Mailbag: incl. The Statler & Waldorf edition. May 12, 2024

28:35If all of that is true, and the fear of property value did factor in a public policy, then why did policymakers do everything they could, including the destruction of future wealth of the nation, in order to keep property prices from, quotes, crashing? In contrast to the stock market, which includes the vast majority of our superannuation, It came crumbling down during COVID and policymakers trusted the market to correct itself without fiscal or monetary intervention. So why do economists keep referring to this property value doomsday scenario as a motivator for government intervention and hence the need for it by lowering interest rates?

29:10Why are property investors so special they deserve a trade-off to home ownership affordability for those who need it and more importantly our children? The point I'm trying to lead to is this, says Paul. Could we as a society be more thoughtful of what we choose to fear? Tone it down on the negativity surrounding the possibility of property price drop. Instead of casting a fear factor to it, celebrate it. Because there is, by definition, an infinite number of first-home buyers every day who want a fair chance of being able to afford a house. The policymakers can talk all they want about helping with housing affordability, but their actions have always resulted in the opposite.

29:45Because they are motivated by this irrational fear, it's fundamentally destructive. Thanks for hearing me out. Love you, Pod. Fool on, Paul. go on around okay um settle down everybody get a comfortable chair here we go you're living up big birth uh no i'll keep it i'll keep it quick you're right paul i mean look there is we are so detached from the underlying utility value of a house as to it's such entirely a financialized thing at this point in time i mean i i sympathize with a lot of what you said the reality is it will cause a huge amount of pain um uh yes amongst those that arguably not deserve it, but should be accepting of it as a possibility.

30:28In the same way that if I go and buy some Bitcoin and it goes down and then turn around and go, wait a sec, someone needs to bail me out. Everyone would look at me as in, are you on drugs? Like, no, you took an investment and it didn't work out. And that's life, right? That's invest. It's kind of what investing is about, right? I get a potential for upside, but there's a risk associated with it. We've lost side of that in this country it just it's all of a sudden becomes something that is sacrosanct that you're just like no it only goes up and i i shouldn't have any prospect of of downside well well that's not an investment i don't know what that is but it's not an investment heads on we're telling that lose exactly yeah yeah it's in some anyway so so yeah so i don't feel any i don't feel any oh i gotta be careful for my words i've got less sympathy for people in that scenario right because you know you play with fire you get burnt there'll be plenty of people who are very sensibly investing in property it was like they won't care because they won't be for sellers they'll write it out they'll continue to get an income from their rental stream just in the same way if the stock market crash the plenty of woolly shareholders go well that sucks that my shares are down but dividends are more or less coming through and in you know three four five years time it'll all be back and you know off we go again and yeah exactly the same with with property.

31:44So yeah, I don't care about the speculators. You deserve what you get. But the wealth effect would be very real. And right or wrong, even though you're right that your interest payments and your principal repayments shouldn't change, you will find that a lot of people will feel poorer. They will tighten the purse strings. There'll be less money into the economy, which is someone else's income, which just sort of so on and so forth. So I do think that it actually would have very real world implications. And we touched on this on Friday by talking about the fragility of the way that we have set things up.

32:17There is no robustness in the system. It's fine now. And there's no sign of any imminent crash. But if something was to happen, our ability to withstand that and the degree of downside is so much more exaggerated because of the way that we have sort of structured things. So we have kind of painted ourselves into a corner there. That being said, I don't know if it'd be the worst thing in the world to have a bit of a reset because what's the alternative, right? I mean, if you've got a mate who's addicted to heroin, do you just keep giving it to them going, yeah, but it's going to be really painful if they stop?

32:48Well, yeah, but it's kind of the right thing to do. And like there's, you can come out the other side of that and be much, much better off. So I don't know if, put it this way. I find the irony of ironies that even like the right-leaning parties are all about distorting markets when they notionally are about free markets. Yeah. The opposition's now, again, talking about taping super. By the way, that'll happen. Like, bet on that. Like, that one way or another, we are raiding that piggy bank and we're going to put it into property. But I mean, how is that a free market? How is that not a massive distortion?

33:28How is that not an unfair distortion to those that happen to be asset-owned? And by the way, every time you throw more money at it, all you do is pumping the price up, right? And it doesn't solve the problem. It doesn't solve the problem. That's the other thing. If it was aligned with their philosophy, it still would cause more problems than it solves. And the thing, and I'll shut up in a second. I'll let you have a go. But the thing that I really like with what Paul was saying there is, and I've made this point many times and I'll make it again, it's a false wealth. Do you know who benefits from higher share prices?

33:56Generally those that downsize or go bush or something like that. Sorry? You said higher share prices. Oh, sorry. Sorry, house prices. Thank you. Higher share prices, yes. I was wondering who you were going with that. I'll put it to you. I'll put it to you. Hypothetically, your property doubles tomorrow. And you go, well, I feel really rich. Okay, spend it. Spend it. You can't. You've got more collateral to lend against. Okay. But that's different, right? The only way you can sell it, spend it, is to sell it. And then you don't have a house. And you go, oh, I want a house. Well, the market goes up, the market goes down.

34:30You're selling and buying in the same market, right? So it has to be a downsize. You have to say, I've gone from a four-bedroom house to a two-bedroom unit, or I've gone from inner West Sydney to Tamworth, or something like that. Without that, it is a completely artificial wealth. Yes. It's just more collateral to lending it. Whether you swap houses for one shekel or a million dollars, you don't gain anything because you've sold one, you bought the other. Yes. You're swapping. The money is almost irrelevant. It's the difference in the value between the two properties. It's the only thing that matters.

34:58Think about it. So, again, we'll get rid of the degenerate speculators. Sadly, there's too many of them. And by the way, there are degenerate speculators in everything from shares to crypto and all other kinds of nonsense, right? This just happens in this country, the cult of property. There's plenty of degenerate speculators in property. But let's exclude them. So you bought a house. You've just bought a house, as I have, right? And let's say that the market crashes tomorrow. Well, it's like, again, I don't, nothing is. It's annoying. If I didn't know that, right, nothing has changed. I've still got the same, well, I expected that this is the repayment that I have to do.

35:38Or conversely, it triples in price. It's like brilliant. If I want to have the same standard of living or the same kind of housing arrangement, either case, whether it halves or doubles, I'm kind of, I'm not impacted in any way, shape or form. It is the four sellers that are going to bear the brunt. And if that scares you and it should scare you, Hopefully, if you're a rational person, it should scare you. You know what you do? You never structure yourself such that you're a seller. That's what you do. Sadly, we've kind of like cornered people. It's like, you want to buy a house? You've kind of got to like make yourself as fragile as possible.

36:15Correct. Okay, shut up now, Andrew. No, it's good, mate. It's good. What do I think? So I will take the bigger picture answer to your question, Paul, because there are other implications. So the thing called the wealth effect is real economically. And if you imagine a scenario where property prices fell 20 % or 30%, even if not a single house was traded, the wealth effect would mean that we'd probably be in a recession because people would feel poorer. And for all the wrong reasons, Ramos has given up beautifully. I know I rant on about psychological biases all the time and frankly still do it enough because it is the most important thing once you've got basic grasp of maths, in my opinion.

36:59The rational answer, as you highlight, and Ram agrees with you, is 100 % right. But what actually happens in reality is we're in a recession. Why? Because everyone goes, oh my God, this is terrible. I've lost all this money. I'm now poorer. Therefore, I don't want to go and spend that thing I was going to spend money on because I thought I was getting richer with my house. I'm not anymore. And so I stopped spending. Now, the wealth effect is probably overdone in small increments, a bit like GDP we talked about on Friday. But the bigger picture is, I think, in my opinion anyway, still 100 % real, which is exactly that, you would have a massive impact on consumer spending.

37:29And then what does that do? That impacts on economic activity. What does that do? That means a whole lot of people are out of work and businesses fail. And so there is, I don't know that it's true. And by the way, if you're a politician, you also get voted out. So you ask about motivations, that's the number one. Why do they want house prices to go up? People always reply to me on Twitter and say, oh, they're just doing that because they've got property portfolios. I honestly don't think that's true. I think they care more about their jobs than their property portfolios. I think they would rather be in government than have their property go up 10 % or down 10%.

37:59I don't think they'd care. I mean, not they wouldn't care, but I suspect that most polis - But yeah, the primary motivation. Right? Most polis want to stay in their seats and preferably have their seats on the government side of the house and be able to wield that power. I'm reasonably sure that's the primary motivation. I could be entirely wrong. So that's the other thing. In a perfect world, even with RAM, we should have more affordable housing, whether that's price is falling or it's stagnating while incomes rise i think the second is more preferable just because of that impact on the rest of the economy and i think if you if you're in charge of if you know if i was benevolent dictator or or the you know the man behind the curtain the wizard of oz and i was i was moving the pieces i think the least the least dramatic the least painful the least uh detrimental solution is to get to the same point but just do it more slowly so you don't actually throw people out of work and throw businesses on the scrap heap and that that's So the why, if you're asking me, do I think I should let it happen during the COVID crash?

38:54I would say no, because of the side effects, not because of the house prices themselves. You're right, Ram's 100 % right. It doesn't matter exact. If my house is worth half, if my house falls by two thirds, three quarters, what am I going to do? Well, I could sell and move to somewhere else and buy the same sort of house. It's also three quarters cheaper, in which case I'm still no better or worse off. I've sold and I've got the same, as Ram just said, same property. If I've got a four bedroom house, four bedroom house, same location or similar location. okay well so why don't I buy the moving just because it was cheaper it makes it makes zero sense um if they fall three quarts I might buy an investment property that's a different thing uh but yeah I might buy an investment property that's that's that you know I'm not that much of it um you know ideologue so look so that's the answer um what why what would be the downside of house prices crashing it would cause a recession and it'd probably be a two-year recession and it would suck and unemployment probably goes to I don't know pick a number nine ten percent um businesses fail and eventually get back to it and would i like to avoid that yes would i like to fix the affordability thing you just talked about yes would like to have first home buyers be able to buy a house yes there's a lot of ways i would solve the housing problem uh do i think a 30 crash is the preferred way of getting there no i think that'd be a terrible way to get there i mean it would have its silver linings as you rightly point out paul um but just yeah i think you you would be fine andrew would be fine i'd be fine a whole lot of people would be running down the street in tears and you know just things would go bad for a while until we got used to it.

40:14And I think we could, again, you can't choose which one of these you want or you can, I suppose, by not putting that policy in place. I would suggest to you that the COVID response was not about house prices, at least not primarily, not even third order because there was jobs to save and all that kind of stuff at the time. But yes, at some point, house prices not crashing helped us not have the economic outcomes, the negative ones that we might have otherwise had. Yeah, I mean, I do think housing is the unspoken sort of factor in a lot of policy decisions. Oh, gotcha. I mean, you know, it is the general, the reality is that we are very, very leveraged in this country.

40:56And the more leveraged you are, the easier it is for things to go wrong. And as you say, for all of those reasons, if something did go wrong, it could go really wrong, right? And so every decision is looked at. No one wants to be the party that's in power that collapses the property market. Well, yeah, you voted out. So you're not going to be in power. That's going to be the point. So it's a diabolical scenario. You can't change the madness, but you can choose not to participate in the madness, at least to the best extent that you possibly can. Unfortunately, with something like shelter, it's easy to sort of say, well, I'm not participating.

41:32It's like, well, you're living in a cardboard box under a bridge, my friend. And so, you know, we kind of, we have to participate to some extent, but wherever you can

41:45err more towards the conservative side where possible, I would encourage you to do that because, you know, the mortgage broker does not have your best interest at heart. The bank does not have your best interest at heart. You know, the real estate agent does not have your best interest at heart. They all have their incentives to sort of drive things higher and get you to bid as much as you possibly can and lull you in with things of doubling every seven years and all this kind of stuff. But it's just bear in mind that there's a cost to that. I think reality is that the mathematics of the situation will resolve it one way or the other.

42:19As I've said, take the average median price. I'm sorry for localizing this too much, but Sydney is what? The median house is$1.1 million. Madness. And the average salary is, I think, is just around about 100K now. It's maybe a little bit lower, but about 90, something like that. Now, let's grow property at 7 % per year. Put it in a spreadsheet, do that. Do you think wages are going to grow at 7 % per year? I don't think so. But let's say they do. Well, nothing changes. Let's say they don't. Let's say one grows at 5%. I don't think that's going to happen. Not everyone's getting a 5 % pay rise every year.

42:56Every single year. Not just once. Every single year, excellent point. And then fill those cells out with your formulas and drag it down. And what happens? I mean, it gets to a point where it's insane. And now you can argue that that might be 100 years away or whatever, but there is a point where it's just inconceivable. So as Alan Kohler has very articulately pointed out before, the best case scenario here is we just go sideways for 10 years. And if I was in charge of policy, that's exactly what I'd be trying to engineer. Yep. And by the way, that throws negative gearing as a strategy out the door.

43:27because there's no capital gain to compensate me for my losses along the way, tax savings notwithstanding. But by the way, even outside of that context, without the prospect of a real capital gain in there, all of a sudden my income return of a 2 % gross yield doesn't look that great when I get 4.5 % in a term deposit. Exactly. So, I mean, things will – yeah. Some problems solve themselves with given enough time. And unfortunately, what we've done is rather than sort of let the natural course of things help remedy the situation, we've just thrown everything we can at it to prevent it happening and in the process created a far bigger problem.

44:08Yep. I think that's probably fair. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

44:20Let's go to a question from Tom. He says, G'day legends. Thank you, mate. I'm an avid listener of the weekly mailbag podcast, and I thoroughly enjoy listening to your well-thought-out responses and explanations to a lot of life's - Let me stop you there. Well-thought-out? Okay. Yeah, no, I just read what I said. What Tom's actually said is, you guys go off the handle, you didn't really. To a lot of life's financial dilemmas. I have especially enjoyed listening to your podcast on long weekend road trips. Thanks, mate. It's made the long hours of driving a lot more enjoyable. I've importantly given my girlfriend introduction into the world of investing and financial literacy.

44:57Well, a shout out to Tom's girlfriend. I wish I knew you know I don't. So thank you both for listening. However, this has made a significant amount of stopping and pausing the podcast with a number of slow and lengthy explanations being needed on a number of the topics you cover. I'm glad because that's kind of, if we're provoking and prompting thoughts and conversations, that is excellent. Job done. Here's a question. Hypothetically, asks Tom, what would your wisdom or guidance be for someone with a$100 ,000 term deposit coming to maturity at the end of March 2024. Now, we're in May already, so this is a bit old.

45:31This person would like to either reinvest the total amount back into a term deposit or split it between one or two ASX stocks as a long-term 20-plus years, he says, investment that would give him the peace of mind through long-term capital growth and stable dividend income that would be reinvested for the benefit of compounding. Given many predict the cash rate will remain on hold until late 2024 and the RBO wait for signs inflation has slowed before starting to cut rates, would it be prudent to roll over the term deposit for 12 to 18 months and lock in the higher rate of interest? This is approximately 4.5 to 5%, which is currently being offered.

46:08On the other hand, would a strategy of longer term investment through two quality ASX stocks with a consistent dividend payment history and positive growth outlook be the way to go? If so, what two stocks would be suitable as they set and forget investment strategy? Appreciate the feedback and full on. Cheers, Tom. Turn deposit or investing, mate? I can't emphasize it enough. Unless you are towards the latter innings in your life, I mean, or you've got an imminent spend, you know, six to 12 months, maybe two years away. There is no sane reason to hold a turn deposit. it is it is hyper risky you're never going to lose your capital what is it over any months though I mean it's kind of oh no I don't know except for that sorry except yeah if I'm like I've got most of my deposit I will be buying a house next year do not put it in the share market right definitely do not put it in the share market but if you've got 20 years to retirement I mean I have no idea what asset class is going to be the best performing one I mean it may be that in a year's time you go oh my goodness The term deposit was fantastic because I just dodged that 40 % share market crash.

47:16So I don't know. And that's an actual option. That could really easily happen. I'm not saying it will, but it could. History suggests it tends to happen fairly regularly. But I do know that over a 20-year period, if there's one pony I'm going to bet on, it's going to be the equities market. Like, hands down. You find me a 20-year period where that wasn't the case, and it doesn't exist. so I think I think a term deposit does not make sense for anyone who's got a bit of time that being said I don't know if I'd put it in just two stocks and yes dividend payers and long history and the rest of it well you might have chosen Perpetual and AMP by the way we said on Friday just if you haven't listened to Friday's podcast yet Perpetual has effectively been broken up and sold off in pieces having completely screwed up, even after being around for 138 years, as you say around.

48:09Blue chip, dividend paying, blah, blah, blah, blah, blah. Absolutely dumps the fire. And we don't know. Maybe that's Woolies. I don't think so. But, you know, maybe it is. Maybe it's CSL. We don't know. So you - And you can't know. That's the point. You can't know. So, and look, if we were talking about$1 ,000, yeah, okay, put it in two stocks. If you're talking$100 ,000, no, go to 10, you know? And if that's too much work, then just buy the ETF. And that's, I think, likely to be, again, you'll probably be screaming at the radio and being really annoyed with me in a year's time after the stock market has crashed.

48:48I was going to buy this company and you told me not to buy that one and the stock market crashed. Yeah, exactly. Yeah, or, you know, I just don't know. I can't empty. No one knows, right? That's right. By the way, no one knows in terms of what interest rates are happening either. Like, no one knows. Even like Reserve Bank governors clearly don't know, as has been very famously demonstrated in recent years. But again, over a 20-year period, I think even if things did crash 40 % next year, I would still prefer that. And at the years of 20 years of compounding in equities, as opposed to just bleeding out through inflation over the same time with a term deposit.

49:30Even with interest rate along the way, cash is just there as something that's for a holding pattern. And that's the only thing you'd want it for. Yep. Let me add a little bit to what you said, mate. If, Tom, this person wanted to find an investment that definitely wasn't going to go down over 12 to 18 months, kind of as Ram's already alluded to, hold cash because it can't go down. Now, you'll lose money out of inflation, by the way. But you're going to get out what you put in. and if that matters to you, then equity investing is not for you for that reason, obviously, right? But for 12 to 18 months, if you're saying, well, in 12 months time, if I've got at least 100 grand in cash and there's no downside, I like that, then there's your answer and you've given it to yourself.

50:10Other than that, to Ram's point, we go back to the probabilistic kind of conversation we had before. Shares go up over time more than cash. So if I had 20 years and I'm starting now, I would be in shares. Not because I don't know what happens next, not because I have confidence that the next 12 months are going to be wonderful or interest is going to go wherever they're going to go. just over time, shares beat cash. And so probabilistically, because we can't know the future, all you can do is assign probabilities and invest accordingly. That's how I would do that. To Ram's point, don't just pick one or two stocks.

50:38Please don't pick one or two stocks. Even with$1 ,000, I wouldn't do it, but certainly not with$100 ,000. Maybe you're a genius. Maybe you get unlucky. Maybe it's a fraud. Maybe the market, you don't know. There is no portfolio size under 10 stocks, which is justifiable, other than if you're building one slowly with small amounts of money regularly, in which case you're adding hundreds or thousands rather than$100 ,000 up front. I could give you one or two stocks. If you made me pick a two-stock portfolio and I had to invest on the ASX, I'd probably go two ETFs. Because that's all, honestly, if it's ASX investing, you want that diversification, right?

51:11If I had to pick individual stocks, I'd pick Solpats and Berkshire. I own both. We've talked about those before. Are they perfect? Would I only go those two? No. But if you made me choose two, it'd be those two. Because that's just, they're diversified internally. But again, it could be the next perpetual, right? Do I expect it? No. Otherwise, I would invest in them. Is it possible? Absolutely. That's why I wouldn't have too much in either of them, let alone anything else. Again, these two preferably over anything else on the ASX as individual companies. Berkshire's not the ASX, but you know what I mean.

51:38If I had to pick two companies, they're the two I'd pick. Please, please, please, please don't. I know we're not giving you personal advice, Tom. You know we can't, which is fine. But no one should buy just two stocks with 100 grand, please. Madness. Because it's not worth the risk. The upside is not worth the risk of lack of diversification. um that's it i think we're done uh good answer ram uh next one from michael hi scott and andrew i hope this question finds you well on the podcast machine of course it does i'm a train driver says michael thank you and i've been a listener since 2018 and i'm a first time caller i love a bit of talkback reference that's great your podcast really helped get through my shifts and it feels like i'm being paid to listen to you guys rant while i'm at work he said not that i wouldn't listen while i'm in my spare time fair enough mate i'm safe we're making your life better that's great um no yeah look you should probably get paid to listen to us that's probably a fair trade i would suggest uh i was gonna very quick i have a friend who would like this is a bit crass so apologies in advance but he would he would always like um uh his his daily movements were always to be done at work because you know i'm getting i'm getting paid to poo right so i'm like i'm not doing that on my own time.

52:47Anyway, apologies. That is brilliant. Oh, man. Okay. Right. I started investing in 2018 in ETFs and done reasonably well. But look at my overall balance. I'm about 100K off having enough in my portfolio to pay off the mortgage. Well done. Boom. My wife and I have spoken about how we would feel that day when the portfolio could pay off the whole mortgage and if we would be tempted to get rid of it. Assuming that happens in the next five years, we'd be under 40. Nice, with no mortgage. But the thought of interrupting the compound interest starting from zero also sounds horrible. Would you ever consider selling your whole portfolio to be mortgage-free at such a young age and start again with all the extra cash flow that becomes available with having no mortgage?

53:34Thanks for the podcast, Michael. Go on, mate. What do you do? uh so i i've said relatively recently on the pod my thinking on this has changed my instinctual and in longly longly held longly held long held view has been that i would i would be the person who pays it all off because i mean your weekly expenses just fall off a cliff right um if you're enjoying your your your work and you you feel like being a productive member of society and And it's just like you don't have to work. You've got far more disposable income. So you can actually build up investments pretty quickly, far faster than you would if you're paying$800 in principal and interest every week.

54:16And now you can put that towards a portfolio. You'll find that things rebuild very quickly. But the real value is that you are bulletproof. We spent a lot of time on Friday talking about sort of anti-fragility and stuff and how economies and companies structure themselves in really insane ways for efficiency, but just mean that we don't have these, what were they called? The Japanese companies? The Shin... Oh, God. Shinzao? Shinaze? Oh, gosh. Terrible. You know, we were talking about how there's actually examples of companies that are a thousand years old. Shinaze. Thank you. And 500 years old and 100 years old because they were just so, so resilient.

54:54You're bulletproof. Anything can happen and you've got somewhere to live. And you don't need to work that much. You could have a very easy part-time job, enough to sort of put groceries on the table because that cost of shelter is non-existent. You might have to occasionally paint a room and fix a tap and all that kind of stuff. These days, I tend to think it's probably smarter to keep not all of the debt, but some of the debt. You don't want so much debt where a slight wobble can really make you be a forced seller. but why it's kind of if you think about it it's a way to short the dollar and why wouldn't i short something that's a melting ice cube that is designed to lose value not not conspiracy go to the rba's website they target two to three percent purchasing power destruction each year it's a whole other ideological and philosophical discussion that we won't veer into but the facts are the facts, right?

55:51That's what, at the moment they're double that. Um, so can I, can I short that, that I know is designed and, and, and, and is going to lose value so that, you know, I might have a$500 ,000 mortgage, but I tell you what, if those, that trend continues, that's going to not actually be that much money in 20 years time. And I'll pay it off then. And I let, I let my portfolio compound along the way, uh, cause it's not in cash. It's in a productive, um, enterprise seems seems like a really smart move the devil is in the detail so on one extreme you've you've you've got an lvr of 10 percent a loan to value ratio of 10 percent the other you're up in 98 80 and you're kind of both doing the same thing it's just that one's really really you know living on the edge and the other ones are sort of like it's not really enough to even bother with like you might as well just go mortgage free but but there is there look there's a middle ground in there as well.

56:48Doesn't have to be, I'll pay off all the mortgage, maybe pay half the mortgage, half your housing costs, keep half the portfolio and do it that way. You're still relatively bulletproof, right? Again, it depends on the exact, how reliable your earning capacity is and how big your debt is, et cetera, et cetera. But I would be tempted to leave some debt there. Let that debt inflate away. And in the meantime, keep the capital in something that's super productive and compounding. Just don't go up to your eyeballs in debt because that way you may not be able to withstand any shock and you'll be a forced seller and all the theory goes out the window.

57:27Yeah, I think that's right. I find that just too complex by half for me personally, honestly, mate, for all of that. I still think it's necessary to have that view. I mean, I guess we want to maximize our portfolio values and returns at some point, I would probably not be going that deep in that sort of stuff. Is it right? Yes, that's the benefit of, it's always the benefit of a 30-year mortgage, right? You'd borrow at today's price and in theory you're paying back at some future point, the principal in a future price as long as the repayments are doable. And even if property does go nowhere for 10 years, in 30 years it's probably larger to some degree or other.

58:04So there's probably some benefit of that being inflated, not even the debt inflated away, but the principal, um you know the relativity between the principle you borrow and the amount you're earning probably goes up over time so there's just there's just a value there i i absolutely i don't disagree with you mate in terms of the approach i just i don't and you've made the argument before any any upsides up good upside and i don't even think you're wrong um i just don't think i'd bother maybe just lazy or something i don't know um i i think i and so the other thing which we've said before is for Michael, it's a lifestyle choice, mate.

58:39It's not even a financial decision, right? It's just a case of what do you feel better about? The beauty of having the portfolio larger than the mortgage eventually is that you can always sell it and pay it if you ever want to. So the optionality you have of having both is useful. A couple of things to think about. Firstly, for all that said, while I wouldn't focus on the debt part of it, you have got a relative question about the compounding value of both those things, your house and your portfolio at the same time. And if your portfolio is going to grow at maybe 9 % a year as the market average, if property is not going to do that, then the longer you've got more money in the portfolio, you hopefully will end up with two or three or four times the mortgage value.

59:18And you can pay that off and still be left with two or three times what's left, right? So there's value in waiting. The other thing, now, that makes you pay interest to wait, so it's not cost-free. but what I would say is that for most people, they find it really, really hard to say, when I paid the mortgage, I put all of that mortgage repayment money into the portfolio. There's always an excuse or a reason or a rationale to say, well, I was going to put the whole thing in, but we've done well. We deserve a holiday. Let's get a holiday. We might get the house remodel. What about the new car? And I'm saying, you do that, Michael, and I'm saying, anyone would necessarily do that.

59:49I'm just saying, the maths works if the rationality implied in the maths is what actually happens in real life, as opposed to if this happened, that would be the result, sure. And as I've said before, if my grandmother had, will she be a bicycle? But she doesn't. And that's the reality of this sort of stuff. So just be mindful of how likely you are as a couple, as a family, to actually do that. If you were to pay the mortgage off, would you actually put every single dollar of that mortgage repayment into your portfolio? If you would, then, hey, different question. i i've said before we at one point did pay extra money off the mortgage selling some shares um that felt really good uh our family dynamic was such that my wife was really keen to pay some money off the mortgage just felt better to have less debt so cool that works for me that's more important you know she's happier for the next x you know tens of years because we've done that then hey that's an easy decision for me if i'd done it myself would i have paid it off no probably not to ram's point because i think i think i'll compound faster um in my portfolio and you've already highlighted that michael that that trade-off i would if i was going to suggest anything not to you because i can't give you advice michael i would say move slowly let your portfolio get to that point and then wait and let it get 10 20 above that and then wait because you're going to find yourself settling on a view i'm glad we didn't do it because look how much it's grown or you know what's been two years i still really want to do it let's just do it there is no bad answer as long as it's the answer that you guys will live for the next 40 plus years being really happy with, I would be inclined mathematically to let it compound.

1:01:19So look at it this way. You don't pay the mortgage off. Yeah, you've got to pay some repayments and some interest. Meanwhile, the mortgage will fall further. And at some point, you can sell half the portfolio and pay off the mortgage. Or sell a quarter of your portfolio and pay off the mortgage. The only thing that's better, feels better than paying off, than selling everything and paying off the mortgage, is selling a quarter of everything and paying off the mortgage. So I would encourage you to have a think about that too. At some point, your portfolio is going to grow faster and you can contribute to it, by the way.

1:01:42That's the other thing. I don't know how big that is. I don't know how big your mortgage is. But let's say you've got, I don't know, a million dollar portfolio, just for the fun of picking a number, because it's a big one. I can't do the maths in between in my head. If you get a 9 % return on a million dollar portfolio, you're getting 90 grand a year. Now, I don't know how much you're paying on the mortgage, but it's probably less than that. In other words, even if you put everything you're saving from your wage into the portfolio from zero again, you can't outperform the value of that compounding.

1:02:11And that's why money makes money. and that's why a company gets massive at some point. Let's say your million dollars becomes$2 million. Then it's$180 ,000 a year at 9%. Let's say it goes to$3 million. Well, okay, now it's$270 ,000 at 9%. You can't say, oh, well, it depends what job you got. I assume as a train driver, you're not getting paid 500 grand a year. You'd have to be to be able to have an after-tax income of 300 odd grand and not spend any money and put all that into the mortgage to match up with it. So the bigger your portfolio gets, the faster it outpaces. And by the way, just a real quick tangent, at some point you should stop contributing to your portfolio because it gets that big if you've got a three million dollar portfolio and again most of us won't but you know hypothetically just for the fun of illustration if it's if it's growing at 270 grand a year why put i don't know let's say you're saving two grand a month just make it a really big number why put 25 grand or portfolio that's already growing by itself at 270 grand a year that that's spending money time and so at some point there is that that's why investing so early saving early is so important because at some point i don't know you get to 62 it's like well if i've got X million dollars in the portfolio.

1:03:13Do I add more? Well, no, I'll go and spend it, go over a holiday because I can't make a material dent on the portfolio because it's already so big. And that, Michael, Matt, I'd encourage you to do. Ram talked about a spreadsheet before with property. Do the same with this one. Put your age now, put the amount of mortgage, the size of your portfolio and drag them all forward and look at it. It's like, well, hang on, I'm going to have that much by then. And I'll do it if you start from zero, I'll work out what that looks like. Again, you might still choose to do it if it's right for you guys emotionally, family security-wise, I don't know how secure your job is.

1:03:44Have a think about that as well. If it works, to the extent it works, I would just do that maths and work it. Again, see what you feel like. But my best piece of non-advice is get to that point of being able to do it and then do nothing. And sit with it while it's larger than that for a year or two years. And at that point, if you're just burning a hole in your pocket, you just want to get rid of it, go for it. Or if you go, actually, I'm really glad we didn't because look how much money we made. not doing it, that might tell you something as well. Yeah. I'll just quickly reiterate that there is, it doesn't have to be a binary kind of thing.

1:04:14Like the Buddhists would tell you there's a middle path, you know. The UK Labour Party would say there's a third way. There's a third way, yeah. Nice. Hey, mate, let's finish with a question from Stasi who says, Hi, lads. I have a question for the pod machine. Good man. I'm in my early 20s. And before I even get in, he says, Yes, I'm feeling the hate from Scott. I don't hate you. Okay, yes, I do. but only because you are. And I'm preparing to move out of my parents' house and buy a property. I've created a sizable share portfolio, which is about 75 % of my wealth. Knowing that my buying capacity will be greatly limited if the market drops between now and the end of the year, I've decided to sell my US ETFs that are at all-time highs.

1:04:54But I'm keeping some individual companies I think are still undervalued. I understand you can't give personal advice. However, I'd love to hear Andrew's recent experience with buying a property and how he tackled freeing up capital. My thinking is to try to minimize any regrets I might have. For example, if the market doesn't drop and goes up 20 % between now and the end of the year, it's not the end of the world. Thanks for all the value you guys bring in educating and ranting to the Australian public. Cheers, Stasi. Thanks, Stasi. Very kind. Matt, I'll throw this one over to you. It's a question for you.

1:05:28So just articulate it differently for me. So what was the - He's got some investments he's going to sell to buy a property. And he's trying to work out how to go about liquidating the assets when he kind of – I want to hear you saying, well, the ETFs are at all-time highs. I'm not going to sell those. But I kind of want to keep my undervalued property – my undervalued company, sorry. How do I think about liquidating my assets to buy that property given that shares could move around? He's currently thinking, well, I'm going to try and minimize my regrets. If prices go up and I've already sold, well it's not the end of the world yeah uh so he's kind of thinking yourself sooner rather than later just to make sure he knows he's got the money ready to buy that property okay sorry yeah okay i get you um uh yeah it's a it's a dilemma it was a really tricky one because my view on the world is is whatever i do will be the wrong decision so it's kind of do whatever he doesn't do is what he's saying you know it's like if i sell i mean look here's the reality um i just don't i'm not rich i guess in one way i'm extraordinarily rich on a global stage i shouldn't complain i'm very fortunate but but i wasn't in a situation where i i uh i didn't really have a choice do i want a home sell your portfolio dude there's a token amount there because i got to have a toe in the water but pretty much sold it right and how's that feel awful okay no it doesn't feel now have you made your peace with it is it still going to grind at you have you kind of gone it sucks but I'm happy with the decision how have you found it well we were chatting before how just how I'm very happy with the decision but where what I know now and even when we made the decision that I didn't know initially when we sold our first house and put it all into shares was I wasn't I was too analytical I was too numbers driven and the reason so again just a bit of context here gosh it must have been 12 years ago we bought this really basic fibro house sat at Granville, 330K or something.

1:07:30My God, you idiot. Anyway, we did it and we paid it off pretty quickly. That was the plan, right? And then I thought, well, actually I'm getting okay at this investing thing. Property doesn't tend to do as well as shares. I'm going to put it all in shares and I think I'll get a better return. And it did. I did. Job done. I'm really proud of my long-term return what i didn't realize was that i would be kicked out every 12 months and have to have a fight every time that you know the taps didn't work yeah and have to deal with real estate agents all the time i did not factor that into it so this time around when the decision was made i didn't make it purely from a financial perspective because the financial perspective would have been keep the damn shares and just keep renting because it just makes more mathematical sense but but But as an older, wiser person, I recognize the intangible subjective value of not having to deal with landlords.

1:08:30Apologies to all the landlords out there. I know there are some really good ones, but there are some really bad ones. There are some really bad. Look, there are some really bad renters too. So there's two sides of the coins. But let's, yeah, there is. You don't, those who know, know, right? And I think anyone who's been renting in a major capital city in the last five to 10 years knows just how terrible it is for the most part. And so I don't regret the decision because I value the security that I have now. but it kills me inside to know that I have had to put my life's energy into a servicing alone so I can have that stability instead of investing in productive enterprise that might help sort of make life and society better and ultimately give me far more capital to do the things and make the change in the world that I would like to make.

1:09:20Because I ain't going to get that return in my house. And as we just spoke of earlier, even if I did get that return in my house, I can't spend the damn thing anyway right because it's all locked into the house so it it it destroys me but that's the reality that we have so i would in answering the question for yourself personally was it michael um michael is is that stasi stasi stasi sorry yeah stasi is is the the better decision is to financially on based on long-term averages is to keep the shares and rent stay live it home for as long as you can frankly that's right do that you didn't ask yeah that's right by the way don't go out with your folks don't drink don't eat anything other than two minute noodles and do all your shopping at k-mart i mean that that is that is that is the superior financial decision but that there's a quality of life aspect to it as well and that's that's the point that i want to emphasize and i was very dumb and slow into coming to the acceptance acceptance of so if if and i and there are people because of um they rent directly off family or even friends family friends that kind of thing if you've got a scenario where you can rent under a very secure scenario i would choose that 100 if you're just like you know thrown to the walls of of the of the property market just bear in mind that it could be a very difficult and stressful scenario for you and that it may be even if financially you're not better off it may be that that is worth something yes i think that's i think that's a really good point um if you are look as we mentioned earlier stars if you have a if you have a date you want to buy that home the date is soon then you your regret minimization i think is probably the right way to think about it which is if you if you know exactly you won't have less than a certain amount of money that has its own value and yes it could have gone up but you're right to say look if it goes up and i go well that kind of sucks but at I know how much money I've got.

1:11:12As a general view, not personal advice, that is a better solution. If you need 100 grand, you've got 100 grand, tossing the coin, maybe you have 120, maybe you have 80. If you get an upside, wow, I'm glad I stayed. If I get 80, well, actually, now I set myself back. And frankly, if house prices do keep rising, and they may not, we talked about that, but if they do, you may be even further behind by that point because you're now trying to get back your 100. And then on top of that, as prices go up, you may be at 120. So all of a sudden, you're behind twice. So there is a, because of the reality of leverage and the reality of price movements, I would absolutely suggest thinking very seriously about, as we've said many, many, many times, if you need cash in the next, frankly, three years, have it in cash.

1:11:52Don't leave it in the market because it could crash 40 % tomorrow, could go up 40 % tomorrow. No one knows. And if you've got a drop dead date, there's no point mucking around with it. Some things are more important than money, or at least being able to buy the house you want may be more important than risking it for some upside. Here's the other thing, mate. This is the way to think about it, right? If I said to you, sorry, Stasi, I sold all your shares. Here's 100 grand I got. It's not 100 grand necessarily for Stasi, but I'm just using that number. Sold all your shares for you. Here's 100 grand.

1:12:20Look, do you want to take that down to the casino with me? And what we'll do is we'll put it on red or black. And if it's red, you get 120. If it's black, you get 80. Do you want to have a go? You'd probably say no. And by the way, buying shares isn't gambling, but in the short term, the outcomes frankly are the odds are indeterminate so that's kind of what you're doing and I think you're right so I think you probably already know what you're doing you've already said you think and you say quote my thinking is to minimize any regrets I might have for example if the market doesn't drop and goes up 20 % it's not the end of the world I think that's I think you know what you feel comfortable doing and I think that sort of approach is what I would do if it was me if you by the way as Ram said though if you can stay home for the next five years if you want to and you wait until your portfolio goes from 100 to 200 grand that's a very different conversation if I got to be opportunistic about when I bought the house that might be a very different story if you're in a position where you're like I love mum and dad but it's time to go then that's cool too and that might tell you what you might be better off doing I reckon we're done mate I reckon we have finished this off as a reminder go to twitter at twitter.com forward slash tmf scott p or sage underscore simian Matt Ram will probably have retweeted it by now so yes go and check out the image of Ram and I are Stattler and Waldorf just for your own amusement slash my embarrassment.

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