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Money Expert- Buying a House Is a Mistake! Becoming Rich Is Simple but You Won’t Do It!

The Diary Of A CEO with Steven Bartlett

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  • Why Psychology Matters More Than Stock Picking
    • Ben Felix says investing is already “solved” for most people through low-cost index funds; the hard part is behavior, not strategy.
    • An academic paper he cites found that checking portfolios more often reduces risk-taking and lowers long-run returns. Transcript: Steven Bartlett And how much of this game of investing, making money, comes back to psychology? Ben Felix So I like to say investing has been solved. We’re going to use index funds. That’s it. The hard part is actually doing that because our brains, our psychology, absolutely gets in the way of making good long-term financial decisions. Our brains are designed for survival. They’re not designed for thinking about long-term abstract concepts like taking your money today, investing in the stock market, ignoring all the stuff that happens in between, And then having money left over later to fund your retirement. Steven Bartlett That’s so interesting because a lot of the time people talk about tactics and strategies, but I guess underpinning your ability to execute on any of those tactics or strategies are One’s own psychology. And is there academic research about the best sort of mental approach to take towards money and finance and investing So one of the best approaches, and it’s a little bit counterintuitive, Ben Felix Is to not look at your investments. There is an academic paper showing that the more people look at their investments, the less risk they take and the lower returns they earn. Because when you look at your investments every day, the stock market goes up and down. We know that. If you’re looking every day at your portfolio and it’s down 5%, up 6%, and going up and down all the time, that can be very stressful. And it makes it seem like the stock market is very risky. And so people will invest less in the stock market. In reality, for long-term investors who can invest in stocks, buy and hold for a very long period of time, that they’re a lot safer than people think. (Time 0:04:37)
  • Why Young People May Need Less Early Saving
    • Ben Felix argues young people may not need to save aggressively early because saving is more efficient when income is higher later.
    • He warns the idea is tricky because spending everything young can create habits that make the later saving shift never happen. Transcript: Ben Felix Going to be different for sure. I think this is a, it’s a tricky subject, but a lot of young people feel a lot of pressure to save. And that might be saving for their retirement. It might be saving to buy a home, but they feel a lot of pressure from their parents and just from society in general that they need to be saving money. That if they’re not saving money, they’re being irresponsible. But again, if we come back to academic research, there is research suggesting that it’s probably suboptimal for young people to save. General point is that you should save more when you have a higher income and save less when you have a lower income. And what that ends up meaning is that young people may not need to save or may not need to save as much as they feel pressured to save. The reason this topic is tricky is that while what I just said is true, it can cause bad habits. Where if people spend all of their income and then don’t have that shift towards saving at some point, then they’ll end up in a difficult position later on in life. (Time 0:09:06)
  • Use PERMA To Set Better Financial Goals
    • Set financial goals in three steps: list your goals, double the list, then use PERMA categories to uncover better ones.
    • The categorical prompts are positive emotion, engagement, relationships, meaning, and accomplishment; Ben Felix says they elicit more meaningful goals. Transcript: Ben Felix So how do I go about setting good financial goals? What is the process there? So this is the process that we created. It’s three steps. List your goals. Okay, so what does that look like? So you’re going to sit down with a piece of paper, or we built an app for this that we use with clients. You just list out your goals. Steven Bartlett So I could say, I want to be a dad. I want to buy a Ferrari. Yep. We want to go on holiday to Cancun. Yep. I want to be able to retire at 50. There’s kinds of goals. Yep. Ben Felix Now, step two. So you’ve got your list of goals. You’re going to double the list. Double it? Yep. Why? So you came up with, I think, four goals just now. You’re going to write down eight goals because this forces you to think harder about what other goals might be important to you. And research does show that this elicits more goals that people later identify as being at least as meaningful as the initial goals that they listed. And then the last thing, we’re going to come back to the PERMA model. So the PERMA model is a five-factor model of human flourishing. If you have these components contributing to your life, there’s a very good chance that you’ll live a good, satisfying life. I think you’ve lived through this experience where you’ve seen that wealth does not lead to a good life. And so what does, well, there’s a whole bunch of really good research on this. And it does suggest that positive emotion is one big piece of it. What does that mean? It’s literally enjoying what you’re doing and feeling good throughout the day. Engagement, you could probably argue that we’re getting some of that right now, where you’re doing something that you enjoy doing that’s maybe a little bit challenging, but it’s at Your skill level. It’s the idea of getting into flow. I know I get that when I do podcast interviews, when I do research, when I’m sitting down and writing a video script. Relationships is having good, strong relationships with people who are close to you in your life. And that can be friends, it can be family members, it can be colleagues. Meaning is being part of something that is bigger than yourself. That can be a lot of different things. For some people, it’s religion. For some people, it’s community. For some people, it’s their own business. And accomplishment is achieving hard things, setting goals and achieving them. You’re going to look at the items of the PERMA model. You’re going to look at those as categories and think about what other goals you may have that fit into those categories. That’s called a categorical prompt. (Time 0:17:23)
  • The Cost Of Playing Too Safe With Money
    • Ben Felix calls not taking investment risk a major hidden mistake because many people avoid stocks or hold portfolios that are too conservative.
    • He frames cash and ultra-safe allocations as having a large implicit cost: missing the stock market’s expected long-term returns. Transcript: Ben Felix Make? Yeah. So this is related to what we were just talking about, but it’s, it’s overspending on the wrong things. Okay. When you think about what is a good life for you and you realize, if you realize that you’re spending on things that are not contributing to that, which is resulting in you not being able To save toward things that would contribute to what you want your life to look like, that’s probably not a great position to find yourself in. So I could be spending $12 on an iced coffee every morning and not enjoying it because you could get positive emotion out of that. You’re like rushing to work, chugging down the $12 coffee every day. That’s probably not contributing to a good life. Number five might be one of the bigger ones, which is not taking investment risks. And that’s really, the stock market has delivered these incredible long-term returns. And on expectation, it should continue delivering strong returns for investors. Not participating in that is a huge mistake. And it’s a mistake that many, many people make. A lot of people don’t invest in stocks at all. And a lot of people who do invest in the stock market don’t invest enough in stocks. They have very conservative portfolios. And that has a very large implicit cost. By not participating in the stock market when you could be, you’re giving up a huge amount of economic gain. (Time 0:21:50)
  • Why Owning A Home Costs More Than It Looks
    • Ben Felix says a home you live in is mainly a housing asset, not automatically a great investment, because owning carries major unrecoverable costs.
    • He lists mortgage interest, equity opportunity cost, property taxes, maintenance, emergencies, and renovation creep, then uses a rough 5% rule to compare owning with rent. Transcript: Steven Bartlett About buying a house? Is that a good investment? Ben Felix I wouldn’t consider buying a house to live in an investment. It sort of is. You get an asset, but you’re really, you’re buying an asset that funds your housing consumption. It kind of pays you a dividend that’s sort of like getting rent from the house that you own. When you do the side-by comparison, which I think is the only way to think about this, if you compare buying a house, so that means in Canada, you’d usually save up for a 20% down payment. So you put 20% down your house, you take out a mortgage to finance the rest. You’re now living in the house. You’re paying your mortgage payment. You’re paying for some maintenance costs. You’re paying for property taxes. Alternatively, you could have rented the house. That 20% that went into buying a home could have been invested in the stock market. So again, we’re back to the idea of opportunity costs. And the other important thing here is that renting typically has lower cash flow costs than owning. So these are the unrecoverable costs of owning a home. Mortgage interest. So that’s when you buy a house and you borrow to fund the purchase, you’re paying interest to the bank. That’s a, I call these unrecoverable costs. That’s money that you’re paying for the use of money in this case, and you’re not going to get those dollars back. It’s gone. Opportunity costs, so that’s what I just mentioned. Whatever equity you have in a home is equity that you could have otherwise invested in the stock market. The capital portion, the principal, the price of homes has increased around inflation at the rate of inflation maybe a little bit higher historically. Stocks have far outpaced inflation. So by having money sitting in a house as opposed to invested in the stock market, you have what is called an opportunity cost. You’re not earning returns you could have otherwise been earning. So that opportunity cost is one of the largest costs of owning a home. So I’ve got mortgage interest, the opportunity cost of equity. Property taxes are another big unrecoverable cost. Property taxes vary depending on where you are, but it’s say between 0.5% and 1%, maybe sometimes a little bit higher. You get utilities and some services in exchange for it, but it’s again, it’s an unrecoverable cost. You pay that, you’ve got nothing left afterwards. Then we’ve got maintenance costs. Steven Bartlett Oh, this is the annoying one. Ben Felix This is the, it’s the annoying one. And it’s the one that I think people underestimate the most. I started making content about renting versus owning a home years ago. I used to say 1% was a reasonable estimate of maintenance costs. And people would push back and say, that’s way too high. There’s a bunch of academic literature on this too. That’s, it says it could well be over 2%. And that’s probably a more reasonable estimate. Having been a homeowner now for six years after renting prior to that, I’m fairly confident, at least in my case, that maintenance costs are far higher than 1% or 2% of the property value Per year. Steven Bartlett Yeah, I mean, I bought my first home a while ago, and fucking hell, I didn’t think about the gardening, and the pool pump gets broken, and then there’s a crack in the patio outside and then The heating system breaks and then everything just seems to break. And it’s always breaking. It’s always breaking. Every time I go back there, which is it’s in a different country, the first week I’m just spent looking at the things that have broken since I was last year, like making a list of the new Expenses. And it’s never cheap. And if I was renting, that wouldn’t be my problem. No. There’s also like another cost here, which we don’t talk about which is like the time you waste on the maintenance like when we think of maintenance cost i imagine people are thinking About the fees to fix things but actually the time i spend having phone calls and speaking to people for me is is worth a lot more than just the costs but anyway yeah maintenance cost yeah Ben Felix The coordination is huge and you could outsource that but that would be expensive and depending on how valuable your time is that it could make sense to outsource it but i agree with you I do the same thing i spend time on the phone finding which contractor is going to come in and fix this thing and then you have to wait for them and then maybe they’re late yeah so that’s maintenance Costs. We have emergency costs here, which is really a subset of maintenance costs. So you can have big things like the roof needs to be redone, the foundation cracks, whatever. Those can be very significant. And one of the challenges with those types of big costs is that you kind of have to have liquidity available to fund them. And that means that you have to have cash sitting somewhere, or at least some liquid assets sitting somewhere. So probably not invested in the stock market, which also has an implied cost to it. Steven Bartlett Which is more opportunity cost, right? Ben Felix More opportunity cost, exactly. And then this one’s interesting. And this is one that I don’t think I appreciated until I owned my own home, which is renovation spending. We talked about maintenance. When you fix something in your house, you don’t just fix it to get it back to the baseline level that it was at before. Yeah. You make it a little bit nicer. You’re right. I never did that when I was renting. So the side-by So you run the side-by comparison. You account for all of those unrecoverable costs that the owner has. You account for the renter investing in the stock market and investing the cost difference, the cash flow cost difference between renting and owning each month or whatever frequency. And what you’ll find, and I’ve done this with projections. So looking at expected stock returns and expected real estate appreciation, you can very easily show that there is unequivalence. There is a level of rent where you are indifferent between renting and owning. I did a video years ago that has millions of views now where I came up with this idea called the 5% rule. So I took some of those costs. I took property taxes, maintenance costs, and the cost of capital, which is the opportunity cost and the cost of borrowing. I wrapped all that up and said, we’ve got roughly 1% for property taxes, roughly 1% for maintenance costs, which is probably way too low, as we just talked about. And I said 3% for opportunity cost, which I think is also on the low end. And you put all that together and you get 5%. So I said, okay, if you divide the price of a home by 5%, and then divide that number by 12, you will get the monthly rent that is equivalent to the unrecoverable cost of owning that home. Okay, so let’s do that. So I’m thinking of buying a $300,000 house. Steven Bartlett What’s the method I need to do to figure out if it’s better to rent? Multiply it by 5% and then divide that by 12. Divide it by 12. Okay. You’re brave. I usually have a rule to never do math live on a podcast. I can edit. Okay. The result is 1,250. There you go. Ben Felix 1,250 is the equivalent rent where you’re roughly break even between renting and owning. So if I could rent for $1,250 instead, or less, I should rent? Renting is a better financial decision. So this is an important part of this topic. We can show financial equivalence. And just that is important. (Time 0:26:29)
  • Use The 5 Percent Rule Before Buying A House
    • Use Ben Felix’s rough 5% rule to estimate the rent equivalent of owning before deciding whether to buy.
    • Multiply the home’s price by 5%, divide by 12, and compare that monthly figure with actual rent; below it, renting is financially better. Transcript: Ben Felix Okay, so let’s do that. So I’m thinking of buying a $300,000 house. Steven Bartlett What’s the method I need to do to figure out if it’s better to rent? Multiply it by 5% and then divide that by 12. Divide it by 12. Okay. You’re brave. I usually have a rule to never do math live on a podcast. I can edit. Okay. The result is 1,250. There you go. Ben Felix 1,250 is the equivalent rent where you’re roughly break even between renting and owning. So if I could rent for $1,250 instead, or less, I should rent? Renting is a better financial decision. So this is an important part of this topic. We can show financial equivalence. And just that is important. We can show that there is financial equivalence between renting and owning. I’ve done more robust versions of this analysis since then. PWL has a calculator on our website where you can see the break-even by putting specific numbers in instead of just doing the rough rule of thumb. Because things will change it. For example, if your asset allocation is more conservative or more aggressive, that opportunity cost number can be different. (Time 0:32:45)
  • Why Buying Early Can Hurt Your Mobility
    • Ben Felix says homeownership is especially tricky for young people because high prices and transaction costs can trap them before their life stabilizes.
    • He and his wife moved through four rentals as their family grew; owning during those transitions would have been expensive and restrictive. Transcript: Ben Felix I think for young people, it’s really tough. And it’s tough for a couple of reasons. One is because home prices are high. You have to save up a lot of money to buy a house. Another one is that it can limit your mobility. We’ve seen in Toronto, in Canada, where I’m from, prices, condo prices in particular, have plummeted. They’ve fallen off a cliff. If you bought a condo in Toronto and you get a job offer somewhere outside of Canada, what are you going to do with that condo that’s at a big loss? You’re kind of stuck. Steven Bartlett Yeah. Ben Felix Or you have to try to rent it out, and now you’ve got this just difficult situation to deal with. Plus, there are big transaction costs if you’re selling a place. So for young people, I do think that homeownership can be tricky because it can limit your mobility, your ability to go and find maybe higher paying work. It introduces a risk that you probably don’t need in your life because you may end up moving somewhere else. And then people often move up where they want a condo today, but they’re going to want a house later. For my family, I met my wife. I was renting a place. The first place we met in, a second place, a third place, and a fourth place. We went to four different places as we were having our family. We have four kids. And so our needs were changing over time. We needed a bigger condo. And then we had a townhouse. Then we had a house. But we just, the lease ended and we gave notice and we left. We found a better rental that was more suitable for our needs. If we had been homeowners, the amount we would have paid in transaction costs to do that would have been insane. (Time 0:34:20)
  • Why Past Housing Wins Can Mislead Buyers
    • Ben Felix says stories of houses rising 10x don’t prove homeownership is always superior because leverage and timing can make outcomes look deceptively brilliant.
    • He points to Canada’s recent real-estate drawdown and says it is unreasonable to expect stock-like housing returns forever. Transcript: Ben Felix And then the other big one for who should own a home is taxable investors with high tax rates. And again, that comes back to the opportunity cost where if you’re paying a lot of tax on your investments, whereas real estate tends to be tax preferred and Canada gains on your primary Residence are tax-free, US has, I believe, an amount. And so that’s another thing to think about, where the opportunity cost changes depending on your specific tax situation. Steven Bartlett When we have these conversations about buying a house or not buying a house, one of the things I see a lot in the comments section is people sharing their case studies of them buying a house 30 years ago, and now it went from being worth $100,000 to $600,000. And they’re asserting that that’s evidence that it’s a good idea. You probably see this a lot. Ben Felix Oh, this is the thing. This is the example. And if everyone has the family member that bought a house for $70,000 and sold it for a million. Steven Bartlett I’m just going to read you the top four comments, and I’d like to get you a response on them. The first one is, the not buying a house does not work in the UK as 90% of rents are higher than a mortgage cost. Also, if you want to start a family, you need a stable place to raise your children. And with renting, you can be kicked out within a few months notice and your whole life could be turned upside down. Ben Felix I personally think there are ways around that. And I, as I mentioned earlier, I did rent for six years of my life with a wife and an increasing number of kids. The two things that I always made sure to do were to rent from professional landlords. We did have one experience renting from a sort of mom and pop person who had bought a condo and rented it out. And that wasn’t great. But after that, we were very careful about vetting our landlords and only renting from professionals. And then the other thing that we did, which addresses, at least in Canada, addresses one of the other points there, is we would sign long leases. If we want to stay in the house for a few years, we would sign a multi-year lease. And landlords do tend to like that. The other point that was in there that I think is really important is that rents are higher than mortgage payments. I think this is one of the biggest mistakes that people make when they’re making the rent versus own comparison is they’ll say, this is my mortgage payment. This is my rent. If the mortgage payment is lower, owning must be better. But that’s not the case. As we talked about a minute ago, you have property taxes, maintenance costs, potential renovation spending that you wouldn’t do otherwise, and the opportunity cost of capital. Steven Bartlett When you add all that up, the cost of owning a home is far more than the mortgage payment. This guy here said, I bought a house. It’s the best thing I ever did. It’s launched my mindset in new directions. Remember that having your own space has profound psychological impact and can be life-changing for some of us that want to live in a healthy environment. Ben Felix What do you make of that point? Does it have profound psychological impact? If someone believes that it does, and they’ve really taken the time to reflect on their life and has decided that yes, it is in fact true that it has had a profound psychological impact, Of course that person should own a home. Steven Bartlett Of they should is it true for everybody i don’t think so dawn said my experience i purchased a house in 2013 with 20 down payment deposit my total payment including taxes insurance hoa Homeowners insurance insurance um is 1 month. As of today, the exact same house is renting for $4,000. The property value has also gone up 3x. I’m glad I bought my house. Ben Felix Yes. So there are cases where real estate allows you to use leverage very easily, as Don mentioned. And if you end up buying in a market that goes up a lot in a short period of time, it can be really, really good. However, and this is what we’ve seen in Canada more recently, it hasn’t touched other markets yet. Although, of course, the U.S. Has had their own declines and so have other countries. But Canada is right now in one of the biggest real estate price drawdowns when you adjust for inflation going back to 1975. And so if you had bought, yes, seven years ago, and then, well, and then looked at the price in 2022, you’d think, wow, I’m a genius. Of course, everybody should buy. But if you had bought in, I think it’s 2021 was the kind of peak. And you look at it today, you’re thinking like, wow, I’ve ruined my life. So yes, there are examples like that, for sure. But that is not what people should expect every time that they purchase a home. So are you saying that the future is not going to be as the past? For this, I know the Canadian market best, but I think it generalizes outside of Canada. We’ve seen record decreasing interest rates. So that’s changed a little bit now. But for a period of time, we had interest rates going down, down, down. In Canada, we had a ton of immigration. I have no problem with immigrants, but we had levels of immigration that were just not compatible with the amount of housing that we had in Canada, which is contributing to prices going Up. We have a housing supply just not growing quickly enough, which are all things that Canada is addressing now. But all that causes prices to go crazy, which is, I think, why they’ve come down in such an extreme way. So I’m not saying necessarily that we’re never going to see high house prices again or house prices going up at an extreme rate again. But in Canada, at least, that has now normalized or at least started to normalize. I don’t think it’s reasonable to expect stock-like returns from real estate forever, even though we did see that for some years. (Time 0:38:57)
  • Use Tax Shelters Before Chasing Loopholes
    • Look for simple tax planning wins by using tax-advantaged accounts correctly before chasing exotic strategies.
    • Ben Felix says for most people the main gains come from optimizing accounts like RRSPs, TFSAs, IRAs, 401(k)s, or ISAs once and sticking with them. Transcript: Steven Bartlett Yeah. Missing tax planning opportunities. Ben Felix This is something I think people just don’t think enough about, but it’s not terribly complex, but there are simple things that people can do to minimize the amount of tax they’re paying. For most people, it’s just optimally using things like in Canada, we have the RRSP and the TFSA. In the US, it’s the Roth and traditional IRA and 401ks. Using those things optimally make a lot of sense. So then the rest, other types of tax planning tend to get more country specific. There tend to be lots of things, particularly for higher income people, that you can do to pay a little bit less tax. And I think… What about for lower income people? For lower income people, the government accounts that are provided are… Steven Bartlett Like the ISA in the UK. Ben Felix Yeah, exactly. Those are probably the best thing for people to be focusing on. But even then, I don’t like people are often not using them optimally. Steven Bartlett One of the things people don’t talk about enough is all the ways that rich people do things to avoid paying tax. They have like, they hire people so that they don’t have to pay tax. I hear about all these crazy stories of like, I’ve started this business on the side here so I can get a real estate license. And if I get a real estate license, I don’t have to pay the same tax on this thing here. And I move the money around here and I flip it around there and then I don’t have to pay any tax. Most people, like the average people don’t have any loopholes that they can, they jump through. Yeah, it’s’s true and even one of the crazy ones i learned about when i got some money was that you can take a loan against your stocks and there’s no tax on the loan so if i have a million dollars Of facebook stock i can go to a bank and get 500k in cash loaned against that stock without having to sell it and And then on that 500K, I have no tax to pay. And I can just hold that Facebook stock. And when it goes up to 2 million, I can go back to the bank and say, give me another 500K. You could, but if it goes down, you get margin called and they have to come up with the cash to… Ben Felix Don’t they just sell? Don’t they just sell the stock? They might, but then you’re selling after it’s come down. So it’s not risk-free. But yeah, that is a thing that people do. I guess everybody could do that, right? Steven Bartlett Most people could, if they invested in the S&P 500, they could go and get a loan against that investment. And that loan would be tax-free. Yeah, same rules for everybody. Ben Felix But I would still say that you’re taking a lot of risk by borrowing money against risky assets like that. Steven Bartlett Okay, so tax planning, there’s nothing else to cover that in terms of the average person? Ben Felix Yeah, I don’t think so. But it is an important thing for people to think about. If they’re thinking about what mistakes might I be making in my financial plan, they should definitely be thinking about, are there tax planning opportunities that I’m missing? How would they find out? It’s a tough one. A good CPA. What’s a CPA? An accountant. A good tax professional should be able to identify tax planning opportunities for you. Good financial planners, similarly, should be able to identify good tax planning opportunities for your situation. But as you said earlier, the reality is there aren’t that many things that people can be doing. And it’s really things that you could figure out how to optimize once, and then you’re kind of set. (Time 0:45:17)
  • Write A Will Before Your Family Needs It
    • Do basic estate planning early, especially if anyone depends on you, because dying without instructions can create taxes, delays, and wrong asset distributions.
    • Ben Felix says everyone with dependents should have a will, otherwise they effectively accept the government’s default version. Transcript: Ben Felix Eight is, it’s kind of a similar discussion we just talked about, but it’s missing out on estate planning. Steven Bartlett What does that mean? Ben Felix Figuring out how your assets are going to be distributed to the people that you want them to, or the entities that you want them to, when you die. This is an interesting one because nobody’s, well, most people aren’t expecting to die anytime soon. Steven Bartlett Yeah. So they haven’t really thought much about this. Yeah. And, you know, some might also say, listen, I’m not going to be here, so why should I care? Ben Felix Especially people that, I guess that’s a mindset of someone that doesn’t have kids, but. Yeah. And it can cause a lot of problems. If you don’t think through and plan for the way you want your estate to be distributed, you can pay a lot more tax than you otherwise would have. And your estate can go to people that you may not have wanted it to go to. You can pay more tax? If you don’t have things set up properly, and again, this is going to be country specific, but yeah, there’s cases where you would pay more tax if things were not set up properly than if They were. Steven Bartlett Do you think everybody should write a will? Ben Felix Everybody that has any dependents should write a will. I’ve heard an estate planning lawyer joke that everybody has a will, but it’s the government’s default will, which you may not actually agree with. Steven Bartlett It’s like prenups. Ben Felix Yeah, kind of like that, yeah. It’s exactly like that. You could say everybody should have a will because it can help from having a big mess for other people to clean up. But for sure, if you have kids, if you have dependents, I think having a will is really important. (Time 0:51:21)
  • Why Spending Compatibility Shapes Financial Outcomes
    • Ben Felix says partner choice affects both money and life satisfaction because spending styles often clash inside marriage.
    • Research he cites groups people as tightwads or spendthrifts and finds opposites are more likely to marry, but also report more money conflict. Transcript: Steven Bartlett On that point of prenups, number nine is about who you marry. Yeah, this is a tough one. It’s a tough one because… I mean, this is front of mind for me because as you can see from these photos, I just proposed to my fiancé. Yeah. And I mean, this is not the ring, because this is a bit extra. That’s awesome. Oh my God, they put my face in the team, put my face in the box. That’s creepy. But yeah, so why is this so important, who you decide to marry, as it relates to how rich you’ll be or won’t be? Ben Felix Well, it’s not just how rich you’ll be, it’s how satisfied you’ll be with your life and with your marriage. Academic research has identified two spending profiles that you can categorize people into. One is tight wads. It’s people who don’t like to spend money. And one is spend thrifts. That’s people who do like to spend money. The names are kind of funny, but that’s just, that’s what the research calls them. And the crazy thing about this is that tightwads and spendthrifts are more likely to end up marrying each other than to marrying someone who has the same profile as them. So a tightwad and a spendthrift are more likely to get married than a tightwad and a tightwad or a spendthrift and a spendthrift. What do you think that is? The research on this talks just about kind of opposites attracting and there may be some sort of thrill to the differences initially. But tightwads and spendthrifts, as they go through their marriages, do tend to be less satisfied in their marriages and have more marital conflict around money. And again, that’s based on an academic paper. Steven Bartlett Now that’s the reasons why the marriage might not last. Ben Felix But in terms of how it might impact your financial success. If you really want to save, if you go through your goal-setting exercise and your PERMA model, and you have a vision for the life that you want to live that requires saving, and you have A spouse that wants to spend a lot of money today, that can be very, very difficult. It can make it a lot harder for you to achieve your goals. I don’t think it’s insurmountable. I think a tight one and a spendthrift can work. I mean, it’s not like all of them end up getting divorced, but it does require a different level of coordination and communication and being on the same page. (Time 0:52:42)
  • Why A Prenup Can Prevent Years Of Damage
    • Consider a prenup as a planning tool, not a breakup prediction, especially when there are meaningful assets or future complexity.
    • Ben Felix says the default is letting the government decide later, while Steven Bartlett describes a friend’s six-year divorce battle worsened by lawyers. Transcript: Ben Felix Do you think everybody should get a prenup? Steven Bartlett Going back to what you said earlier, where you said if you don’t write your own, the government will give you theirs. Yeah. Just to simplify that, if you don’t write your own prenup, then you are, the default position is the government will decide through the law how your assets are divided at a time when you Break up. Problem is, people find prenups to be really unromantic. That’s right. And they also think there’s an implication that we’re assuming we’re going to break up, which is also not so sexy. Do you think people should get them? Ben Felix If both partners are on the same page and comfortable with it, it’s not going to cause a major rift. And if it does, maybe that’s a red flag. Do you know what I mean? Why would it cause a rift? Do you know what I mean? Steven Bartlett And it’s not to say that I’m just keeping all my stuff and you’re keeping yours. It’s just to say, let’s agree now what would happen in the like 50% probability that this doesn’t work out. Ben Felix We’ve seen both. We’ve seen clients come up with very creative and interesting marriage contracts that have, you know, specific formulas for how things are going to work. And depending on how many kids they have is, you know, it’s kind of an interesting exercise. And in that case, it was kind of fun and they were engaged in the process and didn’t cause an issue. And we’ve also seen people who did not have anything in place and have had very bad divorce outcomes from a financial perspective. Steven Bartlett I had a friend go through a divorce recently and he’s a very successful person. His wife was there from the beginning. She looked after the family while he was off gallivanting around the world, building his businesses all over the place. So obviously she’s contributed hugely to his success. What I noticed though is it’s destroyed what could have otherwise been a good relationship as they separated. They now really, really hate each other because lawyers have stood in between both sides and basically caused tension because that’s their job. They’re going to get paid more. And her lawyers are incentivized to squeeze every single penny they can out of this separation. And so I think he said it had been like six or seven years since they decided to divorce. And he’s still in court arguing with lawyers about how they separate. And it’s destroyed their relationship. And they’ve got two kids. You just think, gosh, like if you had a prenup, this would have been quick and it (Time 0:55:07)
  • Insure Your Income Before Chasing Returns
    • Protect catastrophic downside with enough term life and disability insurance if your household depends on your future earnings.
    • Ben Felix frames your earning power as human capital that insurance can replace if death or disability removes it. Transcript: Ben Felix Do have one more card in the mistakes, which is underinsuring catastrophic risks. And I think that’s one, particularly for people who are not currently financial independent, that’s really, really important. If your household income relies on your income to maintain the lifestyle of the household, it’s really important to have sufficient life insurance, where if you die, your human capital, Your ability to earn income in the future is replaced by the insurance and also disability insurance, where if you lose your ability to work, you have insurance to replace that income. Do many people think about this? Probably not enough. And it’s cheap. Well, disability insurance is not always cheap. Life insurance is generally pretty cheap if you’re buying low-cost term life insurance, which is what most people need. (Time 1:01:09)
  • Why Stocks May Be Safer Than Bonds Over Decades
    • Ben Felix highlights research suggesting long-term investors may be better off with far more stocks and fewer bonds than conventional wisdom recommends.
    • In simulations across 39 countries, a globally diversified 100% equity portfolio outperformed target-date glides and 60-40 mixes on several retirement metrics. Transcript: Ben Felix Was a paper, we didn’t have it out here, but that was a paper on lifecycle asset allocation. What does that mean? So it’s answering the question of how should your mix of stocks and bonds change throughout your lifestyle? Conventional wisdom says that you should start out riskier in stocks and then move towards safer bonds as you get older. This paper took a huge amount of data. They had data from 39 countries going back as far as 1890, I believe. They sampled from that large set of data to simulate a million potential sort of hypothetical lifetimes that you could live through. And then they asked the question of, in this simulated data, which asset allocation gives the best outcomes? And they tested target date funds, which increase the weight in bonds over time. And those are, a lot of people have those through their retirement accounts. So it’s just one fund and it starts out when you’re younger with more equities and then transitions to bonds over time. That’s a target date fund. They tested, I believe, a 60-40, 60% stock, 40% bond asset allocation. There might’ve been some other stuff in there too. They might’ve tested only domestic stocks. And what they find in this paper is that the optimal portfolio from the perspective of a retirement consumption and bequest utility. What does that mean? It’s like the satisfaction you get from retirement spending. Okay. Measure it with a formula so that it can be studied. And then likewise, for the amount of money that you have left over at death. They measure the probability of running out of money as well as a whole bunch of different metrics they look at. And they find that a 100% equity portfolio with a big chunk of international stocks is optimal. It’s one-third domestic, two-thirds international stocks. When you say domestic, what does that mean? That’s a great question. So the way they set up domestic in the paper is that it can be any country. So the way they do the simulations is that for each draw, so they’re drawing, it’s on average 10 years of returns. Or say we’re in the US. They’ll draw the US returns measured in US dollars for a 10-year block. That’s the domestic return. And then the international block is going to be 10 years on average of all the other countries’ samples returns measured in US dollar. So I’ve got the domestic return, the international return. The next block might be 10 years from Italy measured in whatever the Italian currency was at the time. And then the international portion is going to be all the other countries excluding Italy measured in Italian currency. And so they’re weaving together all these blocks. That’s called bootstrap simulation. So domestic, to answer your question, is whatever country you live in. Steven Bartlett So the outcome or the conclusion from this should be that you should invest, I mean, if we’re following this and if it was 100% accurate, what, 60% in whatever country you live in, in the Stocks of whatever country you live in? 30%. 30%. Domestic. So yeah, one-third domestic, two-thirds international. Okay, so if I’m in the United States, so I get 30% of my capital and invest it in the American companies, and then 60% in international stocks. Yeah, well, yeah, 67%. Ben Felix Yeah. So that one important finding in the paper, and I talked about this in the video, is that the curve for how optimal the domestic amount is, is pretty flat, if I remember correctly, between Sort of 10% and 50%. So they do say in the paper that for a US investor, you don’t necessarily have to be a third domestic, even if you’re 50, even if you’re just market cap weighted, which is currently around 60 or 65%, that’s probably fine. But for a Canadian investor or someone who’s in a country other than the US, one third in your domestic country ends up being a pretty big home country bias. Steven Bartlett In these simulations, are they saying that you need to invest in international stocks? Ben Felix Because sometimes in the simulations, your domestic country, your home country has problems. Yeah. High inflation tends to be bad for retirement consumption. You’re spending a lot more and for domestic stock returns and international stocks protect against that. So it diversifies you a little bit. Yeah. Well, it’s exactly what it is. It’s a diversification. And that paper, it was controversial. I mean, we had the co-author on our podcast twice to talk about it, but it was met with a lot of controversy from everybody, from a lot of professionals, from other academics. Why? It’s an extreme finding. The conventional wisdom that you should be allocating more toward bonds throughout the life cycle is so ingrained in everyone’s thinking that a finding like this that shows that that’s Basically wrong, of course, it’s going to be met with controversy. But at the very least, I think it’s an interesting paper. It’s telling us that stocks are a little bit safer for long-term investors than we probably thought. And bonds, which are typically considered safe, are actually a little bit riskier than we may have thought for long-term investors. (Time 1:02:05)
  • Avoid Covered Call ETFs Sold As Income
    • Avoid covered call products sold as easy income because they cap upside while layering in higher fees and complexity.
    • Ben Felix says these ETFs exploit investors’ preference for income by making them surrender gains once stocks rise past preset strike prices. Transcript: Ben Felix Oh, well, a lot of the things I talk about are financial products that you should not invest in. Okay, tell me some of those. Which I always think is fun. A big one that I spent quite a bit of time on last year, I did three videos on it, was on covered calls. What’s that? So that’s where you own a stock, and then you sell a call option, which is the option to buy the stock. You’re selling that option to somebody else, which gives you an option premium. And so you get some income from having sold the call option. But it also means that if a stock that you own appreciates sufficiently, you are required to sell it to the person who bought the call option from you at a preset price. So the stock’s, whatever, $40. And you sold a call at $50. And the stock goes to $60, you have to sell it at $50. So you’re giving up a big chunk of your upside. And this plays on one of the big biases that investors have, which is a preference for income. It’s the mental accounting bias, where investors separate capital and income. And so there’s a huge proliferation now of covered call products, where they do that strategy that I just described inside of an ETF. And they charge usually a higher fee. And these are being marketed really heavily to investors on the premise that you’re going to get appreciation, capital appreciation, and you’re also going to get income. But I think my view on this and what I tried to explain in those videos is that you’re giving up so much upside that I don’t think most investors realize that they’re giving up, that the Implied cost of these products is enormous. (Time 1:07:20)
  • Cash Under The Mattress Quietly Destroys Wealth
    • Avoid hoarding cash for long periods because inflation steadily erodes purchasing power even when the balance looks unchanged.
    • Ben Felix says central banks target persistent inflation, so long-term money belongs in low-cost index funds that have historically outpaced it. Transcript: Steven Bartlett And some people choose to keep their money in cash. Because most of us are never educated on this subject of inflation and what inflation means. So some of us, you know, we might keep $10,000 under the bed. Ben Felix What do you say to those people? Yeah, so inflation is everywhere. It’s been around throughout history, and it’s probably not going to go away. We have central bank policies in most developed countries that actually target a low but stable rate of inflation. And there are reasons for that. But what it means is that if you have money sitting under your mattress, its purchasing power will decrease over time. And that can be very damaging to your wealth. You can maybe keep pace with inflation using short-term government debt instruments, which are going to pay you a little bit of an interest rate. But again, periods of high inflation can cause even that to decline in real value. So one of the best ways to fight inflation for long-term investors, something we’ve been talking about, is just investing in low-cost index funds to avoid the fee issue. And participate in the stock market, which throughout history has far outpaced inflation. (Time 1:09:17)
  • Avoid Thematic ETFs Launched At Peak Hype
    • Avoid thematic ETFs built around hot stories like AI, cannabis, EVs, or clean energy because they often launch after excitement has already inflated prices.
    • Ben Felix says index providers create these products when a theme is hottest, and returns often disappoint as prices mean-revert. Transcript: Steven Bartlett Were naming the things that people shouldn’t invest in. The first is that call thing. Yeah, covered calls. Covered calls. What else? Ben Felix Another one that I think is really problematic is thematic ETFs. And so that’s like an AI ETF or, I don’t know, a space or energy, like any specific ETF that’s targeting a specific theme. Why? What tends to happen with thematic ETFs is that something becomes really hot. So maybe it’s AI, maybe it’s cannabis. Electric vehicles was another one. Sustainable energy. Yeah, that was another good one. Clean energy. And so what happens is asset prices in that theme go up because there’s a lot of interest in it. Everybody wants to invest in that space. Asset prices go up. An index provider creates an index for that hot theme. And then an ETF gets launched. But it gets launched when the asset prices are up here. And what tends to happen is the asset prices come down and the returns on thematic funds tend to be very poor. Steven Bartlett Ah, okay. Yeah, I think I was guilty of that in my early career. Was like, oh my God, sustainable energy ETF. I believe in sustainable energy. I should invest in that. But you’re right. They created that when it was hot. So you should have invested, I guess you’re saying, just invest in the FTSE 100, the S&P 500 instead. (Time 1:15:00)
  • Why Ben Felix Respects Crypto But Avoids It
    • Ben Felix sees Bitcoin as a fascinating technological solution to digital cash, but not something he allocates client money to.
    • He says crypto now functions largely as an ideological vehicle and speculative asset people buy mainly because they expect it to rise. Transcript: Steven Bartlett Do you think of Bitcoin and Ethereum and other cryptocurrencies? Ben Felix I think that they solved a really interesting problem. The premise of digital cash is something that the cypherpunk community, the kind of libertarian community of privacy-focused computer nerds, where they were trying to solve this Problem for many, many years of digital cash. How do you create digital cash that doesn’t require a trusted third party to mediate transactions? And they solved that. Satoshi Nakamoto solved that. And that was cool. And he used a bunch of different pieces. You can kind of see in the paper how he used Adam Back’s ideas that he had created to stop email spam. And it’s just how it all came together. It’s unbelievable. Fascinating story. The technology was really interesting. I think it has become an ideological vehicle where people who believe that the world should be a certain way or believe that government’s role in money should be a certain way, they can Invest in Bitcoin and feel really good about it. I think it’s got that component to it. And then the other component that it has to it is that it’s a speculative asset. People buy Bitcoin because they think it’s going to go up. So it’s not a good investment. Is that what you’re saying? I personally wouldn’t. We don’t allocate to it for our clients at PWL. We manage quite a bit of money for quite a lot of people. And we’ve decided not to touch it. And I personally don’t touch it. (Time 1:19:52)
  • Why Scary Headlines Should Not Change Your Portfolio
    • Ben Felix says war, panic, and political chaos rarely justify changing a diversified long-term portfolio because markets have survived repeated historical crises.
    • Steven Bartlett reads an 1847 article that sounds like today’s headlines, underscoring how permanent uncertainty always feels unprecedented. Transcript: Ben Felix Yeah, well, as the clip that you read suggests or tells us, the world has been through a lot of crazy stuff, a lot of crazy times, a lot of wars, a lot of turmoil, a lot of political upheavals. And we’ve come out OK in general. There’s been pain and suffering, and not everybody’s had good outcomes. But generally speaking, here we are. And if we think about that from the perspective of financial markets, stock returns have been positive despite all the craziness going on in the world. There’s lots of interesting charts that overlay news headlines about all the madness going on in the world on top of the stock chart that’s just going up. It doesn’t mean the stocks are always going to be up. They will go down when things get crazy, like when this war started, stock returns did get a little bit negative for a while. They’ve since come back. But there will be volatility in financial markets, volatility up and down day to day. But in the long run, stock returns, they should continue to be expected to be positive. So for your friend, I don’t know how their assets are set up, but someone who’s globally diversified, exposed to the stock market, they don’t have to make changes to their portfolios When the world’s getting crazy. (Time 1:22:57)
  • Why AI Job Losses May Not Be The Whole Story
    • Ben Felix thinks AI may disrupt jobs faster than past technologies, but history suggests automation often expands industries rather than simply deleting work.
    • He uses ATMs as the example: cheaper service led banks to open more branches, ultimately creating more teller jobs, not fewer. Transcript: Steven Bartlett One of the things we haven’t talked about is AI. And does AI change any of this equation? A lot of people are worried at the moment about losing their jobs. Anthropic released a report, who are one of the big AI companies, saying that entry-level people in particular are going to have a hard time. And I think they said they’re already seeing 13% of entry-level jobs being disrupted because of these new AI and AI agents. Ben Felix I’m, to be clear, not a labor economist. It’s not my area of expertise. I do think, though, that when we look back through history, I like looking at history, there have been lots of technological revolutions that have been major, major upheavals to the Entire economy. Yes. So ATMs, ATMs are one of those fascinating examples. People thought that ATMs were going to wipe out bank tellers because ATMs could do everything that bank tellers do, but it was automated and you didn’t have to pay a person to do it. So there was a lot of concern. And what ended up happening was very counterintuitive. It’s that the cost of operating a bank branch decreased because you needed fewer people to do all the bank teller stuff because you had the ATMs. And banks opened more branches because it cost less, and their customers liked that. And the end result was that there were actually more bank teller jobs at the end of the day. The cost of providing the service decreased, which caused it to proliferate more, provide that service to more people, and it expanded the market instead of shrinking it. Steven Bartlett Similar story with Jevons Paradox. It’s the same concept. What’s that story? Where coal became cheaper at a time when they used coal to ship freight on trains. And the coal engine got more efficient with coal. Coal industry panics. We’re screwed. But then what it meant is people used trains, not just for shipping freight, but also for other things like travel. And people started traveling on trains because it got cheaper. So the coal industry actually boomed in the end. That’s it. I have thought a lot about this Jevons paradox idea. And I think it’s going to be true for artificial intelligence, for sure. There will be lots of other jobs created. And actually companies like mine, if we save money, we invest it in something else, which then would probably create jobs, whatever that is. The part that I sometimes struggle with is the speed of adoption in AI. And then also when you factor in robotics, like my car in LA drives itself. And I think one of the biggest employers on earth is driving in all its forms. But then if you look at warehousing and supply chains, a lot of those are ran by people all over the world and there was a video that i played the other day we can throw it up on the screen which Shows that in factories in certain parts of the world now they’re having their labor force where cameras on their head showing what they’re doing with their hands because their robots Are ultimately going to replace that labor force and i just i i haven’t i guess this is maybe something that happens in history. I haven’t been able to think about where those people go and what they then can go on to do, especially if it happens in short order. Ben Felix Yeah, so I’ve heard you ponder this in your other episodes. I agree that the speed of this is likely to be different. As you’ve said, we’re talking about the internet, so you can deploy these things at the snap of a finger. And that is different. But where do those people go? This is one of the interesting things. I don’t know. We don’t know. And through history, we didn’t know. Exactly. Through history, it’s been the same sentiment, where people worry about where are these people going to go. And they might be unemployed for a while, and there might be hard times, but things have worked out. And so two ways to think about it. One way is, as an individual, what should you be doing? We talked about earlier, having complementary skills that make you very unique, I think is important. Personally, content, as you mentioned, has been a big part of that for me. Not everybody can necessarily do that. But finding those things that you can do when combined better than anybody else in the world, I think is very valuable. And then the other perspective is as an investor, how should we think about this? And then we would come back to, again, we have seen many technological revolutions that have changed the world. They’ve changed financial markets. They’ve changed our culture. They’ve changed the way we interact with each other. The world has changed so many times due to technology. And the same cycle has repeated itself. There has been unemployment. There has been social unrest. There has been wealth inequality. (Time 1:25:27)
  • Why Predictable Crashes Get Priced In Already
    • Ben Felix argues market crashes are not predictable from obvious narratives because if the danger were visible, prices would already reflect it.
    • He explains efficient markets as prices aggregating what the world already knows, which is why active managers usually fail to beat index funds. Transcript: Ben Felix I don’t think we can say that. If the writing were on the wall, the way that I view financial markets is that if the writing were on the wall, prices would reflect that today. Okay. Steven Bartlett If we thought market prices were going to drop in the future, they would drop today. So it happens at a time when no one is expecting it. That’s exactly right. So the writing is never on the wall. That’s right. Some new piece of information, something changes, and that’s what causes prices to come down. My brother said something to me. He’s a very smart person. He’s worked in sort of investing for the last 15 years. He said something to me earlier in my career. He said, Stephen, when you go to invest in something, assume that the price you’re paying for that investment, so say I’m investing in Facebook stock at $10, is the total accumulation Of everything everybody on the planet knows about that company. And they’ve priced in everything the world knows about that company today. And he was like, so even if you think it’s going to go up, that’s also, by the way, priced into today’s price. So you better know something that no one else knows when you’re thinking about buying an investment. I’ve totally butchered what he said. No, you didn’t. He is describing the concept an efficient market. Ben Felix An efficient market is a market where price is always, and this is a sort of a theoretical concept, it’s not actually true, but in theory, an efficient market, a perfectly efficient Market is a market where prices always fully reflect all available information, including your thoughts about what the price might do, really, if you trade on those thoughts. Steven Bartlett So what are you investing in then? If the future’s already priced in and all the information about the company’s already priced in, what are you investing in? You’re investing in discounted future cash flows. Companies produce cash flows. Ben Felix They earn profits. When you invest in a company, you’re buying those expected future profits at a discount. That’s called the discount rate. It’s getting pretty nerdy again, but that’s how it works in finance. What is the value of the stock? It’s its discounted future cash flows. Riskier stocks will tend to have higher discount rates. But you buy this asset, and now you’ve got this discounted bundle of cash flows, which you then hold, and you receive the discount rate as a rate of return as you continue to hold the asset. Steven Bartlett So a lot of people will invest in Tesla. They’ll go, listen, I’ve got a Tesla. It’s amazing. I’m going to buy some stock. What is the fault in my thinking there? In buying Tesla stock? Because I’ve got a Tesla. I think it’s a great car and I think they’ll do well in the future. So I buy the stock. Ben Felix It’s what we just talked about. That information is already included in the price. Everybody knows that it’s a pretty good company making pretty good cars that are selling really well. Steven Bartlett And that’s why it costs $10 today. Right. Whatever it costs today. Whatever the price is, yeah. Ben Felix If you look at the data on professional money managers who are trying to beat the market, most of them don’t. And the ones that do, this is a crazy part, the managers who do beat the market over a period of time don’t tend to go on to beat the market in the future. And these are professional investors who are, you know, and then you can look at this before or after fees. The data are actually pretty similar. It’s worse after fees, but the distribution is pretty similar. So what’s the point in a money manager? Well, ones that are trying to beat the market by picking stocks and timing the market, I don’t think that there is one. That’s why I talk about just buy index funds. Buy the market. Take the market’s return. (Time 1:32:30)