Here’s what every sensible financial adviser will tell you: diversify, stay the course, and trust in the long-term growth of quality assets. Solid advice. Mostly true. And almost completely useless if you don’t understand the game you’re actually playing.
Ready for the thing nobody in the industry says out loud? A lot of investing is basically a pyramid scheme.
I don’t mean that in the sinister, someone’s-running-away-with-your-money sense. There’s no puppet master. What there is, though, is a structure, where asset prices rise because a continuous stream of new money chases a finite pool of assets. And someone has to be the last buyer when the music stops. Someone has to pay the premium that lets the previous holder exit. That someone, increasingly, is Gen X and everyone behind us.
We are exit liquidity.
The machine runs on new money
Here’s how this actually works, stripped back to the basics.
Since 1971, when Nixon took the US off the gold standard, governments and central banks have been able to create money at will. Every time someone takes out a mortgage, new currency enters the world. The money is, quite literally, debt. The rate at which that new currency shows up is somewhere between 7 and 8 percent a year, depending on who’s measuring. The CPI figure you see in the news ( 2 to 3 percent ) measures a pre-selected basket of goods. It does not measure what’s happening to your purchasing power. Those are two very different things, and the because the gap between them is growing, your retirement strategy needs to be sharp.
If you’re holding cash, you’re losing ground by default. Of course this is wrong, but seldom do we consider it so.
This is your own human time and energy, and you can’t store it without placing it at risk?
The only antidote is to trade that inflating money for assets that don’t inflate at the same rate (or, in a perfect world, don’t inflate at all). Scarce assets. Property. Business. Gold. Bitcoin. Things with hard limits on supply.
When you borrow to buy these things, this is the debasement trade. Property was version 1.0. It worked brilliantly (and still can) but it’s crowded, it’s leveraged to the hilt across an entire generation, and the people who benefited most are now looking at the door marked EXIT.
COVID proved just how much influence central banks really have. The world locked down and property boomed. Because when things get scary, money gets cheap. And if money gets cheap, assets get expensive. We wait for the fear, we buy the assets (ideally with borrowed money) and we wait. That rinse-and-repeat cycle has made more ordinary New Zealanders wealthy than any other strategy in the last 30 years.
But that cycle has to end somewhere. And the end requires buyers. Buyer who increasingly fear the music might stop and the most inopportune time.
The $210,000 mistake I made with my eyes open
I’ve thought about this a lot because I lived it.
When my wife and I bought our first home, we had finance approved for two properties on the same neighborhood. A small unit for $289,500 (the ‘safe’ pick) and a standalone house across the fence for just under $500,000. One extra bedroom. Bigger land. Same street. The bank would have done either deal.
We took the safe option.
That unit is worth about a million dollars today. The property across the fence is worth around two million. I left somewhere between $750,000 and a million dollars in capital gains sitting in the ground because I was cautious when I had every reason not to be. I was young, I had income, the bank approved it. And I chose the number that felt less scary.
The price of being conservative when you’re young doesn’t show up immediately. It compounds. Along with the regret.
Go harder. Go sooner.
‘Risk’ means different things at different stages of life. A gutsy mistake at 28 is recoverable - you have time, energy, earning capacity. The same mistake at 58 is a different conversation entirely. I see people all the time cramming for finals. They know they’ve got a short runway. And I watch them take on risk they can’t actually absorb because they didn’t absorb smaller risks earlier when they could afford to.
The conventional wisdom tells young people to be conservative. To start with a safe fund, a modest purchase, a toe in the water. I understand why that advice exists. I also think it quietly sets a lot of people up to become exit liquidity for the generation above them, rather than building real, lasting wealth of their own.
The way through is to think differently, like genuinely differently
The 80/20 framework I use with clients works like this: 80 percent of your thinking and your portfolio should be grounded in what we know actually works. Best practice. Conventional assets, conventional logic.
The other 20 percent should be genuinely original. Not trend-following dressed up as contrarianism. Not whatever’s being promoted by the influencers this quarter. Genuinely original: a mix of what’s old and keeps coming back, and what’s coming that most people are still dismissing.
The hard part is that real original thinking is almost impossible in the social media era. Echo chambers reinforce whatever you already believe. You think you’re ahead of the curve; you’re probably just in a more niche herd. I call it the Coke/Pepsi problem - you feel like you chose something different, but you’re still just choosing from the
What to do with this
If you’re young and reading this: the cost of getting it wrong early is low. Like, what do you have to lose when you have…nothing? The cost of getting it wrong, later on in life, is another story. Don’t wait until the need is obvious - take your biggest step first.
If you’re in your 40s or 50s and you feel the weight of having made your financial decisions largely on your own, without many people around you who really got it — that’s not unusual. A lot of the clients I work with are in exactly that position. But feel the weight of the next decisions without a sounding board.
If any of this has sparked something, reach out. A no-obligation discovery call is exactly that. Or keep thinking about it yourself - that’s fine too. The whole point is that you think about it at all.
Darcy Ungaro is a financial adviser and founder of Radical Investment. He’s also host of The Everyday Investor podcast, now in its ninth year. You can find him at radicalinvestment.co.nz or just search his name.
This article is general in nature and does not constitute personalised financial advice.