*This post is 100% fiction, even more than past ones. Nothing here is financial advice, please use your own judgment about reading from a rando on the internet that does not update his About page for ages.
A week ago, the girlfriend of one of my best friends had to suddenly leave London because her mother had a stroke. Mom was in great health before, this happened like a nasty surprise. From one day to another, my friend’s partner had to manage her mom at the hospital, the mom’s husband, who froze after the event and wasn’t able to do anything anymore, and her grandma, who kind of regressed to a baby status. All by herself, since she has no siblings.
One evening, she told my friend that if they ever have kids, they would not have just one. She realized she does not want her kid to experience what she is doing alone.
Before having kids myself, I was (quite) firmly in the “one and done” category. In a world where time and money are scarce resources, I thought concentrating everything on your only child would put him/her in the best position in life. I have a brother, so I did not experience what it means to be a single child, and I did not bother asking any of my friends that have no siblings how it was their experience. I was convinced my idea was the right one. Plus my parents are fine and alive and independent, naively I thought it was ok for me to go live here and there, far from them, because… so far so good.
As usual, it was my wise wife that put me on the right track. One day she told me something along the line of “the first kid is for you, the second one is for them”. She did not want our daughter to be alone at any point in her life and even an avid fan of Friends like me knew what she meant.
But let’s maybe put aside my silly try to pull a Morgan Housel because now I am not sure how to transition.
Josh Brown once said that it is useless to chase clients in the financial advisory business; clients will come when they are ready. You need a life event, selling a business, an uncle that leaves you a big inheritance, your employer stock that goes 100x and so your stock options, for you to realize you need help.
But ‘normal’ blokes have as well life-defining events that trigger the same questions: a progressive career, kids, or simply wanting to buy a house. None of my pre-university friends showed any interest in money, other than how to spend it, growing up. My brother had more concrete plans of rejuvenating and joining the Communist party than entering a bank branch to open an account. My interest in trading was seen at best as neutral, often as something dirty that only people who want to take advantage of others would do.
Flash forward a couple of decades and then questions started to drip in: is XYZ a good Robo-advisor? What is this Bitcoin thing? How can I buy a fund? It was like they started to pay attention, for reasons that were not disclosed to me at first, looked for some information and got thrown into a maelstrom that was impossible to navigate by themselves. Some tried and got burned. It was time to sit with a familiar face.
By the time we grew up, online banking was already a thing. Friends that came to me with their questions could not go to their bank branch investment expert (not sure what the correct job title is now) because they have never been to one; they were doing all their banking with internet and ATMs. Either their father had no experience with investing, either they had a bad relationship, or both. I was the most convenient option, delivering an above-threshold mix of trust and knowledge.
Then it was my wife’s family (she has 5 siblings), friends’ and colleagues’ turn. I was not anymore the boyfriend/husband with a boring job that was reading ultra boring books (again, for sake of context, my wife is 11 years younger than me). Well, I still am but they are a bit more sympathetic to my interests.
Ultimately, it was blog readers and the occasional fellow parent at my daughter’s nursery. This makes sense since in the last two years I spent more time with them, the parents not the readers, than with my family and friends combined. I did not move to London with the idea of spending the majority of my free time on the island but facing lockdowns and travel restrictions you can only adapt…and get closer to others living the same misery.
I decided to collect a few notes on common discussion points. So far I lived in four different countries and have friends born in every corner of the world: relationship with money is affected by cultural elements, past and present regulations, age and thousand other things; if something you read seems inconsequential to you, it is most likely because I did not provide enough context 😉
In Europe there is no “debt culture” like in the US
Stereotypes are pointless, especially when on one side you have an entity like ‘Europe’, but please allow me some room here.
European countries have different takes on how expensive universities should be but compared to the US, we can say we have different degrees of cheapness on this side of the Atlantic. This means few Europeans start their working career with a significantly negative net worth. I do admit, I do not know that much about the UK system but it feels to me that is closer to the American one more by definition, there are student loans here, than by quantity: if you are English, UK universities are pretty cheap.
Credit cards are not as common as well. I still remember when I read the origin of “Clerks”, the Kevin Smith movie. To shoot it, he took some credit cards and loaded them with $20k debt. Let’s say that no one in Europe, for sure no one I know, ever thought to start a business by borrowing via credit cards. It is way more common to steal a car to then rob a bank / kidnap someone. Really.
All of this to say that my personal finance conversations almost never start with “clear your debt first”. There is no need for it. I mean, this should not be a surprise for regular readers of the blog but I find myself more regularly asking the reverse of the question, i.e. “why you do not have more debt?” (in the form of a mortgage or, for more advanced players, a levered portfolio).
In my experience, people that asked for help already had a good grasp of where their money goes. They rarely use a precise method to categorize costs like a spreadsheet but they are aware of their ‘macro’ expenses picture. Guiding them on ways to go a bit deeper is amusing because of their reaction. Sometimes, it takes Excel to open someone’s eyes to realize that no, you do not eat out a few times per week, you do it so much that you do not know if you have induction pans or not.
It is the Ramit Sethi phase, I try to motivate the person in front of me to identify their non-negotiables and get rid of everything else that has way less utility, bang for buck for them. Call it “capital allocation optimization”. This way, they find resources they did not think they had to fund their long-term goals.
Why do they ask me for help
I spend so much of my time, at the office and outside of it, discussing ‘trades’ like “Do we increase portfolio duration here? Are Gilts a buy?” even if I DO NOT TRADE that it is difficult for me to classify these conversations. They are not 100% job-related and I am not 100% sure either the other side of the convo is going to act on them; is it what boring people in finance do in their spare time, chatting about markets?
The let’s-call-it structured conversations I have about money are with two categories of people: the ones with a general concern about retirement and the ones looking to buy a house.
Retirement chats can go in multiple directions: there is a bit of tax planning, asset allocation, and products/platforms. Stereotypes again, sorry, but I am basically part of the first generation in Europe that had to manage their own pension savings. Seeing their parents (funny enough, my father had to manage his own retirement) living a different reality was most likely disorienting and removed in many cases a natural source of help and advice for many. Before the blog, I had zero conversations about FIRE; outside that community, I can say the approach is more towards putting something aside than thinking of funding full retirement with their own savings. When I arrived in the UK, conversations on this topic became more focused (and the amounts involved bigger) because there is a general, better?, understanding that funding your retirement is a necessity; not that I consider English lads more enlightened, I think their government provided a clearer message about the consequences of not doing so…i.e. we are fine with you living under a bridge. The framework is also better than in continental Europe (I am referring to SIPP, ISA and Corporate Pension schemes).
Discussions around savings to buy a house always start the same way: the wanna-be saver thinks that 5 years in the future is a very far planning horizon so they can go all-in on stocks while I tell them to forget about stocks if their goal line is not at least 10 years away. I usually offer dual advice:
- if you want certainty, i.e. you want to buy in the next few years in a specific area, there is no other way than to save aggressively and put the funds in a very secure investment. The journey will be ugly but in the end, you will get what you want (provided that your goal is achievable with your current situation; obviously if you earn 50k and want to buy a million-pound mansion single bedroom then you have other issues only the National Lottery can solve).
- if you can be flexible, that’s where the fun begins. It is the strategy I used: I bought two properties, one during the GFC and the other just before Britain got back control of its borders (2019). In both situations, I negotiated a 20% discount from the listed price; not because I have special powers but because that was the environment, it was a buyer market. I bought something I liked but it was not “my dream house”. Actually, I am not the dream-house type and this definitely helps. My wife is more the opposite, “I know what I want and there is no compromise”, so I understand quite well why this strategy cannot be for everyone. I lived in Switzerland for four years with the idea of buying and I spent all the time there renting: never found the right deal. Being flexible allowed me to be more aggressive with my investments: I knew there might be a period, even a long one, where my savings might be underwater and I was fine with it. Maybe I was lucky but my personal situation allowed me to play lucky; I would act differently now that I have two children because my circumstances are different.
There is no magic formula, other than trying to have a salary that puts you in the top decile in the area you are considering living. Real Estate is ultimately a relative game: it does not matter how much you earn, it is how much you score compared to your local competitors. It is an ugly game because the moment you become an owner, you cheer for policies that would make it harder for other people to become owners (the other day I saw people living in Social Housing petitioning AGAINST the government letting developers add other social housing units next to them). I understand the feeling of being forced to participate in this rat race, where house prices run faster than the yield on your investments: it is utterly frustrating but the solution is not taking huge risks with your savings.
The emotional aspect of investing
With a stock bull market that run for 10+ years, imagine the position I was in: the person in front of me was more and more convinced that keeping house-related savings out of stocks was a lost opportunity while I was picturing their reaction if they were going to lose 20% of it in the next couple of months.
Stocks’ volatility is a hard subject to deal with and the key is to assume the person in front of you does know nothing. Unfortunately, the reality is worse: they think they know and I have to dismantle their priors. If current volatility persists for the next decade, I will still have to do it…but the other way around: from preaching that stocks are too risky for what they want to achieve to begging them to consider stocks for the long run.
At the beginning of the year, I sat down with a friend/former colleague of my wife who’s been pretty successful so far in her career. She wanted to start to “plan for her future”: build a saving pot that might integrate her retirement, send her still-unborn kids to university, buy a house, fund whatever she might decide to do at least a decade ahead. After going through all the steps (objectives, personal income statement, debts, taxes, bla bla bla) we spent a couple of hours on stocks, volatility, returns, and diversification. I helped her open a stock ISA and choose a couple of funds, with the idea that she will start to pound-cost-averaging every month. Two months later she asked me why her account was in a 2% drawdown [Note that it was the first leg of the current bear market, so in USD terms her fund was down double-digits but the GBP/USD rate partially saved her].
Everyone has a past
Even if you did not ever care about finance, you got exposed to it and developed some beliefs. Might be your parents, the news, internet, TikTok, whatever. My wife is part of a local black women’s community dedicated to empowerment, creativity, and entrepreneurship; one day someone showed her how to open a Coinbase account. I was actually happy about it, they used what I think is the correct approach (you cannot have a resonated opinion of something if you do not study and, in this case, dip your toes into it and, whatever your idea, digital currencies will be part of our future). It can really come from anywhere.
Now those beliefs dictate your reasoning.
Talking about personal finance is like teaching someone how to play tennis after they spent five years in their yard swinging their racket alone against the wall. You have to unbuild first and then re-build.
These beliefs can be weird. I know a fair amount of Italian investors that thought:
Meaning they could not accept with their bonds the exposure to other G10 currencies but they were happy with TRY bonds because they came with a big coupon. All of this until basically yesterday. Now that EUR is below par ag USD, I had two friends asking me “any safe ETF that invests in currencies outside EUR?”. Dunno, I bet you already tried Bitcoin 😉
Love story
Now that I leave the apartment during weekends only to attend kid parties, I like to hear fellow parents’ stories: where they come from, why they are in London, and why they choose the same ugly nursery as us.
Helping people in their financial journey fills the same “curiosity” bucket. Yesterday I started to watch the Netflix documentary Expedition Happiness and mid way I screamed at the screen “why you do not tell us how you financed the trip!!1!” (maybe they do it in the part I did not watch yet…).
It is a useful reminder that I approach anything finance/investment from my point of view, with biases and past baggage. It helped me understand how complex is the life of a pro; there are other important topics I did not include in this post like insurances, size of an emergency fund, date AND location (in terms of currency) of retirement: a myriad of variables to consider for a successful plan.
What I am reading now:
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