The Prof G Pod with Scott Galloway - Office Hours: The Investing Episode

Episode Date: August 30, 2021

Scott answers a question about whether buying a house is a good long-term investment. He also discusses how to take advantage of compound interest, how to hedge against inflation, and offers advice on what to do with inherited wealth.  Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Welcome to the PropG Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehoursatpropgmedia.com. Again, that's officehoursatproptymedia.com. Again, that's officehoursatpropertymedia.com. First question. Hey, Prof G. My name is Chris. I'm from Long Island, New York.

And my question is, is buying a house still a good long-term investment? Where would you buy, Chris? And is this pure investment or would it be consumption? Would you live there? Is your family growing? What role would buying a real estate

play in your life right now? So here on Long Island, where the cost of renting is comparable to paying on a mortgage, we live in it. We also have a previous house from the time that we spent living in Texas. We retained that property when we came back

and rent it out now. So yes and yes. There's sort of the perfect storm of bad things for buyers right now. And that is housing stock is way down because just as nine women can't have a baby in a month, there's just an absolute, there's a shortage of new housing stock

relative to the number of people that want to buy them. Interest rates are low. Because of COVID, people aren't, A, don't want to move, and B, don't even want to show their house. So for the first time, we've seen double-digit year-on-year increases in housing in a low interest rate environment. We've just never seen that. So it's, let me put it this way.

It's a great time to sell. What you're talking about is it sounds like some of it is consumption, that you want a place to live. You clearly have a finance mind. You want to look at cap rates. So if you can buy a home for about the same price it's costing you to rent, and you believe that you're getting it at a decent price, and then you can borrow at a low interest rate, and you have income, which you need a tax deduction for, and then you can borrow at a low interest rate, and you have income, which you need a tax deduction for. And most importantly, you have a long-term time horizon such that if we do hit a recession and housing prices take a dip, you can ride out the cycle. Then owning, and it sounds like you already have a rental property in Texas, but slowly but surely,

if you have the income to support it, buying real estate thoughtfully in a measured way is a fantastic way to build wealth. If you can take advantage of the fact that you're in a position, you have the credit quality and the down payment to buy a home, and you have a long-term time horizon, and you model out, hope it doesn't happen, but you model out that this thing could go down 20, 30% in value, but you have a long enough horizon to endure that debt, then yeah, I think buying a home makes a lot of sense for you. Chris, thank you for the question.

Best of luck to you, emerging real estate mogul. Thanks, Prof, appreciate it. Next question. Hi, Prof G. My name is Christina and I'm a Bulgarian that currently lives in Miami. Like half the town, I just moved here from New York. And I got to know you there through all your L2 videos back in the day, which I loved.

So I've been following you ever since. My question is, what's the best place to invest your money? Let's say 5 to 10K. In order to get that ever so elusive compound interest, at the the same time be as recession-proof as possible? What industries and companies should we kind of be looking at? And how can we best take advantage of the opportunities that a market crash can present?

The first thing I would do is think, do you work for a company that has some sort of matching program and use that 5,000 or 10,000 or you don't? I'm a big fan of ETFs that are low cost. You want to be in something where there's a lot of fees. I don't believe in stock picking at your age unless you're super excited about, say, two or three companies and you wanted to do that. If you decided you were really passionate about European tech or you thought China was an interesting place to invest or you're

interested in technology, then fine. At your age, you can recover from some dents. So if you go sector specific, that's fine. I probably wouldn't go company specific at this point. But the most important thing about that $5,000 or $10,000 is that when you invest it, that you make a commitment to try and match it every year. The markets seem really frothy right now, but I would still dip your toe in, find some low-cost ETFs spread across several sectors or spread across several stocks in one sector. But more than anything, commit to leaving it alone. Don't check it every day. One cost of investing is not only the fees, but how much time.

I think the most damaging thing about investing in crypto is it lends itself to checking your phone 20 or 30 times a day. That's an investment. You don't want to make that kind of investment. You want to be focused on what you're good at. You're going to be my age before you know it. And as long as you put that money away, you don't need to be a hero. It can just do okay and you're going to end up with a decent amount of money you know i'm like 50 right there's no way there is no way but 33 so i am not trust me 33 is pretty fucking far from 50 take it from a 46 year old 56 56 33 as a kid start now diversify you're gonna be fine when when again when you're my age you don't need to be a hero christina from downtown miami good for you you're thinking this way best of luck to you thank you

we have one quick break before our final two questions stay with us hey it's scott galloway and on our podcast pivot we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life.

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surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts. Welcome back. Next question. Hi, Prof G. My name is Steve. I'm calling from Scarsdale, New York. And my question for you is, how seriously do you take the risk of inflation? And what should investors do to protect themselves from it? You always got to be a little skeptical of the narrative. And right now, the narrative around inflation is that once the supply chain kinks get worked out, there will be, again, more goods. And even though there's massively more dollars chasing fewer goods, the goods will catch up to demand once we get the kinks out of the supply chain. I mean, try and buy a refrigerator right now. It's nearly impossible, right? I don't buy it. I think inflation is here. I see prices up 10%, 20%, 30% across everything.

Everything's nuts. Everything's sold out. Not enough products. I think it's here for a while. So, what do you do? The general viewpoint is you buy hard assets and try and that way you hold on, right? So gold, real estate, cyclical stocks, consumer products, goods companies. There's even some inflation-adjusted debt instruments that readjust based on inflation. But what they're basically saying was inflation, you don't want to be caught with a fiat currency or you don't want to be caught with cash, right? And I hate to say it, but crypto's basic mantra is this is an inflation hedge against currency devaluation or inflation. Some people would argue it's a better hedge versus gold.

If you look at Bitcoin's ascent, it is correlated to the withdrawal or decline in gold funds. But in sum, how do you hedge against inflation? You have hard assets. Real estate's up double digits for the first time in a low interest rate environment. So you didn't want to be with cash on the sidelines waiting to buy real estate. You wanted to own real estate. What do you do, Stephen? I'm an investment advisor. Oh, so dude, let me ask you then, what do we do in an inflationary environment? I've been kind of struggling with that. I think you're right. Real assets. I don't have any other answer than that. But I think that, for example, real estate is driven by low interest rates.

So if you're buying now, you better lock in a 30-year mortgage because if rates back up, your house is going down. Stocks are going down. When I tell people about mortgages or I talk about mortgages, I tell them to look at 15-year money because I hate to pay for something I don't use. The majority of people don't stay in their home longer than 15 years. But look, there's no free lunch. I'm kind of wigged out by inflation because the other side of buying new stocks is inflation comes back in, interest rates go up. The asset, you're going to see the stock market puke, right? The answer is sure, hard assets, but the only Kevlar any of us have in a tumultuous market is diversification.

Steven from Scarsdale, who's the financial advisor. All right, my brother, keep advising. Thank you, Scott. Take care. Next question. Hey, Prof G. My name is Masika Naku, and I am here in Atlanta, Georgia. And my question for you you is what advice can you give me on inheritance money, cash and property, when you really don't have any experience with this sort of untimely and uncomfortable conversation? If I had inherited money, the only two things I know would have been in my life are a Range Rover and a cocaine habit. And so my advice to anyone who inherits money is until you're kind of 30 or even 40 to not touch it and not pretend it's yours. And so wealth that's been passed on is an achievement by previous generations to not only make money, but to save it. And I

would suggest that you do treat that capital differently. And that is you use it for investments and even some consumption that not only enhance the quality of your life, but perhaps give you the opportunity to pay that generosity forward to your children. So things like maybe tapping into it for education, tapping into it to buy a home, tapping into it to buy or diversify across long-term investments. You know, talk to somebody who understands the ins and outs of trusts and inherited money

to see what kind of tax advantages you want to preserve. What you don't want, and I've seen this happen a lot, is kids inherit money, they create a lifestyle that is above their weight class and that money goes fast. And then they wake up with appetites and expectations beyond their own income earning ability and skills. And all of that inherited money or a lot of it is gone, Masika, that I would, until you're kind of well into your 30s or even 40s, treat it as if it's not your money, that you have an obligation to be a steward for it. Shout out to Shea Butter because your girl here will be 47 in October. And I'm a trust fund not. My folks are from a small town in Alabama. So I don't come from wealth. You know, a lot of us in my community, you know, there's no money left a lot of times.

And that's what inspired me to ask that. I want to lay out the best foundation for our daughter. I can already tell you, you have your eyes on the prize. And that is, you know is creating a safe and loving environment for your daughter. And any of us who run across money in a form of inheritance, I think that at the end of the day, that's our responsibility is to make that investment in ensuring that our kids get somewhat of a decent start. Anyways, Masika, best of luck to you. Thanks for the nice call. Thank you. Thank you, Prof G. I appreciate it.

That's all for this episode. Again, if you'd like to submit a question, please email a voice recording to officehours at profgmedia.com. Our producers are Caroline Chagrin and Drew burrows claire miller is our assistant producer if you like what you heard please follow download and subscribe thank you for listening to the prop g show from the vox media podcast network we will catch you on thursday support for the show comes from alex partners did you know that almost 90 percent of executives see potential for growth from digital disruption? With 37% seeing significant or extremely high positive impact on revenue growth.

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