Mailbag, incl: Give me a reason for optimism! April 5, 2026

24:15While I don't think for a minute this is any sort of genius fix, my point is we need to look outside the box to address these issues. As Ram likes to say, the definition of insanity is doing the same thing over and over again and expecting a different result. Taxing and redistribution by government has not fixed inequality in Australia, particularly as it relates to housing access and affordability. Rant over, full on, Tom. Thank you, Tom. Appreciate your thoughts. Seems like you're right and he's wrong. No, Tom, I think there's a few issues being conflated there, honestly, Tom. And I think it's effectively made a 1 % loan from the government at a cost plus kind of thing using public land is a subsidy by another name anyway.

24:58What you're really saying is, well, that form of government subsidy, in theory, funded by other people paying tax, rather than a different type of subsidy. And you're entitled to think that's better. I just wanted to point out that this is not a no government or less government you're saying more government just differently and that's okay and maybe you're right not wrong but there is some similarity to the approach which is just let's use taxpayer money to effectively change the circumstances of those who otherwise can't afford to get into the property market and that's cool that's totally okay and totally appropriate I think it's a little extreme where do we draw the line you're right that's the question the fact that we can disagree about the line is is different to whether there should be a line at all um do i think we should give money to every kid in the philippines no i don't why because australia is australia and my area of domain interest is australia you can disagree and give money the philippines that's fine you say give no one that's also fine um but because we're not giving money to people in the philippines doesn't mean we shouldn't discuss tax and spend in australia i think that's i understand where you're coming from directionally but it's a bit hyperbolic and i don't think it really applies so uh you asked the question that's the answer is just kids lucky after born in australia yes yes that's exactly what i would do so yes uh that's easy um just because other options exist and they're reasonable doesn't mean we can't discuss the idea that the existence of a hyperbolic extreme doesn't mean we can't we can't find other lines elsewhere um again housing australia future fund mate i get it but i think that's also a little bit of a you know um a bit of a red herring because i'm we're not i'm not talking about going down that path or using the housing australia future fund i'm not supporting it i think it was a bad idea in the first instance it is as you say as awful as it sounds um so yeah i agree with you but again it doesn't mean we don't try to other things the existence of some mistakes doesn't mean others are necessarily not shouldn't be tried or can't be tried or can't work so i think that's probably how i think about that are you in a beanbag just quietly no can you hear that it's yes the dog is dragging he's dragging his bed across the floor so it's a lino floor it's one of those big dog beds and it's being dragged across the floor um he's actually trying to drag it into a little alcovy room on my office.

27:07And he's trying to drag a wide bed through a narrow door. And so he keeps pushing back because the fool was trying to get it out. If it's too painful, I'll mute him. I just thought I'd mention it to anyone listening going, he's getting worked up. He's usually shifting around in his beanbag there. There you go. Sorry that came through. And then look, your idea, Tom, I don't hate it. I don't know that, I mean, kind of it's council housing. UK council housing is kind of what this starts to sound like, right? It's almost like a permanent lifetime amount um government's gonna pay for that one percent interest means the government's paying two or three or four percent on its money so we're subsidizing the difference um at build cost i mean maybe but who's going to build it and who's hitting the cost and where's you know is there a profit to the builder is the government going to have a government building organization do i think we should import cheap labor to it no i don't i don't i don't think undercutting australian builders is a good idea um i think we've got to be better than that otherwise we're just really saying that where you know gets higher wages in australia than overseas and And you can have that view, but that means we're worse off.

28:04I don't think we want to put Australian builders out of work. So I don't know, mate. I do agree with your immigration thing, not halting it. I think that's a bad idea. But I do think, I mean, if we're reducing it, as Ram and I have talked about lots of times, until we get people in housing, I think it's a perfectly good idea. So, yeah, there's my thoughts, mate. But look, you know, other people listening may completely agree with you. And I'll ask Ram what he thinks. Oh, man, they're just such big topics. Yeah, I actually agree with a bit of Tom and a bit of you. Go for it. I mean, we talked about it on the previous pod.

28:37Other than I tend to think the best way to redistribute is less by government decree and more by giving people the best capacity to sort of create value. And that's how you do it, right? I would, I kind of, when I really start thinking about this, there's a lot of surface level kind of considerations that you can make. But I'm a little hesitant, mate, because I always go to, for me, it's just like a hard money solution. And I know it's like fairyland at this point in time because it's sort of like, I don't, I just think in, I'll just refer people back to that episode. But I think in that kind of system, it's sort of like wealth only comes in the most fairest way.

29:26and you don't get structural advantage by having wealth. And, you know, if you want to enjoy your wealth, you must spend it, which actually redistributes it, right? It's when that wealth and collateral gets used as a mechanism to be closer to the new money spigot, where you get a structural imbalance and disadvantage and then you have to, in more roundabout other ways, think of taking away from those with it and those without it. It is seen as a natural law these days that money makes money, and that's not true. Money definitely gives optionality, but you can be a mega billionaire and if you decide to start a stupid company, you're going to blow it all up, right?

30:09Like it's just, you know, and you need the money to be able to do that. You either need to convince other people to give it to you, to loan it to you, or you need to sell some equity. You're not just going to get a bank to click some keys and give you some free money and allow you to go and do it. It's just very hard to explain and get into details, which is why we did a two-part, three-and-a-half-hour episode and still only got to the tip of the iceberg. Yeah, that's right. So I've spent a great deal of time sort of pondering all of this stuff. And so I'm just going to shut up at this point because it's sort of – I think it's a better solution, but I'm also very aware that it's unlikely to happen anytime soon.

30:43And it's very difficult to explain concisely. This bad thing happened. It's not ideal. let's create a rule that just takes it from here and there. It just, to me, neglects the unintended consequences of the situation and doesn't address the root issues. Yeah, I think that's fair. I think there's more ways of solving the problem to varying degrees. Tom's the reasonable, yours is reasonable. That's all. Mine's just the best one, that's all. That's the bottom line. His mind is the most elegant and fair and civilizational enhancing method. He says with complete humility and no hubris or hyperbole at all.

31:36All right, mate. Now we've got a question from Mark who says, Hi, gents. Please keep my name anonymous. Sorry, Mark. First time, long time. Featured below is one ring kiss. One question, one whinge slash rant slash ponder. First off, I love the podcast, guys. When I first started listening to the PodMac 3000, which you trademarked that, years ago, I thought I was in for another dry, bland, boring slog. But the service you both provide is exactly, no, is anything but. You make conversations about politics, investing, fiscal policy, and all the other typically dry topics an enjoyable and digestible listening experience.

32:18Thank you, mate. He says, so, thank you. From Ram's very niche Simpsons references, choking on my own rage here, to Scott's many sayings that we all enjoy, or am I talking out of both sides of my mouth? We're sounding a bit, I don't know. I mean, I know he's being nice, but is it backhand to compliment on those, you know? Oh, look, you two, you're charming in your own special way. Is that what he's saying? Yeah, look, you can take it either way. I choose to take it in the positive way. Okay, let's do that then. Firstly, this is a purely hypothetical situation and not direct advice. Yeah. I apologise, as I know this has been covered before, but I figure if I can't find the episode it was covered in, it's probably time for a recap.

32:59That's pretty... I'm going to go with that as our ongoing justification for repeating ourselves regularly. Well, there are 993 other episodes, as you just told me before we went to air, so yes. We're not miles off. This is crazy. I'm 34, in brackets, bastard, question mark. No question mark required, Mark. And Mrs. Anon and I have been putting a portion of our money aside per week for my son since he was born. We now have about$4 ,000 and want to invest for him before that$4 ,000 is what you need to fill your car up by the time he's 18. And then he says, sound money, anyone? Question mark. No, Mark, we're moving on.

33:36I remember the choices basically being invest under your own names and gift him the money where we see fit or invest directly in his name. Can you please outline the pros and cons for us? Many thanks. You know it more detailed than me, but I would just very, very quickly sort of say that to do it in their name is a lot of mucking about for not a great deal of advantage in my mind. And I'm sure that on paper, and you speak to an accountant or a financial planner, they probably argue for this. The way I do it, which is probably the way not to do it, is I just screw the kids. It's all my name or the trust or whatever it happens to be, but they're going to get it, right?

34:21I'm not going to – it's sort of like they're really just fictional buckets that we choose to put them in, and there are reasons to put different amounts of money in different buckets because there are various tax advantages and exchange advantages and all the rest of it. For me, it's just all much, you know, it's just like I just prefer the simple thing and I'll just do it in the best way that I possibly can. And at some point in the future when they need it or I decide that they're entitled to it, if I haven't spent it all, then I'll just gift it across to them. And that is probably not the best way to do it, but that's just the honest answer of how I do it.

34:59No, for sure. I've done it differently. So really quickly, so there's two starting points and I'll get to some details. So really quickly, as quickly as I can, keep me short. you invest for them or you can invest with them and you can do that in anyone's name but I want to start here I'm doing both so we're putting some money aside for my young bloke he doesn't know that yet he doesn't listen to the podcast unlike Leo who's doing the right thing my young bloke couldn't care less Dad what do I care what you think if Mr. B said invest he'd be there so yes so I do both I put some money aside for him I also get him to invest normally about 10 % of any money he gets he's given for birthdays and Christmases just trying to A.

35:37develop a habit for him and see it happening. But also to see it happening is about the investing itself. So he gets to watch his little pot of money, which is smaller than the money we've got for him, just kind of going up. And he chooses what company he wants to do all himself. And we make the trades together and it's hundreds of dollars, right? But he's learning about investing by doing it. So for me, there's both buckets. And depending on how you feel, Mark, you can choose those. By the way, he said it was anonymous. You'll get to the end and understand why. I keep calling him Mark in a second.

36:06um so yes uh the so that's the so think about that first and then the structure kind of matters maybe a little bit more than i think matters a little bit more than you do ram but only in the sense that tax matters so the money that we've got invested for him is in his own name with his own tax file number um the downside is if he earns more than i think it's 416 or 61 dollars in what they call unearned income in other words non-labor income he's taxed at 66 which is stupidly high for reasons we've talked about before, largely to do with people using their kids to basically split their income and claim three or four tax-free thresholds, right?

36:40So we screwed it up for ourselves or our forebears did. There is no better option. There was only two bad ones and this is the one the government's chosen. I really can't disagree with the choice they've made because people just screwed with the system, but it sucks. Now, what does that mean? At some point, if he earns more than that, he's going to pay higher tax on that. That's not great. Why did I do it that way? Because when he takes over control of the account, there's no taxable event if i sell shares to give to him or give him the shares directly i have to pay cgt which i can happy to do but if i do it in my own name i'm going to invest more to pay the tax and give him what i actually want to give him or he gets less when the transaction happens now if he sells when he sells at some point you have to pay that as well but it just means that the the tax is paid not on the a translation from or a gifting or a selling from me to him but at a time of his choosing in future.

37:29So that's kind of why we did it that way. The three options broadly are invest in my name. And as Ram says, just give him the shares at some point or give him the money or whatever. The second is invest in my name. And then they have a kind of a legal convention. So it's Scott Phillips as trustee for, and then my son's name. And that convention is supposed to make it clear to anyone that that's what it's being done for. Or you invest in his own name directly. The latter is really hard when they're under 16. So you've got a, you say how long your How old your son is? No, you don't. Yeah, assuming he's under 16, then he can't legally buy a whole share for himself.

38:05So it's got to be one of those first two options until 16. Thereafter, it can go into his now if you choose to do that. So yeah, pros and cons. Ram's already done the pros of that version. We've chosen to do it differently, knowing that we'll pay higher tax on unearned income, but we won't have any CGT to pay when we give him the shares at some future point. Yeah, they're the pros and cons. It's much simpler to do it in your own name and just give them the money at some point. Say, look, I've got this much money aside. I'm going to kind of mentally put an amount of money either now or then at some point.

38:38So what are you adding now? Here is X dollars. Or mentally say, I'm going to add this money in and this is a proportion of my account. This is what a roughly worth at that point. You can do that or you can do it separately in one of those trust kind of forms. You can also buy what they call insurance bonds, which are pretty unattractive generally, really tax effective, but the returns tend to be ordinary. So it's kind of one of those things where you don't let tax lead the returns, but that's another option if you want to have a look at it. So yeah, for me, we've done a bit of both, but I put it all in his name.

39:06Well, so it's his tax file number. It's the dividends going to a bank account in his name. So it's all very clear to the ATO. This is not me diddling tax and trying to pretend it's him. It's all over there. So when it transfers, like I say, look, it was always in his interest. It was always in his name. He gets it and it should create no tax obligations at that point. I can give give me let me know if I'm right on this but I can give my kid a million dollars in cash and it's tax free yes but if you sell shares to give them a million dollars in cash or if you transfer them shares you pay CGT on the transaction yes and that's the yep totally so if you had if you were to give a million dollars you might sell a million and a half dollars worth of shares pay your tax then give him what's left as opposed to giving him a million and a half or just a million in shares at that point and there's no taxable then until such time as the shares are disposed of yes but I still need to have I mean I've got let's say I've got a pile of cash now right or real money yes good point so I've had some real hard money let's not confuse it because Bitcoin's taxable let's go with cash very quickly that's exactly what I do with my kids they've got their own Bitcoin wallets and that's just so much easier and better in a lot of ways alright so you've got a pile of cash so I've got a pile of cash right yep so I can give it to them now or I can give it to them later yes but either way I want it to grow because like it's a melting ice cube, the fiat dollar.

40:27I certainly don't want to just sit that under the mattress. So, so yes, I might have to pay tax on it, but only on any gain made and only on half of the gain made. Like there's no, and I'm not trying to shirk my taxation responsibility. It's just that, you know, I just, I think it's, for me, it's just probably because I'm just lazy, but it's just, it's cleaner anyway. Now, if I give them the cash straight away, well, then they're going to face the same problem down the track. They're going to have to pay tax on it, right? Now, maybe I'm on a higher threshold and they're on a lower threshold. That's the time you're being a sale and all that kind of stuff, yeah.

41:03But yes, you're right. So there's that. But I mean, assuming that we're on similar thresholds, and frankly, I intend to be fully retired by the time that they get any one red cent. So that isn't a guarantee. I just don't think it's – I don't – I'm not a firm. I don't have a really strong opinion on it, but I do think a lot of the mucking around isn't as, isn't the wind that it's often portrayed to be. I completely agree with that. You know, you know. Mathematically, if you do it, just do it for fun. If I invest 10 grand today and give my young bloke, it grows to 20 grand by the time he's 18. Right.

41:39If I did my own name and then sold the shares and gave him the money, or gave him the shares because it's still a disposal I've got to pay tax on, effectively he's going to get after tax 17 and a half grand. Right. If I'm on the marginal rate, again, it differs by whatever, just for the fun of it. So he's getting$7.5 grand. If I do it in his own name, he gets the full$20. That's kind of the key difference. Not if he wants to sell it, though. Correct. At some point, he's got to sell it. But he may not. He may be happy to live off the dividends. He may sell it as a lower tax rate, to your point, and make a couple of grand.

42:06It's the age-old question. You and I go backwards and forwards a bit. And funnily enough, we have different views on different things. So I will say, for example, you're saying, well, that's not a big deal. It's kind of the same thing. I can't say that about borrowing and using debt. and you're like, well, you deal with the extra money. There's money there on the table. Why not take it? Yeah, that's true. That's true. You're not wrong. I'm not. We're both inconsistent and that's just kind of funny. So it's kind of – but what it illustrates is the personal choice and preference and are the differences big?

42:30Not really, no. But they're the pros and cons. Mark, you can make your own decision as to what's best for you. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

42:45Rant time slash question time, says Mark. How I wish I'd come across this podcast in my mid to late 20s and had the knowledge and perspective I have now gained. At this time in the years leading up to COVID, my wife and I were doing pretty well financially and we thought before house prices got any more out of control, we would buy our forever home. So we went to see our, Ram, you'll love this, financial advisor, who is also our mortgage broker. Long story short, we asked the barber if we needed it. A real estate agent on the side. And the seller, yeah. Yeah, yeah. Long story short. I mean, smart, right?

43:18Smart. That's how you get out in this country. And it's property, right? You can give financial advice. Oh, it's brilliant. Without any license. Yeah, brilliant. All right, long story short, we asked the barber if we needed a haircut. He, of course, did a budget for us and showed us we could comfortably afford to borrow a certain amount. Being young and dumb, we listened to this advice. Between the time we sold our old house and bought new, COVID hit, and prices went ballistic. So our options were to try and rent or pay overs. As fate would have it, the forever 1 % interest rates we were assured by our financial advisor would be in place for many years were fleeting and we started to feel the pitch.

43:53How dumb were we? Anyway, enough complaining from me. My question is, many of our friends are in similar situations. What do you guys see the future of standard of living looking like for Aussie families in the next 10 to 20 years? Nearly everyone we know who has a mortgage and kids are just scraping by. with inflation, cost of living and everything else that's going on, spending less than you earn is getting harder and harder. And I worry what the future is going to look like for our children's generation. Is our kids only hope that when we kick the bucket, they get the house? With the way of the world now, where can we draw optimism from?

44:28Thanks, guys. Anon. And then he says, just kidding. Feel free to use my name, Mark. Or is it? We'll leave that question. We'll leave that question. I answered Mark slash Anon slash John slash Jeff slash Mary. it's tough right and we've talked a lot about the challenges facing young people particularly with meaningful mortgages and you know where's the optimism come from Ram? Oh god what kind of a question is that to put to me? like that is that is not please do we'll mute Ram now he won't be here for a little while

45:03I'll think of something positive to say I suspect If you're looking for a source of optimism, Mark, I suspect a few things. I suspect that as young people become a larger proportion of the voting population, priorities change. And that's not immediate and big and sudden, but I think it'll be real. I also think, as we've talked a lot of times about the Rams' famous rubber band analogy, you only stretched it so far before it snaps. And so sometimes the best optimism you can have is things aren't going to get worse. I think it'll get better, maybe not. Can they keep getting worse? No, not really.

45:41I mean, landlords can forever want lower and lower yields to support higher and higher prices because rents can't go up more than you can afford to pay. So it's possible. But for house prices to move meaningfully higher for an extended period of time requires lower return expectations from landlords. And that's possible, right? It's possible for an extended period of time. It always can go on longer than you think. That's my lesson. I mean, I would have argued, did argue until I was blue in the face how unsustainable prices were, and yet look what's happened. But directionally, that's still true.

46:15I also think, Mark, a lot of the problem we're having right now, we've talked a bit about this before, is real wages are down dramatically compared to prices over the last six years. And so what you're feeling is, yes, higher interest rates in a better managed world and or less managed world, depending on your perspective. Thank you. Yeah. I threw that for you because I figured I might as well do it now so you don't have to. Yeah, please. So it's not even actually about interest rates. It's just more about the inflation thing. So I don't know if they're linked in blah, blah, blah. But essentially, Mark, if wages had kept pace with prices, we'd all probably have another 10 % or 15 % in effective purchasing power to spend.

46:55And that is the combination of recreation, luxury leisure, and saving, mate. Because literally imagine a 10 % wage rise tomorrow or 15 % would get you squared with inflation and also be like, well, I've got all this extra money now. By the way, exactly the thing that the government and authorities are working actively against that exact outcome. Because if you do that, in their world, it's you, Mark, that are pushing prices up. You and all your mid-30-year-old friends out there buying too much bread and petrol, and we're going to put interest rates up on you guys. Just put you back in your box a little bit here so prices can come under control.

47:31Sorry, I couldn't help myself. No, you really couldn't. I couldn't. So what do I say, though? It sounds depressing. It is. I think it's really, really, really, really unlikely that over any extended period of time, real wages don't grow. productivity is the key to that and productivity has been lacking recently for all the reasons and it could go on for an extended period of time but but over time unless you think again i've settled million times unless you think human ingenuity and and growth and drive has tapped out and we're done it'll come back and we'll find a way maybe despite governments maybe because of them maybe regardless of them um things will improve and so what you're really feeling i I suspect, and I might tell you what you're feeling.

48:13I don't mean feeling as in emotionally. I mean, what you're sensing is the fall in real wages far more than the prices or the increase in interest rates. Not that they're not bad, and I'm not trying to suggest they're not important, but they could have happened in a world where you had higher real wages, in which case it would feel less painful because it would be less painful because you have more money. So, yeah, I don't know if that helps, mate. I am an optimist by nature, but I'm an optimist because history teaches us that optimism wins. So if I can leave you with anything, it's exactly that.

48:43Progress doesn't happen in a straight line. It doesn't happen without drawbacks and setbacks. It doesn't happen. I mean, man, just in my adult life, and even more when I was a kid, think about everything from the 70s oil shock to the 80s recession to the 80s high inflation, actually, early 80s, to the 80s recession. Then we had the 90s recession we had to have. We've had the GFC. We've had COVID. Tech been a bust. Right? Sovereign European debt crisis, hunting wars. Any of those points in time, things felt terrible, right? And some of those things were external, by the way, so maybe you didn't feel the global debt crisis as much as others did, but you definitely felt the 90s recession, if you weren't working then, mate.

49:23But it was real and it was around and it was a thing. And so why do I say all that? Because things do improve, things get better. And that's not to say don't worry. It's not to say your feelings or your circumstances aren't real. It's not to say that everyone's doing a good enough job or we shouldn't want better. none of those things because you've heard me a million times talk about all the ways we should improve things but I also am a fervent believer in we haven't tapped out as a society we haven't tapped out as a country we have better times ahead of us and that's not a political stump speech it's just it's the arc of history right if we look back and go turns out 2020 was the best things ever got and after that things were rubbish forever then I'll be wrong but imagine living through World War 2 imagine living through the oil shock of the 70s the high inflation of the early 80s.

50:08This will never get better. This is terrible. I feel like I'm poorer. 1990s, unemployment hits. Was it 11 % or 12 %? It's worse to come. Yeah, way up there. You know, I can't imagine this ending. How are things going to go back to normal? How are we ever going to improve from here? All those things are true. I would say the other thing about optimism, mate, is we can turn optimism into an action rather than just a feeling. And that is actually to argue for better things. And that's kind of what Ram and I do every week on this podcast. Sometimes shouting into the wind. Sometimes, hopefully, you're still listening, Mark, and others, to whatever extent this is useful, I'm not going to say be the change you want because that's just a bit too twee, but we have it in our capacity and control to argue for better things.

50:49And our policies are never going to change until we ask them to or make them or vote for someone else. And that's also long and slow and annoying and feels somehow often just kind of foolish or not enough because they're never going to change, are they? It's like, well, okay. But again, think about the policy change that has 50 years. I mean, think about, go back to 1976, right? In fact, go back to 1967 because it's easier. Aboriginal people weren't counted and given a vote. I mean, for God's sake. Now, that was only 60 years ago. Now, way too late, took too long, still not fixed, all those things.

51:19But think about all the changes from 1967, because it's a nice 60-year period, to today. All of the improvements we made socially, economically, again, have there been downsides and drawbacks? Of course they have, because that's just life and that happens, right? I'm not saying it's okay. I'm just saying I'm not that pollyated to believe that everything's got better, nothing's got worse. but man things have improved technology healthcare um we will be we will look back in 60 years time and be flabbergasted i'll be dead but you hopefully will still be alive mark you might be telling your great grandkids about this podcast you used to listen to and he says what's a podcast granddad said actually don't worry about it it wasn't that good um the uh yeah i i fully i fully expect the future to be much brighter than the present it's it's the arc of humanity it's what we do it's kind of it's one of those things that separates us from from the rest of the animals right we are building something for the future we have time preference um squirrels put nuts away sure but other than that it's like i'm eating what's in front of me and hoping there's something else i can find tomorrow um yeah i think we'll get better so be optimistic be positive i'm sorry it sucks i i'm not saying i'm not saying you know ignore the ignore the pain or or there's not real but yes expect the world to get better because it will yes uh you you're right i mean you know i don't actually disagree.

52:31I mean, I also very, I'm very optimistic for the long-term future of, of humanity, I guess. And that, and that history teaches you that, but history also says that the, that the, the march of progress is typically two steps forward, one step backwards. And those backwards steps when, when looked retrospectively from a historical perspective do seem like little bumps, but they can be decades long, right? And Keynes used to say - 100%. Because back in the day when some of these philosophies were actually being debated, they're not debated anymore, sadly, but when they were and some of the sort of the consequences of some of Keynes' sort of policies were sort of discussed, he would always say, well, yeah, but in the long run we're all dead, you know?

53:17Yeah, that's true. That's true. You know, and I think that while that is true and while, yes, I am also an optimist, I think that, again, history shows you that things have to get quite bad before they get better. And we have to, like, go through a rediscovery process of, oh, yeah, that's why that didn't work. Oh, yeah, that's right. We tried that before and it didn't work. We were talking about some of the sort of communist tendencies that sort of tend to resurface at times like this, right? Yeah. And I'm not trying to be a doomer for the sake of it. I'm just trying to say that if we were to go through a very difficult decade or two, it would absolutely be coherent with what history sort of suggests.

54:04And for someone like Mark, who's 34, it's like, don't worry, dude, by the time you're 60, we'll start coming out of it. And I know you're not saying that, but it's just to say, acknowledge the reality of the pain that people are feeling. And we talked about that on Friday. It is real. And it's those that are disconnected to it and some of the leading parties, frankly, who fail to see that, which is why a foundational part of the reason for their demise and the rise of the populace is because at least the populace for all of their flaws, and they're mainly flawed in every other way, is that they at least can tap into the zeitgeist and realise that people aren't doing well and they're angry and they want sort of solutions rather than pretending it's fine.

54:45And so I could absolutely see... They're not real solutions, by the way. They're simple but wrong. But they... Oh, absolutely. They'll make it worse. Yeah, 10 times worse. Absolutely, they will. But people like me, the Trumpy thing was just, well, you guys suck, so the weird orange man over there who's at least promising to do something different, maybe it's worth a go. And that's where we are with populism. Now, he's doing damage that will be felt for a long time to come. Right. And that's just where I'm not cynical, I hope, or not doomerish, I hope, but just somewhat realistic in the sense that, yes, in 50 years time, I'd like to think that our species is in a better spot.

55:23But we might go through some dark times, you know, I mean, the Dark Ages, man, that lasted a long time. Right. And so rather than who knows, who knows, but we could find that something, I don't know, AI ushers in a new utopia that none of us saw coming or it could be very dark. We don't know. So I'm a big fan of investing and in life in general is to prepare, don't predict. It's that idea of, well, who knows? Scott's right. You're a foolish person to be eternally pessimistic because that's just not how the world turns. People who are always negative just don't, they don't try anything. They don't do anything.

56:08They don't take any risks. And even though there are a lot of problems in the world, they miss out on all the good stuff. And you just don't want to be like that. But I also don't want to put my family's future and my financial well-being in the hands of people who demonstrably, you know, don't know what the hell they're doing and are likely to make it worse. So there is something to be said of, I think when it comes to investing, the way I've sort of narrowed it down is try to lean into real assets and not assets that depend on a counterparty or whose value stems entirely from a contractual agreement, which is actually when you think about it, quite a lot of things.

56:54Because when things get real, if things get real, right, maybe they don't, but if things start to get really real, I mean, there is not, the value of your house is not what the real estate agent comes out and tells you it's worth. It's worth the security of that shelter and that place to raise, you know, Someone who owns their house is so miles ahead of anyone else because of the advantage that that affords. Who cares what the property market's doing? Who cares? It's such a nonsense. I mean, our current property cult here, we just can't look past that number of what the house was sold down the street.

57:28But these are the things. It's at the pointy end of things that the true value of things get observed. As Buffett would say, it's when the tide goes out, you see who's sort of swimming naked. So I think try and make sure that you don't have any at-call debt that you could be margin-called on. Try not to have an asset that a stroke of a pen by some idiot politician can effectively erase overnight. If you're going to own equity, and equity is a great thing to hold and generally does pretty well, make sure that it represents equity in a very robust, defensible company, good cash flows, good assets, all of those kinds of things.

58:08And here's the thing that I always think of is that if your pessimism, if you want to call it that, or your concerns prove unfounded, there's still great things to own. There are excellent things to own, right? It turns out actually when sentiments are high and we're all super bullish and super optimistic, it's actually the most stupid investments that do well. That's when NFTs do really well. That's when speculative biotech companies do really well. That's when all of these things do really well because everything's going to the moon and they've got the most upside. But they're also the most flimsy as well.

58:41And it's not the greatest tragedy in the world that you happen to own a bunch of assets that underperformed the more speculative end of the spectrum during an unprecedented, unforeseen sort of financial utopia that, you know, very few could have predicted. But my point is, you're still okay, right? So structure yourself for resilience. You want to, I think too often in our game, people optimize for, I want to maximize my risk adjusted return. And I guess we all do, but I would layer on top of that, I would do so in a way where that risk adjusted part is taken very seriously and that there is a resilient component to that.

59:25So I was like, I can't predict the future, but if this, this, and this were to happen, I would still be relatively okay. There's a lot of scenarios where you will be worse off, but a world where your real worth drops 20 % when the rest of the world's real wealth drops 50 % is an outstanding outcome. You have actually gone up the societal financial rankings in that scenario. And so it's just really a question of that kind of stuff. Never be at the whim of someone's discretion because they decide to call in a loan because they can, because they've decided to no longer consider your collateral valuable, because they've now decided that they're going to print an ungodly sum of money and that the bond that you're holding's face value might not change, but the real value has just been absolutely eviscerated.

1:00:15You know, these are the things that I like to think about because it just, it suggests a middle path where I don't have to be all in optimist or all in pessimist. I'm just trying to be, I'm trying to be alert, but not alarmed. I'm trying to be structured in a way that come what may, I'm likely to see my financial lot improve and my family's wellbeing improved, but in a way where there's, I won't say none because there's always something, but I have minimized the attack surface area, if I can put it that way, where, you know, you know, it's like putting all your money in Berkshire Hathaway, right?

1:01:00That's not a terrible idea, but yeah, you are still, all those eggs are in one basket. And maybe Uncle Warren decides, Maybe he just goes completely senile and decides to do something really stupid tomorrow. It's like these things can sort of happen. And it's just about thinking through all of those consequences and focusing on that robustness and understanding that when you do that, you actually do reduce your return potential. Because the best return potential is super, super, super high risk. And you just hope it pays off. And if it does, then fantastic. But if it doesn't, you're gone and you're wiped out.

1:01:36Yep. Yep. That will be the best. I haven't even done the numbers, but I'll bet my left arm this is true. What's the best performing stock on the market over the last five years? It'll be a stock that none of you have heard of because it was a stock that was 0.1 % probably a mining speculator that is now worth$0.48. And it's just like it's not in the all odds. No one gets reported about. And it's just like people see these figures and they go, well, that means that I should put all my money into those kinds of companies. It's like, yeah, but what you don't see is the silent evidence of the fact that 99.99 % of those companies went to zero.

1:02:12And there's a survivorship bias. You're pointing to the one that happened to survive. And it's like you're drawing the wrong lesson from that. And it's like the person who said, look, I bought a lottery ticket. It cost me$3, and now I've got$10 million. That is definitely the best return that you're ever going to get. The return on invested capital of that transaction is insane. Now, who's going to recommend that as a prudent financial strategy? So be content with an adequate rate of return that is robust, because even if you quote, unquote, pick a number, let's say you get 8%. It's a little bit below the long-term market average.

1:02:54Okay. You could have probably done better, should have probably done better. I don't know. Your Harry Hindsight version of you in 20 years time will know exactly what you should have done. But it's not a tragedy if after, you know, 20 years you go, well, it turns out I compounded my wealth at 8 % every year. Like, well done. Well, in real terms, maybe 4%, 5%. You know, it's incredible the amount of wealth that can be created over that period of time. And if you can do that in a way such that one random truth social tweet or, you know, TikTok prime ministerial address can like completely, you know, put the kibosh on instantly, you know, it just makes a lot of sense.

1:03:36Sorry, I'm rambling and ranting at this point. I'll shut up. No, good, mate. You're doing well. Let's finish off with a question from Ethan, which is a good one, particularly in times of volatile currencies. Not maybe in Bitco, but it's a whole different conversation. Ethan, good morning, gents, and gusto to you. Thank you, Ethan, to you. A quick question regarding ASX index ETFs that track American markets. The ASX version seemed to be down versus the actual indices this year. For the last six months, the NASDAQ is up 5.78%. This was as of early March. 5.78%. However, the beta shares NASDAQ ETF over the same period is down 1.17%.

1:04:17This is the same for the S &P 500. Over the last six months, the index is up 5.4 % versus the iShares S &P 500 ETF down 1.6%. Is this due to currency swings we've seen this year? The swing is 6%. Am I better off putting money into these indices now versus the Vanguard ASX 300 ETF? Now, Ethan then says, sorry, Scott, I know you hate tickers, but every investor will know these three. And Ethan, you will realize I've replaced every one of your tickers with a company name because you've got to get up earlier than that to beat me, Ethan. When you track your investments versus the index, he says or asks, are you tracking the actual index or the index equivalents we can actually invest in?

1:04:59Thanks, Ethan. Last question is easy. When you say track, I don't know if you mean score, as in I keep track of or whether you're asking what they are. Essentially, for me, I'm measuring my performance against the index, but I choose the ASX, the All Orderies Index as my benchmark. deliberately and directly because that's my bogey, that's my home market. And if I want to do better than that, that's what I'm going to track. I could have chosen to use some sort of global number or if I'm only investing in the US, maybe you use one of the US indices if you want to, that's cool too. But for me, I track mine against the ASX All Ordinaries Index.

1:05:34I think that's just the better one to do. But you can't buy the All Ordinaries, you can't buy the ASX 200 as an index. You can buy every individual company in the appropriate weight or you can buy the ETF. The difference here is just the ETF. and you could do that by the way, the ETF has a very, very small fee. So the ETF is always going to lose to the index by definition if there's no tracking error. Tracking error basically ends as long as you get the weightings right, you get the transactions right. So yeah, I track mine against the actual index. I could use an index ETF instead as a tracker.

1:06:04It makes not that, I bugger all this. Two decimal places worth of difference. So it's immaterial. On currency, mate, is that what's going on? Yeah, it's 100 % what's going on. I mean, a year ago, the Aussie dollar would get you 62 US cents. Now it gets you 69 US cents. And you kind of go, 62, 69, it's not that big a deal. No, it's like, you know, it's 10 % less, 11%, something like that, right? And so there is a, it's unavoidable. Well, let me say, I was going to say, it's unavoidable to a degree. this is where the ETF providers that go, hey, we've got a solution for you because they've got a solution for everything and the solution for this one is we've got a FX hedged version of it and before you go, wow, I feel so good to be true I was like, well, it is too good to be true and the reason it's too good to be true is because you effectively to nullify any currency movements you have to effectively buy insurance and they do it through sort of derivative contracts doesn't matter how they do it but they effectively insure it Like all insurance, it costs money.

1:07:10And so it's the kind of, is it worthwhile? Absolutely. It was worthwhile over the last year. Will it be worthwhile over the next year? I don't know. Who knows? I mean, we could be a 50 cents or a dollar 10 or anywhere in between or much more different in a year's time. I don't know.

1:07:30My thinking on this is largely informed by the view that these currency pairs, particularly between something like the US and the Aussie dollar tend to mean revert around an average. Actually, we're not far from that average at the moment. And whatever they do in the long term, even if over the investment, I start when the Aussie dollar is at 50 cents and then it goes to 70 cents. It's a big difference. But over 20 years, is that enough of a difference to stop me investing in a company that might be like an Amazon or a Google or something. And I was like, if I can find, and let's be real, like some of the best companies on the planet cannot be bought on the ASX.

1:08:16Very few of the best companies on the planet can be bought on the ASX. And we've got some great companies, but we don't have NVIDIA. We don't have Alphabet. And I would not let the potential for a new term currency fluctuation or even a long term structural decline on a currency basis be enough to dissuade me for gaining exposure to that asset. Now, of course, if the currency changes radically and the US enters a hyperinflation and Australia somehow avoids all that, there are scenarios where, OK, that completely breaks down. But you start getting the Mad Max territory there. So assuming not the complete collapse of the world order, nothing's off the table at this point.

1:09:04But assuming that's not the case, I just tend to think, you just cop it, right? Sometimes it'll go against you. Sometimes it will go for you. Yes, you can try and insure against it. Over time, the historical example has been that that actually ends up being a slight net negative if you do. then again you know um some people will say i happily take a little bit of a less return for the sleep at night factor and if that's one thing i don't have to worry about i'm happy with that as long as your eyes wide open and that that's gonna it's gonna um uh take the edge off my returns but it gives me sleep at night no no harm no foul no judgment in fact that's that's great it's only a problem when you think you've got a free lunch that that's that's when problems start But if you understand the trade-off that's there and you're happy at that trade-off, then by all means.

1:09:56But yeah, currency is a thing, man. Like it really can change things. Ask the Egyptians, ask the Lebanese, ask the Argentinians. Ask about 134 different currency pairs around the world. They very much feel the consequences of this. It's why, frankly, when you look at the yen that's priced in the thousands or the won in South Korea or things like that, it's like, why? That's like crazy. Why would they have so many zeros after their currency? It's like, there are reasons. There are reasons for that. And there are things that you definitely need to be aware of. But in the broader sense of ETFs and US and AUD currency pairs is not something I've – I guess I would say it's not unimportant.

1:10:46There are just far more important things to think about. That's fair too. Do you question, Ethan, about am I better off-screen money in the ASX? It depends because this time next year we could be talking about numbers that are going exactly the opposite way. Yeah. And so if you wanted to avoid currency volatility, sure, yeah, by all means. And REM's already addressed why you shouldn't necessarily try and avoid it. But if you want to, yeah, if it worries you that that's going to be a difference because the swing of 6 % this year, next year it could be 10 % the other way or 15 % the same way. It could get worse before it gets better, it could get better, then worse than better, then worse than worse than worse than better.

1:11:20It will. It'll fluctuate, right? As JP Morgan famously said.

1:11:27So would you be better just invest in the ASX? Only if you want to avoid currency volatility. But again, as Rams highlighted beautifully, you're foregoing the chance to invest in other businesses. And that's okay. Some people are selling the ASX to do perfectly well, so I'm not saying you have to or should. I invest in the US for quality reasons. I invest in the US because I think, so I own lots of Berkshire, as everyone knows. I think the companies on the NASDAQ will continue to outperform the rest of the market for an extended period of time. I'm talking years, like years and years, because most innovation seems to be technologically based.

1:11:59And the NASDAQ has a preponderance of technology companies. So I suspect they'll probably do better than average. So I invest in the NASDAQ ETF. I bought some units at different currency levels. But at the end of the day, in 25 years time, it's kind of not going to matter. Now, I will say I sell regularly in 25 years. I want to sell. I want to have enough flexibility in my selling date to make sure I get a good price for the shares or ETFs I sell and the right currency. And they might not come at the same time. I might sell my, hypothetically, Berkshire shares in 2058 at hopefully$84 million each.

1:12:33And when I do, the dollar might be at$1.10 or it might be at$0.70 or$0.30. So I might decide at that point, unless there's something structural like Ram says. I might say, well, I'll sell them because they're a good price to sell the shares, but I'll keep the currency in US dollars until I get a better currency, then I'll bring it home. And that might be a couple of years' time. Or I might not. So you want to have much, much, much more timing flexibility for foreign currency-denominated assets than for Australian dollar assets, in my opinion. I can't say you should personally do it, Ethan. I'm just saying in general.

1:13:02But yeah, I wouldn't let currency volatility prevent me from investing in the ASX because in another year, Ethan, you're emailing me saying, am I reading this right? the you know the nasdaq's only up by two percent but my investors are up 20 what you know what's going on there um and equally both could happen so you've had a bad or not bad you've had a less optimal experience because the currency movements it shouldn't make you basically say this year we're talking three months right um it shouldn't it shouldn't make you change your investment strategy because or unless you really care about currency volatility unless you really want to avoid it but then if you're about currency volatility check out share price volatility mate like it's you know we talk about currency like it's a big deal and it kind of is but man i mean woolies is more volatile than the australian dollar like just you know so yeah i think you make your peace with it um as long as you have that timing horizon to allow you to make independent decisions about the price you sell at and the exchange rate at which you bring your money back to the country yeah or your case actually you tell us actually listed etfs you don't worry about both it'll be done for you um so those two are combined in this instance I misspoke or at least didn't think through what I was going to say.

1:14:06So, yeah, both will be in the price at any point in time. So you'd have to know the combination of those is when you need to make your decision to sell if you're going to sell. Yeah. And it also comes back to sort of something we were talking before, and it's come up a lot of time in the past. You know, perfect is the enemy of the good here as well. And I just think with so many of the – much of the correspondence we get, people are just like, they're really just doing the right thing. I mean, we can debate some of the finer points and the rest of it. here's Ethan, he's got a bunch of money in an Aussie ETF, it's going well, would it have been better or could it have over the last, yeah, I don't know.

1:14:40You know who's going to do, are you going to do better than 99 % of other people who are just doing dumb stuff out there? It's sort of like, you're so doing the generally right thing that anything, and that's probably the point of the question. It's just like, yeah, I just want to, I thank you. I already think that. But I'm just trying to sort of optimize things a little better. And that is fine too. But gosh, all our listeners are so smart. They get it, right? Spend less than what you earn. Try and invest it sensibly. Give it time. You're going to do well. Someone's going to do. Look, I can tell you, I run a little company called Strawman, right?

1:15:18We've got scorecards. Everyone gets$100 ,000 in play money. Some people have just shot it out of the park. Others haven't done less. But it's just like, on average, it's all doing pretty well, right? Like it's just, you're just even, there's just going to be natural noise in any kind of system where there's just, some people are going to do better than others in certain periods of time, certain strategies are going to work better than others. But it actually doesn't tell you a lot about the future. In fact, there's really interesting studies on this kind of stuff in, you know, fund managers is the classic one.

1:15:49You know, it's generally speaking, not generally speaking, empirically demonstrated that the worst thing to do, maybe that changes in the future. The past is no guarantee of the future. But generally speaking, if your advice was every time, every year, look at the best performing fund and put all your money in that, you massively underperform. Yep. You know, and that's what most people do, right? They're always trying to chase this thing. And it's just like with a person, it's just like, I've got a pretty good fund. Actually, you see that when you look at these fund management performance tables, I want to forget, might have been John Huber, who's a US funder, a really, really good guy, writes really great newsletters actually.

1:16:31He made the point that when you look over long periods of time, like 10 years plus, the best fund managers, usually tend to be rather small boutique kind of funds, they're the ones that never, ever appear at the top of the performance rankings on any year. So in other words, when you look at, oh, who was the best fund managers over the last 10 years, you'll see a list of names. But when each and every year you look, who is the best performing fund manager? Who is the top 50 performing fund managers in 2007? It wasn't them. In eight, it wasn't them. In 2009, they're invisible. They just do not show.

1:17:09They are never, ever, ever at the top of the pops, except when you start measuring over long term. And it's the hare and the tortoise. Aesop kind of fable kind of thing here. It's sort of like what it shows, and it's very, very relevant to us as individual investors, is that the person who can consistently get a reasonably decent return is so vastly superior than the person who can occasionally knock it out of the park and then have a whole bunch of mediocrity in between. They're the ones who get the headlines. They're the ones the AFR will write up a glowing article about and how they've done it and how they've changed the game and how it's like the old ways are dead.

1:17:50It happens in reverse with Buffett all the time, right? Has Buffett lost it? What's he done wrong now? And it's just like, you know, just consistency. Consistency matters more than anything else. And chasing the optimal is usually not optimal. That's such a great point, mate. There's some data about the top performing funds. Something like the top half for 10 years, you end up in the top. Each of the last 10 years, you end up in the top like 2 % or 5 % or something. It's like it's super huge and it's really important. I haven't got time for it now, but I did a bit of work during the week on the last five years of the top and bottom performing sectors in the market.

1:18:33Yeah, yeah. It's fascinating. So really, really quick version. Look up something. I called it something. The title wasn't great of the email or the article. So what's going on in the ASX? Something like that. So over the last 12 months, here's some numbers for you really quickly. We won't drag this out. Two sectors are up more than 30%. and two sectors are down by more than 30%. And the gap between the best performing and the worst performing sector, 73 percentage points. Wow. Right? And so if you are heavily in one sector or another, your performance, we say the market is not the market all the time, right?

1:19:06You make the point that very rarely does the market get the average result in a given year, even though the average is the average. So the market, this is about dividends, the last 12 months was up 7%. Consumer staples was the only sector within six percentage points of that number. The next two were six. One was at almost zero. One was at like 13. So about, you know, and then two sectors more than 30, two sectors down by more than 30 with that 76 point difference between them. And the market's up 7%. And you kind of go, if that's not the duck under the water type stuff, it's like that average hides a lot of variation.

1:19:41And that's not even individual companies, which are even more variable again, right? But that is just phenomenal. And then so, spoiler alert, top performing is energy, worst performing is IT. I was going to say, it had to be tech. Yeah. If you go back over the previous four years, those two have been extreme examples, extreme returns for each of the four calendar years before that in different directions almost each time. And the fifth year, they were both down by a little bit. Yeah. It's just like in any point in time, if you look at your performance, it's a really, really different story. And that's worth, I think, calling out.

1:20:11There's a related thing to that as well, not to get into, but it's the idea of, you see people do it where they go, I back-tested a trading strategy and it worked. And I was like, you are dealing with a complex dynamic system with all kinds of feedback. The world is not that ordered. And if it was that easy, that would have been found exploited and arbitraged away. And whatever worked last time is almost – I wouldn't say this because it's just as silly, but I would prefer it. it's almost better to do the opposite of what worked because that's just the way that the world tends to sort of go, right?

1:20:54And yet everyone's sort of chasing what used to work. And you say something like what you just said, which is like, I would imagine that if you were to poll random people on the street and said, you know, what are the best performing sectors? And you're like, everyone, tech, tech, 100 % tech, it's obviously tech. And it was until very recently and it wasn't. And that's also a gradually then suddenly kind of moment as well. So, you know, what are we saying? Bottom line here is as well, extrapolation is dangerous.

1:21:25Chasing perfection is dangerous. Tread the middle path and you'll be okay. Nicely done. And a lovely way to finish up this particular mailbag episode. Actually, we'll come back next Friday. Yes, definitely. Hey, good news. Oh, yeah? Nothing changed after Trump's announcement. Oh, it's happened, has it? Okay, good. Apparently just more bombing. Not good? Well, no, not great, but at least it's not boots on the ground or something stupid, which it could have been. Don't get me started. We're trying to end this podcast. I'm not happy, no. Don't jump the water like that. Full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

1:22:08General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.