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Renting versus owning a home is the biggest financial decision most people make in their life.

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So we're going to talk about all of the unrecoverable costs of owning a home,

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including property taxes, payments costs, which is the one that I think people underestimate the most.

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And then there's also emergency costs. I've got the whole stack of them as well as a 5% rule to figure out.

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If renting is a better financial decision, we'll go through that. What else have we got?

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So this is something that people just don't think enough about, which is the top 10 financial

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mistakes that I think people make. For example, tax planning opportunities. Like there are simple

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things that people can do to minimize the amount of tax they're paying. We'll go through those.

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Ben Felix's firm manages the money of more than 3,000 people, ranging from people with huge amounts

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of money and not so much money. His whole thesis is giving people money advice that is based on

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academic research. Our brands, our psychology absolutely gets on the way of making good long-term

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financial decisions. And today, we're going to answer the big money questions like what should I invest in?

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A lot of people believe they need to have a lot of background information before they can start

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investing. But I would argue that people who know just a little bit, they will be better long-term

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investors. There's a ton of evidence supporting that this will outperform most other investment

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strategies. And also, what is the mentality, the mindset of people that end up making money

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over the long term? Psychology is important for determining what your financial goals are.

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So this is a framework that we developed to elicit higher quality goals. What do you say to young

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people better thinking about their financial strategy? A lot of young people feel a lot of pressure

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to save, but there is research suggesting that it's probably so optimal for young people to say,

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which we'll talk more about later. And then in a world of AI where everything is changing so

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quickly, what should I be doing with my money right now? Ben Felix has the answer.

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Guys, I've got a favour to ask before this episode begins. The algorithm, if you follow a show,

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deliver you the best episodes from that show very prominently in your feed. So when we have our

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best episodes on this show, the most shared episodes, the most rated episodes, I would love you

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to know. And the simple way for you to know that is to hit that follow button, but also it's the

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simple, easy, free thing that you can do to help us make this show better. I would be hugely

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grateful if you could take a minute on the app you're listening to this on right now and hit that

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follow button. Thank you so, so, so much. Ben, there are lots of people out in the world talking

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about personal finance and investing and all these adjacent subjects. What is the approach you take

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that you think is different to lots of the other sort of finance experts that are on YouTube

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that are giving people advice? What I think in the approach that I've always tried to take is what

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can we take from academic literature, very smart people who spent a lot of time thinking about these

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things? What can we take from them and apply to making good financial decisions for a typical person?

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And what are the key questions that you've sought to answer for the audiences that you have?

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Is renting versus owning a home? So that's always been big. Acid allocation is another big one. How

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much should you invest of your long-term money that you can afford to take some risk with?

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Another important question people wonder about is why should I not do this other investment strategy

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that seems very attractive? And who are we appealing to with this conversation? Is it just people that

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have lots of money or is it? No, I think these questions need to be answered. I mean, the renting

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versus owning a home one is applicable to pretty much everyone because that is the biggest financial

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decision most households will make in their lives regardless of what their network is. But

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investing or what should you do with your long-term investments? That's applicable to anybody.

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Anybody that's going to be saving for their future, whether they have $10,000 or $10 million,

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the same principles apply. And how much of this game of investing making money is comes back to

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psychology? So I like to say investing has been solved. We're going to use index funds. That's it.

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The hard part is actually doing that because our brains, our psychology absolutely gets in the way

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of making good long-term financial decisions. Where our brains are designed for survival.

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They're not designed for thinking about long-term abstract concepts like taking your money today

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investing in the stock market, ignoring all the stuff that happens in between and then having

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money left over later to fund your retirement. That's so interesting because a lot of the time

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people talk about tactics and strategies, but I guess underpinning your ability to execute on any

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of those tactics or strategies are one's own psychology. And it's that academic research about

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the best sort of mental approach to take towards money and finance and investing.

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So one of the best approaches and it's a little bit counterintuitive is to not look at your

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investments. There is an academic paper showing that the more people look at their investments,

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the less risk they take and the lower returns they earn. Because when you look at your investments

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every day, the stock market goes up and down. We know that. If you're looking every day at your

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portfolio and it's down 5% up 6% and going up and down all the time, that can be very stressful

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and it makes it seem like the stock market is very risky. And so people will invest less in the

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stock market. In reality, for long-term investors who can invest in stocks, buy and hold for a very

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long period of time, that they're a lot safer than people think. So we've got some props here for

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some demonstrations we're going to do. Could you just explain to me the high level of what these

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things are on the table and the different frameworks we're going to go through?

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Sure. So we have a bunch of things here. This is one of my favorites that I bring up

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in a lot of my videos. So this is the Perman model, which comes from positive psychology.

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Psychology is important for investing well, but it's also important for figuring out what your

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long-term investing strategy should be. We'll go through that. What else have we got here?

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This is the top 10 financial mistakes that I think people make. This is the three steps for

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investing your first $10,000. Okay. And we've got $10,000 there. So you're going to talk me

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through how we do that as well. We're going to talk about all of the unrecoverable costs,

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the whole stack of them that you incur when you own a whole.

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Okay. And I guess this begs the question, who is Ben Felix? What is your background? And what

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is the education, the reference points, the experiences that you're drawing upon to give us

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this information today? Probably where it starts for being relevant is I did a degree in mechanical

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engineering at Northeastern University. And I say that's relevant because when I came into

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finance, I wanted to approach it like an engineer and a lot of finance, a lot of financial services

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of investing and wealth management is not approached like an engineer. It's approached like a

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I feel almost bad saying this, but it's approached like a like a car dealership selling selling

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product. So I was disappointed in that and had to find my own way. They haven't got my best

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interests at heart. In a lot of cases, I don't think so. I started spending a lot of time reading

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through academic literature so that I could be very confident and comfortable at the advice that

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I was giving to people was good, high quality advice. And where is the best place to start?

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Is it in the psychology? Is it one of these frameworks? Is it somewhere else? Is there a background

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understanding of the economy one needs to get going? That is a great question. I don't think so.

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And I think that's where a lot of people get stuck where they believe they need to have a lot of

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background information before they can start investing. They may do research on specific industries,

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they may look at like the energy sector so they can build out an energy portfolio as one example.

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But investing the way that I would say is sensible for most people, which is just using low-cost

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index funds, capturing market returns. The market returns have been there and they're going to

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continue to be there. They should continue to be there in the long run. Doing that doesn't require

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a lot of background knowledge. I would argue that people who know just a little bit, just enough.

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They just know that index funds are sensible and they have enough conviction they can stick with

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that. They will be better long-term investors than someone who knows enough to hurt themselves.

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What would you say to young people that are thinking about their financial strategy? Would you

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say that someone in their early 20s, 21 years old, should adopt a completely different approach

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to money based on what you've just shown me versus someone that's 51 years old?

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It's going to be different for sure. I think this is a tricky subject, but a lot of young people

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feel a lot of pressure to save. And that might be saving for their retirement. It might be

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saving to buy a home. But they feel a lot of pressure from their parents and just from society in

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general that they need to be saving money. That if they're not saving money, they're being irresponsible.

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But again, if we come back to academic research, there is research suggesting that it's probably

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sub-optimal for young people to save. General point is that you should save more when you have a

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higher income and save less when you have a lower income. And what that ends up meaning is that

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young people may not need to save or may not need to save as much as they feel pressured to save.

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The reason this topic is tricky is that well what I just said is true. It can cause bad habits.

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Where if people spend all of their income and then don't have that shift towards saving at

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some point, then they'll end up in a difficult position later on in life. Someone who's 50,

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it's going to depend on their situation. If they're the person who I just mentioned who never saved,

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they're in a tough position and they are going to need to save a lot in order to have some wealth

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later on in life. But if they've already saved and they have wealth, then they can focus more on

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some of these topics. And you've got the 10 money mistakes people make here.

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Can you run me through those ones and just let me know if any of them is particularly pertinent

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or interesting that we should dive deeper into? So this one's controversial. It's not earning

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enough money. A lot of people feel like they don't have an option that they're not earning

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enough money because that's just the way things are and there's nothing that they can do about it.

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I don't think that's necessarily true investing in your human capital and that can be

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formal education. It can be gaining skills. It can be becoming an entrepreneur. Those are all

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ways to make your own self a more valuable asset to increase the value of your human capital and

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allow you to earn more money. So that's a big one. I think people who get stuck in the feeling or

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the thought that they do not have the ability to increase their income and that this is just the

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way things are. I think that can be very problematic. I've always thought of it across these

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sort of five buckets. The first two buckets that we attempt to fill when we're starting our

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careers are our knowledge and then our skills and kind of like when knowledge is applied,

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it becomes a skill and these two first buckets are so imperative because they can almost never

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be unfilled. Whereas the other three buckets, which is your resources, your network and your

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reputation, you can have career fluctuations in earthquakes that cause those buckets to unfill.

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So as you're saying earlier and about young people, one of the things I've always thought is like

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when you're young, just like optimize for filling your knowledge and skills as much as you

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possibly can. And actually, I guess the level of nuance there is acquiring a rare but

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complimentary stack of knowledge and skills that the market values. And I think over the long term,

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you know, this doesn't apply to everybody because things happen in life and bad things can happen.

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But over the long term, I think life tends to land you pretty much in and around the value of

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and the rarity and the complementarity of those knowledge and skills as it relates to the

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markets demands. That's absolutely true. There's that on this too where we know that there is a

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mechanical relationship, at least historically, we can talk about the future, but historically,

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there has been a mechanical relationship between formal education or trade education and lifetime

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earnings. And we also know that certain degree types like engineering, finance, business,

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some of their sciences have higher lifetime earnings than other degrees. So I think you're absolutely

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right. There are, and the part part is we don't know what exactly those degrees and skills that

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are going to be the highest paying in the future are going to be. Ten years ago, we might have said

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software developers. Today, we might not. But even you as an example, so you did engineering and then

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you did finance. And now you've added this other string to a bow, which is you know how to make

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content on YouTube. And that makes you as a finance expert and professional in CIO so extremely rare.

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It almost makes you like one of 100 on planet earth, maybe. And this is what I mean by rare and

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complementary skills. You could have just learned more finance. And I don't think that would have

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moved you up this sort of earning ladder. But because you added this really rare skill of being able to

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make content to your other skill stack, I'm guessing it made you money. It did. It has. And I

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continue to be paid well. And you know, it was. Please don't. But if you were to go back and watch

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my old videos, which are still up, I am so rigid and nervous. And what I was, and it took probably

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years of recording. And we do a podcast too. So just being in front of the camera for me to feel

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pretty good. I mean, I probably took me three years to smile on camera. Really?

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

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So I say this because I really want people to think about how rare their skill stack is.

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It's not something we're taught. And then also one of the things I know is I used to work in a

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biotech company for a little while while I was in between things. And we were looking for a writer,

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a biotech writer. Now, the other writers that we've hired at our other companies might have been

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paid only $50,000, whatever it is. For a biotech writer, we would pay them a quarter of a million.

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And all the only difference is the biotech writer had like some base, they didn't have to go to

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medical school. They just needed experience in writing about biotech. And it five X to their

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earnings. So this other point is you might have a skill stack, but are you selling them on the

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right market? And even me, the first part of my career was marketing. I was helping Uber and

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fizzy drinks company and dress seller company sell their dresses. As I just said, the second little

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stop I took in my career was helping biotech companies with marketing that are about to IPO.

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My first contract with one of those companies was worth eight million six months work.

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And it was a real pivotal moment in my career where I go, it's not just the skills you have,

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it's like where you the market in industry where you sell those skills can wildly change your,

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you're as you say on that card, you're earning potential. Yeah. And as you say that this is

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something that you don't have full control over because you could do all of those things and not

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find work as a biotech writer, but putting yourself in that position I think does increase the odds.

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What's the second one you've got there? Second one is not saving enough.

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Clutch on this a little bit. Young people maybe don't need to save, but at some point you do

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have to start saving. And the tricky thing about saving is that wealth compounds over time. And if

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you're not saving enough, you're missing out on compounding and it gets a lot harder to catch up

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with the amount of savings you would have otherwise had if you started earlier. So that's a big one.

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And some people will wake up when they're 50, 55 maybe even 60 and realize they haven't saved enough.

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But by that time, there's nothing that you can do about it or very little that you can do about it.

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There's a lot of parallels with health here where if you eat poorly and don't exercise,

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you can wake up when you're 55 and you can have heart disease. That is very difficult to reverse.

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And it's the same effect. It's compounding over time. And the health and wealth have a lot of

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parallels. Anyway, so not saving enough can be very problematic because it is so hard to reverse

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the effects of it. Once you've realized it's a problem. Interesting. I read a book called The Slight Edge

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by I think it's Jeff Olson when I was 18. He was talking exactly about that. I think it uses one

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of the analogies that it uses is like brushing your teeth. Don't brush them today. It's fine. Don't

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brush them every day this week. You're fine. Don't brush them every day this month. You're fine.

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But in five years, you're fucked. That's right. In five years time, you can't like stop brushing them

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then. Yeah. You're an identical to having them ripped out. I guess finance is the same in this

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regard. Exactly. Yeah. Number three is not setting financial goals. And that's we talked a little

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bit about this earlier as well. If people don't set goals, they will do things like think they need to

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earn more money because because because that's what you do. Or they'll think they need to buy a house

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because that's what you're supposed to do. But they won't step back and reflect on

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what are the components of a good life for them? What do they want their life to look like?

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And what would they need to do to achieve that? And if you don't go through that exercise,

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you can end up spending years or dollars achieving things that don't really matter to you.

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And again, because of compounding, by the time you realize those things didn't matter,

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that's time and money that you can't get back. So how do I go about setting good financial goals?

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What is the process there? So this is the process that we created is three steps.

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List your goals. Okay. So what does that look like? So you're going to sit down

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with a piece of paper or we built an app for this that we use with clients.

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You just list out your goals. So I could say I want to be a dad. I want to buy Ferrari.

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Yeah. We want to go and holiday to Cancun. Yeah. I want to be able to retire at 50.

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There's kinds of goals. Yeah. Now step two. So you've got your list of goals. You're going to double

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the list. Double it. Yeah. Why? So you came up with I think four goals just now. You're going to

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write down equals because this forces you to think harder about what other what other goals might

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be important to you. And research does show that this elicits more goals that people later

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identify as being at least as meaningful as the initial goals that they listed. And then the last

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thing we're going to come back to the permanent model. So the permanent model is a five factor model

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of human flourishing. If you have these components contributing to your life, there's a very good

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chance that you'll live a good satisfying life. I think you've you've lived through this experience

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where you've seen that wealth does not lead to a good life. And so what does what is there's a

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whole bunch of really good research on this. And it does suggest that positive emotion is one

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big piece of it. What does that mean? It's literally enjoying what you're doing and feeling good

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throughout the day. Engagement. You could probably argue that we're getting some of that right now

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where you're doing something that you enjoy doing that's maybe a little bit challenging, but it's

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at your skill level. It's the idea of getting into flow. I know I get that when I do podcast interviews.

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I want to do research when I'm sitting down and writing a video script. Relationships is having

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good strong relationships with people who are close to you in your life and that can be friends.

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It can be family members. It can be colleagues. Meaning is being part of something that is bigger

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than yourself. That can be a lot of different things for some people it's religion, for some people

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it's community, for some people it's their own business. And accomplishment is achieving hard

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things, setting goals and achieving them. You're going to look at the items of the permanent model.

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You're going to look at those as categories and think about what other goals you may have that

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fit into those categories. That's called a categorical prompt. And again, there's evidence behind

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that helping people elicit more meaningful goals. So one of the things I said is buy a Ferrari.

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Again, these aren't my goals. I didn't care about Ferrari's, but in case they want to sponsor

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Augustine and care about Ferrari. But say the Ferrari thing, do I have to find where it sits

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with in terms of positive emotion, engagement, relationships, meaning, and accomplishment?

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It would be wise to and this is why I think this framework is so important because you might

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realize that a Ferrari does not contribute to any of these things. It might though. Like maybe you

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take it to the track and you spend hours racing it. And that would be engagement. Maybe you have a

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bunch of buddies who have Ferraris and you want to be part of that friend group. So that's relationships.

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Yeah. Okay. I mean, positive motions, but I might only last a couple of days. Yeah, well,

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it's the hedonic track. That's exactly it. Yeah. And then accomplishment, I mean, it's not really

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in a client. If it was a goal that you've had since you were five years old, maybe that you could call

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that accomplishment, maybe. Okay. So I fit my financial goals, my life goals into the Perman model

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as a way to understand what my financial goals should be. Yeah. Okay. How many people in the general

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public do you think have actually thought about what a good life them looks like? Not enough.

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Not many. I think everyone's people are so busy with their day to day lives. I know this is

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true for me and my family too. It's really, really hard to step back and have this kind of thoughtful

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discussion about what you actually want your life to look like. Because I was just thinking about

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that. I think thinking, I don't even know if I've got really clearly defined life goals for myself.

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I think most of us just kind of act on how we feel. Yeah. And that can somewhat drift us towards

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the short term. Like, if I just, yeah, what's going to make me feel good today and do that every day?

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I don't know. So my argue that you have to be a bit more long term thinking. It can help.

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Right? Because it can help you from making decisions that you might regret in the future.

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Yeah. Because when I look at this Perman model, there's some things on here that I've

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optimized for which have sacrificed the other things. That's it. That's it. Yeah.

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Like, I might have over indexed on this like achieving things, but it might have cost me some

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relationships. So what's the fourth mistake people make? Yeah. So this is related to what we were

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just talking about, but it's it's overspending on the wrong things. Okay. When you think about what

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is a good life for you? And you realize if you realize that you're spending on things that are

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not contributing to that, which is resulting in you not being able to save toward things that

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would contribute to what you want your life to look like, that's probably not a great position

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to find yourself in. So I could be spending $12 on a nice coffee every morning and not enjoying it.

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Because you could get positive emotion out of that that you're like rushing to work,

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chugging down the $12 coffee every day. That's probably not contributing to a good life.

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Number five might be one of the bigger ones, which is not taking investment risks. And that's

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really the stock market has delivered these incredible long-term returns. And on expectation,

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it should continue delivering strong returns for investors. Not participating that in that is

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a huge mistake. And it's a mistake that many, many people make. A lot of people don't invest in

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stocks at all. And a lot of people who do invest in the stock market don't invest enough in stocks.

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They have very conservative portfolios. And that has a very large implicit cost. By not participating

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in the stock market when you could be, you're giving up a huge amount of economic gain.

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How do you quantify that for the average person in terms of what kind of gain they're giving up,

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or the size of the gain they're giving up? You can look at the historical returns on stocks.

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And you can also look at the expected returns on stocks. So let's say it's 7 percent

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that we expect stocks to turn in the long run. And if you could get 2 percent by sitting in cash,

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that 5 percent difference is your opportunity cost of not investing the stock market when you

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otherwise could be. And 5 percent compounded over the long term is enormous.

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So say I have $10,000. And I invest it in the stock market and I'm getting what did you say 8 percent?

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So 7 percent. Much money is that. So have a look. So I've done $10,000, which is what we have here.

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

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Do you know what's quite scary when I think about that? Does that kind of means that today,

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if I spend $10,000, I'm actually spending $150,000.

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Yes. Which makes me not want to spend any money on anything.

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Yeah. Because if you buy, I don't know what cost 10,000, what does what cost $10,000?

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Like a car small car. Yeah, maybe. You're actually spending $150,000 when you factor in the fact that

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if you put that $10,000 into the stock market, you could have made 7 percent a year and it would

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have turned into $150,000. Yeah. That's one side of the coin. You also have to think about

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any enjoyment or utility that you get out of that car. If that car lets you drive to a job,

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you couldn't have otherwise done. It may have a significant economic value doing the long run.

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That's one example. You know, I've got a coffee here. Some people spend $10 on a cup of coffee with

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frapper chapa, toppings and all that stuff. Looking at that over the long term, in 40 years,

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if you had not bought that coffee and put it into the stock market and got just 7 percent return,

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you would have had $150. So when you buy that $10 coffee, you're actually theoretically spending

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$150.40 a time. So you better really enjoy the coffee. Is there a bit of a fear that it makes us

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not want to spend money on anything and therefore we end up having a shitty life in the near-town?

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No, I think that's why this framework, that's why the framework for thinking about these decisions

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is so important because you do want to have positive emotion and engagement relationships,

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meaning and accomplishment. Those are all really, really important and yes, that money could be

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worth more in the future, but it can also be worth a lot today if you're optimizing on the right

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things. What else? Number six. It's another big one. So not taking enough risk is important,

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taking the wrong risks with your investments. So we just ran some numbers about a 7 percent stock

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market return. You can basically get that using an index fund. The problem is a lot of people don't

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invest in index funds. They pick individual stocks, hoping to earn really high returns. They trade

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individual stock options. They trade crypto tokens and all that kind of stuff and a lot of those

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types of risks have negative expected returns or they have high costs if you're doing a lot of

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trading and that can really erode long-term investment growth. What about buying a house?

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Is that a good investment? I wouldn't consider buying a house to live in an investment. It's sort of

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is you get an asset, but you're really you're buying an asset that funds your housing consumption.

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It kind of pays you a dividend that's sort of like getting rent from the house that you on.

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When you do the side-by-side comparison, which I think is the only way to think about this,

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if you compare buying a house, so that means in Canada you'd usually save up for a 20 percent down

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payment. You put 20 percent down in your house. You take out a mortgage to finance the rest.

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Living in the house, you're paying your mortgage payment, you're paying for some maintenance costs,

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you're paying for property taxes. Alternatively, you could have rented the house. That 20 percent that

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went into buying a home could have been invested in the stock market. Again, we're back to the idea

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of opportunity costs. The other important thing here is that renting typically has lower cash flow

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costs than only. These are the unrecoverable costs of owning a home. Mortgage interest,

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so that's when you buy a house and you borrow to fund the purchase, you're paying interest to the

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bank. I call these unrecoverable costs. That's money that you're paying for the use of money in

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this case and you're not going to get those dollars back. It's gone. Opportunity costs, so that's

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what I just mentioned. Whatever equity you have in a home is equity that you could have otherwise

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invested in the stock market. The capital portion, the principle that the price of homes

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has increased around inflation at the rate of inflation, maybe a little bit higher,

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historically. Stocks have far outpaced inflation. By having money sitting in a house as opposed

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to invested in the stock market, you have what is called an opportunity cost. You're not earning

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returns. You could have otherwise been earning. That opportunity cost is one of the largest costs

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of owning a home. I've got mortgage interest. The opportunity cost of equity, property taxes are

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another big unrecoverable cost. Property taxes vary depending on where you are, but it's

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say between 0.5% and 1%, maybe sometimes a little bit higher. You get utilities and some services

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in exchange for it, but it's again, it's an unrecoverable cost. You pay that, you've got nothing left

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afterwards. They've got maintenance costs. This is the annoying one. This is the annoying one,

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and it's the one that I think people underestimate the most. I started making content about renting

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versus owning a home years ago. I used to say 1% was a reasonable estimate of maintenance costs,

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and people would push back and say it's way too high. There's a bunch of academic literature on

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this too that says it could well be over 2%, and that's probably a more reasonable estimate.

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Having been a homeowner now for six years after renting prior to that, I'm fairly confident,

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at least in my case, that maintenance costs are far higher than 1% or 2% of the property value per year.

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Yeah. I bought my first home a while ago, and I didn't think about the gardening, and the pool pump

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gets broken, and then there's a crack in the patio outside, and then the heating system breaks,

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and then everything just seems to break. It's always breaking. It's always breaking. Every time I go

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back there, which is in a different country, the first week I'm just looking at the things that

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I've broken since I was last here, making a list of the new expenses, and it's never cheap.

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No. If I was renting, that wouldn't be my problem.

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No. There's also another cost here, which we don't talk about, which is the time you waste

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on the maintenance. When we think of maintenance costs, I imagine people are thinking about

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the fees to fix things, but actually the time I spend having phone calls and speaking to people,

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for me, is worth a lot more than just the costs. But anyway, maintenance costs.

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Yeah, the coordination is huge, and you could outsource that, but that would be expensive,

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and depending on how valuable your time is, it could make sense to outsource it, but I agree with

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you. I do the same thing. I spend time in the phone finding which contractor is going to come

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in and fix this thing, and then you have to wait for them, and then maybe they're late.

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That's maintenance costs. We have emergency cost here, which is really a subset of maintenance costs,

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so you can have big things. The roof needs to be redone. The foundation cracks,

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whatever. Those can be very significant. One of the challenges with those types of

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big costs is that you have to have liquidity available to fund them. That means that you have to

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have cash sitting somewhere, or at least some liquid assets sitting somewhere, so probably not

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invested in the stock market, which also has an implied cost to it, which is more opportunity cost.

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More opportunity cost. This one's interesting. This is one that I don't think I appreciate it

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until I own my own home, which is renovation spending. We talked about maintenance. When you fix

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something in your house, you don't just fix it to get it back to the baseline level that it was

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that before. You make it a little bit nicer. I never did that when I was renting. This side by

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side. You run this side by side comparison. You count for all of those unrecoverable costs the

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owner has. You count for the renter investing the stock market and investing the cost difference,

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the cash flow cost difference between renting and owning each month or whatever frequency.

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And what you'll find, and I've done this with projections, so looking at expected stock returns

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and expected real estate appreciation, you can very easily show that there is unequivolence.

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There is a level of rent where you are indifferent between renting and owning. I did a video years

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ago that has millions of views now, where I came up with this idea called the 5% rule.

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So I took some of those costs. I took property taxes, maintenance costs, and the cost of capital,

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which is the opportunity cost and the cost of borrowing. I wrapped all that up and said,

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we've got roughly 1% for property taxes, roughly 1% for maintenance costs, which is probably

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way too low as we just talked about. And I said 3% for opportunity cost, which I think is also

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on the low end. And you put all that together and you get 5%. So I said, okay, if you divide the price

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of a home by 5% and then divide that number by 12. You will get the monthly rent that has

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a equivalent that is equivalent to the unworkable cost of owning that home. Okay, so let's do that.

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So I'm thinking of buying a $300,000 house. What's the method I need to do to figure out if it's

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better to rent? Multiply it by 5%. And then divide it by 12. You're brave. I usually have a rule

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to never do math live on a podcast. I can edit. Okay, the result is 1,250. There you go. 1,250 is

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the equivalent rent where you're roughly break even between renting and owning. So if I could rent

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for 1,250 instead or less or less, I should rent. Renting is a better financial decision. So this

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is an important part of this topic. We can show financial equivalents. And that just that is important.

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We can show that there is financial equivalents between renting and owning. I've done more robust

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versions of this analysis since then. We have PWL has a calculator on our website where you can see

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the break even by putting specific numbers in instead of just doing the rough rule of thumb.

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Because things will change it. For example, if your asset allocation is more conservative or

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more aggressive, that opportunity cost number can be different. If you are a taxable investor,

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meaning that you're taxed on your investment gains by investing in the stock market or the bond

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market, your opportunity cost decreases because the after tax expected return on stocks and bonds

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decreases relative to a home ownership. 5% is a very rough rule of thumb. Do you think for the

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average young person, let's say someone started 25 years old, they should, and they're thinking

383
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about building their wealth over the long term, do you think they should be buying a house

384
00:33:17.760 --> 00:33:21.840
as an investment or should they be doing something else? I think for young people it's really

385
00:33:21.840 --> 00:33:25.920
tough and it's tough for a couple of reasons. One is because home prices are high. You have to

386
00:33:25.920 --> 00:33:30.160
save up a lot of money to buy a house. Another one is that it can limit your mobility.

387
00:33:30.720 --> 00:33:37.760
We've seen in Toronto, in Canada where I'm from, prices, condo prices in particular have plummeted.

388
00:33:37.760 --> 00:33:43.040
They've fallen off the cliff. If you bought a condo in Toronto and you get a job offer somewhere

389
00:33:43.040 --> 00:33:48.880
outside of Canada, what are you going to do with that condo that's at a big loss? You kind of stuck.

390
00:33:49.840 --> 00:33:55.440
Or you have to rent it out and now you've got this just difficult situation to deal with. Plus,

391
00:33:55.440 --> 00:34:00.320
there are big transaction costs if you're selling a place. For young people, I do think that

392
00:34:00.320 --> 00:34:05.200
home ownership can be tricky because it can limit your mobility, your ability to go and find

393
00:34:05.200 --> 00:34:10.400
maybe higher paying work. It introduces a risk that you probably don't need in your life because you

394
00:34:10.400 --> 00:34:16.880
may end up moving somewhere else. Then people often move up where they want a condo today,

395
00:34:16.880 --> 00:34:21.360
but they're going to want a house later. For my family, I met my wife. I was renting a place.

396
00:34:21.360 --> 00:34:25.520
The first place we met in a second place, a third place, and a fourth place. We went to four

397
00:34:25.520 --> 00:34:29.760
different places as we were having our family. We have four kids. And so our needs were changing

398
00:34:29.760 --> 00:34:35.280
over time. We needed a bigger condo and then we had a townhouse and we had a house. But we just

399
00:34:35.920 --> 00:34:40.240
the lease ended and we gave notice and we left. We found the better rental that was more suitable

400
00:34:40.240 --> 00:34:44.160
for our needs. If we had been homeowners, the amount we would have paid in transaction costs to do

401
00:34:44.160 --> 00:34:47.760
that would have been insane. Or we would have had to buy the house that we were going to have

402
00:34:47.760 --> 00:34:51.600
forever much earlier, which would have introduced significant opportunity costs.

403
00:34:51.600 --> 00:34:55.280
That's one of those things that's just impossible to measure. Because it's so intangible, but like

404
00:34:55.280 --> 00:35:02.240
the psychology of feeling like you can't easily move. And I see this a lot actually with people

405
00:35:02.240 --> 00:35:07.120
that apply for jobs in our company is in the interview process. They'll say, well, I've just put

406
00:35:07.200 --> 00:35:14.320
house in insert city. And you can see this their sort of psychology is holding them back from taking

407
00:35:14.320 --> 00:35:20.240
an opportunity because they've made an investment in a particular city. And so they might lose,

408
00:35:20.240 --> 00:35:23.280
as you say, like an opportunity in New York or LA or London because

409
00:35:24.080 --> 00:35:29.440
mentally they feel committed to a place. Yeah. Now the flip side of that is that if you're

410
00:35:29.440 --> 00:35:35.040
really sure that you want to stay in one place, one of the best ways to accomplish that is by

411
00:35:35.040 --> 00:35:39.680
who can be sure. Yeah, you can't. But if if someone was really sure, maybe someone has maybe

412
00:35:39.680 --> 00:35:44.640
like me, I have four kids, they're all in the same school. It's very unlikely that we would move.

413
00:35:44.640 --> 00:35:48.960
The other big mistake I think I made is I bought a holiday home. That was a tab. Well,

414
00:35:49.600 --> 00:35:53.040
I shouldn't say terrible idea, but kind of a terrible idea in part because of the same reason,

415
00:35:53.040 --> 00:35:58.080
in part because it means you only go and holiday to one place, which is like defeats the point

416
00:35:58.080 --> 00:36:03.360
of a holiday. Yeah. And it's I have not done that. And the main reason is the mental overhead.

417
00:36:03.360 --> 00:36:10.160
I don't like having to think about one property. I can't imagine having to think about a second one,

418
00:36:10.160 --> 00:36:14.400
that I'm not at. I should have done my idea. I don't like that. I don't like that. Especially when

419
00:36:14.400 --> 00:36:18.640
you're like young, it's like the whole point is you can still walk up mountains and do things,

420
00:36:18.640 --> 00:36:24.480
you're going to be sitting in a in the same house. Yeah. Oh, her mind is happier than renters.

421
00:36:26.480 --> 00:36:32.000
Depends how you slice the data. If you control for property types and neighborhoods and all that

422
00:36:32.000 --> 00:36:38.400
kind of stuff, no, they're not. If you don't control for those things, I think owned homes do tend to be

423
00:36:38.400 --> 00:36:43.440
a little bit nicer and better maintained. They do tend to be in better neighborhoods. So uncontrolled

424
00:36:44.160 --> 00:36:48.560
renters are a little bit less happy. There's a there's multiple studies on this. Statistics Canada

425
00:36:48.560 --> 00:36:53.200
has a really good one that does exactly that. They have controlled and uncontrolled life satisfaction

426
00:36:53.200 --> 00:36:58.320
differences for renters and owners. If you're a professional who is thinking about buying a house

427
00:36:58.320 --> 00:37:03.600
in a nice neighborhood or renting a nice house in a nice neighborhood, it's unlikely that you'll be

428
00:37:03.600 --> 00:37:08.880
happier in either case. If you're forced to be a renter in a not very nice neighborhood because

429
00:37:08.880 --> 00:37:14.160
all you can afford, you may be less happy, but it's not necessarily the renting that's making you less

430
00:37:14.160 --> 00:37:18.800
happy. Is there any particular group of people that you think should be buying a house? Yeah. So

431
00:37:18.800 --> 00:37:23.040
people who are very risk-averse, people who want to stay in one place for a very long time.

432
00:37:23.040 --> 00:37:26.960
Because they have a family or something. Yeah. And you don't want to be priced out of the market

433
00:37:26.960 --> 00:37:31.840
that you live in. This did happen in some cities in Canada in recent history. It's now reversed.

434
00:37:32.480 --> 00:37:36.160
But there were people who were getting price out of their market. They've been renters for a long

435
00:37:36.160 --> 00:37:41.680
time and rents went up so quickly that they just couldn't keep pace. It depends on your rental

436
00:37:41.680 --> 00:37:45.440
markets. Some rental markets are controlled where that's less of an issue. So you do have to think

437
00:37:45.440 --> 00:37:51.360
about things like that. But yeah, if you want to stay in one place owning your home is move away

438
00:37:51.360 --> 00:37:55.680
to do that. But it's a double-edged sword. Because if you realize you want to leave, you might be

439
00:37:56.480 --> 00:38:02.000
you might be stuck. And then the other big one for who should own a home is a taxable investors

440
00:38:02.000 --> 00:38:06.400
with high tax rates. And again, that comes back to the opportunity cost where if you're paying

441
00:38:06.400 --> 00:38:10.960
a lot of tax on your investments, whereas real estate tends to be tax-preferred in Canada,

442
00:38:10.960 --> 00:38:16.720
gains on your primary residence or tax-free, the U.S. has a believed unamount. And so that's

443
00:38:16.720 --> 00:38:19.440
that's the other thing to think about where the opportunity cost changes depending on your

444
00:38:19.440 --> 00:38:23.920
specific tax situation. When we have these conversations about buying a house or not buying a house,

445
00:38:23.920 --> 00:38:27.920
one of the things I see a lot in the comments section is people showing their case studies of

446
00:38:27.920 --> 00:38:36.160
them buying a house 30 years ago. And now it went from being worth $100,000 to $600,000. And they're

447
00:38:36.160 --> 00:38:42.240
starting that that's evidence that it's a good idea. You probably see this. Oh, this is the thing.

448
00:38:42.240 --> 00:38:47.760
This is the example. And everyone has the family member that bought a house for $70,000 and sold

449
00:38:47.760 --> 00:38:51.120
it for a million. I'm just going to read you the top four comments and I'd like to get your

450
00:38:51.120 --> 00:38:56.160
response on them. And the first one is the not buying a house does not work in the UK as 90%

451
00:38:56.160 --> 00:39:01.200
of rents are higher than a mortgage cost. Also, if you want to start a family, you need a stable

452
00:39:01.200 --> 00:39:06.560
place to raise your children. And with renting, you can be kicked out within a few months notice

453
00:39:06.560 --> 00:39:12.080
and your whole life could be turned upside down. I personally think there are ways around that.

454
00:39:12.080 --> 00:39:18.080
And as I mentioned earlier, I did rent for six years of my life with a wife and an increasing

455
00:39:18.080 --> 00:39:23.200
number of kids. The two things that I always made sure to do were to rent from professional

456
00:39:23.200 --> 00:39:28.800
landlords. We did have one experience renting from a sort of mom and pop person who had bought a

457
00:39:28.800 --> 00:39:33.840
condo and rented it out. And that wasn't great. But after that, we were very careful about vetting

458
00:39:33.840 --> 00:39:38.800
our landlords and only renting from professionals. And then the other thing that we did, which addresses

459
00:39:38.800 --> 00:39:43.520
at least in Canada, addresses one of the other points there is we would sign long leases.

460
00:39:44.320 --> 00:39:48.640
If we want to stay in a house for a few years, we would sign a multi-year lease. And landlords do

461
00:39:48.640 --> 00:39:54.400
tend to like that. The other point that was in there that I think is really important is that rents

462
00:39:54.400 --> 00:39:58.560
are higher than mortgage payments. I think this is one of the biggest mistakes that people make when

463
00:39:58.560 --> 00:40:03.200
they're making their rent versus own comparison is they'll say, this is my mortgage payment, this is my

464
00:40:03.200 --> 00:40:08.800
rent. If the mortgage payment is lower, owning must be better. But that's not the case. As we talked

465
00:40:08.880 --> 00:40:14.320
about a minute ago, you have property taxes, maintenance costs, potential renovations spending that

466
00:40:14.320 --> 00:40:20.400
you wouldn't do otherwise, and the opportunity cost of capital. When you add all that up, the cost

467
00:40:20.400 --> 00:40:26.320
of owning a home is far more than the mortgage payment. This guy here said, I bought a house, it's the

468
00:40:26.320 --> 00:40:31.920
best thing I ever did. It's launched my mindset in new directions. Remember that having your own space

469
00:40:31.920 --> 00:40:39.840
has profound psychological impact and can be life-changing for some of us that want to live in a

470
00:40:39.840 --> 00:40:45.200
healthy environment. What do you make of that point? Is it have profound psychological impact?

471
00:40:45.200 --> 00:40:50.240
If someone believes that it does, and they've really taken the time to reflect on their life

472
00:40:50.240 --> 00:40:55.120
and has decided that yes, it is in fact true that it has a had a profound psychological impact,

473
00:40:55.120 --> 00:40:59.680
of course, that person should own a home. Of course they should. Is it true for everybody?

474
00:41:00.640 --> 00:41:06.480
I'm a big sell. Dawn said, my experience, I purchased a house in 2013 with 20% down payment

475
00:41:06.480 --> 00:41:17.200
deposit. My total payment, including taxes, insurance, HOA, is $1,800 a month. As of today,

476
00:41:17.200 --> 00:41:23.600
the exact same house is renting for $4,000. The property value has also got up 3x. I'm glad I bought

477
00:41:23.680 --> 00:41:30.080
my house. Yes. There are cases where a real estate allows you to use leverage very easily,

478
00:41:30.080 --> 00:41:35.360
as Dawn mentioned. If you end up buying in a market that goes up a lot in a short period of time,

479
00:41:35.360 --> 00:41:40.880
it can be really, really good. However, this is what we've seen in Canada more recently. It hasn't

480
00:41:40.880 --> 00:41:44.480
touched other markets yet. Although, of course, the US has had their own declines and so

481
00:41:44.480 --> 00:41:48.720
over their countries, but Canada is right now in one of the biggest real estate priced

482
00:41:49.680 --> 00:41:56.480
when you adjust for inflation, going back to 1975. If you had bought, yes, seven years ago,

483
00:41:57.200 --> 00:42:02.640
and then looked at the price in 2022, you'd think, wow, I'm a genius. Of course, everybody should buy.

484
00:42:02.640 --> 00:42:07.840
But if you had bought, and I think it's 2021, was the peak, and you look at it today,

485
00:42:07.840 --> 00:42:12.880
you're thinking, wow, I've ruined my life. Yes, there are examples like that, for sure,

486
00:42:12.880 --> 00:42:16.400
but that is not what people should expect every time that they purchase a home.

487
00:42:17.360 --> 00:42:22.240
So, are you saying that the future is not going to be as the past?

488
00:42:22.240 --> 00:42:27.280
For this, I know the Canadian market best, but I think it generalizes outside of Canada. We've

489
00:42:27.280 --> 00:42:32.320
seen record decreasing interest rates, so that's changed a little bit now, but for a period of

490
00:42:32.320 --> 00:42:36.560
time, we had interest rates going down, down, down. In Canada, we had a ton of immigration. I have

491
00:42:36.560 --> 00:42:42.080
no problem with immigrants, but we had levels of immigration that were just not compatible with

492
00:42:42.080 --> 00:42:46.560
the amount of housing that we had in Canada, which is contributing to prices going up.

493
00:42:47.600 --> 00:42:52.320
Housing supply is not growing quickly enough, which are all things the Canada is addressing now,

494
00:42:52.320 --> 00:42:56.960
but all that causes prices to go crazy, which is I think why they've come down in such an extreme

495
00:42:56.960 --> 00:43:01.520
way. So, I'm not saying necessarily that we're never going to see high-house prices again,

496
00:43:01.520 --> 00:43:06.000
or house prices going up at an extreme rate again, but in Canada, at least, that has now

497
00:43:06.560 --> 00:43:11.760
normalized, or at least started to normalize. I don't think it's reasonable to expect

498
00:43:11.760 --> 00:43:16.960
stock-like returns from real estate forever, even though we did see that for some years.

499
00:43:17.920 --> 00:43:22.560
For most people, then, you think if their goal is to make money and they care about mobility,

500
00:43:22.560 --> 00:43:27.440
being able to get up and go if opportunity arises, a better investment decision would probably

501
00:43:27.440 --> 00:43:31.920
be just investing in an index fund, which gives you exposure to the stock market.

502
00:43:31.920 --> 00:43:36.160
Yeah, I think the mobility piece is key there, because remember, just from a wealth perspective,

503
00:43:36.160 --> 00:43:40.240
we can show that, hey, these are pretty close to equivalent. But if mobility matters to you,

504
00:43:40.240 --> 00:43:44.560
yeah, I think that that matters a lot. If you have unique investment opportunities,

505
00:43:44.560 --> 00:43:48.720
that can be another reason where your opportunity cost is really high. I had an opportunity to buy

506
00:43:48.720 --> 00:43:56.160
equity in my company years ago, and if I had been a homeowner, I think I actually had just bought

507
00:43:56.160 --> 00:43:59.760
a house, and I think I even had to reduce the amount of equity I bought because our, I think,

508
00:43:59.760 --> 00:44:03.200
our well-pump broke around the same, anyway. It was a whole thing.

509
00:44:03.200 --> 00:44:06.960
And now I guess not. But that's like the opportunity cost in the stock market, which is,

510
00:44:07.440 --> 00:44:10.720
call it seven percent or whatever. Then there's other opportunity costs that can be a lot higher,

511
00:44:10.720 --> 00:44:16.320
like in that specific situation. And the next one that is number seven,

512
00:44:17.200 --> 00:44:22.720
yeah, missing tax planning opportunities. This is something I think people just don't think

513
00:44:22.720 --> 00:44:30.160
enough about, but it's not terribly complex, but there are simple things that people can do to

514
00:44:30.160 --> 00:44:35.280
minimize the amount of tax they're paying. For most people, it's just optimally using things like

515
00:44:35.280 --> 00:44:41.600
in Canada, we have the RSP and the TFSA and the US. It's the the Roth and traditional IRA and

516
00:44:41.600 --> 00:44:48.000
401Ks. Using those things optimally make a lot of sense. So then the rest, other types of tax planning

517
00:44:48.000 --> 00:44:52.240
tend to get more country-specific. There tend to be lots of things, particularly for higher income

518
00:44:52.240 --> 00:44:56.080
people that you can do to pay a little bit less tax. And I think what about for lowering income

519
00:44:56.080 --> 00:45:02.480
people? For lowering income people, the government accounts that are provided are like the ISA in the UK.

520
00:45:02.480 --> 00:45:05.840
Yeah, exactly. Those are probably the best thing for people to be focusing on.

521
00:45:05.840 --> 00:45:09.440
But even then, I don't like people are often not using them optimally.

522
00:45:09.440 --> 00:45:13.600
One of the things people don't talk about enough is all the ways that rich people do things to

523
00:45:13.600 --> 00:45:18.240
avoid paying tax. They have like, they hire people so that they don't have to pay tax. I hear about

524
00:45:18.240 --> 00:45:22.320
all these crazy stories of like, I've started this business on the side here so I can get real estate

525
00:45:22.320 --> 00:45:25.920
license. And if I get real estate license, I don't have to pay the same tax on this thing here. And

526
00:45:25.920 --> 00:45:29.600
I move the money around here and I flip it around there and then I don't have to pay any tax.

527
00:45:29.600 --> 00:45:34.560
Most people like the average people don't have any loop holes that they can they jump through.

528
00:45:34.560 --> 00:45:39.760
Yeah, it's true. And even one of the crazy ones I learned about when I got some money was

529
00:45:39.760 --> 00:45:44.560
that you can take a loan against your stocks and there's no tax on the loan.

530
00:45:45.200 --> 00:45:52.160
So if I have a million dollars of Facebook stock, I can go to a bank and get 500K in cash

531
00:45:53.360 --> 00:45:59.040
loaned against that stock without having to sell it. And then on that 500K, I have no tax to pay.

532
00:45:59.600 --> 00:46:03.360
And I can just hold that Facebook stock. And when it goes up to two million, I can go back to

533
00:46:03.360 --> 00:46:08.000
the bank and say, give me another 500K. You could. But if it goes down, you get margin called

534
00:46:08.000 --> 00:46:12.480
and they've come up to the cash to. Don't they just sell? Don't they just sell the stock?

535
00:46:12.480 --> 00:46:16.560
They might, but then you're selling after it's come down. So it's not risk-free. But yeah,

536
00:46:16.560 --> 00:46:20.560
there is a thing that people do. I guess everybody could do that, right? And most people could,

537
00:46:20.560 --> 00:46:26.480
if they invested in the the S&P 500, they could go and get a loan against that investment.

538
00:46:26.480 --> 00:46:32.720
And that loan would be tax-free. Yeah, same rules for everybody. But I would still say that you're

539
00:46:32.720 --> 00:46:38.240
taking a lot of risk by borrowing money against risky assets like that. Okay, so tax planning,

540
00:46:38.240 --> 00:46:42.080
there's nothing else to cover that in terms of the average person. Yeah, I don't think so. But it

541
00:46:42.080 --> 00:46:45.200
is an important thing for people to think about. If thinking about what mistakes might have been

542
00:46:45.200 --> 00:46:48.640
making in my financial plan, they should definitely be thinking about are there tax planning

543
00:46:48.640 --> 00:46:54.880
opportunities that I'm guessing? How would they find out? It's a tough one. A good CPA.

544
00:46:56.720 --> 00:47:01.120
An accountant. A good tax professional should be able to identify tax planning opportunities for

545
00:47:01.120 --> 00:47:05.360
you. Good financial planners similarly should be able to identify good tax planning opportunities

546
00:47:05.360 --> 00:47:09.520
for your situation. But as you said earlier, the reality is there aren't that many things

547
00:47:09.520 --> 00:47:13.280
that people can be doing. And it's really things that you could figure out how to optimize

548
00:47:13.280 --> 00:47:18.560
once and then you're kind of set. Much of the reason most people haven't posted content or

549
00:47:18.560 --> 00:47:22.720
built their personal brand is because it's hard and it's time consuming and we're all very,

550
00:47:22.720 --> 00:47:29.040
very busy. And if you've never posted something before, there's so many factors in your psychology

551
00:47:29.040 --> 00:47:33.520
that stop you wanting to post. What people will think of you. Am I doing this right? Is the thing

552
00:47:33.520 --> 00:47:39.200
I'm saying absolutely stupid? All of these result in paralysis, which means you don't post.

553
00:47:39.200 --> 00:47:44.000
And your feed goes bare. I'm an investor in a company called Stan Store, which you've probably

554
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555
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556
00:47:52.240 --> 00:47:57.600
posts and tells you what you should post makes those posts for you. You can also just use it

557
00:47:57.600 --> 00:48:01.440
for inspiration. And sometimes what we need when we're thinking about doing a post for our social

558
00:48:01.440 --> 00:48:06.560
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559
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560
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562
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569
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credit card payment needed. Head to pipedrive.com slash CEO to get started. That's pipedrive.com slash

572
00:49:14.480 --> 00:49:22.080
CEO. I'll see you over there. Who does need a financial advisor? Probably a lot of people,

573
00:49:22.080 --> 00:49:30.000
but the financial advice profession has a lot of challenges. We're chatting about the sales

574
00:49:30.000 --> 00:49:34.880
nature of the financial services industry. And I do think that's a big problem because if someone

575
00:49:35.680 --> 00:49:41.440
hears Ben say, OK, Ben said I should have a financial advisor and they go to a bank or they go

576
00:49:41.440 --> 00:49:47.760
even to some random firm, there's a good chance that they're going to be sold products that they don't

577
00:49:47.760 --> 00:49:54.560
eat. And I don't have a solution for that. It's a difficult situation when that is the state

578
00:49:54.560 --> 00:49:59.360
of the financial advice industry. I guess to get around that one might ask their friends and family

579
00:49:59.360 --> 00:50:06.400
who does their financial planning and then go with a trusted referral. Yeah, but people often

580
00:50:06.400 --> 00:50:11.840
trust people that aren't giving them great advice. It's really problematic. I think a lot of

581
00:50:11.840 --> 00:50:16.720
people can benefit from financial advice. It's just finding the right person and a lot of people

582
00:50:16.720 --> 00:50:21.120
don't need financial advice because you do pay fees for it. What's the next one? Number eight, man.

583
00:50:21.120 --> 00:50:26.400
It is kind of a similar discussion that we just talked about, but it's missing out on a state

584
00:50:26.400 --> 00:50:32.000
planning. What does that mean? Figuring out how your assets are going to be distributed to the

585
00:50:32.000 --> 00:50:37.360
people that you want them to or the entities that you want them to when you die. This is an

586
00:50:37.360 --> 00:50:43.120
interesting one because most people aren't expecting to die anytime soon. So they haven't really

587
00:50:43.120 --> 00:50:48.800
thought much about this. Yeah. And you know, some might also say, listen, I'm not going to be here,

588
00:50:48.800 --> 00:50:52.960
so why should I care? Especially people that I guess that's an online service of someone that

589
00:50:52.960 --> 00:50:57.120
doesn't have kids, but yeah, it can cause a lot of problems. If you don't think through and plan

590
00:50:57.120 --> 00:51:01.440
for the way you want your estate to be distributed, you can pay a lot more tax than you otherwise would

591
00:51:01.440 --> 00:51:06.320
have and your estate can go to people that you may not have wanted it to go to. You can pay more

592
00:51:06.320 --> 00:51:11.520
tax. If you don't have things set up properly, and again, this is going to be country specific,

593
00:51:11.520 --> 00:51:16.160
but yeah, there's cases where you would pay more tax if things were not set up properly than

594
00:51:16.160 --> 00:51:22.240
if they were. Do you think everybody should write a will? Everybody that has any dependence should

595
00:51:22.320 --> 00:51:26.880
write a will? I've heard on a state-planned lawyer joke that everybody has a will, but it's

596
00:51:26.880 --> 00:51:31.280
the government's default will, which you may not actually agree with. It's like pre-nubs.

597
00:51:31.280 --> 00:51:35.280
Yeah, I kind of like that. Yeah. It's exactly like that. You could say everybody should have a

598
00:51:35.280 --> 00:51:39.680
will because it can help from having a big mess for other people to clean up, but for sure,

599
00:51:39.680 --> 00:51:42.560
if you have kids, if you have dependents, I think having a will is really important.

600
00:51:42.560 --> 00:51:45.280
And on that point of pre-nubs, number nine is about who you marry.

601
00:51:45.360 --> 00:51:50.880
Yeah, this is a tough one. It's a tough one because...

602
00:51:52.000 --> 00:51:54.800
I mean, this is front of mind for me because as you can see from these photos,

603
00:51:54.800 --> 00:52:01.520
I just proposed to my fiancee. Yeah. And I mean, this is not the ring, but because this is

604
00:52:01.520 --> 00:52:04.560
a bit extra. That's awesome. Oh my god, they put my face in the

605
00:52:04.560 --> 00:52:09.040
team, put my face in the box. That's really creepy. But yeah, so why is this so important

606
00:52:09.040 --> 00:52:12.720
who you decide to marry as it relates to how rich you'll be or won't be?

607
00:52:13.120 --> 00:52:19.120
Well, it's not just how rich you'll be. It's how satisfied you'll be with your life and with

608
00:52:19.120 --> 00:52:24.560
your marriage. Academic research has identified two spending profiles that you can categorize

609
00:52:24.560 --> 00:52:30.880
people into. One is tightwads. It's people who don't like to spend money and one is spend thrifts.

610
00:52:30.880 --> 00:52:33.920
That's people who do like to spend money. The names are kind of funny, but that's just that's

611
00:52:33.920 --> 00:52:40.560
what the research calls them. And the crazy thing about this is that tightwads and spend thrifts

612
00:52:40.560 --> 00:52:47.040
are more likely to end up marrying each other than to marrying someone who has the same profile as

613
00:52:47.040 --> 00:52:51.840
them. So two, a tightwad and a spend thrift are more likely to get married than a tightwad and

614
00:52:51.840 --> 00:52:56.160
a tightwad or a spend thrift and a spend thrift. What do you think that is? The research on this

615
00:52:56.160 --> 00:53:00.000
talks just about kind of opposites attracting and there may be some sort of thrill to the

616
00:53:00.000 --> 00:53:07.520
differences initially. But tightwads and spend thrifts as they go through their marriages do tend to

617
00:53:07.520 --> 00:53:13.200
be less satisfied in the marriages and have more marital conflict around money. And again,

618
00:53:13.200 --> 00:53:18.480
that's based on an academic paper. Now that's the reasons why the marriage might not last, but

619
00:53:19.120 --> 00:53:24.720
in terms of how it might impact your financial success. If you really want to save, if you have,

620
00:53:24.720 --> 00:53:29.840
if you go through your goal-setting exercise and your permanent model and you have a vision for

621
00:53:29.840 --> 00:53:34.480
the life that you want to live that requires saving, then you have a spouse that wants to spend a lot

622
00:53:34.480 --> 00:53:39.600
of money today. That can be very, very difficult. It can make it a lot harder for you to achieve

623
00:53:39.600 --> 00:53:44.720
your goals. I don't think it's insurmountable. I think a tightwad and a spend thrift can work. I

624
00:53:44.720 --> 00:53:49.280
mean, it's not like all of them end up getting divorced, but it does require a different level of

625
00:53:49.280 --> 00:53:53.920
coordination and communication and being on the same page. Do you have to speak to clients about

626
00:53:53.920 --> 00:54:00.880
this often? It comes up a lot. We have lots of clients who were single and end up getting in

627
00:54:00.880 --> 00:54:04.160
relationships and then getting married. We have to all have all kinds of conversations about

628
00:54:04.160 --> 00:54:09.120
marriage contracts or prenups, a state planning. Do you think anybody should get a prenup?

629
00:54:09.120 --> 00:54:12.480
Going back to what you said earlier, where you said, if you don't write your own, the government

630
00:54:12.480 --> 00:54:17.840
will give you theirs, which just to simplify that, if you don't write your own prenup,

631
00:54:18.560 --> 00:54:24.320
then the default position is the government will decide through the law how your assets

632
00:54:24.320 --> 00:54:29.600
are divided at a time when you break up. Problem is, people find prenups to be really

633
00:54:29.600 --> 00:54:35.120
unremantic. That's right. They also think there's an implication that we're assuming we're going

634
00:54:35.120 --> 00:54:40.720
to break up, which is also not so sexy. Do you think people should get them? If both

635
00:54:41.360 --> 00:54:44.640
partners are on the same page and comfortable with it, it's not going to cause a major rift,

636
00:54:44.640 --> 00:54:48.240
and if it does, maybe that's a red flag. Do you know what it calls a risk?

637
00:54:48.240 --> 00:54:51.440
Do you know what I mean? It's not to say that I'm just keeping all my stuff and you're keeping

638
00:54:51.440 --> 00:54:58.080
yours. It's just to say, let's agree now what would happen in the like 50% probability that

639
00:54:58.080 --> 00:55:02.880
this doesn't work out. We've seen both. We've seen clients come up with very creative and

640
00:55:02.880 --> 00:55:07.520
interesting marriage contracts that have specific formulas for how things are going to work,

641
00:55:07.520 --> 00:55:11.600
and depending on how many kids they have, it's an interesting exercise. In that case,

642
00:55:11.600 --> 00:55:17.040
it was fun. They were engaged in the process and didn't cause an issue. We've also seen

643
00:55:17.040 --> 00:55:22.800
people who did not have anything in place and have had very bad divorce outcomes from a financial

644
00:55:22.800 --> 00:55:27.680
perspective. I had a friend go through a divorce recently and he's a very successful person.

645
00:55:27.680 --> 00:55:31.280
His wife was there from the beginning. She looked after the family while he was off

646
00:55:31.280 --> 00:55:37.520
caluvanting around the world building his businesses all over the place. So obviously, she's

647
00:55:37.520 --> 00:55:45.200
contributed hugely to his success. What I noticed though is it's destroyed what could have otherwise

648
00:55:45.200 --> 00:55:50.640
been a good relationship as they separated. They now really, really hate each other because lawyers

649
00:55:50.640 --> 00:55:55.280
have stood in between both sides and basically caused tension because that's their job. They're

650
00:55:55.360 --> 00:56:01.600
going to get paid more and her lawyers are incentivized to squeeze every single penny they can

651
00:56:01.600 --> 00:56:07.200
out of this separation. So I think he said it had been like six or seven years since they decided

652
00:56:07.200 --> 00:56:13.760
to divorce and he's still in court arguing with lawyers about how they separate and it's just

653
00:56:13.760 --> 00:56:17.680
destroyed their relationship and they've got two kids. You just think, gosh, if you had a

654
00:56:17.680 --> 00:56:22.960
prenup, this would have been quick and it could have saved the relationship. Okay. Anything else

655
00:56:22.960 --> 00:56:29.360
to say on this point of marriage and compatibility? The academic research on this does have a short quiz.

656
00:56:29.360 --> 00:56:33.280
I don't know if we have it kicking around anywhere here. I think this is it. It's called the tight

657
00:56:33.280 --> 00:56:38.480
word and spend thrift quiz developed by researchers at Carnegie Mellon and the University of Michigan.

658
00:56:38.480 --> 00:56:43.840
Yep. This scale measures the pain of paying the emotional distress some people feel when

659
00:56:43.840 --> 00:56:50.080
spending money and here's a quick DIY version of that quiz. Question number one is you see a high

660
00:56:50.080 --> 00:56:56.240
quality coat on sale for $100, which is usually $300. You need a coat and you have the money.

661
00:56:56.240 --> 00:57:02.320
Do you buy it? Answer A. No. $100 is still a lot of money. I'll wait for a better deal. B. Yes,

662
00:57:02.320 --> 00:57:08.400
it's a great value. I need something. C. Yes. And I might buy a scarf to match since I save so much.

663
00:57:09.440 --> 00:57:13.360
Which one of you? I mean, if I need the code, I'd be. I think I'm C.

664
00:57:13.440 --> 00:57:21.120
But actually, to be fair, I just don't buy stuff. So I don't even know if I'd buy it anyway.

665
00:57:21.120 --> 00:57:26.320
Question two. You were at a restaurant with friends. The bill is being split evenly,

666
00:57:26.320 --> 00:57:32.720
but you ordered the cheapest item. How do you feel? A. Physically-pained. I'll likely mention that I

667
00:57:32.720 --> 00:57:38.560
should pay less. B. I bet annoyed, but I'll pay it to keep the piece. We'll see. Fine. It all will

668
00:57:38.560 --> 00:57:45.040
even out in the end. I'm between B and C. Really? I might feel a little bit annoyed. Really?

669
00:57:45.040 --> 00:57:49.040
But I wouldn't. I wouldn't cause a fuss about it. I'm C again. Fine. It'll even out in the end.

670
00:57:49.760 --> 00:57:54.960
Number three. Which statement describes you best? A. I have trouble spending money even on things

671
00:57:54.960 --> 00:58:01.280
I actually need. B. I balance my spending and saving pretty well. Or C. I often spend more than

672
00:58:01.280 --> 00:58:08.400
I intended and regret it later. Like a B. You said B, which is I balance my spending and saving

673
00:58:08.400 --> 00:58:15.760
pretty well. I would say I'm C again. But again, the caveat here is I actually don't

674
00:58:16.640 --> 00:58:21.840
I don't spend money on stuff anymore. I don't buy stuff anymore. But I can spend it on like

675
00:58:22.560 --> 00:58:28.080
traveling experiences and stuff. Yeah. Last question. When you buy something expensive,

676
00:58:28.080 --> 00:58:34.160
your primary motion is A. Anxiety or regret. B. Satisfaction in the utility of the item or

677
00:58:34.160 --> 00:58:41.680
C. Excitement and a rash. I think I'll be again. I reckon I'm B as well there. So scoring your

678
00:58:41.680 --> 00:58:48.000
results. If you're mostly A's, then you're a tightwad. If you're mostly B's, you are the

679
00:58:48.000 --> 00:58:53.120
uncomflicted. And if you're mostly C's, you are the spend thrift. So I guess with that,

680
00:58:53.120 --> 00:58:57.440
you are a uncomflicted. You're in the middle. You have a healthy relationship with money,

681
00:58:57.440 --> 00:59:01.440
where you can save one necessary, but enjoy the fruits of your labor without guilt. And I,

682
00:59:01.440 --> 00:59:06.400
I'm a C, which is you feel very little pain when spending. You enjoy the moment. But you might

683
00:59:06.400 --> 00:59:12.080
struggle with long-term saving goals or buyers for more. That's so fucking true. Everyone should

684
00:59:12.080 --> 00:59:17.440
do that at home. Okay, that makes sense. So we know that the Taiwan spend thrift are incompatible.

685
00:59:17.440 --> 00:59:23.200
I do think it's an interesting concept. Like how do you have that discussion with a potential

686
00:59:24.160 --> 00:59:29.200
partner? Or do you just observe it and kind of infer? On a date, you can say to your partner,

687
00:59:29.200 --> 00:59:32.320
say, oh, this is a great podcast on YouTube called The Derivacy. Yeah, we should listen to it.

688
00:59:32.320 --> 00:59:35.920
Then listen to this episode. They're listening with you now right now if you've done this.

689
00:59:35.920 --> 00:59:40.480
And then just play along with your partner. Are you looking for your partner to be the opposite

690
00:59:40.480 --> 00:59:47.520
then because you said opposites attract? No, no, no. Opposites end up together, but then have conflict

691
00:59:47.520 --> 00:59:54.480
because of that. Okay. Yeah, interesting. Yeah, I think if you're a tightwad,

692
00:59:55.200 --> 00:59:58.640
being with the same is probably good. If you're a spend thrift and you end up with another

693
00:59:58.640 --> 01:00:04.240
spend thrift, they really care for the bunch of finances. Yeah, I don't think my partner's

694
01:00:04.240 --> 01:00:08.160
a spend thrift. I think she's in the middle like you. Yeah, doesn't really care. Yeah, which is

695
01:00:08.160 --> 01:00:15.040
useful. We do have one more card in the mistakes, which is under ensuring catastrophic risks.

696
01:00:15.040 --> 01:00:21.280
And I think that's one, particularly for people who are not currently financial independent,

697
01:00:21.840 --> 01:00:30.080
it's really, really important. If your household income relies on your income to maintain

698
01:00:30.080 --> 01:00:33.760
the lifestyle, the household, it's really important to have sufficient life insurance.

699
01:00:34.320 --> 01:00:39.280
Where if you die, your human capital, your ability to earn income in the future is replaced

700
01:00:39.280 --> 01:00:44.000
by the insurance and also disability insurance. Where if you lose your ability to work,

701
01:00:44.000 --> 01:00:47.440
you have insurance to replace that income. Do many people think about this?

702
01:00:48.080 --> 01:00:52.720
Probably not enough. And it's cheap. Well, disability insurance is not always cheap.

703
01:00:52.720 --> 01:00:57.040
Life insurance is generally pretty cheap. If you're buying low-cost term life insurance,

704
01:00:57.040 --> 01:01:02.480
which is what most people need. You made a video called the most controversial paper in finance.

705
01:01:02.480 --> 01:01:07.920
Yeah. What paper was that? That was a paper. We didn't have it out here, but that was a paper

706
01:01:07.920 --> 01:01:13.280
on life cycle asset allocation. What does that mean? So it's answering the question of

707
01:01:14.000 --> 01:01:18.320
how should your mix of stocks and bonds change throughout your lifestyle?

708
01:01:19.120 --> 01:01:24.720
Conventional wisdom says that you should start out riskier in stocks and then move towards safer

709
01:01:24.720 --> 01:01:31.600
bonds as you get older. This paper took a huge amount of data. They had data from 39 countries

710
01:01:31.600 --> 01:01:38.400
going back as far as 1890, I believe. They sampled from that large set of data to simulate

711
01:01:38.400 --> 01:01:41.920
a million potential sort of hypothetical lifetimes that you could live through.

712
01:01:43.040 --> 01:01:47.840
And then they asked the question of in this simulated data, which asset allocation

713
01:01:47.840 --> 01:01:53.920
gives the best outcomes? And they tested target date funds, which increased the weight in bonds

714
01:01:53.920 --> 01:01:57.680
over time. And those are a lot of people who have those through their retirement accounts.

715
01:01:58.400 --> 01:02:01.760
So it's just one fund and it starts out when you're younger with more equities and then

716
01:02:01.760 --> 01:02:07.200
transitions to bonds over time. That's a target date fund. They tested, I believe, a 60, 40,

717
01:02:07.200 --> 01:02:12.320
60% stock 40% bond asset allocation. There might have been some other stuff in there too. They might

718
01:02:12.320 --> 01:02:18.880
have tested only domestic stocks. And what they find in this paper is that the optimal portfolio

719
01:02:18.880 --> 01:02:26.720
from the perspective of retirement consumption utility and bequest utility. What does that mean?

720
01:02:26.720 --> 01:02:31.920
It's like the satisfaction you get from retirement spending measured in a formula

721
01:02:32.480 --> 01:02:36.400
so that it can be studied. And then likewise for the amount of money that you have left over at

722
01:02:36.400 --> 01:02:40.560
death, they measure the probability of running out of money as well as a whole bunch of different

723
01:02:40.560 --> 01:02:48.240
metrics they look at. And they find that a 100% equity portfolio with a big chunk of international

724
01:02:48.240 --> 01:02:55.280
stocks is optimal. One third domestic, two thirds international stocks.

725
01:02:55.280 --> 01:02:59.440
When you say domestic, what does that mean? That's a great question. So the way they set up

726
01:02:59.440 --> 01:03:04.880
domestic in the paper is that it can be any country. So the way they do the simulations is that

727
01:03:04.880 --> 01:03:10.560
for each draw, so they're drawing, it's on average 10 years of returns, or say we're in the US,

728
01:03:11.200 --> 01:03:16.800
they'll draw the US returns measured in US dollars for a 10 year block. That's the domestic

729
01:03:16.800 --> 01:03:22.960
return. And then the international block is going to be 10 years on average of all the other

730
01:03:22.960 --> 01:03:28.000
countries samples returns measured in US dollars. So I've got the domestic return, the international

731
01:03:28.000 --> 01:03:35.680
return. The next block might be 10 years from Italy measured in whatever the Italian currency was

732
01:03:35.680 --> 01:03:39.920
at the time. And then the international portion is going to be all the other countries excluding

733
01:03:39.920 --> 01:03:44.880
Italy measured in Italian currency. And so they're weaving together all these blocks that's

734
01:03:44.880 --> 01:03:51.040
called bootstrap simulation. So domestic to answer your question is whatever country you live in.

735
01:03:51.120 --> 01:03:55.440
So the outcome of the conclusion from this should be that you should invest, I mean if we're

736
01:03:55.440 --> 01:04:00.960
following this and if it was 100% accurate, what 60% in whatever country you live in, in the

737
01:04:00.960 --> 01:04:06.560
stocks of whatever country you live in, 30%. So yeah, one third domestic, two thirds international.

738
01:04:06.560 --> 01:04:13.920
Okay, so if I'm in the United States, so I get 30% of my capital and invest it in the American

739
01:04:13.920 --> 01:04:22.000
companies. Yeah. And then 60% in international stocks. Yeah, well, yeah, 67%. Yeah. So one

740
01:04:22.000 --> 01:04:28.320
important finding in the paper and I talk about this in the video is that the curve for how optimal

741
01:04:28.320 --> 01:04:34.400
the domestic amount is is pretty flat if I remember correctly between sort of 10% and 50%. So

742
01:04:34.400 --> 01:04:39.520
they do say in the paper that for a US investor, you don't necessarily have to be a third domestic.

743
01:04:39.520 --> 01:04:44.080
Even if you're 50 or even if you're just market cap weighted, which is currently around 60 or 65

744
01:04:44.080 --> 01:04:49.040
percent, that's probably fine. But for a Canadian investor or someone who's in a country other than

745
01:04:49.040 --> 01:04:53.680
the US, one third in your domestic country ends up being a pretty big home country bias.

746
01:04:54.240 --> 01:04:57.840
In these simulations, are they saying that you need to invest in international stocks because

747
01:04:57.840 --> 01:05:02.560
sometimes in the simulations, your domestic country, your home country has problems?

748
01:05:03.360 --> 01:05:07.200
Yeah, high inflation tends to be bad for retirement consumption,

749
01:05:07.360 --> 01:05:12.080
you're spending a lot more and for domestic stock returns and international stocks protect

750
01:05:12.080 --> 01:05:16.800
against that. So it divisifies you a little bit. Yeah, once exactly what it's a diversification.

751
01:05:16.800 --> 01:05:22.480
And that paper was controversial. I mean, we had the co-author on our podcast twice to talk

752
01:05:22.480 --> 01:05:28.640
about it, but it was met with a lot of controversy from everybody, from a lot of professionals,

753
01:05:28.640 --> 01:05:35.520
from other academics. Why? It's an extreme finding. The conventional wisdom that you should be

754
01:05:35.520 --> 01:05:40.720
allocating more toward bonds throughout the life cycle is so ingrained in everyone's thinking

755
01:05:40.720 --> 01:05:46.000
that a finding like this that shows that that's basically wrong, of course, is going to be met with

756
01:05:46.720 --> 01:05:50.800
controversy. But at the very least, I think it's an interesting paper. It's telling us that stocks

757
01:05:50.800 --> 01:05:55.760
are a little bit safer for long-term investors than we probably thought. And bonds, which are

758
01:05:55.760 --> 01:05:59.680
typically considered safe, are actually a little bit riskier than we may have thought for long-term

759
01:05:59.680 --> 01:06:05.280
investors. The reason being that during periods of high inflation, bonds get absolutely decimated.

760
01:06:05.280 --> 01:06:10.720
What's a bond? A bond is a debt instrument. So you're effectively lending money to a government,

761
01:06:10.720 --> 01:06:14.880
and you're receiving interest payments over time, and then your principal back at the end.

762
01:06:15.680 --> 01:06:19.760
What is the most important thing we haven't talked about that your audience come to you to

763
01:06:19.760 --> 01:06:25.360
understand? Well, a lot of the things I talk about are financial products that you should not

764
01:06:25.360 --> 01:06:30.160
invest in. Okay, tell me some of those. Which I always think is fun. A big one that I spent quite

765
01:06:30.160 --> 01:06:35.440
a bit of time on the last year, I did three videos on it, was on covered calls. What's that?

766
01:06:35.440 --> 01:06:40.560
So that's where you own a stock, and then you sell a call option, which is the option to buy

767
01:06:40.560 --> 01:06:46.080
the stock. You're selling that option to somebody else, which gives you an option premium.

768
01:06:46.080 --> 01:06:50.320
And so you get some income from having sold the call option. But it also means that if a stock

769
01:06:50.320 --> 01:06:55.680
that you own appreciates sufficiently, you are required to sell it to the person who bought the

770
01:06:55.680 --> 01:07:02.960
call option from you at a pre-set price. So the stocks, whatever, $40, and you sold a call at

771
01:07:02.960 --> 01:07:07.520
$50, and the stock goes to $60, you have to sell it at $50. So you're giving off a big chunk of

772
01:07:07.520 --> 01:07:11.920
your upside. And this plays on one of the big biases that investors have, which is a preference

773
01:07:11.920 --> 01:07:16.560
for income. It's the mental accounting bias where investors separate capital and income.

774
01:07:17.360 --> 01:07:23.280
And so there's a huge proliferation now of covered call products, where they do that best

775
01:07:23.280 --> 01:07:28.560
tragedy that I just described inside of an ETF, and they charge usually a higher fee.

776
01:07:29.120 --> 01:07:33.120
And these are being marketed really heavily to investors on the premise that you're going to get

777
01:07:33.120 --> 01:07:35.920
appreciation, capital appreciation, and you're also going to get income.

778
01:07:36.880 --> 01:07:41.280
But I think my view on this and what I tried to explain in those videos is that you're giving up

779
01:07:41.920 --> 01:07:46.640
so much upside that I don't think most investors realize that they're giving up that the implied

780
01:07:46.640 --> 01:07:50.720
cost of these products is enormous. On that point of fees, I've got this graph here, which I think

781
01:07:50.720 --> 01:07:56.240
is pretty pertinent to what you're saying. Because when we start investing in ETFs and various

782
01:07:56.240 --> 01:08:02.240
index funds, we often don't think about fees. It'll say, oh, 0.5%. You think, okay, whatever,

783
01:08:02.240 --> 01:08:08.000
0.5% is fine. One percent fine. Small numbers. But when you look at that graph, you see how that

784
01:08:08.000 --> 01:08:13.840
can impact your outcome over time. Yeah. Fees compound. Any rate of return to compounds over

785
01:08:13.840 --> 01:08:19.200
long periods of time can be very impactful in dollar terms. And some people choose to keep

786
01:08:19.200 --> 01:08:25.840
their money in cash. Because most of us are never educated on this subject of inflation.

787
01:08:25.840 --> 01:08:30.640
And what inflation means. So some of us, you know, we might keep $10,000 under the bed.

788
01:08:30.640 --> 01:08:37.840
What do you say to those people? Yeah. So inflation is everywhere. It's been around for throughout

789
01:08:37.840 --> 01:08:42.720
history. And it's probably not going to go away. We have central bank policies in most developed

790
01:08:42.720 --> 01:08:48.080
countries that actually target a low but stable rate of inflation. And there are reasons for that.

791
01:08:48.080 --> 01:08:51.920
But what it means is that if you have money sitting under your mattress, it's purchasing power

792
01:08:51.920 --> 01:08:58.160
will decrease over time. And that can be very damaging to your wealth. You can maybe keep pace

793
01:08:58.160 --> 01:09:02.240
with inflation using short-term government debt instruments, which are going to pay you a little

794
01:09:02.240 --> 01:09:08.160
bit of an interest rate. But again, periods of high inflation can cause even that to decline

795
01:09:08.160 --> 01:09:13.200
in real value. So one of the best ways to fight inflation for a long-term investors, something we've

796
01:09:13.200 --> 01:09:18.880
been talking about, is just investing in low-cost index funds to avoid the fee issue and participate

797
01:09:18.880 --> 01:09:23.840
in the stock market, which throughout history has far outpaced inflation. One of the smartest things

798
01:09:23.840 --> 01:09:30.000
a business can do is build like a bigger company without actually hiring like one. But the problem

799
01:09:30.000 --> 01:09:34.400
we all face is that most companies don't have every skill in house. So when I look at the businesses

800
01:09:34.400 --> 01:09:39.440
seeing real success today, the consistent pattern with all of them is how quickly they move. They

801
01:09:39.440 --> 01:09:43.840
bring in specialists with skills and emerging areas to keep themselves ahead. Even in our company,

802
01:09:43.840 --> 01:09:49.200
we've spent the last year pulling in talent across areas like AI native strategy, no code builds

803
01:09:49.200 --> 01:09:54.400
and product workflows. And we find this talent for a long-term partner, 5.0 Pro. Their premium service

804
01:09:54.400 --> 01:10:00.000
only shows you vetted talent, so you've always got the safeguard that anyone you pull in to help you

805
01:10:00.000 --> 01:10:05.360
with a complex project has the skills that you're after and will deliver to the same high standards

806
01:10:05.440 --> 01:10:09.440
your internal team. And, most importantly, they'll keep up with the pace. It's a simple strategy,

807
01:10:09.440 --> 01:10:13.440
but it lets us stay agile without compromising on quality. So if you need these kind of skills in

808
01:10:13.440 --> 01:10:18.560
your business, head to pro.fiver.com to find a pioneering talent to fill your businesses gaps.

809
01:10:18.560 --> 01:10:24.000
That's pro.fiver.com. This is something that I've made for you. I've realised that the

810
01:10:24.000 --> 01:10:28.560
drivers here audience are strivers, whether it's in business or health, we all have big goals

811
01:10:28.560 --> 01:10:33.360
that we want to accomplish. And one of the things I've learnt is that when you aim at the big,

812
01:10:33.360 --> 01:10:38.960
big, big goal, it can feel incredibly psychologically uncomfortable because it's kind of like

813
01:10:38.960 --> 01:10:43.600
being stood at the foot of Mount Everest and looking upwards. The way to accomplish your goals

814
01:10:43.600 --> 01:10:49.200
is by breaking them down into tiny small steps and we call this an R team the 1%. And actually,

815
01:10:49.200 --> 01:10:55.040
this philosophy is highly responsible for much of our success here. So what we've done so that you

816
01:10:55.040 --> 01:11:00.960
at home can accomplish any big goal that you have is we've made these 1% diaries and we've released

817
01:11:01.200 --> 01:11:05.920
these last year and they all sold out. So I asked my team over and over again to bring the diaries back

818
01:11:05.920 --> 01:11:10.960
but also to introduce some new colours and to make some minor tweaks to the diaries. So now we have

819
01:11:10.960 --> 01:11:17.600
a better range for you. So if you have a big goal in mind and you need a framework and a process

820
01:11:17.600 --> 01:11:22.800
and some motivation, then I highly recommend you get one of these diaries before they all sell out

821
01:11:22.800 --> 01:11:27.840
once again. And you can get yours at the diary.com. And if you want the link, the link is in the

822
01:11:27.840 --> 01:11:33.600
description below. Is this broadly accurate? This graph here shows the impact of inflation on

823
01:11:33.600 --> 01:11:40.640
cash kept under the mattress over 30 over 20 years and you start with $10,000 in terms of purchasing

824
01:11:40.640 --> 01:11:46.560
power. And 20 years later, if that cash is under the mattress, you have $5,336. It doesn't show me

825
01:11:46.560 --> 01:11:54.400
the inflation rate. Oh, that's that 3% inflation. You're losing half of your money effectively and the

826
01:11:54.400 --> 01:11:59.920
source here is Saint James Place. So a lot of people here are just holding on to cash. Don't

827
01:11:59.920 --> 01:12:03.920
really realise that there were 20 a period assuming a 3% inflation rate that's offing their money.

828
01:12:03.920 --> 01:12:07.360
It ties back to, I don't remember which number it was, but it ties back to one of those biggest

829
01:12:07.360 --> 01:12:13.040
mistakes in personal finance we talked about, which is not investing, not taking the right

830
01:12:13.040 --> 01:12:19.040
kinds of risk with your investments and just holding cash. Holding cash is in its own way,

831
01:12:19.120 --> 01:12:25.120
taking a type of risk. You don't have an expected return when you hold cash. You in real terms

832
01:12:25.120 --> 01:12:29.360
have a negative expected return. Do you think we should all be thinking about retirement kind of?

833
01:12:30.880 --> 01:12:36.000
I think it ties into the permah thinking and designing the life that you want to live. But at some

834
01:12:36.000 --> 01:12:41.440
point, I mean, at some point we can't work anymore. It's rare for somebody to be able to work

835
01:12:41.440 --> 01:12:48.240
into their, I don't know, 80s. I think that it's sensible to plan for that. But beyond that,

836
01:12:48.240 --> 01:12:53.040
a lot of people don't want to have to work forever. People might choose to work forever,

837
01:12:53.040 --> 01:12:57.360
but they might choose to do lower paying work. But the idea that you will be forced to work

838
01:12:57.360 --> 01:13:01.120
forever, I don't think, is very attractive to anyone. So from that perspective, building financial

839
01:13:01.120 --> 01:13:04.800
independence by saving and planning for retirement, yeah, I think it's important for everyone to

840
01:13:04.800 --> 01:13:10.560
think about. Is the social contract of retirement changing based on how the economy is changing?

841
01:13:10.560 --> 01:13:13.680
Because I hear a lot of people saying you're not going to be able to retire and get a pension

842
01:13:13.680 --> 01:13:17.280
because there's not enough money or you're going to have to work later than ever before.

843
01:13:18.400 --> 01:13:20.960
I think the honest has been put back on individuals.

844
01:13:22.240 --> 01:13:29.200
Pensions used to be much more common from companies and governments. So retirements change

845
01:13:29.200 --> 01:13:33.280
from that perspective for sure. But I don't know if we can say we're in a crisis. I think people

846
01:13:33.280 --> 01:13:37.200
have more personal responsibility now than they've had in the past. But they also have better

847
01:13:37.200 --> 01:13:41.440
tools than it has historically been available. 30 years ago, we were just starting to get

848
01:13:42.000 --> 01:13:45.680
low-cost index funds proliferating and being readily available to everybody. Prior to that,

849
01:13:45.680 --> 01:13:50.800
you were paying 2% or more to invest in a mutual fund. So the tools people have available

850
01:13:50.800 --> 01:13:57.840
than are better today than they've been in the past. But there's also a lot more responsibility

851
01:13:57.840 --> 01:14:02.000
that people have to take for their own personal finances. You're naming the things that people

852
01:14:02.000 --> 01:14:09.360
shouldn't invest in. The first is that cool thing. Yeah, covered calls. Covered calls. What else?

853
01:14:09.360 --> 01:14:15.920
Another one that I think is really problematic is thematic ETFs. And so that's like an AI ETF

854
01:14:15.920 --> 01:14:22.560
or, I don't know, a space or energy like any specific ETF that's targeting a specific theme.

855
01:14:22.560 --> 01:14:28.560
Why? What tends to happen with thematic ETFs is that something becomes really hot. So maybe it's

856
01:14:28.560 --> 01:14:33.360
AI, maybe it's cannabis. Electric vehicles was another one. Sustainable energy. Yeah, that's

857
01:14:33.360 --> 01:14:39.040
another good one. Clean energy. And so what happens is asset prices in that theme go up because there's

858
01:14:39.040 --> 01:14:44.400
a lot of interest in it. Everybody wants to invest in that space. Asset prices go up. An index

859
01:14:44.400 --> 01:14:51.360
provider creates an index for that hot theme. And then an ETF gets launched. But it gets launched

860
01:14:51.360 --> 01:14:57.200
when the asset prices are up here. And what tends to happen is the asset prices come down.

861
01:14:58.160 --> 01:15:03.200
Then the returns on thematic funds tend to be very poor. Okay. Yeah, I think I was guilty of that.

862
01:15:03.200 --> 01:15:07.200
My area career was like, oh my god, sustainable energy ETF. I'd be even sustainable energy.

863
01:15:07.280 --> 01:15:12.480
I should invest in that. But you're right. They created that when it was hot. So you should have

864
01:15:12.480 --> 01:15:19.200
invested, I guess you're saying just invest in the FTSE 100, the S&P 500 instead. All technology,

865
01:15:19.200 --> 01:15:24.480
which is a broader basket. Technology is tough. Technology has performed so incredibly well.

866
01:15:25.200 --> 01:15:30.800
But it is still one sector. Okay. I have trouble saying you should invest in tech. If you had invested

867
01:15:30.800 --> 01:15:36.000
in tech for the last 20 years, well done. Should you choose to invest only in tech or have a big

868
01:15:36.000 --> 01:15:40.800
concentration in tech today? I think that's a lot less obvious. One would say, well, look at all

869
01:15:40.800 --> 01:15:45.360
this AMI stuff. How do I invest in all the AMI stuff? A lot of us private right now, although a

870
01:15:45.360 --> 01:15:50.080
lot of the public companies do own chunks of some of these private companies. We'll see how that plays

871
01:15:50.080 --> 01:15:54.960
out. But that's another one that's been tough recently, where a lot of investors are interested

872
01:15:54.960 --> 01:15:59.680
investing in investing in some of these private companies, a lot of them AI related, but SpaceX

873
01:15:59.680 --> 01:16:03.680
is another one. It's really hard for retail investors to get access to those types of things.

874
01:16:04.240 --> 01:16:09.200
But there are companies who are creating products that say that they can give you access to

875
01:16:09.200 --> 01:16:15.520
these things. They're charging high fees. It's not obvious that they've been able to buy

876
01:16:15.520 --> 01:16:18.480
the underlying securities that they're saying they have access to at good prices.

877
01:16:19.440 --> 01:16:26.400
But it's just another example of financial companies praying on the desires and biases of

878
01:16:26.400 --> 01:16:32.720
investors. Financial firms are very good at seeing what investors want. Even if that thing is not

879
01:16:32.720 --> 01:16:36.160
good for them, and then creating a product to fulfill that desire.

880
01:16:38.160 --> 01:16:44.960
If someone listening now is, let's say they're 50 years old, and they've got $20,000

881
01:16:46.160 --> 01:16:52.480
in savings in cash, and you have to be decisive. You don't know the nuance and the detail of

882
01:16:52.480 --> 01:16:56.560
their life. You don't know their permafram work necessarily, but your job was just to make

883
01:16:56.560 --> 01:17:01.840
the money in the next 10 years. How do you think you'd allocate that? Let's say $10,000. It's easier.

884
01:17:01.840 --> 01:17:05.520
$10,000 in cash. How would you allocate it? That's a tough question.

885
01:17:05.520 --> 01:17:08.640
I don't know if it's answerable, especially over 10 years is tough.

886
01:17:09.360 --> 01:17:10.720
What about 20 years?

887
01:17:12.560 --> 01:17:18.480
If they have a long time horizon, so I can tell you personally, I like to invest in stocks.

888
01:17:19.360 --> 01:17:23.760
I have a globally diversified stock portfolio with a Canadian home country bias,

889
01:17:23.760 --> 01:17:29.680
kind of like what that paper, the controversial paper, found. We were doing that prior to that

890
01:17:29.680 --> 01:17:35.040
paper coming out, but I think that general concept of a globally diversified portfolio,

891
01:17:35.040 --> 01:17:40.720
maybe with some home country bias, makes a lot of sense for most people, including for retirees.

892
01:17:40.720 --> 01:17:45.840
But there are so many like, what's risk tolerance? If he's going to panic when the market goes down

893
01:17:45.840 --> 01:17:49.680
and sell everything, then it wasn't a very good idea, and he's not going to get the outcome,

894
01:17:49.680 --> 01:17:52.080
but the good long-term outcome they may have otherwise gotten.

895
01:17:52.080 --> 01:17:57.680
And would you go all in on stocks all at once? Yeah, like dollar-crossed averaging versus

896
01:17:57.680 --> 01:18:02.800
love sum? Yeah, like how would you invest, would you go 100% in stocks, or would you even diversify

897
01:18:02.800 --> 01:18:09.120
there? Yeah, that's what I'm saying. I think 100% stocks is personally, I've got a portfolio

898
01:18:09.120 --> 01:18:13.680
that I'm very comfortable with, and I'm not old enough to be thinking about retirement,

899
01:18:13.680 --> 01:18:18.480
but it's a portfolio that I don't expect to change throughout my personal life cycle.

900
01:18:18.480 --> 01:18:23.920
Is that how you allocate your personal finances now? You only have a home, but otherwise the money

901
01:18:24.080 --> 01:18:28.560
you do invest is in the stock market. Yeah, so I've got my home, I have my stock market investments,

902
01:18:28.560 --> 01:18:31.760
and I do have a pretty significant chunk of equity in the company that I work for.

903
01:18:34.640 --> 01:18:39.280
No crypto. No crypto. I never touched it. Never touched it. That's not true.

904
01:18:40.400 --> 01:18:45.760
When I was researching Ethereum and Bitcoin, remember when that was a few years ago,

905
01:18:45.760 --> 01:18:50.880
I bought a thousand dollars of each just so I could feel like I was participating while I was learning

906
01:18:50.880 --> 01:18:54.880
about it. What do you think of Bitcoin and Ethereum and other cryptocurrencies?

907
01:18:56.160 --> 01:19:03.040
I think that they solved a really interesting problem. The premise of digital cash is something

908
01:19:03.040 --> 01:19:09.040
that the CypherPunk community, the kind of libertarian community of privacy-focused

909
01:19:09.040 --> 01:19:14.400
computer nerds, where they are trying to solve this problem for many, many years of digital cash.

910
01:19:14.400 --> 01:19:19.280
How do you create digital cash that doesn't require a trust and third party to media transactions?

911
01:19:19.360 --> 01:19:25.840
They solved that. Satoshi Nakamoto solved that. That was cool. I used a bunch of different

912
01:19:25.840 --> 01:19:31.600
pieces. You can see in the paper how he used Adam's back ideas that he had created to stop email

913
01:19:31.600 --> 01:19:35.280
spam. It's how it all came together. It's unbelievable. Fascinating story. The technology was

914
01:19:35.280 --> 01:19:43.920
really interesting. I think it has become an ideological vehicle, where people who believe that the

915
01:19:43.920 --> 01:19:49.360
world should be a certain way or believe that governments' role in money should be a certain way.

916
01:19:50.000 --> 01:19:54.400
They can invest in Bitcoin and feel really good about it. It's got that component to it,

917
01:19:54.400 --> 01:19:58.640
and then the other component that it has to it is that it's a speculative asset.

918
01:19:59.280 --> 01:20:01.760
People buy Bitcoin because they think it's going to go up.

919
01:20:03.840 --> 01:20:06.080
So it's not to get investment. Is that what you're saying?

920
01:20:06.080 --> 01:20:12.560
I personally wouldn't. We don't allocate a to it for our clients at PWL. We manage

921
01:20:13.360 --> 01:20:18.560
quite a bit of money for quite a lot of people, and we've decided not to touch it, and I personally

922
01:20:18.560 --> 01:20:23.920
don't touch it. I had a phone call actually from a friend of mine. She's very well known in the UK.

923
01:20:26.240 --> 01:20:29.680
There's lots of wars going on everywhere, and there's the straight-of-home news is closed,

924
01:20:29.680 --> 01:20:34.080
and there's Russia, Ukraine. There's all of this stuff going on. She was asking me for financial

925
01:20:34.080 --> 01:20:37.120
advice on what she should do in such a moment. I don't know why she's calling me.

926
01:20:37.600 --> 01:20:42.080
I just thought I'd ask you when you come here. But it's interesting, because my team found

927
01:20:42.080 --> 01:20:48.000
this article from 1847, which was in a magazine, and it almost sounds like today.

928
01:20:48.960 --> 01:20:53.760
The article says this, things are bad all over. It is a gloomy moment in history.

929
01:20:53.760 --> 01:20:59.360
Not in the lifetime of any man who reads this paper has there ever been so much grave and deep

930
01:20:59.360 --> 01:21:05.440
apprehension. Never has the future seemed so dark and inculcable. In France, the political

931
01:21:05.440 --> 01:21:10.880
cauldron seeds and bubbles within certainty. England and the English Empire is being

932
01:21:10.880 --> 01:21:17.360
sorely tried and exhausted in a social and economic struggle. The United States is behest,

933
01:21:17.360 --> 01:21:23.360
with racial, industrial and commercial chaos drifting we know not to wear. Russia hangs like

934
01:21:23.360 --> 01:21:29.440
a storm cloud on the horizon of Europe, dark and silent. It is a solemn moment, and no man can

935
01:21:29.440 --> 01:21:36.240
feel indifference. Of our own troubles, no man can see the end. An apt description of things,

936
01:21:36.240 --> 01:21:42.320
very apt. And that was on October the 10th, 1847, in a magazine. It very much sounds like today.

937
01:21:42.320 --> 01:21:48.080
It could be today, yeah. So as we zoom out on the cycles, the big sort of economic cycles,

938
01:21:48.080 --> 01:21:51.760
the geopolitical cycles, my friend that called me and said, listen, there's lots of stuff going

939
01:21:51.760 --> 01:21:54.560
on in the world. Should I be thinking about my money differently, my investing strategy,

940
01:21:54.560 --> 01:21:57.040
what the hell is going on? What would you say to those people?

941
01:21:58.240 --> 01:22:06.320
Yeah, well, as the clip that you read suggests or tells us, the world has been through a lot of

942
01:22:06.320 --> 01:22:11.200
crazy stuff, a lot of crazy times, a lot of wars, a lot of turmoil, a lot of political upheavals.

943
01:22:12.480 --> 01:22:18.160
And we've come out okay in general. There's been pain and suffering and not everybody's had

944
01:22:18.160 --> 01:22:23.440
good outcomes, but generally speaking, here we are. And if we think about that from the perspective

945
01:22:23.440 --> 01:22:29.280
of financial markets, stock returns have been positive, despite all the craziness going on

946
01:22:29.280 --> 01:22:34.240
the world. There's lots of interesting charts that overlay news headlines about all the madness

947
01:22:34.240 --> 01:22:38.400
going on the world on top of the stock chart that's just going up. Doesn't mean the stocks are

948
01:22:38.400 --> 01:22:44.000
always going to be up. They will go down when things get crazy. Like when this war started,

949
01:22:44.000 --> 01:22:48.480
stock returns did get a little bit negative for a while since come back. But there will be

950
01:22:48.480 --> 01:22:53.600
volatility in financial markets, volatility up and down day to day. But in the long run,

951
01:22:53.600 --> 01:23:01.840
stock returns, they should continue to be expected to be positive. So for your friend, I don't

952
01:23:01.840 --> 01:23:07.920
know how the assets are set up, but someone who's globally diversified, exposed to the stock market,

953
01:23:07.920 --> 01:23:11.680
they don't have to make changes to their portfolios when the world's getting crazy.

954
01:23:11.680 --> 01:23:15.840
I remember what she said to me. She said that she was going to remogage her house

955
01:23:16.720 --> 01:23:20.960
because I think she'd paid it down and she was wondering what to do with that money.

956
01:23:21.920 --> 01:23:25.520
She was saying, do I just go buy another house or do I invest it in the stock market?

957
01:23:26.480 --> 01:23:31.040
Now, my bias is the stock market, but I don't know what would you say to someone in that situation?

958
01:23:31.040 --> 01:23:35.440
I want to know why she's mortgaging her house, but given there's a good reason for that,

959
01:23:35.440 --> 01:23:38.800
I would probably go in the stock market and add into real estate.

960
01:23:38.800 --> 01:23:40.560
Do you think people shouldn't remogage the houses?

961
01:23:41.040 --> 01:23:46.640
This is a tough question. Leverage, kind of like how exposure to the stock market is good,

962
01:23:46.640 --> 01:23:51.120
borrowing money to invest in positive expected return assets like the stock market

963
01:23:51.760 --> 01:23:57.040
is actually kind of a good thing on paper. Boring money generally improves long-term expected

964
01:23:57.040 --> 01:24:04.400
outcomes, but it's stressful. You can't have bad outcomes where you lose all of your money,

965
01:24:04.400 --> 01:24:09.280
so should people borrow money to invest, should people mortgage their house to invest,

966
01:24:09.280 --> 01:24:13.120
that's a very personal question. It's kind of like the stock bond question. Should you invest in

967
01:24:13.120 --> 01:24:18.480
stocks or bonds? Should you invest in stocks with leverage or not? It really depends on your goals

968
01:24:18.480 --> 01:24:23.200
and your situation. But generally speaking, if we just look at what are the data say about

969
01:24:23.200 --> 01:24:29.840
borrowing money to invest, it's not a terrible idea. One of the things we haven't talked about is AI.

970
01:24:30.800 --> 01:24:34.880
Does AI change any of this equation? A lot of people are worried at the moment about losing their

971
01:24:34.880 --> 01:24:39.280
job's anthropic release to report who are one of the big AI companies saying that entry-level

972
01:24:39.280 --> 01:24:43.360
people in particular are going to have a hard time. And I think they said they're already saying

973
01:24:43.360 --> 01:24:49.440
13% of entry-level jobs being disrupted because of these new AI and AI agents.

974
01:24:51.200 --> 01:24:56.480
To be clear, not a labor economist is not my area of expertise. I do think, though, that we look

975
01:24:56.480 --> 01:25:02.000
back through history. I like looking at history. There have been lots of technological

976
01:25:02.000 --> 01:25:11.440
revolutions that have been major upheavals to the entire economy. Yes. ATMs are one of those

977
01:25:11.440 --> 01:25:18.240
fascinating examples. People thought that ATMs were going to wipe out bank tellers because ATMs

978
01:25:18.240 --> 01:25:22.160
could do everything that bank tellers do, but it was automated and you didn't have to pay a person

979
01:25:22.160 --> 01:25:29.200
to do it. So there was a lot of concern. And what ended up happening was very counterintuitive.

980
01:25:30.000 --> 01:25:36.000
It's that the cost of operating a bank branch decreased because you needed fewer people

981
01:25:36.000 --> 01:25:40.800
to do all the bank teller stuff because you had the ATMs. And banks opened more branches

982
01:25:41.440 --> 01:25:47.040
because it cost less and their customers liked that. And the end result was that there were actually

983
01:25:47.040 --> 01:25:53.520
more bank teller jobs at the end of the day. The cost of providing the service decreased which

984
01:25:53.520 --> 01:25:59.440
caused it to proliferate more, provide that service to more people. And it expanded the market

985
01:25:59.440 --> 01:26:05.280
instead of shrinking it. Similar story with Kevin's paradox. And it's the same concept.

986
01:26:05.840 --> 01:26:12.000
What's that story? Where coal became cheaper at a time when they used coal to ship freight on

987
01:26:12.000 --> 01:26:16.800
trains. And the coal engine got more efficient with coal, coal industry, panics,

988
01:26:17.600 --> 01:26:22.880
whiskered. But then what it meant is people used trains not just for shipping freight but also for

989
01:26:22.880 --> 01:26:27.040
other things like travel. And people started traveling on trains because it got cheaper. So the

990
01:26:27.040 --> 01:26:32.640
coal industry actually boomed in the end. I have thought a lot about this Kevin's paradox idea.

991
01:26:32.640 --> 01:26:37.840
And I think it's going to be true for artificial intelligence for sure. There will be lots of other

992
01:26:37.840 --> 01:26:41.600
jobs created and actually companies like mine. If we save money, we invest it in something else,

993
01:26:42.240 --> 01:26:46.640
which then would probably create jobs, whatever that is. The part that I sometimes struggle

994
01:26:46.640 --> 01:26:53.680
with is the speed of adoption in AI. And then also when you factor in robotics, like my

995
01:26:53.680 --> 01:26:59.280
car in LA drives itself. And I think one of the biggest employers on earth is driving in all its

996
01:26:59.280 --> 01:27:03.280
forms. But then if you look at warehousing and supply chains, a lot of those are ran by people all

997
01:27:03.280 --> 01:27:06.480
over the world. And there was a video that I played the other day we can throw up on the screen

998
01:27:06.480 --> 01:27:11.520
which shows that in factories, in certain parts of the world now, they're having their labor force

999
01:27:11.520 --> 01:27:16.080
where cameras on their head showing what they're doing with their hands because their robots

1000
01:27:16.080 --> 01:27:21.920
are ultimately going to replace that labor force. And I just, I haven't, I guess this is maybe

1001
01:27:21.920 --> 01:27:26.000
something that happens in history. I haven't been able to think about where those people go and what

1002
01:27:26.000 --> 01:27:31.840
they then can go on to do, especially if it happens in short order. Yeah, so I've heard you,

1003
01:27:31.840 --> 01:27:36.320
I've heard you ponder this in your other episodes and I agree that the speed of this is likely to

1004
01:27:36.320 --> 01:27:41.360
be different. As you've said, we're talking about the internet so you can deploy these things

1005
01:27:41.360 --> 01:27:45.920
at the snap of a finger. And that is different. But where do those people go? This is one of the

1006
01:27:45.920 --> 01:27:51.520
interesting things. I don't know. We don't know. On three history, we didn't know. Exactly. Through

1007
01:27:51.520 --> 01:27:55.520
history, it's been the same sentiment where people worry about where are these people going to go?

1008
01:27:55.520 --> 01:27:59.840
And they might be unemployed for a while and there might be hard times, but things have worked out.

1009
01:28:00.480 --> 01:28:04.800
And so two ways to think about it. One way is as an individual, what should you be doing?

1010
01:28:04.800 --> 01:28:09.280
We talked about earlier, having complimentary skills that make you very unique. I think it's

1011
01:28:09.280 --> 01:28:14.960
important. Personally, content, as you mentioned, has been a big part of that for me. Not everybody can

1012
01:28:14.960 --> 01:28:20.160
necessarily do that, but finding those things that you can do when combined better than anybody else

1013
01:28:20.160 --> 01:28:24.880
in the world. I think it's very valuable. And then the other perspective is as an investor,

1014
01:28:24.880 --> 01:28:30.880
how should we think about this? And then I would come back to again, we have seen many technological

1015
01:28:30.880 --> 01:28:36.000
revolutions that have changed the world. They've changed financial markets. They've changed our

1016
01:28:36.000 --> 01:28:39.840
culture. They've changed the way we interact with each other. The world has changed so many times

1017
01:28:39.840 --> 01:28:46.560
due to technology. And the same cycle has repeated itself. There has been unemployment. There has

1018
01:28:46.560 --> 01:28:53.600
been social unrest. There has been wealth inequality. But this happens every time. Are you expecting

1019
01:28:53.600 --> 01:28:58.240
the stock market to collapse? Because there's been a huge over investment in artificial intelligence.

1020
01:28:58.240 --> 01:29:04.560
And at some point, the investors that put their money into these sort of speculative AI startups

1021
01:29:04.560 --> 01:29:09.680
that raised tremendous amounts of capital at crazy valuations. At some point, through history,

1022
01:29:09.680 --> 01:29:13.840
doesn't the market always contract at some point? There's a great book by an economist named

1023
01:29:13.840 --> 01:29:20.160
Carlotta Perez. The book is technological revolutions and financial capital. And she documents

1024
01:29:20.160 --> 01:29:25.680
this exact cycle throughout history. And yes, that's part of it. Part of it is asset prices getting

1025
01:29:25.680 --> 01:29:30.880
really high and then coming back down. Now, am I worried about a catastrophic market collapse?

1026
01:29:31.840 --> 01:29:35.920
I think that's always a concern. I think that's part of the risk of investing in stocks. We never

1027
01:29:35.920 --> 01:29:40.160
know when it's going to happen or what the trigger is going to be. So it's not something that you can

1028
01:29:40.160 --> 01:29:44.800
do anything about. You need to have an asked allocation that you can stick with, even if that

1029
01:29:44.800 --> 01:29:50.880
outcome is going to materialize. And in that book, does it suggest that the writing is on the wolf

1030
01:29:50.880 --> 01:29:56.000
for the current economy and the way that we're heavily investing in AI and data centers? And

1031
01:29:56.480 --> 01:30:01.920
a couple of years ago, everyone was investing in crypto and Web 3 and NFTs and all this stuff.

1032
01:30:01.920 --> 01:30:05.760
And all of the money seems to have been sucked out of that industry. Really, honestly,

1033
01:30:05.760 --> 01:30:12.640
sucked out of almost every industry and into AI. And I remember when D-File was going to kill

1034
01:30:12.640 --> 01:30:17.520
banking and finance. And I was only a couple of years ago. In fact, a lot of the developers have

1035
01:30:17.520 --> 01:30:22.560
moved from my industry and to the AI industry. But I do think about this a lot. I've got a few

1036
01:30:22.560 --> 01:30:27.440
startup friends who are getting a little bit nervous. And I'm raising a lot of money now

1037
01:30:27.440 --> 01:30:30.960
because they think that in the next couple of years, maybe in the next 24 months, there's going to

1038
01:30:30.960 --> 01:30:36.080
be a big market contraction. When investors who invested in some startup idea that had a

1039
01:30:36.080 --> 01:30:40.560
hundred million dollar valuation realized that they're losing their money. And some domino

1040
01:30:40.560 --> 01:30:44.480
usually falls in the market. Some catalyst moment means that there's a contraction. Stop

1041
01:30:44.480 --> 01:30:50.000
markets go down. It gets really hard to raise money. Clients who you might be relying on now to pay

1042
01:30:50.000 --> 01:30:55.120
your advertising budget start to lower their budgets. And in such a scenario, you're going to

1043
01:30:55.120 --> 01:31:00.560
want to wish you prepared a little bit. Some people are. This is part of the cycle. The cost of

1044
01:31:00.560 --> 01:31:05.200
capital for bubble companies will call them. I don't love the term bubble. But for companies who are

1045
01:31:05.200 --> 01:31:10.720
in the industry that becomes the focus of a technological revolution. So now we're talking about

1046
01:31:10.720 --> 01:31:14.880
AI. The cost of capital gets really low, which means as a price to get really high. A lot of

1047
01:31:14.880 --> 01:31:20.400
people want to invest in that space. But those asset prices are not typically sustainable. And

1048
01:31:20.400 --> 01:31:25.600
they do tend to come down. Is that mean a total market collapse or catastrophe or panic for

1049
01:31:25.600 --> 01:31:31.120
diversified investors? No. Is the right to go in the wool? I don't think we can say that. If the

1050
01:31:31.120 --> 01:31:34.640
writing were on the wall, the way that I view financial markets is that if the writing were on the

1051
01:31:34.640 --> 01:31:40.240
wall, prices would reflect that today. If we thought market prices were going to drop in the

1052
01:31:40.240 --> 01:31:46.400
future, they would drop today. So it happens at a time when no one is expecting it. That's exactly

1053
01:31:46.400 --> 01:31:51.520
right. You mentioned writing is never on the wall. That's right. Some new piece of information,

1054
01:31:51.520 --> 01:31:56.480
something changes. And that's what causes prices to come down. My brother said something to me.

1055
01:31:56.480 --> 01:32:00.720
He's a very smart person. He worked in investing for the last 15 years. He said something to me

1056
01:32:00.720 --> 01:32:07.920
early in my career. He said, Stephen, when you go to invest in something, assume that the price

1057
01:32:08.000 --> 01:32:14.960
you're paying for that investment, so say I'm investing in Facebook stock at $10 is the total

1058
01:32:14.960 --> 01:32:19.920
accumulation of everything everybody on the planet knows about that company. And they've priced

1059
01:32:19.920 --> 01:32:25.120
in everything the world knows about that company today. And he was like, so even if you think it's

1060
01:32:25.120 --> 01:32:30.960
going to go up, that's also by the way priced into today's price. So you better know something

1061
01:32:30.960 --> 01:32:36.400
that no one else knows when you're thinking about buying an investment. I've totally budgeted

1062
01:32:36.560 --> 01:32:42.000
what he said. But he didn't. He is describing the concept of an efficient market. An

1063
01:32:42.000 --> 01:32:46.400
efficient market is a market where prices always, and this is a sort of a theoretical concept. It's

1064
01:32:46.400 --> 01:32:51.520
not actually true. But in theory, an efficient market, a perfectly efficient market is a market

1065
01:32:51.520 --> 01:32:56.400
where prices always fully reflect all available information, including your thoughts about what the

1066
01:32:56.400 --> 01:33:02.320
price might do. Really, if you trade on those thoughts. So what are you investing in then? If the

1067
01:33:02.320 --> 01:33:05.520
future is already priced in and all the information about the company is already priced in, what are

1068
01:33:05.600 --> 01:33:11.280
you investing in? You're investing in discounted future cash flows. Companies produce cash flows.

1069
01:33:12.080 --> 01:33:16.800
They earn profits. When you invest in a company, you're buying those expected future profits at

1070
01:33:16.800 --> 01:33:21.280
a discount. And that's called the discount rate. It's getting pretty nerdy again, but that's

1071
01:33:21.280 --> 01:33:25.760
how it works in finance. What is the value of a stock? If it's discounted future cash flows,

1072
01:33:25.760 --> 01:33:30.480
riskier stocks will tend to have higher discount rates that you buy this asset. And now you've got

1073
01:33:30.480 --> 01:33:34.720
this discounted bundle of cash flows, which you then hold and you've received the discount rate

1074
01:33:34.720 --> 01:33:39.200
as a rate of return as you continue to hold the asset. So a lot of people will invest in Tesla.

1075
01:33:39.200 --> 01:33:44.160
They'll go, I've got a Tesla. It's amazing. I'm going to buy some stock. What is the fault in my

1076
01:33:44.160 --> 01:33:50.000
thinking there? In buying Tesla stock? Because I've got a Tesla. I think it's a great car,

1077
01:33:50.000 --> 01:33:54.400
and I think they'll do well in the future. So I buy the stock. But we just talked about that

1078
01:33:54.400 --> 01:33:58.480
information is already included in the price. Everybody knows that it's a pretty good company and

1079
01:33:58.480 --> 01:34:02.960
making pretty good cars that are selling really well. And that's why it costs $10 today. Right.

1080
01:34:03.040 --> 01:34:07.680
Whatever it costs today. Whatever the price is. Yeah. If you look at the data on

1081
01:34:08.240 --> 01:34:12.400
professional money managers who are trying to beat the market, most of them don't.

1082
01:34:13.120 --> 01:34:17.600
And the ones that do, this is a crazy part, the managers who do beat the market over a period of

1083
01:34:17.600 --> 01:34:23.840
time don't tend to go on to beat the market in the future. And these are professional investors

1084
01:34:23.840 --> 01:34:27.840
who are, you know, and then you can look at this before or after fees. The data are actually

1085
01:34:27.920 --> 01:34:32.160
pretty similar. It's worse after fees, but the distribution is pretty similar.

1086
01:34:32.160 --> 01:34:36.160
So what's the point in a money manager? Well, ones that are trying to beat the market by

1087
01:34:36.160 --> 01:34:38.480
picking stocks and timing the market, I don't think that there is one.

1088
01:34:40.560 --> 01:34:46.720
That's why I talk about just buy index funds by the market. Let's take the markets return,

1089
01:34:46.720 --> 01:34:50.160
accept the markets return, which has been very good. And then don't do anything. Don't check

1090
01:34:50.160 --> 01:34:54.000
the fucking thing. Don't check it. Don't open the app. Lose the password. I said this about my

1091
01:34:54.000 --> 01:34:56.880
fiance. I said she's really going to invest in because she always forgets the password.

1092
01:34:56.880 --> 01:35:00.960
And then we spent four years later, we'll be like, well, babe, you should check your investment.

1093
01:35:00.960 --> 01:35:04.000
And she goes, I don't know the password. I go fucking. And then we have to do the whole

1094
01:35:04.000 --> 01:35:09.520
password reset. And then we open it. We got a baby rich. It's probably good. And she goes,

1095
01:35:09.520 --> 01:35:12.800
amazing. And then she forgets the password again. And then four years later, we take a look

1096
01:35:12.800 --> 01:35:17.600
again at her investments. I like to say you want to focus on the things that you can control.

1097
01:35:18.560 --> 01:35:23.920
You can't control markets. You can't control your performer's relative to the market and trying

1098
01:35:23.920 --> 01:35:28.000
to outperform tends to make you worse off rather than better. But the things that you can control

1099
01:35:28.000 --> 01:35:32.240
are a lot of the things that we talked about. Having an appropriate financial plan, having the

1100
01:35:32.240 --> 01:35:36.240
right goal set, having an asset allocation that makes sense for you, even if markets do decline,

1101
01:35:37.120 --> 01:35:41.120
having emergency savings, tax planning, those are things that you can control. That's what people

1102
01:35:41.120 --> 01:35:46.080
should focus on. Do you think women at better investors than men? I'm not super good on these data,

1103
01:35:46.080 --> 01:35:49.760
but I believe what they're going to say are that women tend to be a little bit more risk of

1104
01:35:49.760 --> 01:35:56.960
verse. But they tend to be a little bit less overconfident, which I assume gets better results.

1105
01:35:56.960 --> 01:36:01.280
Yeah. I think women are probably better investors. I'm just going to give the simple answer right there.

1106
01:36:01.840 --> 01:36:09.680
I've just got some numbers here. Fidelity said that across 5.2 million accounts, women beat men

1107
01:36:09.760 --> 01:36:16.800
with their investments. Warwick Business School, women outperformed men by 1.8% per year over a

1108
01:36:16.800 --> 01:36:23.520
three-a-period UC Berkeley, men traded 45% more often than women, leading to annual returns

1109
01:36:23.520 --> 01:36:29.280
that were 1.4% lower than women's. And Revolut, which is a big bank founded out in the UK,

1110
01:36:30.080 --> 01:36:37.760
is says that women's investments in the UK outperformed men's by 4% overall. I believe it.

1111
01:36:37.760 --> 01:36:43.040
Give your money to your wife. One of those data points is specified, but I would assume

1112
01:36:43.040 --> 01:36:47.680
that a lot of that is related to over-trading. Yeah, men tend to be overconfident. They tend to

1113
01:36:47.680 --> 01:36:51.040
trade more. They try to pick stocks. They think Tesla stocks are going to go off because they like

1114
01:36:51.040 --> 01:36:56.000
the car. And we're also the biggest gambling addicts in the world and men as well, so it's kind

1115
01:36:56.000 --> 01:37:00.160
of correlates. For sure it is. Yeah. And we have a closing tradition on this podcast where the

1116
01:37:00.160 --> 01:37:04.240
last guest leaves a question for the next. Don't know who they're leaving it for in the diary of

1117
01:37:04.240 --> 01:37:11.280
the CEO. And the question that has been left for you is, what experiment can you propose

1118
01:37:11.920 --> 01:37:18.320
whose outcome could completely contradict your current beliefs? Oh, man.

1119
01:37:23.040 --> 01:37:28.560
I experimented I could run. If I take my current beliefs as one of the big things that we

1120
01:37:28.640 --> 01:37:33.840
talked about as markets being efficient and being quite hard to outperform the market,

1121
01:37:35.120 --> 01:37:40.960
the best experiment that we can run is trying to beat it. But it's been run all the time.

1122
01:37:40.960 --> 01:37:43.760
Isn't there a story in this psychology of money by Morgan Housel?

1123
01:37:44.480 --> 01:37:48.480
Well, was it Warren Buffett? Bet someone? Yeah, Warren Buffett,

1124
01:37:48.480 --> 01:37:56.560
bet Ted Cites, who we've actually had on our podcast, he bet him that his index fund portfolio,

1125
01:37:56.560 --> 01:38:02.480
which I believe was just the S&P 500, could outperform any hedge fund portfolio that Ted picked.

1126
01:38:03.120 --> 01:38:07.520
And they had a specific timeline. It's been 10 years, wasn't it? Yeah. And then they were going to

1127
01:38:07.520 --> 01:38:16.080
donate an amount of money at the end of the period. And Ted lost the bet. Warren won. But that was

1128
01:38:16.080 --> 01:38:22.000
one of those instances where the world kind of got to see this index fund thing. Buffett has

1129
01:38:22.000 --> 01:38:27.200
been a big advocate for index funds. But I was a big example where I think a lot of people were

1130
01:38:27.200 --> 01:38:32.880
exposed to that idea. Where do people find you? I've got your YouTube channel here, Ben Felix,

1131
01:38:32.880 --> 01:38:38.400
which I'll link below for anyone that wants to continue to follow you on YouTube. Is there any

1132
01:38:38.400 --> 01:38:42.880
where and any of the resources that we should direct people to? Yeah, another place where I post

1133
01:38:42.880 --> 01:38:46.800
actually a little bit more frequently with longer form stuff as the Rational Reminder podcast.

1134
01:38:46.800 --> 01:38:52.480
People can check me out there. And then I do have some interesting tools for the rent versus

1135
01:38:52.480 --> 01:38:56.880
buy calculation. We have a goal setting app. I don't think it's up yet, though. And we've got

1136
01:38:56.880 --> 01:39:03.040
some other really interesting tools on the PWL Capital website. PWL Capital.com. I'll link

1137
01:39:03.040 --> 01:39:08.480
all of that below for anyone that's interested. And the Rational Reminder podcast, RationalReminder.ca

1138
01:39:08.480 --> 01:39:14.080
slash podcast. And your YouTube channel will be linked below as well. Awesome. Thank you so

1139
01:39:14.080 --> 01:39:17.840
much, Ben. Thank you for doing what you do because finance is such an important part of our life.

1140
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And I think a huge percentage of the population for whatever reason choose to avoid the subject

1141
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altogether because it causes a little bit of anxiety. But also we just don't get taught about

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finance in school, which I think is a great shame. And in my case, you know, it wasn't until I

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destroyed my credit rating, my credit score that I started to figure out what finance was. And by

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then kind of like brushing your teeth, I've done a lot of damage. And so since then, from doing

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this podcast and speaking smart people like you that are good at demystifying complex things.

1146
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And but also in your case that use academic research as the basis for the claims they're making,

1147
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it has helped to turn the lights on for me. And in this domain, I think control or like

1148
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understanding and information is power really like knowledge is power. And a lot of people are

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disempowered because they don't have the knowledge and they kind of they're on that sort of rollercoaster

1150
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of their life circumstance. And they don't feel like they have control, especially considering

1151
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that the world feels so uncertain right now. So thank you for doing what you do, Ben. Really,

1152
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really appreciate it. I hope to be true again sometime soon. Thanks so much.