Mailbag: incl. Is financial advice necessary? October 6, 2024

25:57and that's that's not again not a not a value judgment it's an observation um so those are the questions you're going to ask yourself and if you don't know how likely political stability is or how likely i'd nationalize the bank or what the quality of the loan book is or what the exchange rate is likely to be then you're kind of taking on risk upon risk upon risk and if that will work out for you this goes to a p of 12 profits double you just made a squillion dollars or maybe it doesn't and you know maybe it goes to zero that's not i'm not it's not the most likely outcome but you need to be effective for it, in which case, it doesn't matter how cheap it is.

26:29Whatever money you throw at it, at whatever PE, if it goes to zero, is it worth exactly zero? So just kind of have some of those thoughts in mind. Ram's point, I just want to re-rate your point, mate, we'll move on, or let you jump in again and then move on, is don't expect a re-rate for the sake of it. The market has said for the longest time, we don't think this is worth more because of those risks. And if you got paid enough in dividends to cover that, you might say, well, okay, I don't care about the price, I'm just buying the income stream. And that could even be a reasonable thing if the other concerns don't come to pass.

26:59But I wouldn't rely on a re-rating. And a 7.4 % dividend yield, at least according to ComSec, that's what, 14 years worth of dividends just to get your money back. And then you want to start making money on top of that if you're not worried about trying to, you know, working out what the company itself is worth. So I don't know, that's a lot. Sorry, I just looked at the OS and do it. And I'm an idiot. My apologies. I had it up on my screen because you were talking about it before. 10.7%. So that'd be nine years worth of dividends just to get your money back. And then you want to make some money on top of that.

27:30It's got to be in business for that nine years. The dividend is not going to change. The currency has got to work for you. Go for it. If you want to take the risk, you know the risk you're taking, go for it. Just have a think about the business that you are buying. Understand the risks really, really well and go from there. I'll give you a good example because we started the show talking about bonds. So you can buy a 10-year bond off the Australian government. so you'll lend them some money, they'll pay you back in 10 years and they'll give you 4 % along the way based on the current price. I mean, I think you'd have to have your head red basically because I'm going to get that in an ING Saver account and not have my money locked up and not have them.

28:07Anyway, it's, you know, each to their own. Whatever insane reason there are people out there prepared to pay that. But I can go to Egypt and I can get a 10-year bond yielding 24.5%. Yeah, right. Money to jail or not. It's the exact same argument. It is actually, yeah, it's a good point. You know, it's sort of like, why would I buy an Australian bond when I could get an Egyptian bond that's going to literally give me six times more the return? And the answer is no one has much confidence in the central authorities in Egypt to manage their monetary and economic conditions that well. And they think that because - All circumstances will overtake them.

28:44Government might change or whatever else goes on. Just the reality is you're not going to take the risk. I've always got to be careful here to delineate between the governments of countries and the peoples of countries. So I've got nothing whatsoever against the Egyptian people, but the government has not covered itself in glory. Let's just be honest. This is a historical fact there. And the bond market is absolutely reflecting that. And look, Australia is not squeaky clean either, but there's just not even close in kind of comparison. So, you know, and I wouldn't say there, I often talk about Howard Marks, one of my favorite investors, who's a bond investor.

29:19Yes. I read everything he writes. I really, really, really like him. He invests in emerging market bonds, right? He's the kind of dude who goes after these kinds of things and looks for mispricing. He's done very, very well out of it. So I'm not saying for a second you can't do well out of it. Just know the game you're playing and know that that higher potential return comes because you are taking on higher risk. And it's a hard game to play. Love the way to summarize it, mate. I think it's a very, very good point. Here's a question from Paul. Dear Scott and Andrew, ETFs were touted as simple, set and forget investor vehicles.

29:54Yet the variety and breadth of ETF options is becoming more and more complex to navigate. I've noticed that in some cases, there are both hedged and unhedged options for international ETFs. Would hedged ETFs be useful for mitigating the potential for long-term cyclical AUD versus USD fluctuations, for example? or is the hedging more short-term and therefore it adds complexity and potentially fees to what should be a simple long-term vehicle? Thanks, Paul. I'll kick this off, mate. I've ranted a lot about ETFs. The industry doesn't want to change the name because they like the fact that ETFs have become a buy word for you should just buy this.

30:34So it's the easiest sell in the world. And so no one's ever going to change it. It was up to me, I'd actually add a letter to the acronym and I'd have something like ETIF for exchange traded index funds, which are the traditional broad, super low cost, super diversified index tracking, you know, big index ASX200, S &P500. And you have something like exchange traded thematic fund or something. And that'd be the other stuff that is, you know, betting on a theme or a trend or a currency or an asset or whatever. Not because they're bad necessarily, just because the two get too easily combined. And when you start making funny bets on the special stuff, special air quotes, You start to pay more fees.

31:13You start to become more active rather than passive. And that's okay. There's nothing wrong with active ETFs if that's what you want. My issue is with the effective drafting strategy, the bait and switch of ETFs are great. Therefore, buy my ETF, which costs three times as much. And he's leveraged and taking a whole lot of risk. So I'm with you, Paul. Stupidly complex. The fund managers, product manufacturers in this space, because it's literally what they do. They make stuff and try and sell it to you. They're not trying to help you invest. They're trying to get you to buy their thing and pay them a fee.

31:41That's a little bit cynical, but not much. So that's just a setup. In terms of the hedged and unhedged, yeah, it's difficult, right? I mean, if you – and again, we'll get back to passive versus active. If you have a view on the long-term movement of the Australian dollar versus the US dollar, and you think that view is well-founded and more likely than not to be right – and I say that because we can all have a view on a thing. You know, I think the Roosters are the best football team. Okay, that's true. No, I'm kidding. Doesn't mean it is, right? So when you say you have a view, I can have a view on something.

32:11Should I have a view and should I invest accordingly? That's a big difference. So if you had a very, very well-considered investment view that you thought you want to invest in US stocks, but there was going to be a long-term, you say cyclical fluctuations, but long-term cyclical fluctuations don't need to matter. So if it's a structural one and you thought in five years' time, oh, sorry, in 20 years' time, the Australian dollar was worth 20 US cents or$2 US, you might have a, you know, again, if you had a reasonable basis for that, you might choose to hedge against that super long-term impact and still get the returns from the investments in the US.

32:44Now, if those currencies were to change that dramatically, I dare say it'd impact the investment returns from the companies themselves. So be careful. But if you had that view, I guess someone could use an ETF hedging if you have to do that. Other than that, if it's purely cyclical, you are just playing for volatility insurance. And so it's costing you money. If you need it to sleep at night, then go for it. If you don't need to sleep at night, you're just paying someone else to make your path smoother and your destination be worse than what you otherwise would get with more volatility. Right?

33:17I've got absolutely nothing to add. I mean, that's it. It comes up a lot that quick. It really does come up a lot. And I get it. I liked the long-term view though. He kind of said long-term cyclical, but I just want to ask it because he does add that extra bit of we're assuming that the currencies will mean revert over time. And if that's true, hedging is not worthwhile. If there is, And you've talked a lot about the US, right? I've got to say, I don't share your view, but part of my thinking as I'm thinking about my US investments is if you are right and the US dollar is worth a whole lot less, then what does that mean for my US dollar denominated assets?

33:47So it's a worthwhile question to at least ponder if there was going to be a structural change you could hedge against, that may possibly be worth something. Yeah. Gosh, that's another rabbit hole we could go down. but despite some of the negativity, there is something called the dollar milkshake theory, which would suggest under that set of circumstances, the dollar does extremely well. It's the best horse in the glue factory kind of argument. Anyway, let's not go there. I will say this. There are 350 listed ETFs. Well, by definition, they're listed, I suppose, on the ASX. You know, like there's not that many indices.

34:25Right. And there's more ETFs in the US than there are companies. yeah that's right yeah which is bananas yeah so you know look when the ducks quack feed them that's the saying on wall street you know turns out that people are interested in this stuff okay we're going to pack something up not because it's needed or wanted or justified but because people want to buy it i'm actually i'm actually pretty sanguine with all of that it's just like yeah like i if that's what people are asking for give it to them right um uh i wouldn't do it just because you know silliness exists you don't have to participate in it but but it's horses for courses so you know if if just always remember and this is the one point i'll make before we move on is that there is never a free lunch here so there'll be plenty of people who go i will happily take a lower total return to be able to sleep at night yeah and far be it from me to say you're wrong that's what you value then absolutely value just just don't know you're not going to get the high returns and the low volatility they they there is a compromise and if you're cool with that then fill your boots son yeah not necessarily that one necessary uh well necessary for some people i for people who value it no i mean i'm trying to be very balanced no no yeah no not necessary at all in my in my humble view in my world view in my circumstances given my particular experiences in life, but that doesn't mean I'm right.

35:50But it's not for me. Now, mate, we've got a question from Jared, and I'm not entirely sure Jared isn't a plant. I always love it when you start, because I know I'm going to get a question I like. So, yes. You will. Not the question you're looking for, but you'll like it anyway. Hi, Scott and Andrew, says Jared, posing a slightly different question, but I wonder if it's something many people in the investing community think about. I'm a member of the Motley Fool's Dividend Investor Service. Thank you, mate. By the way, Jared, you probably know this, but Andrew started Motley Fool Dividend Investor way back in the day when he was working in the Motley Fool.

36:21I'm in my early 40s and working full-time in a multinational food business, which is a hybrid work-from-home structure and generally involves lots of interactions with people, both in person and virtually. I'm 100 % focused on exiting the rat race and planning my transition out of my day job in the next five to 10 years, hopefully in brackets, and continuing to invest in shares to transition from passive income to primary income. Putting aside the financials of the plan for the moment, my question is around the potential loneliness of going down this path. Investing feels a bit like a solo sport and one that could be isolating.

36:56I'm wondering whether you guys have thought about this before and any thoughts, tips and ideas to make it less of a solo sport. I guess for some people, this might not be an issue, but I don't know if it would be an issue for me when the time comes. I have a slight feeling that it might be. I've thought about investing communities, forums, networking events, courses as ways to potentially help with this, specifically those connections from a more professional standpoint, which is why I'm excluding family, friends, hobbies, et cetera, for this purpose. Appreciate any advice and keep up the great work on the Friday and Sunday podcasts.

37:28Cheers, Jared. Investing communities around, you've not turned your mind to this, have you? It seems like a really fat pitch to sort of - Doesn't it? That's why I'm not sure Jared's not a complete plant. Tell us what you think about investing communities, Andrew. look i you have some clubs maybe an online one if you're going to do one it'd be the premier online one surely so go on i look there's a lot of good free options or very cheap options i'll give a shout out to the australian shareholders association it's very cheap membership and and you'll get to have in-person meetings with people who are interested in that as well uh you'll find some good stuff on twitter you know honestly a lot of rubbish as well but you know you'll find some good stuff there you'll find it you'll find it there is plenty of opportunity for community.

38:13And I think it's really valuable. I only think that the only danger is you will unintentionally seek out a community that reinforces your own views because we all do, right? So you want to definitely have that community because community will expose you to ideas, either specific stock ideas or just ways of thinking about business and investing that you may not have otherwise come across and that you can, you know, the balls pass to you, you can run down whatever rabbit hole and research and think about it and incorporate. It's really value. I think virtually all of the stuff I've ever learned was through osmosis.

38:51I didn't invent anything. Right. Yeah, totally. What's the Isaac Newton line. If I've seen fire, it's because I've stood on the shoulders of giants, which is such a great line, right? Not, not to suggest I have seen far, but, but, but, you know, I, here's the great thing. I don't have to, reinvent the wheel. There's really smart people who have laid it all out for you. There is nothing new in investing in the last 50 years. I am absolutely convicted of it. There are different industries, different companies. The principles of investing have not changed, honestly, since Ben Graham and Warren Buffett laid them down 80 years ago.

39:25The embassies might have changed. You might learn a few things. The companies have changed. The structures have changed. The idea, and Buffett talks about this regularly. Read, read, you know, chapters 8 and 20, I think it is, of the intelligent investor Buffett talks about. But they're the same and as valuable and as unchanging as they ever were. Oh, look, even when the AIs are running all the investment decisions, they'll still be basing it on the same kind of thing. What's the future cash flows? What's that in today's value? They will do exactly the same thing. Less margin of safety in your life.

39:50Absolutely. Of course they will. And for very good reasons. So, yeah, I've lost my point. I, yeah. you were talking about um ways of investing and learning things and oh oh yeah yeah yeah so i think it's valuable for that thank you thank you gosh this is a sign of age just complete just blanking um and the other one is is just to um emphasize this a bit you you want also an environment a community that will challenge you and go i totally disagree and i just think I mean, that is the sort of subtle plug for straw man because it's - Subtle? Yeah. So if someone was to create a straw man you could knock down, for example, is that what you're saying?

40:38It's a really messy analogy. But yeah, it is. I genuinely believe that though, honestly. It is what you want. Having said that as well, you can get too far. You've talked before about how Buffett moved to Omaha specifically to get away from community. Yes, yes. You know, so there is a right balance. And look, of all the things to worry about, I think you will, whatever itch you have, and it's a very genuine, legitimate itch to have to sort of crave that sort of social, intellectual kind of network, you'll scratch it. No problem whatsoever, you know, and you'll figure out a rhythm that works. It'll be a change.

41:15It'll be a challenge. It'll be an adventure. It'll be great. Look forward to it, man. Get out of the rat race. Invest full time. Do something you love. You'll find that some things don't work. Some things work really well. You'll come across things that you didn't know existed and you'll lean into that and other things that didn't seem to be as good as you thought. And you'll find your way and you'll make a bunch of mistakes along the way and you'll get some right and you'll just get better and you'll get better and you'll get better at it. And that's the path we're all on. So, yeah, there's no prescription here, I guess, is what I'm saying.

41:42I think that's right. Give an end of ideas for a quid. What I'm going to say next will sound strange, Jared. But if you are – invest for a hobby like you are now. I understand you're thinking, hey, I might be a bit lonely without professional contacts. Maybe I make investment, investing in my profession, can go down that path. I'm just not sure that I'd head down that direction. And again, that sounds silly or strange. If you're not having a feeling of time and you're passionate about it, by all means do it. Don't get me wrong. But hopefully, you're not going to try and give up your job in day trade to try and make some money, right?

42:17You say primary income. I hope it's going to be in a passive sense. And when I say I hope, I guess I'm saying that because I don't know that day trading is a particularly good idea. And if you're just replacing one job with day trading as another job, stay in your current job, mate, seriously. You don't want the stress and hassle and you lose money and your boss is going to pay you every week, every month, or every fortnight on a regular basis. You know the money's coming in. You know the job. You're good at it, presumably. So, yeah, I guess if you're going to effectively semi-retire or retire, and use your income, your dividend or capital growth as genuine passive income, but just kind of stay connected with the investment community, the bio-wens do it.

42:56But just be a little bit careful. I don't want you to kind of get too caught up in that. I guess that's probably my point. I don't know whether, I mean, Oregon's got a strawman.com. I hear it's very, very good. I hear it's the premier online investment club in the country. So if that reputation is deserved, I'm sure it is, then maybe that's worth a go. So I'm saying don't do that. And you worry about loneliness, you're trying to, I guess, use investing to fill that gap. And I don't blame you. I just wonder whether there might be something else to fill the gap with. And again, that sounds silly because I'm an investor for a quid.

43:25If I wasn't being paid to do this job full-time, would I spend 40 hours a week doing it with my own passive income? If I get to that point of saying I've got enough to retire? No. I'd do it because it's interesting. I'd read the papers, and I'd be on Twitter, and I'd have fun doing it. I don't know. I'd try and fill my non-working time would just work otherwise i might as well stay at work so it's kind of it's kind of that you know if that makes sense so yeah um do it by all means uh twitter's great um twitter can suck too by the way but it can be great if you cultivate a good group um it just can be a bit of a cesspit otherwise um straw man is excellent there are online resources i'm not the phil has some discussion forums as i'm sure you already know so feel free to check some of those out if you want to there's a plug for us but realistically um you know you kind of know what's out there already I don't know.

44:09I don't know what advice to give you, mate. I just wouldn't. I would be careful of doubling down. If you're genuinely going to retire with passive income, don't resist the urge to be too active, I guess, because you kind of go, well, now I'm researching more, so now I can buy and sell more stuff. You kind of don't need to. If you're putting as much effort into your current investing as you need to be, when Rami talked about on Friday, the idea of kind of, you know, was it? Oh, no, this podcast, the exercise, sorry. You know, talking about the, you know, one 20 minutes of exercise from zero to 20 minutes and then from 20 minutes to seven days, if you're already doing the 20 minutes of investing exercise, Jared, maybe you're kind of already there.

44:44So again, I don't want to persuade you from doing it, but also would just be careful not to make it bigger than it is and then all of a sudden you're in front of the screen all day and you want to do this and do that and do something else. Make sure you keep it as a hobby and keep your investing approach strategy, i.e. long-term investing, front and center of what you're doing. Does that make sense, Ram? Yeah, yeah, it does. I mean, there's really no right or wrong way. Everyone has their – I mean, you and I have a huge overlap on the Venn diagram, but it's not a total overlap. Yeah, true. You know?

45:15And who's right? Well, we're both right. Me. Yeah, no, you're right. You're right. I guess that's the only point to emphasize is that sometimes the reality can be different from the expectation. That's the point I think you are making. and it is a very cool idea to be your own boss, work from home investing, but it can be lonely and it can be a lot very stressful. And you might do well overall, but you can have some really tough years in all of that. And for a lot of people, that's like, yeah, totally cool with that. It suits my personality. For others, it's something that will be so severe as to force them out of the game at the worst possible time.

45:56So know yourself is the important thing, I suppose. and then figure it out as you go. I like it. I like it a lot. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

46:13Hey, this is from Nicole, mate. She says, hello, I love your podcast. Thanks, Nicole. This is my second time writing in for your thoughts. Thanks for all you do and being such a great resource, voice of financial reason and source of quotable quotes. As Ram said before in a different context, We probably should repeat what other people have said and make a podcast out of it. So we're glad you appreciate it, Nicole. A previous mailbag, you had a mid-40s listener inquire about investing in shares versus super at his stage of life. I really liked your sensible response, which was, if you own your home outright, then enough super for adequate income in retirement.

46:47And after that, invest in ETFs outside super to maintain access to your money. In fact, I believe this is Scott's financial approach to retirement. Correct me if I'm wrong. So I'll just stop here for the sake of it. That is effectively my approach, Nicole. I think you've pretty much summed it up. Pay off the mortgage because then you just paid off the mortgage. Ram's made a point previously that I could invest that money, get a better return. He's dead, right? I still probably think owning the ham outright's worth it just for, frankly, psychological, emotional reasons. Yeah, adding after Super, my view on Super's changed a little bit because of the caps the government have bought in on the size of the Super.

47:26I would add enough to – yeah, I think you want to get your super to a reasonable size, so it will compound and snowball away at tax advantage. Take advantage of that. If you've got only a small amount of money to invest, use super because the tax advantages are worth it for you. As you're adding more to that, as your super gets big enough to become its own snowball, then yes, I would invest outside there for financial flexibility. So, yep, that's pretty much spot on, Nicole. Do you want anything on that, Ram, or we just move to Nicole's question? No, no, no, keep going. I was wondering what your views are on financial advisors in such situations.

47:58Are they necessary? Would you use one? What would you expect to pay? Is mid-40s too soon? What about as you approach retirement? What areas would you expect to focus on? And could a savvy podcast listener get by without one if they did their research? As always, not financial advice, just interested in your thoughts and banter. Thank you, Nicole. What do you reckon, mate? Someone who's not Nicole but like Nicole? Would a financial advisor be useful, necessary, helpful, beneficial or no? Look, a good financial advisor could change your life, set you on the right path, give you good solid advice, good structure, worth their weight in gold.

48:44Let me say that first because what I'm going to say next is, and I think this is true of most professions, there's very much an 80-20 rule. I'll say it about brain surgeons, right? There's 20 % of just incredible miracle workers and others that, you know, okay. Just so I'm clear, do you have a source for that belief, mate, or are you just besmirching the neurosurgeons of Australia? I think any time I've had a professional engagement, whether it be an accountant or whatever, there's just... I know personally within accounts, I struggled for a while to find a really good one. And now that I've got one, I mean, I hope she's not listening, but I'd pay her double, right?

49:24Yeah. Because she just saves so much time and gives me such good advice. But I've had others that are just absolutely shocking. It's not like they were worse than useless because they gave advice that ended up costing me money or making me pay a lot more tax than I otherwise needed to. And it was just sort of like, well, what's the difference? So when someone says, is it worth seeing an accountant? The answer is, it's very much worth seeing a good accountant. Don't see a bad accountant. So the next question from that follows, well, how do I tell a good financial planner from a bad one? I don't know.

49:59That is hard because you kind of need to go through the experience or know someone else that's gone through the experience. Maybe that's the answer. Maybe it's a referral word of mouth kind of thing. All of that. So I want to be really fair to our friends in the financial services space because, again, I'm being genuine here as I can. There are some absolute brilliant financial planners out there and you should absolutely go see them. at the same time, is it necessary? Well, it's not necessary for me to actually use an account. It's a good one. I'm financially savvy enough. I could do my own taxes.

50:31I don't want to. It's a pain in the backside, right? So I'm happy to pay for it. Same with this. Investing is not something you need 180 IQ for. Nicole, if you're paying a little bit of attention here, and I know you are, it's like you could absolutely do very, very well. yourself without ever seeing a financial planner. The TLDR is spend less than what you earn and invest the rest into high quality investments and do it over a long-term horizon. That's it. That's what a good financial planner will tell you how to do. I'll be a lot more specific than that, obviously. But there's no reason why you can't do it yourself.

51:09Having said that, if you value someone helping you get there a lot quicker than you would have to get there yourself by skilling up and researching and doing all of that, far be it from me to say that you shouldn't do that. Absolutely. So this is a very wishy-washy it depends answer, which I'm famous for. But I genuinely think that is the way to go about it. I certainly don't want to besmirch all financial planners, but I'd be the last person to say, if you're not using a financial planner, you're doing it wrong. What do you think? so i

51:49i know maybe nicole um i saw a financial planner so we do general financial advice right i give i give advice on stocks and investments i don't follow the tax code if you listen to our answer on super a couple of weeks ago you know i don't know the answer to that one um i don't follow this stuff closely enough and what i you know what i hate really hate nicole is that the question even has to be asked. And it's largely a structure question because there are loopholes and boondoggles and it's like doing your tax, right? Not only do you get an accountant to do your tax, the accountant will also tell you what you can claim on your tax.

52:22Oh, hang on. So I can, that's a deduction. That's a deduction. If I spend money here, I can claim it. And so the tax system is stupidly complex. And the superannuation retirement system is even more complex because you've got the standard tax stuff and then you've got retirement, like transition to retirement pensions and you can add extra money and concessional contribution limits and all this absolute rubbish which is an absolute mess if i was treasurer i would clean the whole thing out and i don't want to be a politician but i'd love to be treasurer for about six months all i'd need i don't know everybody they'd hate me and run me out of town and this is to be much better when i finish not because i'm a genius but because i don't have the invested interest and don't need to get re-elected um so i sort of financial planner because i kind of went here's my situation what should i be mindful of thinking about what should i do um so that's kind of where i you know and ram's right general general kind of financial hygiene is really straightforward 90 i've said before 95 if the tax system was done properly 95 of australians should be able to pick up one piece of paper and manage their financial lives and go to a financial advisor should cost you more than the benefit you could make by going to them how is it possible i'm going to spend three grand to go to a financial advisor, how is it possible they can make me or save me that much or more that I couldn't do by myself?

53:36And the answer is because I don't have the time, effort, energy, and frankly, accuracy to know I'm making the right decision. And if I'm thinking about a portfolio that hopefully is one day six or even seven figures, I want to start and say, hang on, how do I, I don't want to get this wrong. For three grand, it's a pretty easy insurance policy to pay, not to screw up a you know, six or seven figure income, portfolio, not income. That'd be nice. And so you kind of, if that's where you're starting, then I would say, I wish this wasn't the case. I would suggest a free initial consultation with a financial planner to understand whether the structure, think about insurances, think about estates, think about superannuation contributions, think about, there's non-working spouse contributions you can make.

54:21And there's, you know, you can add concessional amounts, so many years in a row and you roll stuff up and lump sums can go in and the whole thing's absolute mess so i'm not sure you'll benefit from it nicole but i'm not sure you wouldn't and so that's why i'm really struggling i don't want to i don't want to dissuade anyone from getting financial advice and have it cost them money in retirement um or maybe you wouldn't and maybe you're going to pay more to do it but that's kind of a that's kind of the it is a bit of a gamble you're taking either way you're spending the money and hoping you get a benefit or you don't spend the money and hope you're not missing out on more than what it would have cost you so i would go to if you didn't need help choosing your investments i wouldn't pay a financial planner a yearly fee because they're going to charge you a fee to basically just look over your investments make some make some changes every 12 months so they look like they're doing something and again i'll add ram's disclaimer there's some great financial planners um there's a whole bunch of bad ones too that'll just like you know the illusion of activity or the perception of activity can be of value because you justify the costs right in years two through ten they're not going to add enough value on a yearly basis to justify the fee in those years right because they're going to pick stocks maybe they're right maybe they're wrong so on average the average financial advisor charging the average person 100 000 of us across the country years two through ten as a group we better off not getting financial advice and going with the average market return So a half-sensible, savvy podcast listener, to use your phrase, Nicole, who is going to just passively invest in ETFs in their own name and some in super, gear their investments the way they think that, not gear as in leverage, set up their investments the way they feel is necessary for long-term success, add those investments regularly to Ram's point, spend less than you earn, save the difference, invest it well.

56:05You don't need a financial advisor for any of that. No. So what did I do? I work in the trade, right? So I know stock picking, I can do that myself. um so i just went hey here's my circumstance here's how much money i've got here's my assets here's my liabilities here's my hopes um structurally how am i looking not i'm not going to pay you every year i'm going to pay you one off for one off consultation when that's done it's done and i'm walking away but i'm happy to pay you because i want to make sure i'm doing the right thing yeah so i did that's a long answer nicole and i'm sorry that i can't be more direct or accurate i'd blow up the tax system and start again and fix it and see no one would need to other than if you're in the top five percent of income earners because you just couldn't save enough to make it worthwhile, but that's where we find ourselves.

56:43Any more to add, mate? Sorry, it was a bit of a ramble. No, I mean, it really, you know, let's go back to the way we opened the show with the exercise. Again, you can really get deep into that stuff or you can just, you know, try and eat a piece of fruit occasionally and go from, you know, try and get a few steps in. Perfect is the enemy of the good here. And I think it's the same with what we're talking about here. It really, it seems almost negligent to just be so flippant about, oh, try and save as much as you can and put it into a low-cost index ETF and get on with life. It's almost, well, that sounds good, but couldn't I, wait a sec, maybe if I hedge this and I go into some different asset allocations and then I need to rotate out of this.

57:29Apparently the bond volatility index is spiking too, so I might need to put into it. It just sounds sophisticated. Sophistication does not equal results. In fact, I'd go as far as to say it's usually the more sophisticated, the worse the results. And some people will really, just to torture the analogy a bit more, will really value going to a personal trainer. Do they need a personal trainer? Of course not. You don't need a personal trainer. But it keeps you accountable. All the personal trainers just spat their coffee all over the screen. What do you mean? But for those that weren't, are not able to otherwise motivate themselves, I've got friends who do it and they go, well, I know I could do it, but I've paid the money, I've got the booking, I'm going to turn up and I'm going to do it.

58:18Now, I know I could do it without that, but I won't do it without that. So in that circumstance, is the personal trainer worth it? Yeah, hell yeah, because otherwise it's nothing. And it's the same here. So if you need someone to sort of help push and nudge and cajole you into doing the right thing, then it's very much worthwhile. If you've got the ability to sort of have that, to have the proper restraint and discipline, et cetera, et cetera, then no, you don't. And it comes back to that know thyself. I suspect, given how Nicole's framed the question, I feel as though you're entirely able to do it yourself.

58:53Yep. It does, one thing that I really do not like about the profession, and I'm sorry, financial planners, is the ongoing fee. Correct. It just, it's not. It's for them, not for us. You've provided value, but then once there is, I think it's just so out of whack and they get away with it because it seems so low. It's only a very low percentage number each year. It doesn't seem like much. And because the market is so, particularly tax, is so impenetrable for the average person. Yeah. It's just one of those. So like, I do this for a quid. Yeah. And I still went and saw the bloke and said like, I need to make sure I'm not making any more.

59:32What have I not thought about? What have I missed? What am I not aware of? Oh, there's this tax rule which says this, or you can do these contributions. The stuff you don't know as an average person, it's indefensible that the system should be this complex. Yeah. And that's the problem. To your point, the annual stuff is not justifiable in general at all. It's not. I'm sorry, it's not. And the incentives are really weird. Again, imagine you're a financial planner. I'm a financial planner. My client comes to me every year and goes, what do I need to do? And I go, nothing. Just keep doing what you're doing.

1:00:00I'm like, okay. That'd be three grand plus. Three grand. Like, hmm. And then, oh, then, wait a sec. The market went down 10%. You didn't tell me to do anything. No, it'd probably go down again. I don't know. Just keep doing what you're doing. Hmm. Hey, you didn't tell me to buy XYZ that's gone to the moon. How come you didn't put me in NVIDIA? This bloke over here was spouting that I'm going to go to them. So the incentive is to, not that everyone does, and again, let me just emphasize here before the nasty letters come in, there are some real rainmakers out there that are worth their weight in gold.

1:00:29But, you know, you are incentivized for action. You're incentivized to look as though you are doing something. So you will get this activity that a lot of the time, almost all of the time, will be unnecessary. There's no reason to change for anyone with a long-term view. It's just, it really is. Buy the index fund whenever you've got some spare cash and get on with things. It's just, it's so simplistic as to be laughable. And anyone who's selling that is going to really struggle to get the fees. And so they're not going to do that. And by the way, as the Royal Commission uncovered, there are certain arrangements in place that while here's the product set that is part of this financial group, you can recommend products from here.

1:01:11Do you think they're the best ones? I don't know, but they're the only ones I can recommend and they're the ones that give me the best kickback, so I'm going to go with that. So again, does it mean that everyone's an exploitative whatever? No, but the incentives are going to push you in that direction. and you know so it's a very fine line to tread here without upsetting a lot of people but that's what I think nice of that I'm only going to say just very quickly to take on your personal trainer example it's worth it if you're going to lift weights make sure you've got technique right so you don't do yourself an injury thereafter once you know what you're doing you can go and do it yourself and that's kind of my point about the structure in year six you probably need the personal trainer to say hey you're doing the bicep curl wrong but for the first you know year six months three months month do it maybe even after a year you might check in again, make sure I'm still doing this right.

1:01:56Yeah, you are. Okay, good. Get on with it. Cool, fine. I'm the last person to say you shouldn't pay it. It's not worth it. But just you shouldn't have to. If you can't do financial advice on one page, the system is broken. And unfortunately, the system is broken. Now, when I say that really quickly, I'm not saying don't do it. People say, oh, superannuation is not perfect. Therefore, the system is terrible. No, no, it's just not perfect. We should fix it. Don't throw it away just because it doesn't work. Just because it's not perfect. It still works. It works really, really well. Fees are too high.

1:02:23Supers are rort. Fears are too high. Yes. Soup is not a rort. The two can be true at the same time. Yeah. Let's go to a question from one mate to finish us off. He says, gents, how are we? Very good. I don't know. It's a difficult question. I mean, I'm well and you're well. I'm not sure how one is. He didn't say, so I'm not sure now. I've been a faithful listener for a while now on the pod machine and have been fortunate enough to have my questions answered every time I've written. One, you're setting up an expectation now. This time, I wanted to run three questions by you. Jesus. And you'll like this, mate.

1:02:56He says, hoping you don't spend too much time on questions one and two and spend a bit more time on question three. He goes, question one. I'm pausing for dramatic effect, Andrew, because you know what's going to come. Bitcoin related. Now, one at least puts uh-oh in brackets, which I appreciate. And then he says, is Mr. Esquire happy to continue exchanging his hard-earned Australian dollars for Bitcoin at the current exchange rates? at the time of writing so it was$90 ,000 could be 100k on the day you read this and 80k by the time Andrew finishes answering the question true are you still happy to exchange your hard earned Australian dollars for virtual you know bits of code that you know like virtual beanie babies or something I'm happy to exchange one made up accounting system for another yeah sure I'll choose the one with the better monetary properties so yeah and at the current price yeah it's going up forever Laura is the meme in the industry.

1:03:54Yeah, yeah. Oh, sorry. Okay, right. So Michael Saylor, CEO of MicroStrategy, a very big Bitcoin bull, interviewed on CNN and he's like, oh, but when's the best time to buy? He's like, it's going up forever. And it is. And it kind of, that is a very, like you're going to sound really dumb saying things like that, but it probably is. So yes. Question two. Question two. Thank you. How can we get charged a fee to use PayPass and credit cards and the like, but not cash? Surely the armoured trucks and logistics moving around and storing these pieces of paper and heavy round thingies cost more than moving and storing bits.

1:04:37Why is that, Andrew? Yeah, well, because it's an anachronism. It's a legacy part of the system that we just expect it. So the bank eats it in terms of some of the costs and they make money elsewhere. But yeah, there's a huge – cash is wonderful. Cash is one of the very few remaining bearer assets that are available to average people. And it gives you all kinds of privacy. It gives you – there are huge advantages with cash and it's slowly going. It'll be gone in the next five to ten years, I imagine. But yeah, there are definite costs associated with it. there's costs associated with Bitcoin too.

1:05:19Shouldn't we have to pay a fee to use cash? Or should our credit card fees be reduced because cash costs money and we're not being judged for that? Yeah, arguably. Yep. But the providers of it have decided to position it in a certain way. And I think people would be very aggrieved if there was inherent costs. Can you imagine it? Can you imagine cash surcharge? Yeah. Oh, yeah, yeah, absolutely. I just want to get back on that initial comment I made too. I feel as I let that hang there and I'm just, now I'm really looking crazy, but we would say that the S &P 500 is. Oh, that's your subtle. Yeah, I know, I know.

1:05:57But we would say that is going up forever and no one bats an eye on it. So I just want to just put that out there just before anyone. Anyway.

1:06:08Yeah, I don't know where to go with that. Yeah, but cash is a wonderful thing and I will be sad when it goes. Luckily, there's an alternative.

1:06:19So why don't you charge a fee to use a PayPal? There's actually a couple of actual structural answers to why it happens. And it's not necessarily make it okay, but I can explain why it happened. First thing is cash doesn't have a cost per transaction. The costs you highlight are absolutely right. But it's kind of like, why don't we get charged a fee for the janitor who cleans the floor? Jen, it's a very American word, isn't it? Cleaner who cleans the floor that I walk over to buy my stuff. And it's because it's an absorbed cost of the business, right? They take all of that stuff. They wrap it up in oil price.

1:06:52They give them profit margins. That's how much you pay. When the electronic payment methods were introduced, the providers of those payments charged the merchant a percentage of the transaction fee as their cost. So rather than, you know, they could have said to a merchant, you're going to pay 100 grand a year to use Visa. And if they'd done that, the merchant probably would have said, okay well i'll add that to my cost base i'll increase all my prices a little bit and that'll just cover my cost same it would cost me to have a cleaner for a year but because visa said actually we're going to charge you 1.2 percent or 0.8 percent whether numbers are of your transaction the merchant can really easily see the cost of that very specific particular sale and so when you have that situation it's like saying why do why do products all cost different amounts why don't why isn't there just one price for everything in the supermarket and there's puts and takes yeah carrots are more expensive but potatoes are cheaper let's sell them all for two dollars and we'll just you know absorb the average margin um which is kind of how what happens with the cleaner right it just rolled into the average cost base when you have a a price per sale or per product you apply that directly and that's how we get individual product pricing rather than an average price for everything in a single shop which sounds ludicrous but you get the analogy right so that's kind of how it started that's what gave it the opening and then what happened the RBA made a really bad mistake.

1:08:07I think it was the RBA. It might have been ASIC. I'm sure it was the RBA. Wait, the RBA made a mistake. Sorry, I just picked myself up off the ground. I knew you were going to say that. Please continue. Well, actually, I'll take it back, actually. They made a good decision that had negative consequences. They should change. So what they hypothesized was if we allowed retailers to pass on individual card surcharges, the consumers would make a choice. So again, we don't get to choose which aisle the cleaner cleans. Cleans the whole shop. we only use one aisle we all pay the same well you know the cost is the same for the cleaner for everybody but if you say well hang on if i can pay with visa and pay one cent surcharge and amex is two cents and mastercard's half a cent then i can choose as a consumer to use the cheaper payment method and the the assumption was by the regulator i think it was rba uh that that would promote competition that people wouldn't vote with their wallets fewer people would use amex which costs more more people use visa and if more people would use fos because that was cheaper again and that was kind of the idea and it makes sense right we talked we've talked a lot on friday about pricing and supply and demand and stuff turned out we don't care um and why don't we care because we all accepted we're going to get whacked with a surcharge so we've kind of just gone oh all right fine i'll pay it as opposed to no get stuffed i'm going to choose something different and so what ended up happening is it went from this what was supposed to be a price signal into effectively a compulsory surcharge that now we all pay and the retailer banks and so that's kind of sorry long answer the question one, but that's kind of how we get to this situation where that's why it's different.

1:09:35In fact, because it wasn't allowed before that. Retails weren't allowed to add the surcharge. They had to absorb it. And the RBI said, no, no, you can charge it over the top so that people will make their choice and vote with their wallets. There is a little bit of evidence that some people have changed payment methods. So I shouldn't say they made a mistake or it didn't work. It worked a little bit, but the reality is behaviorally, we've all accepted it rather than avoiding it. And so that's caused the problems. That's where we find ourselves.

1:10:03Yes. So why are we done? Because they can. Because we accept it. And that's what businesses will always do. They'll always charge as much as they can get away with. And we'll always pay as little as we can afford, avoid. I'll start again. As little as we can manage. And that's where pricing is set. When those two lines overlap, that's what everything costs. So that's the answer. By the way, Visa's been defending an antitrust allegation in the US as we speak. Is that right? Yeah. Yeah, they have immense power. I mean. Right. they've basically become the default payment rails for consumers. And they - Antitrust and done the wrong thing or just to be broken up because they're too big?

1:10:37They've exploited their pricing power. Right, okay. I mean, they are one of the most - They are - Well, they're facing a very real existential threat, I would argue. But we play out over a long time. But they have - Lucky there's three or four of them, not just one single digital currency that wouldn't have any competition at all. I suppose we should keep that as much as we can. That's a different question. That's a different question. But it is interesting though, right? Because no one really gets that upset about Visa. And yet, again, they are one of the most profitable companies in the world and have been for a long time.

1:11:10And because they essentially are a very tightly controlled oligopoly, which is virtually impossible now for anyone else to enter, unless there's some sly roundabout way to go around them. and yeah, over in the US they're sort of saying no, you are unfairly exploiting your market power, which again also sounds like, okay, what's that got to do with me? Well, it means higher prices for you, that's what it means. Yep. Let's go to what one says is the tricky one. We'll finish off with this one. Everything you discuss on every single episode is invaluable wisdom. I've just thought one's a bot, you can't be real.

1:11:51But my challenge she says is with my significant other. I too used to be terrible with money, but have come around in the last couple of years and managed to switch my mindset. But she is struggling a bit more. So the question is, what tips do you have to coach financially illiterate people? Think of people with a knack for a lot of things, excluding numbers, and played with issues like instant gratification and a misunderstanding of compound interest. Thank you so much for the great content and look forward to playing this episode during at least the beginning of a romantic financial date. There you go.

1:12:28One's having all the good times here. I apologize in advance, Juan, and to your partner. You're listening to us now on your financial date and that's fate worse than death. But thank you for at least giving us a little bit of time and considering it worthwhile. What do you reckon, Ram? Advice for people who aren't maybe, who just don't get investing, don't get money, don't get the principles and the actions required to actually start to build an SD? Yeah, it's a hard one because it seems so obvious. This is true of anything, that once the penny has dropped for you personally, even though you were at a point where you didn't understand it, now that you get it, you feel as though everyone should get it.

1:13:08And it's frustrating, right? And you want everyone else to have the same epiphany that you've had and to see it. And you'll drive your friends and, speaking of Bitcoin, God. I mean, you drag your friends and family mad. And epiphanies. You're like, how do you not see it? How? You know? The scars are yet to fall from your eyes. And yet, ironically, the harder you push them, the more you push them away. So absolutely the wrong approach is to preach and scold and do all that. It's just not going to work. For me, more generally with investing, it's just always been, I always thought it was a pretty easy sell to say, would you like to be wealthier and work less and have a pretty good combo right yeah right like and here's the here's always been the appeal to me with shares I buy an ownership stake in the business but I'm not the one going in the office 9 to 5 Monday to Friday you know I'm not it shouldn't be allowed it's too good to be true you think about that right I'm not doing anything they send me a check and I didn't do anything for you exactly I'm not doing anything there's a whole team of people working day and night for my benefit as the owner of the company like that's pretty cool yeah um and so it just money makes money and that that's that's the that's just the way it is and and yeah that snowball talk about compounding right that it's a slow but inexorable process and it just gets very very very powerful this is very hard to see short term and it doesn't go in a straight line and i i don't know what you i don't know what you do i probably the best thing and maybe I'm stealing your thunder here is just to show them the Vanguard chart and then shut up you're always gonna steal that thunder mate you know that thunder was coming that thunder had headlights on it that was coming so far away but they're right like it's just like do you like more money and it's not about that always has a tinge of greed to it you know and it makes you seem very uh I don't know shallow but it's not it's not about wealth for the sake of wealth wealth is true wealth is the ability to do what you want with your time.

1:15:10And guess what? Money gives you that option, right? So I'm not saying you need to have$10 billion and then fight tooth and nail to make the next 10 billion, but do I want, you can label me however you want, but do I want to have a life where I can wake up when I want to wake up and do what I want to do? Yes, I do. I do. Judge me however you want. I'm pretty sure if most people are honest, they'll have the same kind of thing. I don't want that at the expense of anyone else, just to be clear. But yeah, I want to improve my lot for me, my family, my kids. And yeah, I do. And this just so happens to be the best way.

1:15:45Well, the best way to do it is to invent the iPhone. or, you know, to create something, you know, is to be, you know, the next Taylor Swift. Or if you can somehow deliver such incredible value that people will pay you inordinate sums of money for your product or your service, that's the best way of doing it. But that's very hard, very, very hard. And just quickly too, mate, if you're starting to think like you're Taylor Swift, you just got to shake it off. Very good. Sorry. Very good. That's all I know. Yeah, you've got to update the playlist there. That's all I've got, mate. That one on Romeo and Juliet, a love story I think was called.

1:16:22That's all I know. I've got a young daughter, so I can pretty much sing every single lyric of every single Tay-Tay song because it's on the car every time we go anywhere. That's your decision, not hers though, right? Yeah, absolutely. Can you please put Taylor on? Dad, I don't want to. Shut up. Put Taylor's wrist on. Can I tell you, the Spotify algorithm has no idea, no idea how to pigeonhole me. We've got the same problem. We've got the same problem. country music and then some you know kind of whatever my son's listening to exactly it's an eclectic it's an eclectic mix you know it takes over i'll be diagnosed with some horrible meltdown this guy needs treatment let's do institutionalize him and sort him out i go from like america to cool in the gang to like michael jackson to like naughty by nature just like all over the place and then Tay-Tay.

1:17:11I've got my point again. I've blanked. I'm not sure where we're going here. Helping a significant other. Oh, yeah. Look, don't preach. I think just make that point. And understand, too, that it's not – I think the thing to lean into is – and I know this from firsthand experience is that when – so I've moved house recently, as I think most people know. so you're meeting people around the neighborhood and and the small talk is always what do you do what do you do and i have i i struggle with that because because i mean when you say i'm an investor you just sound like europe you just i think it's got connotations like i want to say i want to say a word that rhymes with banker and it just like that's what i was thinking you know because that's what i would think right and so i can't say that and then you sort of say oh it's it's an online business but people always go oh yeah right but what's that about you just you sound like a degenerate you sound like a gambler now if i said i had a property portfolio no one had an island so i'm an equity investor or a stock market investor because there's always a oh and it's also actually more sometimes most of the time it's a oh i gotta go is that the kids are calling me it's just you know it's oh it's time it's and and the reason people people think it not for unfounded reasons because i think to those that are uninitiated when you think of the share market you know wolf of wall street wall street the movie itself these hollywood sort of um uh archetypes sort of come to the surface And so that's pained.

1:18:55And usually a lot of people too have had that direct experience and they've probably had a bad experience as well. So it just, it taints things. So it's, I don't know where I'm going, but I know it's a hard sell. I feel your pain and I'm just going to stop blathering now and hand it to you to give a more succinct and good answer because I don't know what that answer is without you sounding really, really weird or just like you're a gambler, you're taking huge amounts of risks with your family's wellbeing and financial future, and it's only a matter of time before you blow yourself up. And anyone who's got that particular prejudice, by the way, it's not unfounded, right?

1:19:31You talk about crypto, right? When people go on and on and on about how dodgy crypto is, what they fail to realize is that I'm in 100 % agreement. It's like, yeah, it's all a scam, right? Except for that. And it's the same with shares, right? We talk about shares and you'll conjure up the image of the penny general mining stock. And it's like, well, am I a degenerate? Different cabbies or that kind of thing. Yeah. I mean, if I'm buying a very, if I'm buying Saltpats and Brickworks and CSL and Cochlear and Commonwealth Bank or whatever, you know, pick your favorite basket of blue chip stocks. I'm investing in stocks.

1:20:05Person over there is investing in Penny Dreadful Hopeful, you know, and biotech speccy startup number three. You know, we're all investing in stocks. Is one person being sensible and one person being a gambler? Yeah. So that's the hard thing. And I think the idea is to try and shift the narrative a little bit more away from the gambling element to sort of say that, listen, I'm actually – what I'm really doing here is taking part ownership in some businesses. I'm a business owner. It's probably the way to say it. I own a variety of businesses. You don't need to get into the – maybe that's what I need to say to the neighbors.

1:20:41Just like I'm a business person. I've got some stakes in the various businesses. Oh, okay, cool. Tell me about them. oh, one of them does this, you know what I mean? It's just a different connotation. But that's the angle that you want to push, I think, with your better half is to sort of say this is what we – look, people can gamble on this. They can do dumb things on that. They'll blow themselves up on that. We are taking apart ownership in some very, very good businesses. And history shows that when you do that over a long enough time, you tend to outperform every other asset class. So we're doing it.

1:21:11We're not betting the farm. We're not doing anything reckless. But we're probably going to get a pretty decent long-term average return. and that's going to make our life more comfortable. I like that a lot. I have one massive issue with the Vanguard index chart. Oh. And that is that it actually, well, it's great, but it's not great. It uses a logarithmic scale, which no one needs to worry about. If you're not mathematically inclined, don't worry about it. It's designed to actually show compound interest in a straight line rather than what we know is effectively an exponential curve. A hockey stick.

1:21:43Yeah. and so the Vanguard X-Charge is actually way less impressive than it should be and in fact if you grab it when next time you next time you see it go and look it up if you feel free to pause the podcast should look it up for me now when you when you pull it up what you'll see on the left hand side is the scale is really different so from 10 grand to 50 grand takes up about 60 percent of the vertical axis from 50 to 100 then takes up a bit more and the 100 to 200 line is about the same gap as the 50 to 100 line and that feels weird and the idea is it's supposed to not let company look too ridiculous at the end because we know that by the time you get 10 on a million dollars and 10 on ten dollars the curve is a very different shape right same direction but the size is so different that it makes all the previous numbers look crappy now it's partly designed to not make it look too silly it's also designed so you can see more of the movements previous years but because it's in that scale the returns don't look great the curve doesn't look particularly steep.

1:22:40If you know what it looks like, it's like that looks pretty good. If you made the Vanguard chart, in fact, on their website, I'm pretty sure they actually do it in a linear rather than logarithmic scale. And you actually can see that exponential curve that just shoots up, drags on the bottom of the wall, and it all of a sudden takes off. So when I say look at the index chart, I remember you did, I think you're absolutely right. It doesn't show compounding as much. And one question was largely about the compounding and the part doesn't understand or value compounding, probably because it doesn't look that impressive on that particular chart.

1:23:07So find another way to do it. Let's answer the question though, from my view. First thing is start from, I'm no relationship expert, right? I'm no psychology expert. We owe to the finance bit, but we kind of move a little bit into the sort of advice or help for significant others. Start with where you want to be. Start with as a couple, as individuals, what do you want from life? And think about the things you want to do, the places you want to go, when you want to retire, and what you would like to do with your money at that point, whether it be kids or charities or trips or, I don't know, world cruises or, you know, at least a drug.

1:23:45No, I'm kidding. Whatever you want to spend your money on, work that out first because that thing gives you the stakes in the ground because then you start talking about, okay, how are we going to get there? What do we need to do to get to that point? Not your version. You're sitting there on this version. Ask her, where do you want to be? I'd like to retire at 58. Cool. Okay. How do we do that? Well, we need to start saving some money. So put the objective first is the first thing I do. Second thing is once you've done that and once you've kind of agreed about, and it might not happen quickly, it might not happen at all, maybe if I'm giving you bad advice.

1:24:15But once you've got that idea of, okay, I want to retire at 58. Okay, cool. How much money do you want to have to retire? Well, we're currently earning this much a year. I'd like to be able to replace that roughly. Hopefully mortgage paid off by then so we don't need quite as much. All right, I want this much in retirement a year. Cool, okay, great. We've done that. Now you're saying, well, how do we get there? We have to save some money between now and then to get there, right? Yeah, we would. Okay, well, how do we do that? And once your partner is already thinking about how to solve those, by the way, my few partners are listening once, I probably should talk to her directly.

1:24:45But once you've got that idea of where you want to get to and how you're going to get there and what does that look like, then you've got a goal. And you can say, right, how do we get from here to there? What are the tools that get us there? And that lets you hopefully talk about the value of compounding how you can start with a bit of money. Grab literally, if you, you know, grab a piece of paper and draw the exponential line. Do the maths in your head. The simplest one I've got is the rule of 72. And the rule of 72 goes like this. Whatever your return is, your annual return, divide 72 by that number and it'll tell you how many years it'll take for your money to double, roughly.

1:25:21So if you're getting 7 % a year, 72 divided by seven is about 10. So if you get 7 % a year, your money will double about every 10 years. If you're getting 12 % a year, you probably won't but if you would 72 divided by 12 is six six years and so on and so forth now once you've done that pick a number and the number i use generally is nine percent because it's about the long-term average also divides nicely into 72 so if you get nine percent a year your money will double every eight years and then just do that when you think about compounding here's the best way to explain compounding in my mind if your money's going to double every eight years get your fingers out start with 10 grand because it's a nice round number and then count the every eight years in a finger on your hand.

1:25:57So the first finger, you go from 10 grand to 20 grand in the first eight years. Eight years later, the 20 becomes 40, then 80, then 160, then 320, then 640, and so on. And that last doubling, as you open your fingers and do it, again, I'm no, I'm talking to Juan and his partner here. As you do that, you start to see that last double. You start from 10 to 20 is only 10 grand more. When you go from 320 to 640 in the same period of time as you went from 10 to 20, that's compounding. Now, maybe it doesn't work for your partner. Maybe you've got to find another way to do it. But for me, that's the easiest way for people to open their eyes.

1:26:33I did it with my nephews. Jeez, three, four years ago. I talked about it at the time on the pod. And you see them kind of do that. It's like, wow, that's cool. And one of my nephews turned to his mom and dad and said, why was I doing this years ago? Which is exactly the response you want, right? So hopefully that's useful. Last one you asked about instant gratification. Once you've got the goal and the way to get there, i.e. investing, compounding, then have a discussion with each other about how you put that money aside. The old line is pay yourself first. So if your instant gratification is a problem, that's fine, but you can only be instantly gratified by the money you've got in your wallet or your bank account.

1:27:09On payday, get some money, if you can get your pay office to do it directly into two separate accounts, one for your expenses, one for your investing, do that. If you can't do that, then put it on a bank direct debit in on payday. So when the money goes in or the day after, so you don't take money out until it's there. You get paid on the first of the month. On the second of the month, transfer a certain amount of money out of that account into your investing account. That won't solve instant gratification. That's a personality thing. Some people love it. Some people don't. Some people can manage it.

1:27:34Some people can't. The best way to do it is to pay yourself first. Those behavioral nudges, they call them, to basically get out of your own way. So you get rid of the money so it's not there. You can't spend it if it's not there. Instant gratification. I'd like the dress, the car, the computer, the holiday, but the money's not in the account. We can't do it. The investment money's over here. it's ring fence quarantine we never ever touch it because remember we said we wanted to retire at 58 with a million dollars in the bank whatever the numbers are and so that's how i would go about doing it it might not work uh there may be better ways of doing it other people may listen and say i've got a better idea if you do hit us up and let us know that's how i would think about approaching it structurally brand no nothing dad that's that's it's hard look again it's people will come to the realization on their own terms.

1:28:18And all you can do is just try and lay out the facts. And the worst thing you can do is pitch it as get rich quick because then you do sound like. Yeah, that's right. And it's not. Also, that's not true. But it's also that is your partner is very much going to be justified in their spidey senses tingling. Exactly. This sounds too good to be true. Yes. And that's the time to look in the mirror and think, yeah, they're right. By the way, we've had that issue with our partners. All right. I think we're done here, mate. Thank you for spending a bit more time with our listeners. We've got some more episodes coming up next Friday.

1:28:56Stay tuned for those. If you have any questions answered on a podcast, hit us up, info at fool.com.au. Follow Andrew at strawman underscore invest or at sage, no, strawman invest or sage underscore simian on Twitter. You can hit me up on Twitter at tmfscottp on Facebook at scottphillipsmoney. Until next week. Fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General 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.

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