The new rules for building wealth

29:29But it took him so long to shift it. And he was like, oh my God, I thought it would be a lot easier than this. I like your idea. Whereas my parents would be like, they just bought a house. Everyone was like, buy a house. My friends were like, oh, get on the property ladder, bricks and mortar, it's very safe. But I don't think it's for everyone if you want to travel the world. Look who's giving you the advice as well. You know, the amount of people that take advice on how to get wealthy from people that are not wealthy is pretty staggering. And, you know, your question, like your nan goes, oh, just buy a property because she just fluked buying one place in the 50s, making millions, but has nothing else in her life.

29:57And then you get millionaires that sit here, like Timothy Armie or maybe even, you know, yourself, who go, it's too expensive to buy my own home. the stamp duty costs, the lack of flexibility. And it's like the people with all the money are saying, I don't own my home. There's probably something in that. Yeah. And I think the only reason to go, well, I must buy as soon as possible, is if you believe that property will uniquely go up faster than anything else. And that tends not to be the case. There was a brief period in the early 2000s when property did absolutely flew up in value. And a large part of the reason it hasn't recently so much is we're still kind of working our way through that sudden run up.

30:32So if you own from before that run up, you're going to think property is the best thing in the world. But in general, it's not. Even if it was, you could buy investment property rather than living in your property. So yeah, it's not the be all and end all, even though, I mean, even if most people, when they come to retire, say, you definitely want to own your own home, you want to own it outright. I'm not saying that's necessarily for everyone still, but even if you did, it doesn't mean you have to have owned it from the time you're 20. You can sell off some of your other assets and buy it at that point.

31:01build up a big asset base and then buy a home at some point in cash or whatever. Yeah. But you have to own assets. And I think one of the appeals of property is it's like a forced saving plan. You have to pay your mortgage. And when you're paying your mortgage, you're paying off a bit of the capital. There is no choice but to do that if you want to stay in your home. So that's quite nice. But you could take the same amount of money and go and invest it in something else. So you just have to believe, have the confidence in yourself that you are going to do that yeah because i i have um you know i'm probably overweight the equities or the stock market and i have this conversation with one of my mates who owns a load of um terraced houses in the central liverpool and they do well for him and he's always like property man i can see it i can touch it and i was like there's my portfolio i just get my phone out and put it there and i was like i could sell that right now and have all the cash how long is it going to take you to sell you 10 terraced houses yes for sure i think there's pluses and minuses isn't there but i think people should challenge the logic of bricks and mortar is everything definitely i want to i want to favorite we'll get to that in a second i want to i want to first of all challenge another kind of maybe contradictory or what you say about budgeting i think will make some people go oh god this guy's mental or maybe you just got so much money it doesn't matter but you say that you don't think budgeting is is something that people should do not for everyone i've there again it's offering an alternative like for all this stuff there's loads of advice out you can pick and choose what you want to pay attention to and for many people again budgeting will be something that they want to do or have to do if it makes you if you feel like you need to do it like if money is like that ultra tight which is for many people you should probably be budgeting if budgeting makes you feel better and it makes you feel in control and it helps you then do it but i think there are people who don't find the helpful it definitely it locks you into a sense of scarcity um and that scarcity is obviously true but sometimes it's helpful not to overly focus on it um and so another way of approaching it is i sort of take i i used to be a budgeter and then i went into a stage of i just tracked everything that i spent and it's and i found that if i just wrote down everything that i spent each day i found myself spending less just because i had that awareness of it and before spending something like i'm not going to feel good about writing this down in a few minutes time and it made a big difference.

33:18And it's the same reason that like, if you want to lose weight. You need a big patent page. We did an episode on budgeting and I'm like, yeah, I'm going to take this all on board. And then I got home and I did not take any of it. Bidding, just wasting money. So yeah, I think that's really, really, that's like very actionable for most people, especially if you're a compulsive spender like me or very impulsive. If you write that, if you know you're going to write it down and look at it at the end of the day, you're like, did I really need like that triple cheeseburger? I could have got a double.

33:43And that's why it can't be automated. You can obviously hook up your bank and whatever, and it'll categorize everything for you. You've got to write it down yourself, or otherwise it doesn't work. So I don't do that now, but I think it's a great way of bringing yourself under control a little bit if you need to. If you want to lose weight, if you just start tracking your calories, you will lose weight. Even if you just weigh yourself every morning. Yeah, even if you're not trying to lose weight, it just will happen. And it's exactly the same theory. That which is measured grows or whatever. Yeah, so I was a budgeter when I was in debt and skint.

34:14like you said and it really helped me and then it became a tool of kind of i just made it made me feel bad about myself because i never stuck to it if that makes sense once i got more money uh what i tend to do now is is budget the fixed costs as in i know exactly what the amount i need to take out my business is every month to pay my fixed bills i then have an amount on a card and it's like once you once that's gone damien it's gone yeah it's invariably always gone yeah but But, you know, I don't say, oh, I'm going to spend X amount on haircuts and this and this. I can tell. Thanks, mate. Yeah, so you were waiting for that.

34:51I know. You had that loaded, didn't you? You had that locked and loaded, mate. So, yeah, I can see how over time it transitions. And I do think it's important to say that you can't offer a structure to every single person in every single setting. And I think a lot of what you do talk about is for people that have got a bit of cash that are just wondering what's the best way to do it. that's it i feel like so much so much of what you see out there is just like the same thing over and over again and it's like that's great most of it probably makes sense but chuck chucking some new ideas maybe some of them make sense to you some of them won't and that's okay but you might as well give it a try and i really think like most people only have so much time and energy and mental focus to give to the money side of things like we choose to be here talking about it today so we're a bit weird but most people have got things they'd rather be doing so like maybe if budgeting is taking up all your money headspace that's probably a waste of energy when you could go and deploy that with earning more or whatever and end up coming out far further ahead yeah yeah that was um a lesson that i had to learn for myself in terms of i think if i said to people i spend hardly any time thinking about fine you know finance and investing they might be like what you do that for a living what i think about is how to make content on those topics because that's the activity that drives the results in my life yeah and the actual my personal finances are super boring yeah you know automated and just invest my favorite one was the early retirement myth because this is a story that i told myself for 10 odd years probably 15 that oh you know i'm just going to retire early and i'll be happy and my missus my partner was just like you ain't never stopping working you get up on christmas day and you're like in your studio like this and i have to tell you i did that on my birthday i've poured 43 000 peas over myself petit pois you know yeah yeah for it was like representation of property growth and and you know expected returns and my missus was like it's your birthday what are you doing she's like you're never retiring and i think you know this whole thing of like i'll be happy when it's kind of an extension of that isn't it you need to find a time to to be happy now yeah totally i think that's it like there's a whole there's a big movement about early retirement and I think lots of it is really helpful.

37:02But I do think that if you are the kind of person who's able to retire early, you almost by definition won't enjoy being retired early. Yeah, because you got yourself to that position. Yeah. Do you think that's a bit of an outdated concept? Like it was, because I mean, I know when I was younger, I was like, I'm going to retire by the time I'm 40 and become a philanthropist. How's that going? Yeah, I know, mate, I've got bills. Massive failure. Come for my hair, mate. I'll come for your soul. I'd be crying in the corner. Yeah, but I thought I was going to retire 40. travel the world but like now i'm like i would just get bored like i'm very i've got too much energy i want to do something like even if it's working from home or like being a philanthropist running a business like i will always be doing something even in my 70s like yeah so and now we can because we've got working from home and like cameras and remote work and zoom and all these things so it's a bit easier to work later in life if you enjoy what you're doing and i think that's the key it's enjoying what you're doing because like you don't want to be in a position where you have to work forever you want to be in a you don't you want to be in a position where you You don't have to, but you choose to because you enjoy doing it.

38:00And so chances are you're going to want to do it anyway. Most people are going to have to work for longer than they'd really like to anyway. Like the whole thing about like retiring at 65 or whatever. It's like, I think the average age, the most common age of death for a woman in the UK is 89. So if you work it out, you could end up spending a third of your life in retirement. And that's based on people that were born decades ago. So current generation, fast forward 40 years, it might be 90, 95. Exactly. And I think when we're talking about changing dynamics, I think changes around retirement and what retirement are is a crucial conversation that people need to have with themselves in terms of, I might be retired as long as I worked.

38:39So unless I save up a lot of money, I probably need to work in some way. Exactly. Can you save up enough in 30 years of working to sustain you for 40 years without working? Probably not. Your investment returns would have to be insane. but the great thing is like you said we've got the flexibility now where you can work in a more flexible way so if you can find something you enjoy doing find a way that you can add value in a flexible way so it's not taking up all your time it's not something where you're missing your grandchildren growing up or whatever then great i just think most people if you can find most people like being most people like doing stuff that's useful and that they're good at that doesn't mean they necessarily like working but if you but if you can find something that you that's useful to the world and that you're good at and find a way of doing that forever, you're probably going to be happier for longer as long as you can balance that out with other parts of your life.

39:30But it shouldn't be like all work and then all leisure. Just like in the coal mines for 60 years and then just like chilling for like 20, 30 years. I think the issue was when work was hard labor, most people were broken by the time they retired, right? And then they died 10 years later. Whereas now it's, if you're a doctor or a finance professional or a content creator, by the time you're 70, you've got such a wealth of experience that you're so valuable as a consultant or whatever it's that kind of it's work of the brain rather than work of the hands obviously there's lots of people who do work with their hands though what would you say to someone that's a builder who goes i'm going to be shot at 65 i think there's still i i don't have any knowledge of that side of things but i assume there's going to be lots of opportunities to pass that knowledge on right because if i from doing it for that long you're going to have this all this this knowledge and education about that there'll be ways away but maybe you're not there like laying the bricks yourself buy my clothes yeah exactly or start a business yeah like a building company and then start a business train people do whatever there's always going to be ways but i think that's why it's important to start having this awareness early so you don't get to whatever age and then go like right now what i'm kind of i don't want to do this anymore but what do i do next if you can start thinking about that 10 20 years earlier then that's helpful you you outline um like an eight-step plan that people can implement to maximize what they're putting into their buckets and to take control of their finances.

40:52The first one you start with is making easy cuts to your spending. What do you mean by that? So we've talked about spending already. It's like people and the reason for like saying you don't have to do budgeting if that doesn't work for you is spending is like the least powerful tool you have. Like you have to do it. Like you have to be spending less than you're making. Otherwise nothing works. But you can't cut back to zero. so it's like there's only so far you can go so that's why i talk about making easy cuts to your spending in terms of like you know cutting the subscriptions you're not using getting sort of doing whatever you need to do to get your everyday spending under control but just get it to do the stuff that doesn't feel hard because there's also this whole thing about like you need to look after the future but you need to live for today as well and there's some certain experiences you can only have at certain stages of life so it's like not worth having no holidays and like missing out on going going on holiday with you with your friends in your 20s and 30s because you might not be able to do that in the future so just do the stuff that's easy and then you can flip onto the like rather than like cutting off back another 20 can you find a way to earn more because then that the upside of that is unlimited so you've got to do the spending but not give it more focus than it deserves yeah i remember when i was speaking to you and you were saying i don't want to do a budget and all of this and I was like what a budget is actually a tool where you get to decide how you live your life rather than your money just happening you know and I think when people are in that early stage where they need to say this is the life I want to live for me it's I want to spend time with my son I know and I'll spend good money on that and I want to spend time with my friends and I'll spend good money on that anything outside of that really probably shouldn't be taking that much money out of me because it's not important to me yeah it's not a priority that's it I've got this whole concept of mindful spending which is basically just like think about it and like think honestly like you have about what makes you happy because i mean lots of us have got ideas about what makes us happy sometimes you've got those ideas from other people maybe it's things that used to make us happy but they don't anymore if we just stop to think about it so i think everyone no one's going to have perfectly optimized spending like it's just impossible but everyone can get closer so i'm just like we'll get get closer and then move on to something else where the upside is higher yeah like my car doesn't make me happy and i don't really care but I've got mates who really do and I might judge them my car makes me very but I always wanted my car since I was a little kid where is it right now?

43:13it's in the garage yeah where are you? yeah it's broke yeah it's broken like you I hate her yeah no it shouldn't have come for my hair mate I know mate he took it personally mate I'm going to get it for the rest of the week that was a big step yeah yeah yeah you're getting sacked we've got a co-host slot opening you just put on his t-shirt that I bought for him wow don't let me lay off the leash now yeah yeah um something that to me might need to do after his impending sacking is the number one is getting protections in place i think this is often not talked about enough we did um an episode on it and people were grateful but there was another area that were like oh this is i'm being sold insurance kind of things and the protections is that the kind of protection you mean or do you mean yeah so you've got your classic emergency you find like that's that's a bit of financial advice that's never going to be wrong like you've got to have that um and insurance can be a part of that it's not something i know so much about um and then your home if you want it to be because like your your home is is protection but as we've talked about it's not necessarily for everyone but i do put i do put that in the protection bucket rather than this is going to make me rich bucket but but i put that i put all that stuff in place and then figure how much of that you want and then move on from there yeah i think the thing about protections are you need them when you have nothing and i think once you're at a point where you're 50 60 you might not need an emergency fund you might not need insurances but when you're 20 and you're just starting out a pop tire can rock you and two months off work can bankrupt you so these are the times that you you probably think about those things yeah i i've got cash in the business now that i don't necessarily need to have an emergency fund but then every something comes up every month and i'm always like why don't i have a couple of grand outside the business because now i've got a taxable event yeah but it's also about where what makes you feel comfortable comfortable and like if you look at how what billionaires do with their money it's they're all completely different so like even if you go down for billion just look at people who've just like got tens of millions so like in any reasonable world they'd never have to work again.

45:19Some of them have like millions of pounds of cash on hand, even though they know it's losing money to inflation. They don't care that it's losing money to inflation because it makes them feel good to know that that's there. And so you could look at that and go, well, that's wrong, but it's not wrong if it makes you happy, right? I run super lean on the bank account to the point sometimes where when I'm about to go to a shop, I have to check that I've got enough money to pay. I do that all the time because if I leave money in my bank account, stop. look you're not getting a lift in my car for the rest of the year now your car ain't here me your car is broken it will be fine temporary little hiccup um but yeah like i if i leave money in my bank account like it like on payday damo taught me this though on payday i move all my money out my car because if i leave it there within a week i'm just going to spend i've gone a night out and like i'll spend 100 quid tonight and then in the morning i'll be like how do i spend 500 quid so i'll walk through westfield and someone will be like do you want to buy this i'll like well i can so why not yeah so now i just like invest it as soon as i get paid pay my rent invested just spread it out and then like don't have any in the current so like you when i check revolute every time i go in the shop i'm like all right let me move move a bit of money over so i don't decline at the counter but um i think that's it yeah people find that stressful but i find it kind of like it just keeps me because i am i i know about myself that i'm reckless and if i have ten thousand pounds in my bank account i i spend differently i'm more frivolous and it adds up um And I'm not at the point where I can just completely not care, you know.

46:44That's why it's so important. Knowing yourself, knowing what you're like and knowing what makes you happy is the foundation of all of this, which is really hard. Like that's harder than just like following a rule about like where to put your money. Knowing yourself is super hard. But if you don't get that right, if you don't know what makes you happy, if you don't know like what you're like, how you behave, then you can't get it right. So it's that self-knowledge. Yeah, being really intentional about it and maybe even sitting down and going, you know, at the start of the year, these are the things that i value these are the things in my day-to-day life that make me happy yeah and these are the things that are worth spending money on and also being honest with yourself that if you're a nutter on a night out take a hundred pound in cash and that's it do you know i mean leave your cards at home yeah damien and going out after this and i've got cash on me because i'm like if i bring my card it's going to get out of control yeah or demo campaign it's a business expense so it's okay um the next one you've got is decide about your home i think we've already spoken about this.

47:39Let's separate home from investment now. Yeah, big time. So home, like where you live. And so it's, if you want to do that, it's about figuring out like, well, how much do you want to do it? Like, do you want to do that? Because again, you have to make choices. If you could afford to do everything, you would. And so if you want to do that, then like, do you want to get there super quick and like prioritize that over everything? Or do you want to like, any money you've got, split that between like saving up for a deposit and putting money into investments and again it's just different things from everyone but i think the reason i put it in there is like it is a choice to make it's not a default that like you have to be doing the home thing are these in any order like i think these you cut the spending you have the protection you decide on what you're going to do with your home am i going to make that a focus i'm going to buy one i'm going to rent one because you know some people will just go all in won't they and and in london that could take you a decade yeah even at all in and then 10 years later you go oh i'm in the house now but i have no other assets or i've not not been anywhere so make that decision next you have your bucket calculating the bucket sizes which i think we've done you have the personal choices what do you mean by audit your maintain bucket so i think the we haven't talked much about um that whole that whole kind of the whole maintenance like let it compound over time so i think we haven't talked about that much But I think by audit it, I mean, just like, is it like, are you doing whatever the right thing for you is, which may be, it's the whole thing.

49:11Should you be 100 % in stocks? Should you be having more diversification in there? Figure out what is the right thing for you to be doing. Because you'll get people who are probably like too heavily in stocks where they should be. You'll also get people who are not enough, heavily enough in stocks where they should be. So I've got a whole chapter about figuring out how much diversification you need, what level of risk is appropriate. And so really getting your head around all that. And so you're taking on enough risk to get the return. But you also understand that however you slice it, there are going to be painful drawdowns.

49:49And I think that's something that, again, we had 2022 where just everything performed really badly all at the same time. and there are people who like pulled everything out of the markets at that point because it's like i can't take this i can't take this it's gone down too far it went up by the same amount the previous year they weren't complaining then but it's just like i think you need to like come you need to either go like i can deal with that i can like i know you when when the markets crashed in 2020 i think it was like you put more in it's like great the market's on sale yeah and so like if you are like that that's your mentality fantastic but if it's not if you if you might panic if things drop by 15 % then you need to be looking at that because you because the whole point of compounding is you just have to leave it yeah that's what when you said order I was like so are you saying we should tinker with it because you yeah you should just leave it but you should just and how often should you order because obviously tinkering with it's going to affect your returns and the compounding yeah and how often should you be auditing I'd say it's most mostly just like do once then leave it so like it's maybe maybe it's maybe it's fine now but I think a lot of people will be invested.

50:54So you also get a lot of people who are, they invested in an index fund, but the index fund is the US stock market, it's the S &P. Maybe that's okay, but I'd look at that as like, if the whole purpose of this bucket is I get more diversification, I want to be diversified beyond the US because it's been the winner for the last however many decades. Is it going to continue being forever? Probably not. Would you be able to pick the next one? Probably not. So I would actually, If the whole point of that bucket is diversification, I'd want more diversification. Yeah. And just before we move on from this, I think we can all sit here and go, you know, just keep going, keep going.

51:31We interviewed a lady called Amy, and she was amazing. And she said that she understood all of that. But then when the crap hit the fan, she bottled it. She couldn't take it, and she pulled out. Have you been through a major decline in asset values, be it property or stocks? And how did you weather that? Yeah. so i had that in 2020 and then to a lesser extent in 2007 2008 i didn't have as much back then but it's still just like it's still scary to to see it happen and but i think that's why it's really easy to just go oh yeah be greedy when others are fearful then when it happens it's a different story and so i'm fearful yeah yeah so just like you just you absolutely can't like pull out at like when things are down so you need to go okay like how much risk can i actually actually live with and like the more you can educate yourself about it and have realistic expectations the better like the market having a year when they're down 15 should not be a shock it happens and so it's like you need to get to come to terms with that like don't have the broker's app on your phone if necessary like give your password to someone else who you trust but just like you need to kind of protect yourself from yourself when it comes to all that.

52:42Having a realistic expectation of what returns looks like is crucial because we quote the average return of say 10%, 9%. If you actually look at 100 years of returns, it's more likely that the year does a minus 20 than it does 10. Yeah. Because there's only actually one or two years that have hit the average. Exactly. It's more up 20, down 20, you know, the swings are, there's volatility, right? Yeah, but that's normal. But it just, I don't think it feels normal to people. And so you've got to, you've just got to accept that. And again, it's about knowing yourself. So is that part of the audit of saying, okay, at some point in this journey to retirement or to whenever I want to take out all this compounding, it will be down.

53:17You're auditing yourself. You're auditing yourself and your portfolio or just really yourself and your mental approach to it? All of it. So there's lots of different ways of putting together a portfolio. So one from quite a long time ago, it's called the permanent portfolio. And that's like ultra safe. So you've got like 25 % of cash, 25 % in gold. And the idea is it really limits your downside, but it limits your upside as well. And so you'll find that maybe if your normal portfolio would have made 9 % before inflation over the years, that would only make you 6%. Over 30 years, that's a giant difference.

53:50So you'd rather have none. But again, maybe you wouldn't want to go that far in terms of reducing your risk. But so, well, that would probably, I think the worst year that portfolio has had has been down 9%, 11%, something like that. There's no way of getting lower than that. and so you need to be at least okay with that and if you're going to go more aggressive than that you need to be okay with bigger swings. So if you're a very anxious investor that would be very, like that would be good for you because you're like, I know I can't take more than 9 % otherwise I'm going to sell it all so at least this way I can leave it and let it run so it depends on your appetite.

54:21I think having this conversation is one of the most valuable things an investor can do because it leads to other habits such as getting out of default funds inside of pensions. You might go, oh actually I don't mind a bit of risk. I understand that the market can drop 20 % and then you go look at your auto-enrolment pension fund and you go this thing's like really cautious and that that movement out of the default into a more aggressive or risky fund can produce exceptionally more returns if markets perform like they have in the past yeah and in the other direction because like if you're if you're closer to actually wanting to live off those funds then you can deal with a lot less risk you might want to get out of the fund that they're in and be more cautious yes yeah exactly I don't think people watch your risk appetite and no one actually sits down and works that out.

55:05I think Morningstar do a risk appetite calculator that is almost industry standard. I know a lot of financial advisors use that. So we'll link that below. Someone will. Not me. And it won't be me. I stopped by a joke. Yeah, yeah. But I think, you know, because people say calculate your risk and then what do you mean? But everyone will life themselves anyway. Like, you know, it's very, oh yeah, I can deal with it. But then when it comes to it, you can't. You don't really know that until you've been through it. So going through a financial disaster early in life is kind of a good thing. It kind of teaches you what you like.

55:38Forges the steel. Yeah, I guess that Damien was talking about, Amy. She said she was watching, it was positive, negative, red and green. And it was green and it was just going down and down towards break even and she bottled it. So I was thinking, oh, it was in the red, but she just sold before it got to break even. So like some people, they don't even want to see the red. Whereas I've lived in the red many times. I'm familiar with them occasionally. But you just don't want to be looking at this. If the point is you don't touch it for decades, then what it's worth is irrelevant today or tomorrow.

56:07But you just need to not look, otherwise it will. And that's why. It's just like, if that's the point of that bucket, then just set it up and forget it is even there because looking is not going to help. What action are you going to take? Fiddling around with it is likely to make things worse rather than better. Exactly, yeah. That's why property is so good, I guess, because there's no live market. There's no one screaming at you what the price is. So I bet if there was, property prices would be fluctuating on it by the second, right? Yeah, exactly. Why do people succeed in property? Like, there will be structural reasons for it, but I think a lot of that is like it forces you to buy and hold.

56:37Yeah, you can't do much. You don't have much flexibility. Even if you wanted to sell in an instant, you can't because you've got to get a mortgage advisor and you've got to list it and you've got to wait for an offer and exchange contract. By then you'd be like, I'm not panicking now. Exactly. So the illiquidity of it, like for your friend who took three years to sell, that's a problem. But as an investment, it's like, well, this is great. I've had times when I've just been just like, this has happened, that's happened, I can't be honest with this anymore. I just want to sell it. If I could have done it in that moment, maybe I would have done, but I couldn't.

57:05Yeah, hard to panic for three years. Exactly. You say, I don't want to skip any, but you say the compounding machine, you just outlined what you mean by that. This is the maintain bucket that you just set it up, you leave it to run, and you know that long-term, at least you'll be okay. You'll get to a point where your wealth from assets can replace your income, most likely. In your book, you say that the ability for compounding to dramatically transform our lives has been dangerously oversold. I misquoted you, but it was there or thereabouts. More or less, yeah. Yeah. What do you mean by that?

57:36Yeah, I think like the whole like, put money into the market, let it compound for a long period of time. Obviously, that's a good thing to do. Not saying it's not, but what it's not going to do is change your life anytime soon. Like if you look at how long it takes, like we talked about the hockey stick thing, right? And it takes probably like 30 years at least just for that to really get going. Like in the early days of compounding, you're putting in the vast majority of yourself and the amount that you're getting in terms of compound returns is tiny. And obviously over time that increases. So if you've got 40 years, then that's fantastic.

58:11But I think so much personal finance advice that you see is just start doing this in your 20s and in your 60s, you'll be fine. It's like, cool, but what if you're not in your 20s? You can't go back in time. So what are you going to do? And even if you do start in your 20s, after 20 years if you're forced to stop work or you have to or you want to stop work or whatever 20 years isn't enough it's not going to make that much of a difference if you left it for another 20 it would be but if you interrupt compounding at that point it doesn't really work anymore so i'm not saying don't do it but i'm saying it's not going to be maybe it's something to do for the future but if you want to make a big change to your life anytime soon it's not going to do that much for you off the back of that another another well quoted thing when it comes to compounding is people always quote the average return of the market and they say in the last 100 years we've done nine percent so extrapolate that out yeah do you think that that that is a good assumption to make i think it's a risky assumption to make if you're relying on that because like you see people talk about nine percent ten percent but if you look at what that's based on that's based on the us market over the last hundred years or whatever that happens to be the time when the us has dominated the world.

59:19It's been the best performing market in the world for that time. So the best performing market is 10%. So if you then put everything into the US, maybe you could expect that in the future. But is the US going to continue to dominate for the next 100 years? It's highly unlikely. If you look back at the history of the world, it's just like that tends to be not how things work. So then you need to go and pick what the next best is going to be. So if you do that, maybe you'll get 10 % if you manage to pick the next best performing economy for the next 100 years. Are you going to be able to do that?

59:50Probably not. So you're going to want to diversify. You'll want to put some in the US, some in Europe, some in Japan, whatever, spread your bets. But if you're doing that, then you're obviously not going to get the return of the best anymore. You're going to get more of an average. So maybe that pulls your 10 down to a seven. And then that is all before inflation. So say inflation is 2%, which is what it's supposed to be, then like real, that's taking you down to five. What if inflation is higher? So quite soon, you kind of go from this amazing sounding headline number down to something that's less exciting.

1:00:16So again, it's not saying, oh, this is all pointless, but it's saying, don't do your sums on the basis of everything on this incredible run from the best in the world, where for the last however many years, everything's been structurally pushing up the value of everything. Stress test to the downside. And so when you stress test to the upside with mortgages, you might go, what if it was 5 % real? Or what if it was 4 %? What would that look like? And would I be saving enough? So the next one you've got is work on earning more. can you talk to us about how people would realistically do that yeah and what i really want to get across is that that doesn't mean go start your own business because i feel that that can come across as the advice a lot of the time and like as you know starting your own business can be an amazing thing to do but it's not for everyone and it's not for everyone at every stage of their life either no exactly so but it doesn't have to be that like it can just be getting a qualification that allows you to sort of go and get a job doing that pays you more.

1:01:18It can be switching industry with the same skills you've got. You could go and apply those skills in an industry that just structurally pays more. Or it can be not necessarily working harder, putting in more hours, but just working in a way where you put in more effort in the same time and maybe work a bit more intentionally. It's like something that we've seen in our business, and we talk about a lot is that it's if someone is just like you don't have to be twice as good as everyone else if you're just like 10 20 best than everyone else it's super noticeable and you get all the opportunities the people in our business who've like risen up and like getting paid more than anyone else who are like at the top they're the ones who just like came in and weren't just like this is the most incredible person i've seen in my life but they were just consistently doing well having ideas picking up things and figuring them out on the fly and just by doing that it can make a radical difference and so earning more doesn't have to mean making massive life changes it doesn't have to mean like working all hours but if you can just find a way of earning more then for a start like there is no risk to it like you if you get paid more that is that is a good thing there's no risk of it going wrong it's not reliant on anyone else and also it's just it's going to have such a higher impact than anything you can do with your investments.

1:02:36Any time that you're spending messing around with your investment portfolio, maybe it'll make a tiny difference. It could make things worse. If you apply the same amount of time and focus to your career, to a side gig, to whatever else, it's going to pay off far more. Yeah, there was something that someone said to me, they were like, look around where you work and see what the ceiling is and ask, am I happy with that? And then maybe just sidestep into a different kind of industry where people get paid a higher ceiling yeah so if you work in hr for a charity there's a ceiling if you go and do the same for hr for goldman sachs you'll probably get paid 10 times more to do the exact same job just because that sector that industry has higher wages and higher profits and all of that kind of stuff yeah exactly and i think most most people see their career as something that happens to them to an extent like they're waiting for opportunities or like maybe they maybe they get a pay rise maybe they don't maybe there's an opportunity maybe there's not and i think you're whether you like it or not you're putting so many of your hours and so much of your life energy into it you might as well be intentional about it and believe that you have control over it obviously you don't have full control over it but just believing that you do just will make you see these opportunities like the ones you talked about maybe maybe you don't want to go and work for an investment bank and you'd actually hate it in which case fine don't do it but it's worth knowing that the opportunities are there and that the people that are doing those jobs that are getting paid more than you are no they're no different to you they're often doing the exact same job yeah it's just that they just so happen to be in the right location to to get that opportunity yeah the most most people like fell into what they're doing like it's very rare i think for like you go and see your careers advisor and they say do this oh okay yeah that's a great idea and then it's just like most people just it's like random it's a random chance that got you to where you are and so like maybe it's the best thing but there's a good chance that it's also not because it's just random and if you intentionally just sit down and go wait where my neck's randomly going to fall maybe you'll get a better outcome yeah and just bobbing around exactly you then have research improving improve research improve investments so that this so like if you decide that making any kind of investment appropriately sized is the way for you then the way i say research it rather than do it is because i think that's where it should start it's the difference between taking a calculated risk with some proportion of your wealth versus just like going and having a punt on something.

1:04:59So then that research process could go on for years before you're even in a position to have the funds to do it. And if the thought of doing any of that is just like no fun at all, like you can't bring yourself to start researching it, that's probably a sign that you shouldn't be doing it at all. And you should just focus on something else, maybe earning more. So you're putting more into the compounding side of things. And so that will get you to where you want to be. I can't not have you here and not talk about property investment because, you know, do you still think property is a good long-term investment?

1:05:29Yeah, totally. Done.

1:05:34Easy question. Next one. Only with finance. Yeah. So I think that's a really interesting area because I do think if you look at the long-term returns of property and the stock market they're roundabout equivalent over like you can slice it in different ways depending on time periods and stuff but it's more it's more or less the same in which case you go like well why would i even bother with property then because it's so much more hassle it's so much more lumpy and illiquid and all the rest of it but it's the leverage aspect that boosts your returns and so i don't particularly a lot of people will get into property investment going like i want to invest in property because i like it i understand it but i want to do it with cash because i don't like debt But I think debt is largely the point of it.

1:06:16And you've got to use it in a sensible way and control it and all the rest of it. And it does involve risk, which is why it's in that improved bucket. But if you're not using the debt, then you're taking on quite a lot of extra work for not really any extra return. And I think in the past, because property prices in the main just rose, it was okay to buy cash because you would know you would get a return on that. But now, let's say property prices stay flat in real terms or they could fall backwards. if you're buying cash, your asset is declining in value or staying flat. Whereas with the leverage, and you put a tenant in that pays off the leverage, you essentially make that as the gain, don't you?

1:06:51Yeah. And the whole point about having inflation being baked into the system, then it's like, well, if you've got a debt, which is fixed, you borrow£100 ,000, that's always going to be£100 ,000. But the value of that£100 ,000 is going to shrink relative to the value of the asset, which go up in line with inflation over the long term. With the income stream, the rent will go up in line with inflation over the long term. And probably you're earning power as well. So whatever it is that you're using to pay the debt off, or whatever you're looking at it relative to, the debt is shrinking at quite a pace.

1:07:23So you don't care about yield on day one, necessarily. I mean, it'll be there, but you're not thinking, oh, this is a 5 % gross yield for life. You're thinking actually in 20 years, it'll probably be 15 % on the cash I put in. This is it. And you've got to be careful when you talk about it, because you definitely don't want to be saying like, oh, you know, just buy anything. It's all about the capital growth or whatever. No, you've got to be covering your costs and then some and have all the protections in place. But yeah, I think, again, it's like people obsess about small differences. Like, oh, well, I get a 6 % or a 7 % return on day one.

1:07:54It's like, in 10 years, it's not going to matter because the amount that you bought it for and your debt is fixed. And you know that over time, the value of it will go up, even if it's just in line with inflation. And the rent will go up, even if only in line with inflation. so you don't need to have a property boom you don't need rents to go up at like 10 a year or whatever they were until about six months ago it's actually better if they don't if everything just carries on nice and easy then over time it gets you there and the key bit is you've accessed that increase in inflation adjusted rentals through 25 of the purchase price of the property you get to control the whole asset and all of the upside yes with a chunk in and you use the bank's money Yeah, so if you say, this is a way oversimplified example, but if you say that inflation is 2 % a year and property goes up by 2 % per year in line with that on average, then if you put in 25 % of the money, then that's 8 % on your money, if you see what I mean.

1:08:54Because it's a four times multiplier. Exactly. And there's lots of reasons why that's not quite true and there's costs and stuff like that, but that's the general logic. So even though the purchasing power in real terms of the money hasn't increased, because you've only used a quarter of the money, you've actually increased in purchasing power. Exactly that. I know what comments will say. They'll say, but there's interest rates on mortgages. So it's not fixed because they're applying an interest. What do you say to that? Well, the funny thing about that is that that's so much less risky than it was a couple of years ago.

1:09:24Because when you could borrow for like sub 2%, you knew that wasn't going to be the case forever. But when was it going to stop being the case? You didn't really know. But now rates are back to close to their long-term average. Obviously, if you already owned a property and your interest rate's gone way up, that's a problem. But if you're just coming into it now, then it's like, okay, well, interest rates went up by like 250 % or whatever, from like two to five. What's the chance of that happening again? Almost nothing because everything in the world would collapse. So it's just like there's so much less risk around that than there was.

1:09:57You still need to have the headroom built in. All mortgage lenders will stress test you to make sure you can deal with it. But, yeah, obviously it's a risk. You can't fix forever like you can in the US, but it's a lot less risky than it was a couple of years ago. Yeah. Do you turn away deals in the past that were next to nothing rates because you knew that if the rates went up, they weren't viable? Yeah, we always tested things against a higher rate because you can't assume that it's going to be there forever. 20 people did. 20 people did, yeah. Because, yeah, it's hard. because like there was a a like a bbc calculator that's been up on the internet for like at least 20 years i can just remember it being there and it was always like your interest rate now is this but what would it be if it was 12 and like and at the time because this was like in the in the early 2000s that was like a realistic thing that you could but that that you could look at it could happen yeah and and because of where interest rates were at the time when rates were like zero You look at this 12 % going like, what are you talking about?

1:10:59And now it's like, well, now it feels a bit more like that's only a doubling. So like, OK, maybe you could see it. But I still fail to see how rates can get there. Because people go, oh, yeah, interest rates were 15 % or whatever. And they were, but they weren't for long. And they were when everyone's debt was way, way, way lower. Yeah. For me now, the introduction of leverage to my portfolio is the high-risk thing I'm chasing. because I have my equities bucket and I know that they can do a certain amount and I have a cashflow in business that I can get money out of. What I don't have is leverage.

1:11:30We spend a lot of time talking about how everything is changing and the world is a different place. And I think that can be quite scary and intimidating to people who especially just starting, they might think I've kind of missed out here. Do you have anything to say to them? Yeah, it's funny because I wrote my last book, The Price of Money, was like the whole thing was like laying out how the financial system worked and how it's like structurally definitely going to collapse at some point in the future. And then at the end, it's like, but try not to worry about it. Because ultimately, you can't do anything about that.

1:11:58You've just got to control what you can control. And what I try to get across in this book is you can control more than you might think. And the things that have the best potential for making serious changes are the things you have most control over. So I bang on about earning because that's the thing that you can control the most. And it's the thing that makes a far bigger difference than whether you're making 6 % or 7 % in your Vanguard account or whatever. So that's something you control. If you do want to go and make these riskier bets that have a chance of paying off, if you're doing that the right way, rather than taking a gamble, then that's something you have control over as well, because you're using your own knowledge and your own skills and your own time.

1:12:37So you can have control over all the stuff that matters. And I think that's, I want this to come across as a hopeful book, because I think it really is. I think there's so much guilt and fear and weirdness around money that people have. We're all weird about money in different ways. And a lot of people will just put it in the too scary box or whatever and just rather not think about it. But actually, I think there's loads you can do that will, regardless of what the markets do or whatever else, whatever happens with the national debt, you can make your life better by doing things a bit differently.

1:13:15Please remember, this is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's pretty much a guarantee. Past performance is no guarantee of future results. So your money is at risk with investing and other fees may apply. As with everything financial, please do your own research. We really encourage that because no one cares more about your money than you. I'm Damo. I'm T. This was an episode of Making Money from our company Most. It was filmed and edited by the team at Flow Spire, Jack and Ben. It was produced by Ruth Edwards. and brought together by Will Stollerman.

1:13:46What about Ruth and Toothless a dog? Yeah, shout out them too.