Moment 194: How To Get Rich *SLOWLY*: Scott Galloway

0:03The email I get most is from young men looking for guidance and mothers looking for guidance for their for their sons. The second most frequent email is the following. Is it too late to invest in MVIDIA? And the honest answer is I don't know. I can imagine a scenario where it gets cut by 80 percent. I can imagine a scenario where it triples. So this is what you do. You invest in SPY because about 20 percent on the dollar will go into the magnificent seven because they're about 20 percent of the market cap of the S &P. SPY is again a basket of different stocks. It's it's an index fund that mimics the S &P.

0:39So there are 500 companies in the S &P. Invidia is probably three or five percent of the total value of the S &P. So five cents on your dollar goes into Invidia, right? About 20 percent. Is that right? 24, 25 percent is the magnificent seven. The tech companies we talk about. 25 cents on your dollar will go to them. So assume those companies double. Great. You participate. But assume the other 493 companies finally get their time in the sun and those companies go down a half. You're still fine. You're still fine. Again, you don't need to find the needle in the haystack and stop believing in a very American way that you can figure it out.

1:15I know the brightest people in finance and what that my net conclusion is that none of them have any fucking idea. Some have a little bit more of an idea. But if you look at the entire alternative investments industry, hedge funds, private equity funds, mutual funds, anyone on CNBC, if you took all of their returns and aggregate, they're less than the S &P by the amount of their fees. It's one of the greatest grifts in the modern economy is believing that some guy who looks old and unhappy and has suspenders and went to Harvard knows more about the markets than you. All you need to know is diversification, right?

1:58SPY starts saving young and then the next best piece of advice is if you can, if you can, force savings. 98 % of us will spend everything we get our hands on. It is very hard to have the discipline to take money that is within your grasp and invest it. Force savings plan. Find out at work if they have profit sharing or IRAs or Roths, whatever, I figured what is called here, where if you put some money aside, the government matches it, pensions. Well, not only pensions, but there's something here I figured it's called. If you save 5 ,000 pounds through your work, the government I think will match it, put in a thousand pounds.

2:39There's all sorts of saving schemes at work. 8 corns, the apps that round up to the nearest dollar and then immediately shoot it into SPY, try as hard as you can to put yourself in a position where you invest despite your best efforts not to because the majority of us will get that money and go buy a flat screen TV. And when you're saying investing, I think because it can sometimes uncomplicated from someone that so far away from it, there's apps on our phones now where we can in a couple of minutes, invest in the exact thing you've just said from we can make an account in a couple of minutes.

3:12I probably asked for a passport, take a photo of our passport. There's so many different apps where you can go in and invest in the S &P 500. You don't need to pull someone or know someone and you can invest, what's the minimum you can invest $50 a dollar. A dollar. Go to pubic .com. I mean, start with a basic low -cost ETF for index fund. SPY, if you want to get take a little bit more risk and you want to be in tech, there's all sorts of ETFs and index funds around tech. You're going to every young person, especially young man, is under the impression they're smarter than they are and that they can beat the market.

3:44So okay, take 30 % of your money, have some fun, buy Starbucks and video, Unilever, No of a Nordisk, whatever you think you have inside into. So you can learn a life lesson that over the long term, you don't know what you're doing and just put it in an index fund because the marvelous thing about the human race is we become more productive and the Western economy is generally speaking over the medium and long term or up into the right. And again, and I'll go back to my algorithm or equation, focus, find something you could be good at, maybe great, that has a 90 plus percent employment rate. Stoicism, we haven't talked about that.

4:19Realize there's something you can't control, focus on the things you can't control. One thing that is within your control is spending. Try and find a partner, try and gamify spending. I spent $78 a week, my summer between my junior and junior year, including rent, because I needed $3 ,300 to go back to school. I partnered with five other guys in my fraternity and we gamified who could spend the least amount of money. Find a partner who's aligned with you around spending and saving, realize no one's is impressed or thinking about your shit as much as you are. Try and find reward from exercise, from relationships, not from signaling wealth with stupid shit.

4:59I call that stoicism, it's really more about discipline, develop a savings muscle. One, an appreciation for time and how fast it's going to go. I was stupid. I remember my best friend, Lee Lotus, picking me up to go to the beach when I was in college and he was scrambling to find $2 ,000 to put into something else, an IRA Roth, whereas company, a bank he was working for, he was just out of college. If you found $2 ,000, they would match it with another $2 ,000. I thought, I said to him, these exact words, $2 ,000 means anything to me when I'm older, shoot me. I have made so much more, much more money than Lee Lotus and he is a multi -millionaire now, so am I, but I've endured a lot more risk and a lot more ups and downs because he was that lame guy scraping together $2 ,000 when he was 23.

5:44I went out and spent my first bonus check at Morgan Stanley. I got $28 ,000, my first year out of college Morgan Stanley, $28 ,000 check. I go out and I buy a $35 ,000 BMWs, hung swim goggles from the rear view mirror thinking that would impress people. I don't know what I was doing. I figured out if I had bought a Hyundai for $9 ,000, which you could get in 1987 or whatever it is and invested the other 20 in SPY, never looked at it again, I would have enough money now to buy 11 Ferraris, including that new electric Ferrari that for some reason appeals to me, which makes no sense. An electric Ferrari.

6:17Anyways, you're going to love this. I tell the people who work for me that I drive up in a Ferrari and I say, if you work really hard someday, someday I'll have two Ferraris. I don't have a Ferrari, by the way. My other joke about a Ferrari is Ferraris like having a long, consistent interaction. I don't have a Ferrari. Anyways, anyways, where were we going? Realize people aren't as impressed with your shit as you are. Recognize the power of time and then the thing where I really screwed up, Stephen, diversification, takes some money off the table, invest in, I'm hearing from employees in video, we talked about this, diversify.

6:58You get, it's such a bulletproof Kevlar for your mental health. You get risk -free return. Nobody knows anything can happen. Amazon 1999, again, lost 90 % of its value. Do you know the kind of mental anguish when you go into a stock like Amazon and you lose 90 % of your investments? So if you want to have some fun, ring fence it to 30 % of your savings, pick some stuff, and it'll be a good life lesson for you. You may get lucky, more power to you. Over time, you're going to realize nothing beats over the long term, Warren Buffett, what are the third wealthiest man on the world? I'm giving you the same answer he gives.

7:39If someone has $10 ,000 out of the invest and he's like low cost index funds. To two and a half hour conversation. I'm not a conclusion. Put it in the ass of two far -runs. Low cost index. I know, it's the boring shit that makes you rich. It's also, I advise a lot of CS, it's the boring and criminal stuff that moves shareholder value. No, it's so true. So one of the things that stopped me when I was young from doing exactly what you just said is I didn't think that the $500 I had or the $500 that I had was enough to get started. So I said to myself in my head, I thought, okay, when I get a million I'll become an investor.

8:19I think a lot of people actually listen to these conversations and go, okay, once I've got $5 ,000 to suppose, but link them a month, then I'll do what Scott said. But there's no point in doing it with a small amount of money. I wanted to use this little bucket of sand here as an analogy for this because my team brought a bucket of sand. To illuminate the power of compounding interest when you invest in these S &P 500 companies. And this glass represents investing 1 ,000 a month in the S &P 500 over the course of 12 months starting at the age of 25. Right. But if you left it and kept investing at that rate by the age of 65, it would look like this.

8:57You have Zoom a beach. Zoom a beach. Oh my God. Thank God that's you. Jesus Christ. It would look like that. And this is really what you're saying when you're talking about ETFs. Well, you asked that question about the young man who says, I'm going to wait till I get I have 500 pounds. I'm going to wait till I have a million before I start investing the way you get a million pounds is by investing that 500. We don't believe we're going to get old. We don't recognize how fast time is going to go. We don't appreciate the power of compound interest. Don't focus on your investments. Put it in low cost, low energy ETFs start early.

9:39You have your advantage when you're young is time and you're going to get that bucket of sand. By the way, this right here isn't a lesson in investing. This is a lesson in storytelling, a bucket of sand. I mean, who thinks of this? I'm going to wait. But it is. I discovered the art and the science of compounding interest too late in my life. And I just wish someone had slapped me in the face with it at 18. Yeah, it's crazy. Honestly, I probably started at 28. That's still early on the most people, but it goes to the notion of back to the adversary, young person. Most young people don't have the discipline to invest any money they get their hands on.

10:20Because a capitalist economy is the smartest people in the world with the most God -like technology are presenting you with amazing, irresistible offers to upgrade from economy to economy comfort to add to add. Flarellis chocolate cake to your order from Baltazar Belangerie in one minute or less. Something. Oh, my God. Oh, wait. There's three other people looking at this room, this hotel room and it's going on sale. And I bet it's so difficult to hold on to any money. You want to find ways of for savings. A house is for savings to a certain extent because people don't want to be evicted from their house going to work for a company and getting options and getting equity that gross tax deferred.

10:58That's sort of for savings. But you want as a young person, try and find as many ways as possible to have for savings and an app that that rounds up to the nearest dollar and then invests no matter what, that is for savings. It is very difficult to take money that is in ever come to your hands and invest it. So it find for savings mechanisms that are taken out of your check. Find out if your company offers any sort of investment or savings schemes that they match or that the government matches. And most corporations offer something. Real estate. I've had a lot of guests talk to me like Morgan House or the others that have a sort of mixed view on where the real estate is a good investment.

11:41What's your thoughts on it? Should I be investing in real estate? But you know my brother sits in the big team when I was 25. He said Steve, if everybody is playing the game, there are times probably aren't great from it. It goes back to sex appeal, too much capital going in. Well, like, K -Shiller, the brightest people in real estate will say if you really account for maintenance and upkeep, the real estate has not outperformed other asset classes. The reason I like real estate is that one in the United States is very tax advantage. There are very few asset classes you can lever up four to one, 20 % down payment.

12:17I can't buy, I can't buy $100 with an Apple stock for 20 bucks. So it's a huge leverage. The interest on that is tax deductible. In addition, if you sell a home, this is true in the US, I don't know, in the UK, if you buy home and sell it after, hold on to it for at least two years, you get a $250 ,000 tax deduction, $500 ,000 for married. So if you have, for example, any ability, get to know the homes in your area, find a nice home or a rental unit that you can maybe rent out or upgrade, maybe you're handy, to do that every few years and take advantage of the tax deduction and then roll into something bigger.

12:58And that is for savings. You know that mortgage payment is coming every month. Actually, the majority of savings for baby boomers right now is in their homes. It's the equity in their homes. Now, unfortunately, that's, there's some bad things. We haven't improved housing permits as quickly as we should, which has made it more expensive for entrants. Young people kind of forward homes. The average homes gone from 290 to 420 through the pandemic in the US. And if you look at interest rates, it means the average mortgage payments gone from $1 ,100 to $2 ,300. So it used to be two thirds of America could afford a home now.

13:30It's one third. I, I, the whole other talk show, but I just did a TED talk on the war on the young economically. But real estate is a very tax advantage industry. It is for savings. Also, there is some, I think, psychic value, which I think is important to a home. You start investing in it, fixing it up. It feels like, I don't know, it's, there's something rewarding about it. But to what your brother said, when everyone's trying to buy homes in an area, that usually means it's probably getting overvalued. And like any other asset class, it can lose money. But the reason I like it is because it is a form of for savings.

14:05People generally speaking will make that mortgage payment or try and figure out a way. Now, you want to make sure that not more than 40 % of your income goes into a house. Otherwise, it's just going to be your anchor. It's just going to be a source of stress for you. And I think a lot of people grew up thinking, I have to have a home. And so they just become over levered in their home. And they become kind of house poor. They own a house and that's it. And they can't afford to do anything else. And they might be able to able to move then. And you talked about geographical opportunity when you're young.

14:34That's right. You get tied down, especially if your home goes down in value. But I still think it's in the US at least real estate is the most tax advantage. And if you're on commercial real estate in the US, you can depreciate it to a 3 % a year. You can't depreciate a stock to a 3 % a year. Is there someone that shouldn't buy a home then in your view? Is there a certain demographic age or person with a certain talent that shouldn't shouldn't buy a home? I would say in general, if it's a home, if you think that you're not going to be able to hold onto it for at least seven years, if you hold onto a home for seven years, you should be able to write out most economic cycles or a economic down cycle.

15:10I think there's some wonderful things about renting. You can slam your keys down and leave if you're planning to move. If you don't have somewhat reliable sources of income, a mortgage is probably a tough thing. I don't know. I think home ownership, I'm talking my own book a little bit here because I've made good money in real estate. I've really enjoyed it. But I think it's situational and it goes back to that notion of having a kitchen cabinet of people who can advise you on that asset class. Unfortunately, that asset class has become so expensive that the quote unquote, American dream of owning a home has become somewhat of a hallucination, if you will, or a fantasy for a lot of young people.

15:53Q1 is often when businesses start implementing new systems and processes in hopes of creating efficiencies for the year ahead. And over the course of my career, I've learnt just how crucial having the right systems in places, one which has helped me across many of my investments is NetSuite. They're also a sponsor of this podcast. NetSuite is the number one cloud financial system through their streamlined platform. You'll find all of your accounting financial management, inventory and HR in one place. Their technology has been a real game changer, especially for my team at Flight Studio. As over the last year, we've moved out of startup mode and into scale at mode.

16:28We no longer have to juggle multiple systems and having everything together has reduced the number of manual tasks and errors. Over 41 ,000 businesses have chosen to future proof their business with NetSuite. So if you'd like to learn how it can help your business, head to netsuite .com slash Bartlett and free download the CFO's guide to AI and machine learning. That's netsuite .com slash Bartlett.