59. “98% of our net worth is in real estate. Are we in trouble?”
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Before we start today's show, I have a really exciting announcement that I've been wanting to share for a long time. On January 1st, 2025, I'm releasing a new book called Money for Couples. For the last three years, you've heard me on this podcast speaking to different couples every single Tuesday. I've spoken to over 170 couples on this show about their money psychology, the money messages they heard from their family, the peculiar dynamics that they have around money and where they get stuck.

and how they can get on the same page. Well, behind the scenes, I've been working on the definitive book to help couples get on the same page with money, and that's what I wrote for you. It's coming out January 1st, and in the book, I'm going to share how to talk about money, including the exact words to use, when to talk about it, how to teach your kids about money, even the exact agenda and account setup that my wife and I use in our finances.

I'm going to show the tactics to make instant improvements, like how to set up your accounts to automatically work together and how to assess your financial health.

And finally, you're going to get a deeper understanding of money psychology in your relationship. And you're going to discover why you and your partner see money differently and how to get on the same page. Now, it's one thing to listen to couples or watch couples every single week. I love doing that for you. But it's a whole different thing to be able to have the book and to be able to work through it with your partner. Okay?

I'm so excited to get this book in your hands. You can pre-order it using the link IWT.com slash money for couples and stay tuned for a lot more on this book this year. Again, go to IWT.com slash money for couples to pre-order my new book about getting on the same financial page as your partner.

Um, what the hell is going on on this podcast that like 80% of the people who come on here go through massive screening, fill out applications, they never actually read my book. Is anyone else puzzled by this? Look, a lot of the questions that you ask me about money are answered directly in I Will Teach You To Be Rich. How do you pay off your student loans? How do you automate your finances? Where do you start investing and how do you handle big purchases?

I wrote this book as a six-week program so you can follow along on your own or with a partner. If you want to improve your finances, I recommend you get the I Will Teach You To Be Rich book. It has over 18,000 reviews on Amazon. Get it at iwt.com slash book. What is the percentage of your portfolio that is in real estate right now? Like 98%.

all within just a couple miles of each other. We have all of our eggs in one basket, and it makes me feel exposed. The intention is to balance the diversification of our investments. Ten years ago, we were getting our groceries at the food bank. I don't want to be there again, and I don't want my kids to have to be there. I'm not totally convinced that at least right now, it makes the most sense for us to

transition the equity in a property into an index fund. I very often tend to ignore the risk altogether. It makes me feel entirely responsible for being the person to clean up messes if they happen, to plan for them, to try to buffer for them. And it's really hard to plan for managing risk with a partner who doesn't see risk.

I don't feel like I'm being honored in how we're investing right now. How do you handle your investments if you and your partner think about risk differently? Meet Georgia and James, who both own four properties.

Now, I've been accused of hating real estate, but that's not really true. Today's episode is not going to be Ramit hates real estate. I rent by choice in LA, and what I actually tell people is to run the numbers before you buy. Georgia and James have run their numbers. You're going to hear them. They're very confident when they talk about their investments, and they've done well. I actually have a lot of respect for how Georgia and James have approached their investment philosophy.

They've purchased four properties and taken together, their investments have been very profitable for them. But Georgia is worried that they could lose it all. She knows they aren't diversified since 98% of their portfolio is in real estate and it's all in the same area. And she's right. Real estate is full of risk, especially when you're in the same asset class and same location.

So this conversation is going to be a little bit more advanced than some prior episodes, but I think you're going to love it because we're going to hear Georgia and James disagree, but we're also going to hear a great example of how to listen to your partner when you're not on the same page. We spent this conversation talking about diversification and risk and investments because it is critical. And these are the type of questions that will be worth millions of dollars to you over the course of your lifetime.

I'm Ramit Sethi, and this is the I Will Teach You To Be Rich podcast. Georgia, what do you wish that James would hear you say when it comes to your money? That we need to assess risk more appropriately and decide really mindfully how much risk we're willing to take at any given point in our financial journey. That sounds pretty good, pretty academic. What do you really want him to know?

I want him to know that I've always had financial insecurity. I tried really hard to build financial security as a young person. I think I started off on the right path. I had a financial advisor at 21 because I had seen my parents file for bankruptcy, have horrible divorces. My stepdad stole my mom's entire retirement fund. And I was like, that's not going to happen to me.

And then when we got together, a whole series of things happened. And we ended up right there in pretty serious financial insecurity. And I don't want to be there again. And I don't want my kids to have to be there. I guess what I'd like is for her to maybe trust my thought process surrounding it a little bit more. She is very...

intelligent and has got a near photographic memory, whereas I kind of do things a lot by my gut, right? But I feel like I have listened to 100 plus hours of podcasts surrounding

finance and real estate, read a couple books at least, and have got what I think is like a strong intuition for good moves, even if they may be riskier than many people might be comfortable before. So I just wish that maybe she could trust me a little bit more when it comes to those things. How many properties do you own?

We currently own a primary residence and two rental properties. And we're actually about to close on a new primary. So then our current primary will convert to a rental. So you'll have three rentals and one primary. What's the total value of all of these houses?

1.8 million total market value for me. So has it been a good investment for you? Yes, absolutely. 10 years ago, we were getting our groceries at the food bank. My mother loaned us just under $20,000 to put a down payment on our first house, which at that point we assumed would just be the house that we always lived in. That house is worth twice that now. And after that,

after living in that home for a few years, we saw what was happening and just like, my God, the equity in this home is going so fast. This could be a really good investment for us. And through some luck and some kind of out of the box, well, not out of the box things. I thought it was such a great idea that I actually emptied out my stock portfolio and my 401k in order to buy our second property.

And it also has done really well for us. So yeah, but it was like, certainly by luck, we would not maybe have been able to buy a house at all had that not happened. And certainly would not have been able to buy the second or third one if we hadn't seen the value there. You were getting food from the food bank 10 years ago. She offered you this money, which has dramatically changed the trajectory of your lives. Absolutely. Yeah. And you're here today. You have...

three rentals, one primary house, a portfolio of around $2 million. How old are you both? I'm 36. 41. Okay. So from the way that both of you talk, I can tell that you've run your numbers. And I can also tell that you acknowledge you had a lot of luck involved. You had help with the down payment.

You're in a hot area. So despite being as savvy as you are, you also know that it's not a sure thing. It's not just like plug the numbers in and it's magic money. Notice that they acknowledge their hard work, but they also acknowledge luck.

I find that the most successful people are very, very open in acknowledging how their success is due, yes, to their hard work, but also due to luck. That luck could be being born in a certain country, being born to loving parents, or someone taking a chance on them, even writing them a check. I believe that a rich life is never built alone. And so I'm glad to hear Georgia and James acknowledge that.

I think it's a really positive sign for the rest of our conversation. What is the percentage of your portfolio that is in real estate right now? Like 98%. I'd say something like that. Yeah, almost everything. It's a handful of dollars not in real estate. And that's what I mean when I say I feel really exposed.

Okay. So these three rentals in one primary, are they also in the same city? Yeah. Oh, that's good. All right. All within just a couple miles of each other. So you have 90 plus percent of your portfolio in one asset class in the same location. Let's talk diversification for a second. First of all,

I was trying to make a joke when I said, that's good, because it's really not good. Unfortunately, my joke bombed. Listen, having multiple properties in one location is not diversified. Now, it's certainly better than having 98% of your net worth in one property, which is actually how most people think about their primary residence. But if you are a real estate investor, like Georgia and James,

And if you own multiple properties in the same city, you've exposed yourself to risk. Think about it. What if your city suffers a natural disaster? You won't just lose one property. You might lose them all. Or what if the city simply becomes uncool and people flee and it becomes this downward spiral?

Well, this has happened to several famous cities in just the last 10 years. Again, you wouldn't just lose money on one property. You could lose a huge percentage of your net worth. I'm sharing this because beginners focus on questions like $3 lattes and target runs, but advanced investors focus on questions about asset allocation and diversification.

They elevate their focus to these really big questions. Right now, Georgia and James are overweighted in one asset class, real estate, and they are under-diversified in their location. This is a problem, and Georgia recognizes the risk they're in. It is very smart to raise the red flag and make changes before something bad happens. The intention is to balance the diversification of our investments.

There's sort of a pattern of behavior in our relationship where

I'll say something and his sort of knee-jerk reaction is to disagree with it. And then I'm automatically defensive and it erodes trust. The first probably three or four times that I suggested that we sit down and look at what it would look like to sell a property and convert that equity into index funds, the automatic response was, I don't think so.

Or I'm not sure about that, which in his language means no, or I don't want to look at it, or I'm not going to give you the time of day to analyze this with you. I still am just not clear on when it comes to the type of investments that Georgia feels really comfortable with, like index funds or Roths and how they're affected by

by market changes and how much control you can have over where those investments are actually put. If we were to sell a property and profit $300,000, could we actually turn around and buy two more homes with that, which in turn would snowball into the same thing and provide us

potentially far greater returns than putting that $300,000 into an index fund would. And I just want to make sure that we go down that path also to see, is it the right thing? It's that bold move that we want to make to make sure that we actually are able to enjoy the money that we're going to be hopefully making in the next decade or so.

98% is a very high number to have in one asset class. I also want to point something out. People will often use nice sounding words to cover up huge psychological blind spots. For example, they'll say, I'm not cheap. I'm just selective. Here, James says he wants to be bold, which is really code for he wants to pile on risk, probably unnecessarily.

You know, I remember my trainer once telling me that at a certain point, you don't need to keep adding on weight for your squat. And he said, unless you're competing or you have a very specific reason, there's a point where the risk outweighs the benefits. And what that really opened my eyes to is that more risk is not always good. That's something to remember in life, in lifting, and certainly with your money.

If you are just getting started with investing, stacking on risk like this is definitely not the strategy I would recommend. You want to start off simple, and then you can add on complexity as you are ready for it. If you want to know how to do that with your money, you can get my ultimate guide to personal finance for free at iwt.com slash episode 59.

You know how many people's conscious spending plans I see every week? What's fascinating is the categories of spending, especially the ones where people spend way more than they think they do. For example, subscriptions. Let's take a look at some recent numbers on how much people spend on subscriptions. $100 a month on subscriptions. $205 a month. That's from someone spending 76% of their take home each month on fixed costs.

$211 a month, $147 a month, and $487 a month. This is literally thousands of dollars a year, and most of us have forgotten about all the subscriptions we are actually paying for.

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My team and I create tons of material every single day. Scripts, voiceovers, emails, all kinds of material that we need to be good and we need it to happen fast. And one of the things we use is Grammarly, especially their new AI tool. For example, every Saturday, we send out my podcast newsletter. I break down an anonymous person's conscious spending plan. And I like going really deep to break down the numbers and show you things you might have missed in your own finances.

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That also happens. But does it fit your investing goals to buy more property? How do you make that decision?

I think buying more property over the long term definitely fits both of our investing goals. But I think the thing that I want to make sure is not being forgotten is that we do actually need to diversify. In my mind, regardless of what the market is doing, because of where we're at in our lives right now, it's a perfect time for us to actually diversify.

do this, to move some chess pieces around and be really intentional about where they're going instead of just like throwing them on the board and they land wherever. If I had to crawl inside his head, I feel like he thinks that sacrificing equity is not the smartest move. Sacrificing equity that has outperformed the market by more than double over the last few years is

I think he thinks it's too big of a sacrifice and he doesn't want to see that potential upside just, you know, squirreled away somewhere. I mean, I don't think right now with the

way that interest rates look to be continually going up that like it's even the best time to be purchasing more real estate. So now is like a perfect time for us to take that money we would be saving to maybe buy another property and put it into the index funds or something else. But I do, I'm not totally convinced that at least right now, it makes the most sense for us to transition the equity in a property into

an index fund. But that's not to say that I also don't see the value in your comfort level being met. When I crunch the numbers on this specific property that I'm thinking about, there's a lot of maintenance for that property right now. It's a lot to keep up with.

We obviously do keep up with it. We want to be really good property owners and really good landlords. But with that specific property, selling it and converting it to index funds, when I'm looking at our total portfolio, that would give us almost a 50-50 balance. That's a pretty good balance to strike.

From where we're at now to where I think we would be managing risk better. But I don't know that I can prove it to you. I don't know that there's any way of proving it. Because I think you said earlier, you like to go off of gut feeling. We bring very different perspectives. And I would like to strike a balance between the two. And I feel like we're so heavily weighted in...

almost entirely making decisions around his gut feeling. And I feel like my analysis, strategic thinking has gone completely to the wayside. And I don't feel like I'm being honored in how we're investing right now. I'm not opposed to making that transition. I think that there is value in doing it, especially for the...

the income, the cash flow that is really passive. I just want to be sure that we're timing it in the way that's going to serve us best. And I just want to make sure that we're getting a certain level of return on those homes so that it really makes a bang in those index funds. I don't disagree with that. And when you say time it, you mean timing when and how we sell.

when and how we sell. And which property? I obviously want you to feel safe and I want you to feel comfortable. I just also want to make sure that we are... We lost so much time at the beginning of our lives that could have been spent doing the things that we're doing now that I'm feeling like we're behind. And if we don't make aggressive and bold plays that we are going to...

not be able to meet our goals until later in our lives than I would like. I just want to make sure that the aggressive and bold plays are also balanced by thoughtful, calculated, rational moves. Because if we only make aggressive and bold plays, we're exposing ourselves to more risk than is necessary.

And right now we're only making aggressive and bold moves aside from your 401k. I hear you. Which isn't adequate, really. That doesn't even come close to the level of investing we need to be doing. That was kind of cool. I really enjoyed watching the two of you talk about

It sounds like you are in the same universe. You're both talking about risk. I mean, it's kind of cool. I'm serious. I really enjoyed it. You're both talking about risk. You're both willing to see the other person's perspective. You know, you asked for clarification. Hey, what do you mean by timing? I thought that was amazing. Very healthy conversation about money. It's possible you could make more money in real estate.

Is making more money the goal of your investing strategy? I think the real goal, Ramit, is to create stability and legacy for our children and to allow Georgia and I to hopefully have more time earlier than we would with money available to us. Okay. To earn that time back. Okay. Georgia, what's your goal? Um...

Yeah, my goal is to get to a place where we have more time to spend with each other and with our kids where we don't get to... Joe's mom is 66, has been re-diagnosed with cancer for the second time in a year and is still having to work. And I don't want to get to that place. Then I have a question for you. You both mentioned time.

So in this scenario where you sold a property and made 300K, if you were to reinvest that in two properties, would that support your goal of more time or less time? Potentially in the short term, it would give us less time because we actively manage those properties. We do as much of the maintenance as our skill level will allow. So in the immediate, it would add on to our current workload.

Hopefully what it would do though is reduce the number of years that we'd have to work a normal nine to five, you know, would be the goal there. But you're right. In the immediate, it is, it adds to the workload. I, I feel like, especially in the immediate, less time because I know how much time we're already spending on just the communication, the maintenance, everything involved with owning and managing your own properties. Wait a second. Wait a second.

How can that be? Because on TikTok, everybody tells me real estate is passive. You fucking lunatics running around telling people real estate is passive. Oh, I just put 3% down and every year I buy three houses and then I use the cashflow to buy three more houses and soon I have 200 properties and it's all passive free money.

And then when I point out, have you considered certain costs such as vacancies, unexpected maintenance, et cetera? Oh, you don't need to worry about all that. You just hire a property manager. Just one problem, Chet. Who manages the property manager? And how much does that cost? I started destroying this terrible advice on TikTok. You can find me at Ramit.Sati. It's fucking good.

As anybody knows, there's risk in real estate. We live in a very stable market, a very high value market that we don't foresee going down at any point in time in the future. I mean, real estate does go up and down. One of our rentals in particular, we've kind of seen like the value of it sort of wobble, whereas the other ones have basically shot straight up.

But I'm getting a little overwhelmed by the maintenance involved. Our property taxes are climbing. I think they're probably going to go up pretty rapidly here in the near future just to help control some of the growth of our market. And

I also know that one of the best ways to manage financial risk in terms of investing is to diversify. And right now we have all of our eggs in one basket and it makes me feel exposed. How much do you think about things going right versus things going wrong, James? I think that I majority think about things going right. So bold investing.

we can squeeze out higher returns from this thing. And if we play our cards right, six years from now, 10 years from now, we're in this amazing position. Right. That sound familiar? That's definitely the way I kind of look at it. It's like, you know, the way that I think about it often is that the biggest hurdle to making things like this happen is just believing you can and taking the steps.

making things like what happened? Building a real estate portfolio that will allow you to retire early or accumulating wealth risk. In Georgia's eyes, definitely it's always there in the back of her mind when we're talking about these type of things. And it's sometimes...

This is where some of the conflict can come in, right? Because I'm like, oh, here's this plan that I've got. It'll be simple, right? We wait three years, we sell a house, we turn it into two. And she's like, yo, what about all these other things that could happen along the way? You're just manifesting this out of nowhere. We need to do homework. And that's part of where some of our inability to see things the same way comes in is that she will...

put some of the risk at the forefront. And I very often tend to ignore the risk altogether. It makes me feel entirely responsible for being the person to clean up messes if they happen, to plan for them, to try to buffer for them. And it's really hard to plan for managing risk with a partner who doesn't see risk. It sounds like a high emotional burden.

Yes. It sounds like a high financial burden. Yes. And it kind of explains why, Georgia, you creating all these spreadsheets doesn't really do anything. No, it doesn't do anything. Problem is risk is just a word until it happens to you. Mm-hmm.

And suddenly it's not just the word risk anymore, is it? It's bankruptcy. It's recession. It's all of these things you never wanted to be in that position to befall. So I just say, let's not even get into that neighborhood at all. I remember I once asked people on Twitter, if you won $20 million, how would you change your investments? Would you become more aggressive or less aggressive? And the majority of people were like, I'd become more aggressive.

And I was like, what the hell are you talking about? There's a principle you need to understand, which is once you've won the game, you don't need to play anymore. Think about it. If you made $20 million overnight, that can generate roughly $2 million in income per year, approximately. Sure, you could take on extra risk and maybe get to $100 million, but that extra risk might financially destroy you. Why don't you just take your $2 million a year and have a great rest of your life?

Sometimes people don't know how to think about risk. What am I talking about? Sometimes. Almost nobody knows how to think about risk. Almost nobody can predict what they will do if they have more money. And most importantly, as you become more wealthy, you have to think much more carefully about risk and about the game that you are actually playing. One of the worst feelings in life is feeling stuck.

You hear it sometimes with podcast couples here. They feel stuck around their money. I felt stuck in my business. I had made a bunch of decisions years ago and I woke up feeling trapped. So after thinking about it, feeling stuck, not sure what to do, I went to a CEO council that I'm a part of and I just laid it out. And after listening to me, they were like, oh, it's so obvious. You need to change this, move this person over here, change this resource allocation. Boom.

I wish I had done it years earlier. If you feel stuck in your career and you also wish you had a group of peers who could help you get unstuck,

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and join thousands of top senior leaders from companies like Microsoft, Amazon, and Meta who have taken the first step towards accelerating their careers. That's sidebar.com, S-I-D-E-B-A-R.com slash R-A-M-I-T. When I was in my early 20s, I was not into clothes. I wore free t-shirts from tech companies, and I really did not want to seem like I tried too hard.

But I started to realize that clothing is the first thing people see about you. They don't see how nice I am or how much I know about personal finance. They see what I'm wearing. And like it or not, that shapes a lot of how people perceive you.

Now, I take a lot of pride in the clothes I wear, and I love knowing that when I buy something, I'm going to keep it for years, and I know that the people who made it were paid well. I actually hired my wife, who runs Next Level Wardrobe, a luxury personal styling company, to style me for my Netflix show and all of my events, including what I wear day to day for more casual outfits. If

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Elevate your style using Next Level Wardrobe at nextlevelwardrobe.com slash Ramit. That's nextlevelwardrobe.com slash Ramit. I don't know that I like right at this moment can tell you yes or no. I completely agree. But I think that like us strategizing and looking at when that right time might be. You know, timing comes last. You all seem to be putting timing first.

Timing is last. Strategy is first. What is our strategy? What do we want to accomplish here? And then how can we do it? And then, and only then, when do we do it? I don't think you've both agreed on what percentage you want your portfolio to look like. I don't think you've agreed on what type of lifestyle you want. So the reason that you're both stuck is that you're putting timing first, but timing is minor detail.

It's the strategy. Have you both agreed that you want to change your asset allocation in your portfolio? I don't know that you have. Watch this. James, what is your percentage of real estate in your portfolio? Currently, it's 98%. Okay. And what should it be in your view? 60-40 real estate, other stuff. Okay. 60-40. Great. Georgia, what should it be for you? I'd be happy with 50-50. Okay.

I think in a more ideal sense. I feel like if our goal is to get closer to a 50-50 balance, I said 60-40, you said 50-50. Maybe we do 45-55. We can split it some way. So we understand that that's the goal, right? We both share that goal. Now we can talk about when do we get there and maybe that helps kind of like

lead us both in the same direction. Okay, let's do it right now. You're currently at 98% real estate. You want to get to roughly 55, 45 or so. So how can you get there? What are your options? My gut says, we wait three years and allow a little bit more equity to build, a little bit more of the payment, the mortgage payments to drop down so that it gives us a really nice chunk that

When we do sell, pay the fees, pay the taxes, we're still left with something significant to invest into an index fund. I think it depends on which property we sold. Right. And how much equity was in it and whether we were selling it as an investment or a primary. And maybe also the price.

Yeah. I mean, three of our houses are within range of each other in terms of amount owed on the mortgage and market value, except for, I guess, two of them are in range. One of them we have a little more equity in. What if the price goes down? On one of our properties, that's definitely potentially true.

I would have a hard time. I mean, I think we took a little dip recently when I gave you my numbers, our numbers, when I gave you our numbers, I went conservative and calculated that even though we just had appraisals done, I gave you numbers that are lower than those appraisals. What growth rate did you assume per year? Five percent. That's pretty high.

Our market has been performing at 18% per year over the last seven years. Seven years. Wow. That's pretty good. So here's a question for you. When a market overperforms or a stock overperforms or a mutual fund, do you expect that to continue or to go down? I expect it to go down, which is why I want to be having this conversation right now.

I would be surprised unless, I mean, obviously, you know, it's a very, the world's in turmoil right now. So it's hard to say exactly what might happen. But historically, the market that we're in has been very stable, even throughout, you know, 2008, 9, 10 was very, very stable. Prices did not go down here in 2008. In my models, I always assume, you know, A, B and C.

And the bad scenario that I assume is like really bad. Why? Because you never want to be caught surprised in a bad way. Ever. Never, ever. At least I don't. When I factor in how much things can go up and down, I definitely want to be super conservative. I do. I'm not saying you do. It's your risk profile.

But if I were in a market that was up 18% a year for five years, one of my scenarios would be negative 10%. That's me. So you know your market better than I do. You're a multi-property owner. I'm not going to tell you how to run your models. But just to think about what risk can mean, because we often, there's a lot of people who go, yeah, it might level out. I just heard you say that.

but what if it actually gets worse than that? What does it mean? Because that, if you both decide to wait three years in order to sell the house and then get to 50-50, like what if that stuff doesn't pan out? You've got a cascade of issues here. Damn. I am impressed at how much Georgia knows her numbers. No matter what I point out to her, she's ready with a response. And she's right. Very impressive. I will say,

I do disagree with her in one main area. I think she's being overly optimistic with her assumptions. She's assuming that in her bad case scenario, she's going to get 5% annual appreciation. In my opinion, that is way too hopeful. And that single assumption could cost both of them a lot of money, which is why I always like to have a very, very conservative scenario for when things go really wrong.

My principle here is I never, ever want to be surprised about money in a bad way. And I certainly never want to end up with my back against the wall. Also, just out of curiosity, does she really want to keep 98% of their portfolio in real estate for three more years?

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Do you want to wait three years in order to rebalance your portfolio?

Um, not necessarily because I also know what this, what the stock market is doing right now. And I know people are like panicking, but I think right now is a really, really good time to be buying into the stock market because we have more purchase power right now.

How can you guys talk so much about timing? Have you ever heard the phrase, don't time the market? Has anyone here ever heard that phrase? Yeah, we spent the last one hour talking about timing shit. What the hell is going on right now? I think it's a decoy. I think it's a decoy for us. What does that mean?

I think it's a way for us to not have to come to an agreement right in this moment. Exactly. And truthfully, it's not just mathematical. It's not just because of the research that I know on timing the market. It's emotional because Georgia, you've told me you don't feel safe and you've had bankruptcies in the family. And so I don't really believe that you would be emotionally willing to wait three years to rebalance a 98% weighted portfolio. That seems crazy to me. Am I reading this situation wrong?

Can I just point out that there's a very obvious principle here. It's the same as crypto guys who were going around telling everyone, oh my God, this is so genius, while it was going up 2,000, 3,000, 4,000%, which is quite amazing. A seasoned investor looks at that and says, there's no way that can continue ever. So it's awesome. You happen to ride on a rocket ship. That's amazing.

You should decide on your own risk profile and do you want to take chips off the table? But any seasoned investor looks at things like that and says, it can't last. You know, I talk to a lot of crypto people. Well, I don't talk to them. I talk at them because they mostly just insult me. Although to be fair, I am making fun of them 99% of the time. So I had a recent hilarious interaction on Twitter. I posted some comment many, many months ago. And here's the thing.

You know I love making jokes about horrible investors, but I also love being vindictive with a fully automated system. So I posted this thing and this guy wrote a tweet saying, remind me three months. I said, I'm glad you're setting that note up. I set a note for myself to check in on this about six months later. This is the problem when you love logistics and you have a vindictive streak.

So in the time that this tweet, he posted it, Bitcoin went down 35%. Now I got my reminder popped up to me. I'm sitting there in the morning, drinking my coffee. I see this reminder. I said, ah, this is going to be good. I clicked the link. He deleted his tweet. Of course. Of course. Because when things are good, everybody talks about it. And when things go bad, what happens? You save face. They all disappear.

Fucking crypto speculators. It's basically MLM for men. Astrology for people who think they're too smart for astrology. Every one of their reasons for things like Bitcoin to exist has been dashed. So what do they do? Let's just name them. It's not a stable currency. It's actually been outperformed by cash in recent months. They recently discovered that 50% of trades on exchanges have been shown to be fake.

It's actually more centralized than fiat currency. And shall I continue? I can. So what happens when yet another data point shows crypto going down? They simply vanish. Notice these guys on Twitter who used to post 30 times a day about Bitcoin. Suddenly they changed their avatars. They no longer have those bright, shiny lights in their eyes. And they've become very somber economic commentators who are suddenly very concerned about inflation.

People love to brag when they're up. But when their investments go down, they get quiet. And the more they go down, the more people retreat, like a little animal burrowing away and hiding from the sunlight. Good riddance. Also, I'm going to post screenshots of this guy on my Twitter account soon.

Yeah. They vanish. It's classic survivorship bias. You only hear from the winners. Yeah. And I want to point that out because real estate has been on an incredible historic tear. And it's fantastic. If you happen to own properties, you have fantastic returns. As a seasoned investor, you might look at that and say, okay, something is not right here or it can't last. Mm-hmm.

And then you start to say, okay, well, what are we going to do about it? And for some people, they're a little overweighted in real estate. They go, ah, my normal allocation is 35%. I happen to be 50%. It's a little higher than I'd want, but that's fine. But anyone looking at 98% in one asset class in one city says, oh, that's amazing when it's working right. But when it stops, it's like a ton of bricks that hits you.

And I believe both of your parents went through bankruptcies, correct? Yeah. Yes. James's mom is facing medical bankruptcy again right now. We never want to let you both get in a position where you're exposed to that much risk. Because if it goes wrong for you, it goes wrong all at once. Yeah. That's exactly what I'm worried about. In investing, your asset allocation is more important than any individual investment.

It's really important to remember. So if you're writing a book, it's the table of contents that matters more than any individual page. I would actually like to make a date with James to sit down and...

look at our recent appraisals, look at the exact dollars and cents of what we owe, look at neighborhood performance for the properties that we own, the amount of equity in them, and come up with a strategy. What are our next three steps to get our portfolio rebalanced? And what are the tools we need to get there? I believe I see the value here. I do. I think that...

I don't want to stop pursuing investing in real estate, especially because I think that we understand how to do it in a great way. But I definitely think that reallocating some of our current investments into something more stable and more passive is probably the right move for us. You know the crazy thing? It's not like you're taking the money from a house and putting it in cash to just sit there.

Index funds make a lot of money. Do you all know that? Yes. Yes. And dumping $500 a month starting from zero is not the same thing as starting from $300,000 and then continuing to add to it.

I've crunched the numbers. That's why I think it's really important to utilize the tools that we've created together to rebalance and diversify our portfolio. We have a huge opportunity to be very strategic about how we move forward.

And I, I'm worried about watching this opportunity go by us and then running into some crazy risk. And that's a very real possibility that I, I feel like I'm the only one that's taking it seriously in our relationship. James. I mean, yeah, that's fair. That's a fair assessment. I think, um, you know, I don't look at risk the same way that you do. Um,

But I think that I'm absolutely willing to have a date with you and strategize on which of our properties makes the most sense to move forward with converting into index funds. I think that that makes sense for a lot of reasons. I think part of the thing that's holding us up is that it's not like we're...

these incredible real estate investors. I think we still see ourselves as very green

even in that type of investing, but we know what we're doing. We know how to do that. We don't even know how to buy index funds. I know what they can do. I've crunched the numbers. I've used your calculator, but I don't know the steps from here to there. And I think that that's also part of what's holding us up because we can't lay those bricks together. Yeah.

I don't know that I see any reason from what I've heard about index funds that we would want to choose a Roth over an index fund.

So maybe we do index funds. Georgia's about to really... She's literally biting her lip right now. Go ahead, Georgia. Clarify the difference for all of us, please. No, we were talking about this earlier. I was just going to ask James, is that a question you want to ask Rami while we're here? Because... I'd love to understand. I don't know why we do it. Because if index funds have a

average 10% return, that seems far beyond what a Roth would generally give you. So why would you put your money in a Roth? Okay. This is a good question for a lot of people to understand. So imagine a house. A Roth is a room in a house. But within that room, you have to choose what type of bed you're going to get.

The room is the Roth. The bed is the investment. So you invest in an index fund within a Roth. You also can invest in an index fund within a 401k. And then because the two of you are going to have so much money, eventually you can invest in index fund in a, just a normal taxable account, not a tax advantaged account like a Roth IRA or a 401k. Okay.

Okay. That's what I've struggled to illustrate is the strategy behind utilizing those accounts for the advantages that they were built for. In the beginning, it doesn't seem like that much. We're compounding on 5,000 or 15,000, but those numbers grow really fast. And once they start to grow with your cash flow, which could be quite rapid, especially if you start with 300K...

you start to go, oh my God, we made more in this account in a year than we made working all year. And at a certain point, depending on how aggressively you invest, you might make more in a month than you make in your entire joint income in a year. I just want to point out that if you took that $300,000...

just for simple math, and you all continue to add $10,000 a year, which is not that much for you. And with 20 years to grow, you'd have $1.6 million from just that money. But at 25 years, it's 2.3 million. It starts to grow really fast, really fast. And that is income. By the way, that can be turned into income at any point you want. Right.

We've talked about this. We've looked at this calculator together and talked about the exponential growth pattern of compounded interest. It's staggering. Yeah. But the math itself for the two of you is quite simple because you understand compounding. Actually, let me not make that assumption. George, I know you understand compounding. James, do you understand these concepts of compounding? I do. Yes, I do understand the concept.

When we get into this conversation, I like to just say, well, real estate does the same thing, but it is riskier. But yeah, I mean, I do understand how it works. Essentially, it's a certain interest rate or rate of return. Every year, the interest that was gained goes to the principal and it happens again and again. So it's...

Essentially, that's it, right? Yeah, it's growing upon itself. Good. Real estate does sort of work the same, although it's a totally different asset class with a different risk profile. And also, one of the reasons that I am critical of real estate, although I don't mind it, is that we all forget to factor in the cost. So for example, if we were doing a true accounting, are you all factoring in how much your hourly rate would be for your maintenance? Yeah.

Not at all. Yeah. If you did that, your returns would change dramatically, but okay. You know, we don't, that's fine. But all the little things that you now know as property owners and when you sell and all those transaction costs, and if you back them all out, you go, okay, we made, we made a lot of money. And however, if we weren't so lucky to be at that time or that place,

we wouldn't have. So was it skill? Was it luck? Also, could we have essentially made the same amount of money, maybe a little more, maybe a little less by just putting it in an index fund and never having to think about it again? No driving to Home Depot, no doing this, no calls. So James said, okay, I can see the benefit of diversifying and reallocating. Did you hear that, Georgia? Okay. She's nodding. And James, when you say you understand the value of

Now talk us through how will you get there? Yeah, I mean, I think that the best thing we could do is get our spreadsheets out, look at our properties, what is making us a monthly cash return, what's got the most maintenance cost, what we think we could get for each one and make a decision on which one of them makes the most sense to sell and reinvest, I think is how we would do it. And so...

I think over dinner and a laptop, a glass of wine for me, you know, we, uh, we, we take a look at this and just come to an agreement on, on what that next step is. And I think that, um, kind of just like understanding the risk involved with all of our assets being in the same asset class, it, it,

I get it. I understand why you want to diversify and that the risk is more than you're comfortable with and potentially more than is wise. Georgia? That's great. All right. It sounds like a good plan. The two of you talking about and saying like, what's our plan? Of course, we can revisit our plan every year. We can always change it. No big deal. But like, let's make a plan and then everything just flows from that plan. That is how I like to run the business and the personal and all of it.

Making the plan actually sounds like fun, Georgia. Yeah, it does. That appeals to me a lot. I received a follow-up letter from both Georgia and James. You can get the full follow-up at IWT.com slash follow-ups. But let me give you a quick excerpt from what James wrote.

He says,

Again, you can get those follow-up letters from my website. Let me just tell you what I took away from this episode, which I really, really loved. Georgia and James have both done well for themselves. Part of it, very hard work. Part of it, luck. But regardless of how successful you have been, in fact, the more successful you are, the more you want to think about risk.

You never want to have all your eggs in one basket. Certainly not one asset class in one location. They are in a very positive place for where they're going to go with their money. They have an amazing future ahead of them. Now it's time to think about bigger picture. How much risk do they want to take? What type of lifestyle do they want to lead? And how can they both get educated about money so they understand all of their options?

That ultimately is what I want for you. I want you to be educated so you make the right choices and live your rich life. Thanks for listening to I Will Teach You To Be Rich. I'm Ramit Sethi. Please follow the show on Apple, Spotify, or wherever you listen to podcasts. If you haven't read I Will Teach You To Be Rich, my book, pick up a copy. You can get it at any bookstore or any library, and it will show you the specific tactics to

for how to build the I Will Teach You To Be Rich system into your personal finances.