Rob Dix: How to Maximise Your Wealth Using the 3 Buckets Framework

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[0:18] Sammie Ellard-King:

Like one of the sort of key principles that you you you you’ve been speaking about, and um I absolutely love it because it made me sort of reflect my own strategy quite heavily. Um, which doesn’t often happen because you know you see stuff out there and you’re like, you think you’ve got it like, yes, this is my strategy, I’m gonna stick with it. And then you hear somebody else speak about it, and you’re like, I have not thought about it like that. And it really spun it on its head for me, and that was the three buckets uh of wealth. Um, do you want to kind of give us the 411 on it?

[0:47] Rob Dix:

Yeah, so I love this concept. I didn’t come up with it. Um it’s from someone called Ashvin Chabra and a very, very little known academic paper, but I think it should be better known, where he basically came, he sort of came to the view from he was working with uh people who were like super wealthy. And they if you’ve got a wealth manager, he’s a wealth manager. If you’ve got a wealth manager, you’re doing all right. Yeah, family office. Exactly. Um but he found that these these people were they had enough money that they could just like stick it in a basic savings account, live off the interest, and be absolutely fine forever. But they weren’t doing that. And why weren’t they doing it? It’s but it’s not just because they were greedy, there was something wrong with them, it’s because everyone has these three separate drives when it comes to money. There’s obviously the main the desire to protect yourself. That’s one of the buckets, protection. So you want to make sure if you lose your job, something goes wrong, whatever, you’re okay. You’re not living on the street. Then there’s maintaining. So you want to take the lifestyle you’ve got now and you want to maintain that lifestyle into the future while eventually easing off on work, um stopping work. You want to keep that going. And if you go and see a most financial advisors, that’s the kind of thing that they’ll talk to you about, those two buckets. Um, but there’s another one as well. There’s a desire to improve. And everyone, his insight was that everyone has all three of these desires in some combination. It’s different for every person. Some will be very heavy on the protection, some will really, really want to improve, but everyone has at least some desire to improve from where they are now. If you’ve got like 100 people lined up in order of wealth, you want to make a jump, jump up that. And that’s why these billionaires who didn’t need to take any risk whatsoever were still trying to improve. It’s because that drive was still there. And everyone has that drive to some degree. Um, it tends to get overlooked because it’s very hard to, it always involves taking on risk. You can’t get away from it. And it involves putting in some kind of effort and it’s different for everyone. So you can’t just give templated advice about it in the same way as you can, oh, just like save 10% or whatever. So that’s why it gets overlooked. But once you appreciate that you have all three of these drives to some degree, once you can figure out for yourself what’s the relative balance of those, then a lot of investing decisions take care of themselves because any investment you can make will be serving one or the other of those. Right. So if you know, if you can, if you know, like, am I like, do I really want to make a big leap upwards? Do I want to play it really safe? Is someone in the middle? What’s the combination? Then the detail of what you invest in doesn’t make that much difference as long as you’ve got this big decision right.

[3:28] Sammie Ellard-King:

That’s really interesting. How how would you go about that if you were starting today, like and you were just looking at this from the start? Like, how do I decide on how am I gonna do it? Because it’s so different.

[3:39] Rob Dix:

Yeah, it is really hard. And it’s the the ultimate answer is it all comes back to self-knowledge, which is the hardest thing of all. So, like, is it actually when you come down to it, like the money part, the investing part seems complex, there’s lots of acronyms or whatever, but it’s not that hard. It’s the it’s the self-knowledge to know what you really want and what risk you can take and all the rest of it. That’s the hard part. But the the way that I think about this in like really basic terms would would be like start with start with the protection. How much protection do you want or need? For most people, that will be um an emergency fund and it will be your home, which controversially I say is protection, it’s not about making you rich. Yeah. Um, we can come back to that if you’d like to. And then there’s the then there’s like, okay, well, where do I where do I want to get to? If I just like do the whole compounding index fund kind of thing, where do I want to get to by the or need to get to by the time I get to this retirement age? That’s how much I’ll put in there. Then anything on top of that is left over for to looking at the improved side of things, those slightly riskier, more personalized kind of investments, if you want to. But some people are just super not interested in that kind of thing at all, in which case, no problem. You can just put more, more into the maintain part, into the compounding part, and get there, get there sooner or get get a little bit further.

[5:03] Sammie Ellard-King:

So protection, house, cash ISAs, savings accounts, etc. For you, houses, but it’s debatable for some people. And obviously there is an investment in property as well.

[5:14] Rob Dix:

Yeah.

[5:14] Sammie Ellard-King:

I categorise that differently, yeah. Yeah. Um, okay, interesting. And then index funds, investing.

[5:20] Rob Dix:

Yeah, any kind of like your your broadly diversified collection of financial assets. So some kind of mix of stocks, bonds, gold, etc., that kind of thing, um, in some kind of combination. Um, and there’s an interesting debate about like what the balance should be within that, but that whole but that whole kind of just like stick it in, put in a certain amount every month, and just with the aim of leaving it for years and years and years, that’s that’s the sort of part that’s fulfilling the the maintained part because there’s no way it’s gonna make you rich in the next five years. It’s just not gonna happen. But it will get you to a really great place in 30 years. It’ll allow you to, it will allow you to uh maintain, hopefully, the lifestyle that you’ve got now without bringing any more money in. But at the same same time, it’s not gonna get you a private jet. So like there’s absolutely no way. The r the returns are within a sort of a fairly limited band. So if you do want to push the boundaries, then that’s when you should get into more investments that have a different kind of character about them. Uh the way I put it in the book is it’s normally something that you have to put time into, and you need to have some you need you need to be investing, not gambling, which means you need to have some like an above-average chance of succeeding at whatever the thing is. So it could it could be investing in property, it could be picking stocks, it could be starting a business, it could be a lot of things, but there are these are the investments that have a uh has the ability to give you super high returns, but they can also lose you money. So that it’s like the range of outcomes is bigger, and to do it properly rather than just going like, I’m gonna pick this stock because my mate told me it was a good idea. Yeah, yeah, exactly. Then then you have to you have to be putting your time into doing the research and everything else. But there’s at least the potential there if you put the time in. Totally.

[7:09] Sammie Ellard-King:

And the reason why I love that was because a big part of what we teach is the 80-20. And so it’s 80% maintenance index funds, and 20% is your like individual stock plays, perhaps a touch of crypto in there if that’s what you want to add. Again, you’re higher much higher risk with crypto or higher volatility, shall we say. Um and within that, that kind of allows you to sort of have your play funds. But some people are just 100% index funds, um, but they then need to understand that there’s a limitation.

[7:42] Rob Dix:

Yeah, exactly. There’s it there will it will get you to it will get you to a certain point. But like I say, it’s just it’s not gonna get your name on the side of a building. You’re not gonna be building a hospital wing or anything. So it’s not that that’s fine. Most people don’t aspire to that, and I’m taking it to an extreme, but but the point is if you do want to make a big leap upwards and you want to make it happen quickly, so it’s like it’s not just like I want to retire five years, really. Yes, it’s not not like I want to retire at six sixty five and I’m 40 now. It’s just like, well, I want to be retired by 50 so I can go off and travel the world. Understood. Like that again, that you need a completely different um type of investment if you want to achieve. And you can never guarantee succeeding at it, but you if you want to get there, you have to try. And so the point of all this is then it’s like if you then all the detail about like, well, within my within my maintain portion, should I be 60-40 on shares or should I be 70-30, or shouldn’t should I have this, should I just be in a global index or should I be overweight to emerging markets and all this stuff? It’s like it makes a bit of a difference. It doesn’t make that much difference compared to like if you it’ll either get you there, it’ll either get you to where you want to be or it won’t. And you I think rather than doing all the fiddling around, there’s a far there are far bigger wins to be had by either putting the time into taking the slightly higher risk approach or just earning more money, which is I was I was felt really strongly had to argue to get like a chapter about earning money into the book, because it’s just like you you can’t ignore that. Like your your earning potential is an asset in itself, and it just makes a giant difference to the overall picture.

[9:23] Sammie Ellard-King:

It does as long as you don’t sort of lifestyle inflate along with that. Yeah. And if you then pre-proportion that money back down into what’s the wheel, essentially, then that wheel is going to end up moving a lot quicker.

[9:35] Rob Dix:

Yeah, exactly. But you even if you get some lifestyle inflation, like if you just imagine that with Yeah, life can get better. Yeah, but with every pay rise you you get from from now on, if you just but like if invest half of it, or half of it going to regular investment, or the other half is pure lifestyle inflation, your saving rate still goes up and goes up quite a lot over time.

[9:56] Sammie Ellard-King:

Yeah, absolutely. We say like if you get a thousand pound bonus, invest 33%, save 33%, and enjoy 33%. Like, because then you know life’s for living at the same time, but you do need to sort of then try and move these multiple goals and short-term goals and long-term goals, and there are multiple things you need to be moving towards at the same time, in my opinion.

[10:17] Rob Dix:

Yeah, and it’s really hard to get that that balance right because it comes down to personality as well. Like you get people who are just naturally extremely frugal, and I think are probably if thinking about this stuff too much or trying to save too hard at a time in your life when it’s the only time in your life that you can be having certain experiences, you’re not gonna be wanting to like go clubbing an Ibiza and you’re 80. Maybe you are. But but most people, but most people there’s there’s like a time for certain things. And so, like, if you’re it’s like if you’re if your savings rate is five percent higher, but you don’t have any fun, then what’s the point? But then that but then of course there are people who really struggle with that and are just like natural spenders or gamblers or whatever. And so trying to get to the the right point, like balancing the now and the future, is so hard. It’s like no one’s ever gonna get it completely right. No, totally.

[11:05] Sammie Ellard-King:

And like one of the big things I think was sort of very good to sort of steer this conversation is is that impact of risk of actually not doing these things simply because of the big bad wolf inflation, essentially, and your actual value of your pound that you’re working so hard for and where if it’s just sitting in in cash and not doing anything else along the side of it, obviously there is that protection element to them and that safety factor. But if you are not doing these things, then that’s gonna have a massive impact.

[11:33] Rob Dix:

Definitely, yeah. I mean, you’ve got like definitely, yeah, you’ve got to have the emergency fund, that’s part of the protection. But then having too much cash on on top of that, you do end up losing out. And this is and it used to be really obvious, like before 2022 or so, like when interest rates were pretty much nothing, your bank was paying you nothing. You knew we’re getting nothing. So I guess so it was like not a mystery. But now if you’re getting sort of like four or five percent in the bank, it feels oh, well, that’s that’s pretty good. But then of course, inflation is higher than it was, and it’s likely, in my view, to be higher in the next decade than it has been over the past decade. So you need to you need to outrun that. And so now the fact that you you feel feel like you’re getting something, your cash isn’t losing value, but you are. So the urgency to invest and do something with it might not be there, but it needs to be there. Yeah, we’re getting that a lot.

[12:21] Sammie Ellard-King:

Yeah, well, I’ve just got five percent at the moment. I’m like, yes, but and also it’s reported inflation figures as well, which is just so skewed for the everyday person. Because inflation, I think, is like personal. Yeah. It’s like what you what you actually buy and what I actually buy is different. Totally. So therefore, like your inflation figures are higher or lower depending on what you’re buying.

[12:43] Rob Dix:

Yeah. I’ve never done it, but I think it would be such a good thing to do would be to work out your personal inflation rate, which wouldn’t be that hard if you just know if you just know what you spend now and you write down the cost of it, then come back in a year’s time and do it again. I think it’d be super interesting.

[12:56] Sammie Ellard-King:

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