receiving interest payments over time,

1:06:33 and then your principal back at the end.

1:06:35 What is the the most important thing we haven't

1:06:37 talked about that your audience come to you to understand?

1:06:40 Oh.

1:06:40 Well, a lot of a lot of the things I

1:06:42 talk about are financial products that you should not invest in.

1:06:45 Okay, tell me some of those.

1:06:46 Which I always think is fun.

1:06:48 A big one that I spent quite a bit of time on last year,

1:06:50 I did three videos on it, was on on covered calls.

1:06:54 What's that?

1:06:54 So, that's where you you own a stock and then you sell a call option,

1:06:58 which is the option to buy the stock.

1:07:00 You're selling that option to somebody else,

1:07:02 which gives you a an option premium,

1:07:05 and so you get some income from having sold the call option.

1:07:08 But it also means that if the stock that you own appreciates sufficiently,

1:07:11 you are required to sell it to the person who bought

1:07:15 the call option from you at a at a preset price.

1:07:18 So, the stock is whatever, $40, and you sold a call at $50.

1:07:22 The stock goes to $60, you have to sell it at 50.

1:07:25 Mhm.

1:07:25 So, you're giving up a big chunk of your upside.

1:07:28 And this plays on one of the big biases that investors have,

1:07:30 which is a preference for income.

1:07:32 It's the mental accounting bias where investors separate capital and income.

1:07:36 And so, there's a huge proliferation now of covered call products where they

1:07:41 do that that strategy that I that I just described inside of an ETF.

1:07:45 They charge usually a higher fee.

1:07:48 And these are being marketed really heavily to investors

1:07:51 on the premise that you're going to get appreciation,

1:07:53 capital appreciation, and you're also going to get income.

1:07:56 But I think my my view on this and what I tried to explain in those videos is

1:07:59 that you're giving up so much upside that I

1:08:02 don't think most investors realize that they're giving up,

1:08:05 that the implied cost of these products is enormous.

1:08:07 On that point of fees, I've got this graph here,

1:08:09 which I think is pretty pertinent to what you're saying.

1:08:12 Because when we start investing in ETFs and various index funds,

1:08:16 we often don't think about fees.

1:08:19 You'll say, "Oh, 0.5%." You think, "Okay, whatever.

1:08:21 0.5% is fine.

1:08:23 1% fine." Small numbers.

1:08:25 But when you look at that graph,

1:08:26 you see how that can impact your outcome over time.

1:08:29 Yeah.

1:08:30 Fees compound.

1:08:31 Any rate of return that compounds over long periods

1:08:33 of time can be very impactful in dollar terms.

1:08:37 Yeah.

1:08:37 And and some people choose to keep their money in cash.

1:08:41 Um because most of us are never educated

1:08:43 on the subject of inflation and what inflation means.

1:08:46 So, some of us, you know, we might keep $10,000 under the bed.

1:08:50 What do you say to those people?

1:08:51 Yeah, so inflation is it's everywhere.

1:08:54 It's it's been around for for throughout history,

1:08:57 and it's probably not going to go away.

1:08:59 We have central bank policies in most developed countries

1:09:02 that actually target a low but stable rate of inflation.

1:09:06 And there's there are reasons for that, but what it

1:09:08 means is that if you have money sitting under your mattress,

1:09:10 its purchasing power will decrease over time.

1:09:13 And that can be very damaging to your wealth.

1:09:15 You can maybe keep pace

1:09:17 with inflation using short-term government debt instruments,

1:09:20 which are going to pay you a little bit of an interest rate.

1:09:23 But again, periods of high inflation can cause

1:09:25 even that to to decline in real value.

1:09:28 So, one of the best ways to fight it fight inflation for a long-term investors,

1:09:32 something we've been talking about,

1:09:33 is just investing in low-cost index funds to avoid the fee issue.

1:09:37 All right, and participate in the stock market,

1:09:39 which throughout history has far outpaced inflation.

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1:09:55 the consistent pattern with all of them is how quickly they move.

1:09:58 They bring in specialists with skills

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1:10:38 That's pro.fiverr.com.

1:10:40 This is something that I've made for you.

1:10:42 I realized that the Diary of a CEO audience are strivers,

1:10:45 whether it's in business or health,

1:10:47 we all have big goals that we want to accomplish.

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1:10:53 it can feel incredibly psychologically uncomfortable because it's kind of like

1:10:58 being stood at the foot of Mount Everest and looking upwards.

1:11:01 The way to accomplish your goals is by breaking them down into tiny small steps,

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1:11:15 any big goal that you have is we've made these 1% diaries,

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1:11:49 Is this broadly accurate?

1:11:50 This graph here shows the impact of inflation on cash

1:11:53 kept under the mattress over 30 over 20 years,

1:11:56 and you start with $10,000 in terms of purchasing power,

1:12:00 and 20 years later, if that cash is under the mattress, you have $5,336.

1:12:05 It doesn't show me the inflation rate.

1:12:07 Oh, and that's at 3% inflation.

1:12:10 You're losing half of your money effectively.

1:12:13 And the source here is St.

1:12:14 James's Place.

1:12:17 So, a lot of people who are just holding

1:12:18 on to cash don't really realize that over a 20-year period,

1:12:20 assuming a 3% inflation rate, they're halving their money.

1:12:23 Uh it ties back to I don't remember which number it was,

1:12:25 but it ties back to one of those biggest

1:12:26 mistakes in in personal finance we talked about,

1:12:29 which is uh yeah, not not investing,

1:12:31 not taking the right kinds of risk with your investments.

1:12:34 And just holding cash.

1:12:35 Holding cash is is it's in its own way taking a type of risk.

1:12:40 You you you don't have an expected return when you hold cash.

1:12:43 You you in real terms have a negative expected return.

1:12:46 Do you think we should all be thinking about retirement planning?

1:12:50 I think it ties into the PERMA thinking

1:12:53 and designing the life that you want to live,

1:12:55 but at some point it it I mean, at some point we can't work anymore.

1:12:59 It's rare for somebody to be able to work

1:13:00 into their, you know, I don't know, 80s.

1:13:02 I think that it's it's sensible to plan for for that.

1:13:06 But, beyond that, a lot of people don't want to have to work forever.

1:13:10 People might choose to work forever,

1:13:12 but they might choose to do lower-paying work.

1:13:15 Uh but the idea that you will be forced to work forever,

1:13:17 I don't think is very attractive to anyone.

1:13:18 So, from that perspective,

1:13:19 building financial independence by saving and planning for retirement,

1:13:22 yeah, I think it's important for everyone everyone to think about.

1:13:25 Is there is the sort of social contract

1:13:27 of retirement changing based on how the economy is changing?

1:13:30 Cuz I hear a lot of people saying you're not going to be able to retire and get

1:13:32 a pension because there's not enough money or you're

1:13:34 going to have to work later than ever before.

1:13:37 I think the onus has been put back on individuals.

1:13:41 The pensions used to be much more common uh from companies and and governments.

1:13:46 So, retirement's changed from that perspective, for sure.

1:13:50 But, I I I don't know if we can say we're in a crisis.

1:13:52 I think people have more personal responsibility

1:13:54 now than they've had in the past,

1:13:55 but they also have better tools than have historically been available.

1:13:58 30 years ago, we we were just starting to get

1:14:01 low-cost index funds proliferating and being readily available to everybody.

1:14:04 Prior to that, you were paying 2% or more to invest in a mutual fund.

1:14:08 Mhm.

1:14:09 So, the tools people have available to them are

1:14:10 are better today than than they've been in the past,

1:14:13 but it's also there's also a lot more responsibility

1:14:17 people have to take for their own personal finances.

1:14:19 You would you're naming the things that people shouldn't invest in.

1:14:23 The first is that cool thing.

1:14:26 Yeah, covered calls.

1:14:27 Covered calls.

1:14:28 What else?

1:14:28 Another one that I think is really problematic is thematic ETFs.

1:14:32 And so, that's like an AI ETF or I don't know, a space or energy, like any any

1:14:38 specific uh ETF that's targeting a specific theme.

1:14:42 Why?

1:14:43 What tends to happen with thematic ETFs is that something becomes really hot.

1:14:47 So, maybe it's AI, maybe it's cannabis, uh electric vehicles was another one.

1:14:51 Sustainable energy.

1:14:52 Yeah, asset prices in that theme go up because there's a lot of interest in it.

1:14:56 Everybody wants to invest in that space.

1:15:01 Asset prices go up, an index provider creates an index for that hot thing.

1:15:08 And then an ETF gets launched,

1:15:09 but it gets launched when the asset prices are up here.

1:15:12 Mhm.

1:15:13 And what tends to happen is the asset prices come down,

1:15:17 then the returns on thematic funds tend to be very poor.

1:15:20 Ah, okay.

1:15:21 Yeah, I think I was guilty of that in my early career.

1:15:23 It was like, "Oh my god, sustainable energy ETF.

1:15:25 I believe in sustainable energy.

1:15:26 I should invest in that." Yeah.

1:15:28 But, you're right.

1:15:29 They created that when it was hot.

1:15:31 So, you should have invested, I guess you're saying,

1:15:33 just invest in the FTSE 100, the S&P 500 instead.

1:15:37 Or technology, which is a broader basket.

1:15:40 Technology's tough.

1:15:41 Technology has performed so incredibly well, but it is still one sector.

1:15:46 Okay.

1:15:46 I have trouble saying you should invest in tech.

1:15:49 If you had invested in tech for the last 20 years, well done.

1:15:53 Should you choose to invest only in tech

1:15:55 or have a big concentration in tech today?

1:15:57 I think that's a lot less obvious.

1:15:59 One would say, "Well, look at all this AI stuff.

1:16:01 There's How do I invest in all the AI stuff?" A lot of it's private right now,

1:16:04 although a lot of the public companies do

1:16:05 own chunks of of some of these private companies.

1:16:08 Uh we'll see how that plays out.

1:16:10 But, that's another one that's been tough recently where a lot of investors are

1:16:13 interested in investing in in in in investing

1:16:15 in some of these private companies.

1:16:17 Uh a lot of them AI-related, but SpaceX is another one.

1:16:20 It's really hard for retail investors to get access to those types of things.

1:16:23 But, there are companies who are creating products that say

1:16:27 that they can give you access to these to these things.

1:16:30 They're charging high fees.

1:16:31 Uh it's not obvious that they've been able to buy the underlying

1:16:35 securities that they're saying they have access to at good prices.

1:16:39 But, it's just another example of financial companies

1:16:42 preying on the the desires and biases of investors.

1:16:47 Financial firms are very good at seeing what investors want,

1:16:51 even if that thing is not good for them,

1:16:53 and then creating a product to fulfill that desire.

1:16:57 So, if if someone listening now is let's say they're

1:17:00 50 years old and they've got $20,000 in savings in cash,

1:17:08 and you had to be decisive.

1:17:09 You don't know the nuance and the the detail of their life.

1:17:12 You don't know their PERMA framework necessarily.

1:17:14 But, your job was just to make the money in the next 10 years.

1:17:18 What How do you think you'd allocate that?

1:17:19 Let's say $10,000, it's easier.

1:17:21 $10,000 in cash.

1:17:22 How would you allocate it?

1:17:23 That's a That's a tough question.

1:17:25 I don't know if it's answerable.

1:17:26 Uh especially over 10 years, it's tough.

1:17:28 What about 20 years?

1:17:32 [laughter] If they have a long time horizon,

1:17:33 so I I can tell you personally, I I like to invest in stocks.

1:17:38 I I have a a globally diversified

1:17:40 stock portfolio with a Canadian home country bias,

1:17:43 kind of like what that that paper the controversial paper found.

1:17:46 Uh we were doing that prior to that paper coming out.

1:17:50 Uh but, I think that general concept of a globally diversified portfolio,

1:17:54 maybe with some home country bias,

1:17:56 makes a lot of sense for most people, including for retirees.

1:18:00 But, there are so many like, what's what's his risk tolerance?

1:18:03 If he's going to panic when the market goes down and sell everything,

1:18:06 then it wasn't a very good idea, and he's not going to get the outcome

1:18:09 but the good long-term outcome they may have otherwise gotten.

1:18:11 And would you go all in on stocks?

1:18:13 All at once?

1:18:15 Yeah.

1:18:16 Like dollar-cost averaging versus lump sum?

1:18:18 Yeah, like how would you invest would you go

1:18:19 100% in stocks or would you even diversify that?

1:18:22 Yeah, that's what I'm saying.

1:18:23 I I think 100% stocks is personally a portfolio that I'm very comfortable with.

1:18:29 And I I'm not I'm not old enough to be thinking about retirement,

1:18:33 but it's a portfolio that I don't

1:18:34 expect to change throughout my personal life cycle.

1:18:38 Is that how you allocate your personal finances now?

1:18:40 You I know you have a home, but otherwise,

1:18:43 the money you do invest is in the stock market.

1:18:45 Yeah, so I've got my home, I have my stock market investments,

1:18:48 and I do have a pretty significant chunk

1:18:49 of equity in the company that I work for.

1:18:51 Yeah.

1:18:54 No crypto.

1:18:55 No crypto.

1:18:55 Any crypto?

1:18:56 I never touched it.

1:18:57 Never touched it.

1:18:58 That's not true.

1:18:59 I I when I was researching uh Ethereum and Bitcoin,

1:19:03 I remember when that was, it was a few years ago,

1:19:05 I bought $1,000 of each just so I could feel like

1:19:07 I was participating [clears throat] while I was learning about it.

1:19:11 What do you think of Bitcoin and Ethereum and other cryptocurrencies?

1:19:15 Uh I I think that they they solved a really interesting problem.

1:19:19 The that premise of digital cash is something that the Cypherpunk community,

1:19:24 the kind of libertarian community of of uh privacy-focused computer nerds,

1:19:29 where they were trying to solve this problem

1:19:30 for for many many years of digital cash.

1:19:33 How do you create digital cash that doesn't

1:19:35 require a trusted third party to mediate transactions?

1:19:38 And they they solved that.

1:19:40 Satoshi Nakamoto solved that in uh And that that was cool.

1:19:44 And he used a bunch of different pieces,

1:19:45 like you can kind of see in the paper how he used

1:19:47 Adam Back's Adam Back's ideas that he had created to stop email spam.

1:19:51 And it's just how it all came together.

1:19:52 It's unbelievable, fascinating story.

1:19:54 The technology was really interesting.

1:19:55 I think it has become uh an ideological vehicle,

1:20:01 where people who believe that the world should be a certain way

1:20:05 or believe that government's role in money should be a certain way,

1:20:09 they can invest in Bitcoin and feel really good about it.

1:20:12 I think it's it's got that component to it.

1:20:13 And then the other component that it has to it is that it's a speculative asset.

1:20:18 People will buy Bitcoin because they think it's going to go up.

1:20:23 So, it's not a good investment.

1:20:24 Is that what you're saying?

1:20:25 I I I personally wouldn't.

1:20:27 We don't allocate to it for our clients at PWL.

1:20:31 We manage quite a bit of money for quite a lot of people,

1:20:34 and we've decided not to touch it.

1:20:37 And I personally don't touch it, so.

1:20:39 I had a phone call actually from a friend of mine.

1:20:41 She she's very well known in the UK.

1:20:44 And she was um cuz there's lots of wars going on everywhere,

1:20:47 and there's the Strait of Hormuz is closed,

1:20:49 and there's Russia-Ukraine, and there's all of this stuff going on.

1:20:51 She was she was asking me for financial advice

1:20:53 on what she should do in such a moment.

1:20:55 I don't know why she's calling me.

1:20:58 I just thought I'll ask you when you come here.

1:20:59 But it But it's interesting cuz my my team found this article from 1847,

1:21:04 which was in a magazine, and it almost sounds like today.

1:21:08 The article says this, "Things are bad all over.

1:21:11 It is a gloomy moment in history.

1:21:13 Not in the lifetime of any man who reads this paper

1:21:15 has there ever been so much grave and deep apprehension.

1:21:20 Never has the future seemed so dark and incalculable.

1:21:23 In France, the political cauldron seethes and bubbles with uncertainty.

1:21:28 England and the English Empire is being sorely

1:21:30 tried and exhausted in a social and economic struggle.

1:21:34 The United States is behest with racial, industrial,

1:21:38 and commercial chaos drifting, we know not where.

1:21:41 Russia hangs like a storm cloud on the horizon of Europe, dark and silent.

1:21:46 It is a solemn moment, and no man can feel indifference.

1:21:50 Of our own troubles,

1:21:52 no man can see the end." An apt description of things, very apt.

1:21:56 And that was on October the 10th, 1847.

1:21:59 A magazine.

1:22:00 Now, that very much sounds like today.

1:22:01 It could be today, yeah.

1:22:04 So, as we zoom out on the cycles,

1:22:06 the big sort of economic cycles, the geopolitical cycles,

1:22:09 my friend that called me and said, "Listen,

1:22:10 there's lots of stuff going on in the world.

1:22:11 Should I be thinking about my money differently, my investing strategy?

1:22:13 What the hell's going on?" What would you say to those people?

1:22:17 Yeah.

1:22:18 Well, I I as the clip that you read suggests or or tells us,

1:22:23 the world has been through a lot of crazy stuff,

1:22:26 a lot of crazy times, a lot of wars,

1:22:28 a lot of turmoil, a lot of polit- political upheavals.

1:22:32 And we've come out okay, in general.

1:22:34 It's there there's been pain and suffering,

1:22:35 and and not everybody's had good outcomes, but generally speaking, here we are.

1:22:41 And if we think about that that from the perspective of financial markets,

1:22:44 stock returns have been positive despite all

1:22:47 the craziness going on in the world.

1:22:49 There's There's lots of interesting charts

1:22:50 that overlay news headlines about all the madness

1:22:53 going on in the world on top of the stock chart that's just going up.

1:22:57 Doesn't mean the stocks are always going to be up.

1:22:58 They will go down when when things get crazy, like when when this war started,

1:23:03 stock returns did get a little bit negative for a while.

1:23:06 They've since come back, but there will be volatility in financial markets,

1:23:09 volatility up and down day to day.

1:23:11 But in the long run,

1:23:13 stock returns they they should continue to be expected to be positive.

1:23:18 So, for your friend, I I don't know how the assets are set up,

1:23:23 um but someone who's globally diversified, exposed to the stock market,

1:23:27 they don't have to make changes

1:23:28 to their portfolios when the world's getting crazy.

1:23:31 I remember what she said to me.

1:23:32 She said that she was going to remortgage

1:23:34 her house because I think she'd paid it down,

1:23:38 and she was wondering what to do with that money.

1:23:41 She was saying, "Do I just go buy another house,

1:23:43 or do I invest it in the stock market?" Now, my my bias is the stock market,

1:23:48 but I don't know what you What would you say

1:23:49 to someone I'd want to know why she's mortgaging her house,

1:23:52 but given there's a good reason for that, I

1:23:55 would I would probably go in the stock market, not into real estate.

1:23:58 Do you think people shouldn't remortgage their houses?

1:24:01 It's a tough question.

1:24:02 Leverage, kind of like how exposure to the stock market is good,

1:24:06 borrowing money to invest in positive expected

1:24:08 return assets like like the stock market,

1:24:11 is actually kind of a good thing on paper.

1:24:13 Borrowing money generally improves long-term expected outcomes.

1:24:17 But it's stressful.

1:24:19 You can You can have bad outcomes where you lose all of your money.

1:24:23 So, should people borrow money to invest?

1:24:26 Should people mortgage their house to invest?

1:24:28 That's That's a very personal question.

1:24:30 It's kind of like the stock-bond question.

1:24:31 Should you invest in stocks or bonds?

1:24:33 Should you invest in stocks with leverage or not?

1:24:36 It really depends on your goals and your situation.

1:24:39 Uh but generally speaking, if we just look at what what what

1:24:41 do the data say about borrowing money to invest?

1:24:44 It's not It's not a terrible idea.

1:24:46 One of the things we haven't talked about is AI.

1:24:50 And does AI change any of this equation?

1:24:52 A lot of people are worried at the moment about losing their jobs.

1:24:54 Anthropic released a report, who are one of the big AI companies,

1:24:57 saying that entry-level people in particular are going to have a hard time.

1:25:01 And I think they said they're already seeing 13% of entry-level

1:25:04 jobs being disrupted because of these new AI and AI agents.

1:25:09 I'm to be clear, not a labor economist.

1:25:12 Um it's not my area of expertise.

1:25:14 I do think though that we look back through history.

1:25:17 I like looking at the history.

1:25:19 There have been lots of technological revolutions that have

1:25:22 been major major upheavals to the entire economy.

1:25:28 Yes.

1:25:28 So, ATMs.

1:25:29 The ATMs are one of those fascinating examples.

1:25:32 People thought that ATMs were going to wipe out bank

1:25:36 tellers because ATMs could do everything the bank tellers do,

1:25:39 but it was automated, and you didn't have to pay a person to do it.

1:25:42 So, there was a lot of concern.

1:25:44 And what what ended up happening was very counterintuitive.

1:25:49 It's that the cost of operating a bank branch decreased because you needed

1:25:54 fewer people to do all the bank teller stuff cuz you had the ATMs.

1:25:58 And banks opened more branches because it cost less,

1:26:02 and their customers liked that.

1:26:04 And the end result was that there were actually

1:26:06 more bank teller jobs at the end of the day.

1:26:10 The cost of providing the service decreased,

1:26:12 which caused it to proliferate more, provide that service to more people,

1:26:17 and it expanded the market instead of shrinking it.

1:26:21 Similar story with the Jevons paradox and um It's the same concept.

1:26:25 What's that story?

1:26:26 Where coal became cheaper at a time when

1:26:28 they used coal to ship freight on trains,

1:26:32 and the coal engine got more efficient with coal, coal industry panics,

1:26:36 "We're screwed." But then what it meant is

1:26:39 people used trains not just for shipping freight,

1:26:41 but also for other things like travel.

1:26:44 And people started traveling on trains because it got cheaper.

1:26:46 So, the coal industry actually boomed in the end.

1:26:48 That's it.

1:26:49 I have thought a lot about this Jevons paradox idea.

1:26:52 And I think it's I think it's going

1:26:53 to be true for artificial intelligence, for sure.

1:26:56 I there will be lots of other jobs created.

1:26:57 And actually companies like mine, if we save money,

1:26:59 we invest it in something else,

1:27:01 which then would would probably create jobs, whatever that is.

1:27:04 The part that I sometimes struggle with is the speed of adoption in AI.

1:27:10 And then also, when you factor in robotics, like my car in in LA drives itself.

1:27:15 And I think one of the biggest employers on Earth is driving in all its forms.

1:27:19 But then if you look at where housing and supply chains,

1:27:21 a lot of those are run by people all over the world.

1:27:23 And there was a video that I played the other day.

1:27:24 We can throw it up on the screen,

1:27:25 which shows that in factories in certain parts of the world now,

1:27:29 they're having their labor force wear cameras

1:27:31 on their head showing what they're doing

1:27:33 with their hands because they're robots are

1:27:35 ultimately going to replace that labor force.

1:27:38 And I just I I haven't I guess this is maybe something that happens in history.

1:27:42 I haven't been able to think about where those people go,

1:27:45 and what they then can go on to do, especially if it happens in short order.

1:27:50 Yeah, so I I've heard you I've heard you ponder this in your other episodes,

1:27:53 and I I I agree that the speed of this is likely to be different.

1:27:57 As you've said, it's we're we're talking about the internet,

1:27:59 so you can deploy these things at the snap of a finger.

1:28:02 And that is different.

1:28:03 But where do those people go?

1:28:04 This is one of the interesting things.

1:28:06 I don't know.

1:28:07 We We don't know.

1:28:08 And through history, we didn't know.

1:28:10 Exactly.

1:28:10 Through history, it's been the same sentiment, where people worry about,

1:28:13 "Where are these people going to go?" And they might be unemployed for a while,

1:28:16 and there might be hard times, but things have worked out.

1:28:20 And so, two ways to think about it.

1:28:21 One way is as a as an individual, what should you be doing?

1:28:24 We talked about it earlier,

1:28:25 uh having complementary skills that make you very unique, I think is important.

1:28:30 Personally, content, as you mentioned, has been a big part of that for for me.

1:28:33 Not everybody can necessarily do that, but finding those things that you

1:28:37 can do when combined better than anybody else in the world,

1:28:40 I think is very valuable.

1:28:42 And then the other perspective is as an investor,

1:28:44 how should we think about this?

1:28:45 And there I would come back to again,

1:28:47 we have seen many technological revolutions that have changed the world.

1:28:53 They've changed financial markets, they've changed our culture,

1:28:55 they've changed the way we interact with each other.

1:28:58 The world has changed so many times due to technology,

1:29:00 and the same cycle has repeated itself.

1:29:03 Uh there there has been unemployment, there has been social unrest,

1:29:07 there has been wealth inequality, but this happens every time.

1:29:12 Are you expecting the stock market to collapse

1:29:14 because there's been a huge overinvestment in artificial intelligence,

1:29:17 and at some point the investors that put their money into these sort

1:29:21 of speculative AI startups that raised

1:29:24 tremendous amounts of capital at crazy valuations.

1:29:28 At some point through history, doesn't the market always contract at some point?

1:29:31 There's a great book by an economist named Carlota Perez.

1:29:34 The book is Technological Revolutions and Financial Capital.

1:29:38 And she documents this exact cycle throughout

1:29:40 history and yes, that's part of it.

1:29:43 Part of it is asset prices getting really high and then coming back down.

1:29:47 Now, am I worried about a catastrophic market collapse?

1:29:51 I think that's always a concern.

1:29:53 I think that's part of the risk of investing in stocks.

1:29:55 We never know when it's going to happen or what the trigger is going to be.

1:29:58 So, it's not something that you can do anything about.

1:30:00 You need to have an asset allocation that you can

1:30:02 stick with even if that outcome is going to materialize.

1:30:06 And in that book is does it suggest

1:30:09 that the writing is on the wall for the current

1:30:11 economy and the way that we're heavily investing

1:30:13 in AI and data centers and you know,

1:30:15 a couple of years ago everyone was investing

1:30:17 in crypto and web 3 and NFTs and all

1:30:20 this stuff and all of the money seems to have been sucked out of that industry.

1:30:24 Really honestly, sucked out of almost every industry and into AI.

1:30:29 Um and you know I remember when DeFi was going to kill banking and finance.

1:30:34 [laughter] And that was only a couple of years ago.

1:30:35 In fact, a lot of the developers have

1:30:37 moved from that industry into the AI industry.

1:30:39 But I But I think I do think about this a lot

1:30:41 and I've got a few startup friends who are getting

1:30:43 a little bit nervous and are raising a lot of money

1:30:46 now because they think that in the next couple of years,

1:30:49 maybe in the next 24 months, there's going to be a big market contraction when

1:30:52 investors who invested in some startup idea that had

1:30:55 a $100 million valuation realize that they're losing

1:30:57 their money and some domino usually falls in the market.

1:31:00 Some catalyst moment means that there's a contraction.

1:31:03 Stock markets go down.

1:31:04 It gets really hard to raise money.

1:31:07 Clients who you might be relying on now

1:31:09 to pay your advertising budget start to lower their budgets.

1:31:13 And in such a scenario,

1:31:14 you're going to want to wish you'd prepared a little bit.

1:31:16 Some people are.

1:31:17 This is part of the cycle.

1:31:19 The cost of capital for bubble companies, we'll call them.

1:31:22 I don't love the term bubble,

1:31:23 but for companies who are in the industry that becomes

1:31:26 the focus of a technological revolutions and now we're talking about AI.

1:31:30 The cost of capital gets really low,

1:31:32 which means asset prices get really high and a lot

1:31:34 of people want to invest in that space.

1:31:36 But those asset prices are not typically

1:31:38 sustainable and they do tend to come down.

1:31:41 Does that mean a total market collapse

1:31:42 or catastrophe or or panic for diversified investors?

1:31:46 No.

1:31:47 Oh, is the writing on the wall?

1:31:49 I don't think we can say that.

1:31:50 If the writing were on the wall,

1:31:51 the way that I view financial markets is that if

1:31:53 the writing were on the wall prices would reflect that today.

1:31:57 Okay.

1:31:57 If we thought market prices were going to drop in the future,

1:32:00 they would drop today.

1:32:02 So, so it happens at a time when no one is expecting it.

1:32:05 That's exactly right.

1:32:06 So, the writing is never on the wall.

1:32:08 That's right.

1:32:09 Some some new piece of information,

1:32:11 something changes and that's what causes prices to come down.

1:32:15 My brother said something to me.

1:32:16 He's a very smart person.

1:32:16 He's worked in sort of investing for the last 15 years.

1:32:19 He said something to me early in my career.

1:32:20 He said, "Stephen, when you go to invest in something,

1:32:24 assume that the price you're paying for that investment,

1:32:28 so say I'm investing in Facebook stock at $10

1:32:32 is the total accumulation of everything everybody on the planet

1:32:37 knows about that company and they've priced in everything

1:32:40 the world knows about that company today." And he was like,

1:32:42 "So, even if you think it's going to go up,

1:32:45 that's also by the way priced into today's price.

1:32:47 So, you better know something that no one

1:32:51 else knows when you're thinking about buying an investment.

1:32:54 I've totally butchered what he said.

1:32:56 No, you You didn't You didn't.

1:32:58 He is describing the concept of an efficient market.

1:33:01 An efficient market is a market where prices always

1:33:03 and this is a sort of a theoretical concept.

1:33:05 It's not actually true.

1:33:08 But in theory, an efficient market,

1:33:09 a perfectly efficient market is a market where prices always fully

1:33:12 reflect all available information including

1:33:15 your thoughts about what the price Yeah.

1:33:16 might do.

1:33:17 Really, if you trade on those thoughts.

1:33:19 So, what are you investing in then if it's if the future's already priced

1:33:22 in and all the information about the company's

1:33:24 already priced in, what are you investing in?

1:33:26 You're investing in discounted future cash flows.

1:33:29 Companies produce cash flows.

1:33:31 Mhm.

1:33:31 They earn They earn profits.

1:33:32 When you invest in a company,

1:33:34 you're buying those expected future profits at a discount.

1:33:37 That That's called the discount rate.

1:33:39 This is getting pretty nerdy again, but that's that's how it works in finance.

1:33:41 What is the What is the value of a stock?

1:33:43 It's its discounted future cash flows.

1:33:45 Riskier stocks will tend to have higher discount rates.

1:33:47 So, you buy this asset and now you've got this discounted bundle of cash flows,

1:33:52 which you then hold and you receive the discount rate

1:33:54 as a rate of return as you continue to hold the asset.

1:33:57 So, a lot of people will invest in Tesla.

1:33:58 They'll go, "Listen, I I've got a Tesla.

1:34:00 It's amazing.

1:34:00 I'm going to buy some stock." What is the fault in my thinking there?

1:34:05 In buying Tesla stock?

1:34:06 Because I I've got a Tesla.

1:34:07 I think it's a great car and I think they'll do well in the future.

1:34:11 So, I buy the stock.

1:34:12 But they It's what we just talked about.

1:34:13 That information is already included in the price.

1:34:15 Every Everybody knows that it's a pretty good company

1:34:17 making pretty good cars that are selling really well.

1:34:20 And that's why it costs $10 today.

1:34:22 Right.

1:34:22 Whatever it costs today.

1:34:23 Whatever the price is, yeah.

1:34:24 If you look at the data on professional money managers

1:34:29 who are trying to beat the market most of them don't.

1:34:32 And the ones that do, this is a crazy part,

1:34:34 the managers who do beat the market over a period of time

1:34:38 don't tend to go on to beat the market in the future.

1:34:42 And these are professional investors who are, you know,

1:34:44 and then you can look at these before or after fees.

1:34:46 The data are actually pretty similar.

1:34:47 It's worse after fees, but the distribution is is pretty similar.

1:34:51 So, what's the point in a money manager?

1:34:53 Well, ones that are trying to beat

1:34:55 the market by picking stocks and timing the market,

1:34:56 I don't think that there is one.

1:35:00 That's why I talk about just just buy index funds.

1:35:02 Buy buy the market.

1:35:04 Let Give Take the market's return.

1:35:06 Accept the market's return, which has been very good.

1:35:08 And then don't do anything.

1:35:09 Don't check the thing.

1:35:10 Don't check it.

1:35:11 Don't Don't open the app.

1:35:11 Lose the password.

1:35:12 I said this about my my fiance.

1:35:13 I said she's really good at investing because she always forgets the password.

1:35:16 And then we 4 years later we'll be like,

1:35:18 "What, babe, you should check your investment." And she goes,

1:35:20 "I don't know the password." I go,

1:35:21 "Fucking." And then we have to do the whole password reset thing every

1:35:25 [laughter]

1:35:25 And then we open it we go, "Oh, okay, babe, you're rich." It's probably good.

1:35:28 And she goes, "Oh, amazing." And then she forgets the password again.

1:35:31 And then 4 years later we take a look at again at her investments.

1:35:33 I like to say you you want to focus on the things that you can control.

1:35:37 Mhm.

1:35:38 You can't control markets.

1:35:39 You can't control your performance relative to the market.

1:35:42 And tr- trying to outperform tends to make you worse off rather than better.

1:35:45 But the things that you can control are a lot of the things we talked about.

1:35:48 Having having an an appropriate financial plan,

1:35:51 having having the right goals set,

1:35:52 having an asset allocation that makes sense for you even if markets do decline.

1:35:56 Having emergency savings, tax planning.

1:35:58 Those are things that you can control.

1:36:00 That's what people should focus on.

1:36:01 Do you think women are better investors than men?

1:36:03 I'm not super good on these data, but I believe what the data say are

1:36:07 that women tend to be a little bit more risk-averse.

1:36:10 Uh but they tend to be a little bit less overconfident.

1:36:15 Which I assume gets better results, no?

1:36:16 Yeah.

1:36:17 I I think women are probably better investors.

1:36:18 I'm just going to give I'm going to give the simple answer right there.

1:36:21 I've just got some numbers here.

1:36:22 Fidelity said that across 5.2 million accounts,

1:36:27 women beat men with their investments.

1:36:30 Warwick Business School,

1:36:31 women outperformed men by 1.8% percent per year over a 3-year period.

1:36:36 UC Berkeley, men traded 45% more often than women

1:36:41 leading to annual returns that were 1.4% lower than women's.

1:36:46 And Revolut, which is a big bank founded out in the UK is

1:36:49 says that women's investments in the UK outperformed men's by 4% over men.

1:36:56 I believe it.

1:36:57 Give your money to your wife.

1:36:59 One of those data points specified,

1:37:01 but I would assume that a lot of that is related to overtrading.

1:37:04 Yeah.

1:37:05 Men tend to be overconfident.

1:37:06 They tend to trade more.

1:37:07 They try to pick stocks.

1:37:08 They think Tesla stock's going to go up because they like the car.

1:37:12 And we're told that the biggest gambling addicts in the world are men as well.

1:37:15 So, it's kind of correlates.

1:37:16 For sure it is, yeah.

1:37:17 Ben, we have a closing tradition on this podcast where the last guest

1:37:19 leaves a question for the next not knowing who they're leaving it for.

1:37:22 In the diary of the CEO.

1:37:24 And the question that has been left for you is what

1:37:28 experiment can you propose whose outcome

1:37:32 could completely contradict your current beliefs?

1:37:37 Oh, man.

1:37:41 [sighs] Uh an experiment that I could run.

1:37:45 If I take my current beliefs as one of the big things that we

1:37:47 talked about is markets being efficient and it

1:37:50 being quite hard to outperform the market.

1:37:53 Uh I mean, the best the best experiment that we can run is is trying to beat it.

1:37:58 People have done that.

1:37:59 But it's being run all the time.

1:38:00 Isn't there a story in the Psychology of Money

1:38:02 by Morgan Housel where like was it Warren Buffett bet someone?

1:38:07 Yeah, Warren Buffett bet Ted Ted Seides, who we've actually had on our podcast.

1:38:12 He bet him that his index fund portfolio, which I believe was just the S&P 500,

1:38:17 could outperform any hedge fund portfolio that Ted picked.

1:38:22 And they had a specific timeline.

1:38:24 It was 10 years, wasn't it?

1:38:25 Something.

1:38:26 Yeah.

1:38:26 And then they were going to donate the an amount

1:38:29 of money at the end of the period.

1:38:31 And Ted lost the bet.

1:38:33 Warren Warren won.

1:38:35 But that that was one of those instances where the world kind of got to see,

1:38:39 hey, this this index fund thing Buffett has been a big advocate for index funds.

1:38:43 But that was a big example where I think

1:38:45 a lot of people were exposed to that idea.

1:38:48 Where do people find you?

1:38:49 You know, I've got your YouTube channel here, Ben Felix,

1:38:52 which I'll I'll link below for anyone

1:38:54 that wants to continue to follow you on YouTube.

1:38:57 Is there anywhere any any other resources that we should direct people to?

1:39:00 Yeah, another place where I post actually a little bit

1:39:03 more frequently with longer form stuff is the Rational Reminder podcast.

1:39:07 People can check me out there.

1:39:08 And then I do have some interesting tools for the rent versus buy calculation.

1:39:13 We have a goal-setting app.

1:39:14 I don't think it's up yet, though.

1:39:15 And we've got some other really interesting tools on the PWL Capital website.

1:39:20 PWLcapital.com.

1:39:22 I'll link all of that below for anyone that's interested.

1:39:24 And the Rational Reminder Podcast, rationalreminder.ca/podcast.

1:39:29 And your YouTube channel will be linked below, as well.

1:39:32 Awesome.

1:39:33 Thank you so much, Ben.

1:39:33 Thank you for doing what you do,

1:39:34 because um finance is such an important part of our life,

1:39:37 and I think a huge percentage of the population, for whatever reason,

1:39:40 choose to avoid the subject altogether, cuz it causes a little bit of anxiety.

1:39:43 But also, we just don't get taught about finance in school,

1:39:45 which I think is a great shame.

1:39:47 And in in my case, you know, it wasn't until I destroyed my credit rating,

1:39:50 my credit score, um that I started to figure out what finance was.

1:39:53 And by then, kind of like brushing your teeth, I'd done a lot of damage.

1:39:56 And so, since then, from doing this podcast,

1:39:58 and being the smart people like you that are

1:39:59 good at demystifying complex things, and but also,

1:40:02 in your case, that use academic research

1:40:04 as the basis for the claims they're making,

1:40:06 it has helped to turn the lights on for me.

1:40:09 And in this domain, I think control,

1:40:11 or like understanding and information is power.

1:40:14 Really, like knowledge is power.

1:40:16 And a lot of people are disempowered, because they don't have the knowledge,

1:40:18 and they kind of they're on that sort

1:40:19 of roller coaster of their life circumstance,

1:40:22 and they don't feel like they have control,

1:40:24 especially considering that the world feels so uncertain right now.

1:40:26 So, thank you for doing what you do, Ben.

1:40:28 Really, really appreciate it, and I hope to speak to you again sometime soon.

1:40:30 Thanks so much.

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