Mailbag, incl: Does rising inequality keep asset prices high? October 12, 2025

30:57And Piketty does a wonderful job. I say I've read it. I don't think anyone's actually ever finished the book and is so dense and so detailed. I think I've got through about three quarters of it and I just couldn't make myself go back to it. Is it Cliff Notes? Is that what it's called? I think that's what I ended up reading. Probably, yeah, you should. It's just painful. Anyway, because he takes a pretty academic view to proving a lot of what he says, or sorry, justifying with evidence what he says has happened. And he's got a very simple formula, which is simply r is greater than g and he simply makes the argument i think it's pretty compelling that if the rate of return r on capital exceeds the rate of economic growth which is g so return greater than growth by definition capital over time must be concentrated to the the richer part of the world if you've got a dollar and you earn 10 of that dollar and the economy grows at 3%.

31:52Fast forward that over time and wealth must create or must take up a larger and larger portion of economic, activity is the wrong word, of the economy, I'll just say. And if you've got that wealth and you're compounding it, you are likely to get ahead faster than everybody else in the closed system. And I mean closed system in a global sense, not a local, not a national sense. And it kind of makes perfect sense, right? Think about the share market if the share you know i've brought this off air a little bit around if the share gets 10 a year the economy goes to 3 a year the share market's got to become a larger portion of global wealth than it started with by definition because the growth of x is greater than the growth of y so x gets larger over time compared to y and not larger than y but proportionally larger over time and for as long as that remains true it has been true for he does he's got centuries of data from all over the world um it's again it's a fantastic book if you can make yourself get through as much of it as you can.

32:47And that's kind of, that's to me, the why is almost secondary, although it may go to Ram's point to the what and the why, which may well be for Ram's justification, frankly, as far as I know, I haven't delved any further. But that's just the fundamental challenge. So I don't actually think, and by the way, Darren, it's taking a long time to answer this, but it's a useful conversation. I've never seen a single second of Gary Stevenson's work. So I can't comment on it in particular. I'm missing out. Sorry? You're not missing out. There you go. But I would say that I suspect rising inequality remains the case for as long as R is greater than G.

33:25Mathematically, it has to be true. So either R falls relative to G. In other words, the rate of return falls relative to economic growth. Or it doesn't. And if it doesn't, then inequality must continue to rise literally by definition. And I've talked before about my concerns about inherited inequality. if that's true if that remains true and if it rolls forward for any extended period of time then your ability to get a good job but more importantly to own assets and we've talked about house prices becomes more a function of who you're born to and what that person can give you than it does about your ability to actually create value yourself and so we end up with not only rising inequality within a generation or across a generation but between generations and not between the generation i don't mean in the sense that the kids are welcome their parents what i mean is the inherited inequality gets larger.

34:10So inequality will grow under that scenario. The longer R remains greater than G, and then the longer people can pass those assets down, you start with a larger and larger opportunity, a larger and larger head start. So I think it's mathematically true unless and until something changes. Now, as I said, that can either be the return coming down, economic growth going up relative to that return. It can come to redistributive effects. Piketty calls for a wealth tax, for example. You took a land tax before, Ram. It's not miles from that either. But some way of redistributing some of that excess return.

34:45Otherwise, mathematically, it must be the case that that's where you end up. Now, you can, as I said, take a view that it will not be like that forever, and maybe it won't be. By the way, these things tend to get resolved by revolutions. So if you're getting dark, you know, if the feudal lords end up with all the money, at some point the peasants are going to revolt. or you do it through... It's that old cartoon strip. The peasants are revolting, I'll say. So yeah. Now, will it keep it a bit under asset prices? That's a really interesting question. I think broadly, yes, for as long as R remains greater than G, again, almost by definition.

35:23The only thing I would say about that though is, and this is where you've got to separate the stock and the flow, okay? So Woolies shares will be worth more if their rate of return is greater. That itself isn't what puts the bid under the asset price, to use your phrase, Aaron. It's just the fact that it's worth more because it's worth more because they actually make more money. So in a PE type sense, you talk about PEs in the fruit and veg aisle. If the E grows, you don't need a bid under it from a rising inequality. It's created by that reality of those companies becoming more valuable, which pushes up their price.

35:56Why have they become more valuable? in theory, because they are better at what they do. Exactly. And so that's... And even, I'm sorry to draw on, and I'm not setting you up to disagree with you. I'm actually 100 % in love. They've made, if they're better at what they do, in other words, they're giving us a better selection and a better value price and they grow. Why are we angry with that? I don't understand what's... Now, if they're getting bigger and more profitable by rent seeking and exploitation, hey, let's grab the noose, right? I'll go march down the street with the pitchfork right alongside you.

36:38But if their success has come by giving you and everyone else in society, I'm not saying I don't want to get hung up on Woolies as an example. If, and that's a big word, but if they have done that by giving us more variety at better value than I, oh, okay. Okay. What's wrong with that? I want to come back to wealth inequality and just really quickly round up, then you can jump back in, Ram. In that scenario, Aaron, there's not more money chasing woolly shares. Woolly shares are more valuable because the business is worth more. And so when we talk about rising inequality, you can look at it two ways.

37:11If it was me being paid more and throwing more of my disposable income into buying more assets, then yes, that's inflation for the asset prices because you've got more demand chasing the same supply. But the other way that R exceeds G is that simply Woolies earns more and therefore is more valuable. So that's not putting a bid under the price to push the price up. That's the E of the earnings, pushing the price up at the same price earnings ratio. And I know this gets, it's hard to go on audio. So hard. But there's a really important distinction here. So if it's, Andrew uses the island example all the time.

37:41There's five houses on the island. There's five people living there. A boatload of five more people come up. Prices go up because demand's gone up. There's 10 people bidding for the five houses. That goes up. if it's a case of those houses are worth it's a bad example because houses don't create anything um five businesses right and again gets messy here the businesses get better what they do and so they're worth more because they just simply earn more so that doesn't that's not the that's not inequality putting the bid under the price it's the price going up because the earnings are increasing and so just to your point Aaron unless there's more dollars earned chasing those assets if I sell one asset by another makes no difference right because the the amount of the stock of capital employed in owning assets doesn't change.

38:18I sell Woolies by Coles. It doesn't change the aggregate demand. It won't push prices up overall. If I had more money, it pushes prices up. Or if the businesses themselves create more value, that pushes their value up and the price for that value will go up. So I don't necessarily, and again, I can't comment on Gary, so this is not about Gary at all. I've not seen a second of his work. It's not about Gary's work. Inequality itself doesn't need to create rising prices. It can be the result of those rising prices because the R is the return on the capital, which goes up because the businesses are better.

38:47And I hope that makes some degree of sense. So I don't believe that PEs must go up higher over time because the value is being created by asset prices increasing because the earnings are increasing. Then you're getting higher asset values fundamentally, not because of supply and demand of the people buying those assets because there's more cash. Now, Ransford about the cash may be absolutely valid. But separately to that, I just want to make that point that R greater than G doesn't need more income. It just simply needs the assets to be worth more because they're creating value. And that frankly comes down to, at the end, and just to wrap this up, the mix of national income split between labor and capital.

39:25So if more of the economic value accrues to the owners of capital than labor, you will get R greater than G. And that's kind of why Piketty talks for a wealth tax, because at some point, if the labor share of income grows faster than capital share of income, you won't get an R greater than G, or at least the gap will be much smaller. If you get a greater share of, I think we talked about rent-seeking RAM, we talked about natural monopolies. There's other reasons why you can have capital's share of income grow faster than labour. And in that case, that's actually the fundamental, that's how you get R greater than G is what it really comes down to, is the asset returns greater than the growth.

39:58That can only happen economy-wide if there is a greater share of income going to capital than to labour. And that's a whole other conversation. But that's just to round it up, that's how we get to that point. Yeah. What a great question, Aaron. I've got to keep going. I've just got to keep going on it because it's so, I think more people should be at least thinking this through and trying to take our example further. We've got to remember here that it's, you've used Woolies as an example. Presumably they're earning more because they're adding better value than let's just pick on Coles for the obvious comparison here, right?

40:32So it's sort of like, yes, their R is going up, but someone else's R is going down. and not because someone said so, but because we all revealed our preferences and where we decided to shop. And we didn't do it because of anything other than I as an individual subjective human being prefer what that person is offering. They've got better products at a better price. That's what I'm going to buy. There's no malintent. There's no, I don't like the color of your skin or any of this kind of stuff. That's all it is. And so I think where Piketty goes, there's a couple of things where I think Piketty goes wrong because he's sort of taking, like in a single example like that, there's a winner and there's a loser, right?

41:18And that kind of, so the R of society probably stays about the same. So there's two things where the Austrians would argue it's different. It's one, it's the inflation of the monetary supply as well. So a lot of this return is coming through, not necessarily through, it would just operate different under a hard money system, right? A lot of the, there's the nominal return and then there's the real return. And they're two different things. And I think in even a more fundamental point, and this is a hard pill to swallow. And this is not going to sit well with you. It doesn't sit well with me. Nevertheless, inequality is unavoidable.

41:58So people go, it's unfair someone has more than me. I get it. There's a lot of people have more than me as well. And I would prefer to be the person who has everything. I would rather be, I'd rather have the wealth of Elon Musk than myself, right? But the mistake of reasoning that people make is, but if we do a redistribution, then inequality will disappear. Well, okay, that's an interesting proposition. Let's look at history. Where have we tried this and did it solve inequality? Is there inequality in Cuba, in North Korea? Do you think Kim Jong-un has a better standard of life than most people in North Korea?

42:39And his cronies. That's the point. Communist Russia, East Germany, like all of these things had incredibly stratified society. So it's a false dichotomy. If it really was genuinely, here's another system that is perfectly equal and fair across the board. Sign me up. Sign me up. But it's not true. It's like there will always be inequality, right? And I'll go out on a limb here and say, actually, not a terrible thing either, right? If that inequality has been earned in service to your other fellow human beings, it's like, why should the person go back to the island? Scott sits under the coconut tree all day eating the fruits of our labor.

43:27I chop the wood. Aaron does the fishing. Scott just sits there and just eats and consumes and consumes and consumes, right? And over time, like, that doesn't get him very far. But, you know, fast forward 10 years and Aaron and I have more wealth. And Scott goes, that's unfair. I'm like, whoa, well, you didn't do anything, bro. Like, come on, help us out here. Now, again, it gets messy because there are systemic advantages to those who are, to my first point. And that is just like a poor conception of the system and the crony capitalistic regulatory capture, you know, free money spigot nonsense that cosplays as capitalism, but it's the furthest away thing from capitalism.

44:15But in our system, in our idealized system of, you know, a free hard money where value creation is rewarded, is it wrong that Scott's a little poorer than us? I mean, I don't know. Now, the usual go-to in response to that is, well, let's say Scott has a disability of some, you know, we're not all born equal, right? Some people are stronger, smarter, whatever. and so it's like and i think people then take that go oh well okay then then that's unfair that you know we should exploit the vulnerable and and the weak and you know and all that it's like no it's abs i think a real test of the strength of society and civilization is how we look after those less fortunate that are some not throwing people on the scrappy not even close to that kind of stuff But when someone of perfectly, perfect, or not perfectly, like, who is perfectly capable of putting their shoulder against the wheel and helping drive our civilization forward, chooses not to, then screw that guy.

45:17Not screw that guy, but, you know, have fun. I mean, you just don't get to whinge and then say, my mates who have all the power, who have all the guns, get to rock up to your house and take your stuff, which is effectively what the state does. I mean, the state can do that because they own the police. They own the military. And that's just, you know what I mean? And again, that's what's happened in these places around the world. And it's like, fast forward, everything's still unequal, except now it's an inequality based on political connectedness rather than anything else. And it's just, so what you want, I think, is you want an equality of opportunity.

45:56That's what you want. You should be able to, and this was the great thing about America in its early days. You could be from anywhere. And if you did well, you could be the, you know, rise to riches and be the self-made person. And it's not much, it's a very, it's not really close to that anymore. So we've strayed from the path. that's the society that I think we want to strive for. Gary's got his heart in the right place, but just saying tax the rich, it's too simplistic. It's too simplistic is I guess where I'll end it. Yeah, I disagree a little bit. I think we don't have - You want to sit under the coconut tree and eat all my fish and - No, that's what I was going to say because we don't have to go be either East Germany or America in 1870, right?

46:43There's plenty of room in between. Yes, there is. That's all I'm saying. I think the absolute libertarian would say there's no room for government redistribution. There's only private property and it's all just... The extremes inform the means. And so your point about, you know, we don't want to be Cuba, North Korea, East Germany, Russia. Clearly those systems are bad. But I think there is... And I don't think you disagree. I'm making the case for the so-called mixed economy, right? There is hopefully well-regulated capitalism and plenty of opportunity for redistribution where it's necessary. Effectively, you know, your preferred land tax is exactly that.

47:18It's a redistribution tool. Income tax is a redistribution tool. They all are. And so unless you are either a communist or a hardcore anarchist, we're all living in mixed economies. And so it's a question of where you do it and how you make that happen. Where do you set the slider to? And I think one thing I would say in terms of, I mean, if you make the, and I think most libertarians would say that, well, we do need some form of government and that government needs to be funded in some way. So you have to make a decision. so it's not that there is government or that there is tax that is the problem i think where it gets very shaky is that when you start changing it on the fly and and moving the goalposts halfway through and and doing so under a uh a very um political um lens that's that's where it gets trouble so hey everyone should be able to okay so i mean again it's easy to point to the murdochs and the musks and these other a-holes that are out there.

48:15And I've got very little positive things to say about a lot of them. But don't forget, there's a lot of people in this country right now that have been slogging their guts out as a dog washer, you know, or as a hairdresser or as a tradie. You know, they're all business people, right? They're all trying out there desperately to sort of create value. And let's say that Scott, let's say your young bloke leaves school, decides that uh electrical work is his passion he becomes a sparky he starts as an apprenticeship he's really good at it he every he gets lots of referrals word of mouth fast forward now he's an old man he's 50 years old and he runs a nationwide electrical business yeah he keeps his father in the store where she builds his custom exactly right i'm signing off that right now where do i sign now now again yeah who's the victim here yeah what's he done what you know i i don't understand what the problem here.

49:11If he has gotten to that station in life by convincing his mates in the government to suppress competition. Exactly. You know, shout out to our major banks and financial institutions. How are you going? You know, different story, right? But otherwise, I just, I don't see the problem with it. And I'm repeating, Aaron said, you repeat yourself. And that's exactly what I'm doing. I think I've made the point. It's complicated is the answer. and I think everyone can agree on that and if you agree that it's complicated then tax the rich is just it's too simple you know and again those with the most ability to pay I absolutely should I've advocated for a land tax on this podcast many times but isn't that tax the rich I mean that's why I think we need to be a little bit careful with the definitions because you're saying on one hand yeah land tax the rich will pay more land tax that is tax the rich to some degree So if you're saying tax risk isn't the answer, what are you saying in terms of what should we not do or where is the problem with that part of the logic?

50:14Because I'm a big kind of progressive taxation. I earn more. I should pay more. I have no issue with that whatsoever. I'm fortunate enough to earn more than the average income. I'm happy to pay more than the average tax on that basis because that's just the cost of living in a civilised, happy, well-faceted society. More than happy to pay my share. Right. So where does that stop being taxed rich or stop being taxed rich in your objection? The difference is that we say, hey, we need sort of this sort of central authority for certain big monopolistic natural problems, things like militaries and prisons and those kinds of things that we generally shouldn't, I would argue, leave to the free market.

50:48It's a whole other conversation. Polar private militia is probably not great. Yeah, right. So, I mean, again, let's not get down the tax debate, but we come up with a system and then we go forward. where people like Gary, I think go wrong is that they retrospectively look to do it to, oh, now we find ourselves in a bad position. Oh, now let's look at who has created. Well, oh, now let's tax them. More punishment than I feel. It's more of a punishment. And it's more that it's the changing of the goalposts halfway through. Gotcha, gotcha. Let's have a system. I mean, the wonderful thing about a land tax is it just sort of basically says, it's a wonderful, elegant way to sort of have a wealth tax that's very, very hard to dodge and very, very fair.

51:34Like, if you don't like it, don't live anywhere nice. It's a very easy problem to kind of fix. Where I have the problem with it is after a bunch of things go wrong because of some of the other things I discussed, nothing to do with the establishment of the tax system. Then we go, oh, screw you. I'm going to increase your taxes by this much. Envy or greed or some other way of... Yeah, and it just... It's like, well, what? why are we doing this what did i and again it's just like don't everyone fixates on the murdochs and they like that think about the the the your son example that i gave and that is the majority of of the people that are out there now what also come the flip side of this coin is it's also that when you find yourself in a position of uh abundance because of your value creation and you stop creating value because you get lazy you maybe start to charge a little bit more the work quality suffers guess what this is this is what's so beautiful about adam smith's invisible hand it corrects itself without any of us having to get angry and pick up the pitchfork at all it just it's just like i'm not and again not for any reason other than you know i always used to go to scott's uh scott jr's uh electrical services because they were great now they're overpriced And now it's my daughter who's the Sparky of choice.

52:52And she is on the ascendancy because she is fighting in the free market, delivering better and better value. And it's such a thing of beauty. And it only ever gets perturbed when do-gooders come in and try and fix things in the way that I've got the answer to everything. Everyone should live by my rules. I know who deserves money. And it turns out to be that it's all my mates. And I know who doesn't deserve money. And it just, as I say, it usually comes from a good place. It leads to a very bad place. And that is not me just asserting that because of vibes. That is just the lesson of history. Nice.

53:27Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

53:36Gary's obviously hit a nerve recently because the second question we got was from Henry, who asked almost exactly the same question. Yeah, he's in the news a bit lately. But finishes with PS. I'll take Ram Bingo for hard money, Bitcoin, and the continued effect. So if you're hoping you're playing a drinking game then, Henry, or hopefully you're listening to this late in the evening where you don't have to drive anywhere. I mean, it's right though, you know? I mean, you know, I said to this off-air before, what I find strange about all of this is that I'm the crazy one for suggesting that a small cabal of oligopolists get to create money.

54:12And I'm like, you're crazy, Andrew. Like, what? Are you suggesting that no one should be able to control the money? Like, yeah. Oh, God bless. God bless your little cotton socks. That's clearly nonsense. Obviously, we should give it to a group of mega rich people who get to create it at will. Because that's obviously a better system. It's like, how am I the one having to fight for this? Like, if your North Star is one of, you know, fairness, like, I just don't understand why that's a controversial take. But apparently it is. And that's what blows my mind more than anything is that people who are disadvantaged, I don't understand Matt Common getting up and making a defensive fractional reserve.

54:59Yeah, obviously, he loves it. It's like the best thing in the world for him. But it's like when the ordinary person gets up in defense of these guys, it's sort of like, but you're being screwed over. And then that is, you know, it is an absolute masterclass in PR or whatever you want to call it, that they can, well, keep it clean, that they can be really mean to you. And then you can turn around and say, thank you. You should be able to keep doing this. And then the dude over there going, hey, this seems a little bit unfair. is the crazy one. Like, what am I missing? I don't know. I'm obviously missing something because everyone thinks I'm crazy.

55:43Me and some fringe weirdos on the internet think it's a good idea. Everyone else thinks it's, you know, it's nuts. That's crazy. Now let's keep the system as is because it's clearly working really, really well. Rant over. People come for the rants. We deliver. We deliver. In spades. Jarrod says, hello, gents. two things for you please to ponder. Firstly, I'm sending this to you on the 8th of September and will it make the pod machine despite my stubborn refusal to spill out the verbal diarrhea of compliments you expect and demand letters? Yes. Well. No. I guess. Let's move on to a question from...

56:20Oh, all right. Fine, Jared. We've got a blacklist, right? We do now. Jared, thanks for your first and final question. You're at the top of us, Jared. That's right, yeah. Done. I will answer this one because I feel like I'm now, you know, somehow, you're backing into a corner. I've read it. I've got to keep going now. But Jared shan't be heard from again. I move to the member for annoying non-praise. No longer be heard, Mr. Speaker. My second question, says Jared. I'm wondering how much super contributions are driving up valuations and share prices. With every increasing amount of money via the 12 % compulsory super contributions flowing into shares via managed funds, ETFs, et cetera, Is this a material driver of increased valuations?

56:59And will it be an increasing driver of valuations as time goes on? Incomes rise, population increases. They'll all act as structural tailwinds for share prices as super contributions increase. Digging a little deeper, larger market cap companies are in the ASX 100 or 200 may see a higher proportional benefit, as a lot of ETFs and managed funds tend to lean into the top 100 or 200 companies. To put some numbers behind this, says Jared, The RBA is forecasting the total Australian super sector to increase from$3.9 trillion today to$8.1 trillion by 2035. As an investor, are there considerations we need to be thinking about with this?

57:38Or is it just one of the many variables in the share investing game and not spend too much time and effort trying to figure out something too complicated and far out in the future? Thanks, gents, for the great podcast each week. Very informative and entertaining. Cheers, Jared. So, Jared, you just stuck a couple of compliments in at the end there, despite refusing to do so. Everyone bends the knee eventually. Everyone bends the knee eventually. Now, we had a question about super before, mate. But what I thought was interesting was not just the dollars going into the market, but whether or not it distorts the mix between larger and smaller companies.

58:11I have a suspicion that capital is fungible, as the cool kids say. And it's going to flow. Water finds its level. I suspect that any distortion, Jared will effectively be arbitraged away by those active participants simply choosing other things so if shares get too expensive even if super keeps plowing in individual investors say well, the Australian market is too expensive I'll go and buy shares in the US instead or I'll buy property or I'll buy, God forbid, Bitcoin or gold I will find other places to invest that capital similarly between large and small cap companies if everyone's piling in a CBA I might look outside the 200 and try and find opportunities that are being missed and are underpriced because of that money all flowing into the top end of town.

58:58And lastly, I think when it comes to superannuation funds, mate, while some have specific mandates and some of their members choose those specific mandates, they can also, again, the super funds themselves want to outperform. And so if they see less opportunity in large cap ASICs companies, they will also directly and deliberately choose again because money is fungible to find other places to invest that money so whether it is super fun saying i will buy a danish windmill farm or i will buy um you know some clouds in london i'm being deliberately provocative here for everybody um you know they they themselves will chase better returns because that's what they are trying to do because they're trying to serve their members so i think the i think your impetus is right that is the natural effect of nothing like as always, nothing else changes.

59:43Would it happen? Probably. Will it happen? To some degree in the short term, but probably arbitrage where people look for the other alternatives and they sell CBA and buy something else because they want the opportunity. That pushes CBA down and pushes something else up. I think water finds its level eventually. Last one for me, I'll throw to you, Ram. Wages-wise, Jared, increasing super matters a little bit, but we've actually now hit 12 % permanently. So whatever increase we had to date, as the percentage of our wages went up, That now stops. What you've really got now is rising wages. Now, by the way, that's nice to Aaron's question because the amount of money being added to the market is meaningful, but wages might increase three or three and a half percent a year.

1:00:24Firstly, that probably would have been roughly what investing money went up before super anyway because those who were investing had more money every year and probably put the same percentage of their higher incomes every year into the market. So I don't suspect increasing wages makes a difference relative to a non-superannuation world, the percentage increase from 3 % to 12 % of incomes probably helped. Again, not with saying that water fines is level over that period of time. But the increase in wages themselves, I suspect that's always been the case. More people have more money to put into shares forever.

1:00:55But in 1965, I got a pay rise from£1.06 to£1.08. And I put a little bit more of that into the market because that's why I've decided to invest 10 % of my income in shares. I suspect it's the same even in a superannuation world. Ram, what am I wrong? No, I mean, I don't know if you are. It's probably multivariate in the different things. I mean, here's a couple of interesting data points, which is discordant with the thesis. CSL is the sixth or seventh largest company on the ASX. So by definition, it's getting far more passive flows than anything else. But proportionally the same. Proportionally the same Yep What you mean amongst the top Yeah $100 gets a market cap Wait for all the companies In the same proportion So BHP gets more than CSLC CSX more than News Corp News Corp gets more than Woolies Woolies gets more than Something else all the way down Well the shares are down 30 % over 5 years So I guess the argument would be Well without that It would be down 70 % Or something like that So it's like But the point is a broader one, which is like, well, even if it is an impact, it's still not an impact that's going to guarantee you easy riches, right?

1:02:14You can have this wind in your sails and still lose your shirt. And losing 30 % in probably one of the best companies ever to come out of Australia. And by the way, I've said plenty of times on this show before, CSL is one of Australia's great commercial successes. It's just people bid it up. I mean, I don't know how many times you have to make this point. The shares are not the business. the business is not the shares you can you can do very badly in a wonderful business if you pay too much and and csl investors have found that out the hard way so but but but my point is it's kind of like whoa i there's two parts to a lot of these questions there's sort of like the part that i love which is fun which is like oh they're sort of discussing it and how is it and why is it all this going to because it's just an interesting thing to talk to talk about but there's also when the rubber hits the road the practical the practical dimension to it so i am an investor i am allocating capital is this a phenomenon that is a true and b can be exploited and i would sort of say as far as if that's the second part that we're dealing with then no no at least at least not to a material degree here's another little interesting data point over the last 10 years the asx 200 has done a 70 return this is without um uh dividends uh the as the asx 20 has done 55 25%.

1:03:28So I just brought up the ETFs on that. Now, like, well, I mean, it doesn't match up with the theory, right? Because again, the bigger the company should have the bigger the advantage. And these are the top 20 biggest companies on the ASX rebalanced by S &P on a quarterly basis have done materially worse than the next 180 largest companies. Now riddle me that, if that's a thing correct and so i'm not even saying i suspect i suspect there's some degree of truth to it like i mean there's clearly more money flowing there than otherwise would be the case and so all else being equal then yeah i can i think it's a very very jared's and and not you're not the first to to notice it or to talk about it jared it comes up pretty regularly but but it's just if it is true it's certainly not to a degree which you can do anything about so it's kind of like an interesting chat, but it doesn't change what I do as an investor.

1:04:22And I think that's, and I mentioned that, Jared, because I think that's what you were getting at. Is that something that I should be as an investor aware of? And my answer would be no. Back in the day, we don't talk about it anymore, but you remember when high frequency trading was a thing? Yes. Algorithmic trading, high frequency trading. I mean, it's still a thing, by the way. It's very much a thing. Don't get me wrong, but no one cares about it anymore. But it was like, oh, no, it's distorting markets. And And on the other half would say, no, it enhances liquidity and assists in price discovery and all the rest of it.

1:04:52And it was a really fun conversation in the day. But bottom line is, did it change anything that I as an individual private investor am doing? Absolutely not. And has it prevented me from getting decent returns? Absolutely it hasn't. So if degenerate computer algo traders want to sort of like, you know, do all this thing, fill your boots. I don't really care because it doesn't. And I think for anyone listening to this podcast, it doesn't matter. These are not things that will influence your decision. So interesting to chat about, practically irrelevant. I think so too. I think so too. There's just no evidence to your point that it has made a meaningful difference.

1:05:30Otherwise, you would see it in the data. The ASX 20 would be far better than the ASX 200. Yep. You know? 100%. Kyle says, hi, Scott and Andrew. I have a question about investing inside and outside super. I'm 38 and I've been investing for just a few years. I like to keep things simple and currently hold two ETFs, one tracking the ASX 300 and another tracking the MSCI World X Australia. I invest quarterly, splitting contributions 50-50 between the two. My super is with host plus high growth indexed, which is roughly 56 % international and 44 % Australian shares. So it's quite similar to my portfolio outside of super.

1:06:07I don't expect to retire before 60, so I'm looking long term. By the way, Kyle, you are 38, which is not super young. You're still a bastard because you're younger than me. Would it be more beneficial for me, asked Kyle, to direct additional savings to salary sacrificed super rather than continuing to invest outside super, given that my portfolios are already similar? Thanks for your thoughts, Kyle.

1:06:30This I put into the bucket, which I'm sorry, it's a frustrating answer, but we get some really smart listeners And it's kind of like, I mean, we could debate the finer points of it, but it's like, you're doing really good. Like, what are you doing? You've got a very easy, as you say, simple portfolio, one that's very likely to be effective. I guarantee you, when you look back at retirement, there were things you could have done better. But I will also guarantee there are things you could have done worse. And overall, you'd be pretty happy with the results. So I don't really have any notes on any of that.

1:07:01But in terms of your question of salary sacrificing and putting more into super, every financial planner will tell you that's the right thing to do. And they're not entirely wrong. Like, you get such great tax advantages with it all. The only trouble with it is you can't, you have to wait until you're whatever. What is it, 65? Yep. You know what they just did in Germany or what they're talking about, right? No. They're increasing their retirement age to 72. 72? Yeah. Well, ask yourself, why? Why are they doing that for? Just to be dicks? Oh, pardon me. Just to be difficult? No, it's because they can't fund it.

1:07:47They can't fund it. So, you know, we're a persistent structural deficit. I just, for someone like you or me, Scott, we're spitting distance of retirement. I don't feel like the political landscape would shift too much. Someone who's 20, gosh, unless there is a radical change in our financial discipline as a nation, I suspect that you'd be rug pulled to some extent. The rules will change. The goalposts will shift. I think it's I think and it's not to be doom and gloom, but it's just sort of like, are you going to sacrifice what you could have now or at least in the next five to 10 or even 20 years and still be well short of retirement as a young person?

1:08:28on a political promise that we won't change the rules when even in our lifetime, the super rules have been changed a bunch of times. That to me is a worry. I think the further out from retirement, it's not to say, I think people go too far and they go, it'll definitely happen. The government's evil and they're going to screw you over. No, but it's also Pollyanna-ish to go, oh no, they would never change the rule because it's just patently absurd because they do and they have. And it's not like I have to point to some failing nation state in South America as an example. I can point to the industrial powerhouse of Europe as an example.

1:09:08Like it stuff happens. And it's. So what did you say? 38? Yeah. So you got 30 odd years that hopefully they don't change the rules too much. And then you get there going, well, I've done all the right things. I'm finally there. is like, you know, you have to be 76 before you can get it. It's like, what? And as I said to you, Al Farah is like, you know, it's called financial repression. There are instances where they go, actually, we do require 30 % held in Australian bonds because no one else will buy our paper. So we actually need you to do it. And again, it's just, it sounds wild, but it happens quite a lot.

1:09:42So, and even outside of all that skullduggery, I think that, well, it's a personal choice, but can I say this on air? I think I can say, Buffett said it, so it must be okay. Buffett goes, it's like saving sex for old age. Like life is to be lived, right? And there's two ends of the spectrum. One end of the spectrum is the party person, right? I live paycheck to paycheck and I live the life of Riley and I put nothing aside for a rainy day and I'm eating cat food in retirement in a cardboard box under the bridge. It's like, okay, that's one. and then there's the other person who I only eat two minute noodles I never go anywhere I live in mom and dad's basement and I retire with like 40 million dollars and miserable like there is money is a tool and it's there to be spent and life is there to be lived and you could hit be hit by the proverbial bus tomorrow life is brutally unfair right like and it's it's it's cripplingly short and for some people it's shorter than others I mentioned you off air I had a dear friend of ours who passed away way too early and go, God damn it.

1:10:50You know, like not fair, but it's how it is. So there's somewhere within all of that, there is a balance. And if this is sounding like a very non-specific answer, then I'm sorry, but that's the life is fuzzy. Reality is fuzzy. There's no easy answers. And if it's a hard making a decision on all of that, I just think that, you know, the beautiful thing is it doesn't have to be a binary choice. You can, you can say well maybe i'll do a little bit of salary sacrifice and i'll keep the rest outside of seven put put the slider wherever you want to do but but don't don't some and i'm i'm a finance guy and i'm saying this but i think sometimes we overthink and we over optimize for what my life is going to be like when i'm 70 you could be in an iron lung when you're 70 assuming you make it at all it's like well done to you i guess you can have a really you know great iron lung to you or you could go to, yeah, yeah.

1:11:44You spend the next six months with you and your partner and your kids traveling around Europe and having a great time. Is that a prudent financial decision? No, but I bet you when you're in your deathbed, that's one of the fond memories you look back on, right? It's hard. It's hard. I got no easy answers, dude. It is. So I think that's all right, mate. I think, you know, what I would add, not miles away from what you're saying, is just in that context, how do you, you've got a dollar. You've got to work out where to put it. And so that's really what Kyle's asking. is like, okay, I've got my buck.

1:12:12There are pros and cons, but I've got to try and decide what to do with it. So how do I make that decision? And I think you get a nice summary of it. Kyle, my general thoughts are that... The other thing about that, you're a cynical man, Ram, as we know, and I tend to be the Pollyanna, so we're both sides of the same coin and reality is somewhere in between. I suspect most of the increase in retirement age is just because we're healthier and working longer and fitter and able to do it. And we're working longer and retirement, we're spending longer in retirement, so the ballooning cost of retirement is also part of that, right?

1:12:41So if the average, I mean, I can't remember the exact number, it was something like when Germany introduced the pension, it was paid at 63 and the average life expectancy was 65 or something stupid, right? So it was basically a case of you get a couple of years worth of retirement income and we're done. Fast forward, I don't know, 80 years since it was introduced, 70 years, 90 years? And you've got a situation where we're going to live for 35 years in retirement. And that's why super exists, right? It's all of that stuff. The increasing costs of the aging population are massive and legion and really broad.

1:13:12Everything from healthcare to aged care to the pensions and everything else, it's all part of that same story. I would suspect they'll increase the retirement age again between the time that, well, I think they'll increase it again. I don't know if the German government's done. The Australian government effectively backdate the changes. So there are people who retired at 65. I don't know if anyone's still working gets to retire at 65 or we'll pass that cohort. When they increased it from 65 to 67, they just basically put a rule in place that said, okay, if you were born before this date, you retire at 65, after that date at 67.

1:13:40When I say retire, I'm talking about the pension age, here, not the retirement age. So that's kind of relevant. I think I wouldn't be surprised if it's increased to 70-year-old, I think for all the reasons, right? Will it apply to a 38-year-old today? I don't know, that's a good question. I'm pretty sure it won't apply to you and me, mate. I think, you know, whatever rules they change probably aren't going to happen in the next two decades. They'll say, right, for anyone born from 1983, Your retirement age is now 70 or whatever it is. So it's a risk for you, Kyle, honestly, and I don't know the answer to that.

1:14:08The reality is, though, notwithstanding the worst cases of RAM's examples of potential messing with super in terms of how it's invested, superannuation will almost, I feel very comfortable to say, tax-wise at least, it'll be no worse than being outside super and almost certainly better. In other words, the tax advantage of investing inside super are almost always going to be as good or better than investing outside super. You've got to give people a reason not to have access to their money, right? So dollar for dollar, a dollar invested inside super is almost certainly going to be worth more than a dollar outside super, invested in the same asset, all else being equal, as they say, because of the tax treatment.

1:14:44So I would err towards having more money in super than not, with a couple of exceptions. One is we've already seen the government change that 30 % tax rate for the$3 million. Now, you're still better off then than you are doing independently. If you're earning, if you've got$3 million outside super and you get your 10 % return, that's 300 grand. You're paying 45, 47 % tax on that. So 30 % is still way better, right? So again, be careful about what you wish for. Don't cut off the nose to spite your face. If you want to pay a bit more in tax in super, you probably don't want to. Is it still better than being outside super?

1:15:15Hell yes. Unrealized gain is a complication, but let's put that aside for a second. So I would absolutely make sure that I had enough money in super to take advantage of the tax benefits that are available. To Ram's point, though, I would have and do also invest money outside super. I don't maximize my super contributions because I've got enough money inside super and I want to have the flexibility of money outside super. And in doing so, exactly to Ram's point, not everything that counts can be counted. Not everything that can be counted counts. So my dollar invested outside super is going to do worse, objectively worse, than the same dollar invested in the same shares inside super.

1:15:50So why am I stupid enough to not put all in super? because I want to have the flexibility to buy a house, go on a holiday, retire at 55, whatever the things are that I want to do. And this is not super advice or tax advice or investing advice or any of that sort of stuff. It's just me. If I'm in the iron line, if I get hit by a, well, I probably get hit by a truck, if I needed a lump sum at some point for some reason. Now there are rules you can get a super in certain exceptional circumstances. I just like the optionality. I like the choice. I like the ability to say, you know what? I've got money inside super for retirement.

1:16:20I got money outside super that hopefully, by the way, for retirement. I hope to work till retirement age. I have a very good job. I sit at a desk all day. I'm not going to, my body's not going to wear out unless I, you know, turn to sludge from not walking around enough. So, you know, I'm very fortunate. I do a job that means I can do it well into my 60s and 70s if I want to. And if I'm enjoying it, I'm getting paid and my boss likes me and, you know, people listening to this podcast for some inexplicable reason keep listening and don't unsubscribe. I hope to be around and doing that. So, I am, I'm making an investment outside super that I expect you never need.

1:16:51Right? Hopefully, because I'm happy to work until super is available. And that guy has to look back and go, I could have actually had more money had I invested all in super. But I've said this before, one of the most powerful concepts in life, including in finance, but in life more generally, is Jeff Bezos' regret minimization framework. So I get to 63. Am I going to regret putting more money inside super or more money outside super? Well, I don't know. But the financial cost of having a slightly lower return outside super, I'm not going to regret that. I mean, an extra 100 grand by the time I'm 75, it'd be nice, but is it going to change my world?

1:17:25No. If I'm 62 and I want to love someone, I can't get it, is that going to change my life? Very possibly. So if I'm lining up my regret minimization and saying, under what scenario will I have the most or least regret? I'm very comfortable saying, I'll have a bit in both camps and do it that way. One last thought for you, Kyle. You talk about the investments you're making between the two, super and outside super. I would encourage you to think about it as one portfolio. other than the need for maybe income outside super or something else. The fact they're the same is neither here nor there really.

1:17:58And it shouldn't determine whether or not you invest money in either or both scenarios. Invest because you can, within those two scenarios, still choose your own investments. And you are. You're choosing ETFs, which are roughly the same. But they could be entirely different or entirely similar. Just think about your portfolio in one lump sum. Yes, it's broken into separate buckets for tax reasons. But think about one group of companies and one lot of investing and one investment style. and I would personally take that approach rather than trying to say, will I put money in or outside super? It depends on what I'm investing in, in those buckets.

1:18:26I don't think that's probably the best way to think about it. Yeah. I mean, life's to be lived. Life is to be lived. Yeah. I think on that wonderfully - Let's go live some life. Yeah. It's very upbeat for you. There must be something dark you can add to that, isn't it? Life to be lived, but the government will take your money away from you or life to be lived, but money supplies money is empty eternal vigilance my friend it's you know it's those of us that rant and shake our fists at the sky you know keep the powers that be in check that's how I like to pretend is the case even though that is it's all in my words more miserable because we're just not you know it's bliss right maybe we'd be happier if we just didn't know I think yeah there is a lot to be said for that unfortunately it's not something that you can not if you're well and it's also too it's just I do find a lot of these conversations are rather moot for the single mum drowning in debt and barely able to put food on the table and being evicted for the 15th time you know to start talking about political philosophy and economic doctrine it's just sort of like I don't know I know is I'm being screwed and it sucks and I don't know you know so it's sort of that that's that's when a lot of this stuff like when the rubber hits the road for me and it's it's frankly it's why i get so angry about it i mean i'm doing okay um but your assets will be fine either way i mean this is we're so lucky you know why why because i happen to be born with um uh a y chromosome i happen to be born in the dominant ethnic group of the country that i'm in the country that i'm yeah in the country i mean this happens to be one of the best prosperous most fortunate countries in the world um i was lucky enough to have a family that you know supported me and loved me and didn't abuse me and so i'm like i mean i just like the amount i just won the lottery right and sort of like and and as and i also yeah okay yeah i worked hard and i saved up and i put some money and some assets as well but i was only because i was able to do that you know so i don't for a second think that that i'm anything sort of special and it's just by I've, you know, if nothing, but therefore the grace of God go I, right?

1:20:41It's a very lottery 101. It really, Buffett talks about it all the time. And so it actually pisses me off again. Pardon my French for those who go, well, I'm fine. So that everything's fine. And just like you selfish so-and-so. It's like you have, and also, you know, to mistake the role of luck and fortune in life. We're all lucky to, we all, we all got dealt a certain amount of luck. and and then and and we also we also are the authors of our own destiny to some extent so it's not to take away anyone's hard work and sacrifice there but just don't pretend that that's all it was and that if you see someone on the street who doesn't have what you have that therefore they are lazy and dumb and stupid and deserving of their station in life it's just it's like that is that is wrong i think and as i said a perfectly equal world does not exist it's a fantasy but what we have now is a long way away from as good as it could and should be and even though it's okay well i've got assets so i'm okay i just it doesn't sit well with me and if you're listening out there you know keep keep the anger going right because like this is how this is how we change society but also do what you can with the cards that you're dealt to make sure you acquire hard assets as best you can because that will protect you from a lot of this nonsense

1:22:00you talked about being born in the right place the right gender and the right skin color that kind of stuff you did miss one thing what's that can i can i quote some pop culture at you oh yeah please what i do have a very particular set of skills skills i have acquired over a very long career skills that make me a nightmare for people like you i will find you i will find you I will kill you. No, it's really, I mean, yeah, yes. That combination is great. By the way, can I recommend something for people? And this is, this will put my ideological colours to the mask. Not political, just ideological.

1:22:31Tim mentions commencement speech at the University of WA. Be a teacher. Yeah, excellent. It's brilliant. Yes. But at one point he talks about, he talks about people saying, well, I'm going to horribly paraphrase him badly, but I pulled myself off my bootstraps. I've done this. Yeah. And he says, the DNA, the parts of you that allowed you to do that, you aren't responsible for. You happen to be born with those attributes that allowed you to put yourself up with your bootstraps. And he says something like, in any way, they're not really your bootstraps. And he's a beautiful lyricist. It's poetic in its style.

1:23:07But yeah, that was one of those moments I saw that. And we were going to say goodbye about five minutes ago, by the way. I saw that. I was like, for everyone who says, well, I worked harder. you know i did a thing it's true yeah it's true but but the dna that the the personal attributes that allow you that make you the person who can and does work harder that's something you were born with those attributes and traits as well you know there's very there's very little of us that says i will do a thing despite what i was born with because by definition there is not possible to do that you can't do things to spite your own dna you can do things because of the the things you were born with the experience you had early and during life to get to this point say then and I worked hard.

1:23:47I'm like, you did, but I worked hard with that person. Well, why did you work harder than them? Because I wanted to. Why did you want more than they did? And the answer at the end of the day is because of my DNA. And that's really uncomfortable for a whole lot of people. Even the idea of merit is that very idea of you did actually work harder. So there was some value in that. But Steve Jobs just didn't decide to be a computer genius. It wasn't through sheer force of will. He went, I think I'm going to change my genetic makeup and be the sort of person who can invent a wonderful computer operating system and hardware and software and all that stuff that goes with it.

1:24:19Here's someone who's like, that's just interesting to me because innately that's a thing that I can do and I'm good at and I have a reality distortion field and I have a personality that happens to be demanding and bombastic and if I add all those things together, it turns out I'm going to do well and that's okay, but it's what it is. Bubba's made the point too. Had he been born in India or had he been born 50 years earlier or anything like that. 20 years earlier, probably. Yeah, with the exact same skill set, Everything was the same, but you were the right place at the right time for the set of attributes that you happened to have.

1:24:53And you could probably even argue that Buffett born today might not have ever become the, you know, I'm sure he would have still been successful, but we never would have, history would not know him. Because, you know, it really, it's all about sort of tech, it seems these days. So it's just, you know, you've got to stay humble, stay humble, everyone. and like you, but don't be too quick to judge, right? I guess I'll leave on that note. And go and live life. Go and live life. Have a great Sunday afternoon or Tuesday morning or Wednesday lunchtime. Thanks for listening. Until next Friday or whenever you next listen to this wonderful August podcast feed that frankly deserves a much, much larger audience because we're just egomaniacs who like that.

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