Nobody should take financial advice from a dude who often writes sarcastic nonsense about star trek, and whose financial background is… guitar teaching and boatbuilding, but on the other hand if you are here, and reading this, then you probably know a bit about me, and know I at least put some thought into these posts. Maybe this is all BS, but maybe it isn’t. Enjoy…
If you are someone who thinks AI is a bubble, and that it will pop soon, and its no different to NFTs, VR gaming or 3D TV, then you might as well quit reading now. This is not a bog post about how AI will change the world and usher in a star-trek like future of abundance and happiness. I actually think it MIGHT do that, but my main thrust here is the financial implications for somebody reading this in their twenties. If you are in your thirties, you might be in house-and-kids mode, and this advice might be useless for you. If you are older still, then it may be even less relevant. It also may sound insane, or scary, but at the least I hope it will be interesting.
I’m 55, I bought a house about 25 years ago. It was hard saving up the deposit for a house, and at the time, we thought house prices were insane, and stupid, and hated knowing we were probably buying at the top of the market. Ha ha. We were not. My first house was a 3-bed semi-detached house costing £98k. It wasn’t anywhere special, but it was ok. I think it had tripled in value when we sold it 10 years later. So far, a typical smug boomer story about how cheap houses were back in my day. Feel free to hate me.
People my age got used to the crazy certainty that house prices only went up. Many became ‘buy-to-let landlords’, and the default retirement plan was to buy a second home, rent it out to some poor young person who couldn’t afford the now much bigger deposit, and enjoy the fat easy profits. As someone who came from a pretty low income in my twenties (boatbuilder), I hated this and never did it, but I noted the phenomena with interest. Almost nobody ever revisited this core belief: that getting a mortgage was always an excellent investment. Nobody ever looked at a spreadsheet or did any maths. You just invested in property. Safe as houses.
I was recently chatting to friends about stock market investments. I do a lot of investing and trading. I love it, and have done well from it. I enjoy debating it and discussing it with people. I am however aware, that the advice you give people has to be tailored to their circumstances. I invest in some really risky stuff with money I can afford to lose, but many people cannot (obviously) afford to lose *anything*. How do you give advice to people in those circumstances? Its hard. But the very fact that you then find yourself recommending really ‘safe’ investments with really low returns (but little chance of financial ruin) is kind of depressing to me. I get WHY people do this, but on the other hand its just perpetuating inequality. People on low incomes pick safe investments and make bad returns, while the real mega-gains are effectively ‘reserved’ for people who already have enough money to take the risks.
In the UK we have official terms such as “self-certified sophisticated investor” and “high net worth individual”. These are terms used in financial services to basically fence-off some risky investments so that only people who are either very familiar with financial systems, or who have quite a lot of money, can invest in them. Sure, I get it. Nobody wants a system that robs people on low incomes of everything they have, but part of me hates how those amazing companies that go up 900% in a year only have investors who were already rich. Surely this is kind of fucked up?
Ok, so back to AI, and buying a house (or not). How is this relevant?
When I was saving a deposit for a house, I think we needed a minimum of £5,000 ($6k). That was between two of us. This seems laughably low now (it was 25 years ago remember). I did some research. In the SE of the UK, the average first-time-buyer house deposit now is £60,000, which is 110% of the average salary. This is huge. This is insane. Who can afford this without wealthy parents ‘helping them out’? Neither of us had wealthy relatives. We had to pay the rent AND save enough money. Who can save 110% of their salary? Thats salary, not take-home pay…
What I’m thinking… is that this might be a BAD idea anyway. Not just because its a ludicrously high amount, but because the return on investment from property might not be that great. In fact, in the SE UK over the last 3 years the average house price rise has been 1.9%. Yes ONE POINT NINE PERCENT. I think you can see where I am going here:
Nvidia stock over those 3 years rose 1,103%. If you were boring and just picked the S&P500 its up on average 19% per year. So even if you had NO idea what to invest in, and just picked a US stock fund tracking the biggest names, you would make ten times as much money than if you have bought a house. And to add to this, you can invest a small amount (probably you need $1k to avoid mad fees), and build from there, unlike a house, where you are either buying the whole damn thing or not. Oh and by the way, the interest on the rest of the house cost is WAY more than 1.9%.
Thats the last three years, and the stock market has done ‘fairly well’, but there is a good chance its about to go really bananas, if AI lives up to its promise, and results in huge economic growth. If you pick wisely, you could get way more for that ‘house-deposit’ money if invested in stocks than you could ever hope to get from house prices rising. Now I get it, this might sound like the idle musings of some arrogant ass who owns a house and is going all ‘let them eat cake’. I hope not, because its not like I do not understand the financial struggle when you want to buy a house. I totally remember paying rent for an AWFUL flat, which was freezing cold, and saving up our money to try and get enough to buy our first house. We searched for ages, and they were all awful, until we lucked into finding one that looked awful at first glance (someone had died, and the interior decor was….bad), but was easy to do-up. I have no idea how many houses we looked at…
But anyway, my point is aimed at people who SOMEHOW manage, through hard work and effort to scrape together the money for a deposit for a house whilst working and renting, just to say *actually this might be a really bad investment right now*. Now I understand that renting sucks, and you want to own a home, and are not thinking about investment but… make the right decisions now, before AI goes insane, and it might prove to be the best financial decision you ever make. Wait a few years, watch those investments outpace house-prices, and THEN buy…
I get that this might sound crazy.
But think about it unemotionally. Don’t think about emotive terms like ‘my own home’ and ‘what we have been saving for’. Just think about the numbers. You have the largest single sum of money you have ever accumulated. You saved it up for a house, whose value will accumulate at 1.9%. Or you can invest it (with careful research!) into the stock market just before AGI and humanoid robotics and self driving cars became popular. And obviously this assumes you already have somewhere to live (either rented, or with parents etc). Yes there is risk, but there is also no guarantee house prices will always rise.
Food for thought. But this is just a thought experiment. Do not blame me for any financial decisions you make! And think carefully and analyze everything, and discuss with friends & family! I will just point out that I am a game developer and solar farm developer. I’m not trying to sell you stock market advice, and have no financial interest in what you do. But do look at the numbers. Always look at the numbers.