The Diary Of A CEO with Steven Bartlett - Moment 194: How To Get Rich *SLOWLY*: Scott Galloway

Episode Date: January 3, 2025

In this moment Scott Galloway provides practical tips for building wealth and saving for the future. He explains why starting early, investing in low-cost index funds, and using simple tools like savings apps can make a big difference. Scott also talks about the benefits and risks of real estate and the importance of diversifying your investments. It's an easy-to-follow guide to managing money wisely and planning for long-term success. Listen to the full episode here - Spotify - https://g2ul0.app.link//s9EFhgMOPPb Apple -  https://g2ul0.app.link//U7ZZBkPOPPb Watch the Episodes On Youtube - https://www.youtube.com/c/%20TheDiaryOfACEO/videos Scott: https://www.profgalloway.com/ Learn more about your ad choices. Visit megaphone.fm/adchoices

The email I get most is from young men looking for guidance in mothers looking for guidance for their sons. The second most frequent email is the following, is it too late to invest in Nvidia? And the honest answer is I don't know. I can imagine a scenario where it gets cut by 80%. I can imagine a scenario where it triples. So this is what you do. You invest in SPY, because about 20% on the dollar

will go into the Magnificent 7, because they're about 20% of the market cap of the S&P. SPY is, again, a basket of different stocks. It's a index fund that mimics the S&P. So there are 500 companies in the S&P. NVIDIA is probably three or 5% of the total value of the S&P, so five cents on your dollar goes into Nvidia. Right, about 20%, is that right?

24, 25% is the magnificent seven, the tech companies we talk about. 25 cents on your dollar will go to them. So assume those companies double. Great, you participate, but assume the other 493 companies finally get their time in the sun and those companies go down a half, you're still fine, you participate, but assume the other 493 companies finally get their time in the sun and those companies go down a half, you're still fine.

You're still fine. Again, you don't need to find the needle in the haystack and stop believing in a very American way that you can figure it out. I know the brightest people in finance. And what my net conclusion is that none of them have any fucking idea. Some have a little bit more of an idea,

but if you look at the entire alternative investments industry, hedge funds, private equity funds, mutual funds, anyone on CNBC, if you took all of their returns in aggregate, they're less than the S&P by the amount of their fees. It's one of the greatest griffs in the modern economy is believing that some guy who looks old and unhappy and has suspenders and went to Harvard

knows more about the markets than you. All you need to know is diversification, right? SPY, start saving young. And then the next best piece of advice is if you can, if you can, if you can force savings. 98% of us will spend everything we get our hands on. It is very hard to have the discipline to take money that is within your grasp and invest it for savings plan.

Find out at work if they have profit sharing or IRAs or Roths, whatever the, I forget what it's called here, where if you put some money aside, the government matches it. Pensions? Well, not only pensions, but there's something here. I forget what it's called. If you save 5,000 pounds through your work, the government, I think, will match it, put in 1,000 pounds.

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

I'll probably ask for our passport take a photo of our passport There's so many different apps where you can go in and invest in the S&P 500 You don't need to call someone or know someone and you can invest. What's the minimum you can invest $50 a dollar one and you can invest, what's the minimum you can invest? 50 dollars. A dollar. Go to public.com. I mean, start with a basic low cost ETF or index fund. SPY, if you want to get take a little bit more risk and you want to be in tech, there's all sorts of ETFs and index funds around tech. You're gonna, every young person, especially young men, is under the impression they're smarter than they are and that they can beat the market. So okay, take 30% of your money, have some fun, buy Starbucks, NVIDIA, Unilever, Nova Nordisk,

whatever you think you have insight into so you can learn a life lesson that over the long term you don't know what you're doing and just put it in an index fund. Because the marvelous thing about the human race is we become more productive and the Western economies, generally speaking, over the medium and long term are up and to the right.

And again, and I'll go back to my algorithm or equation, focus, find something you could be good at, maybe great, that has a 90 plus percent employment rate. Stoicism, we haven't talked about that. Realize there's some things you can't control, focus on the things you can control. One thing that is within your control is spending. Try and find a partner, try and gamify spending.

I spent $78 a week my summer between my junior and senior year, including rent, because I needed $3,300 to go back to school. I partnered with five other guys in my fraternity and we gamified who could spend the least amount of money. Find a partner who's aligned with you around spending and saving, right? Realize no one's as impressed

or thinking about your shit as much as you are, right? Try and find reward from exercise, from relationships, not from signaling wealth with kind of stupid shit, right? I call that stoicism, it's really more about discipline. Develop a savings muscle. One, an appreciation for time and how fast it's gonna go. I was stupid. I remember my best friend Lee Lowe

was picking me up to go to the beach when I was in college and he was scrambling to find $2,000 to put into something called an IRA Roth. Whereas company, a bank he was working for, he was just out of college, if he found $2,000, they would match it with another 2,000. I thought, I said to him these exact words, if 2,000 bucks means anything to me when I'm older,

shoot me. I have made so much more, much more money than Lee Lotus and he is a multimillionaire now, so am I, but I've endured a lot more risk and a lot more ups and downs because he was that lame guy scraping together $2,000 when he was 23. I went out and spent my first bonus check at Morgan Stanley.

I got $28,000 my first year out of college, Morgan Stanley. $28,000 check, I go out and I buy a $35,000 BMWs, hung swim goggles from the rear view mirror thinking that would impress people. I don't know what I was doing. I figured out if I had bought a Hyundai for 9,000 bucks, which you could get in 1987 or whatever it is, and invested the other 20 in SPY, never looked at it again,

I would have enough money now to buy 11 Ferraris, including that new electric Ferrari that for some reason appeals to me, which makes no sense, an electric Ferrari. Anyways, you're gonna love this. I tell the people that work for me that I drive up in a Ferrari and I say, if you work really hard, someday, someday, I'll have two Ferraris.

Anyway. I don't have a Ferrari by the way. My other joke about a Ferrari is, Ferrari's like having a long consistent erection. I don't have a Ferrari. Anyways, where were we going? Realize people aren't as impressed with your shit as you are, recognize the power of time.

And then the thing where I really screwed up Steven, diversification, take some money off the table, invest in, I'm hearing from employees in Nvidia, we talked about this, diversify. You get, it's such a bulletproof Kevlar for your mental health. You get risk-free return. Nobody knows, anything can happen.

Amazon 1999, again, lost 90% of its value. Do you know the kind of mental anguish when you go into a stock like Amazon and you lose 90% of your investments? So if you wanna have some fun, ring-fence it to 30% of your savings, pick some stuff, and it'll be a good life lesson for you. You may get lucky, more power to you.

Over time, you're gonna realize nothing beats over the longterm. Warren Buffett, what are the third wealthiest man in the world? I'm giving you the same answer he gives. If someone has 10,000 bucks, how do they invest? And he's like, low cost index funds. It's a two and a half hour conversation.

That concludes it. Put it in the S&P 500. Low cost index funds. I know it's the boring shit that makes you rich. It's also, I advise a lot of CIOs, it's the boring incremental stuff that moves shareholder value. No, it's so true. So one of the things that stopped me when I was young from doing exactly

what you just said is I didn't think that the $500 I had or the 500 pounds that I had was enough to get started. So I said to myself in my head, I thought, okay, when I get a million, I'll become an investor. And I think a lot of people actually listen to these kinds of conversations and go, okay, once I've, once I've got £5,000 disposable income a month, then I'll do what Scott said, but there's no point in doing it with a small amount of money. I wanted to use this little bucket of sand here as an analogy for this, because my team brought a bucket of sand to illuminate the power of compounding interest when you invest in these S&P 500 companies. And this glass represents investing $1,000 a month in the S&P 500 over the course of 12 months starting at the age of 25.

But if you left it and kept investing at that rate by the age of 65 it would look like this. You have Zuma Beach. Oh my god. Thank god that's you. It would look like that. And this is really what you're saying when you're talking about ETFs. Well you asked that question about the young man who says I'm gonna wait till I get, I have 500 pounds, I'm gonna wait till I have a million before I start investing.

The way you get a million pounds is by investing that 500. We don't believe we're gonna get old. We don't recognize how fast time is gonna go. We don't appreciate the power of compound interest. Don't focus on your investments. Put it in low cost, low energy ETFs. Start early. You have time. Your advantage when you're young is time.

And you're gonna get that bucket of sand. By the way, this right here isn't a lesson in investing. This is a lesson in storytelling, a bucket of sand. I mean, who thinks of this? Move it out of the way. No, but it is, it is. I discovered the art and the science of compounding interest too late in my life.

And I just wish someone had slapped me in the face with it at 18. Yeah, it's crazy. Honestly, I probably started at 28. That's still earlier than most people, but it goes to the notion of back to the advice for a young person. Most young people don't have the discipline to invest any money they get their hands on. Because a capitalist economy is the smartest people in the world with the most godlike technology are presenting you with amazing irresistible offers to upgrade from economy to economy comfort,

to add flowerless chocolate cake to your order from Balthazar Boulangerie in one minute or less. I'm like, oh my God, but wait, there's three other people looking at this room, this hotel room, and it's going on sale, and I better buy, it's so difficult to hold on to any money. You wanna find ways of forced savings. A house is forced savings to a certain extent,

because people don't wanna be evicted from their house. Going to work for a company and getting options and getting equity that grows tax deferred, that's sort of forced savings. But you wanna, as a young person, try and find as many ways as possible to have forced Savings, an app that rounds up to the nearest dollar and then invests no matter what.

That is For Savings. It is very difficult to take money that ever comes through your hands and invest it. So find For Savings mechanisms that are taken out of your check. Find out if your company offers any sort of investment or saving schemes that they match or that the government matches. And most corporations offer something. Real estate.

I've had a lot of guests talk to me like Morgan Housewell and others that have a sort of mixed view on whether real estate is a good investment. What's your thoughts on it? Should I be investing in real estate? I know my brother said something to me when I was 25. He said, Steve, if everybody is playing the game, the returns probably aren't great from it.

It goes back to sex appeal, too much capital going in. Look, Kay Schiller, the brightest people in real estate will say if you really account for maintenance and upkeep, that real estate has not outperformed other asset classes. The reason I like real estate is that one, in the United States it's very tax advantage. There are very few asset classes you can lever up four to one. 20% down payment. I can't buy a hundred dollars worth of Apple stock

for 20 bucks. So it's a huge leverage. The interest on that is tax deductible. In addition, if you sell a home, this is true in the US, I don't know in the US, I don't know in the UK, if you buy a home and sell it after, hold onto it for at least two years,

you get a $250,000 tax deduction, 500,000 for married. So if you have, for example, any ability, get to know the homes in your area, find a nice home or a rental unit that you can maybe rent out or upgrade, maybe you're handy, to do that every few years and take advantage of the tax deduction and then roll into something bigger.

And that is for savings. You know that mortgage payment is coming every month. Actually, the majority of savings for baby boomers right now is in their homes. Actually, the majority of savings for baby boomers right now is in their homes. It's the equity in their homes. Now, unfortunately, there's some bad things. We haven't approved housing permits as quickly as we should,

which has made it more expensive for entrants. Young people can't afford homes. The average home's gone from 290 to 420 through the pandemic in the US. And if you look at interest rates, it means the average mortgage payments gone from 1,100 to $2,300. So it used to be 2 3rds of America could afford a home,

now it's 1 3rd. I told other talk show, but I just did a Ted talk on the war on the young economically. But real estate is a very tax advantage industry. It is for savings. Also, there is some, I think, psychic value, which I think is important to a home. You start investing in it, fixing it up.

It feels like, I don't know, there's something rewarding about it. But to what your brother said, when everyone's trying to buy homes in an area, that usually means it's probably getting overvalued. And like any other asset class, it can lose money. But the reason I like it is because it is a form of forced savings.

People generally speaking will make that mortgage payment or try and figure out a way. Now you wanna make sure that not more than 40% of your income goes into a house, otherwise it's just gonna be your anchor. It's just gonna be a source of stress for you. And I think a lot of people grow up thinking I have to have a home.

And so they just become over levered in their home and they become kind of house poor. They own a house and that's it. And they can't afford to do anything else. And they might be able to move then. And you talked about geographical opportunity when you're young. That's right, you get tied down,

especially if your home goes down in value. But I still think it's in the US at least, real estate is the most tax advantage. And if you own commercial real estate in the US, you can depreciate it two or 3% a year. You you can depreciate it 2% or 3% a year. You can't depreciate a stock 2% or 3% a year. Is there someone that should and shouldn't buy a home then, in your view?

Is there a certain demographic or age or person with a certain talent that should and shouldn't buy a home? I would say in general, if it's a home, if you think that you're not going to be able to hold onto it for at least seven years, if you hold onto a home for seven years, you should be able to ride out most economic cycles

or economic down cycle. I think there's some wonderful things about renting. You can slam your keys down and leave if you're planning to move. If you don't have somewhat reliable sources of income, a mortgage is probably a tough thing. I don't know, I think home ownership, I'm talking my own book a little bit here

because I've made good money in real estate, I've really enjoyed it, but I think it's situational and it goes back to that notion of having a kitchen cabinet of people who can advise you on that asset class. Unfortunately, that asset class has become so expensive that the quote unquote American dream of owning a home has become somewhat of a hallucination if you will or a fantasy for a lot of young people.