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How to Navigate the Great Wealth Transfer · Merryn Talks Money

0:03
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to Marin Talks
0:21
Speaker 1: to Your Money, the personal finance edition of Meron Talks
0:24
Speaker 1: Money and these bonus podcasts and they are very good
0:26
Speaker 1: bonus We talk about the best strategies for making the
0:29
Speaker 1: most of your money. I'm Maren Sunset Web and with
0:32
Speaker 1: me senior reporter and Money Distilled author John Steppeck Hi mail,
0:36
Speaker 1: Hey John. Okay. So this week we're answering a question
0:39
Speaker 1: from Kevin who says he is a millennial. I've reminded
0:42
Speaker 1: that is anyone born between nineteen eighty one and nineteen
0:44
Speaker 1: ninety six, and it's about him profiting or sorry, benefiting.
0:49
Speaker 1: Profiting is the wrong word, benefiting from the great Wealth Transfer?
0:54
Speaker 1: Now what is the great Wealth Transfer? It's this idea
0:57
Speaker 1: that the older generation are one of the just generations
1:01
Speaker 1: ever and their money is gradually going to filter down.
1:05
Speaker 1: These are Vanguard numbers. By twenty thirty are projected eighteen
1:09
Speaker 1: point three trillion dollars will be transferred globally, and by
1:14
Speaker 1: twenty fifty, Vanguard expects seven trillion to pass between generations
1:20
Speaker 1: in the UK alone. So that's all about the aging population.
1:24
Speaker 1: It's about increased wealth concentration, and it's about these longer
1:28
Speaker 1: life expectancies that have allowed the older generation to build
1:31
Speaker 1: up these fairly massive fortunes. Right, so we have this transfer.
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Speaker 1: It's an extraordinary opportunity for inheritance and I suppose for
1:39
Speaker 1: financial advisors as well along the way. It might be
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Speaker 1: a challenge for older people to try and figure out
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Speaker 1: how to do it, and it's a challenge, I guess,
1:47
Speaker 1: for everybody to figure out how to manage that money
1:49
Speaker 1: when it comes. And we all know the old stories
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Speaker 1: about her generational wealth disappears, right, somebody makes it, the
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Speaker 1: next generation spends a lot of it, and by the
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Speaker 1: third generation is basically all gone. And in fact, vank
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Speaker 1: God do have some research on this from the US
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Speaker 1: that shows that as many of many of ninety percent
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Speaker 1: of wealthy families have their wealth completely disappeared by the
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Speaker 1: third generation down. So if you're getting this money, you
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Speaker 1: really want to find a way to hang on to it,
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Speaker 1: or at least manage it well or even you know,
2:19
Speaker 1: spend it well. So here's the question, Kevin, and by
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Speaker 1: the way, lucky Kevin has inherited some money and is
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Speaker 1: expecting to continue to inherit money in the nearest future.
2:29
Speaker 1: He wants to know what to do with it. So
2:31
Speaker 1: in his letter, so long a letter, he says, I
2:34
Speaker 1: don't want to just stick it in bitcoin or gold
2:37
Speaker 1: Fair or a generic SMP five hundred tracker. I find
2:40
Speaker 1: it stressful as I worry I could lose it. You
2:43
Speaker 1: could or invest it unwisely, also possible, or have it
2:47
Speaker 1: wiped out by inflation, also very very possible. Kevin's got
2:50
Speaker 1: a good handle on the risks here. What are the
2:53
Speaker 1: best ways to get good, well rounded advice at a
2:56
Speaker 1: low cost. Currently TikTok is nudging me to a global
3:00
Speaker 1: well I mean, I guess you're getting very cheap advice
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Speaker 1: from TikTok. Whether it's well rounded, I mean, I don't
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Speaker 1: know about that. But your show makes me want to
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Speaker 1: use an active manager. Okay, John, So I'm going to
3:11
Speaker 1: start here with our usual disclaimer. We are not accountants,
3:14
Speaker 1: We are not financial advisors, we are not fund managers.
3:17
Speaker 1: This is not financial advice. We do not know all
3:20
Speaker 1: the nuances of Kevin's financial situation. Although we already envious
3:24
Speaker 1: of him, I'm only two minutes into the podcast. We
3:26
Speaker 1: can give him some general knowledge that we hope will
3:29
Speaker 1: help inform him on decisions he'll want to make with
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Speaker 1: his money. But actually, do you know what, Before we
3:34
Speaker 1: get onto Kevin, I wanted to start with Warren Buffett.
3:36
Speaker 1: Have you seen his letter?
3:37
Speaker 2: Actually no, I haven't.
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Speaker 1: Not his latest Warren Buffett put uta a letter on
3:43
Speaker 1: the World Press release. I guess you'd call it from
3:44
Speaker 1: Buckshire halfaway on Monday this week, in which he talks
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Speaker 1: about how he's distributing his money and gifts he's making
3:52
Speaker 1: into his foundation, etc. But along the way he talks
3:56
Speaker 1: at me such an interesting man. He talks about his
3:58
Speaker 1: will and how it's written, and his children, and he
4:01
Speaker 1: makes his woman. He's quite old, you know. Father time
4:04
Speaker 1: always wins, he says, but he can be fickle, indeed
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Speaker 1: even unfair and even cruel, sometimes ending life at birth
4:09
Speaker 1: or soon thereafter, while at other times waiting a century
4:12
Speaker 1: or so before paying a visit. To date, I've been
4:14
Speaker 1: very lucky. But before long he will get around to me.
4:17
Speaker 1: That will be a very sad day. His children are
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Speaker 1: seventy one, sixty nine and sixty six, So when he
4:23
Speaker 1: talks about what he's given to his children, he doesn't
4:26
Speaker 1: want to create a dynasty. And his cornerstone of the
4:29
Speaker 1: whole thing is that wealthy parents should leave their children,
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Speaker 1: and this is the key bit, should leave their children
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Speaker 1: enough so they can do anything, but not enough that
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Speaker 1: they can do nothing. I hope that's what Kevin.
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Speaker 2: Is getting unless he offer I think's playing more for yeah, yeah.
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Speaker 1: And the other well, I think he's only he's left
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Speaker 1: is his children are getting money, and the tens of
4:51
Speaker 1: millions rather than the hundreds of millions. And then they
4:53
Speaker 1: already got ten million from their mother, and I can't
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Speaker 1: remember the details of what else he might give them.
4:57
Speaker 1: But again, they're not going to be rich, but they
4:59
Speaker 1: are going to have an insane amount of money at
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Speaker 1: their fingertips to give us philanthropic gifts.
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Speaker 2: I mean, that's that's rich. And also, I mean I
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Speaker 2: do think that I think Buffett is that's very sensible
5:12
Speaker 2: and all the rest. At the same time, it's got
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Speaker 2: the same sort of underlying tone as a lot of
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Speaker 2: his other quotes, which is that out of the context,
5:20
Speaker 2: you know, you can take them the wrong way. But
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Speaker 2: I mean, for most people, leaving your kids tens of
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Speaker 2: millions is enough to do nothing. His particular realm of
5:31
Speaker 2: super billionaires that you know, this is it supplies to it.
5:35
Speaker 1: But it's good.
5:35
Speaker 2: It's a good concept.
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Speaker 1: Okay, So what do you think? What do you think?
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Speaker 1: John is enough to do anything? But not nothing? What's enough?
5:43
Speaker 2: It really does depend on your background, because because because
5:47
Speaker 2: of lifestyle inflation, I mean, at their their level, you know,
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Speaker 2: the kinds of houses they'll be expecting to live in,
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Speaker 2: the kinds of places they'll expect to go to, the
5:55
Speaker 2: kind of lifestyle they're going to expect to have will require.
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Speaker 1: Although Buffett lives and as everyone always says, he lives
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Speaker 1: in a relatively humble house. I've driven past it myself
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Speaker 1: on my visit to Omaha, quite nice actually, and they
6:06
Speaker 1: were talking about it being very humble. It's actually very nice.
6:08
Speaker 1: But that's only because we're English. In our house is
6:10
Speaker 1: a crap and their houses a big and nice. You know,
6:12
Speaker 1: if we drive past any old house in America, we
6:14
Speaker 1: think it's amazing. It's necessarily puffet.
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Speaker 2: I mean a Buffet is unusual. I mean he's unusual
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Speaker 2: in a lot of ways, you know, and by no
6:22
Speaker 2: means remotely traditional either. I mean my point is that
6:24
Speaker 2: they higher up than just your social standing and your
6:27
Speaker 2: social states. And I mean one reason because all the
6:29
Speaker 2: problems at the moment. Is Peter Touching points to is
6:32
Speaker 2: the idea of elite over production. And what it is
6:35
Speaker 2: is you get an awful lot of kids who go
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Speaker 2: to UNI and whose parents owned a house when they
6:42
Speaker 2: were x age, and you know, you find that you're
6:45
Speaker 2: you know, you think yourself being in the middle class.
6:47
Speaker 2: You've probably got a middle class job, but you're hitting
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Speaker 2: forty and you're still living in a one bedroom flat
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Speaker 2: where you know, a newborn baby or something like that.
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Speaker 2: And yeah, by the standards of someone brought up in
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Speaker 2: Eastern house say, you might be extremely wealthy, but you
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Speaker 2: certainly can't do nothing. In fact, you feel as if
7:06
Speaker 2: you haven't got anything like the amount of money you
7:08
Speaker 2: need to live even a more middle class life. And
7:11
Speaker 2: I got a lot of sympathy about that person because
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Speaker 2: it's absolutely true. So I just think that number, I
7:18
Speaker 2: don't think you can you can pull that number of
7:20
Speaker 2: out of a heart without knowing about someone's background and
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Speaker 2: what lifestyle expectations are.
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Speaker 1: All right, right, all right, all right, I just wandered.
7:28
Speaker 1: I just wanted to listen. I know, the endless lecturing. Listen, everybody, listen.
7:36
Speaker 1: I want you to send me in your number. What
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Speaker 1: is the number that would make you feel that you
7:43
Speaker 1: could do anything, the number that would make you feel
7:46
Speaker 1: that you could choose any career, but you wouldn't necessarily
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Speaker 1: do nothing. I'm really interested in this. I've got it is.
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Speaker 1: I've got a number of mine. We will discuss this
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Speaker 1: when the other numbers come and send me your numbers,
8:01
Speaker 1: and I will give you my number right now. There
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Speaker 1: is one other thing that I want to read from
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Speaker 1: this buffet letter. I will Keven. I'm coming to you.
8:09
Speaker 1: I'm coming to you. But there's one thing he said.
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Speaker 1: This is so important that this is not for Kevin.
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Speaker 1: This is for the people who might leave money to Kevin.
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Speaker 1: This is buffet. I have one further suggestion for all parents,
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Speaker 1: whether they are of modest or staggering wealth. When your
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Speaker 1: children are mature, have them read your will before you
8:29
Speaker 1: sign it. Be sure each child understands both the logic
8:33
Speaker 1: for your decisions and the responsibilities they will encounter on
8:36
Speaker 1: your death. If any have questions or suggestions, listen carefully
8:40
Speaker 1: and adopt those found sensible. You don't want your children
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Speaker 1: asking why when you are no longer able to respond.
8:49
Speaker 1: I think that is incredibly valuable advice. Incredible. And you've
8:53
Speaker 1: seen so many families driven apart by wills that they
8:57
Speaker 1: don't understand, leave them confused, leave them angry, leave them jealous,
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Speaker 1: leave them absurdly them poorer than they expected to be, etc.
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Speaker 1: And it's a terrible thing. So this, if you can
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Speaker 1: do this in advance, this this honesty between families, and
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Speaker 1: I think that's incredibly valuable, So much valuable advice from
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Speaker 1: Warren over the years. But I think that one absolutely
9:16
Speaker 1: nailed it right, Kevin. We are actually now going to
9:20
Speaker 1: pay you some minor attention, John. What should Kevin do?
9:24
Speaker 2: He's right about notes, thinking they're all in the bitcoin
9:27
Speaker 2: or gold, the generic.
9:30
Speaker 1: Although we will I will interrupt you there and say,
9:32
Speaker 1: look how well Charlie's bold strategy has done. That's back.
9:35
Speaker 1: Go read my news letter from two weeks ago, learn
9:37
Speaker 1: about how if she had both over the last and
9:39
Speaker 1: while you would have done rather well. Of course, I
9:42
Speaker 1: entirely agree with John, you shouldn't go sticking it into both.
9:47
Speaker 2: No, I think the thing he said at the start
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Speaker 2: like we don't know the rest of his circumstances, and
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Speaker 2: those actually really my So he needs to get an
9:55
Speaker 2: overall view of how much money he's already got invested,
9:58
Speaker 2: including an I'm assuming his auto enrollment pension. See where
10:03
Speaker 2: all that is already allocated, and then if he's happy
10:08
Speaker 2: with that allocation as it stands, then just top that
10:12
Speaker 2: up with the money. But by the sounds of it,
10:15
Speaker 2: he probably hasn't thought about that yet, So I think
10:17
Speaker 2: what he first of all needs to do is look
10:19
Speaker 2: at it, because I'm assuming he's got some savings. So actually,
10:21
Speaker 2: so where are those just now? Kevin? Are you happy
10:25
Speaker 2: with the way those are distributed? And if you're not,
10:28
Speaker 2: figure out how you do want to distributed. And by that,
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Speaker 2: I just mean what percentage you want in equities, what
10:33
Speaker 2: percentage you want in bonds, and what percentage you want
10:36
Speaker 2: in cash and gold basically, And the other thing I
10:40
Speaker 2: would say there is he's millennial, so he's still quite young.
10:43
Speaker 2: He's younger than me, younger than us. He's he should
10:47
Speaker 2: have a heavy weighting to equities, assuming that he's got
10:50
Speaker 2: a normal human being's risk appetite, because equities are the
10:54
Speaker 2: thing that do best in the long run and the
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Speaker 2: other thing that should deliver a return above and inflation
11:01
Speaker 2: as long as what's happened in the past one hundred
11:03
Speaker 2: and nigy years continues to happen. It's not advice, it's
11:07
Speaker 2: boarding suggestions. But but that's it. We are money, now
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Speaker 2: are you happy to be that? Where that is? You know?
11:14
Speaker 2: Add to that, as long as the money's for the
11:16
Speaker 2: long term I'm assuming it is. If it's for the
11:18
Speaker 2: house deposit, then obviously he needs to stick it in
11:20
Speaker 2: a cash savings account and wait till he's built up
11:23
Speaker 2: in off. But that doesn't sound like what it's for.
11:26
Speaker 1: No, And I suppose a thing we should say again,
11:28
Speaker 1: it doesn't seem that this is Kevin. But if you
11:30
Speaker 1: haven't got six months worth of cash in an easy
11:33
Speaker 1: access account, it is not. You're not yet ready to
11:35
Speaker 1: invest at all. So I'm really hoping that Kevin is
11:38
Speaker 1: inheriting enough that he the six months of cash and
11:41
Speaker 1: nothing to him pennies and he's got that already in
11:45
Speaker 1: a nice higher interest in scent access accounts account. That
11:49
Speaker 1: that's just paying, that's just paying for your friend.
11:51
Speaker 2: I mean other things you could look at as if
11:52
Speaker 2: he's got a mortgage and he wants they can certain
11:56
Speaker 2: amount of security that goes by having paid that down
11:59
Speaker 2: more than you need to know. You could look at
12:02
Speaker 2: doing that to me a lot of the thing that's
12:04
Speaker 2: actually more a psychological choice. Certainly in the recent past
12:07
Speaker 2: you've been able to get an investment that's on much
12:09
Speaker 2: better than the interest ry on your mortgage. At the
12:12
Speaker 2: same time, I remember James Ferguson once saying years and
12:16
Speaker 2: years ago that it's never a bad idea to pee
12:21
Speaker 2: down your mortgage, And I mean in terms of the
12:25
Speaker 2: psychological impact, that's definitely are I think that's a fair thing.
12:29
Speaker 2: You see.
12:30
Speaker 1: Yeah, I think it's the same with maxing out a
12:33
Speaker 1: pension quite early. Wouldn't it feel great to have put
12:37
Speaker 1: the maximum in for say five years or something. I
12:39
Speaker 1: know that you've got a really really good base, and
12:41
Speaker 1: if you don't contribute later, everything's going to be fine.
12:44
Speaker 1: So you know that rapper that your mortgage rapper, your
12:47
Speaker 1: pension rapper, your is a rapper having those all filled
12:51
Speaker 1: up so during those years of your late twenties early thirties,
12:55
Speaker 1: so that you can then sit back and go, that's
12:57
Speaker 1: all done. My base financial security is a show, definitely,
13:01
Speaker 1: and now I have much much more financial freedom I
13:03
Speaker 1: might have before. I really like that idea. But one
13:05
Speaker 1: of the things that he's really asking in this is
13:07
Speaker 1: do I go passive or do I go active? And
13:09
Speaker 1: that we've both written about this and talked about this
13:11
Speaker 1: a lot over the years. So as you listen to
13:13
Speaker 1: one of our round Up podcasts from last week where
13:15
Speaker 1: we talk a lot about how expensive the US market
13:17
Speaker 1: is and about how over the long term, buying expensive
13:20
Speaker 1: is usually a bad idea and buying cheap is usually
13:22
Speaker 1: a good idea. One of the things that is assumed
13:25
Speaker 1: in that conversation is that if you believe that the
13:28
Speaker 1: US market is in a dangerous situation, you must also
13:31
Speaker 1: believe that passive investments are in a dangerous situation, in
13:35
Speaker 1: that the US now makes up a huge amount of
13:37
Speaker 1: the global industries, well over sixty percent, and the big
13:41
Speaker 1: tech stocks in the US make up a very high
13:43
Speaker 1: level of the US index. If you're a passive investor,
13:47
Speaker 1: you will be automatically holding a huge amount of the
13:49
Speaker 1: US and a huge amount of the very few giant
13:54
Speaker 1: tech stocks in the US.
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Speaker 2: Just for clardity here, yes, we're using passive to me
14:00
Speaker 2: a global track of whereas obviously you could buy you
14:05
Speaker 2: could buy a passive fund that only invested in the
14:07
Speaker 2: foot C two FT for example.
14:09
Speaker 1: Absolutely, and so.
14:10
Speaker 2: We're not really talking about low course versus high court. Well,
14:13
Speaker 2: we're literally talking about doing nothing but following the exact
14:17
Speaker 2: makeup of the global equity market index.
14:20
Speaker 1: Yeah, which is one of the things that that Kevin
14:22
Speaker 1: asked about, you know, shitty buy one of these big,
14:25
Speaker 1: big bang global global trackers. And the answer is there's
14:28
Speaker 1: risk inherent in it. Yeah, So you can go passive.
14:32
Speaker 1: But if you're going to go passive, make sure that
14:34
Speaker 1: it's a much more diversified way of going passive. As
14:36
Speaker 1: John says, maybe you don't want that big global tracker,
14:39
Speaker 1: Maybe you want maybe you want a bit of a
14:42
Speaker 1: small cap UK, maybe you want some large CAB UK,
14:45
Speaker 1: maybe you want some emerging markets, et cetera. But you
14:47
Speaker 1: want to I would say, and again not advice. You
14:49
Speaker 1: don't want to be too weighted to the expensive part
14:52
Speaker 1: of the global market over the next few years.
14:54
Speaker 2: Yeah, I mean I think that makes sense. Some of
14:56
Speaker 2: it also depends on your appetite for get and involved
15:00
Speaker 2: with your own asset allocation, and that then kind of
15:05
Speaker 2: boils down in your own personal tolerance and then in
15:09
Speaker 2: your own judgment your own ability to manage this stuff
15:12
Speaker 2: and make the effort. I mean, I do think at
15:15
Speaker 2: this stage, because we talked about this a couple of
15:17
Speaker 2: weeks ago. I think in one of the podcasts. The
15:19
Speaker 2: difference may help with Stewart, the difference between accumulating assets
15:24
Speaker 2: and decumulating and the thing about this side, the accumulating side,
15:28
Speaker 2: it's actually not that difficult, and it is something that
15:31
Speaker 2: you can probably manage yourself, unless you get extremely complicated
15:35
Speaker 2: personal life. It's only whenever you come to start taking
15:39
Speaker 2: the money out that it starts to get a bit
15:41
Speaker 2: More's the sensitivity of various things goes right up, like
15:45
Speaker 2: when you take the cash out and the cash flows
15:47
Speaker 2: and sequencing risk and all that stuff. But the saving side,
15:50
Speaker 2: as long as you can be bothered sitting aside a
15:53
Speaker 2: day every three months or so to kind of make
15:56
Speaker 2: sure that you're up to dating what's going to be
15:57
Speaker 2: your portfolio, is pretty manageable for a more person, I think.
16:01
Speaker 1: Well, the only thing I would say to that is
16:03
Speaker 1: that Kevin does say I find this stressful, and one
16:06
Speaker 1: thing I wanted to say is, actually, do you know
16:08
Speaker 1: what it is stressful? It is stressful investing money, having money,
16:13
Speaker 1: worrying about money. It is stressful and there's no getting
16:16
Speaker 1: away from that. And if you find it particularly stressful,
16:19
Speaker 1: then you should hire a wealth manager to do.
16:22
Speaker 2: It for you.
16:22
Speaker 1: You know that you can offload that responsibility onto somebody else.
16:27
Speaker 1: It's going to cost you, but you can do that,
16:30
Speaker 1: and you can do it cheaply. There are online wealth
16:32
Speaker 1: management companies now that can manage this for you. You
16:34
Speaker 1: can do it expensively by actually having you know a
16:37
Speaker 1: person who buy you lunch at Christmas and talk to
16:39
Speaker 1: you about it a lot. There are different ways to
16:41
Speaker 1: do this, but if you find having money and managing
16:45
Speaker 1: money keeps you up at night, get someone else to
16:48
Speaker 1: do it.
16:49
Speaker 2: Yep, that's absolutely fear and Chaine should is kind of
16:52
Speaker 2: a fee based manager.
16:54
Speaker 1: A flat fee based manager rather than a commission based manager.
16:56
Speaker 2: Do you think yeah, rather than you know, a percentage
16:59
Speaker 2: of your of your mind?
17:00
Speaker 1: Mmmmmm? Do you know what I think? This is a
17:01
Speaker 1: completely different podcast or it is an extension podcast. So
17:06
Speaker 1: over the next month or so we will do a
17:09
Speaker 1: Marin Talk to Your Money podcast on wealth managers online
17:12
Speaker 1: and and not online, and we'll discuss that more thoroughly.
17:16
Speaker 1: So Kevin, listen out for that one. Listen out for
17:19
Speaker 1: that one. Anything else, John, We're kind of hoping to
17:21
Speaker 1: meet you now, Kevin Dinner. Thanks for listening to this
17:28
Speaker 1: week's Merrin Talks to Your Money. If you like our show,
17:30
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17:33
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