Jay Lawrence (Rathbones): Why the Property Ladder Is Broken, and What to Do Instead

This transcript is auto-generated and lightly edited for readability, it may contain errors.

[00:00] Sammie: Jay, welcome. Most people in this country are taught that getting on the property ladder is the smartest financial move that you can make. You think that’s wrong? And why?

[00:12] Jay: I think that we’ve got to look at this in the context of a much bigger societal problem, which is what we were taught by our parents doesn’t necessarily work for us today. And I think that the property ladder is probably the biggest symptom of this. If we go all the way back, I’ll use an example. But if we go back to the 1970s, you needed three times one person’s income to afford a property. Now you’re looking at sort of eight to 12 times a single person’s income. So what you’ve done is you’ve effectively raised the property prices. And that’s what it’s all about. It fundamentally is about property prices, but property prices have risen way faster than wages. And so there’s a lot of people out there today who are, I guess, stuck. They think that they should be getting on the property ladder because that’s what worked for the generation before us. However, what’s happened is that people are feeling guilty about this idea that I can’t even, you know, I’m paying a lot of money on rent. I can’t afford to buy a property, I can’t save up for the deposit and the stamp duty and all these different things. And so I think a lot of people currently, right now, are feeling stuck. So we’ve got this idea that you want to get onto the property ladder. This idea of a ladder itself implies that you’ve got progression, you’re on a rung and you’re gonna make your way up. But there are some people now, particularly since interest rates have risen, property prices have relatively stagnated. If you bought a property five years ago and all of a sudden you’re rolling onto a higher interest rate, you’re gonna be paying more in your mortgage, yet you’re still on the same rung of the ladder. And to me, that doesn’t necessarily make sense anymore. So this idea of a ladder and progression and climbing it is, I would say, relatively broken. And a lot of people are struggling to get onto the ladder. And so I’m trying to educate people in a way that’s saying property isn’t the only way to build wealth. We’ve looked at it in the past and we’ve said, look, it has been a meaningful way to build wealth. You can get a mortgage, you can climb the ladder, it grows. You put something on Twitter a couple of days ago and you said that your neighbour bought a property, the same property as yours, for £37,000 and it’s now worth £465,000. Well, they’ve seen a 7.5% annualised growth rate. If you look at a person who bought a property 10 years ago, they’ve got no growth at all. If you bought a property in London, you’ve seen negative real growth, and that’s growth after inflation. So I don’t think property is protecting people’s wealth in the same way that it used to. It’s not growing with inflation anymore. And the company I work for, Rathbones, we did an amazing piece of research into this to show how property prices have performed relative to the stock market. And if we take your neighbour, for example, who bought a property in the 1970s, or 1990. So if you bought a property for £37,000 in 1990, today it’s worth £465,000. If he’d invested that in the FTSE 100, it’ll have about the same. If he’d invested in the S&P 500, he’ll have £1.2 million. And so the idea now that property is the best way to build assets, build wealth, is probably a little bit more archaic. And I think people nowadays, particularly our generation, have to be thinking about things a bit differently. Don’t punish yourself if you can’t afford to buy property yet. But why don’t you look at investing instead? Because it’s much easier to get on the stock market ladder than it is the property ladder.

[03:52] Sammie: So we’re gonna get blowback on that because we always do. Because again, this is such a big deal for people, and it’s just so ingrained, right? And as soon as you do the renting versus buying calculations, even then, people are like, no, getting a house is the right move, X, Y, and Z. So in a nutshell, if we’re not buying a property and we’re investing, we’re renting. Is that right?

[04:16] Jay: I mean, yes, that is right. So you are renting, and I think that a lot of people would say, well, you’re just paying somebody else’s mortgage. But then you weigh things up and you say, okay, well, now interest rates are at 5%, you do realise that you’re paying the bank interest as well. And in the early days of owning a property, the majority of the monthly payments that you make are just paying off interest. That’s how negative compounding works.

**[Sammie]:** Exactly.

**[Jay]:** So the majority of what you’re paying is actually to the bank. Now everyone knows that banks are greedy. Landlords, they say, are greedy too, but you’re willing to pay the bank money in interest, but you’re not willing to pay a landlord. And so if we go back one layer further as well, we live in a very, very flexible time in humanity. If you want, you could start your own business, you could go and work overseas, you might want to move. But if you’ve got a property, you are kind of fixed in your location. It also means if you’ve got a property that you’ve paid, you know, eight to twelve times income to achieve, and you get made redundant, if you want to move away, if you have a child, you’ve got a huge mortgage hanging around your neck. Whereas you don’t have that same problem if you’re renting. The argument has always been if you’re renting, typically in the past you could get a mortgage and pay less per month than you can on rent. I’m not too sure those numbers make the same sort of sense anymore, particularly now interest rates are at 5%. And you can just look at this very simply: my share of my rent is about £1,400 a month. The property value is about £800,000.

**[Sammie]:** Central London?

**[Jay]:** Central London, zone two. So the property value is about £800,000. An £800,000 mortgage, you’re paying £40,000 a year in interest.

**[Sammie]:** Interest. Okay.

**[Jay]:** And so that’s my share of the rent, by the way. I’ve got a fiancee, so we pay just under £3,000. I should clarify. But £3,000 a month, we pay in rent. Well, you multiply it by 12, it’s £36,000. You’re paying less in rent than you are in just mortgage interest at that point. And so, like I said, I think that we’re at this point in the moment where the value is actually in renting as opposed to buying. And if you can afford to, then in the case of your deposit and your stamp duty, let’s say, for example, a £800,000 property, you would need what, 150,000 deposit to be able to buy that, 20%. If you could invest that £150,000 instead, and it’s growing faster than what property prices are, okay, you get leverage with a property, but if it’s growing at 7% in the stock market as opposed to one or two percent in property prices, you’re better off. And you don’t have the headaches. And so that’s my sort of thesis behind: don’t punish yourself if you can’t afford to get on the property ladder. It worked for our parents’ generation, but it isn’t working for our generation, and property prices aren’t growing at the same rate. They’re growing at the moment by like one to two percent a year. Inflation’s running at three and a half percent a year.

[07:37] Sammie: Yeah, we’re sort of fighting the wrong problem, aren’t we? We’re like attacking it like that: oh, property prices, they’re getting away so much. And it makes good content because it is what people care about, right? But actually, when you do dig down into the numbers, it’s trying to get the person to understand that. Because if I say, oh, I pay £465,000 for my house, which I openly put up on Twitter, and the comment section on that post was something to be desired, it sort of showed you that actually people don’t understand the numbers. And I like to get in a few little Twitter fights here, it’s good fun, right, because you sort of try and teach them and they won’t accept it even when you show them the maths. But over time, I’m probably gonna be paying upwards of around about £800,000 for that house. When you factor in the maintenance costs, when you factor in doing it up, the fact that the missus wants to remodel the kitchen, X, Y, and Z, you’re talking way over a million quid. So it’s a million pounds for that asset. It’s now then got to grow in real value terms over that time. And yes, the value of my mortgage is being eroded by inflation too, but the house needs to be a million quid at the end of it for me to justify the profit.

[08:44] Jay: Yeah.

[08:44] Sammie: Obviously there’s some fluctuation if you’re factoring inflation in there and it gets a little bit more complicated when you look at that side. But just taking the baseline numbers, that’s just factual basis right from fact one of today. But could that money be put elsewhere? Now, I want to own my own home and I always have done, and I want to do up the kitchen, and then I want to do up the garden, and I wouldn’t be able to do that on a rented property. So there’s a swings and roundabouts approach to it.

[09:08] Jay: But the point you’re making there is not the property ladder. This idea of the ladder, which is you’re progressing upwards, is that you buy a property and then you make your way up. You buy a cheaper one, then you get onto the next rung of the ladder and you sell it and you upsize. You’re buying a home that you want to live in probably for the next five to ten years.

[09:26] Sammie: We’re not moving, man.

**[Jay]:** You’re not moving, exactly.

[09:28] Jay: So that is actually a completely different conversation to what most people are doing. Most people might start off in London or in cities and they buy like a small apartment because they don’t want to pay rent, and then they want to move out into the suburbs and buy a bigger house. And I think my view on this, I come from an investment management background, I’m an investment director at Rathbones. I’ve had my eyes opened to the power of the stock market in the decade I’ve been working there. And I would say that there are alternative ways now to make that progress up the ladder. And sometimes it might mean that you just rent where you feel comfortable and where you want to live for a bit longer, but being very disciplined about your savings on the side.

[10:59] Sammie: Okay, so let’s talk about that. Because if we’re saying the property ladder isn’t the golden ticket today, what does the ownership ladder look like for someone who is in that position, feeling like the house is getting a bit too far away from them? They’re trying to keep up with their savings, the house moves away. Hopefully, well, not hopefully for property owners, but hopefully for that individual, the prices may come down in London, etc. They are a little bit, but still they’re looking up like, wow, I don’t want to live in a shoebox and pay half a million quid for it. What do they do in that situation? What is no one talking about there?

[11:33] Jay: I think that we look at this in the data. I think Lloyds or Santander at the start of this year published data around how much money is in cash ISAs, for example, and it was about £360 billion. I think that’s your biggest starting point: there’s a lack of financial education in the UK, particularly around investing. And I know that Rachel Reeves came out in the last budget and said that they want to encourage more people to invest. They’re actually going to cut the cash ISA allowance down to try to encourage more people. And for the first time, you had people like Martin Lewis on the TV talking about investing. And I’ve been very critical of him in the past because I think that Martin Lewis is one of the reasons why as a nation we’re so risk averse. It’s always about how can I save a bit more money, how can I have insurances in place, it’s all about how much do I protect what I have as opposed to grow what I have. And there’s an amazing economist who works for Schroders, another huge asset manager in the UK, a guy called Duncan Lamont. I’m obsessed with him, he’s brilliant.

**[Sammie]:** Yeah, he is absolutely fantastic.

**[Jay]:** And he does this amazing analysis. And maybe we can link this in the show notes because it’s worthwhile everyone reads it. I think at the time of writing, he said there was around £1.5 trillion in cash, cash ISAs, premium bonds, and NS&I products. On aggregate, people have about £1.5 trillion in cash. We don’t really have a wealth problem in the UK as such, because we’ve got that much money sat there in cash. We actually have a behavioural problem. And so people are not investing that money. To put this into context, if that £1.5 trillion had been invested for the last decade, every household would be 20% wealthier. So GDP per capita would be 20% higher. The UK has lost out on £500 billion of missed growth.

[13:26] Sammie: So potentially more when you look at like the Norwegian sovereign fund, etc.

[13:31] Jay: Exactly. And I think that this is where the whole mentality around it comes from. And I don’t know why in the UK we’ve been so risk-averse when it comes to our finances. Maybe we don’t talk about them as much. Americans have got the opposite problem. We have the majority of our money tied up in property. Property, actually, when you think about it, is a very, very inefficient way of locking up your wealth, right? Nothing’s happening with it, it’s just stored there. The only people that are benefiting are banks from the interest they’re charging. If you’ve got more money flowing around the economy, and even if that is you investing, you’ve got a strong stock market, you’re investing money, you feel a bit richer, the liquidity element is completely different with the stock market. So, property, you lock away your money, you can’t get it until you sell that property. If you put your money into a stocks and shares ISA, you can extract it whenever you want. And so if you did want to go and have a nice blowout holiday, you have the option to.

[14:28] Sammie: And so that money is about compounding, Jay, where, you know, I know what you mean.

[14:33] Jay: I know the power of compounding, but you have the flexibility.

**[Sammie]:** No, yeah, exactly. I know what you’re saying.

**[Jay]:** And so there is a wealth accumulation effect, whereas if you did take money out of that, you can spend it in the real economy and it can go around, and ultimately people do.

[14:47] Sammie: And that’s what’s really important. So yeah, it’s really funny you say that. I’m meeting a guy later for some drinks post-podcast recording. And he, this guy, he’s a Norwegian guy, and he would send us investment things. A lot of the things that I’ve done off the back of what he said have done me very well. And he has a stocks and shares ISA in the UK, and he wanted to move to Spain, and the flexibility of having the funds available to him, you mentioned there about going on a holiday, he could have carried on building and building and building and accumulating. It’s that die-with-zero aspect, isn’t it? It’s like, well, I know I can spend it, and this is now more valuable to me than growing the portfolio, so I can do that and I can be flexible and move it around. But if he’d just put it in a cash ISA or an asset which was locked up like a property, it would have been way harder to make that decision.

[15:38] Jay: And I think the fact that cash ISAs just aren’t growing… look, I work for a company, we manage £115 billion in client assets. We have a lot of ISA millionaires. And I can say this with confidence, not a single one of them built it from a cash ISA, because the numbers just don’t actually make sense. If you do the maths, if you could contribute £20,000 to an ISA that’s growing at 7% a year, it would take you around 23 years to get to a million pounds. And you simply couldn’t do that when cash returns in the past have been sort of very, very low. But that’s a sort of a side point that we’re making here about investing in general. I made the point earlier that getting on the stock market ladder is much easier than the property ladder. You don’t need the huge sums of money. If you can just be disciplined and be making small contributions into it, it builds up. And you’d be very, very surprised by how quickly these small monthly contributions, invested regularly, can actually make a difference. And then if you extrapolate that over 30 years, the numbers at the end are massive. And I think people don’t really understand that. Probably one thing that I would say to people listening to this is just to go onto Google, go onto a compound interest calculator and do the maths. Whatever your number is, £400 a month, growing at 7% a year, every single month that you put that money in, see what that number is in 35 years, 25 years. And you’ll realise actually how quickly you can get to a lifestyle that you want in the future, that you’re going to be comfortable and you can have that early retirement. But investing is something that takes a lot of time. And to see the real returns and the real results from compounding, unfortunately it’s one of these really badly marketed things, because you don’t see many returns in the early years, but the returns really compound and grow in the later years. But you’re going to give yourself a lot more freedom and flexibility in the future if you can just start making those small changes.

[17:42] Sammie: 100%, 100%. So I’d love to know where you’ve learned all of this, Jay. Because growing up, you didn’t come from money, right? Your money was a bit scarce. So how has that progression come for you, from learning all of this stuff to being the kid that you were back then?

[17:59] Jay: I’m gonna be very honest and transparent, because I think it’s best that you make yourself relatable, but I didn’t come from any money at all. I would say the money was very scarce. I went to a state school. I taught my parents about investing in their 50s, I set their pensions up for them. And I feel a bit silly saying that now, but that’s part of the problem. My parents were always hardworking, but whenever we had money in the house… you apparently learn your money habits from the age of about seven. So what was I taught? I was taught that money was scarce. And when something’s scarce, what do you do? You protect it, you hoard it. And so this idea of growing it wasn’t ever something that was spoken about around the dinner table. Money was only spoken about around the dinner table in a very negative way, like, how can we afford to do this, how can we afford to do that, always wanting more of it.

**[Sammie]:** You can’t do this because we haven’t got enough.

**[Jay]:** Exactly. So this idea of investing and saving was never an option. And it wasn’t until I went to work in the finance industry that I learned this. I was in my twenties when I learned this for the first time. I learned what an ISA was, I learned what a pension was, I learned about the stock market, I learned about compounding. And the moment I started to do it myself and see the results, and then sit down in front of clients who had built up multi-million pound portfolios from just earning decent… but the key difference was really their habits. It wasn’t really that they were earning more money, which allowed them to get there, you can still have someone that’s on a working class salary who can still get to a large amount of money. There’s a great book called The Psychology of Money by Morgan Housel, and he talks about a janitor who’d basically amassed millions of dollars.

**[Sammie]:** Ronald Reed.

**[Jay]:** Ronald Reed, that’s the one, yeah. And he had amassed millions of dollars in savings, but he was a janitor, and that was because he just put his money away and grew it. Investing in like IBM and stuff like that, wasn’t it, big blue chip stuff.

**[Sammie]:** Yeah, blue chips, yeah.

**[Jay]:** And actually the point that you’ve made there is really, really important, because you’ve mentioned a very big company, at least at the time, but the big companies today are ones that we use on a daily basis. So I actually think that we’re all aware of what companies are and what investing is. But I was just never really aware, whilst I knew that I was spending money, I was never really aware of the back end of that. I was never aware that if I was a shareholder in those businesses, I can profit from, I can benefit from the profits. And I think everyone’s very quick to talk about the record profits of oil and gas companies, for example. But how many people are actually investing in oil and gas companies? Sure, “greedy oil and gas companies, aren’t they making loads of money?” But if you’re a shareholder in that, you’re making loads of money too. And so I think people’s mentality needs to shift. And that’s just something that happened to me, and I’m very grateful that I did, because my parents now can retire actually pretty comfortably, because they’ve amassed, through real hard work, you know, they don’t earn tons of money. But when my mum realised she was making up for lost time, she was then squirrelling away, via pension contributions by the way, so she was getting tax relief on the way in. She didn’t know that either. She didn’t realise that if she made contributions from her gross salary that went straight into a pension, she would be saving on income tax, on national insurance. So the amount that comes into your bank account is so much lower than if you put it into your pension.

[21:44] Sammie: Yeah, because they were from the age, like, pre-opt-in. I think it was 33% of private sector workers were opted into their pension.

[21:54] Jay: Wow.

[21:54] Sammie: And then it grew to 88% post, when they enforced it. Yeah, yeah. Which is nuts, right?

[22:02] Jay: And that is, and you get employer matching, for example. So if your employer will match you up to a certain level, my bit of advice would actually be to accept that, because if they’re saying, yeah, if you put in 5%, we’ll match it to 5%, fantastic, you’re getting a guaranteed 5%. You’re not going to get that anywhere else. You can’t get any guaranteed returns in investing, but you can if your employer is willing to match what you put in.

[22:28] Sammie: What’s 100% return? Yeah, yeah, it’s impossible to get back. Um, so I think it’s a good way of doing that. I think a double-edged strategy is so important. Like, you need flexible pounds, I like to call it, and you need slow pounds. James Martin talks about this, he’s an entrepreneur, he says fast pounds and slow pounds. And I’ve sort of stolen that. He talks about that from a business perspective, but I’ve stolen it from him in terms of investment pounds. So flexible pounds is your stocks and shares ISA, you can go and get it. And your slow pounds is your future-you and your pension. And if you can combine the two, and we’re not talking big money here, it can be a fiver in each one, it’s still going in as a contribution. Then that’s where it can really start to be quite a powerful wealth-building strategy.

[23:16] Jay: I did a video on this actually. I’ve got a podcast for those who are listening called Ambitious Minds. And I’m now putting a lot more content online talking about this stuff, from what I’ve learned from my experience.

[23:26] Sammie: That’s great, by the way, I will back that up, thank you. Every time it comes out, it’s first on my list.

**[Jay]:** Really? Thank you.

**[Sammie]:** Yeah, thank you, it’s brilliant.

[23:34] Jay: And I spoke about the idea of flexibility versus long-term savings, flexibility being, you know, in your ISAs, make sure you’re doing that. But also long-term, you’re getting the tax relief and you’re getting the real uplift if you can do your long-term, but you can’t touch it. I’m 35, so I can’t touch it until I’m… well, that’s 57 at the moment, it might change in the future, but I can’t touch it for 22 more years.

[23:58] Sammie: You’re obviously on the front line with this, and I spoke to Andy Hart about this, and it has opened my eyes a little bit too, that we are at this age, you’re 35, I’m 36, you look 10 years younger than I do.

**[Jay]:** You’re groomed up well, sir.

**[Sammie]:** The aspect of that is that for us it’s 21 years, probably 22, 23 years, likely probably to go up if you look at the way it’s increased over time. 22 years seems a long time away. Yes, it’s important, but with the way the world’s going right now, every moment there’s a new invention that’s blowing up an industry, AI, etc. Are you prioritising flexible pounds more than long-term pounds? And how are you dealing with that with clients and those types of conversations as well?

[26:00] Jay: I’ll talk about myself first before moving on to clients. For myself, I do both. I’m in a lucky enough position that I can do my ISA allowance every year, I invest that, none of it is in cash. That’s a personal preference because I’ve got this mindset that I’m renting at the moment. I do want to afford to buy property in the future, I’m quite happy renting, I don’t have all the overheads and the other costs. And also I’m not too sure where I want to live. My fiancee is Italian, for example. So am I going to be staying in the UK long term?

**[Sammie]:** You’re gonna be able to do that?

**[Jay]:** I have no idea, I have no idea.

[26:36] Sammie: You’re gonna be even younger with tomatoes and red wine. Nice.

[26:44] Jay: I need a… if I live to a hundred, I need a return, I need a pension plan, that’s for sure. But I do invest via my pension as well. And again, I get the tax relief from that. So I’m very disciplined, I have to make sacrifices, and I think that the problem today is that people are unwilling to make sacrifices. There are a lot of people, and I completely understand the situation because I speak to so many of my friends, and I’m even in the position, I earn good money, but I can’t afford to buy a property at the moment. And there are so many people out there who are saying “I can’t afford to save.” My advice would be, and I had this conversation with my brother only a couple of weeks ago, he said to me, “I want to start saving in my ISA.” I was like, fantastic. “Should I put away £400?” And I was like, I don’t know, what do you feel comfortable putting away? And he was like, to be honest with you, I think I can do £400. I said, okay, well, are you gonna get to the end of the month and need to take some of that £400 back? Or are you sometimes gonna miss those payments that are going into it? And he’s like, I don’t know. Yeah, I was like, okay, you’re better off doing 12 payments of £300 a month going into your ISA than six payments of £400, because sometimes you don’t have the money to go in there. But if you can be disciplined, if you could, what you call, pay yourself first, if the moment you get paid you have an auto payment that comes out of your bank account into your trading account or your savings account and it gets automatically invested, or it goes into a cash ISA or whatever your priorities are, if that comes out the moment you get paid, then you give yourself the advantage that you can just spend what’s left. And then you can learn to budget so much easier. And if you get a pay rise, try and put the pay rise into your savings as well. And these are the small habits that I think people overlook. People see a pay rise and they go, “oh great, I got a pay rise.” My advice would be, if you can, try to pretend like you didn’t get a pay rise, put the additional amount into your savings.

[28:51] Sammie: I do something different with people, because I think it’s really difficult to tell them to do that, because they just don’t, right? Instead of doing the full 100% lifestyle creep, because that’s actually really bad for your money if you do do that, as we know, you’re then up in your life, you’re not gonna downgrade your life if you can try not to, right? So it’s much harder. But I’m like, increase your life by a small percentage, enjoy it, or, you know, first time you get the paycheck in, spend it on something nice, but then after that, make a plan for it. So, especially with bonuses. So I used to get quite a lot of bonus, I used to do quite a lot of sales in hospitality, and I’d get kickbacks for all the big bookings that we brought in, and I’d get, you know, five, ten grand bonuses. And the thing to do was, if that happened, spend 33% and then invest 33%. And then the other 33%, what I like to do is basically get to your shorter-term savings goals a lot faster. So then that cleans up some of the extra money that was going into those parts, because then you can move into investments or increase your contributions over a period of time, or it gives you a bit more buffer or leeway because life and cost of living, etc., has gone up. And I think if you can do that, it makes a massive difference to the end goal as well. So you still reward today, because everybody wants the new shiny thing.

**[Jay]:** Of course, yeah.

[30:17] Jay: And prices going up, right? We’ve seen prices increase significantly from 2021 until now. I saw an article the other day saying the price of a pint in London is now £10.

**[Sammie]:** That’s outrageous.

**[Jay]:** It’s nuts, isn’t it? And I don’t really drink much anymore, so that doesn’t impact me, but that’s a conscious choice. And they say that people are now drinking less. Is that because it’s a financial problem or a health problem?

**[Sammie]:** Probably a mix.

**[Jay]:** Probably a mix, yeah. But people now are more inclined not to go into the pub after work, because they know it’s gonna cost them 50 quid just to buy a round of drinks. And a lot of people actually now can’t afford that, to just go out on a Tuesday night or a Wednesday night or whatever the day is. It’s probably, you know, buy a round of drinks and suddenly you’re £50 out of pocket.

**[Sammie]:** Yeah, yeah.

**[Jay]:** It’s way more money spent, isn’t it?

[31:15] Sammie: And I want to talk to you about that, because it’s a really good point you made. We’re what they would class as Henries, right? High earner, not rich.

**[Jay]:** Yeah.

**[Sammie]:** So we earn well, but we don’t actually feel wealthy.

[31:27] Jay: Yeah.

[31:28] Sammie: How is that even possible?

[31:31] Jay: I’m gonna go back to the start and talk about property. I think property is the number one issue, whether it’s rent, whether it’s property prices and getting on the ladder. But there’s also the additional thing as well, that we’re living in the highest tax burden, I think, since World War II. If you are a higher earner, which is the Henry, you’re being squeezed in terms of the amount of tax that you’re paying, your rent’s really high, you’ve got Henries now that are living in London, for example, in flat shares. How on earth have we got to a position where someone’s earning a decent amount of money, and the moment you cross over from £100,000, you start to pay 60% income tax, it’s 62%. If you’ve got a student loan on top of that as well, that’s an even bigger cost, I think somebody said it’s 71%. And again, going back to this, I call it the “doing everything right” paradox. If you go back to when you were in school, you were told if you work hard, go to university, get a good job, you can start a family, you can save up, and then you can retire comfortably. Well, that doesn’t work anymore. How many people in our position or our age are in that position today? Not a lot. And I think that fundamentally that’s because of student loans, we’ve all been encouraged to go to university. I’m lucky enough that I wasn’t one of those people, again, coming from a working class background, it wasn’t something that was actively pushed at the time. And so I don’t have that 9% coming out of my income every single month, which means I’m able to save. But there are people out there who are paying tax at 40%, national insurance, they’re paying student loan, they can’t get on the property ladder, they’re paying rent to a landlord, and they’re going, “I’m stuck.” And I think we’ve got this problem coming along now as well, which is I don’t think enough people were speaking about this or thinking about it, but the war in Iran has just kicked off recently. Interest rates were high during 2022 and they began coming down. I think a lot of people felt that was a bit of a sigh of relief, but particularly people that bought properties around the 2021 mark, they assumed that they could start to refinance at a cheaper level in 2026, five years later. What’s actually happened is that interest rate expectations have jumped again because inflation is expected to be higher. The difficult situation we have today is that in 2022 we had a very, very active jobs market, you could leave quite easily and get a big pay rise. Structurally now, the jobs market is nothing like it was before, we have weak wage growth, we have unemployment that’s ticking up, highest on record for 16 to 24 year olds. And if you’re a graduate… this is the mental thing, my fiancee Julia left Italy, she was part of the brain drain. The southern European states had a very, very high youth unemployment level, they were moving to the UK for opportunity. We have people doing the opposite now. We have a higher youth unemployment level today in the UK than Italy and Spain did during their downturns. How on earth is that making any sense? And again, this sort of paradox, what used to be the case is no longer the case today, and so people are in this really tricky position where they’re being squeezed from all angles, and Henries would feel like they’re doing all the things right, it’s the “doing everything right” paradox. “I did all the things right, I did what I was told to do, and yet I can’t make any progress.” I don’t have a family, I’m in my 30s, some people are living at home with their parents, you’re paying money on rent, you can’t get on the property market, and then you’re seeing your costs go up all the time, your wage growth hasn’t been what you expected. What a difficult position to be in for a young person today.

[35:45] Sammie: Yeah, we get this. You get the whole, “well, you must be crying into your 80 grand salary,” and it’s like, well, hang on a second, did you not set out to achieve a decent level of income for yourself and your family? And then you get, “well, yes, but then they should just live in a cheaper house and a cheaper location.” And it’s like, well, yes, again, but did you not set out to live in a house which you desired and that you wanted? This is an aspiration for some people. And if you’re not that type of individual, that’s okay too. And this is where we get to this line with the content that me and you do. It’s like, yes, not everything is going to be relevant for some of the audience that listens. We can’t cater to everybody, and there’s no wrong or right answer. It’s how that individual is feeling, which is important to that individual alone, not you down there or him up there or him in the middle. It’s literally that person and how they’re feeling. So a subset, a subniche of individuals is going to feel a certain way, and somebody else is going to feel completely differently. And it can be the fact that high earners in London are really struggling. That’s why you see the post like “earning 100k in London, flat broke,” and everyone’s like, oh, boo-hoo, but that doesn’t make sense.

[37:01] Jay: And I think there’s almost this big divide in the UK between the north and the south, and it becomes quite an envious position. If you were earning £80,000 in, you know, Newcastle, you’re living quite comfortably.

[37:14] Sammie: 100%.

[37:15] Jay: If you’re earning £80,000 in London, you’re not. You’re living in a house share. Maybe if you’ve got a partner, you can afford to rent somewhere by yourself.

[37:25] Sammie: But your partner needs to be earning semi-decent as well.

**[Jay]:** Yeah.

[37:29] Jay: That’s right, yeah. And this goes all the way back to the start, where I said that property prices used to be three times a single person’s income, now it’s eight to twelve times. You now need, in order to be able to rent somewhere or buy somewhere, two people’s income. And if you have aspirations to earn a decent amount of money, if one person in a household earns over £100,000, you lose things like childcare benefits as well. And childcare alone is like a mortgage, it’s like a rent, it’s thousands of pounds a month. And so then you’ve got this disconnect where people sometimes have to debate whether they go back to work or look after the child.

**[Sammie]:** Oh, that’s it. That is not a question that we should be having to face.

[38:13] Sammie: I completely agree with you. When you work out the cost of going to work, and then the cost, even with the 30 hours of childcare included, the cost of nurseries, etc, and physically raising the child, you end up, if not, sometimes it’s a few hundred quid net profit if you were looking at it like a P&L. A lot of the times it’s negative all this, so you’re literally going to work to pay for those things. Whereas if you stayed at home, yes, it would add a little bit more pressure to the household, etc, but you wouldn’t have that same level of cost. It’s mad.

[38:46] Jay: So what we’ve done is, two people have gone to work, you’ve lost 40 hours a week of discretionary time that you can spend with your kids, but you’ve got no additional benefit for it, because property prices… actually, this is a point I made in the Substack article I wrote about “property is no longer the best investment.” The majority of property returns happened in the 1980s and 1990s. That period coincided with when women went to work. And this is nothing to do with, you know, women shouldn’t go to work, etc, but what did happen is just mechanically, house prices absorbed the additional income. So instead of having an extra, let’s just say £1,000 a month because that was what salaries were, property prices just went up by that amount, and then all of a sudden it got completely absorbed.

**[Sammie]:** Yeah, it followed it.

**[Jay]:** We’re in this situation today where it’s irreversible, we’re not going back. But where do we end up? Do we end up in a three-person marriage? Do we end up with three people living in a home to be able to afford to buy one?

**[Sammie]:** Yeah.

**[Jay]:** And that is what, unless something structurally changes, and it does need to structurally change… but Labour came in and said they would build more properties and it hasn’t happened. There’s been a chronic undersupply of new houses. And we turned houses into an investment vehicle.

**[Sammie]:** Yeah.

**[Jay]:** They’re no longer homes. Why on earth are we even thinking about people with property portfolios? That shouldn’t be the case.

[40:11] Sammie: It’s really interesting when you look at this. When the first sort of dual-income households started, then you had right-to-buy, then buy-to-let, and you can see it, every time one of these things comes out, house prices almost sort of vertically tick upwards, then there’s a sort of fluctuation, a balancing act, and then it goes up again. So we just allowed enormous amounts of income to be pushed into property prices, which has essentially led to the vast majority of that rise, and of course the assets as well, and inflation has contributed, but it’s crazy.

[40:47] Jay: Yeah, I’m actually seeing at the moment, through the job that I do, that there are lots of people who have inherited properties from parents who have passed away, and they’re looking to sell and then reinvest the proceeds into a portfolio, because a lot of people nowadays don’t want to be a landlord. We’re all aware of the Renters’ Rights Bill and these sorts of things, it’s no longer as attractive to be a landlord anymore. So actually they’re looking at these alternative ways, because previously, “okay, cool, I’ll have a property, I’ll rent it out, I’ll just collect the income every month.” It’s tax inefficient, first of all, to do that. And a lot of what we do as a company is all about… yeah, we’re investment people, we’re trying to grow people’s wealth, but we’re also trying to save them tax. And really, when you can get your head around the tax efficiency part of things, that’s when you start to make meaningful changes to your life and creating wealth faster than if you were paying money away in income tax.

[41:42] Sammie: So let’s call this thing we’re doing “the right things,” mate. We’re out here, we’re earning some money, we’re bringing some cash into the house, things are a little bit tight right now, but we’ve got a little bit to squirrel away here. Like, I like the sound of this investing thing, the ISAs sound good, my pension, I’m doing that through work. What’s my move there?

[42:02] Jay: I would say, I have to be very careful when I say this as well, and I hate the fact that I have to say this, but I’m regulated, so I do: this is not financial advice. However, what I would say is, if you can afford to just put money away every month, and I’ll go back to what I said earlier on, automate your investing. Automation is going to take away the majority of the problems. You’re not trying to time your investments, you’re not trying to remember to move the money across. If you set up your investments on a platform, it could be AJ Bell, it could be Trading 212, it could be Hargreaves Lansdown, they will all have this automatic deposit and automatic invest function on there. Whatever amount you’re comfortable putting in, I would always say, as someone that’s starting out, try and think about 10% of your gross salary. So if you’re earning £50,000, that’s £5,000 a year that you want to go in there, that’s just over £400 a month. But having that as a sort of a mindset, a starting point, is where I like to be. I started off at about £250 and made my way up.

**[Sammie]:** That was a ladder. That was progress.

**[Jay]:** Yeah, as I got pay rises.

[43:12] Sammie: Now they’re on £250. Yeah, they’re not earning that much more, they just saw the power of it.

[43:17] Jay: Yeah. But what I would say is, automate your investing. So do that when you get paid, the money comes out of your bank account, it goes into your savings account, it could be a trading account, whichever your chosen provider is, and then set up the auto-invest. I would say if you’re young and planning for the long term, just invest into a low-cost index fund. You’re gonna be buying, if it’s a global index, like the 1,150 biggest companies in the world, that is the companies that you’re using on a daily basis. And that’s what investing really is. It’s the biggest companies, there are Google and Apple and Amazon and Microsoft and all the companies that we use on a daily basis, you become a small shareholder in those businesses. And so when people say that the stock market is risky, it is risky, it can fall in value. However, so can your cash, after inflation. So the best way to protect against inflation is: you know that companies are increasing their prices, but if you can be a shareholder in those companies, you can benefit from those prices increasing. With an index fund or an equity fund, you are a shareholder, a very small shareholder in lots of different businesses, you’re diversifying the risk. So I would say, you own the world, as Andrew Craig says.

**[Sammie]:** Exactly, you own the world.

**[Jay]:** And he’s, if you’re looking to start somewhere in terms of investing, I’m sure podcasts like this are a great place to start, you have fantastic guests on who will distil a lot of what they’ve written about into just an hour-long episode. Andrew Craig’s book, How to Own the World, or I think he’s got one now, How to Own the World for People Under 30.

[44:50] Sammie: Yeah, invest less than… I’m gonna butcher that.

[44:58] Jay: Yeah, anyway, sorry, Andy. He’s a good friend now as well, but he’s got a fantastic book, which sets out the core principles of saving and investing. Morgan Housel as well, I’ve spoken about that, The Psychology of Money, and really saving is a psychological issue, it’s not, in most cases, an income problem. People are often doing some form of saving, in my view, they’re just doing it in the wrong direction.

[45:27] Sammie: Call The Psychology of Money the gateway drug, basically. It’s the first one to read. It’s not necessarily the best practical money book, but it changes your thinking about what’s possible through stories, which is usually a great way to start. And then I always say read either Andrew Craig or A Simple Path to Wealth by J.L. Collins.

**[Jay]:** Yep.

**[Sammie]:** It’s both very similar in the way that they sort of attack it.

[45:52] Jay: Well, you said there about a gateway drug, and it’s a fantastic term that you’ve used, because when you begin investing, you do get a little bit addicted to it. When you start to see your money going up… I had a recent client who was a very, very nervous investor, and when he started to see it going up, he was like, “I’m making more money than I do from my salary.” He’s still working, and he’s like, “wow, this is incredible.” And that is the power of investing. I’m not saying it’s going to be the same for everyone, because it will go down as well, and he was nervous when it did go down recently, luckily it’s recovered. But the market does that, the market rewards, over the longer term, prices from companies increasing, earnings increasing, share prices track earnings growth. And, but the gateway drug part, I had a great guy on my podcast recently called Curtis Anderson. Curtis was one of the under-17s World Cup winning squad, so with Jadon Sancho and Phil Foden, he’s now a financial advisor and works with footballers. He spoke about one of the first things he did as an 18-year-old, when he got his first pro contract, was he bought a Rolex. Now he knew that he was making a material purchase at that point, and we spoke about this idea that don’t get a Rolex until you’ve got like £150,000 in savings. Ignore the numbers for a second, but I’ll explain why: because when you get to that number and you can see that your money is growing quite fast, you don’t want the Rolex anymore. You don’t want to take money out of your savings that you can see growing and all of a sudden buy something for 40 grand or whatever you spent on that watch. So it’s tougher now, but it’s that gateway drug, it’s that mindset shift, that when you can start seeing that progress from your investments growing, you then realise there is a cost to almost everything that you do. Do I spend money on the watch, or buy the car, and I’ll increase, I’m gonna buy a nicer car which can cost me an extra £250 a month, or do I just stay with the same car and save that extra £250 a month, because I know that in the future it’ll be worth so much more. So a gateway drug is the best way to describe what investing is.

[48:07] Sammie: Yeah, it is, and it’s addictive, and it’s great because it’s good for you.

[48:12] Jay: But the only problem is that when you see the ups and the downs, that is the thing that psychologically, if you’re checking it every day, can feel quite nerve-wracking. I always say, I tell my parents to look at their pensions now, like every six months or once a year. My mum started out, she began investing… this puts it into context, by the way, she began investing in September 2018. Shortly after that, we had the Federal Reserve in America increasing interest rates and the stock market fell. And she was checking on a daily basis, she was like, “Jay, I’ve lost money on this.” And I actually locked her out of her account, changed the passwords on her AJ Bell account, so she couldn’t check it. I just log in periodically, drop her a message now, it’s worth quite a lot of money. But I texted her the other day and said, “just to let you know, yours and dad’s pensions are now worth over a quarter of a million,” by the way, that they’ve amassed in less than 10 years. And I said, that’s mental, because they had no knowledge before, but discipline, and just doing it, doing it for long enough.

[49:18] Sammie: I love it, it’s just such a brilliant thing to hear, because it can be possible. And a lot, we get asked a lot, like, “is it too late for me? I’m 47.” Well, you know, your parents are testament to prove that you can get to, obviously, potentially the really mad compounding after 30 years, for you it might be a bit tougher, but it doesn’t mean that you can’t secure yourself still at this point. And if you’re in your 30s, you do have that runway ahead of you. And going back to what you said about the stock market being volatile, especially in the first 10 years, I’m not necessarily massively focused on returns, I’m focused on how much can I get in, almost seeing it as a stacking process, because throughout that process there’s gonna be ups and downs, and me and you are a little bit different, we do this every day and we enjoy it. But for the average individual, just doing that regular automated investing and just stacking is gonna do better for you than thinking about whether Trump is gonna drop the stock market by five percent because he’s decided to ban the Strait of Hormuz for one more day or whatever. That’s not gonna help you. What’s gonna help you is just making sure that you stay consistent and roll extra money into it, like stacking bricks essentially.

[50:35] Jay: Yeah, and it’s always important, if you’re worried about what’s happening in the short term, just go onto your Apple stock app, click on the S&P, or whatever, and just go max.

**[Sammie]:** Exactly, just see what it’s done and all those little blips along the way.

**[Jay]:** Even the big ones.

**[Sammie]:** Even the big ones.

**[Jay]:** And there’s a guy called Peter Mallouk, he was featured on Tim Ferriss’s podcast a few years ago, and he was talking about this, and he said if you were the worst investor in the world, and you invested the day before the financial crisis, the day the market peaked, you were down for a couple of years. Like, you were the worst investor in the world, you’ve timed it, you’ve timed it horribly. We’d had a financial crisis, the banks had gone into meltdown, and people were worried about their jobs. We entered the biggest recession we’re gonna see globally.

**[Sammie]:** Globally, right?

**[Jay]:** It had a massive knock-on effect, it affected property prices, it affected stocks. If you’re the worst investor in the world, and you then look at where that is today, you’ve made hundreds of percent return. But if you’d have ridden the wave down and then ridden it back up, you would have made a significant return. The only time at which you would have made a loss is if you’d sold it when it dropped because you panicked. But if you believe in the process, and again, if you auto-invest on a regular basis, if you’re the worst investor in the world in 2007, and you watched it go down and down and down, but you were still investing when it went down and down and down, you’re buying at lower prices. There’s this real paradox that we’ve got with younger people. For my clients, I really, really hope that the stock market continues going up, but selfishly for me, I hope it goes down.

**[Sammie]:** Yeah, I want to buy at lower prices, I’m up for it.

**[Jay]:** I don’t want the stock market to just continue going up to these nosebleed levels. For my clients, I want it to continue rising, but I want those opportunities where a market falls for a period.

**[Sammie]:** Yeah, I want to buy at lower prices.

**[Jay]:** And I loved it.

[52:33] Sammie: Trump did the whole tariff thing recently, and that was one of my big ones, and I was like, well, this is not gonna last. And it didn’t. And every single time I’ve gone through a crash, I’m always like, oh my god, I wish I had more to put in. Because I’m just like, I watch it return, and every crash feels different. And I think that’s what it is, like, each one is gonna feel like the end of the world in its own way, but it usually isn’t.

[53:03] Jay: We’ve actually got some data on this, and I’m gonna share this chart with you afterwards, because I think it’ll be important to put on the screen here or something, but it shows macroeconomic volatility and interest rate volatility in every decade. So you’ve got the 1970s, 1980s, 1990s, etc. In the 2010s, we went through an abnormal period of low macroeconomic and interest rate volatility, we got not a lot of volatility, but we got high returns. In the 2020s, we’ve had COVID, we’ve had the cost of living crisis, we’ve had the Strait of Hormuz twice because he did it last year as well, we’ve had all these different scares, and Russia, Ukraine. We’ve had all this volatility in this period of time, the average stock market returns are the same as they were in the 2010s. The difference is that you’ve had a much bumpier rise. And so I think the message there is, and sorry, to go back, actually, if you go back to the 90s, the 80s, the 70s, those were periods of high volatility. The 2010s that we became accustomed to were actually a period of low volatility. What we’ve got now is a period of high volatility again, it’s only what it was like in previous decades, but stock market returns have still been the same. And again, stock market returns are fundamentally linked to prices increasing. So if you see the price of your pint going up, if you see the price of your coffee going up, if your Amazon subscription goes up… I put up a post on LinkedIn about this, which was brilliant, but I didn’t even know that I had an Apple TV subscription, and they sent me an email to say your subscription is going up from £10.99 to £12.99. What’s that, like an 11% increase or whatever it is, or 8%, I don’t know, whatever it is, it’s an increase in cost. I didn’t even know I was paying it. They’d been benefiting from me for all this time, and I didn’t even know I was paying it. It was one of my subscriptions, which your app is brilliant for, by the way, quick plug, I was literally like, “oh, we’ll find that for you, no problem.” But we’ve seen our Netflix prices going up, we’ve seen our Apple subscriptions going up, we’ve seen our Spotify prices going up. What is the stock market? The stock market is a collection of all of those companies who are increasing their prices. When you see prices going up, you can benefit from that by being a shareholder.

[55:29] Sammie: And you could start with a pound.

[55:31] Jay: You can start with literally one pound, which is insane.

[55:34] Sammie: Nuts, isn’t it? But that’s the difference though, right? For your parents 20 years ago, that wasn’t even a thing, literally didn’t exist. And low-cost stocks and shares ISAs and low-cost pension funds, not even having to pick the phone up and go, “yeah, I’ll have two of those Apple shares please, mate.” That doesn’t exist anymore. You just click a button on the phone, it’s five minutes’ work, and you are set up and running away. Jay, I’ve absolutely loved this. I could talk to you about this stuff literally for, I think we could probably do a 24-hour podcast and still be going deep on this. But where do you want to send people, man?

[56:10] Jay: So, first of all, LinkedIn’s probably the place where I put the most content out. I’m Jay Lawrence on there, I work for a company called Rathbones, so you’ll be able to find me quite easily. I also host a podcast called Ambitious Minds, and it’s for people looking to build their businesses, their careers, or their wealth. I had the wealth element, but we have some amazing guests that come on, I had a public speaking coach on yesterday, for example, she’ll be coming out in a few weeks. It’s just an amazing place, and it really shows you that the UK, despite all of the frustrations with tax policies, people moving abroad, is full of amazing talented people who are doing amazing things. My podcast is basically just a showcase of some of those people.

[56:48] Sammie: Yeah, it’s awesome. As I say, it’s right up there, I love it when it comes out. We do have some fantastic guests. And yeah, thank you, Jay. It’s been a real pleasure, and yeah, look forward to chatting again soon.

[56:58] Jay: Thank you very much.