Mailbag: incl. What's your FIRE number? June 9, 2024

23:11We should be banned from doing those things, or I'm against companies doing those things. If any Australian company wants to make batteries or panels, it's brilliant. Go for it. Knock yourself out. Just don't expect$23 billion of Australian taxpayer money to do it. Do it because they make commercial sense in and of themselves. So am I against home batteries? No, I'm absolutely not against home batteries. Do I want the government to fund it? No, because if it can be done profitably, it would be. If it can't be, don't fund it. So again, the same thing. Why are you so dismissive of Australian-made renewable technologies?

23:38That's how your rant came across. I would suspect, I'm not going to mention my correspondent's first name. It's a relatively unique name and she hasn't asked me not to, but I won't just out of respect just to be a little bit careful. If it came across that way, I think maybe that's partly about me. It may be partly about the way the listener hears it. I'm not dismissal of anything. I'm dismissal of Australian made anything technologies, not renewable, not anything else, if it's government subsidised. We should do stuff we can do and do well and do profitably and do successfully, not other stuff.

24:07She says, I have yet to hear you or any other financial commentator rail against other subsidies like the$11 billion per annum paid to the fossil fuel industries. Then I would suggest you follow my Twitter account at TMFScottP. Will you see me do exactly that? It's probably not an unreasonable question to ask, I suppose. We haven't come up because it's not really a topical question. We unpick some kind of general stuff about investor and finance, RAM, and policy. but we kind of go all the way back to hey should we have x on y i don't know whatever that might be uh we could talk about it i'd be happy to um i i would suggest and again i think this is i admit this with absolute respect um the comment says quote as it went to air your rant seemed to say subsidies for green renewals is terrible without saying anything about fossil fuel subsidies which currently are such a huge and dreadful drain on the public purse end quote um i've ranted a lot about resource royalties and that sort of stuff i again i think it's maybe more about how it's being heard than what I actually said.

25:05But I don't want a verbal listener who's not here to defend herself, but I don't know that's necessarily 100 % fair. Your thoughts, Ramity? It was all about me and my rant. I'm happy if you want to say stuff. If you don't want to say stuff, you can agree with me or disagree with me. Any thoughts on that?

25:22No. No, other than I'm very against the hypocrisy with the subsidies that the fossil fuel industry gets and then rail against subsidies that other things get. I mean, I do, that makes me jar as well. Yeah. I'm all for things being built here. I'm actually, where I bristle is, I think we overestimate our ability to control these things in a top-down level, as you well know. And my view is it's not a laissez-faire capitalism, but it's just like someone sitting around in their garage, right now in Adelaide, South Australia, thinking, I reckon I could make some panels really cool, really effective and really cheap and whatever.

26:08They might be wrong or they might be right, but I say have at it and the market will decide. And I think within that broader statement of we can't, there will be exceptions of, well, what about this company that does? So it's, I don't know, have at it. Where I do think there is a role for more of a top-down orchestration is where there are sometimes there are barriers. Sometimes you need to prime the pump, and then the pump will take care of itself. So, you know, we think that this is a bad thing, so let's make that a little bit more onerous through taxes or whatever. And we think this is a good thing, but it's not able to stand on its feet yet, so let's just prime the pump a little bit.

26:52I'm actually in favour of that to a small degree. but then after that I mean markets are wonderful things they really are they you and I can debate and everyone can debate what they want and what they have and then just all markets do is reveal preferences at scale it's what they do whether it's you know a market for prawns or for shares or for property or for uh you know trinkets at the local um you know farmers market it's just they're wonderful things and it is an aggregation of human desires expressed uh writ large and And what I think, and this is where I think places like America, Israel to some extent too actually, get it really right, is they really foster a culture of entrepreneurism and a very forgiving of failure.

27:43Like failure happens, but it's not. I think in Australia, one, it's very hard to kind of take my word. And I'm sure a lot of people listening, in fact, the correspondent will absolutely agree with their time in the market. The barriers to entry can be huge and unnecessarily burdensome and costly. And God help you if you fail, right? Like it will be very difficult to pick yourself up, dust yourself off and try again, which is a shame because a lot of good ideas fail. And in that process, you learn a lot. But what we want those people, those risk takers, those bigger thinkers to try and try and try again.

28:21I'm not just saying that there should be a free pass for failing and, you know, just have at it as many times as you like and the state will subsidise all your stupid ideas. But, you know, I think what it does is it fosters a system that we have here, which is we just have a lot of very large mega sort of companies relative to our size and an environment where it's very difficult for the little guy to compete, which gives them undue pricing power and market power, which we all suffer. So I don't know if that's even on topic, but that's my two cents. A little bit. Yeah, look, I hear the criticism.

28:59I don't resolve from any of it actually for what it's worth. If it's come across as not very thoughtful or very explanatory or exploratory, I'm happy to add or change to that.

29:11Yeah. Yeah, point made. I mean. I think so. Yeah. All right, let's move on. Move on. This is one from Tim. Hi, Scott and Rammstein. I've been a Share Advisor, Ultimate Growth, Blastoff and Discovery subscriber. These are all Motley Fool services for many years. And I've recently worked out that a pod machine doesn't just make coffee. Well done, Tim. Welcome to the team. I really appreciate your straightforward... I've never made that connection before. Nice. I really appreciate your straightforward, often rambling, but considered responses to mail-based questions. Often rambling, always rambling.

29:44Thank you, Tim. I finally have a question that I think or hope is worthy of your time. I have access to the income extra feature of ShareAdvisor and I've often wondered when I should be considering moving to a more income-focused investment rather than looking for aggressive growth, as super funds would call it, in my SMSF. We had a question about, it's not the same question, we had a question similar last time. I'm 51 and currently have a pretty even spread of Australian US ETFs. Is this something that should be done well for, a bit before or just before retiring, or maybe slowly over time. The reason I ask this one, Ram, is Tim says, don't give me that.

30:18It depends on your circumstances line. I'm interested to know what your approach would be for your own SMSF. Thanks in advance of at least one funny retort, Tim. Tim, I don't reckon we can add much, mate. If you haven't listened to the last episode, I'm pretty sure it was last Sunday we kind of covered this issue almost entirely, Ram. Unfortunately, Tim, it does depend on your... It depends. For two reasons. One is because we can't tell you personally what you should do. Secondly, everyone's views are different. That's why we can't tell you what you should do because everyone's risk tolerance and profiles are different.

30:47So I am going to, well, I don't know what's funny, Tim, but the retort is it does depend on individual circumstances. Have a listen to last week's episode for us and if you still need a question answered, feel free to throw it back in. Elliot says, Dear Scott and Ando, I'm loving people who are taking liberties with your name. You get Andrew, Ram, Ramstein. There's plenty going on. I've been an avid listener of the pod since I discovered it last June when my second daughter was born. and the sudden realisation to plan for the future dawned on me. Apparently, says Elliot, one child didn't do that for me.

31:20There you go. Maybe it's a large numbers thing, Elliot. Recently, I've been looking to build up my portfolio of ETFs and became slightly confused by the price movement of the S &P 500 and the NASDAQ ETFs. Could you please help my very novice brain? I thought that an ETF's price would move up and down proportioning to the holdings within the ETF. However, I have noticed these specific ETFs have price fluctuations during daily trading hours, ASX trading hours, I should say, when the US market is closed. Does this mean movement is due to the buying and selling of day traders? If so, I would then presume any specific ETF's price could move up and down, technically without any change from the holdings within.

32:04So should this be a consideration when buying into an ETF, or am I getting a bit too in the weeds here? Also, bonus questions, says Elliot. given the market over the long term historically goes up and most sound-minded people would say putting your money in a market-tracking broad-based ETF is a smart investment, then why do I never hear anyone suggest using a market-tracking geared ETF? I get that three times the gain also means three times the losses, but given they track the market over the long term, wouldn't this be as safe as the non-geared equivalent but with three times the returns? Thank you for all the sound advice and never stop ranting.

32:38Cheers, Elliot. All right, mate, let's do that in order. the ETF, S &P 500, I don't have to take ETF prices change during ASX market hours, even though the US markets close. What's going on? Yeah. I mean, it's never going to be a perfect track. It just, it can't be. It's really just the mechanics of the interaction between buyers, sellers and the market maker that's in there creating units and redeeming units on behalf of the operator of the fund. So there's going to be fluctuations that are inherent and unavoidable within that. And there's going to be some people in there trying to arbitrate things and all kinds of clever stuff.

33:15The thing is, is that whatever deviation you observe is going to be minuscule and almost, well, in fact, entirely insignificant over any meaningful stretch of time. So you don't have to worry about it. You know, it's, it's kind of like you will never look over, I was going to say several years, you would never look over a week, I would say, and see any difference that It might be more than 0.01 % or 0.1%, let's say, of a difference. So, yeah, you are overthinking it. A little bit too in the weeds there, Ellie. I mean, I get it. I totally get it, but don't worry about it. Put it this way. Again, markets are magic.

33:54If it were to diverge significantly, someone would notice that, someone would arbitrate that, and the very act of doing that would bring the universe back into water. So it's kind of – it's a self-correcting mechanism. So, yeah, don't worry about it. Agreed. I will touch on just two things, mate, just in that context. You talk about the market activity. That's true. Two other things happen earlier during Australian trading hours. That is the Australian dollar and US dollars move. And because you're buying an ETF that's in a US dollar denominated ETF, i.e. not the actual trading price but the assets themselves, if you've got – unless that's got one Apple share and one Berkshire share and one Netflix share in there.

34:34I own Berkshire, as you all know. Then as the US dollar moves, the Netflix US dollar share price doesn't move, but the Aussie dollar equivalent goes up and down. So it should move in line with that. The second is the US futures market also trades outside official US trading hours. And so if the market maker's job is to represent fair value, not the last traded value. And that's a really different thing. So imagine that three hours after the US market closes, the Australian market opens. I think it's roughly three, it might be four, whatever it is. If the US market's trading after hours, those prices are still moving even though the market's officially closed and the Australian dollar's moving against the US dollar.

35:13So you should, if the market mover's doing their job, and Ram's point is right, there are always going to be a bit of extra supply and demand on the edges. But if the market maker's doing their job, they're reflecting those changes. The underlying value of the assets is actually changing in Australian dollars in particular and because of after hours trading. So you should see those move around a little bit. Not by much. The other thing, by the way, is the US futures market then opens while our market's still open. And so again, so the after hours market from 7am to about 11pm or something, I think it is.

35:43Sorry, 11am Australian time, the US after hours market trades. And then at some point, kind of early to mid-after in Australian time, the US futures market opens for the next day. And again, the same thing happens. So just those are the kind of things happening in the background that the market maker is dealing with. Then to Ram's point, two things. One, sometimes we'll move anyway. And two, it doesn't matter. So I'll drop that and leave that one there. The bonus question, mate. If the market goes up, surely a geared ETF is a no-brainer, right? Yeah.

36:18What it can do is it can make you a forced seller is one. And there are costs associated with it. So even though it might on average go up over the longer term, you may find that you are forced selling at periods of extreme drawdowns. And the other thing is that it comes at a cost as well. There's an interest cost that's in there. There's a carry cost in there. So it's sort of – I'm not actually against – I don't know where you put the slider where it makes sense and then it crosses a threshold to insanity. But, you know, there are triple leverage. I had a little rant, very quick diversion the other day.

36:59A spot Bitcoin ETF launched on the ASX yesterday. And I thought, oh, interesting. I went on a comm second. I wouldn't let me trade it for my safety. But while they consider it, I can trade a double leverage negative short ETF on the ASX. So I was like, okay. Anyway, it's sort of, it's a bit mad.

37:26What am I trying to say here? If there was an ETF that said that we use a little bit of moderate leverage, so I've got 120 % exposure as opposed to 100 % exposure, and they did that in a pretty conservative way, maybe that makes sense. I don't know where you'd set the slider if you just absolute zero. Is it a triple leverage? I think that's just madness. I think that things will come unstuck pretty quickly there. But I get the sentiment. I really do. And I've said many times before in reference to margin lending, I think if done sensibly and conservatively, it can make sense. I think it makes even more sense if you've got a line of credit against your home where there is no margin call.

38:10There's nothing wrong with a prudent use of leverage if it's modest and serviceable. Not everyone will agree with that. And again, where do you want that? But, you know, there's degrees. It's like having a glass of wine at dinner is different to polishing off three bottles of tequila. You're both drinking alcohol. You know, one is civilised, one is a little bit reckless, right? So there's shades of grey in there. I'll throw it to you. You've nailed it, mate. I will share one thing quickly, though. Here's a real-life example. I looked up the ProShares Ultra Pro QQQ ETF. It's a triple-leveraged ETF, right?

38:49It hit its high on the 19th of November 2021,$88.57 per unit. It's not a share, but it's kind of the same thing. So I call it a share for fun of it. So that was the 2021,$88.57. Since then, the NASDAQ is up about 15%. So how much do you reckon the NASDAQ ETF is up? The triple leveraged ETF is up? Well, I would want to say it was triple. Right. It's actually down by a quarter. The reason is because it dipped in the meantime and the leverage that screwed it on the way down, you can't make it on the way back up. So think about the math, right? 100 down to 30. So, you know, it falls 70%. Right? But then if it triples from there, you're not even getting back to 100.

39:41And so that's kind of what's happened here. So what you found was, and again, this isn't great radio, so I'm not going to spend long on it, But the NASDAQ went for$403 down to$260 between November 21 and about June 2022. So that's six months, seven months. It went from$403 down to$267. But the leveraged one went from$88 down to about$17. And that's the problem. So when the market then recovered, you'd lost so much value on the way down, even though the gain from that low is higher, you actually haven't made it back over that period of time because you started from that lower amount. Tripling a very low number, you just can't get back what you lost.

40:27So that would be the reason why you should at least think carefully about doing it before you do because depending on where the market goes next, they call it sequencing error or sequencing something. basically if you get nothing but increases from here, if you bought on that low point of both, you made a squillion dollars on the geared one, right? Sure. But if you bought six months earlier, you're still down despite the fact the market's up. My grandma had wheels, she'd be a bicycle. It's that old thing. So just, you know, I've said a million times, if I could borrow all the money and invest today, I would do it and I'd be pretty sure over 40 years time without a margin call, I'd be sweet, right?

41:05But, but, but, but, if you buy it all the wrong time and it's internally leveraged like this is, those losses have really hurt and actually cost you since then. You're behind by about 20 % rather than you're ahead by 15%. So how could that possibly happen? The answer is the decline was much bigger until you had a higher amount of decline to get back to where you started from. And that's why you might not do it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

41:37A question from Josh. He says, Hi, Scott and Ram. I've been listening to you guys for a few years now and really appreciate the service you provide. It's helped shape my investing strategy, which is now very much to buy an ETF and go fishing. My question is regarding thematic ETFs, one of my favourites, and how they perform against the broader index tracking ETFs. For example, the BetaShares NASDAQ ETF has a five-year return of 22 % with a fee of 0.48%. Scanding the list of all of BetaShares ETFs and pulling out their tech, yes, I know that's a broad term, he says, focused ETFs, they've all performed the broader NASDAQ ETF.

42:15For example, the below three have a high weighting of tech but all underperformed and in most cases charge a higher fee. Now he mentions the HAC Global Cybersecurity ETF, the Robotics and AI ETF and the Quality Global Leaders ETF all with results less than that 22 % return. With this in mind, doesn't this lead you to think the role of thematic ETFs is pretty much void? If you're a quality tech company that's going to stick around for the long term, doesn't this mean that you'll one day end up with a NASDAQ ETF anyway? So by owning the NASDAQ ETF over these thematic ETFs, you only end up with the long-term quality companies and avoid all the potential failures or startup collapses inside the thematic ones.

42:56As I said at the start, I'm now very much a long-term 10 years plus holder. I've ETFs for myself and my two kids, aged five and seven, but I'm struggling to see what the role of these thematic ETFs actually is. Thanks. Keep up the good work, Josh. That's easy, Josh. The role is to give product issuers something to sell. And I know that sounds cynical, but I'll die on that hill. I'll stand behind that statement. Mate, and you'd be right. You wouldn't die on the hill. It's what it is. Yep. You know, the saying on Wall Street is when the ducks quack, feed them. You know? That's why they're launching an Ethereum ETF right now.

43:35Right. Is it a good idea? It's a terrible idea. They're going to do it? Yep, because people want it right now. And it's madness. By the way, it's also why they launched the Bitcoin ETF, which you quite like. But they didn't do it for anyone's benefit. They did it because they could make money doing it. Absolutely. I'm not saying it's bad at all. I'm not saying the two are the same. I'm just saying, why did they launch one? No one at Wall Street went, I would really like to help people because Bitcoin is going to be great and they should have a chance to buy this. And out of the kindness of my heart, I'm going to help them do it.

44:00It's like, no, no, no, no. There's a lot of demand out there. Larry Fink didn't find Jesus and then, you know, or Satoshi, perhaps I should say. Oh, no. Game theory, right? Like you're just like, someone's going to do it. Might as well be us. First in, best dressed. Let's do it. You know? And, yeah, so that's purely the reason. I agree. I agree with the general sentiment. I mean, this is the trouble with it is too, is even when you're right about the general theme. It doesn't mean that something that covers the theme will be right. You know, I reckon you could have gone back to 1999 if they were around then and said, I want an IT ETF.

44:36It's like, I reckon it would have underperformed the market. Yeah, you got Amazon and Microsoft and all that good stuff, but then you also got the 95 % of stuff that went to zero. So usually when you have these big macro disruptive industry, you know, changes, absolutely insane amounts of value are created, but it's usually captured by the top little X percent. And it's the average that you get within all of that. And you're right. The good ones will actually make it into the NASDAQ anyway. So you've made the point before, not to steal your thunder, but it's like if you've got a very specific view on which company is going to be the good one, we'll just buy the company, right?

45:15You don't need to buy that and all the other ones that are rubbish. If you don't know, what the hell are you doing buying the ETF? Yeah, exactly. So it's circular, right? So it's just the whole point of the, you know, what does Jack Bogle say? The inventor of these things, right? He's like, don't look for the needle in the haystack. Buy the haystack. Buy the haystack. Great luck. You know, not buy that part of the haystack, you know. Buy the whole damn thing. Buy the robotics part of the haystack or the tech part of the haystack. Yeah. I agree with Ram. Josh, I, yeah, Ram's still my thunder beautifully and it's exactly right.

45:46Now, only because I believe in fairness and giving the full picture, I will say, you've compared five years. it's possible in the next five years those numbers are different. It's possible that some, if NVIDIA was in the robotics and AI ETF and it was 48 % of it, it's probably going to outperform the NASDAQ, right? Because it's just a higher weighting and it's gone so spectacularly well, it may well outperform. That, by the way, isn't any more reason to do it than the underperformance of the last five years is to avoid it. It's actually first principles. So even if you'd said to me, this email might have been written in a different, I don't know, I haven't looked at the data, but maybe if you go back three years and the same email has those three ETFs all beating the nasdaq and you your question would have been given they all beat the nasdaq wouldn't i be mad to buy the nasdaq why wouldn't i buy thematic instead uh and so the my answer is going to be it's really really important that we separate out past performance from underlying uh what's the word mate rationality or logic or analysis we want to call it which is that there is no reason to believe that arbitrarily buying a theme without really understanding the valuation rams already don't cover that bit is gonna be better than buying a broad index.

46:51So I wouldn't do it. I've recommended it against a million, million times. One of these, statistically, it's probable one of these three ETFs might beat the average because here's the other thing. The bigger the average is, the bigger the basket is. Is buying the ASX200 ETF the best investment you can make? No. Because it's an average by definition, which means some of the companies in that ETF are going to beat the ETF, in which case you just buy the ones that are going to beat it. And frankly, if the global cyber security and robotics are part of the NASDAQ, It's a very good chance one of them at some point will outperform because something will.

47:22But can you know in advance, is it reasonable, are you getting charged a decent fee? Have you done the valuation work? So I end up in your place, Josh, and I end up in Ram's place. I just wanted to make the point that it wouldn't matter to me whether in the last five years they'd smashed the NASDAQ or been smashed by it. The logic and the answer would not be any different, which is simply it's probably a bad idea to try and cherry pick unless you've done the work to understand all those companies, to value all those companies, to roll them up to the ETF, then consider the fee and then work out if it's worth doing.

47:51I think the answer is usually going to be no. Yeah. Hey, speaking of the NASDAQ ETF, mate, Ian asked a question which does him beautifully. And again, I'm loving the variation of your name. Hello, Scott and Rambo from Ian. A question for the pod machine, if I may. With the usual caveat of no personal advice, I was wondering if you might punch up this thesis. If you could give me personal advice. Exactly. My super is in an industry funds, quote, quote, high growth option, end quote, that has returned approximately 10.5 % after fees and taxes for the past decade. That's pretty good. It's good, yeah.

48:25You guys regularly talk about buy an ETF and go fishing. Now, I don't fish, but Uncle Wikipedia, I've never heard that called, that's great. Uncle Wikipedia has a table that tells me the following stats for the NASDAQ 100 since 1985. Again, numbers aren't great already, but let's go with it. Average growth per annum, 28%. Decade to 2023, 28%. Best decade, 50 % per annum. Worst decade, 18.3%. I found another industry fund that will allow me to invest up to 50 % of my super balance into the beta shares NASDAQ ETF. Now, past performance is no guarantee, etc., etc., but the NASDAQ is a pretty potent basket of growth stocks.

49:06Even if it replicated its worst decades of 18 % per annum, I should get about 15 % after the super fund's ticket clipping. Yes, I'll need to stomach volatile years, like minus 22 % in 2022, but I'm not being delusionally optimistic, am I, to think that I can improve on the 10.5 % I currently get. What am I overlooking? Thanks, gents, for your wisdom. You guys add a lot of value for a lot of people. Ian. What do you reckon, mate? Just jump a lot and go another day? I mean...

49:41I mean, there's worse ideas. if I was going to go if I was going to go an international ETF in fact that is the ETF that's the one I've got I own units too I should say actually no I don't anymore I don't I did then I just I've just set up my SMSF but I probably buy some actually I just haven't got around to it yet but I I think there is something I mean America's a basket case for a number of reasons but it's It's also the biggest, most liquid, in many ways, the best capital market in the world. I'd argue that some of the best companies in the world are there. It attracts the best and brightest.

50:25You know, I don't know what the best company is going to be in the next 10 years. It's a very good chance it'll find its way to the NASDAQ. So, you know, I'm not going out of my way to, and this is no offence to people from these countries because it's nothing to do with the people, but the Brazilian ETF or the Bangladeshi ETF or the New Zealand ETF, or pick your number, right? There is something special. There is a deep competitive advantage with the US and the companies that it manages to attract for a litany of reasons. So, yeah, I think you could do worse than if that was the ETF you were going to settle on.

51:04I agree, and I can't give you personal advice, obviously, as you know him but i wouldn't go 50 nasdaq um i love broad-based etfs this one's kind of not as broad-based as a total market totally u.s market etf and frankly right now we've talked on friday about the rise of nvidia was it earlier this podcast i can't remember um the rise of nvidia and the rise of magnificent seven and we did was friday and the you know is it it's not impossible that the PEs of those things fall fast and there's a 25, 30 % fall in the NASDAQ. I'm not saying there will be. I own NASDAQ ETF units as well. I'm very happy holding them.

51:42They're not half my portfolio. I'll give you that much. So I think people should invest internationally. I think they should invest in the US markets for reasons Graham's already said. I think it's very, very likely, frankly, that the NASDAQ does better than the S &P 500. And I also think it's probably likely that the S &P 500 performs the ASX, if I'm really honest with you. So if I'm framing a market, I'm framing it the way you said, Ian. Would I though then say, and on that basis, half my money's going to the NASDAQ ETF and I'm going to have a really, really big swing at it? No. Here's the other thing, mate.

52:15Again, we talked about past history. It's really important. You know, the old past performance is no guarantee. It's that boilerplate stuff that finance types are supposed to use. Except it's true. And I've said before, if you looked at the S &P 500, what was it, 10, 15, maybe 20 years ago? I'm getting old. And you looked at the top companies, they would have been Exxon, General Motors, General Electric, Canoco, Philips, whatever, whatever, whatever. And you might have said, hey, Scott, over the past 10 years, oil and manufacturing companies have had great returns. And in fact, over the last 50 years, manufacturing companies like GE have gone from nothing to be the biggest companies in the country in the world.

52:50Shouldn't I just buy the, I'm going to make up a name here, the Manufacturing Act exchange? Because look at that return. and surely they've done better than the rest of the market. Shouldn't I just buy that? Shouldn't I buy manufacturing index? Because they've done so well. And you could have made that argument and I couldn't have argued against it on the stats. I would have said, well, yeah, that's been great. Now, I don't think it's, again, let me say it very clearly. I think it's likely NASDAQ wins. So I'm talking about both sides of my mouth at the same time. Why? Because I'm kind of saying just be careful at how much you load up on this stuff.

53:22This is your super. Taking any bet that's 50 % of your portfolio and hoping it works is, in my opinion, I'm not giving you advice, Ian, as you know, because I can't. I would not – I own the Natatek ETF. It's a decent chunk of my portfolio, double-digit percentage, but it's not 50%. And even if I thought it was going to do better, I would feel irresponsible in myself to put half of my retirement funds on a bet on a particular index on a particular sector, even if I had a high degree of confidence because I just think it's unnecessary. Buffett talks about – we mention Buffett a lot. Never go back to square one.

53:56Now, it's not square one if it's only 50%, but it might be square three or four rather than square 10 if you're wrong. It comes down to how much do you lose if you're wrong? How much do you win if you're right? And what's that trade-off look like? Now, a mathematician would say losing a million dollars and winning a million dollars is the same thing. That's kind of true, except if you had to start again, if you tossed a coin, if you had a million dollars, right, and I said, look, toss a coin. If it lands hedge, you get a million dollars, you go to two million. If you lose it all, you go back to zero.

54:25You're taking the bet. A statistician would say it's the same bet. The odds are the same. Why not? I would say getting back from zero to a million dollars again after you lose that bet is probably impossible as we get older, certainly really hard and not worth the bet. So I wouldn't take a 50-50 bet. I wouldn't take a 70-30 bet on a million bucks. I don't even think I'd take a 90-10 bet because a 10 % chance of losing everything is way too high. Again, it's not everything you're talking about, but it is half of everything. So you're not going to lose it all, obviously, either. So I love the NASDAQ.

54:55I own it. I think most people should. I would make 50 % of my portfolio. You've got to be careful too. I mean, I looked up the wiki article. Oh, nice. Yeah. So yeah, it's really good actually. So in the 90s, like let's say 1990, you bought it. The index level was at 200. Right. And at the end of 99, it was 3 ,700. Like it was well more than a 10X return over that period. Yeah. And then in 2000, it lost 36%. In 2001, it lost 32%. In 2002, it lost 37%. It more than halved, right, over that period. It was down 85 % from top to bottom from memory. I think that's right. It's a big fall. And interestingly, I mean, it's since come back and recovered.

55:38Yeah, yeah. But at the end of 2002, the index level was at 984. Is that right? Oh, sorry, sorry. So before those falls, it was at 3 ,700 odd. You had to wait until 2013 for it to get back there. Have you got to retire in one of those points, by the way? That's the hard thing. This is what I think we miss because we make the right observations, but you miss that living and experiencing that 10 years, the demons are going to come at night and haunt you. It's like, no, no, no, I'm doing the right thing. I'm long-term, I'm long-term. I was like, yeah, maybe you can say that for the first year, the second year.

56:21You know, year seven, year eight, it's like I still haven't made my money. I'm out because this gets worse. I've made a bad mistake. I'm going to go to property anyway. I should never have done this. Very good chance that you capitulate. Very good chance. And that's not when I say you. I mean we all, like just humans, like it's going to be a good odds of that happening. And yet the general thesis was correct. Like it was right, right? And if you'd held it as like, well, over the entire duration and dollar cost averaging along the way and all that good stuff, yeah, it was still a really good thing to do.

56:54But it's just like, you know, it's a hell of a journey, right? And it's, yeah, I think you made the right point there. It's sort of like you can have conviction on it and you can have conviction based on good reasoning, but still maybe just spread things around a little bit. Mate, a question from Andrew, which I really quite like. He says,

57:45advertising. Maybe you know where it is. One last question. How do I get a job doing this? Kind regards, Andrew. It's a lovely question. It's not you, even though it's as cynical as you might be around. This is not Andrew Page. It's a different Andrew. What do you think, mate? Industry funds, super funds, in theory, safeguarding our retirement savings by spending a couple hundred million dollars on marketing, advertising, and some paid trips around the world? Yeah, it's a hard one, isn't it? I mean, anyone who owns any business needs to advertise, right like generally speaking um it's not it's not an inherently evil thing but it is a reflection of the structure of the system we've got you've said before and i get behind this is just a sovereign wealth fund that's your option it's default just buys the index you know essentially it's boring it's not sexy but think of the admin think of the savings think of the advertising savings, you know, it's just, it's just easier.

58:42Um, so yeah, there's a, there's a huge amount of waste in the system. There's a huge amount of BS in the system. There are loads and loads of snouts in the trough and the vast bulk of them are unnecessary and add very little value. I'm sure they've got very nice cars and houses and yachts and all the rest of it. I don't know what they've done for me, you know? So I get it. It sticks in my craw as well. But the way that the system has been set up, it's kind of, again, just my favourite hobby horse at the moment. The game theory says if I was an industry super fund, I'd be advertising. And it's all about assets under management because I clip the ticket on that.

59:23So, you know, I might take a half percent fee. I tell you what, I prefer half percent of a trillion than 500 billion. right with an exception here's where I reckon and this is industry funds only retail funds do their own thing the industry funds are not for profit so the kind of this is speaking of game theory or just broad advertising ideas if you're Australian Super is the biggest one right so let me pick on them this is not about them there's not their numbers it's just to pick them so someone can people have a thought to kind of pin it to Australian Super if it spends nothing or spends a billion dollars there's no profit difference for that business and maybe the ceo might get paid a little bit more if the funds were a little bit bigger uh but probably not that much more maybe you could say well maybe they get better people maybe the next candidate says well you want me to run the biggest fund in the country i want more money to do that because i'm the best there is maybe if you are the biggest you want the best there is so maybe you pay more so there's there's kind of a loose potential correlation between fund size and maybe the ceo's pay packet but probably not and most is going to investment returns rather than actual size anyway.

1:00:30So kind of there's that. I struggle with this one, Andrew, because on one hand, the$200 million is money that could otherwise be left in. Now, it's not taken out of funds. We should be careful. You say of our funds, they're not your retirement savings, but they are a proportion of the fee they charge. So it is your funds. I'm just saying they're not taking money out and borrowing your BHP shares to put an ad on a football and a real game or something. But they charge you a fee. and that fee is used for that, so you're not wrong, but it comes out of the fees, not comes out of the funds directly.

1:01:03If they're doing it well, here's the thing, if you're an industry, if you're Australian super, the growth, we talked about this a couple of weeks ago, I think, the growth in industry funds has been huge. Now, in theory, if I'm a member of any super fund, retail or industry, the more people are, the more money there is, the more efficient that fund can be per dollar of funds under management. So, yes, the CEO might get paid a little bit more, but if they double the size of the fund, they're probably not going to double the size of the CEO's pay packet. They certainly need a second CEO. They only need one HR manager.

1:01:32Their branding is the same. Their marketing is the same. In fact, the marketing actually gets cheaper per dollar spent because it's spread over more money. And so it's a really difficult one. If these guys are on the level, and I think most of them are, then spending some money to grow the fund such that they can lower your fees is actually a great use of funds. So they take out$200 million. Let's say it's just your money, Andrew. You've got a billion dollars in there. they take out$200 million and they go and spend it on marketing. And in doing that, they bring another$10 billion worth of funds under management.

1:02:01So now all of a sudden the fund is$11 billion and they can now halve your fees or drop your fees by two thirds. Over time, you will be better off for that money being spent because the members acquired actually lower your fees. The scale benefits are playing out. That's what they're trying to do. They're trying to take advantage of the scale benefits. They come from having more funds under management. Now, if they're doing it badly because they don't care or because they are just egotistical maniacs who just want to be bigger for the sake of it, then they're wasting your money. 100 % absolutely.

1:02:34But we've got to be a little bit careful. It's like any marketing, right? Marketing is wasted unless it brings out a customer. Ram's spending on straw men. Motley Fool spends money all the time on marketing. I'm sure you've seen a lot of it. Why do we do it? Could we make more money if we didn't spend the money? Yeah, in this month. Maybe even this year. But in three years' time? Now, if you're a not-for-profit, in theory, that money you get or the extra customers you get lowers fees for everybody or stops them increasing faster than they otherwise would. So it's a difficult one. You can't say marketing is a dead loss or it's taking our money or it's not giving us whatever.

1:03:03The question is, is there an ROI for that? And probably, honestly, the answer is, are my fees coming down or are they going up less quickly than they otherwise might be? That's how you would judge, in my opinion, the value of that marketing sponsorship. Yeah. What's the saying with marketing is that every marketing manager knows that half of their budget is wasted. They just don't know which half. Exactly what it is. Great line, isn't it? I hear what you're saying. I don't disagree, but I guess one of the challenges is if everyone's doing it. Right. It's a wash. Exactly. That is exactly right.

1:03:37And so that industry fund's doing it, that industry fund, and they have to do it because if they don't do it, but you're doing it to stand still. Correct. And so collectively - And by those retail funds that are trying to take the money away as well. So it's not just between the industry funds, it's between industry and retail and SMSFs. Yep, yep. Non-profits are fascinating constructs. It's probably too much of a tangent to get into, but it's just, I mean, look at the clubs. They're non-profit. Yes, exactly, right. Churches. Churches. Oh, man. But also, and Vanguard, which has done for 50 years an incredible job, and Buffett has said that Jack Bogle through Vanguard has probably done more for the individual investor than anybody who ever lived.

1:04:18Yeah. And those are all true at the same time. You say, well, hang on, it's not for good or bad. It's like, well, yes, it's good or bad. Yeah. I mean, the definition is interesting. It just means that you can't distribute the profits to a set of insiders or shareholders or that. It must be used to further the good of the organization. So that is why you see these giant clubs with indoor water slides and they just go, well, we've got to spend it, right? And I guess we'll justify us like taking advantage of people with gambling problems by sponsoring the local soccer team. Right, and making the beers a dollar a scoony cheaper, yeah.

1:04:55You know, and it's kind of like, oh, it's non-profit. Non-profits are all good. And we're like, hmm, meh, I don't know. Again, I don't want to get myself in hot water because, again, it's a nuanced thing. There's a lot of great things a lot of these organisations do, so I've got to be careful here. But it's not as clean as profit equals evil, non-profit equals good. And I think people like to land in those areas. And, you know, Vanguard is a for-profit organization. And then Buffett's just said they've done more for anyone than investors than anyone else, right? Vanguard's not for profit though.

1:05:25Oh, is it? Oh, sorry. Okay, well, that example falls flat on its face then. It's a really good point, mate, because if you're listening about the – it's like government and private business. There was a lot of ideology out there about governments are, private companies are evil or governments are terrible, private enterprise is always better than government. And the answer is clearly for anyone who's actually got a little bit of time, a little bit of brain power and no ideological rusted on-ness to kind of go, but kind of depends, right? Like sometimes governments do things better and monopolies are better in government hands.

1:05:55Other times are we kind of better off that telcos are competitive? Kind of, yeah. Like do we love, you know, social sexist people? Yeah. but overall are we better off as consumers that there is competition in these sectors? Probably, yeah. Now, where that line should be drawn, how the line should be drawn, all that stuff is very real. But at some point you're saying, well, perfect government ownership is communism and perfect free market is somewhere, you know, right of the US and completely laissez-faire. Pure anarcho-capitalism. Right. And so unless you believe we should be Russia or Mad Max, you believe in some mix of, you know, government and private.

1:06:32But that's the point, right? If you see there are any places where we could smooth some rough edges, then you're inside that group and we're all arguing about where those edges should be roughened up or smoothed. That's the same as this. For-profits aren't always terrible or perfect. Not-for-profits aren't always terrible or perfect. They are, I will say, Matt, for what it's worth in Superfund land, I think it's very, very, very likely, and the numbers bear this out, that having lower fees is better for your returns. And if you haven't got a profit margin to pay, you're probably going to have lower fees.

1:06:59And that tends to be true. So I'm a massive fan of not-for-profit super funds. Industry funds get tied up with the union membership, union leadership thing, which I think is frankly unfortunate because they don't. I say unfortunate. I don't think union leaders are doing a bad job of running these things, by the way. Again, the results show that. Yeah, they're doing a great job. They get caught up in the ideology of kind of, I don't want to support the unions or unions this or labour that or kind of rubbish. It's almost a shame they haven't just said, you know what, we started it up. Let's let them run free, properly divorce them from this and let them do their thing as proper not-for-profits without any sort of linkages.

1:07:32Not because they are doing a bad job, just because it actually becomes a bit of an anchor, a bit of a millstone around the neck of the fund. And I think that's a shame for the fund. It's a shame for the industry. It's a shame for the members. Frankly, it gives the retail funds a leg up they don't deserve. So, you know, if you're paying a high fee and people are there because, well, at least it's not a union fund. By the way, those people shoot themselves at the foot. So don't do that. But if there was no linkage, and this is why, by the way, ART, the Australian Retirement Trust, is a non-industry not-for-profit.

1:07:58So if you want to find one, Vanguard is a super product now in Australia. They are two examples of not-for-profits that aren't industry funds. I think the ideology is, I will say stupid, not because people can't have their views about unions, but just separate from the super thing. Your money doesn't care where it's made, so do your thing. But if you're someone who's of that view, there are options available to you. You don't have to have a retail fund to pay through the nose for fees in the process. Yep. I think we're done, mate. That was a very, very fun hour. I reckon this podcast thing it might have legs do you reckon we should talk about next week and see if we can make a second week of it yeah I mean I think you and I have said before it's like even if there were no listeners I think we would just shout into the void anyway so why not here's the funny thing other than the best thing about the mailbag is it actually reminds me there are people out there otherwise we just talk to each other press the go button and you never know you're like I'm sure this podcast out there literally no one's ever listened to they must exist right I'm not sure ours is not one of those So at least the mailbag tells us there are people out there.

1:08:58Well, maybe you're more across it, but every now and again, someone asks me, it's like, oh, how many downloads and what are the metrics? I'm like, I don't know. I know it's more than one and it's less than a million. People can send you to the mailbag, so our mums are busy. Exactly. Anyway, enjoy the rest of your weekend. Have a great week. We will talk to you on Friday afternoon, or as Ram likes to say, whenever you're listening to this podcast, it could be any time. But until then, full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

1:09:30General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.