59. “98% of our net worth is in real estate. Are we in trouble?”

If you've recently discovered this podcast and you've wondered how can I get Ramit to answer my specific money question? There are two ways to do it. Number one, you can apply to be on this podcast, although we are already full for the rest of the year. Number two, you can join my Money Coaching membership in this program. We do a ton of cool stuff I want to make sure you know about it. We do a monthly live call with me where I cover some of my favorite money topics that I can't go into publicly in as much detail as and I break down our members conscious spending plans. Plus I answer your questions live. We also have tons of virtual events coming up that cover every aspect of living a rich life. For example, our new event Money for Aging Parents is coming up at the end of October that is included for all Money Coaching members. You get access to our library of all past calls like how to Find an Extra thousand dollars a Month and how to Do a Rich Life annual review. Plus we have a Money Coaching community group where you can see inspiration how other people are spending their money and get your own questions answered if you want to get help. If you want to meet amazing other people in Money Coaching and you want to build your rich life faster and bigger, you should check out Money Coaching today. Go to iwt.commoneycoaching to join right now. That's iwt.com moneycoaching 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. 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 youh 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, 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, despite having a fine. 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 with 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. You Know, she is very intelligent and has got, you know, a near photographic memory, whereas I kind of do things a lot by my gut.

Right.

But I feel like I have, you know, listened to a hundred 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 for. 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 remain.

So has it been a good investment for you?

Yes, yes, absolutely. Ten 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. You know, we. That house is worth twice that now. And, you know, after living in that home for a few years, you know, we. We saw what was happening and just like, my God, like, the equity in this home is going so fast. Like, this could be a really good investment for us and, you know, through some luck and some, you know, kind of out of the box, well, not out of the box things. I. 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. You know, and it had 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 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 had.

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. There's. 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, yeah. 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, 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 our, 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, 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 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, you know, move that we, 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@iwt.com Episode 59 Real question for you. Do you know how often you're supposed to see your primary care physician? How about the dentist? How about a dermatologist? A lot of us just wait to get a text from the dental hygienist to know it's time to make an appointment or but your health is important and we talk about going from defense to offense with your money. What about with your health? Why not make your life easier and Book this year's appointments today with zocdoc? Zocdoc is a free app and website where you can search and compare high quality in network doctors and click to instantly book an appointment. They have over 100,000 doctors across every specialty from mental health, dental, dental, primary care and more. Just filter for the doctors based on your insurance, your location, even ratings and find a doctor who's a good fit for your needs. Plus, Zocdoc appointments happen fast, usually within 24 to 72 hours. Instantly click through your options, book the appointment and you are good to go. If I needed to find a new doctor today, this is what I would use. Stop putting off these doctor's appointments and go to Zocdoc.com ramit to find and instantly book a top rated doctor today. That's Z O C-O C.comit Zocdoc.com Ramit there's this myth that if you rent, it means you haven't made it. I don't really believe that I rent and I want you to know that you are not a failure if you choose to rent. In fact, I want more freedom right now than buying a 30 year mortgage. But if I'm spending thousands of dollars a month, I want to get some of the perks that homeowners get. And that is where BILT comes in. BILT is a loyalty program for renters. You pay your rent through BILT and you can earn points for it. Think about it. You're earning points for your biggest expense every single month and you can redeem those built points towards flights, home, hotels, Lyft rides or even future rent payments. BILT has evolved into a complete rewards ecosystem where you get rewarded for the first time as a renter. And it's easy. Almost any payment method is compatible so you can start earning right now. I wish I had had this when I first started living in New York. Plus BILT recently announced that homeowners will be able to get rewarded the same way on their mortgage in 2026. So stay tuned. Join the loyalty program for renters@joinbuilt.com Ramit that's J O I N B I L T.com Ramit and make sure you use our URL so they know that we sent you. You could buy more houses. Maybe they would outperform the market. It's possible. Sometimes it happens. Maybe not 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 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 more than outperformed the market by more than double over the last few years, I, I think he thinks is 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 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 am 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, like, don't see the value in your comfort level being met.

When I crunch the number is on. On the specific property that I'm thinking about. There is, 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. 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, you know, 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. Like, I obviously want you to feel safe and I want you to feel comfortable. You know, 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 were. 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 that. 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?

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. Jo's mom is 66, has been re diagnosed with cancer for the second time in a year and is still having to work. I don't want to get to that place.

Then I have a question for you. You both mentioned time. So in the 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 remain 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 9 to 5, 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 cash flow 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 Seti. 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. 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, ten years from now, we're in this amazing position.

Right.

That sound familiar?

That's definitely the way I kind of look at it is like, 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 step, making things like what happen? Building a real estate portfolio that will allow you to retire early or. Or, you know, accumulating wealth. Risk in Georgia's eyes definitely is like, 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 like, where some of the conflict can come in, right? Cause I'm like, oh, you know, here's this plan that I've got. Like, it'll be simple, right? We wait three years, we sell a house, we turn it into two. And she's like, yo, like, what about all these other things that could happen along the way? Like, you're just manifesting this out of nowhere, like, 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.

Nope, it doesn't do anything.

Problem is, risk is just a word until it happens to you. 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 a hundred 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 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. What comes to mind when I share these specific moments? Renewing your passport. Scheduling a dentist appointment. Replacing that light bulb that's been out for six months and you're not sure what's the right bulb. We all procrastinate on weird stuff and taxes are usually right at the top of that list. We wait until the last second, then we get overwhelmed. We gotta pull all this paperwork and we're panicked because the deadline is approaching. That's why I recommend gilt. Now that tax season's over, this is actually the best time to get ahead. If you run a business or you filed for a tax extension, one small move right now could save you thousands later. G is not just another CPA firm. They helped one of my colleagues rethink his entire tax setup. Now he's saving more than he spends on tax prep. With Gelt, you get a proactive yield, year round strategy, not just a one time filing. Credits, deductions, business structure. It's handled. And their tech platform makes it easy to stay organized. You'll also get access to G's full tax library with guides on retirement plans, QBI and more. So if you've got a business or you filed for an extension. This is the window to take control of your tax plan. Head to joingelt.com ramit to book a consultation and as a member of my community, you get to skip the wait list. Again, that's join gelt.com ramit join g l t.com ramit taxes don't have to be a task with Gelt. They can be a tool to build wealth. I know that some of us think better when we write our thoughts out. But for a lot of us, including me, I'm better when I can think out loud. If that's you, I recommend you check out Whisper Flow to save you tons of time to bring your ideas to the page. Whisper Flow turns your voice into clean final draft, writing inside whatever app you're already using, Email, Slack Docs, even text messages. And it works on Mac, Windows and iPhone. So instead of spending all of your time responding to messages, especially while sitting at a computer, you can hit a hotkey, speak and the text appears. It's accurate, it's fast, it's all formatted so you can get back to work. Here's what my friend said about it. Whisper is amazing because it learns the way you speak. So you can send this rambling note as a text message and it kills all the filler words and it perfectly formats it for you. They said it's much better than using the Apple voice to text feature. The spelling is way better. If you want to buy your time back and get back to what matters, check out Whisper Flow. Try it for free at whisperflow AI ramit that's whisperflow AI ramit wisprflow AI ramit or click the link in the description below.

I don't know that I like right at this moment can tell you yes or no. I completely agree. But I think that 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 to 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. 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 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. 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, you know, we. 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 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, like, 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 the. 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?

5%.

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, it's hard to say exactly what might happen, but historically, the, 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, 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. You know, 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. But 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? When I talk to new business owners, I hear a lot of the same motivations. I want to make extra money. I want more freedom. I want flexibility. But I will tell you something that I've never heard. I want to start a business so I can fill out a bunch of tax forms. That sounds like my hell. The good news is you don't need to be a tax expert to start your own business. Instead, you can use Gusto, this episode's sponsor. Gusto is online payroll and benefits software built for small businesses. It's all in one. It's remote, friendly, and it's incredibly easy to use, so you can pay, hire onboard, and support your team from anywhere. They offer automatic payroll tax filing, simple direct deposits, health benefits, workers, comp 401k matches. You name it, they can help. Plus, it's quick and easy to switch to Gusto. Just transfer your existing data and get up and running fast with no hidden fees and no surprises. Try gusto today@gusto.com ramit and get three months free when you run your first payroll. That's three months of free payroll@gusto.com ramIt once more gusto.com ramit my wife and I were recently in Tokyo, and we had a great opportunity to learn a counterintuitive lesson. We were looking for some cool dishware, you know, like cool bowls and plates, and it was actually really hard to find the exact stuff that we wanted. We had a list of stores, some said they were open. We would get on the train, we would go there, they were actually not open. Once in a while, we would find some amazing dishware. But then it turns out they didn't ship back to the US and so this was a lot harder than we initially thought. And the lesson was, sometimes there is actually value in middlemen. Yes. I can't believe I'm actually saying this. I hate middlemen. But sometimes there is value. For example, let's imagine that we went to a Japanese homeware store in New York. Okay, the plates are probably going to cost two or three times more than what we found in Tokyo. But that store, that Middleman, already has imported the products into the US we know that they're curated. We know they're not going to break as they get shipped across the world. We know that somebody selected a few beautiful pieces, which saved us tons of time. Again, I'm not a fan of middlemen in general. In my twenties, I was adamantly against them, all of them. But I've learned that in some parts of life, middlemen actually add quite a bit of value. I want to get what I want without the big headache. And sometimes I'm willing to have somebody else curate it and figure out some of the logistics. And if that costs me a little bit more, great. That's one of the reasons that I use upwork in Recent months, my team and I have hired a content editor to help with emails, a graphic designer for a new product, and even a developer who helped us quickly fix our website. Posting a job on upwork was easy. It's free to join. You can register, browse freelancer profiles, get help drafting a job post, or even book a consultation. And from there, you connect with freelancers, browse their work, and you can hire them easily to get started on projects right away. Upwork makes the whole process easier and more affordable. With industry low fees, you can find top talent across a ton of different industries, including it, web, dev, design, marketing, admin support, all of it. So visit Upwork.com right now and post your job for free. That's Upwork.com to post your job for free and connect with top talent ready to help your business grow. That's upwork.com upwork.com do you want to wait three years in order to rebalance your portfolio?

Not necessarily, because I also know what the stock market is doing right now, and I know people are 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 come 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?

No.

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, 3, 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. Okay, 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 say, this reminder. I said, ah, this is going to be good. I click 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. 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. 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. 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, my normal allocation is 35%. I happen to be 40, 50%. It's a little higher than I'd want, but that's fine, you know, 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.

Yep. 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. You know, index funds make a lot of money. Do you all know that?

Yes.

Yes. And it's not 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'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 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. You know, I. Don't look at risk the same way that you do, 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.

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 Raymie 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 an index fund in a just a normal taxable account, not a tax advantaged account like a Roth IRA or a 401K.

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 y' 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, 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. Yeah. And talked about the exponential growth pattern of compounded trip in compounded interest.

It's staggering. Yeah, but it's. The math itself for the two of you is quite simple because you understand compound. 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. You know, 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, it's, 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, you know, essentially that's it. Right.

Yeah, it's just growing upon itself. Good.

Yeah.

Real estate does sort of work the same, although it's a totally different asset class with a different risk profile. And also, you know, 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 costs. 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?

Not at all.

Yeah, no.

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 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, you understand the value now talk us through. How will you get there?

Yeah, I mean, I think that the best thing we could do is, 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, and reinvest, I think, is how we would do it, you know, and so I think over dinner and a laptop, a glass of wine for me, you know, we, we take a look at this and just come to an agreement on, on what that next step is. And I think that kind of just like understanding the risk involved with all of our assets being in the same asset class. 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 it, 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. Yeah, that appeals to me a lot.

I received a follow up letter from both Georgia and James. You can get the full follow up@iwt.com follow ups. Let me give you a quick excerpt from what James wrote. He says the thing that really stuck with me was when you said timing should be the last step in our conversation and that the reason the principles and the plan should be the primary driver after that timing is simply execution of the plan. This really seemed to strike a chord with me and I began to understand part of fulfilling our vision of the future meant both of us need to feel like we are driving and that one of our ideas does not need to exclude the other. 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 for how to build the I will teach you to be rich system into your personal finances.