How to Build Investment Foundations That Turbocharges Your Returns with Manish Kataria

Transcript

speaker-0 (00:00.108)
Most people build their portfolio the wrong way around. I liken it to building a house, right? You wouldn't buy the chandeliers before you poured the concrete. You need to be creating the foundations, then you need to build a core. Most people sort of start the other way. They buy individual stocks, they might buy a little bit of

Crypto, they're not balanced properly and they're doubling up on individual risks. We start with the foundation. We start by designing your portfolio, asking people, what's your risk profile? What are you looking to achieve? What is your time horizon? Minimize your fees, inflation and taxes. All of these things that come before you've even started to invest.

speaker-1 (00:38.414)
Hello and welcome to another episode of Wealth Talk. I'm Kevin Whelan, founder of Wealth Builders, and I'm joined today by a great friend of Wealth Builders, Manish Kataria. Welcome, Manish.

speaker-0 (00:50.702)
Thanks, Kevin. Great to be here again. Yeah, always a pleasure.

speaker-1 (00:54.338)
Well, you we were chatting and we thought it would probably be interesting to share kind of the wider sense of investing, but not specifically stock market investing, but all the different choices that individuals and businesses and families can make as investments. And given the uncertainty of the world right now, there's lots of posturing for positioning of leaderships in

government parties, we've got posturing across the pond between Israel and Iran and the United States. And these are putting pressures on things that are seemingly out of our control. As we're definitely seeing an increase in, for example, the cost of government borrowing, guilt rates have started to nudge upwards. The government, the Bank of England rather, Bank of England is supposed to be independent of the government.

talking about possibly, you next move would be on the up as opposed to on the down. So as we're living in a sort of a more unpredictable environment, and certainly as far as I'm concerned, wealth is the process of creating as much certainty as possible in an uncertain world. I thought it would be good for you and I to have a bit of a investment riff, you know, to chat about all the different markets and

And what people can do to be more financially fleet of foot, more in control, more making decisions by intention and on purpose than being buffeted by what's going on in the world. What are your thoughts about that?

speaker-0 (02:38.506)
You know, the the simple answer, but not very common, is to be balanced and diversified. You know, that is that is always I always come back to this concept of being balanced and diversified. That is the ultimate that is the ultimate sort of mitigation for, you know, random things that are going on in the world and and by their nature, these things are unpredictable. So you can't always prepare for

you know, what's about to happen, particularly when you've got you know, crazy operators i in in place as as there is at the moment. So there's lots going on and you know, macro themes, sort of economic developments, polic political developments. I think yeah, I think you need a more holistic approach. I think you and I were talking about that earlier, weren't we? About needing, you know, a greater level of sort of planning and h holistic

planning around your portfolio and and that involves multiple asset classes, not necessarily not necessarily just the stock market, not necessarily just property, right? and not and certainly not necessarily cash because that's in many ways the most dangerous asset class there there is.

speaker-1 (03:47.928)
So why do you think it's dangerous? Most people think cash is safe.

speaker-0 (03:51.478)
Yeah, and it's and it's ironic Yeah, it's ironic because you know, cash gives you a full sense of security. Cash is if you look back over decades, centuries, the worst performing asset class, the major asset classes, the worst performing asset class has been cash. Any other sort of we call them risk assets, so whether it's property or stocks or you know, any other real assets have outperformed. And the reason for that is because

speaker-1 (03:53.257)
looking at I

speaker-0 (04:20.568)
There are two reasons. So interest rates are historically lower than the rate of return on stocks and financial assets. And the other thing is inflation, right? So inflation is the silent killer of of wealth. And and most people don't realize the dangerous effects of inflation if you h if you hold on to too much cash for too long a time period. And so you have the official rate of inflation.

And that's one thing. We I think we're being led to believe it's something like three percent at the moment, right? Historically, inflation rates have always been understated, and there's lots of evidence out there to show that actually the reality rate of inflation is more like what we hear plus three or four or five percent. So right now, you know, I genuinely believe the real rate of inflation is more like six percent plus. And you know, I don't think anyone really believes

that their cost of living is increasing by an annual rate of three percent. You just have to look around what you're spending money on. It's much more than that, right? And there are lots of reasons we can explore why that is the case, but that is reality and there there is and there are lots of studies to show that that is the case.

speaker-1 (05:33.474)
But coming back to your, I'm going to give counterpoints to your arguments, right? Not just to be conflicting and I'm not going to conflate issues either and mix things up. But I think there are reasons. And I think you caveated it, but it was in half a sentence, which is too much cash. So in the context of too much, you have to understand what's the plan. Because too much or too little depends on what you're trying to achieve. So if, for example, you're

speaker-0 (05:36.792)
Cool. Yeah.

speaker-1 (06:03.598)
trying to buy a house, the house of your dreams, and you need money and cash to be able to buy it, you might need more cash temporarily in order to do that. So where are you on the issue of how does someone identify in this broader feeling, even if it's an illusion of security, in the same way as employment can be an illusion of security, and we talk about wealth being creating assets and jobs are not assets, but

so many more people are in jobs and in business. But how do you go through with the people that you share your wisdom with, how to choose the right balance and the right amount of cash? What are the ingredients in that discussion that says you do need to have some cash, but this is how you might want to think about it? What's your view on that one?

speaker-0 (06:54.112)
Yeah, it's a really good point. So look, cash can be incredibly useful, right? So for liquidity reasons. And if you like use the example you gave, if you're looking to buy a property, of course, you know, you shouldn't be going out and and speculating with that cash that you will need in six months' time. So in a steady state in the long term, what I say to people is you shouldn't hold on to too much cash for too long a time period in a steady state.

Right? And what does that mean? So so look, let's disregard the known need for your cash in, say, six or twelve months' time for whatever reason. If that's all gone and in you know, there are no reasons to be owning to be holding on to liquidity, as a percentage of your overall portfolio, don't own any more than five to ten percent of your cash, of your wealth in cash. Right? Five to ten percent is is your sweet spot, depending on how cautious you are.

You know, because it the it's pure ar arithmetic, right? The historical track record of returns on your cash is much less than the historical track record of returns on other real assets. So five to ten percent. Alternatively, another way of looking at it is if you are you know, if you have you you look at your monthly expenses and you identify three to six months of

your monthly expenses and hold that amount in cash because if something was to happen, if your income dried up, if you lost your job, then at least you have that sort of six months of of runway ahead of you. So that's probably how you should be looking at it in a steady s in a steady state.

speaker-1 (08:32.525)
Okay, so let me take a different point of view. What if I'm really interested in, well, two things. Let me give you two alternative questions just to see how you would approach that. So one is, I'm getting close to retirement. I'm worried about sequencing risk, the risk of the markets crashing within a relatively short space of time of my need for income. And assume I've got...

money in a pot type income, not money in a defined benefit, not guaranteed income. And I'm just nervous about the world. And I think three to six months just ain't enough.

speaker-0 (09:14.392)
Yeah, another great point. So there are still better asset classes, safer asset classes than cash. you know, th there are there are better returning asset classes. So look, you still go with that sort of five to ten percent of your portfolio in cash. Let's say you're approaching retirement, let's say you're, I don't know, seventy years old and you're you're approaching retirement, your main sources of income are are look are are maybe looking to dry up and you're looking to live off your pot. So

The approach I favor, and you know, you mentioned sequence of returns risk, and that's really important because, you know, in the early days, if you've got a pot of capital which is working for you, you don't want to be selling off assets in order to fund your lifestyle. So how do you get around that? So you have some cash, three to six months worth of cash, and then you have some other asset classes, safer asset classes, so short-term government bonds, which give you a little bit more than cash, but actually have

you know, virtually zero default risk. You have money in money market funds. Another approach I really like is holding on to safe blue blue chip high quality dividend stocks, high dividend stocks. And the reason I like that is because your listeners will be aware of the four percent rule. Essentially in a nutshell, you can have a pot of capital and the idea is is that you can extract four percent per annum.

in order to fund your living expenses with a minimal risk of that money ever running out. So the problem with the 4% rule is you are looking to sell down your assets as you go along in order to extract the 4%. Now, if you are owning a fair amount in high dividend stocks, what happens is that you can essentially live off the dividends. You can live off the dividends to fund your lifestyle and you can get some really

Interesting high quality blue chip dividend stocks which return five percent, six percent, seven percent. So if you've got a good portfolio of high dividend stocks, you can live off the dividends and you can let the capital values of your of your stocks, you know, fluctuate over time. and and historically they go up over time, but yes, they will fluctuate. And and the fine and the final thing to mention about this, Kevin, is the the reason why this is a good approach is that if you look back historically.

speaker-0 (11:37.506)
Dividends tend to be more stable than capital values. Capital values fluctuate in the short term. Historically they they appreciate eight to twelve percent per annum. But dividends are, you know, they're known to be more stable. And, you know, they're they're very rarely cut. And when you own a portfolio of high dividend stocks, you know, the average portfolio tends the average dividend tends to grow even during recessionary times.

speaker-1 (12:04.27)
Well, let's come, we'll come back to that because before we finish on cash, there are a couple of other points I want to share with you. So one of those is I was reading a report recently and rather than kind of give the detail of the report, it was the fact that so many business owners who are focused on the trading entity of their business itself. you know, businesses that are providing good services.

rather than a property business, are holding on to cash. And more than 50 % of business owners are not shopping around to get a higher return. you know, depending on how much businesses have got sitting on their balance sheet in cash, there seems to be some natural phenomenon that holds back founders and creators of businesses to be shopping around and looking.

to get a safer return by not having too much money in one bank, because we got banking risk. And an investment return that we were chatting and it's not unusual for me to see a business when I meet them to have a million pounds in cash. And if they can get four, four and a half percent on a fixed interest, even cash, that's 45 grand. And 45 grand could pay for a member of staff or could pay for a marketing program or could pay for a whole host of things.

they don't pay attention to. So I know your focus is investment, but they could invest that money as well and create an alternative income stream and start to build knowledge and experience around investing. So what's your take on that one?

speaker-0 (13:48.374)
Yeah, and it's a it's a very common thing. I see the same, you know, so so when when when I work with investors, many of them are are are business owners. And you know you know what it's like when you're a business owner, your your focus is is is on your business, right? And so the investing, the surplus capital which will build up over time, sometimes becomes an afterthought and you know, it's it's it and it's also a function of not necessarily knowing what to do with it. I really

believe strongly that as business owners, as directors of a company, it's our duty to try and you know, create the maximum value for our shareholders. And now often that happens to be the director's own you know the director is the shareholder. But it doesn't matter, you know, because as a director of a an official limited company, it's your duty to create the highest amount of value for shareholders.

And so if you are just sitting letting that cash just sit there, you know, earning next to nothing, I don't think you're fulfilling your duty. So you can be doing a lot, you know, you can be investing that money at the very least into interest bearing accounts. What we do is we put you know, some of that liquidity into money market funds because money market funds give you great rates of return, or or at least matching the base rates with zero notice, great liquidity, next to no risk.

And then you can invest that money also into, you know, dividend stocks, into you know, into into diversified funds, into all sorts of assets that we're

speaker-1 (15:22.072)
can do that. There's just an assumption that businesses don't know how to do that. I mean, you're some of the language and I think it's important to share this with our audience because they can be from different backgrounds. They could be known to wealth builders. They could be experienced investors or novice investors. And I think it's our duty to minimize the confusion and to maximize understanding. So I think everybody who would be listening would understand.

banks and institutions will provide a return on cash. I don't think we need to explain that. I think it's useful to explain that the whole banking industry is predicated on the margin that they can make on reinvesting that cash, which is normally in the form of lending. However, I don't think people know about a money market fund. I mean, what's the difference between cash and a money market fund if you've never heard of a money market fund?

speaker-0 (16:20.554)
Mm, yeah. So cash you know, you're investing with one institution and they, as you exactly said, they lend that on to somebody else. A money market fund is essentially a fund consisting of a diversified range of high grade issuers. So what what you're effectively doing is you are investing your money into a fund which then lends it on to the UK government. High

Grade corporate borrowers like Tesco or you know a blue chip organizations, triple A rated typically organizations who are looking to borrow short-term money on a secured basis and and and will give you rates of returns comparable slightly higher than short-term government bond returns. So essentially, in a nutshell, these this these types of funds are highly liquid, they are

diversified, you're not just lending money to one entity, you're you know you're typically lending money to the government and other high grade borrowers. you know, and and they've never defaulted, right? So so even

speaker-1 (17:29.774)
Our government's never defaulted, can't say a corporate bond is never-

speaker-0 (17:32.846)
No, money market funds have never defaulted because these these these bonds, these short tate short dated bonds that you are investing into are super high grade and secured, backed by corporate assets, they're all triple A rated. So yeah, there there is virtually no risk. we've never had co money market funds gone wrong. So that's what you're investing into. In and in many ways, that's safer than cash, because in my view

if you're investing if you're saving some money with a with a bank, you know, you're protected to a certain extent, right? you know, you've got the FSCS guarantee for what that's worth in in in in the case of, you know, everything going south. But yeah, so so in many ways, because these are diversified, because you're lending to the government as well as other high grade borrowers, in many ways, you know, they are money market funds are safer than cash.

speaker-1 (18:25.802)
And so given that, we've got two different thoughts going on in that same conversation. One is lending money or money being used by institutions who are corporate, so they're profit related. And the government too are always issuing notes for individuals and companies and countries to lend the money in exchange for a rate of return known as a coupon.

What is your view of the difference between lending money to a corporate client with whatever risk rating is performed on them and lending to the government, bearing in mind that guilds also operate slightly differently in terms of capital gains? So what are your thoughts around that?

speaker-0 (19:15.616)
All else being equal, you'd rather lend money to the government, right? Because there is, in theory, zero risk. You know, with these corporates, you you're getting a slight yield pickup, but as I said, they are so senior that the debt is so senior it takes precedence over any other debt. So, you know, there there is virtually zero risk of anything going wrong. So, you know, I I I like the diversified approach and I also like with money market funds that there is zero notice re required, right? So unlike other savings funds, you know, you can you can be

parking your cash in a money market fund today and you can take that out next next week without any penalty.

speaker-1 (19:50.67)
And how would people access that? Where do they go to look at these things to make a of a relatively informed decision by reading, watching, listening, whichever way they want to learn so they can go, I've never heard of a money market fund. Where would I go to start learning about that?

speaker-0 (20:08.024)
Yeah, there are lots of providers. the one I'm invested in is is issued by Royal London. Royal London is the fund operator. There's a Royal London Short-Term Money Market Fund. You access these things through through platforms like you know, the sort of AJ Bells of the world or Hargrove's Lansdowne or or whichever platform you are with. so they're pretty easy to access with you need a platform. You need an account. So you're if you're investing through your limited company,

Your limited company needs to open up an account with one of these platforms and then you can just buy it like any other fund or any other share.

speaker-1 (20:40.034)
It's like a supermarket really, isn't it? In the same way that you would buy goods in a conventional supermarket, you're able to buy not just money market funds, but a wide range of traded funds within that. And are there different complexions in your view? You mentioned a few, but many exist. that, what would be some of the features that someone looking at a

platform would need to look out for to make an informed decision.

speaker-0 (21:13.25)
There are lots of different parameters, costs and what kind of accounts they offer. And, you know, some offer funds, some offer only stocks or ETFs. So there are there are lots of different things, different things. But you know, I think cost tends to be one of the biggest things. And the cost isn't the same for everybody, right? So if you are looking for a platform, it depends on how much you're investing. So there are a few different parameters. In terms of money market funds, I think there are two things you should be looking for.

One is it's it should be a sterling money market fund because you don't want to be taking on currency risk. And the second thing you should be looking for is a short term th i it would be in the title, a short term money market fund. So you're not taking on interest rate risk, right? So you are investing at the short end, which is which makes your money even safer.

speaker-1 (21:59.042)
That was an interesting take. And I definitely think that there's a point worthy of note, certainly when it comes to both cash and platforms, that it is possible as wealth builders, we focus increasingly now on families rather than individuals. And so it's easy to give advice to an individual. That's what a typical advisor would do. But looking at a whole family means you can aggregate. So it's possible to look at a

across a whole family and say, well, if this member has got this, this member has got that, and you add it up across a blended and different generations within a family, you can either get a higher interest rate on cash because of that aggregation or a lower interest rate, sorry, a lower cost on a platform by aggregating money on behalf of a whole family. And we look at that aggregation.

When we're talking to the families and said, if the whole family wants to invest in markets and most do, because there's like you and I both agree there's room for markets of all kinds. And so why not look, if you have a wider family to see if they can't, you can't bring some aggregated benefit to that. So very useful and we'll, I guess we'll touch on the microcosm of that on SaaS if we get a chance to talk about that because.

Not everybody would qualify for SAS, but pretty much all families would qualify for some form of aggregation. Let's have a chat about gilts just generally, because there's clearly pressure on the government, it costs them more money to borrow. So the rate of return or the coupon on gilts is getting increasingly higher, which means it should be worthy of a discussion or a review.

What are your views on pros and cons of holding guilts?

speaker-0 (24:01.262)
Guilts have a place. you know, within our portfolio approach, you know, they we our portfolios have you know have a GPI framework. So I think all portfolios, any good balanced portfolio, should had a have an element of growth, protection, and income. You know, those are the three essential ingredients of any good portfolio. And for for us, you know, within our P

bucket within our protection bucket, you know, guilts have a place. I think guilts or bonds in general, it you should position yourself depending on how cautious you are. So historically bonds have underperformed stocks, right? So and but on the other side they happen to be more stable over time. Right. So it depends on how much of it depends on your risk profile. It depends on to an extent your age. It depends on you know how close you are to retirement.

You know, there are lots of different factors for you know for you to take into account as an individual. I think guilts, you know, you're again you're lending to the government, but guilts tend to have longer maturity periods. So let's say you buy a ten-year guilt today, you know, you know that there's a ninety-nine percent probability that you will get paid back all of your money in ten years' time because you're lending to the government and governments generally

Don't default. Not always. Generally, they don't default. However, that's only if you hold it on hold onto it for a 10-year period. If you then decide it actually year three, year four, you want to get out, there's no guarantee you'll get back your initial investment because in that 10-year period, you know, market values, market values fluctuate, right? So you you get your coupons, that's that's for sure. Your annual coupons, you'll get those.

But actually your capital values are only guaranteed once you, you know, get to maturity. So that's the sort of potential downside. And again, historically, guilts have returned less than stocks over the l over the long term.

speaker-1 (26:08.322)
There's definitely a role for baskets of guilds, so not holding one guild for 10 years, for example, it's possible to buy the discount guilds that have got a shorter maturity date. it's, but you need guidance, I think. And there are plenty of guides about the buying and the selling and the creation of a portfolio. And just as there are fund managers and IFAs who look at helping you create a level of

funds, involvements linked to your attitude to risk, it's possible to do the same with YILTS as well. And certainly for higher rate taxpayers, for money held outside of a pension, there's some capital gains benefits there because the difference in the value in terms of the price, if you buy something at 90p and you get the original stake back at a pound, then you're getting that capital gains tax free. So your tax position

albeit isn't something we talked about specifically because otherwise it'd get too complicated, wouldn't it? If we talked about everything. I think we'll touch on inheritance tax a little bit later because I think it's important generally to involve the next generation in thinking and understanding and learning things as well as ourselves. But I think we started talking earlier on with most business owners spending no time at all, even just trying to get any interest on their cash, let alone spending time learning about

bonds and guilt and so on.

speaker-0 (27:39.606)
finishing off on the guilts, the the the really the really important feature of guilts is is this that you don't necessarily buy gilts or or any type of bond. Of course you know guilt are UK issued bonds and then there are bonds issued by the US, etc. So you don't necessarily buy government bonds for the returns because as I mentioned you know they they underperform stocks. The reason the real reason you own bonds is because in a portfolio context they tend to

you know, move in an opposite direction to stocks. So when there are times when stocks are selling off, if there is a recession, if there's some sort of issue going on, historically bonds tend to go up and stocks go down and and vice versa. And that's why within our GPI portfolio, they work really well to kind of provide almost a hedge to your stocks.

speaker-1 (28:30.122)
No, interesting. That was your broker just telling you to buy, was he?

speaker-0 (28:33.218)
That that was that was my broker. Yeah. Yeah. We need to buy bonds.

speaker-1 (28:38.456)
about, there's a lot of talk about this sort of broader economic pressure in the world and the price of gold and what does gold do and what should it do and what role does it have in an overall diversified portfolio. Any thoughts on gold?

speaker-0 (28:56.248)
Gold is is is part of our protection bucket. In in in many ways it's similar to to bonds. It gives you that protection in the event of some, you know, crisis. Some it's it's a fear trade beneficiary. And gold has had a phenomenal run over the last two or three years. It's it's done really well. It's having a bit of taking a bit of a pause for breath at the moment. But yeah, look, it it in many ways it's it performs like bonds in that it gives you that protection when something bad is going on in the world.

speaker-1 (29:26.338)
Yeah, Orbit doesn't provide any form of a yield.

speaker-0 (29:28.544)
It doesn't give you a yield. Yeah. That's the sort of downside. You don't get a yield. Having said that, when we are and we we might get a chance to talk about options later, when w what we do is within within the options asset class, we can create an income stream out of gold. So we own gold on the one hand and we can rent it out for monthly month monthly income. So so you can in some ways create income from owning gold.

speaker-1 (29:54.7)
Yeah, well, in the same way, you can create an income from owning any asset really, because if you own it, then there are other people who might want to own it as well for whatever reason we do that. We'll definitely talk about options, I think. It's an area that probably people have heard about, but don't really know too much about. And I think you've got a really nice way of articulating and helping with that understanding. Bear in mind that, of course, neither you nor wealth builders gives

in dispenses on a podcast, any kind of financial advice, you should always take professional tax legal or financial advice before making big changes with your money. However, I think empowerment and understanding doesn't always have to come from somebody who's being paid to manage your money. Because as you said many times before, the best people or the best person to take responsibility for your money is yourself. And I think I applaud your

desire to empower people to be more in control rather than simply being on the receiving end of a fund meeting or a fund discussion with a considerable amount of money being lost in fees. And by the way, on the cash thing, I was noticing recently that some of the platform providers where there is cash held on the platform, they're actually double-dipping. So they're taking money

as a percentage on the fees, but also helping themselves to a bit of interest on the cash as well. So when you choose a platform, be specific about do they charge or a share of the interest that they make on the platform? Because this double dipping is something that I think is counterintuitive to good investing if you're allowing someone to have two bites at your cherry, which means by definition, there's less cherry left for you.

and less cherry left for your next generation. And if you keep letting people bite your cherries, you're not really going to be that good of a teacher to teach wisdom onto the next generation. But anyway, how about chatting about this broad approach you take to the G section of your description, your growth section. Talk to me about how you suggest people go about the thinking of that construction.

speaker-0 (32:17.932)
Yeah, here's the thing. Most people build their portfolio the wrong way around, right? So so the average investor, if you look I get to I get to work with lots of investors when I see what how they've been investing until you know we start to help them. If we look at their portfolio, it's typically sort of there's no process behind it. So, you know, it's a bit like you know you know, it's a bit like sort of I I I liken it to building a house, right? And so so what most people do is

you know if you think about buying a house, building a house from ground up, right? You wouldn't necessarily buy the light fittings to start off with, right? You wouldn't buy the chandeliers before you poured the poured the concrete before you poured the foundations, right? That's what you do. You need to be when you are building a house, you need to be designing the house, you need to be creating the foundations, then you need to build a core, right? Where most people sort of start the other way. They buy individual stocks, they might buy a little bit of crypto.

They might buy a fund because they've been recommended it. And what happens is that they're left with a sort of portfolio, bit of a mishmash portfolio. And and even worse than that, they're they end up with a portfolio that they not they're not quite sure about the risks. They're they're often doubling up on risks. They might have too many tech stocks. They might have the S P five hundred index because they heard it's the right thing to do. They're not balanced properly and they're doubling up on individual risks. So most people start

you know, by sort of buying the light fittings first. What we do is we we we start with the foundations. We we start by designing your portfolio, asking people, what's your risk profile? You know, what are you looking to achieve? What is your time horizon? You know, minimize your fees, inflation and taxes, minimize your fits. You know, all of these things that come before you've even started to, you know, invest.

And it doesn't take that long, it's not that complex, but you just need to be aware of that stuff before you start building your portfolio. So that's the one thing I would say is kind of be aware of build your foundations first, build your core, and then there is nothing wrong with buying individual stocks, buying a bit of tech, buying some AI stocks, buying some crypto. Nothing wrong with that, but build your foundations first. We call it our core and satellites approach. So your your your initial diversified set and forget stuff is your core.

speaker-0 (34:36.78)
That stays with you for life, pretty much. And then your satellites are are fun, fun things like individual stocks and crypto, etcetera. So that's that's what I would say. That's the biggest sort of observation and advice I would give to people, is start at the right end rather than sort of you know, building out your satellites first.

speaker-1 (34:55.618)
So, and I share the view with you about fees are just the same as taxes. They can quickly eradicate some of your returns. I've just touched on that with a cherry biting analogy. But what I've found to be the case is people don't know where to start. They don't know where to find out about the fees. They don't know who to ask. They think they're hidden on page 23 somewhere in the small print. What's your approach to helping people really get to grips with the fees and then

will ask about how you deal with what's your attitude to risk. Well, you don't know what your attitude to risk is unless you're giving some kind of metric in order to establish that. So let's deal with the fees first. What's your process of helping people understand the clarity of what the fees actually are as part of that foundational bill?

speaker-0 (35:44.918)
Most people aren't aware of how much fees they're giving away. And so if you have money in a work pension scheme, you know, an old work pension scheme, current work pension scheme, if you have your money being managed for you, you really need to be aware of all the sort of the layers of risks, the sorry, the layers of fees that you are paying to your provider. And quite often you don't get told the whole picture because not only are the fees high, they're they tend to be hidden in different layers. So

Broadly speaking, there are three layers of fees you should be aware of. and by the way, if you've got a work pension scheme, it's not as benevolent and and charitable as you might think, right? It's a cost center. You are paying fees for professionals to be managing that money for you. So there are three layers of fees. One is the overall scheme fee, whoever you're is operating your overall fund, your your work pension or your IFA, your wealth manager. That's your overall scheme management fee. Then there is the

The amount, you know, that your money is being invested into funds, right? The underlying investments themselves have fees, right? And they're often hidden because you they're not explicitly stated, right? So that that's another layer of fees. Then there are fees related to the platform because you need platforms to hold your investments. So we've already identified three layers of fees. There are multiple other layers of fees, and overall, you know, they

Individually they might amount to you know 0.4, 0.5% each, but in total they could be 1% plus. And even then you might think, okay, well, it's only 1.5% per annum. That doesn't sound like much, but when you compound that over time, if you're holding on to these things for 20, 30, 40 years, that could be a significant amount of your overall capital that you are paying away to somebody else. You know, so I always say, you know, be aware, fund your retirement, not somebody else's.

And and and really the key thing is uncovering. Ask your provider, you know, go up to them and send them an email or you know, pick up the phone and say, Well look, I wanna know each of these three layers of fees and I wanna know what they total up to and I wanna know them individually, and they they will have to give you the give those to you. And then you just have to do a compound calculation over a period of twenty-five years and see how many tens of thousands, if not hundreds of thousands,

speaker-0 (38:06.988)
that will, you know, extract from your capital that you you know, you could be using in your retirement. you know, we've helped people save tens of thousands of pounds just through a sort of simple review exercise doing that.

speaker-1 (38:20.718)
And it's so incredibly important because, as you say, sometimes the sound of, oh, it's only 1.5%, it's only 2%. It doesn't sound like a lot, if the average, I mean, you talked a minute ago about the 4 % rule, I don't agree with the 4 % rule, but let's not go into that debate. But even if you did, if you're getting 6 % on your money and paying 2 % in fees, there's a third of your money gone. But it isn't, it's a lot more than that because if you've been doing that,

for decades on the bill, then that money got paid so it didn't get a chance to compound. And then that money comes out of your income at retirement. And what's interesting to me, and I'm a true believer like you are, of just being aware, because when you're aware of something, you've always got three choices, but it's up to you. So if you've got awareness, so say you do a review, whether on your own or with help of someone like you.

And you say, well, look, I'm paying one and a half percent. Okay. Okay. I'm paying that. How do I feel about that? Well, compound calculator, maybe you've got a link to one that you could share or you could tell us where to get that. It's not as easy just to do it. Somebody's got to calculate that, see the impact of that. And then once you've worked out the impact and worked out is this person or these layers adding value or subtracting value, what I want to do about it.

Am I happy with that and do nothing? Am I not happy with that? And this is what I can do, whether by empowerment, working with someone like you, or this is how I can get a better deal from the institutions that I already have a great relationship with, like aggregation, like negotiation, like being focused and saying, I want you to add more value. And certainly the FCA who regulate these things have definitely putting more

questions about the efficacy of the tick box of an annual review. You know, may not need to do something that way. So why would you pay for it? Again, I concentrate on these things. So I don't go to bed with a tax manual, but I do sometimes read some reports and I saw one from the FCA saying the number of advisors who are charging bereaved clients fees.

speaker-1 (40:46.318)
Clients already died, but they're still levying the fees. They don't shut them off because, well, you you could work out the reasons, but they don't shut them off. And now it's another expose of what's going on. And I find consistently every year that I've been doing this work of helping people build, protect and transfer their wealth, there isn't a single year goes by where some scam isn't being exposed of hiding.

And my view of life is if you've got creativity on your side, if you love finding more value or you can create more value, why not creative with the client and you can keep their business forever as opposed to creating it for yourself and hiding things? Anyway, that's a soap box I'm now going to get off. But let's talk about options because it's a subject that I know you're passionate about.

It's a subject that demands a more creative thought process. So why don't you tell us what it is, how it works and how we can bring more value if you're willing to learn a bit more.

speaker-0 (42:00.054)
I'm a big fan of options and a lot of our investors are. Options are a really interesting asset class, and and you know, there's a whole big misconception out there. a lot of people think options are risky. They're really not. In fact, they are a a a lot safer. You can own stocks in in a way that's a lot safer than just buying stocks in the regular way.

So options are it it's an income machine, it's it's an income engine. We call it it it fits into the I in our GPI framework. So, you know, remember every every good portfolio must have an element of income. And in a nutshell, options allow you to own good quality stocks and rent them out. Not too many people know that actually you can rent out your stocks. You can own stocks in the way I said earlier, you can be owning gold and renting out your gold holdings.

through options and you can do the same with stocks. You can do the same with bonds. There are lots of ways in which you can do lots of different asset classes. So we typically earn between one to three percent per month, that's per month on on on doing options. And so so it's it's a way to rent out assets that you already own. That's one way of doing it. There are two ways of doing it. There is another way which you know we can explore later, but in a nutshell

yeah, you if you already own shares or if you are looking to buy good quality shares, why not rent them out? Just in the way you rent out your property assets. It's a very similar concept.

speaker-1 (43:30.35)
And you're right, mean, this concept which has been established for as long as trading has taken place, people covering their risk, which is an important part of what options do, is covering risk and generating income. And of course, Mr. Buffett was a great exponent of that. People think he just bought great stocks, but he didn't. He took incredibly significant positions on the amount of money you hold.

in stocks he liked and said, well, if you want to rent them to use them because you want to speculate or you want to do something, I'll either sell them and make a profit, which is great, or I'll rent them and get a premium or a rental. And that's great. So either way, you're making money. So, and in Microcosm, you share and teach that, don't you, in the program that you operate. And of course we're happy to tell people about that because we think it's...

so important that all aspects of investing are understood so that when you understand them, you can make one of those three decisions. Do nothing and thank you for the explanation, Manish, but it's not for me. Or yeah, here's something I can do with a bit of guidance or here's something that I want to build into my portfolio and it's something that they want to do. And like anything, no matter how thinly you slice anything, there's two sides. So nothing is for everyone.

but it's just great to spend some time to understand it. And we're happy that you share that because we trust your integrity in what you're trying to do rather than just trying to, you know, flog a course to somebody to do something that they'll only use once and never use again. So it's something that you want people to embrace in their life. So it becomes a part of their overall investing, right?

speaker-0 (45:21.952)
Yeah, I think it's and and thank you for your kind words, Kevin. Yeah, we we're always you know, at the end of the day, it's about helping investors take control. And and you've said a few times, you know, there there's nobody will look after your money better than you will. And and when you are aware of these different ways in which you can invest, you know, it's not just about buying a stock and buying the S P five hundred. When you you know, for options, we're talking about options now. You know, if you can create income streams, you know.

and really attractive income streams. One to three percent per month is the equivalent of twenty percent plus per annum, right? And and these and this is not a high risk way of investing. So and it's a versatile way of investing. And and you know we're doing this all the time. And you can do it in your pension. And I know you're a big fan of SAS, Kevin. SAS is a great vehicle to be doing options in because all of your income comes comes through tax free.

And SAS is all about taking control and and with options, you can do that in multiple different ways. So it's a really great asset class. you know, y when you do it properly, it's a bit of a bit of a learning curve to understand the mechanics of how it works. But once you've done it a few times, you know, you'll you'll love it. And not only is it financially rewarding, it's actually quite intellectually rewarding. A lot of our investors just are so passionate about options, you know, just like I am, about

you know, th the miracle some describe how you can actually create income streams from from the ass from assets that you already own. So so it's really worth exploring and and if there is you know if there's the opportunity to give people a report, a you know, a step by step ex explainer on options, I'm happy to drop that into the into the show notes if the

speaker-1 (47:04.494)
No, we'll definitely do that. We'll give people, given I think it's a game changer. And of course, all you said options can be held within pensions, not all pensions were allowed to do that. So if you've got a workplace pension and you knock on the door of your employer and say, I've been learning a bit more about options from Manish Kittari, can I do that? The answer is going to be no. Similarly, you know, anything that you hold where predominantly

the provider is trying to make money from a share of your stocks, just like banks make money from share of interest, then the answer is likely to be no. So you'll need to know a little bit more. think there's one that I know you use and we certainly use them as well when it comes to stocks, which is interactive brokers. It's a platform, but the platform will allow you to invest in options. And we've created a SaaS that will allow you to do that as well.

In order to have a SaaS, which is a much more family oriented pension aimed at business owners, you need to be a property owner or a business owner. And most people that we meet are, if you're an employee, probably not going to be a SaaS that will work for you. But are there any SIPs that will operate that way as well? So for employees who want to do it, can they do that?

speaker-0 (48:29.59)
S some, but they're not great. I mean, you you there are lots of restrictions. So, you know, there are some SIPs that claim that you can do options through them. I I would say a SAS, all of our investors who have done options in a pa in a in a in a pension and have done it successfully, they've all been doing it through a SaaS. And of course you you can do options in your personal name, in your limited name, but you know, you'll incur tax. But in a tax free environment, a SaaS is the best vehicle for for doing options.

speaker-1 (48:59.7)
And as I mentioned, we created and we thought we had you in mind as we see what you're doing that we created a very low cost, what we call a SaaS lite offering that we don't promote generally because we want to know their understanding options specifically in order to do that. anyway, we'll talk about that on another day, I'm sure. And we'll have some webinars on that, I'm sure as well.

By the way, if you like what we're talking about here, like and subscribe to Wealth Builders and Invest Like a Pro, which is Manisha's business. And he'll talk a little bit more about that when we just ask him for his contact details, you liking the cut of his intellectual jib. Final point. You know, we talked about at length now being in control, but what's the importance of being in control to share that wisdom with the next generation?

speaker-0 (49:57.226)
that's huge. that's huge. And you know, you you know what it's like. When you are sort of taking control, when you are actively making investment decisions for your own benefit and your family's benefits, you know, there'll be you know th th that kind of mindset flows through into future generations. And, you know, I see it all the time. You know, my my my kids you know, take an interest in investing and my son is kind of

You know, he he he does a lot of investing. My daughter's kind of a little bit behind, but she will get there, I'm sure. And she's a bit younger, so you know, she's got time ahead of her. But look, it's it's it's a huge it's a huge thing. I think it's such a it's what more is valuable, right? So what else is more valuable other than being able to pass on, you know, financial wisdom to your to your kids. So if you can be doing this as a family unit, you know, if you could be sort of

sharing decisions and making decisions collectively or or even thinking about investing collectively. I think that's a huge thing. it's a gift. I think it's a gift to be able to hand over to future generations.

speaker-1 (51:06.062)
And I agree with you, Manisha, it's not just a gift on investing, of course, but a gift in property, a gift in a business if you've got a trading entity, because there are, not that everybody wants to be a business owner or an entrepreneur, but in the end, my view of wealth and wealth planning is it's not about how much you leave, but how many generations that that money can support. And the best way to do that is to teach wisdom.

and stewardship, not just spending, because there's so much anecdotal evidence of the way that assets and families of seem to dissipate over a few decades. And it's largely because of a lack of preparation, certainly from a tax point of view. IHT, for example, the heritage tax, is paid by unprepared families, and it's the kids who pick up the tab. And if you're a...

a family member who's picked up a big inheritor's tax bill that you've got to pay within six months, you're going to learn how to sell things pretty damn quick. You're not going to be buying much and that's going to put you off investing and doing good things for the rest of your life. So yeah, we're very passionate about helping people prepare and not just about the inheritor's tax, but of course about the wisdom for the next generation. So if people want to know about you, Manish, where would they go?

speaker-0 (52:30.508)
The best place would be to the website, investlikeapro.co.uk. there are lots of articles on there. We've got some podcasts and YouTube videos. I think you've been on one or two of them as well, Kevin. So yeah, we've lots of lots of resources on on the website there.

You can just on the top of the on on the top of the page, you know, you can download a an investment explainer and some videos and I publish weekly insights and so you know you can sign up for those too to get all of my sort of updated views and insights and articles written by me, just me.

speaker-1 (53:02.776)
Written by You Not AI

speaker-1 (53:08.366)
Well, good to hear. Thank you as always Manish for sharing your wisdom. I hope that someone can take something away to help their own wisdom for their own wealth and for the next generation as well. And we'll put all the resources when the episode comes out, which will be imminently. So do like and subscribe to Wealth Talk and then you'll know when anything is coming out. And if you like it enough, just let people know about it. Tell somebody else. Because in the end, you know...

We all have our exit and we're all going to die and we all need to protect and provide for the next generation as well. until next time everyone, see ya!

We hope you enjoy today's episode. Don't forget that we are constantly updating our resources inside the WealthBuilders membership site to help you create, build and protect your wealth. Head over to wealthbuilders.co.uk slash membership right now for free access. That's wealthbuilders.co.uk slash membership.