Mailbag: incl. The risks and opportunities of margin lending. April 28, 2024

24:31As long as, and here's the other assumption you've got to make, as long as shares go up faster than property. Because if property does go up faster than shares, then you are, you know, that's a melting ice cube in a very, very different way, which is, you know, every time you go forward five steps, property goes forward seven steps, you're going forward, but you're getting further away. You have to believe that your shares are going to go up faster than the property price so that you stay in front of that one. Well, the other thing I missed too, and we talked about this with Woolies on Friday with difference between return on equity and return on capital.

24:58What you can do with property, you can't easily do with shares is you can borrow with no margin call requirements as well. So that does change it a little bit. I think if I can take a modest amount of debt that's super easy to service. There's no scenario where that's called on me. That's really the comparison you need to make rather than just the return on capital comparison between the two asset classes. Because shares are just, well, if history is any guide, it's going to win that every day of the week. Property investors will point out, yeah, but with leverage, I can get better returns on my equity.

25:32And it's a good point. It's actually a fair point. There's costs and there's flip sides to all of that. But again, at a prudent level, it's something to consider. So I would not wait for 30 years and then go borrow 90%, borrow 50%, borrow 30%, something like that. But I don't think I would wait until I got to zero. I think by that stage, I would. And then I can leave and meet until I can leave more money in the market to continue to compound as well. So, you know. Yeah, Chris, there's an alternative option. You didn't suggest it. So that might be something to consider. I completely did not help you at all.

26:05It just probably complicated everything. You're welcome. It's a hard question. You're welcome. Hey, Hamish says, Hi, Scott and Andrew. Thanks for the podcast. I've been listening for the last year or so, and it's an invaluable resource in building up my knowledge and investing in confidence. Thanks, mate. I look forward to the release of a podcast and the Sunday Mailbag is a highlight of the week. Well, mate, now you're part of that highlight, so hopefully it's even better. I'm 27, he says, and Hamish, you know, right now that I hate people who are young, I've only just started investing seriously in the past year or so after a long slog watching from the sidelines.

26:37I love this. During uni, I used any spare cash I had to funnel into well-established recreational university pastimes, in brackets, the pub, in lieu of the share market. That's some quality time and effort, mate. Don't worry about that. I'm currently aiming to build up a portfolio core of the Vanguard broad-based ETFs, leaning on the diversified high-growth ETF and the Vanguard global. I'm quite exposed already to the Australian share market through organizing my super as such and avoiding the dreaded my super option. Well done. And once that's healthy enough, I'm going to commence stock picking in the mid to small cap space.

27:13Something for everyone. Thanks, Amish. In my reading, I've come across margin lending as a way to leverage yourself in the share market. And I've seen it discussed as a home loan of sorts, but for shares. I've had a read around margin calls, etc. But I was really wondering what type of investor usually looks at margin lending, what type of stocks margin lending lends itself to, and what investing time period is optimal to benefit from margin lending. Many thanks in advance, Hamish. I'm going to go first, Hamish, because I know what I'm going to say, so we'll have some different views here. I recommend people avoid margin lending like the plague, mate.

27:49And it's not because it can't work. It's not that it doesn't work a lot for a lot of people. It's because you are playing Russian roulette, and I don't reckon that's worth doing. If you're 27, you have 40 years of work. Assuming we don't raise the retirement age on you by the time you get there, and frankly, we might. We will. You'll have another 25 years after that, but hopefully by the time you're 67, your life expectancy will be 97. So you've got a 70-year investing career ahead of you. Over that period of time, mate, if you save even a reasonable amount of money, particularly because you're not super on top of that, you will be very, very, very, very, very, very comfortable as long as you keep up with it by the time you're not even retired, as I said, but post-retirement because hopefully your money will keep compounding through that retirement.

28:32I reckon there is no reason for a 27-year-old, and I'm speaking not to you as personal advice because I can't do that, but a 27-year-old in general, I reckon there's no reason for a 27-year-old to increase their risk exposure to try and improve their investing returns. Not because you don't want to improve the returns, but because the risk isn't worth taking. Everyone thinks they'll be, I've said a million times, 90 % of us think we're above average drivers. Everyone thinks they're the ones who use margin lending properly. They'll use it safely. They'll be responsible. and unfortunately that's not the case.

29:03So mate, do what you want to do. You ask the questions, I'll answer it. What type of investor usually looks at margin lending? One who wants to leverage their gains and thinks they can beat the market and beat everyone else and use it well. And I deliberately am making that sound a little less ideal than it might. What type of stocks margin lending lends itself to? The brokers will lend you money based on the perceived volatility and quality of the companies. So you can borrow more against ETFs and so-called blue chips. Generally, they're less volatile, but not always. Even Woolies went from 36 to 20 bucks at one point.

29:37If you had a 50 % margin loan, you probably had to meet a margin call a couple of times over during that period. So yeah. What period is optimal to benefit from margin lending? The longer, the better, because you get the chance to ride out any movements. The problem you got made is that you can't, there's no buffer against volatility with margin lending. Comsec or Macquarie Bank don't care that the market will recover. They just want their money now. So when the market fell 38 % in March of 2020, a whole lot of people had to either sell shares or come up with cash, even though it was the fastest recovery in history.

30:09By then, the margin calls had been made and the collateral had been posted or the shares had been sold. The fact they then recovered meant you had to sit on the sidelines and watch them recover and not take part in that recovery for at least some of the portfolio. can it be used responsibly yes is it possible excuse me yes can you make money doing it yes am i being overly cautious no but you can argue that i am uh i wouldn't i i would never especially at 27 at any age it's adding more risk you've got 70 years of investing ahead of you mate the compounding on that do the maths um i wouldn't i've got a 27 year old young bloke he's 22 out later this year if you ask me i'd say don't do it you don't need to just keep saving hard investing well, it'll look after itself and you're not taking on that extra risk.

30:51You just don't need to. Ram? Yeah, I mean, we're not a mile apart. I totally hear what you're saying. I have a margin loan, but I've got no debt against it. And so there's a little bit of nuance here. I've got a credit card. I bet you everyone listening has got a credit card. Is that irresponsible? Well, yeah. If I've got a$20 ,000 balance on it and I'm paying 20 % interest and I'm continually having to roll that over, I mean, that's the dumbest thing in the world. Like, don't get yourself – you are in a debt hole and it's very hard to get out. But if you're like me and you just can't function in society without a credit card and, you know, you just pay the damn thing off each month.

31:30And, yeah, there's nothing wrong with that whatsoever. So, that's where I've found the margin loan really handy is because every now and again I come across a company I want to buy. And, you know, I've got money tied up in various other things. it's just hard to like sell that and wait for the cash to come through and you know just all of those sort of challenges whereas i can use it like a credit card it's like i'll buy some shares and i'll have a little bit of debt and in next week i'll pay it back you know so it's more of like a cash management kind of tool yeah um that's not the intention for the loan provider they they want they don't like you like credit cards so they don't want you to pay it off right But you can.

32:11Did you imagine they not have a minimum? I thought they had minimum balance or minimum interest that was payable. I remember years and years ago, Compton used to. Maybe that's gone now. Okay. No, not for me. No, I don't think so. Maybe I should check that. Maybe it was the minimum loan value you had to sign up for. At one point, I thought there was like a minimum drawdown or they charge you assuming a certain amount of debt. But obviously, that's gone. So, that's okay. I think if you're drawing down cash against your portfolio, that might be true. Okay. But if, yeah. Okay. Makes sense. So the, and then it's also a question of degrees here as well.

32:41So is taking on, following on from our previous conversation, is it dumb to take on debt to buy a property? Well, no, I don't think anyone would say that. Is it dumb to borrow 99 % of the value of your property with, you know, no buffer and, you know, basically the slightest hiccup in your life and you're a forced seller. It's stupid. And it's the same with margin lending, right? So there are different LVRs against different stocks. and don't make the mistake of thinking that the lenders base that on their view of quality. They base it entirely on liquidity because they don't really care. I just like, if you go, if you're all not good, we just want to be able to make sure that we can quickly liquidate.

33:19That's what it is. It's all it is. So I've got some, I would argue, really, really high quality companies, but I can't lend against it because they're just not liquid enough. And so the lender's like, uh-uh, it's way too risky for us. But let's say it's a Woolies or something like that, which they generally lend you sort of 70, 75 % off. That's the maximum. I mean, I can borrow 10%. Correct. And I will juice my returns a little bit. Now, the risk of a margin call, I can't do the maths in my head. But if you're 10 % leveraged, like Woolies would have to drop a massive amount. And you would never say it's impossible, but extraordinarily unlikely.

33:59So it's how you want to sort of structure it. So I think a little bit of prudent debt is not terrible, but always – the beautiful thing about the house is that you only really know the value when you sell it. You know the value of shares. You're selling because they've fallen and no one's going to come and take the property off you because their house price in the area falls 10%. It's not going to happen, right? So it's just sort of like it's not mark to market constantly and where they are in shares. And you can have like flash crashes and all of these kinds of things that can force you out. So, look, I think as a general rule of thumb, yeah, I'm with you.

34:38You don't really need to do it. There is a place for it if, and the big if here is, you use it very appropriately and very judiciously. But it's not something that I think you really need to do. And again, given because it only really sort of makes prudent sense when you have very low levels of leverage, it's sort of like only a little bit of gain. And I guess the argument would be all like, well, better than nothing. Yeah, totally. You know, and I sympathize with that and I've done it before. But just know thyself because it is a temptation. Or if you don't know thyself, invest for a while first.

35:12The other thing, like he's 27, he's only just started investing. If you didn't invest during the COVID crash, you just don't know what you're going to do and how you're going to feel. And it's kind of, I think it's one of those things that, again, I'm a bit more in any state than you are. I don't know how to put rules around it, but I kind of want someone who invested for five or 10 years first, It's just so you've kind of been through it. You're like, you know what you're like. If somebody panicked or freaked out or whatever, they think now add debt to that. What does that look like? You either go, no, it's fine.

35:35It's cool. I'm someone who can withstand that. It's like, okay, cool. Maybe you're a candidate. If you're like, I thought I was going to be super calm and it turned out I freaked out and sold everything when the market crashed. As, by the way, some really professional investors made that timing mistake too, by the way. All the time. Right? And so just, you know, that's, if you're going to, here's my plea, Chris. If you're going to do it, just give yourself some time. Invest for a while. Learn about it. To ransomware, know thyself, but you can only really do that by kind of experiencing it. You can kind of know what you think thyself will do, but actually having the experience will tell you a lot more about yourself.

36:07It was Hamish, right? Oh, Hamish. Sorry, Hamish. Thank you. Hamish, yeah. Chris was the previous one. Thank you, mate. Yes. Do you know what I would do? Tell me. What is better is there's nothing wrong in terms of the concept, but if you're in a situation where you've got a fair bit of equity in your home, use that as a line of credit, right? Because then you don't get the money. You get all the benefits. Okay, let's walk it through. You get a much lower interest rate because margin lenders charge you a much higher interest rate than a hundred - I can't say it was much taxed, man. I'm getting kicked off.

36:41Oh, my gosh. Don't get me started. So you pay a much lower rate of interest. You don't have the margin call worry, and you get all the benefits of the leverage. And you can buy whatever you like with it, right? That doesn't only have to be something that the margin lender has deemed appropriate. Now, again, if you're 80 % leveraged on your home, but if you're someone who's sort of had it for a while and you've paid a fair chunk down, yeah, I think that's actually not a terrible thing to do. I will only add one rider on that, mate, just to be the Debbie Downer again, is there's one thing to lose 50 % of your money and then sell and lose 50%.

37:18There's another thing to lose 50 % of borrowed money and then have to pay that back again. So the only downside on the leverage piece, you're right. borrowing the house is a million times better than a margin loan. But if you still, if you take 100 ,000 worth of equity out of your house, it goes down 50%. You go, oh, this is terrible. You sell everything. You sell it at 50 grand. You haven't got any more. And you've got to pay that back in extra debt. So you're not going to wipe yourself out. You're not going to face margin calls. Five orders of magnitude better to use equity than a margin loan.

37:47Just any borrowed money, if you are going to freak out, you want to freak out having lost your own money rather than freaking out losing someone else's money and having to pay the whole lot back. You've borrowed$100, you sold everything for$50, you've got to pay$50 back you don't actually have. You've made things worse rather than better because you've used borrowed money. Well, it's not even volatility. There's that, but there's also the very real potential that there's a permanent loss. You just grew up, exactly. You just bought something that blew up. That's a better point. It's all good and well to say you can have the ability to ride through it, but no one's riding through HIH, insurance or ABC Learning or Enron or, you know.

38:23So, yeah, there's a lot to weigh up there. But just the easiest way to say all of this is, yes, if you need to, but be very careful. Very careful. And, you know, don't go too hard into it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

38:47Mate, are you sitting comfortably? Yes. Peter sends us a message that starts with, Dear Scott and Ram, teaser. Some good rant fodder to follow. All right. So buckle in. Ready to go. Ready to go. I flicked the switch on the pod machine with you guys a few months back and am loving it. Thank you, Peter. Hey, I'm going to interrupt Peter for a second. We don't ask much for this podcast because, frankly, you're not paying for it. It's probably worth exactly that, I assume. However, I'm not going to ask you to pay anything. Value for money right there. If you are enjoying the pod like Peter, can you tell your mates?

39:18Can you tell your friends? Can you share it with your friends and family? We like more listeners. That's good for us. makes our egos a little bit larger. And frankly, we don't need that, but we'll take it. But more importantly, well, yeah, I think more importantly, if you're enjoying and getting something out of it, I reckon other people will too. There's a lot of crappy, frankly, financial advice and pseudo advice and just bad takes out there. If you think ours is, you probably stopped listening. So that's cool. But if you don't think we're screwing it up, if you've got something to add, just if you wouldn't mind, throw us a review on the pod machine.

39:46iTunes takes them directly. Others, I think, you know, about the other platforms. But yeah, if you're enjoying it, please let your friends and family know. I think they'll get something from it. That's kind of why we're doing this. But yeah, if you don't want to do it, that's okay too. All right. Back to Peter who says, it's one of my go-to pods in the car when driving the teenage kids around for this and that. And it's often triggered some really good conversations with them about all things money, life, politics, financial responsibility, et cetera, which I and they love. So thank you. Mate, that's about the best, well, that's about the best compliment we can get, I reckon.

40:20If it's helping you or helping the kids, that's great. Yeah, I'll double down on that because I think that's – if it's nothing other than starting a conversation, I think job done. Yeah, I agree. It's not about like, hey, this is what I think, this is what you should think too. No, no, no. I should push back and think about that. Is he right there? Like what? How does he get to that? Just having the conversation and thinking through it is just so immensely valuable. Love it. So I'll take that. Yep. Now, here's the rant fodder, I think. The stage three tax cuts, says Peter, have been off and on your agenda of late for good reason.

40:51I totally hear you on the irresponsibility of it. We're just adding to our own debt, so we shouldn't be doing it. My challenge to you both, says Peter, is that implicit in that view is that if the pollies did the, quote, responsible thing, end quote, and binned the stage three tax cuts, the money would instead go to paying down debt or some other responsible budget measure. Which we all know it won't, says Peter. The tax money not foregone would magically become a budget saving for which every interest group under the sun would then be baying. And the pollies would get into the squeakiest wheel and, excuse my French, pee it up against a different wall.

41:30Actually, that's French, Peter, but I'll take your word for it. So if they're going to pee it up against a wall anyway, I'd prefer it to be my wall, says Peter. That's a lovely way to put it. Rewind here, he says. The stage three tax cuts were intended to give back a little bit of bracket creep. If we had a properly constructed tax system, the brackets would be indexed and we wouldn't have a bracket creep problem in the first place. Instead, bracket creep is a cornerstone of the tax take and our budget is addicted to it. The problem is our collective elected members in Canberra who are too spineless to recut the tax infrastructure, to resist vote winning, poorly constructed runaway spending trains like the NDIS, or to generally have the tough discussions and make the tough decisions required to recalibrate the nation's financial settings away from mortgaging our kids' futures.

42:19So yes, I agree we can't afford them. But yes, you bet I want them before the aforementioned spineless politicians find an alternative dumb idea for the money. Over to you, gents. Cheers, Peter from Sydney. By the way, if you're from somewhere around the country, feel free to let us know that too. I'm glad Peter kind of threw that in. It's always nice to hear where our listeners are listening from and sending us questions from. We get a little tiny bit of geographic data, but not much. So, yeah, it's more fun for us and more fun for you. If you'll let us know where you're from, feel free to do that.

42:46No need, by the way, if you want to. We love giving a shout-out to people in different parts of the country. Interesting views from Peter, mate. You were kind of giving your verbal signs of approval as I was talking. I'll let you go first. I mean, it makes great – I mean, it's hard to argue against it, right? Like, yeah, we don't need it right now. But I don't think you take that away and all of a sudden we're in a very fiscally responsible scenario here. So I do get it. But I guess we can only argue with an all else being equal kind of stance and all else being equal. You know, we just can't afford it.

43:29Right. So it's sort of like you've just got to make the books balance. I really hate the argument. Too often people say it's wrong to think of a country like a household. You know, those analogies aren't right. And you go, well, why isn't it right? And the answer is, yeah, because they can print their own money. As if that's a satisfying answer. That is so true. Think about it. Just back up a second here. Think about this. if printing money solved our problems, all we would need to do is, hey, RBA, can you print up a million dollars and give it to every Australian? Fingers clicked, job done. We're all rich.

44:06Everything's done. No, of course not. It doesn't fix anything, right? Which is the whole, just a quick aside, the whole problem with modern monetary theory is that idea of, well, we just, it really, like, yeah, I've heard it called, I think it was Stephen Kuehl's called it magical monetary theory, which I quite liked as well. Yes, yes. You can do that. Like, it's absolutely possible. people say, oh, it doesn't matter about the government debt because they can just print money to pay it off. It's like, well, yeah, if you don't care about consequences, but you're just shuffling deck chairs at that point.

44:33Anyway. And here's the thing. It's not even hypothetical. Well, we've done it before. The US is absolutely doing it. Something like, oh, some really uncomfortable number of developed economies are in that. Look at Japan, right? The third largest economy. the first and third largest economy and even China more recently are doing this. This is what they are doing. And I bang my hand on the table and you just look like some weird conspiracy nut. You know, it's like I explained to a friend of mine the other day, the concept of fractional reserve banking. And they just like, that's not true. Like, I know it sounds like it's not true because it's so wild, but it is true.

45:12And it is true that this is exactly what's sort of happening. So these, these stage three tax cuts really need to be part of a far, far broader conversation on fiscal responsibility because you know the only way to balance when that when there isn't any responsibility that there are very very real world consequences to that for all of us and unfortunately more so for the people at the lower end of the spectrum um and and yeah so on one hand you could say so so to peter's point it's like well let it go through it better i get the money than than someone else gets i actually can totally empathize with that but at the same time i would sort of say well can we just not do that and also be responsible and that's and that's that's naive i get that i get that that is is is really naive so and yet not not wrong yeah i i i don't know yeah i don't know what you can do The trouble is that you get into, I'd argue, well, Japan's there.

46:18US is getting there. You're in a spiral that you just can't pull out of. As everyone, I don't even need to go into describing it, but everyone knows the debt spiral you can get into with credit cards. Like, yeah, obviously. It gets to a point where the interest burden is so much that it's just like you can never service that and repay the principal and maintain your spending elsewhere. It becomes impossible. so you borrow more to pay back more you've got as i've said many times before the u.s is at a at a point in time where their interest bill is one of the top expenses for the entire budget in an environment where the rest of the world's saying we're not lending you at the same rates as you you have become accustomed to so it's it's bad and it's serious and not enough people are paying attention to it it's just that it's such a slow moving car wreck that it's it's hard it's hard to see and there's always the view of like well we'll fix this eventually um but look i mean just japan more recently right they've they've actually put interest rates up for the first time in 30 years like tiniest tiniest tiniest amount the yen collapsed right it it's sort of there there is there is only so much you can do before these things just take on a life of their own and you can put any genius in charge and there's just nothing that they can do to kind of fix it yeah And I think the stat is, is that you'll correct me on this, but I think once debt to GDP is a horribly crude figure, but once that gets beyond a certain point, there's no economy in the world history where that hasn't led to an eventual monetary reset.

47:49And I think the U, what is the figure? Do you remember? I don't, mate. I wish I knew the answer. I'm not. I think it's something like 150 % debt to GDP or something like that. And the U.S. is not far away from that at all. Yeah. And it's just sort of like, you know, it's one thing for Venezuela. It's another thing for, you know, Egypt and places like this. But when it's the world's largest economy in the global reserve currency, that's sort of like, it's pretty serious. And you ask yourself there, well, how's that going to get fixed? It's like, well, whether it's Biden or Trump, they're all spending more than their predecessors.

48:26and the budget is so fundamentally broken and what that doesn't include are the unfunded liabilities. Go to debtclot.org if you really want to be scared. And I think it's probably one of the most important conversations as a civilization we should be having right now because I've yet to have anyone offer me a sensible explanation on what is the path out of this without extraordinary pain and uneven pain. so I'm pretty skeptical about the whole thing but I've said it might be my kids that deal with it or my grandkids that deal with it and some people are okay with that and I'm not so it's a pretty bleak answer I think that's kind of my point I think Peter while again I have sympathy for you if they're going to throw money away I might as well throw it in my direction makes perfect sense and I get you know I get that's the instinct

49:26I guess first things first about Pollyanna they're not going to bin the stage three tax cuts because they're too gutless to do it so on one hand we don't have to worry about throwing it at someone else because they're not going to do it if they were going to do it it would probably suggest they do have a degree of fiscal responsibility and therefore we'll be doing it for the right reason and hopefully then use the proceeds for the right things so I guess I won't do the I reject the premise of your question But at some level, if they were going to do it for the right reasons, which I assume they would because they wouldn't do it any other reason because it's not the electoral pain if they do.

49:59If they're for the right reasons, you've got to assume they're going to use the funds for the right things. Now, that's not necessarily the case. They could absolutely can them and say, great, we'll use it for something else. So it depends on for what reason they cancelled the state-three tax cuts.

50:14The only thing I would say is – and you're right, they could reallocate them. And when we talk about paying back debt, they actually wouldn't be paying back the debt. They'd just be not taking out more debt. So there is some element - The debt never, just very quickly, the debt never gets paid back. It gets rolled over. And so there's some element. I think it's about paying down the debt, though, actually putting some savings towards reducing national debt. We've seen the 10 years of budget projections when the last government put them in place. This is not a partisan view. It's a bipartisan pox on both their houses, I like to say.

50:47the odds are that stage three tax cuts cancelled would certainly make future deficits less. In other words, it would necessarily, yes, it would be a budget saving and yes, a craven politician, maybe that's a tautology, would say, well, therefore it's a saving I can use on something else. But in theory, it's not like they were giving away money they had excess of. It would actually just reduce future deficits. In other words, stop us taking out more debt rather than giving genuine kind of excess cash, excess tax revenues to re-spend or to reallocate. It doesn't mean they won't do it, but conceptually, if you think about what it is, because it's coming from new debt, which would have to be raised to fund those stage three tax cuts, you just avoid the issue of new debt rather than freeing up actual money, real money, proper money, to actually go and spend somewhere else.

51:33In terms of your bracket creep stuff, mate, I am both sympathetic to that reality and also there's you're right about the discussions right because this is the issue um are we addicted to bracket creep yeah uh we are the thing is that unless you mentioned ndis and i've i've ranted about that being absolutely bastardized by frauds and and shysters uh what should have been a project a project and a program for people who desperately needed it has become a bit of a um you know a honeypot for for fraudsters and shysters and people who want to profit off other people's misery, which I think is just miserable.

52:11But that's the reality. It's badly run. So yes, we should fix that. Broadly though, outside the NDIS, as a populist, we've kind of made our peace with either directly or indirectly, either deliberately or implicitly, the fact that governments are paying for more stuff these days. Now, I'm not a big government guy. I'm a little government guy. I'm an appropriate government guy, which sounds like I'm trying to have a foot in both camps, but I'm not really. I don't think it's helpful to have either a big government or little government view. What we need to work out as a society is what do we think governments are best to do and pay for?

52:44And what do we think private enterprise is best to do and pay for? Now, compared to Nordic countries, we're a tiny government country. Compared to the 1890s, Australia, the government is unrecognisable, not even just in size because the population's grown, just in the sorts of things that government does and funds and is responsible for. Now, there are individual things that you or I might say, I wish government did more of that or less of that. And that's okay. We should have that conversation. The bracket creep thing, yes, it gave governments more to spend, but I think it's worth remembering that governments are just the administrative layer for the redistribution that happens.

53:18So if we think there is a redistribution that shouldn't happen, we've got to say, okay, government should not do X. It should not provide hospitals. It should not provide unemployment benefits. We should have the, you know, kids should only go to school up to year six. I mean, I've been deliberately kind of, you know, funny or or ridiculous for the sake of it. But NDIS, I completely agree with you for what it's worth. I'm sure there are other programs we may agree or disagree on. But as a populist, we've kind of said we like bracket creep because we like the things that buys us. And that's not a bad thing in and of itself.

53:48We should be more overt about it. But if we had indexed the tax brackets, which we could have done, we'd have a bigger deficit, and that would suck. Or we might be spending less stuff, and that would be fine. But I've got to say right now, at a national level, because government isn't them, it's us, We are the national balance sheet. It may not be in our personal names, but we bear the consequences. If we weren't paying more in tax, and I'm like everyone, subject to the same problems, I'm getting smashed by back. So is everybody. But without that, we'd have a bigger deficit because I don't think we'd have less spending.

54:19We've just talked about the size of the deficit, the fact the government doesn't want to live within its means, which they should, but it's not going to. So in a different world where we'd index the tax brackets, I would suggest we'd have the same spending and a bigger deficit. I think that would be an awful outcome. So I'm not against indexing the brackets, but the reality is we've either got to agree as a country about what we want to cut or agree that we index the brackets and then on top of that, increase them as a one-off measure to fund the extra money, in which case indexing wouldn't help because we'd say, we're indexing the 32 % tax bracket.

54:50Now we're lifting it at 35 cents because that's not enough. We're not raising enough money. You'd be in the same position we are now. And so, yeah, I think it's a national conversation, an overt national conversation about what we want to fund and what we want to raise. And I don't have a... I'm not ideological. I don't think ideology is useful for big government or small government people. We see it on both sides of politics at the moment. On the left, they're arguing for big government's great. On the right, small government's better. I don't think it's very useful. I think we should be starting with what things can private enterprise do and do well, what externalities, what gaps does that leave.

55:25That's government's role to fix. I don't have a pre-determined view on how big that needs to be. I don't think we should. I think we should say, well, as little as possible, but as much as necessary and find where that line is. And if it's more tax, so be it. If it's less tax, so be it. The reality is government's funding, not putting money away in a big hole somewhere, keeping it for themselves. They're redistributing it, reallocating it. We get the roads and the hospitals and the schools and everything else's, submarines, whether you like that or not, those things are being spent on national programs.

55:54That's not a bad thing in and of itself. If the program's bad, let's do that, and let's work out where the savings come from, and then where the savings can go, paying down the debt, reducing tax brackets, doing other things. I'm all for that. I just don't think we should assume that indexation or non-indexation is necessarily bad because it's funding stuff. It's not going into some underground lair that Albo is secretly hiding and ready to fly off on his rocket ship to Mars. I think it's very similar to the discussion investors have around capital raises and the rest of it. It's not really so much about the money that you raise, but how you spend it.

56:35Yes, exactly. So am I for big government and big tax? Well, yeah. If you're like super competent capital allocators that are making investments that are enriching us all and getting incredible returns on investment, then take my money. Like, take it. Brilliant. I'm going to have far more services and wealth. And, like, that is great. And the big taxing countries that do, like the Nordic countries and stuff, they just, I mean, it's much smaller populations. There's reasons for it and the rest of it. Maybe it doesn't scale. I don't know. But in that instance, it's not that bad. On the other hand, if you're taxing a fortune and you are buying a bunch of tanks because you're fighting World War II instead of living in the 21st century, well, maybe I've got an issue there.

57:22And likewise, if you're not taxing me at all, but then there's zero services. So these are probably some of the most diabolically difficult questions you could ask. How do you run a group of humans once you get past Dunbar's number, which is just sort of like the number at which we cap out? There's only so much personal relationships you can sort of have before it's too hard for you to keep track of sort of everyone. Scaling humanity is super hard. So we've got this system that's kind of worked better than everything that's come before it, but it's still ridiculously flawed. And maybe there's another system that's out there that can do it.

57:58But I don't have the answers and very intelligent people for very long periods of time have debated this and tried to sort of solve for it. And I just wish I had it. I think it's a great conversation to have. And it's a conversation we should be having and continually trying to try and find that answer. But gosh, we're not going to spit out a satisfying answer here on this podcast. I think that's right. Let's go to one. This is an interesting one, mate. So it starts, hi, Scott and Ram. My name is Lisa. Use my name if you wish. Now, at this point, I would normally say that I was glad that Lisa was of a particular gender, and that was a great thing.

58:35However, Lisa continues, and I am one of your avid women listeners, but I have one issue with your show on the pod machine. Now, she called it the pod machine, Ram. She doesn't hate us entirely. Well, she doesn't hate me entirely. Scott, please, she says in capital letters, stop referring to women listening to your pod as females. I don't want to get into a gender debate, but it makes you sound like a slimy Ferengi trader from Star Trek. Lisa, that is not the best compliment I've ever received, can I tell you? Those of you who know Star Trek and know the Ferengi, not a compliment. I don't believe you mean any harm by it, she says, and are in fact celebrating women who are interested in shares and wealth creation.

59:13But for me personally, it feels a little condescending. I think of myself as an investor, not a female investor. I've never used my genitalia to action any trades on my ComSec account, So I really don't understand why my gender is relevant to how I invest. I've recently also signed up to this thing I stumbled across called Straw Man, although I haven't quite figured out what it's all about yet. Still love the show and full on. She then says, P.S., if you're not sure what I'm talking about, we're talking about Ferengi, please watch this episode. And she links to me to Star Trek Deep Space Nine Series 3, Episode 23, Family Business.

59:48I will save. I will save. I actually remember that episode. Yeah, I do. Big ears, Ferengi. Yes, a big fan of Star Trek. Deep Space Nine, not my favorite Star Trek. Yeah, I'd be rated. But pretty good. Lisa, thank you for the feedback. I actually emailed Lisa back and said, I think I've probably really screwed up because I didn't mean anything by it. And she was very, very generous and very kind and very thoughtful. And we had a nice interaction on email. So Lisa, thank you for humoring me and having the chat. I don't know what the right label is here. Lisa doesn't like it. I get that, Lisa. I don't know what other people like or don't like.

1:00:26I appreciate you not seeing any nefarious intent in it. My intent of using females rather than women was to kind of allow for younger females, i.e. girls or 17-year-olds. Are they women? Are 15-year-olds women? If they're not, they're girls. Women are girls. I can say that, I suppose. I was trying to be inclusive, believe it or not. It sounds like I really screwed up. She said, I don't want to get the gender debate. I don't know. Well, I don't know enough to get this right. So I don't know, Lisa, other than I'm sorry you're offended. I still don't know what the right term is. I will happily refer to women listeners if that doesn't annoy anybody.

1:00:55There was no intent. Females was supposed to just be age kind of inclusive and apparently I've screwed it up in trying to do so. So there you go. Thank you for calling me out. Thank you for still listening and thank you for giving straw man a go. Andrew will be much more politically correct than I am apparently and get that right because I've obviously got it horribly, horribly wrong. But thanks Lisa for taking the time. Do you want to jump in here or are you going to stay straw man? No, you're doing great. I'm staying way out of this. Thought you would. Thanks very much. Look, I will say, I guess the only reason is that you call it out is because, I tell you what, when you're on this side of the fence and you work in the finance industry, there is one thing that's really noticeable and that it's just a sausage fest.

1:01:36Like, it's just, dudes. Is that? See, I probably crossed the line right there. I think that's okay. I did, didn't I? So, that was Andrew who said that, Lisa. Feel free to email us back. No, I'm kidding. I'm using it in a derogatory term towards. because you, you, uh, it is really lopsided. I don't know. I don't, I don't know why. And, and is it a problem? I think it is because the, you know, us males, we bring to the table a lot of characteristics you don't want with investing. You have a lot of hubris. You have a lot of arrogance. You have a lot of, I know best. You have a lot of, maybe we should rename this the mansplaining podcast.

1:02:17I know we, and I can back this up with data because people have looked at it and it turns out that the, now I'm struggling for the term, women, female, ladies, girls, investors tend to do better because they are more introspective. they are more adverse to unnecessary risk. And again, this is generalizing, right? So there's always exceptions to the rule here. And there's people who won't even identify as one of the binary genders. It's very difficult, you're treading on eggshells here. But my point is, is that I know that over the years, we've kind of tried to point it out as a lament, really, is to sort of say, why?

1:03:09Why is it only sort of one half of the population that tends to be attracted to this? It's a shame, particularly when the other half tends to be better at it. That's so true. So it's just really, it just is what it is. You can't change the world to how it is, but as I say, it is a very noticeable thing. Go, if you're able to, walk into any sort of, stockbroking floor. Just try and count the number of people that are able to grow beards, right? And they're going to fire outnumber those that can't. And it's a shame. Yeah, thanks, mate. And Lisa, I did mention that, Lisa, in our email correspondence.

1:03:54I want to celebrate people who aren't investing as a group doing more of it. And so if I get the label wrong, I apologize. I won't apologize. I don't mean this aggressively, but I won't apologize for celebrating that fact. I want more young people to invest. I want more females slash women slash girls to invest. I don't know, at least you've tied me in knots here. I think it's a huge opportunity and it's a horrible tragedy that not enough people who otherwise could and should be investing aren't. One of my favorites, and again, I'm treating on eggshells here, but the older man is not a planned thing.

1:04:29One of the best ways for women to have life, societal, personal independence, to have financial independence and being an avid investor, I think is a really important part of that. Did I say women again or girls? I can't. Whatever I said. Do you know what the best - I'll just blanket apologise for everything I've said that's not appropriate. Go on, mate. Yeah, it comes from a good place. The best is a combination. And so, I mean, not everyone's in this kind of relationship, but if you are in that kind of relationship where there's sort of a representative from each sex. Yeah. They tend to be the best.

1:05:05And I very much, I mean, look at just us as individuals. It's got nothing to do with genders at all. But my wife is just not that interested in this kind of stuff. And I'm fascinated by it and obsessed by it all. But we're both involved in a lot of, I won't really do any big decisions without involving my lovely wife in it. And I do it because a little bit of bum covering because I don't want to be fully responsible if it goes bad what andrew you signed off on this you signed off on this um but also because she just she's just such a good counterweight to my exuberance at times you know i get very excited going are you sure about that and like it's just it's really good to have that pushback and vice versa as well you know whereas like she'll want to do stuff that i will push back on but we kind of it's in it's in finding a consensus that we knock off the extremes that are there and it's both our money it's both our money so it's really i mean it's so true is it really the genitalia has zero to do with any of this kind of stuff but it is good to sort of bring to bear a bit of balance in the temperaments i'll tell you another bit of research that's very interesting we were talking about esg the other day and yeah was it on this podcast oh i can't remember on fridays and and there's a there's a there's a lot of push to sort of have more diversity on boards.

1:06:28And I'm actually, on one hand, you kind of think, well, why? Who cares what the genitalia or the racial background or the age? I just want the most competent people. I get that argument. However, again, the data suggests that it's not so much about being touchy-feely and this is the right thing to do. It's actually having a broader range of temperaments and viewpoints and life experiences, it leads to better decision-making. So you should want it not because we need to give other people a go and there's too many men in the room. It's like, no, we're going to get better results here. And I think you can bring that to bear in your own investing by including your partner in all of that.

1:07:13Let's move on before we do ourselves too deep. No, I think that's right. I think you're right. If you can do it as part of a couple, that's great. I just think for too many women, there is just not enough individual, single women, take singles, right? Take a relationship out of it. The number of single men investing is dramatically larger than the number of single women investing. And partly that's life choice, partly that's just interest or preference, partly that's income. A whole lot of reasons why it's true. I just think that whatever it remains true, it means women are getting the right end of the stick.

1:07:45Whether it's their own choices or the way we're making it available or attractive to them, whether they think they can or not, the prejudice or preconceptions different genders bring. It shouldn't matter. Lisa's point is right, which is what makes it frustrating. But Blokes don't use our genitalia to trade either. And yet, the vast, vast, I think is it 85 % or so of the investment community, generally speaking, is male? It's something stupid like that. 90 % of strongman members are male. There you go. I counted it up a little while ago. Even the ASX investor study that they do every couple of years shows the same sort of thing.

1:08:19By the way, I love, if you go to some of the younger people's, some of the kids these days, events and communities, you actually do get a better representation of women, which is awesome. So we had the member event, the podcast that - Oh, yeah, Gold Coast. Live event we did. It wasn't half and half, but it was more women than would otherwise be represented by the general stats. So it's a plea, a preference, and a celebrate. The reason I call it out is a celebration. I'm trying to say, hey, this is cool you're doing this. Please do more of it. Other women listening, please, you know, good on you for having a go.

1:08:55Please ask your mates to do it. Get involved. Talk about it with your friends. Make it a conversation. De-stigmatize it. Normalize it for other women in your life because it's a really, really important thing to do. And if I use the wrong term, back to the point, Lisa, again, as I said, I apologize. But it's from the right place, from a good place. It's trying to be inclusive and appropriate. And I've obviously got that wrong. But the bigger picture, as I know you know, is if we can make it more normal for women to invest, I think hopefully those women will be better off for having done it. And hopefully that means we end up with a better society.

1:09:28As you say, we're having better investing in general. Yeah. It probably stems from our deep evolutionary past. Men are more risk takers. Again, a lot of studies to sort of suggest that. where females have generally a lot more responsibility in terms of things. You know, it's like, you go off and chase that mammoth if you must. I'll be here. If you make it back, I'll be here. But we've got things to take care of back here. And so it's kind of like there's a sort of sense to that. Now, the world has obviously moved on and moved in a much better direction. But there is, I think, what I noticed between, and this is purely anecdotal, between my friends that are female and male and they invest.

1:10:09The dudes are about being the master of the universe and making some money. I'm here to, woo, look at me. I'm super smart and I'm going to make a bunch of money. Where the motivating factor for the other half tends to be more about, no, I'm really just being prudent and smart and wanting to really protect my financial future here. And it's not about maximizing profit. It's about making sure that me and my kids are well. Which, when you think about it, is the far, far, far superior mindset to sort of approach all of this kind of stuff. So, you know, guys, tap into your female side or any resources you have on that because it is – and I'm not just trying to be politically correct here.

1:10:50It's just like I genuinely mean this. It will be a strength to sort of have that stupid male temperament tempered a little bit more. It's 100 % true. And again, let's hasten it, it's a continuum, right? There are men who epitomize those traits. There are women who are adrenaline-fueled traders. It's not just gender or genitalia specific. It does come down to the kind of attributes. A former fool employee, Luann Lofton, wrote a great book called Warren Buffett, Invest Like a Girl. And she kind of made exactly those points, that those traits we consider feminine traits. And again, I don't want to get caught up in the language or the, you know, let's leave our ideological debates.

1:11:26The things we consider feminine traits, whether they are or not, they tend to be overwhelmingly for evolutionary reasons, as Andrew said, but they're not universally and not inexplicably or unchangeably. Feminine as opposed to female, I'll just use those masculine and feminine. He tends to epitomize some of those traits considered feminine when it comes to the way he invests. And that tends to have worked out pretty well for him so far. And Luanne's entire point was, hey, embracing some of these things is actually really good for your investing. And that's kind of the point Ram was just making, which is this is a good way to think about it.

1:11:57But there's no surprise, mate, that I talk about younger people and the gender splits there. It's also my understanding, and pretty strongly, that women tend to over-index in ETFs and blokes tend to over-index in buying individual shares. That's exactly what you just said, right? We are, again, not exclusively and et cetera, et cetera. But that idea of I'm going to beat the market, I'm going to be the guy who does this and does that, I'm going to win this thing, I think I'm going to put myself to the test. Well, it turns out, again, generically, generally. um what's here anyway i generalize the bleh that's now a new word uh women's like i 10 9 a year compound for a very long time that sounds wonderful to me why would i be stupid enough to risk that by trying to pick a winning stock i mean that that that in itself is a really you know it's very clear from my understanding of the data is that when it comes to etf investors the gender split is far more even it's not even at all but far more even than it is when it comes to individual stock purchases because it's one of those things that in picking individual stocks women are reasonably a lot of the time saying, but why would I be able to do that better than somebody else?

1:12:56And why would I beat the market? And what makes me think I'm special? Blokes, we've got a pretty good mortgage on, we think we're special. And that's why we pick times sometimes well, sometimes badly. That's the other thing about, remember about an average, if I'm beating the market, someone else is losing to the market by definition. So, you know, it's not, it's not a, it is a zero sum game. So the blokes who think they can, half roughly are right and half roughly are wrong, because that's how the market works. If that wasn't true, then no one would beat the market at it all. Someone's going to lose if someone wins.

1:13:23There is something to that. There is something to the ego that, again, done well. Warren Buffett's done very, very well because he's had the ego to say, I think I can beat other people, as well as having those feminine traits. And that mix, I think, is probably pretty important. Yep. On that note, having offended most of the people listening in one way or another, I've offended the women slash girls. Andrew's offended the blokes with the Sausage Fest comments. We will leave it there. And if we are not back next Friday. That's because you've been cancelled. If we are, we will see you then. Until next Friday, or maybe this is the last podcast ever.

1:13:57Thanks for listening. 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. The Motley Fool operates under Financial Services License 400691.