Transcription
More than 60% of middle-class families in developed countries will reach retirement with less wealth than they need to maintain their standard of living. And not because they earned little, right? In most cases, it's because they made decisions that seemed reasonable at the time. They bought a house convinced it was the best investment of their lives. They left their money idle because the stock market is too risky. They chose the funds recommended by the bank. Each of those decisions, made with the best intentions, had a silent and compounding cost that is only visible 30 years later, when it turns out there's no way to recover it. And what's striking is that there is very serious academic literature, with data from over a century and from dozens of countries, that already knows why we do all this, and it has little to do with ignorance and a lot to do with how our brain is built. But there's a second story, too, and it's the more, let's say, uncomfortable one. While you assume the fault is yours, there are those who have understood that this fault can be exploited. Keep a date in mind, July 10, 2027, because when I return to it, you will see all of this very differently. That's why you should stay, because we are going to look at the 10 most common financial mistakes people make throughout their lives. Why is your own psychology sabotaging you, and why can buying a house sometimes be a bad decision according to the academic research we are going to examine and analyze to see if it's true or not? And why is the solution that more and more governments are selling us to protect us from all this actually hiding something that needs to be looked at very closely. And remember that you have three ways to support this channel: by commenting and watching the video until the end. By subscribing, or even if you want to support it more intensely by becoming a member for very little. My team will be delighted with any of the three options, and, of course, so will I. That's why I thank you in advance. That said, now, don't leave, because today's topic is also of interest to you. Let's start at the root of the matter. Because no strategy works if you don't first understand why your brain will try to sabotage it. You'll see. Our brain evolved to survive where the threat was immediate, for example, a predator, a scarcity, a conflict, and it's excellent at reacting to the present and terrible at making decisions about things whose effects take decades to materialize. When the stock market falls 15% in 3 weeks, the result, well, what we do emotionally is sell, most of us to protect ourselves. It's what a brain designed for the savanna would do, and the exact opposite of what's good for a long-term investor. And there's a behavioral finance study that has been among the most cited in its field for years and that shows that the more often people look at their investments, the worse they do. The best thing is not to look at them much. The reason is that seeing daily volatility activates the fear circuit. Someone who checks their portfolio every morning perceives a dangerous asset. Someone who looks at it once a year perceives a curve that often rises. Same asset, opposite behavior. Note this concept because I will return to it later. Myopia towards losses. The obsession with overreacting to short-term drops when what's really at stake is the long term. Benjamin Graham, the father of fundamental analysis, wrote this in the mid-20th century. The investor's main problem and even their worst enemy is probably themselves. If we assume this to be true, our worst enemy is not the markets or the politicians. Well, we'll get to that. It's ourselves. Good old Graham had interesting things to say, but he had some reason, didn't he? Let's look at the decalog of mistakes. 10 errors that cost decades. The first error is the most basic and the most uncomfortable to name. Not earning enough. It's not a reproach, but a starting point because you can't save what doesn't come in. And many people freeze at that figure as if it were unchangeable. And it's not. Investing in yourself, in training, in skills that are difficult to copy, has enormous historical returns. What have you learned lately? What courses have you taken? What do you know now that you didn't master a couple of years ago? How long has it been since you did something for the first time? Ask yourself. The second error is not saving enough. Compound interest is not a motivational fact, it's mathematics. €10,000 at 7% annual interest for 40 years becomes about €150,000. Every time you spend €10,000 today on something you don't really care about, you are spending €150,000 of your future self in four decades. Just when having it will make the difference between living on a meager pension or having something available. We've talked a lot about compound interest here, don't miss it. The third, and it weighs heavily, more than it seems, is not setting quality goals. Most people have vague, inherited goals. I want to be rich, I want to retire early. There's a model from positive psychology called PERMA with five dimensions of well-being: positive emotions, engagement, relationships, meaning, accomplishment. When you contrast your financial goals with this method, many of those that seemed urgent are not so urgent after all, and can even be empty. And that's key because once you achieve achievable goals, you can incorporate less easy factors and finally reach a goal you were seeking. The fourth error is spending on the wrong things. These are very basic examples, but review them. If you don't know what matters to you, you end up copying your neighbor's spending, or sometimes even someone on Instagram. The fifth, and the one with the greatest impact for the middle class, is not taking enough risk. The global stock market has returned between 5% and 7% real annual return for over a century, even with its crashes included. Having money at 1% is not not losing, it's losing slowly with inflation as an accomplice. 10% would be better, but with 3% we're already doing something. Think about it. Better to act with something than to do nothing with everything. The sixth error is taking the wrong risks, those trendy products with spectacular expected returns. I'll come back to this later, but it's true that lately we're getting inputs, news, things like if you don't put your money there, you won't take advantage of this great circumstance. Let's be patient. The seventh is not using the fiscal windows that exist in almost all countries. Not doing so is giving money away to the tax authorities. And we don't want to give anything away to those who waste our effort, right? Keep that in mind. The eighth error is not planning an inheritance. If you don't have a will, the state decides, and it rarely decides what you would have wanted. Remember that phrase and apply it because this is more for your children, loved ones, more than for you, but I include it because I'm getting on in years and although I didn't have it in my decalog until recently, now it seems to be coming up with some insistence. I don't know, you never know. The ninth error is the most thorny, isn't it? It's who you marry. You'll say, "What is this guy talking about today?" The research I've used for this content describes two spending profiles, the frugal and the generous, who tend to pair up with each other, by the way. And the result is marriages with a lot of conflict over money. It's a phenomenon documented in financial behavior psychology, and they call it by a different name than what I've just said. They talk about misers and spendthrifts, who are mutually attracted because each sees in the other something they lack or even fascinate them. The miser admires the spendthrift's ease, their ability to enjoy life without guilt. The spendthrift unconsciously seeks the miser's restraint to serve as an anchor and thus spend less. The problem is that this initial attraction turns into chronic friction as soon as daily life demands shared economic decisions. Do we save or go on vacation, do we buy or rent, do we invest or spend on what we deserve? And the conflict isn't just about money, it's about values, about future vision. It's that when two people have opposite philosophies about spending, every discussion about a bill or a purchase will turn into an identity debate, let's say. And finally, the tenth. This is important because it's not covering the catastrophic risks we might face. Most people only insure the incidental, the mobile phone, the car, and leave the essential uncovered, that is, the ability to generate income, prolonged disability, a serious illness, a significant property loss can liquidate in a short time what took decades to build. Insurance is not an expense, it's the structure that prevents a low-probability event from having irreversible consequences. Someone who gives lectures can insure their voice. Someone who dances insures their legs, someone who drives insures their sight. Lloyd's of London, which is a well-known insurer precisely for these types of specific policies, has a brutal catalog. In this regard, OECD studies show that permanent disability without private coverage is one of the main triggers of severe wealth deterioration, because public systems cover a fraction of previous income and do so with considerable delays. As you can see, these are all correctable errors, but for some strange reason, that voice always appears whispering that none of this is your fault, that the system is rigged, that you are being manipulated, that someone should protect you. Well, we'll talk about this next, but before we get into that, I want to make a note. I'm going to give you a note about something that can help you improve some of those previous points. As I've told you many times, there's something that never ceases to amaze me, and that's why this video is so important: that millions of people continue to have their money sitting idle in the bank, losing value every day while inflation does its work. That's why what I'm bringing you today seems very interesting. If you don't yet have an account with Trade Republic, you can now get 3% interest on the money you have in your account. Hey, without complications, without weird products, without locking up your money, just an account where your money stops being idle. How important is that, and be careful, because if you are already a customer, if you have ever heeded my recommendation about our sponsor Trade Republic, this is also for you. You can also activate that 3% by inviting a friend who meets the promotion conditions, which are to make three investments and deposit at least €100. With that, you get 3% for 3 months. But if you invite up to four friends, you can extend it for a whole year. Invite the whole gang, and you'll get 3%. So, in a context where everything is going up and idle money is worth less and less, perhaps it's time to start moving it with something, even if it's basic, but with more intelligence. Follow the link in the description, the link that is also in the first pinned comment, or the QR code directly. They will know you're coming from me, and that way we can see how things evolve. Now, let's get to today's topic, the property trap. There are few debates more emotional in the societies we live in today than renting or buying. And with the data in front of us, the conversation changes a bit, because let's start with a premise: buying a house to live in is not an investment, but the financing of your housing consumption. An investment generates returns. The home you live in only consumes capital in recurring costs. What are they? Mortgage interest that is not recovered, the opportunity cost of the down payment and amortization that would have yielded more in the stock market, property taxes (IBI), depending on the percentage, 0 to 5% of the cadastral value per year, maintenance, that greatly underestimated cost, literature places it above 2% of the value annually, and anyone who has owned a house for 5 years knows that's quite believable, structural emergencies that require liquidity to be kept idle, and improvement renovations that you would never do in a rental property. There's a tool to objectify this. It's called the 5% rule, where you add taxes (1%), maintenance (another 1%), the cost of capital (around 3%), multiply the price of the house by that 5%, divide it by 12, and you get the monthly rent equivalent to the unrecoverable cost of being a homeowner. The 5% rule for renting or buying a house was devised by Canadian investment manager Ben Felix in 2019. He refers to the percentage of the unrecoverable cost of capital of being a homeowner versus renting. And that formula was originally designed for the Canadian market and with the interest rates of that time, so applying it directly to the market where you live requires adjusting some percentages and factors, especially in the cost of capital. But let's assume it's quite close to a general point and an average. We'll use it to understand the approach. Look, if you apply this formula to a €300,000 house, that would be €15,000 per year. Well, €1250 per month. If you rent it for less than that, renting is, in strictly financial terms, the superior decision. That you buy it anyway, you just have to stop calling it an investment. Surely you're thinking now, but when I have it paid off and I have to retire, I'll have a home, won't I? And if I dedicate all that money to rent, by not investing it, in the end I'll have neither the money nor a house to live in. And that's a real trap in that argument. I see it that way too, because Ben Felix assumes a rational investor who disciplinedly puts the difference into an index every month for 30 years, and that investor almost doesn't exist. Most people who rent cheaply don't build any alternative wealth, they simply spend more if they can. Therefore, the debate stops being rent versus buy and becomes something more interesting: mortgage as a forced savings mechanism, because the mortgage has a virtue that no financial model captures well, and that is that it's practically impossible not to pay it. They take the money from you before you even see it. Rent doesn't have that mechanism. The difference between what you pay in rent and what you would pay in a mortgage requires self-discipline to become wealth. And sustained financial self-discipline for three decades is, how should I put it? statistically very rare. So the correct argument is not that buying is financially better, but that for someone without investment discipline, the mortgage can be the only instrument that guarantees they will reach 65 with something, which is a very valid reason to buy, but it's still not an investment. It's a savings plan with interest, with maintenance costs, with concentration risk, and with very little liquidity. Therefore, the error is in the origin, misidentifying what type of investor you are. Start there, because both things can be true at the same time: that renting is financially superior in the abstract, and that buying is the right decision for many people. Journey to 1890 and 1 million lives. So far, we've been analyzing the 10 most common mistakes that occur to us, let's say, from a behavioral approach. But what if we could simulate a million lives and ask the data what strategy would truly work for those million people? Let's go to 1890. A team of quantitative finance gathered stock market data from 39 countries since that date and simulated a million investor trajectories and asked what asset allocation yields the best long-term results. The study is called "Stocks for the Long Run," but with an included question mark, which already says something, doesn't it? It was signed by Anarculoba, Sederburg, and O'Dogherty in 2023 and published in the Journal of Financial Economics. The answer was controversial because the portfolio that wins most consistently is 100% stocks. One-third in domestic stocks, two-thirds in international, and no bonds. This clashes with conventional wisdom, which tells you to add bonds as you age, because the study doesn't claim that's a disaster, but it claims that over 130 years and 39 countries, the all-stock portfolio systematically wins. But there are two nuances that the usual summary of this topic omits. The first is that the study doesn't just look at the average, it looks at the lower percentiles, meaning the worst possible scenarios. And even there, the stock portfolio continues to outperform the mixed portfolio with bonds. Interesting. That's what really makes it uncomfortable for the industry that deals with this, because the argument for bonds has always been that they protect when everything falls, during inflation. That's the reason. It turns out that in periods of high and sustained inflation, bonds are not a safe haven; they silently lose real value. It happened in the 1970s in much of the world. It also happened recently in some places. The second nuance is behavioral. A 100% equity portfolio can fall 50% in a crisis. And most real investors can't handle that; they sell at the worst moment. The study shows that it works for the investor who stays put the entire time, which is a species almost as rare as the one who invests the difference I mentioned earlier from renting. Nobody stays put during a crash. Therefore, I believe that study actually measures the premium for enduring panic for decades. And that's not an asset, that's a personality trait. Look, I've had investments of various types in the same place since I started very young in 1992. And I assure you that there have been several panic situations since then, and I've managed to hold on. I didn't sell. Products that destroy wealth. Do you remember I asked you to note the concept of myopia towards losses? Well, there's a product, there are products designed so that your fear pays the commission of another. There are three categories that deserve a warning because they combine an air of sophistication with poor returns or hidden costs. Beware of this. The first, covered calls, which have proliferated like ETFs. You own an asset and sell a call option on it. In return, you collect a premium, an immediate and pleasant income. The trap is that if the asset rises above a certain price, you are obligated to sell it to someone else at that price. You give up the upside just when it's working. Keep the image in mind because at the end of the video it will mean something very different. You'll see, patience. The second, thematic ETFs. A sector becomes fashionable, artificial intelligence, electric cars, prices rise, someone creates an index and launches an ETF when the enthusiasm has already been priced in. The typical result is rather mediocre subsequent returns. You buy the hype, the trend, late. The third is older, uninvested cash. Inflation is not an exception, it's the norm in modern economies. At 3% annual inflation, in 20 years, idle money loses half its purchasing power. Having unremunerated cash guarantees you a negative real return. The antidote for all three is the same: low-cost, globally diversified index funds. This is not my idea. Warren Buffett, who has been picking stocks for 60 years, publicly bet that a simple S&P 500 index fund would beat a portfolio of hedge funds in 10 years. He won the bet. The professional manager who accepted the challenge couldn't beat the S&P 500 index in this case. But, well, there are opinions for everything. This is not advice. As you can understand, regulation that doesn't protect you. Now comes the good part, now comes the hard part. The world of 2026 gives reasons to believe that the rules have changed, right? War in Eastern Europe, tension in the Taiwan Strait, threat with the global oil issue, tariffs that reorder entire supply chains, artificial intelligence leading us to an unknown scenario. Let's go to 1847 for a moment because there's a text from that year written in the midst of the railway boom and European revolutions that describes with uncomfortable precision the feeling of living in a world that mutates too quickly to plan anything. That it's better not to plan because everything changes so much. It could have been published today because it doesn't prove that the future will repeat the past, but it does give the feeling that what we are experiencing today is not so exceptional, but rather a constant of history. Jevons' paradox, also from 1865, warned of something similar. It said that when a technology improves the efficiency of a resource, its total demand tends to increase. It already happened with the ATM, which was supposed to eliminate human tellers and ended up multiplying branches. Therefore, the always reassuring conclusion is the one that says, "Diversified stocks survive everything. Prices already discount the known. Don't anticipate the unpredictable." In a way, it's true. We thought that was the whole story, but it's not, because alongside that, another narrative has grown. It says the danger isn't you, but the system. Platforms manipulate you, algorithms exploit you, products scam you, and that's why they need to be regulated. It sounds reasonable. The reverse reading begins when you look at who supports this idea and, above all, where the resulting regulation is aimed, because it's not aimed at the platforms, it's aimed at you. The regulation barely touches the platforms, which adapt quickly and even profit. Banks will charge more fees with the digital euro. Identity verifiers train all of this to have a captive market. Who they will truly identify and condition is you. Therefore, let's go back to the beginning, to that figure that lives in plain sight. Most middle-class households will reach retirement with less than they need, and they won't do so due to a lack of income, but due to a collection of predictable and documented errors. Notice the symmetry. Behavioral economics tells you that your worst enemy is you, so take responsibility and act. The political moment tells you the opposite, that you can't trust yourself, so let others decide for you. Both positions agree that the problem is you. And it's written. The fox tells the Little Prince before saying goodbye. He says, "You become responsible, forever, for what you have tamed." Senex Superios, but the phrase works in that work, it works the same with money. If you have made a financial decision, that decision is yours. If the fault is yours, the solution is also yours. The problem comes when you give up on it. The moment you ask to be protected from your own decisions, you give someone the authority to make them, and that authority is not returned. That's why I distrust that regulation is always the solution. Almost every rule sold as a shield against the powerful ends up as a leash for those of us who are not. Because the powerful pay for compliance, and the rest of us can only pay for obedience. Your cash, your messages, your savings, your face, they don't ask to protect them, they ask to hold them in their hands. The only variable you fully control is also the one that weighs the most, what you decide to do with your money, what you decide to give away with your freedom. We continue.