Escape Plan 2.0 | How to buy back your time

In the last instalment of their escape plan series, Ryan and Terry break down the fifth and final skill of their money mapping method: asset stacking. Learning how to transition from making a living from your human capital (time and talent), to making a living from your financial capital (money) is the only way to buy back your time and live life on your own terms.

Expect to learn:

• The two faulty assumptions that prevent progress.   
• The four money games, and how to play the odds 
• How risk is different from volatility, and how to manage the five dimensions of risk in pursuit of returns 
• The cheat code for maximising returns without having to know everything. 

This is not an investing 101 episode that stuffs you full of facts. It's a playbook for building one of life's most valuable skills.

Resources Mentioned:

1. Money Smart Compound Interest Calculator 
2. The Bitcoin Standard 
3. The Most Important thing 
4. A Random Walk down Wall Street 

Find out your financial skill score
Do you have the money skills to fund your goals? Take the 4 minute quiz here
🔗 https://financialskill.scoreapp.com/

Join our podcast community
Get live updates, talk shop with us and meet like minded legends in our digital treehouse. Click here to get access now.
🔗 https://www.facebook.com/groups/4609737389252111

Other links 👇

Money mentorship:
Click here to start putting what you've been learning into practice.
🔗 https://www.cashflowco.com.au/mentorship

Transcript

Ryan: 0:29

Hello, welcome back to the money minded podcast. We are on a journey exploring what the money mapping method is. We're being really kind of pulling back the curtain on everything We do and teaching our mentorship and everything we've evolved over half a decade now. And in the first four episodes, Terry. We've covered four important skills. What were they?

Terry: 0:48

We talked about future authoring. We talked about monitoring your economic vitals, cash flow forecasting, and in the last episode, we discussed income mapping.

Ryan: 0:57

Love that. And today,

Terry: 0:59

Today, it's the fifth and final money skill, asset stacking. How do you explain it,

Ryan: 1:04

Yes, asset stacking. Sounds fun, doesn't it? This is really all about selecting the right assets and then buying those assets that buys back your time. It's all about building a portfolio so that you can get to a point where you have enough purchasing power and enough income from the assets that you've stacked that You no longer need to go to work or at least it's a choice. You're not doing it through obligation. You're choosing to because you want to, which is obviously the personal finance Nirvana that we all want to get to. Isn't

Terry: 1:37

love it, love it. And in the mountain model, the mental model we have here is like climbing your own mountain. Authoring is all about seeing yourself at the top of the mountain. Monitoring your vitals is checking your health at the bottom, make sure you can climb and you're good to climb. Cashflow forecasting is about tracking up and scanning ahead up that mountain. And income mapping is about sustaining yourself on the journey. This is the last one. And this is about following a proven path with the help of experienced guides

Ryan: 2:02

it?

Terry: 2:08

right next to you. Sound

Ryan: 2:10

It's a scary jungle too. There's a lot of bloody sharp objects.

Terry: 2:14

is it a scary jungle? I was talking to someone yesterday and they were just like, I'm completely overwhelmed by the, just the sheer amount of information, the just limitless choice and the confusing jargon in the space. So it does feel like a jungle at times, doesn't it?

Ryan: 2:30

100 percent people get carried away in this space all about kind of sounding smart. so we want to cut through that. And importantly, this one's just, all about making sure that you do avoid preventable mistakes. So that you spend less time second guessing yourself at the bottom of the mountain so you can start climbing because that's what most people get stuck with is actually just not even starting or kind of doing it haphazardly, but not really having good confidence in knowing where they're going to go and how they're going to get up the mountain. And so I was cutting through that doubt on where to start and where to go. so that. you can get to it, start trekking, start building that asset stack so you can buy back your time. Like we said.

Terry: 3:09

We really want you, if you're listening to this, to avoid my mistake of wasting years trying to be the expert in everything because that's the biggest cause of lost returns. The time period between when you know you need to be investing and doing something with your money and actually getting started investing and becoming consistent with investing, that is the biggest cause of lost returns. Don't worry about anything else. That there is what you want to vanquish. So if we do our job right in this episode, we're going to help you avoid my mistake so that you don't spend three years and cost yourself 30 or 40 grand in foregone dividends. because you weren't acting

Ryan: 3:47

Definitely. the second biggest cause of loss returns would have to be just the consistency and commitment to do it long enough to actually make the returns that, you know, come from compounding and time in the market. And also probably taking on the bigger bets that require a level of courage comes after getting your hands dirty and kind of failing a little bit. And so a big part of this is definitely recognizing that a level of education is. Required to be able to know where to start, know where to go. But also to go hard enough and big enough to make that personal finance, the Vanna possible for yourself. And so. That's what we're here to do is to educate you to a point in which you go, Yeah. I can do that. I'm comfortable taking on, a level of risk, that you can't avoid in this space. So that's what we're going to do.

Terry: 4:42

At the end of this episode, we're going to share three books that we think are really important to give you an understanding of the language and an intuition for how to make really smart, really well informed decisions in this space. So stay tuned for that as well. We're going to talk you through those books and why they're really important too. But we also want to be really clear about who this episode is for before we get into this. I think this is a good rule of thumb. If you don't have the capacity to save at least 20 percent of your income across the year, that doesn't mean every single month, but across the year, you need to consider taking more of your savings and continuing to invest in yourself. So that your human capital is creating enough of a surplus to be consistent in this space. So that's a really good razor. It's a really good kind of marker to kind of go, do I

Ryan: 5:26

Silence. Silence.

Terry: 5:32

or you need to be doing a way better job of cutting your costs. and if you don't know how to find that out, you don't know how to cut your costs, then you definitely need to be investing in your financial skills. To make that happen, to get that awareness, don't ya?

Ryan: 5:45

And to even just know if 20 percent of your income is possible for a lot of people that probably is possible, but maybe they haven't been saving that, but just finding out that cashflow forecasting, what we talked about two episodes ago. Yeah. is basically the way that you do that. You want to zoom out, be able to see a whole year and go is 20 percent possible for me. If not, then like you said, invest in yourself, invest in your business, and become more rare and valuable. I think we did an episode. Episode 22, was it, focused on this specifically? So we'll direct you back there. If you're keen to kind of look at how do you invest in yourself and make yourself more rare and valuable so You can demand a greater amount of income. The quickest way is to spend less, but the most sustainable way is to actually increase your income to make sure that, you know, you can say that 20 percent or above, and, you know, it kind of ties into, you know, if we're zooming out on investing as part of this conversation, you know, we always use that hierarchy for ourselves, which is invest in yourself and all your business. and then secondly, buy assets that store and grow your purchasing power that can replace your income. So start with yourself, your own endeavors, and then start to look at how do you use the overflow from all of that to then buy other assets. That will earn nowhere near as much as yourself. initially anyway, eventually maybe, but you definitely need to start there and then start stacking the assets, which we don't want to blindly lead you into saying, well. If you're saving 1, 000 a month and you buy ETFs that you'll get there, maybe you will. It'll take a long time, but that's going to be a hard grind that maybe you're not willing to kind of sit with for that long. so that's why I always encourage

Terry: 7:18

yeah, you don't want to be Sisyphus pushing that rock up a mountain forever. You want,

Ryan: 7:23

Nah.

Terry: 7:24

rock to be, you want it to be a little bit easier than that. So, but if you are at this stage and you do have the capacity to save at least 20 percent of your income across the year. And you've got that human capital working hard enough for you. As you said earlier, this does tend to be the biggest obstacle being overwhelmed by options, becoming exhausted, defeated before you get going and. To decode what's going on here, the problem is, yes, there's a lot out there. There's a lot of things that are out there to confuse us, but the actual problem, it's a faulty logic that the thinking is that you have to know everything before you do anything. And I know this because I fell prey to this logic. and underneath that layer is another layer, which is you think the job is to be right instead of being less wrong. And that is another faulty assumption because. You cannot eliminate uncertainty, no matter how much effort insight information or expertise that you have. There is no way to eliminate it. That's a red herring. It's a distraction from the real task. And so what happens is we spend all our tickets trying to eliminate uncertainty instead of actually trying to understand how to manage it. And we've talked about this before, but there's this thing called resulting that gets in the way as well. We learn incorrectly in this space as well. We equate good decisions. with good outcomes and bad decisions with bad outcomes. But in actual fact, you can make great decisions and have bad outcomes because chance always plays a role and you can make bad decisions and have good outcomes. So we struggle to actually interpret the information. We're overwhelmed and we're exhausted. And I think ultimately where this ends up is we begin to doubt our decisions, second guess ourselves. Most people don't get started or they get to the point where actually pulling the trigger on this stuff. But if you do, You might struggle to be consistent. Your efforts never compound. As you said, you start to lose hope and you resign yourself to a life of just less. and I think it's a bit like learning how to ride a bike, right? You stop pedaling because you don't trust yourself. You don't trust the bike and you haven't got that experience of knowing how to keep going. So you put your feet down, lose momentum, lose confidence, and you never develop that capability. Sounds bloody brutal, doesn't it? But it's a reality.

Ryan: 9:19

Yes, that was a lot to process. And that's right. And because of that time becomes your enemy when it should be your ally. You lose hundreds of thousands sitting on the sideline, maybe, you know, sometimes millions. but it's not the money itself that matters. It's the choices that you want for your life that matters. And so it's actually the choices you're giving up by not making those choices now. And that's the real challenge you have to overcome. And so we had a bit of a think about, like, what are the questions to consider that can, I guess, agitate yourself enough to go, you know what? I need to step forward and I need to take some level of courage to, you know, pull the trigger on something. And make this a project to figure out what to buy, to choose where to start and actually start. And, these are the ones we came up with. So what choices would you have now for your life? if you got started and invested consistently three years ago or five years ago. Or 10 years ago, what experiences and goals could you have funded, which is, that's what we talk about. Wealth wealth is having more of what you value, what obligations could you have gotten off your plate for us? That's rich. It's living with less obligations. And then third, what big ticket items could you have had a swing at that? You didn't get a chance to, or that you don't have the ability to now. and that's that success piece dying with the least regrets, having limited as many omissions in life as possible. And so have a think on those questions, and think about like, how would that have changed if you started five years ago, 10 years ago, anything you'd add to that?

Terry: 10:56

Yeah, if you want to match your subjective evaluations of these answers with some objective ideas, go to moneysmart.gov au and use the compounding calculator to actually run a little bit of easy math on this and you'll be able to actually see what the opportunity cost of doing nothing has already cost you. go back in time. And then say, but if I had invested this much for this period of time, where would I be? And what would that actually mean for my life? we'll put the link to that in the show notes for you. But if you really want to agitate yourself, don't feel bad about it, but use it, use it as a way to kind of go, all right, cool. Why this? Why now? don't lean away from that discomfort, use it to propel you moving forward. That would be my recommendation. let's talk about what's in this episode, mate. We're going to talk about investing, what it is, what it isn't. And there's four money games that you need to know and understand to be able to play the odds really well. We're going to talk about risk and the five dimensions that you need to be able to understand and look through to be able to manage risk effectively. We're going to talk about volatility and how it's the different to risk and the different wealth vehicles and how they behave with volatility. And then we're going to show you how to maximize returns by applying the one single cheat code that will help you minimize your time on the sidelines and collapse decades into days. I really want to get this part across. I'm pumped to show that part of it because I think it's not at all how it's all sort of, it's not at all how I thought about it at all. And I wish somebody sat me down to explain it to me. And as I said before, we're going to give you the top three books that are going to help you improve every decision you make along the way as well.

Ryan: 12:26

Love it. If we do our job right, when we get to the end of this, you'll know how to dispel doubt to reduce it. Low enough to at least to be able to take action. You'll save time sitting on the sidelines and you'll start seeing progress sooner because you're playing at a higher level. And just to call out, this isn't a, investing one on one episodes that stuffs you full of facts. It's a playbook for acquiring one of the most valuable life skills you can possess. So I think where we need to start with this is because we like to get to the studs. What is investing?

Terry: 12:54

so game, the money game, as we've said, just to step back a little bit, it's about maximizing time through money, not stacking money with time. And I have told this story on the podcast before, I believe. I learned about this and I understood the difference between investing and all these other ideas that people talk about when they use these word investing. I'll say I'm doing this, I'm investing in this, I'm investing in this and a lot of the time they're actually not investing because we don't know how to differentiate between the different types of money games we're playing and what happened was one of my brothers who was supposed to be the finance expert in our family and had all the connections and that sort of thing told us about this exclusive opportunity that was only available to a select group of insiders and that we could get access only for this period of time and one by one I watched my family get pulled into this and start talking about how much money they're making. And just to sort of collapse this story, this was a syndicate, a gambling syndicate where this guy had some algorithm and he had some better way to do it than everyone else. And it was a Ponzi scheme where it was basically producing like paper returns and showing everybody on paper that they're making all this money, but it relied on more people buying in faster than we're selling out. And the moment that fell over was literally the moment that I put my money into it. So I resisted this for a year thinking it's a little bit fishy and I'm like, I don't quite get it. And then I was like, I'm going to put five grand into it because I've paid more than five grand for a course. And honestly, the next week after it, that's when everything blew up. And there's all this news in the paper. It's one of the biggest Ponzi schemes that ever happened in Australia. And this is what showed me the different games when it comes to money. There's four different games. There's gambling, trading, speculating, and investing. Gambling is about using pressure to experience moments of pleasure. Trading is about competing with adversaries to exploit human psychology. Because whenever you buy, somebody's selling. And whenever you sell, somebody's having to buy. Speculating. Is about backing your information to make predictions on price and investing is about harnessing humor endeavor to partake in profits. What it shows is how information asymmetry and the certainty of your outcome decline from left to right. So if you think about this on a horizontal and for anyone who's in the community, I'm going to put this up in the community. I'll show you what this actually looks like. on the left, you've got gambling on this spectrum. That's the highest information asymmetry. So there's a few people who know a lot and there's many people who know a little. And it's also the lowest certainty of outcome And as you move to the right, you've got trading that's pretty high information, asymmetry as well, and quite low certainty. And actually the research has shown that monkeys throwing darts at a, at a dart board do a better job than people who claim to be professional traders. Speculating is moderate information asymmetry and it's very relationship based. So you've got inside. Sort of information connections and also you've got a level of expertise, a level of insight and pattern recognition that really matters when you're speculating. And when you talk about investing, that's the lowest

Ryan: 15:43

Silence.

Terry: 15:46

to almost the exact same information, return on a given time frame. you know, beyond that sort of four or five year period, it's the most certain

Ryan: 15:54

Transcription by

Terry: 15:57

the word investing is used, what we actually mean when we talk about investing. and to be clear, most of the time, people who are good at these money games are spending most of their time speculating and investing, using that inside information. And then also, creating more certainty of outcome over time because the investing is inherently defensive. It's about, you know, earning as much as you possibly can and then storing and growing as that as much as you can to, to, to defeat or outpace inflation, anything you want to add to that, mate, before we move on

Ryan: 16:32

I would just say that they're not all bad games, necessarily gambling and we definitely put a line through. We don't encourage that whatsoever. Creating is probably a little bit similar in a sense. There is obviously guys that can, can do well, you know, but usually it's a, it feels like a bit of an Instagram lifestyle they're, they're shooting for, speculating investing more. So I should focus on with that comment, in that speculating is not a bad thing. In fact, most people spend most of their life speculating and probably do quite well, can do very well. it's just recognizing between the two and we're going to dig into obviously the risk side of this, but also, you know, I think the thing that stands out for me is it's usually related to timeframe. Like how quickly you're trying to get a result, versus, like you said, like giving yourself a long period of time to partake in profits, versus trying to get a quick win is, is, usually where speculation plays into it the most, or it's something new per se. And so. it's not something we, we rule out. And in fact, you know, at times we'd encourage it because, that's where outsized returns can exist. And so, Yeah. just want to make that clear. We definitely don't demonize anything other than investing, but you just want to recognize which game you are playing.

Terry: 17:44

I think in the beginning, there's always that kind of purist mentality. If you listen back to our first season, we would have held. investing up on a pedestal and kind of, you know, it looked at that as like the only thing you should really worry about. But over time I've sort of realized, and the more you kind of look at it, you go, hang on, like expertise, insight, these pattern recognition, connections is a real thing.

Ryan: 18:04

Yep.

Terry: 18:05

if you're not taking advantage of that, you're

Ryan: 18:08

Hmm.

Terry: 18:08

of, you are kind of leaving opportunities on the table. So for me, I spend all my time between investing and speculating. and

Ryan: 18:15

Hmm.

Terry: 18:15

Mix of that depends on the opportunities at the time, basically.

Ryan: 18:19

100%. Yep. so for money games, gambling, trading, speculating, investing, we then said we'd talk about how to manage risk. Let's define what risk is.

Terry: 18:30

Well, this is a very slippery topic, isn't it? Let's talk about what it's not, I think, first. It's not volatility. So, do you want to quickly explain what volatility is? When I use the word volatility, what do I mean?

Ryan: 18:42

I think you mean? that volatility is how much the price can change. And obviously it's related to usually used in the context of extreme price movements. So it's like high volatility is like a price goes up and down. It's like a rollercoaster. whereas low volatility is there's no real price changes. You don't, the price kind of stable stays the same. And usually that's tied to three things. The first one is How? much or how often something is valued. The more often it's valued, the more volatile it appears. the less often it's valued, the more stable it appears. So a classic example of this is looking at shares versus property. Shares are valued by the second, and so you see that in real time, whereas your home only gets valued the day you buy it and the day you sell it. And that could be 5, years apart. And so, If it was being valued every single second, if there was a real estate agent standing on your front lawn, running it to auction, it would appear very, very, because some days it'd be raining and no one would show up and that's a pretty scary proposition, for most people. And so it is also just your perception of how volatile it is based off how visible the valuations are to you. so that's the first thing, how much or how often something is valued. The second thing it's tied to is how uncertain people are about it. at any given time. The longer something has been around, the more certain people are. And so real estate, again, great example of that. It's very, you know, inherent for hundreds of years, longer, thousands of years. whereas Bitcoin on the other side, obviously something very new, you know, been around now 15 years or so. And for that exact reason, people are less certain about it. And so how new or how established something is very quickly impacts how certain people are about it and how quickly they'll swing either which way. And then the third point I'd probably make to that is current events and how people feel about the future, which is really that, that new cycle. and that tends to be an underlying feeling economically, whether or not people think the place is going in the right direction or not, most people are pretty doomsday. at times though, you have periods of prosperity where everyone's like, yep, things are progressing strongly and the world is getting better. Other times you're like, yep, shit's going to blow up. World's about to break out into a world war. And so that very much impacts people's sentiment and that comes through in how things are priced. especially those things that are priced by the minute or by the day.

Terry: 21:14

Mm.

Ryan: 21:15

Any other things you'd add to that?

Terry: 21:18

Yeah, I love that quote. I think it's Warren Buffett. He says, in the short term, the market's a voting machine. In the long term, it's a weighing machine. And we vote based on our emotions in the moment that are impacted by all those three things that you just said. So the more myopic you are, there's something called myopic loss aversion. The more myopic you are, and you're sort of like getting sucked into the actual moment, particularly if you are, you know, part of the new cycle, and you're sort of seeing all this sort of thing, you're more likely to make reactive decisions around money. So the price on any given day of any asset is simply a story. That's what it is. It's a story about how we feel about the thing we're looking at, how often it's valued, how uncertain people are about it, how new it is and what's happening in the world at a period of time.

Ryan: 22:00

Silence. Silence. Silence. Silence.

Terry: 22:08

and therefore you don't want to take on any risk. And that would be a huge mistake. And that is a mistake most people make to sit on the sidelines. And we're not even aware or conscious of, of this. and I think that's probably where I was sitting, right? Equating these two things, looking at things like the stock market and saying, well, that's, that goes up and down a lot. And I need to make sure that I know absolutely everything. And actually what I'm feeling is fear. And so I am masking my fear by doing more learning, by reading more books, by trying to learn absolutely everything and everything. and I'm losing time and actually time's the thing that I need to manage. I'm trying to manage time through money and I'm, it's costing me time, it's costing me money the longer that goes on. So I think just understanding volatility is so important and being able to decouple it from risk. Morgan Howells was another guy who. I think he's got a great mental model for this. He says, volatility is the price of entry. The more volatile an asset is, the more people are going to expect in return. So if you wish away volatility, then you also wish away the opportunity. The more volatile something is, generally, the more opportunity in it. Case in point, Bitcoin versus Treasuries. Bitcoin swings around wildly like a bucking bull, and that's why it's the best returning asset since its inception. Nothing even comes close. I think maybe Nvidia comes close as one thing. But when you think about U. S. treasuries, you know, bonds, American bonds, there's very little, there is volatility in them, but very little volatility next to Bitcoin. And that's why you can't expect anywhere near the level of return.

Ryan: 23:37

is that do you think mainly because it's Early, you know, speaking to the fact that, you know, Bitcoin as an example is obviously something that's 15 years old, but in a public conscience for 10 years or less versus U S treasuries hardwired for a very long period of time, if that's the thing that creates the volatility? Do you then kind of go. well, I guess there's an alignment there with the fact that if you buy something sooner and there's an adoption cycle, early adopters are better rewarded for doing so, but they also take on greater volatility. So it's kind of this volatility expected returns, but it's also speaking to how early in the adoption cycle you exist. Is that right?

Terry: 24:19

Yeah, and just I say this is a life principle now. The level of uncertainty you're willing to stomach. in life, the more certainty you want or need, the smaller your opportunities will be. so I think about like, let's say we're at a rodeo, right? If you don't know what a rodeo is, it's where people ride bucking Broncos and horses and bulls and that sort of thing. The people that ride the bucking bull, those cowboys and cowgirls, they demand a much greater sense of status than the person who is running around in an equestrian sort of arena and doing little tricks and things like that because they're dealing with a lot less volatility of outcome, right? so it's like if I'm gonna be a cowboy or cowgirl and I'm gonna get on a bucking bull, I want a fucking big trophy and I want everybody watching and I want to be known. I want to be known. That's the outcome I want.

Ryan: 25:17

A big hat. Mm

Terry: 25:18

and it's just, yeah, exactly. I want the big belt buckle and when you give me the trophy, everyone's going to be there. So, I think there's a level of like, this is what I expect for dealing with this level of volatility. And you're,

Ryan: 25:29

hmm.

Terry: 25:30

rewarded for managing volatility. but, but it's different between different asset classes. So, what I'd love you to do is just, just talk broadly about the different types of asset classes and relate them back to volatility and let's talk about how they behave. Mm

Ryan: 25:44

Yeah. of course. So asset classes. I would say the first one is thinking about your own currency. It's probably a great place to start low volatility, right? So we use Australian dollar. It's not going up and down in value unless you're measuring it against something else. But let's just assume we're measuring everything against. The cash that you use every day, low volatility, but low return money in a savings account. You might get a few percent for it. then you've got other currencies. So you're looking at other countries, other economies, their currencies, and being able to look at how, you know, the value of those currencies change. again, relatively low volatility, depending on the country, you know, Argentina might be a little bit more wild than the U S dollar. but again, you know, low volatility. low returns. Bitcoin is obviously a cryptocurrency. That you could probably adopt into that, but it's a higher volatility, because of how early it is in the adoption cycle, like we mentioned. but because of that also, you know, potential for higher returns is, is greater too, And then in those currencies, you've also got bonds and fixed interest products. so, you know, term deposits or government bonds or corporate bonds, which are basically just, assets where you put money in for a fixed amount of time and they give you money back plus some interest on top. And they are very low volatility because it's fixed, it's locked in from the start to finished. Sometimes bonds, it's kind of a secondary market and things like that, which creates some volatility. But for the most part, it's low volatility. And because of that, very low returns as well. You're going to have a very hard time with any of those ones that I've just mentioned, making a real return, actually increasing your purchasing power. You might sustain it for periods if you're buying bonds and fixed interest, maybe, or other currencies, but for the longterm, it's probably unlikely that you're actually going to increase your purchasing power by putting money there because. Cost of living is probably going to grow at a greater rate. It has this for a decent period of time now, but then also once you go to redeem that money, you'd have to pay tax and you're going to lose 30 percent or whatever that might be at that time. And so you have to have a total return. That's considerably higher than the rate at which cost of living is increasing. And so if it's moving at 7%, you need to make at least 11%, to actually be making some kind of increase in your purchasing power, which is, a crucial part of this, which leads me to business So let's think about from a public distance of buying shares in, in companies and, and ETFs and, and index funds and whatnot, higher volatility, obviously it's getting priced every day by the minute. And so you see it and you, can absolutely feel it. but again, high volatility there can also come with higher returns as well. when you look at privately owned business, like buying or starting your own business, then that can be a little bit different. You know, it's, lower volatility because it's not getting priced all the time and maybe you're slowly building up the recurring revenue and things like that as a business. And so what others are willing to pay for it is actually quite stable in that sense. Probably is another one higher volatility, but you don't see it as often, if you're buying them directly buying, you know, titles, you're not really going to see much because the buying and selling and the pricing is so. far apart and most people are just observing what's happening in the areas as such or on aggregate, which can be a very loose measure of what volatility of your property actually is, But, you know, a good comparison here is a difference between property owned directly, by yourself personally, or buying a real estate investment trust, which is basically lots of properties, grouped together Wrapped in a managed fund that you can buy on the stock exchange. So real estate investment trust because of that, because people can trade it, swings more wildly. You'll see the volatility much more high. but with that one, it's an interesting one because you can't necessarily demand greater returns, because you won't be able to use debt as effectively, which we might talk about in a second as well. And then lastly, I'd touch on collectibles. So we're thinking about gold, silver, other kind of gems and, and things like that, arts,

Terry: 29:59

Fine art. Yep.

Ryan: 30:01

fine arts. Yep. lower volatility, obviously the pricing isn't happening as regularly, although digital collectibles may be a little bit different because of that, active trading and bidding systems that can exist digitally. but again, low volatility usually. Generally, you would see lower returns as well. Otherwise, everyone would do it. You know, it'd be the most active market in the world. Obviously, you have some outliers with that. Yes, that's how I'd probably think about, the volatility of the different assets that you can stack. but you made this comment before, which is. Risk isn't volatility. And I asked you, what is risk? So, what is it?

Terry: 30:40

So, I love Howard Marks definition. Howard Marks is one of the few people who ironically does make a shit ton of money trading bonds. Because he trades junk bonds and he does a really good job understanding which companies are actually quite good companies are selling debt, with a very good yield. And he's made billions of dollars doing that. And so, he's a good example of how you can make money in that market, but you've got to be a very, very good operator to be able to do it.

Ryan: 31:08

He's famous as hell because he did it.

Terry: 31:12

did a very good job through the GFC as well. But his definition of risk, I think is the best. And he says it's the odds that you don't get what you want. And if you want to know more about Howard Marks, I definitely would recommend his books, anything he's written and his memos are fantastic. There's a podcast where he sort of, they read his memos as well. I've learned so much about this, through him. you could do a lot worse than spend a lot of time with his body of work. but I think like to make this a little bit more concrete, let's think about this thought experiment to illustrate this better. I've talked before about the settling of the American West, right? So what happened was, I can't remember which president it was, but they bought a big pass of land on the west side of the whole continent. I think it was from France, I believe. And. They couldn't settle it themselves. Their army just kept getting smashed by all the Indians and the weather and they just couldn't figure out how to make a go of it. And so what they said was, listen, if you get there, you can have it. You can actually have it. You can stake out your own plot. If you get there, right? But you do have to deal with all the extreme weather. You have to deal with the Indians. You have to deal with the Mormons that are out there as well. And all the outlaws that exist along the way. And that is volatility. That's all the uncertainty that you're going to have to deal with. Okay,

Ryan: 32:29

Okay. I go. And your

Terry: 32:33

and risk. Who is taking on more risk? Is it the office clerk who loves the idea of living on the land but has never got out behind the desk? They've got no survival skills. Is that person taking on more risk than the cowboy who's grown up living and working on the land? It's, it's quite obvious, right? It's the same opportunity. Two people are taking on very different levels of risk and that's why it's very important to differentiate those two things. And that is why most people think about risk completely wrong. They're looking at volatility and thinking that's the risk when actually most of the risk is coming from you, your own sense of self awareness and the knowledge of what you're trying to accomplish. And what you're going to take on to be able to do it. Yeah, so you're looking outside of yourself projecting it onto the stock market saying that's a casino. That's for gamblers that that, you know, it moves around a lot. And therefore, I should stay away from it. Well, if you're Warren Buffett, are you taking on risk in the stock market? You're not taking on that much risk. You've got a really good sense of how this whole whole thing works. And so. I think it's really important to sort of understand that and, I had a really tragic example of, of how risk originates within us, and our own sense of self awareness, and I was on a call, an action setting call with, with the guy who was referred, him and his partner, and he had a very low sense of self awareness of where he was actually at and the risk that he had put. His family under, he saw himself as a real good deal maker. He'd set up these kinds of deals where it's like, I've taken on this debt and I've got this debt. And his debt to income ratio was just nowhere near where it needed to be. They were spending like 60 percent on servicing their debt and they had no buffer at all and he couldn't see or hear that there was some issues here and some things that really needed to be looked at because he couldn't let go of the idea that he knew what he was doing and he was actually said to me, he's like, I don't really understand why I need you. I'm doing a really good job of this myself, and I was like, Yes, you are. Good luck. All the best. And I found out six months later they lost the home. so I think that's a really good example of where risk actually does originate from. It doesn't come from outside of you. Most of the time, more often than not, it's coming from within you and you can manage that risk if you think about in a really intelligent way. And that's what I want to discuss now.

Ryan: 34:49

What I really love about that is that it puts it within your control. Like if you can build the skills, build the smarts, gain the experience, then what's risky for others is not risky for you. And a lot of that skill actually comes from all everything that we're teaching throughout this series. It's like literally being able to see yourself at the top. Get after the right thing, being able to manage and monitor your resources effectively on a day to day basis, being able to forecast, simulate different decisions before you actually make them. Things like buying assets, taking on debt, taking on private schooling, all those things that can actually blow things up, being able to step forward and simulate those. So these skills we're talking about is very much about you reducing risk for yourself. So that you can pursue bigger things and go harder and make things happen sooner. And I think Brian Portnoy did an amazing job of kind of laying up these five dimensions of risk that we talk about a lot with our members as well as I think we've done this in a podcast recently as well. And it's from his book, Geometry of Wealth, and I just want to lay these up because I think they're so valuable just for kind of filtering the options, the assets that you might be looking at and making decisions about how. whether or not you should pursue them for yourself, the first one is concentration risk. And that is basically, you know, the classic saying, you're putting all your eggs in one basket, putting all your money in one place. that is. Sometimes a good thing, sometimes a very bad thing. You know, the thing that we always lean on here is the more certain you are and the more inside information that you might have, or expertise, then You should concentrate more. If not, you should diversify further by many and a lot by wide and far. Do

Terry: 36:32

if you want a really good example of this, go and listen to the episode with Kate Bacos. Kate Bacos is a buyers agent who's been on the show in the past. She is one of the best examples of really prudent, thoughtful, concentration risk. And so she loved property. She built an expertise in property and understood it from a variety of different angles, built her domain expertise, and then eventually turned it into her career. So her human capital, the way she was earning money was tied up into this. She got that working very hard. So she had a good surplus. Then she used her actual expertise in property to start building her own property portfolio. And completely outperform any fund manager that you could imagine getting better returns than Warren Buffett. I'll tell you that, so I think that's a really good example of concentration risk. And the thing I want to point out is self awareness. Expertise and insight. The more self aware that you do have a bit of an edge and the more that you can put yourself in a position to play to win, then you should concentrate. She's done a fantastic job of that. But if you think that you're going to do a better job trading than somebody who's got a Bloomberg terminal in New York and has been doing it for 25 years. That's like you walking onto the court with Jordan going like, yeah, I got this. I'm good. Like, so it, it really does come down to expertise and insight. and I guess that level of inside information as well, doesn't it?

Ryan: 37:52

And like, we're talking about the asset stack that you're building here. So like, it's not just the one thing you buy, it's how it? fits within the whole context of your portfolio and your life. And so, you know, even Kate's probably a good example. There's a big difference in concentration between owning one property and owning 30. if you've only got one property and nothing else, obviously that's a much greater deal than if you've got 30 across 5 states, in all different suburbs and towns, in all different cities and suburbs, and so. It's how you assess the whole position really here. And so you just want to look at your financial position, go, am I high, medium, low, high risk, high concentration, or low concentration? Cause I've got lots and different, assets working for me. And even just to kind of lay up a couple of examples with that high concentration would look like someone that has all of their money in one single stock, low concentration looks like you got multiple properties, you got a sum of money and shares, and maybe you've got Bitcoin as well. And so you've got spread across three asset class. And then one of those asset classes shares probably as many companies, if it's index funds, for example. And if there's properties, maybe there's multiple properties, you've got diversification just inside of that as well. And So, it's kind of how you look at the whole thing and go as a whole, am I highly concentrated or am I actually spreading myself quite well? So that's the first one. Concentration, second one is complexity. And this is really the amount of decisions, the amount of moving parts, how hard it is to, Execute on the purchase, but also the maintenance and sustaining of owning whatever that asset is, and so cape back off. So let's continue that example. I would probably say, for a lot of people buying a property can come with complexity, someone that's doing it repeatedly. Has low complexity because for her, it's just tick boxes. Just do this again, especially when she's doing it for others and then doing it multiple times for herself. and when you look at her whole portfolio, I would suspect she's got a very good management team, handling tenants, et cetera. And so once you've got that in place and then she's got the skillset it becomes low complexity, whereas if you've never bought or done anything just yet. Going out and buying a property that'll feel like there's greater complexity dealing with real estate agents, mortgage brokers, you know, the solicitor, conveyances, et cetera, et cetera, insurance as well. And so that's how you look at your asset stack and basically go, do I have the skills? Is this difficult for me? And how many moving parts and how many other people are involved that you kind of need to be across at all times to make sure it works out. So that's the second one. Complexity risk. The third one is leverage. So that is really how effectively you can use debt to buy bigger assets than you could otherwise afford just with money in the bank. And again, Kate back us a great example, using debt very effectively, buying real estate, banks love it. People are comfortable with it. You're willing to borrow up to 80, 90 percent for every purchase. With that comes greater amounts of responsibility, making sure tenants as income and managing inflows and outflows because there are more outflows as soon as you take on debt. so you're making sure the income is great enough to cover that and or if there's a difference that your Personal income from work, whatever that might be can sustain it. But again, this is one where it's kind of high risk low risk There's you've also got this risk in being low leverage not borrowing not buying bigger assets and so there's kind of just a This is more of a balancing one. There's higher risk in having too much. There's higher risk in not taking on any at all when we use that definition of, the risk of not getting what you want. And so the other side of that is maybe you're building a portfolio of, of shares or something like that, and you've got no debt, and You're not multiplying your money at all. You're not borrowing from the bank and kind of increasing the amount of money that you can have in the market working for you There is a level of risk that comes with that in that you've got extremely low levels of, of leverage in that sense of debt. and so this is just more about managing and the, your capability of managing it. and also how well you sleep well at night, knowing you've got debt on your balance sheet as well, because sometimes, people connect, people relate to that very differently. And so the risk is also personal, like, like we said, the next one is liquidity, which is basically just how fast you can get your money back if you need to. And so shares are a great example. You can sell them and get your cash back within a day. Bitcoin, obviously within seconds, property could be three months, six months, 12 months. it's kind of really depends on what that property is. So it's low liquidity. But again, you want to zoom out, look at your entire position and go with everything that I own, have I got a high risk or a low risk? If I've got 10 properties and no cash reserves, I've got high risk from a liquidity standpoint. If I've got 50 percent of my portfolio is in shares and Bitcoin, for example, then. I've actually got really quite low risk in that sense because I'm, I'm probably going to be able to access enough that really depends on the size of your portfolio. If you've got a million dollars in there, 500k locked up in property or 500k in, in shares or Bitcoin or cash, then really you've got quite low risk. But if it was only a hundred grand.

Terry: 43:11

okay.

Ryan: 43:16

Maybe that's higher risk. And so the size does matter in that scenario for sure. so that's liquidity, the fourth one. and then the last one is your timeframe. Like we talked about with the speculating versus trading, the timeframe really determines. The level of risk that you're taking on. So if you're trying to get an outcome in a short period of time, then volatility is going to impact whether or not it's a good outcome or Not Cause people's sentiment, like we talked about the news cycle, political instability, all these things that basically affect people's, sentiment will. impact the price of things at that time. And so if you're trying to get a return in six months or 12 months, or even 24 months, even though it could be a great asset long term to invest in, in the short term, it could be a bad thing to do.

Terry: 44:04

coming

Ryan: 44:04

risk comes in how long you're willing to hold that for and how much time you have to wait essentially. And so those five dimensions are really just how you filter every new purchase you make, but also how you monitor the health of the asset stack that you have. Am I making sure that I keep relatively low concentration? Am I managing complexity, keeping it low? Am I. Managing a comfortable level of leverage, with the debt that I'm taking on. Do I have liquidity between cash and and assets I can sell quickly? and lastly, do I have, a long enough timeframe to let the assets and I'm buying do the work to be able to get the outcome, and not be at the whims of, of volatility. And like you said before, Terry, the skills that you have massively impact. All of that, where you sit on high, moderate, low in terms of risk for each of those dimensions,

Terry: 44:58

and I think that's why Kate Bacos did such an amazing job, right? Concentrated at a risk, minimized complexity because she could repeat the same thing every time, maximized her leverage, moved towards more liquidity over time. And has been doing it long enough to see all this pay off She wouldn't let me quote how many properties she had. But let me just put it this way. She has enough to retire many times over. so that's a really good example of doing it well. Let's jump into how to maximize returns, mate. So we've discussed risk, we've differentiated

Ryan: 45:27

Mm hmm.

Terry: 45:28

We talked about a cheat code for maximizing returns, right? So I want to really get into this and how do we maximize returns? We need to increase our purchasing power. You have this nice model of like different levels of retirement because ultimately that's what we're trying to do. We're trying to retire our human capital. We're going to transition away from living off our human capital to living off our financial capital. And you got like a very simplified model. I think makes this really easy to understand. So do you want to talk through these different three levels of retirement?

Ryan: 45:57

Yeah, I think when it comes to this. It can be really overwhelming when you set out targets that you need to shoot for to hit this point of retirement. So I like to chunk it down a little bit and like create three levels with this. The first level is basically that. you are happy to die with zero. And for me, this is basically saying, get your assets back to a point in which you're going to harvest the returns, whatever income it creates, whatever growth it has, you're going to take that, spend it. but also you're happy to sell down some of that portfolio. So it's like kind of that burn down or draw down strategy that you might've heard of. So that first point is dive zero. The second one is give your kids a boost. And it's basically getting to a point in which you can live off the income and the growth of your portfolio. So the total return, but don't have to sell it down. And so you get this, maybe it's 50, 60, 70, whatever that retirement date is. And The total return that your portfolio is making is enough to live on. And so you don't have to touch the base itself that can stay and give that, and you can give that to your kids and they can obviously, you know, get a real leg up because of that. And then the last one is leave a large legacy and that's not just for the family. It's probably beyond as well. And for me, the marker for that is having enough in your portfolio that the income alone Is enough to live on and it's obviously going to continue to grow and increase in how much it's able to create, beyond the spending that you're doing

Terry: 47:29

Nice.

Ryan: 47:31

around that. you know, if I was spending a hundred grand, for example, for me to reach that point of die with zero, this is real back of the napkin math. so, take this with a grain of salt, but I'd need about 750 K because It's going to earn about 75, 000 a year, and then I'm going to take 25, 000 from the portfolio itself. And that's going to burn down over time, you know, it's going to become 725, 000, 700, 000 every year it's going to come down. Second level, giving the kids a boost is if we're thinking that It's possible to make that 10 percent return on the portfolio on the asset stack, then I'd need a million bucks because income's going to be roughly 5 percent growth, maybe 5%. So 10 percent return on a million is going to be a hundred thousand and I want to spend a hundred thousand. So I'm going to take that off the top and then the million can sustain and then get divvied up at the ends. The large legacy that is then saying, well, I'd need 2 million in the market to be able to create a hundred grand. which would be 5 percent income. And so It's a much bigger target obviously than the dive was zero at 750, 000 or they're giving the kids a boost at a million. but it's enough to create an income for me to just take the income, live on that. And then it'll continue to grow and become a much greater sum of money. 20, 30, 40 years down the track when it's actually time to give it and pass it on. And at that point, the kids don't need to be too greedy. It's, it's for them and the other things you care about as well. So I think just having that kind of go, most people lock on and go, shit, I need to get 2 million to create the income I need. But you can kind of chunk it down and go, do you know what, there's levels that exist before that at, you know, at still a point you can give the kids a boost, but also, you know, even further down the line, and even before that, at a point in which you'll always have enough within your lifetime, it's just that when you get to the end, you won't leave much and the kids will be

Terry: 49:25

that's good. I think it's important to just have clear aims and for what you're trying to do. And as you said, chunk it down, make it super simple. So you kind of go, all right, that's broadly what I'm trying to achieve. You can spend hours and hours and hours. And most folks do trying to find the perfect calculator that models your exact situation. But here's what I'll say. Models are either useful or accurate, and they can never be both. if it's accurate, it's not useful. And if it's useful, it's not going to be accurate.

Ryan: 49:51

Can you explain that for me? If it's accurate, it's not useful.

Terry: 49:55

Yeah, because a model's job is to simplify reality, so that you can make decisions in the face of uncertainty, right? But if you go all the way down to the point where it's completely accurate, it's no longer a model, it is reality. And so you have, it's like the difference between map and territory. The map isn't the territory. It's just helping you navigate. And that's really what you're trying to do here is say, look, there's these three different levels of retirement. Roughly this is what you're sort of looking for and you could spend as much time in spreadsheets as you like, but that doesn't mean you're making decisions. That doesn't mean you're building skills. That doesn't mean that you're actually making any progress. So don't get too tied up with that.

Ryan: 50:30

Yeah,

Terry: 50:39

20. Your model isn't the 80 20. what

Ryan: 50:42

cool.

Terry: 50:42

to get to is what the 80 20 is. The 80 20 and the cheat code that we've been sort of talking about is how do you maximize returns. I'm going to let you off the hook and I'm going to say you don't have to become the expert. In these decisions, because if you manage risk and you understand yourself really well, then what you can do is buy the time that an expert has taken

Ryan: 51:02

Yep.

Terry: 51:09

in everything and everything. The cheat code is to build a team of experts to find the who that knows the how and that's your 80 20. That is your 80 20. And I want to call out a really common mistake and I'm going to ask you if you see this as well. think the less educated people are the more we assume that like one trusted advisor knows anything and everything about money. So that if you, I've got my money guy and let's say it's like my accountant or it's my mortgage broker and I go to them and I ask them for financial advice. But like, here's what we really need to understand. Money is a lot like medicine, right? There's lots of different types of specialists. And all of them

Ryan: 51:45

Yep.

Terry: 51:46

lot of time in their one expertise. So I wouldn't go to my mortgage broker and ask them what they think about Bitcoin. I definitely wouldn't do that. I also wouldn't ask them what they think about NVIDIA as a share. I wouldn't do that. What I might ask them is what the right, kind of loan product needs to be for this kind of asset. And if they've got good experience in a lot of different deals, ask them what they think of this deal. I might also ask them how to find and source a good buyer's agent.

Ryan: 52:15

And probably the more common one is, you probably shouldn't ask your mortgage broker if it's good property that? you're looking to buy. Most of the time, they don't specialize in doing that specifically, do they?

Terry: 52:28

There are brokers that have educated themselves in property. We've had Chris

Ryan: 52:32

Absolutely. Thank you.

Terry: 52:33

before and he's a financial planner and then educated himself in the property space. But Chris Bates is a bit of a unicorn. in the space. Most mortgage brokers are experts and specialists at understanding loan products for banks and in order to be able to facilitate that transaction and be that helpful middleman in between the two. So, it's just important to kind of understand that. Different kind of expertise. The example or the metaphor that I, I like using is like if you're Roger Federer and you want to be the best ever, you're going to see yourself as Roger Federer. You want to play this game at the highest level, this money game, this investing game. You want to assemble a team of experts that are going to help you play at that highest level and they're going to play their role in your vision. They're going to play their role in your vision. So you want to assemble the best coach you can find. You want to find the best performance and conditioning coach. You want to find the best nutritionist, dietician, psychologist, stringer for your rackets. You want the best physio to work on your body. You want a really good masseuse who knows your body and you want the best doctor as well to help you understand what's happening to keep you on the field as much as possible. And that is how you should see the cheat code. You should spend all your time. Trying to find the right people to put into your team because the best investment is buying the time of all these people and their expertise that you get to benefit from straight away. A really good example is Henry Ford. most people said he was really ignorant and he said, is it ignorant or is it just the fact that I know that I've got all these people around me can answer any of these questions and I know the things that I need to answer. He did a pretty good job, I would have thought. so,

Ryan: 54:07

Yeah.

Terry: 54:08

I think it's, it's, it's being okay, not knowing everything yourself, and becoming an expert in finding experts. So

Ryan: 54:18

Yeah.

Terry: 54:19

to do is quickly just talk about before we get into how to find these experts and some give you some sort of green flags, red flags. Let's just relate this example of assembling a team of experts and actually just define the different kind of specialists in the money space so that folks who are listening to this understand who to ask for what and who to approach for what. So do you want to go through a bit of a list? We kind of came up with these.

Ryan: 54:44

Yeah. For sure. I want to call out a bit of an objection that can pop up there, which is you might not be trying to win a grand slam. But you are playing the game of life and you are trying to achieve a level of financial security and, you know, abundance also in like having the choices that you want. And so we are playing a game whether we like it or not. And the great thing is, unlike Roger Federer, we don't need to put all these guys in the payroll. It's just having the right people to tap on the shoulder of at the right time. and maybe pay a sum of money. but also just having them as different people to bounce off. You know, I know one of the greatest advantages that we have being in This space and having a network of, of these people is that you can just flick a message, an email, give them a bell, speed dial, ask a question to get some clarity on something specific that itself speeds up the velocity of deals that you make and purchases that you, you do and, reduces down along the way. And so it's just building those people that you can tap on the shoulder of when you need to, and knowing who to tap on the child of is, is obviously very important. and so, like I said, in the same way that the tennis player has the physio, the psychologist, nutrition, et cetera, when it comes to money. There are some really key ones that you want to have in place. and you don't necessarily need to have them all, but there's going to be a few that you'll, you definitely will want to. So a mortgage broker is an obvious one. Their job is to help you get The best loan. At times, they'll know how to source and buy properties. Really, that's a separate skill set though. Maybe people have both, but you're probably also looking for a buyer's agent that is separate. And their job is to help you find and buy.

Terry: 56:21

Okay. Okay.

Ryan: 56:22

So the mortgage broker will be a part of that process. Getting the best loan, looking at all the options, finding the best interest rate, the best structure to set that up. but then the buyer's agent and other people helping you facilitate purchases, it's a completely different role. so like I said, by agent find and buy profitable properties. financial planners. And obviously, you know, I've come from that space and in a previous life, their job is to do retirement planning in the sense that they'll look at your superannuation, figure out can it be invested different or better, try to reduce fees and things like that. and a lot of time mostly focuses on insurances. so life insurances, death, TPD, income protection, things like that. and they're ones that will act on your behalf and help you implement things. changes of super annuation and insurances and things like that. importantly, very few will step outside of kind of shares superannuation insurance, so you're probably not going to get any help with. You know, incorporating property or you're going to get very limited help with incorporating property or Bitcoin or other assets into whatever that looks like. And so it's more specialized in with superannuation, shares, insurances. obviously an accountant is a really important one. their job is to minimize tax and protect your assets. So set things up in a way in which you don't pay too much or to make sure that if something goes wrong in the future, that certain assets are protected the way that, you know, trust or companies and things are set up, also help you do tax returns. Of course, insurance broker is there to help you protect your things through getting the best cover. So that's more so going to be, you know, your home insurance, home and contents, car insurances, et cetera. A stockbroker is the person That's there to help you buy and sell shares profitably. So if you're like the buyer's agent with buying property, a stockbroker is there to help you facilitate that purchase of buying and selling shares. obviously that is something you can absolutely do yourself like property. you know, sandwich human, you can do all of these things yourself, of course, but, again, these are people that can be very good. To have in your corner. So you can have as part of your expert team so you can tap on the shoulder of them. the last one I'd probably mention is a solicitor. Their job is to, manage transactions and deals safely and legally to kind of make sure that, you know, purchases or, legal agreements, partnerships, et cetera, are managed in a way in which you're going to be okay in the long run. Any other ones you'd add to that list?

Terry: 58:51

No, I think that's pretty extensive, mate. And mostly what you need to know.

Ryan: 58:55

Nice. I probably just worth calling out. We're none of these. Our role looks quite different in the sense that, we were financial plans work in that space, but it felt too rigid. It was too constrained to shares, you know, superannuation, rollovers, insurance, et cetera. not saying there's no value there. You absolutely can get a lot of value from that. but What we really saw was like the biggest gap and the thing that we wanted to feel was helping people navigate the space and build a team of experts. To help you manage risk by building the skills, getting yourself in the position to manage your resources very effectively, but also look at who you need on your team based off, you know, what you're trying to do, what you're trying to achieve, what assets are probably going to help you get there. but then help you build that team of experts to be able to execute on your plan. and we've just seen that the most important thing that we can help people to do is build an operating system that creates a consistent surplus so that you can use that to fund your goals and fund your investing, build that asset stack and develop a vision and turn it into a, personal plan that reflects your own definition of success, then help you find and plug in the specialist to actualize that plan.

Terry: 1:00:09

And coming up in the next couple of episodes, you're going to hear, a couple of stories of how this works as well and what it means for folks and how quickly it can change your financial reality. That's good, mate. So we've gone through all the different types of experts in the financial space. I want to talk about now how to become an expert in finding experts. And like I said, I think this is the 80 20. And I think there's two kind of models, two different types of people to be aware of. you've got charlatans and craftsmen. Charlatan is someone who merely looks like an expert and a craftsman is someone who has deep domain expertise in a certain thing. And the second kind of spectrum here is preacher versus teacher. Someone who's talking about the thing versus someone who knows how to teach you about the thing. And preacher is telling you what to think. Teacher is showing you how to think about it. And so for me personally, what I look for when I'm looking for an expert is I want a craftsman skillset with the heart of a teacher. And so we came up with a bit of a list of like red flags and green flags, which, one is the inversion of the other, but I think it's really helpful to be really explicit about what it looks like to find a craftsman skills that were the heart of a teacher. So if we quickly go through these red flags cannot explain things simply. Promises returns, celebrates and promotes their own success, can't or won't explain their decisions and recommendations, creates a dependency on themselves and sees distrust with others, and lacks measures for progress and success. Don't have any personalized kind of statistics and things they look to to know how things are going. Whereas green flags, like I said, is the inversion of that. What you're looking for is somebody who takes the time to break complex ideas down in a way that you can understand, shares their prudent process and actually how the process works. And more importantly, why it works, celebrates the success of the clients instead of promoting themselves, goes to great lengths to educate you on their decisions and the recommendations and empowers you to collaborate constructively with a team of other experts in service of your goals. Not their goals for you and lastly, provides clear measures for progress and success shows you what to look for to know how to see what they see. And if you can find people who are more of these green flags or all of these green flags. You're looking at the right kind of person. And there's a few other clues as well. So if they do have deep domain expertise and they've got the heart of a teacher, there will be a body of work. You should be able to Google their name and spend hours and hours and hours learning from them because they've put their information out there into the world and they've shared what they know. They should also have a proprietary process and their own set of tools that they've come to over a period of time. The things they know work for them.

Ryan: 1:02:46

Is

Terry: 1:02:50

and easy to find. And there should be clear results that you can point to. The ultimate expert is somebody who's really good at getting results for others. How successful can these people make other people?

Ryan: 1:03:03

Mm

Terry: 1:03:03

How successful can they make other people? And how replicable is that success? That is what you're looking for. People who promote themselves give no proof that they can replicate those results for others. so I think that's something to be really wary of. And a useful kind of filter to sort of look at and go, what are the success of the folks that you're working with and how replicable is that success? Basically

Ryan: 1:03:31

It's definitely easy to get results for yourself than it is to replicate those results for others too.

Terry: 1:03:36

You don't have to learn anything broadly. You don't have to develop any depth. You just have to know your own situation and how it kind of works for you. And I guess for us as a differentiator, so we don't publish. Podcasts at the same cadence that other folks do because we're not professional podcasters and we're not just talking about our own situations where built our kind of understanding through working with a lot of people. And so that's actually been the focus. and. When you're learning from someone as well, you should be asking that

Ryan: 1:04:06

Yeah.

Terry: 1:04:07

situation? Or are you talking about a broad range of situations that you've come to those conclusions from? huge difference between the level of nuance, insight and expertise between those two things, isn't there?

Ryan: 1:04:20

Perception first perspective, isn't it?

Terry: 1:04:25

So let's talk about how to engage specialists, mate. want you to make this point about the role that you need to play and I guess the power differential between experts. You want to talk about this?

Ryan: 1:04:36

Yeah. I think crucially you need to be in the driver's seat. You need to be directing the specialist that you have in your corner. Yeah. Towards your goals, using their expertise, not being directed by them. So often I think people outsource responsibility of getting the thing. It's like, if it doesn't work out, it's because they didn't get it. I trusted the wrong person. which is, can be a real, can be a real risk in terms of not getting what you want. the reality is like to get to a level of financial freedom that most people want to get to, It requires a level of commitment that you can only really get by building it out for yourself. If I give you a plan or you go see one of these specialists and they say, here's how you're going to get there, you're probably going to spend more time questioning whether or not you trust that person rather than you trust the process. That's the, you know, that's been my observation anyway, and that's very different from, you know, when I see people build out a personal plan for themselves about how they're going to get there and then engage other people, the plan they've created for themselves, the commitment they have to it. And then how consistent they become in making it happen is chalk and cheese. Cause it truly like people work with people and then they're kind of looking for flaws. You're kind of looking to go, Hey, where are they going to trip up? How can I call them out on their shit? I don't know that can be a little bit cynical because it's not everyone, but a lot of people do. there's an inherent bias there. And so that in and of itself is you tripping up your own progress. By looking to trip up the person that's guiding you. and so I just think that taking full ownership, being the one directing the ship, being the captain of that ship is crucial. And in order to Do that, there's a level of clarity that you need to have And skill like we've talked about to even make that possible. And before you start to choose and build this team of specialists You need to guide them and to do that, you need to know the life and lifestyle you're optimizing for, what that lifestyle is likely to cost, the things you're not willing to forego or lose for a financial outcome. It's like the lifestyle things you're not willing to give up, how your situation might change in the next two to three years. It's like, As things are evolving, am I thinking about quitting my job? Am I, you know, going to have another kid? do I want to move overseas? You know, all these lifestyle things that impacts the choices that are actually available to you. or that you should pursue, I should say. how You fund your lifestyle goals in that period, maybe you've got three, four, five different competing goals. You want to go on that trip. You want to buy that course. You want to also invest over here or build your investment portfolio. It's like, how do you balance those? And what's the urgency within that timeframe and how much can you save to put towards them? how you fund your financial goals. Like I said, investing, how much debt you're willing to take on without losing sleep. That's self awareness that you talked about before. and also how much uncertainty you're willing to stomach. To achieve your goals so that impacts directly, obviously the assets that you choose and the assets you choose determine the specialists that you'll use to make it happen to execute on it. nothing. Lastly, it's also what your partner thinks about all this. So that's all the things from like a financial position, but there's also like that might be just you and then you've got your partner. who has to be on board. And, or you're working even better. You're working together and doing all of it together. It's a dream state. but if they're not, and you are kind of dragging it a little bit, it's also getting their cooperation and hopefully collaboration as well.

Terry: 1:08:16

Yep. And heads up if you've ever wondered, that is essentially the gap that we feel so the answers to those questions. That's what we do with the money mentorship. So if you don't know how to answer them, drop us a line. Let's chat.

Ryan: 1:08:27

Yep. And all the skills that we've been talking about in this series is basically helping you have all those questions answered so that you're managing your own risk as you then go out and work with those specialists, and be the captain of that ship, have a personal plan that then guides their efforts as, as well as your own, mate, we've covered a lot here. Is that anything else you want to touch on or should we summarize

Terry: 1:08:51

think that's plenty right. This has been, you know, this is going to be one of the longest episodes we've ever recorded. so no, let's not add any more. Let's leave it there.

Ryan: 1:08:59

enough to chat on a summarize?

Terry: 1:09:01

Yeah. So here's the point. There's four money games. There's gambling, trading, speculating, and investing. These are not the same thing. Risk is volatility. Volatility isn't risk. Volatility is how wildly the price is going to move. Risk is the odds that you won't get what you want. Our job is not to avoid risk. It's to manage it in pursuit of return. And if we're going to manage it really well, we need to understand how to look through these five different lenses, concentration, complexity, leverage, liquidity, and timeframe when it comes to any given opportunity. And if we know how to manage risk really well, we can maximize our return by not needing to become the expert in everything we're doing in every opportunity. We want to become the expert and finding experts. And so we want to look for people who have a craftsman's mentality with the heart of a teacher, want to engage and make use of their expertise to actualize your vision by knowing yourself being clear on what you want, having a money machine that consistently can fund the portfolio that you're building

Ryan: 1:09:52

In

Terry: 1:09:53

their expertise to educate yourself in their the and at the start of this episode, we talked about three different books that we think are important to be able to manage risk well. And the first one's about understanding how the monetary system works. It's not an easy read. I think it's a very important read and it's called the Bitcoin standard, but honestly, it's more about the history of money. And how the monetary system has grown, developed, and evolved. And I feel like it's the base layer for everything. If you read that book, and if you can take yourself through that book and really understand it, you're going to have a level of depth that most people who work in finance won't have. but you're just going to understand and see things on different levels than most. So I think that's a really base layer one. Do you agree? Do you like that as a first choice?

Ryan: 1:10:36

Right. Start. Yep. Foundational. Love it.

Terry: 1:10:39

And look, honestly, 90 percent of it's not about Bitcoin. It's about money. second one, the most important thing from Howard Marks. We've talked about him in this episode, very good book for giving you fantastic mental models and helping you see things and think about your decisions differently. And the last one is A random walk down wall street. It's written by more of an academic. I can't pronounce his name because it's hard to pronounce. but he's a very, very world renowned academic in this space. I think he's from Chicago School of Finance, I think. but this book is a very evidence based book based on research and it shows you how to play the odds. What actually does work, what doesn't work over time and how to kind of think about, investing as well and the difference between investing and all the different things you can do in the public stock markets too, so. There are other books that we want to publish as well and we're going to put those in the community. So if you want to know what the other books might be, jump into our community, hit that link in the show notes, join us in there and I'll drop them in there for everyone as well. Now, there's one last thing, mate. We want to share the parable of the talents.

Ryan: 1:11:40

Yeah.

Terry: 1:11:41

we first came across this parable in the book, The Wisdom of Finance, and I think it's just such an impactful way to really, understand and internalize how important it is to understand this, to be the kind of person that has this skill and what it means for you. So if you don't mind, I want to share this parable to finish this off. You okay with that? All right. So here's the parallel. I'm going to break it down in simple language, but it's, it's more like biblical language because it comes from the Bible. So Once upon a time, there was a man who was going on a long trip, but before he left he called his three helpers on the farm. And he gave the first helper five coins, the second helper he gave two coins, the third helper he gave only one coin. And he told them, your job is to take care of these coins that I've given you whilst I'm gone. Then he left and went off on his journey. The first helper took his five coins and used them to earn five more coins. Now he had ten coins. The second helper also worked his two coins and earned two more coins. Now, he had four coins, but the third helper was afraid. So he dug a hole in the ground and hid his single coin. He didn't try to earn any more. And after a long time, the man came back and he asked each helper what they did with the money. The first helper showed him the 10 coins and the man was really happy. He said, great job. Because you took good care of what I gave you, I'm going to trust you with even more. And the second helper showed him his four coins, and the man smiled again and said, Great job! I'm going to trust you with more because you took good care of what I gave you. And the third helper showed him the one coin, and he said, I was scared I might lose it, so I hid it. And the man was really upset with the third helper, because he didn't even try to do something with a coin. So he took the coin away from him. and he gave it to the first helper. And the quote in the Bible is this, For unto everyone that hath shall be given, and he shall have abundance. But from him that hath not shall be taken away, even from that that he hath. And cast ye, the unprofitable servant, into outer darkness, where there shall be weeping and gnashing of teeth. And so the point here is that the real risk Is never taking a risk. That's the point. And Warren Buffett says this, if you never work out how to make money while you sleep, then you'll work until you die.

Ryan: 1:13:56

Oh boy, isn't that some deep wisdom? I think it was maybe, uh, Bezos or someone I was listening to the other day kind of made this statement. What would you rather? Choose a life that's like easy and comfortable, you know, secure, go the other which is like out of service and adventure. everyone. kind of getting after things, testing, trialing, failing, trials and tribulations, which one do you look back on and, and kind of go, that was a good time, that was fun, probably going to be the second one, which is the really speaks to that, getting after it, taking a risk, you know, being willing to fall on your face and, yeah, just see what hits and by virtue of that, at the end of the day, hopefully we've got more coins and I guess the, like the saying goes, The fortune favors the brave, right? So we're just gonna be brave and get out there and do it. Mate, great summary. Thanks for doing that. What's coming up next?

Terry: 1:14:49

So look, that's it for our educational episodes for this series. All we've got left to share with you is some inspirational stories and folks who are on the way. Maybe. Similar stage of to you. We've tried to come up with a little bit of a mix, but I'm going to at least two or three inspirational stories for folks that have sort of gone through this process, built these skills and do a bit of a deep dive into the moves they've made and what they've learned and who they've become in the process. So I'm pretty pumped to be able to share those to round this series out.

Ryan: 1:15:19

And as we've mentioned in the previous episodes, if you want to find out how you track, how you score with each of those skills we've covered in this series so far, jump into the description, complete that financial skill score test and find out Where can you focus your attention to upscale to give you the biggest bang for your buck? And of course, if you've got value from this series, we'll put in a lot of work. If you've listened to the whole series and got to this point, you're listening right now, then you've also put in a bit of work and you can obviously tell how much we've put in as well to get this point. And, you know, we always want to share everything that we can. Biggest signal that we've done a good job is if you could leave us a comment on spotify or if you're on apple leave a review there, too Just tell us what you took from it We want to know where you're getting the most value and where we can focus more of our time and attention and that's all we ask and if you're happy to share it with the friends, if you're that way inclined as well, please do so. But that's enough from us today. You'll be sick of our voice. We'll see you in the next episode.