This post is part of the Financial IQ series – Financial literacy: The key to unlocking the benefits of all other literacies!
Disclaimer: This is not investment and/or personal advice and the content of this article is of general nature – as per financial regulator’s (ASIC) classification. Also, let’s be honest no one knows what is best for you, so better to seek personal advice. Which is tailored to your purpose, needs, return/risk preferences, don’t wants which usually defines the wants and circumstances. This series is easily absorbable distilled wisdom on the subject matter. The goal is to provide you with easily implementable DAILY HABITS, valuable insights, practical tools, and relevant resources that build your financial IQ and enable you to take charge of your financial destiny. All it takes is a willingness to learn and a belief in your own potential.
This piece is implementation guidance and summary for your Internet/Google search to the most read books on how to invest, where to start, give me an easy way to become rich. There is no personal benefit, kick-backs and/or any other monetary benefits received for writing this piece. The detailed sources, book lists and authors are quoted within and at the end of this post.
As for me, with over 12 years of immersive experience in the investment management and superannuation/pension industry, I have had the privilege of playing a vital role in supporting investment decisions making, strategy, governance and product for Super/Pension Funds entrusted with securing the retirement of 2 million Australians. On a personal level I don’t share anything in this series that I have not personally experienced and tested for its validity and that I don’t continue to use in some form.
“Financial Awareness is the cornerstone of ALL financial improvement” – Adnan
Getting Started
There was a great story about a young basketball player who a year ago had millions. Today, at just 29, he claims his friends, attorney, and accountant took his money, and he was forced to work at a car wash for minimum wage. He was fired from the car wash because he refused to take off his championship ring as he was wiping off the cars. His story made national news and he is appealing his termination, claiming hardship and discrimination. He claims that the ring is all he has left and if it was stripped away, he’ll crumble – Rich Dad Poor Dad (‘RDPD’)
In case, you considered the above to be a fictional tale. Meet Antoine Walker, a real-life cautionary tale of wealth’s fleeting nature, who lost $110 million in just two years. Arrested for covering gambling debts with bad checks, he insisted that he wasn’t the root cause of this fairy tale.
Remember Rich people are rich not because of the income they make, it is HOW MUCH YOU RETAIN and FOR HOW MANY GENERATIONS. In my opinion, a person with a $500,000/year job is again a hamster wheel dash, which is as strong as our weakest link i.e. law of impermanence and aging/time.
My friend who is a golfer has lost all of balls. My friend who is too afraid of losing money has never made any money. We all have a spectrum/thermostat (investor behavior) towards main areas of financial literacy i.e. required return (greed), risk preference (fear), how long (time), terms (contract/tissue paper agreement), laziness (being busy to take care of what’s important), bad habits (external validation, destructive, dopamine/numbing exercises), social circle (you’re the sum of 5 people you spend time with) and cognitive biases (social, emotional, personal), arrogance etc etc.
Special shout out to my creed – Arrogant people have low self-esteem and lack humility – they rarely listen to experts, their BALANCE SHEETS reflect something very different. The reason there is empirical analysis & evidence that Doctor’s are the collective losers in the stock market, it’s not that they are not smart – they suffer from the delusion of their Validation cycle: Arrogance + Conviction = Ignorance. They are ignorant of their own ignorance and don’t realise that their own unconsciousness (ego/insecurity, comparisons and unstable self-esteem) is the biggest obstacle to their financial freedom.
Speaking of Doctors I joke with my dad that most people lose -$1 (one dollar) and it hurts them to the extent of $2 (two dollars), because they have to get to zero now before getting back to $1. My dad is more ‘cost conscious’ so whenever he loses a dollar, it hurts him to the extent of $7 dollars – that’s why you hear the ethnic rant about no lights, studying on streets, no much food to go around and you are spoilt – the usual trauma trigger response of the a human’s personalised emotional map.
Similarly, you have ‘splurge people’, ‘bang for buck people’, ‘it was on sale people’, ‘I am young and was sad people’ and the most common ones i.e. ‘Watch the pennies and blow the dollar people’ and ‘Buy with emotion and then justify the purchasing decision with logic people’ – It doesn’t matter what everyone else is – You need to know which one YOU are.
REMINDER: KEY TO WEALTH = Conversion of Ordinary Income (Pay check/trade/service) into PORTFOLIO and PASSIVE income.
In my opinion, True luxury doesn’t require extra work (time, income responsibility) and risk on the part of the acquirer. Most people impulsively (dopamine hit, instagram scroll and instant gratification crowd) go out and buy luxuries, on credit. Mainly because they were bored, wanted to feel something or spend time. However, the extra work (time wasted, addiction, credit) often causes the same person to resent that luxury because the debt becomes a financial burden. Recognise that most material wants are justifications for spending time on external things that in the scheme of things really don’t matter including buying things and/or preparing to buy things. If that’s for you then great, I am not here to promote living miserably, minimalism guru or preach budgeting masochism. However, I do want to strongly advocate getting the luxuries without damaging financial survivability and long-term freedom.
“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” – Nassim Taleb
Every day we choose how to spend our time, spend our money and what we put into our heads. Every time you spend a dollar, you have the chance to be poor, middle class and rich – your spending habits reflect which one you are irrespective of what you think, wish, portray and preach.
I love when Kids look at Menus at fast food stores. So many choices, so many important decisions and types of novelties to enjoy. Especially, when consciousness is not developed enough to do a; in the moment cost benefit analysis – that is why we have age restrictions for things. As we mature, we often learn the hard way that despite adulthood knocking us around, we are unable to do practical and quick opportunity cost analysis around our day to day living. Primarily due to absence of financial IQ, which puts us into the Rat race/non progressive earn & spend cycle and hinders long-term financial freedom.
I have had profound epiphanies while I gathered these habits and tools from young millionaires, successful professionals and wealthy business owners. I went to Sephora for reconnaissance. Gucci’s Beauty Powder is AUD$120 and Commonwealth Bank (CBA) Shares are AUD$96. One needs to be replaced every month or so. The latter goes up in value every year and pays dividends which can buy the Guuci beauty powder and the related anti-aging cream & pizzazz foundation cream too for the foreseeable future.
I want you to see these daily habits & tools as an ‘experience’. A good experience leaves you with a memory, what you think and impression on your personality. An AMAZING experience CHANGES the way you think and allows you to enhance and find new & better values. Similar to how deep diving once helped people find their passion and purpose of underwater photography I want these habits and tools to be the foundation of your Financial IQ Opera House/Empire State Building.
A doctor can’t treat us if we don’t share what are the medical condition symptoms and where we feel them. In order to get a treatment plan and/or get in the surgery queue. Similarly, we can’t get financial freedom if we don’t know where we are at today. Remember, I wrote the first part mainly focussed on the HARDEST element of building wealth – Emotional Discipline/Internal fortitude. The second part provides you with habits and underlying tools to build FINANCIAL LITERACY/IQ. Note, This series isn’t looking to sell you anything like exotic assets which are under the sea, use financial jargon like hedge funds, private and alternative assets or wants to marry you.
Back on the million dollar question, “Where do I get started?” or “Tell me how to get rich quick”? People are greatly disappointed with my answer. I simply say to them what my rich dad said to me “If you want to be rich, you need to be financially literate.” – RDPD
Daily Habits:
Here are easily implementable, simple and principle based simple DAILY HABITS which build your Financial IQ.
- When you know you are ignorant in a subject, start educating yourself by finding an expert in the field or a book on the subject. All else is thinking without action – the biggest enemy of progress is the idea which keeps you from acting on it.
- Whenever you catch yourself unconsciously comparing your life, worth, wealth to others. Remind yourself, no one has your advantages & disadvantages. You can become a CEO at 30 and die by 35. Similarly, you can build all of your wealth after 50 and live as a most successful investor in the world till 90 like Warren Buffet. The only journey, which you will feel and experience is yours, so make it one which serves others through contribution.
- Realigning the financial spend amount to your real life impact value? Ask yourself twice if I really need it.
- Ask yourself before buying anything that Is this a NEED or a WANT? You might confuse them but they are not the same.
- I am not going to give you your laundry list, as it is your personalised list of don’t wants and wants (Read Part 1). However, I will give you the tools to evaluate when you’re mixing them/confusing them.
- ‘NEED’ equals something which is necessary to sustain life i.e., food, shelter, health, family and living expenses. Everything else is a ‘WANT’ and is negotiable.
Action: Ask yourself every time HOW to get all my WANTS by being smarter and having power and discipline over the NEEDS.
- For example, my friend wanted a Tesla, but it was a WANT. His primary need is to be rich/focus on the asset column and meet his business NEEDS. So he realised the Australian Government was supporting businesses to claim CGT (10% of Sale Price = $80,000 x 10% = AUD$8,000), Luxury tax (~AUD$10,000) and registration support (AUD $3,000 – $5,000) benefit as part of the EV renaissance movement. He leveraged his ‘self-knowledge’ to identify his ‘Want’ & ‘Need’. He then reconsidered his approach using his ‘financial awareness’ and Financial IQ to get his Wants by following Needs.
- A couple who wants to pay for their children’s university, travels and set them up on a strong foundation to be successful can do so by buying a regional investment property, which doesn’t require a hefty mortgage and generates adequate rental income. Looking at the property prices in Australia for past 20 years, I can assure you, you will give them keys to all the WANTS by being intelligent around the NEEDS.
- This isn’t different from RDPD, when Robert’s wife waited for 5 years to get a new Mercedes. She waited till the rental payments offset the car payments essentially meaning there is no increase in risk, commitment or financial burden on life by having a luxury.
- What I respect and deeply admire is the sense of achievement, self belief and knowledge one gets by ‘doing the hard work’ to achieve their values – that is priceless. Alternatively, every new purchase is a 3 week high, on to the next one, to the extent you lose all other core areas of life and become a slave to Rat Race again – being driven by Desire & Fear of not having them.
I do want to caveat, the examples above ONLY work if you have worked the mindset, emotional discipline and have financial awareness around your personal list of DON’T WANTS, which will define the ACTUAL WANTS (Action: Revise PART 1 for more information)
7. Ask yourself at least 3x a day – Am I inventing things to do to AVOID THE IMPORTANT.
8. If you work for money, you give the power to your employer. If money works for you, you keep the power and control it. Some of my favorite, simple things from RDPD:
- The best lesson to me was: “Be smart and you won’t be pushed around as much.” His rich dad was a law-abiding citizen and because it was expensive to not know the law. “If you know you’re right, you’re not afraid of fighting back.” Even if you are taking on Robin Hood and his band of Merry Men.
- Intelligent people are those who work with or hire a person who is more intelligent than they are. When you need advice, make sure you choose your advisor wisely. What I find funny is that so many poor and middle-class people insist on tipping restaurant help 15 to 20 percent, even for bad service, but complain about paying a broker 3 to 7 percent. They enjoy tipping people in the expense column and stiffing people in the asset column. That is not financially intelligent.
9. The way you buy a new dress/suit and think – does it look good in different angles, you check it out from different angles and ask people. Whenever someone says to you it’s only $35 per week, say it to them – that’s a ticket to Istanbul per year. That is $1,820 per year. When someone gives you a figure, take it up and down, twirl in it, ask people if it is the same as my health insurance for the year, think what other mysteries it unlock around your financial freedom.
9. Having a partner (co-pilot) with the same mission as you is a shortcut to financial freedom. We can’t have a millionaire’s wealth strategy with a partner with a minimum wage mindset.
10. Constantly saving without investment is like buying cement to build a skyscraper. When someone asks how life is traveling and you say, I bought cement and I feel good about it. A necessary strategy, but it’s mostly dried up due to cost of living and an expired foundation for a dynamic world with new skyscrapers every few years. See Directions & How to Use to start dreamlining and erecting that high & mighty skyscraper.
11. CONQUERING your fears = DEFINING your fears. You will see the reason most people are able to convert pain into personal success and sacrifice is because they experience your go to quotes like ‘Whatever doesn’t kill you ACTUALLY makes you stronger’ in REAL TIME rather than TikTok/Insta and Social media scroll based experience.
12. Whenever I am roaming around locally in Sydney’s pompous/posh suburbs or traveling abroad, Commonwealth avenue in Boston and Rodeo drive in LA and Madison Square Garden in New York. I love hearing self-serving statements like – It is all inherited money. I usually remind myself and them, WE are INHERITED too. We are also a reflection of inherited values, decision making skills, internal fortitude, financial literacy/IQ and financial survivability. It doesn’t matter what you inherited, what’s important is where you want to be (Read More: Are you Poor, Middle Class or Rich Picture)
Let me emphasise, IT DOESN’T matter which picture accurately reflects you due to personal life circumstances/journey/decisions, what’s important is where do you want to be?
13. Out of all the financial wisdom, advice, literature and get rich quick help I would say that PERSONAL SELF-DISCIPLINE is the MAIN delineating factor between the people who have financial freedom and the ones who don’t.
14. More importantly, the secret to YOUR financial freedom is within YOU!
Directions & How to Use:
- Our beloved government has a whole website and resources available for us to make all our financial dreams a reality – partly since it is funded by taxpayers money. It is called MONEY SMART.
- Also, there there is an amazing Budget Planner Spreadsheet (I know you rolled your eyes, it is ok we all do that to see if there’s a brain there 😛). Jokes apart, it is a great tool to convert your weekly income & expense into monthly, quarterly and yearly estimates. It is so easy and automatic that it is more of a novelty to see things add up and get subtracted.
- Click here to access the ‘spreadsheet’. I know it is such a nerd thing to do and manually reconcile shit – but financially literate adults who have millions are better than rock stars who are homeless. If you do not choose, choice will be made for you. (Quote Wrong/Right).
There are no ‘wrong’ choices in life, just the unconscious ones which dictate the direction & quality of your life and you end up calling it destiny. Everything else comes out in the wash over the long-term as time only moves in one direction – عدنان
- There is an average provided by the Australian Bureau of Statistics around ‘WHAT’S NORMAL BUDGET’ around the country for core needs. The numbers might be a little old, but a good, objective reference point from Government data. Note, these figures are not updated for current YoY highest inflation (Sep 2023: 5.4%, Sep 2015: 1.5%) & interest rates related to housing costs (Sep 2023: 4.10%, Sep 2015: 2.0%) in the past two decades, latest housing prices & TikTok/Insta sales factory.
- A key benefit of Frollo is that it automatically classifies all the historical data under headline (Living & lifestyle) & respective sub-categories. And you can choose what is a ‘NEED’ and a ‘WANT’ for you. For example, I might buy a stroller to give my Godson as a lifestyle/want but for his father is a core need. The classification would be wary for a fair few items every month depending on lifestage and values.
- I joke with people, we should be taxed in accordance with our narcissism. So you write an ego-check every year in line with your worship of hedonism. Primarily, as your personality changes with experience, our spending habits also change in line with our values, life stages and whatever is taking over our attention.
- For example, the electricity bills over the past one year have increased by 20% and if I have a static spreadsheet for a 3-month average spend my cash flow will be blown out everytime I get a new bill.
- FROLLO apps tells you that something is changing when compared to the last 3, 6 and 12 months which allows you to preserve/pivot your monthly budget in accordance to dynamic spending habits. Here is an example from my restaurant and groceries spend over the past year – as you can see they vary a lot.
3. Superannuation is an excellent tool for retirement planning. I say, the difference between having a super account and having a comfortable/meaningful retirement is the same as looking at the moon versus landing on the moon. There is an AMP Wellness Calculator which provides you with guidance, what average amount of super you need to have at a required age to ensure your comfortable retirement journey.
- Divide your current superannuation balance with your annual rent. You will get a very profound epiphany around ‘personal’ financial survivability if you were to live off your superannuation today. As we all claim to be losing out on long-term value and investment returns unheard of in this world because of the government managing it.
- Average Weekly Rent in Sydney is $530 (ABS: Feb23) = $27,560 per year.
- Your Super Balance at 35 for Men & Women = $74,062 & $57,401, respectively. Notice the difference, the rort in women super, ask yourself why is that and what can be done about it. Anytime you see a politician and policymakers ask them this question.
- Financial Survivability = 2.68 years for men and 2.08 years for women without having food, groceries, medical bills, kids schooling and so and so. No wonder the retirement age keeps on going up and the homelessness is predominantly made up of women in Australia.
- The peak body for policy and superannuation advocacy The Association of Superannuation Funds of Australia (ASFA), calculates that the ACTUAL yearly income required for a COMFORTABLE retirement standard is $70,482 per year for couples, and $50,004 for singles. In real money inflation adjusted terms a single woman’s survivability if she retires today is ~14 months (merely 1.14 years).
- This information is useless without informing you about the average lifespan of an Australian and the retirement age. So GIRL/BOY MATH which actually matters in life is:
- Divide your current superannuation balance with your annual rent. You will get a very profound epiphany around ‘personal’ financial survivability if you were to live off your superannuation today. As we all claim to be losing out on long-term value and investment returns unheard of in this world because of the government managing it.
Actual Years of Retirement = Average Lifespan (83.2 years) – Retirement Age (65.5) = Actual Required Financial Survivability ~18 years
4. Whenever you want to purchase something more than your hourly wage, take a pause, try to research the product on amazon, google, ebay and other avenues. You will realise that delayed gratification goes a long way along with REAL LIFE meaning of ‘compounded interest’ X (multiplied) by ‘a dollar saved is a dollar earned’. The e-commerce business like Amazon/Alibaba are a living example of a billions of dollars industry made out of selling the same brands & products out of warehouses instead of fancy shops. In fact, I think Amazon prime delivers me a book quicker than buying instore considering the limited opening hours & never ending office hours and traffic of city life.
5. What are the everyday, established and listed venues of investment. I want you to see these common investment avenues (referred as Asset Classes) of the investment world as the Ice Cream flavours.
- Property is like Golden Gay Time. We all need houses to live, grow and progress in life. This is an Australian novelty as there is low supply, more migration, policy structure and retirement benefits which makes it an inseparable love affair that is our pride and also our curse. Property is real, you can dance on it, build a fence around it and unwrap it by sub-division. Versatility of usage that can rent your property, live in it, knock it down and rebuild it and unlock additional benefits (income test & asset test for retirees) especially in Australia. But you already know all about golden soil & toil i.e. real estate so more on that later. (Refer below #6 Negative Gearing and #7 Offsetting)
- Stocks are like the Drumsticks. You like buying Loreal/Apple as they make the best makeup/experience products, they need money to research more products and they issue stock so people can own them. There were other stocks in the past, who no longer have their zest like Nokia. There will always be a function for your savings like to be used by someone who is trying to solve a new problem in the world. They do not guarantee getting all or some of your initial investment back and pay you annual dividends for maintaining your investment. Also, they unlock immense potential if it shoots through the roof, if they break new ground or land on another planet like Tesla, SpaceX, BHP, Nvidia and CBA. Assets like shares can also be negatively geared. The Australian Treasury notes that in 2012-13, about 270,000 people deducted over $1.2 billion for expenses incurred in earning dividend income.
- Bonds are like Paddle pop. They are different because you get your money back with an interest (various flavors) at the end of the investment. They are slightly less risky than Stocks because their structure ensures you get the initial amount back with a defined variable & fixed interest on top. The World bank issues bonds, Australian government issues bonds, banks issue bonds, Tesla issues bonds they come in different lengths (Term: 1,3,5 to 31 years) and quality (Credit premium: Australian Government Bond vs Polish Government Bond vs Sydney Airport Corporate Bonds).
- The Connoisseur. They are the creative, unusual and professional interests which get you a good return. You can make a new game, or a painting, or write a amazing book. You can get royalties from your intellectual property such as music, scripts, and patents.
- As a rule of thumb, anything else that has value, produces income or appreciates, and has a ready market so it is an investment. And NO your confident good looking cousin who always wears expensive watches or the seductive lady on the phone or your friend’s underground gaming den idea doesn’t count.
- Ensure you read the applicable risks and more detailed information on each of them and take no fact over faith and align your investment strategy to your financial freedom journey. Refer to Step #1 (MONEY SMART) for more information. From me, see this excerpt image for the difference in buying a property & having money in super?
6. Negative Gearing: This is my personal favorite being an Australian novelty and captured within the domain of ‘Law’ (4 Key Areas of Financial IQ). Negative gearing without Financial IQ is like having a BOEING 737’s engine inside a tractor. People make a lot of noise but don’t get anywhere in life. It is like a plane that costs more to fly than it earns in ticket sales!
- I have heard horror stories, abated and coached individuals who have taken credit card debt to TRAVEL, SLAVE their breathing years to PAY IT OFF and are CONSTANTLY BROKE only to APPEAR rich in Instagram for 2 weeks in 365 days. At times, others will save for years to buy a new car or constantly hate every moment they have to think less of themselves due not living the life that they want to live.
- NEWS FLASH, you can get holiday money for next 3 years paid into your account EVERY YEAR if you have the financial IQ to make your money work for you. This is a great opportunity to not only have CAPITAL GAIN (yearly increase in price) on your assets but to GET REFUNDS (yearly travel money or reward for being emotionally disciplined) every year you keep your asset.
- The calculation isn’t rocket science but it is not what most people think it is. When Mortgage Payment (Interest Component) is higher than Rental payments – you can negatively gear your investment property. Also for the purpose of practicality, here is a simple example (the numbers change as per interest rate, loan amount, rent, annual income and expenses for the property – mainly as per your financial literacy):
- You make 100,000 per year. As per ATO’s simple tax calculator your taxable income is $22,967. Ensure, you use it to get this number for an updated salary.
- You have an investment property which has a ‘interest-only’ loan of $850,000 at 5% for 30 years. At the current interest rate, your annual interest expense is around $42,500 per year. Note, this is not Principle & Interest.
- Your rental income is 530 per week. You get around $27,560 per year.
- Don’t be a noob, most people think this is the amount they get back from the Government. Loss for Year/Negative Gearing Input = $27,560 – $42,500 = $-14, 940 for one year.
- Negative Gearing Benefit for the year = $4,855.51.
- Critical Tip: This amount does not include water, council rate, strata, property management fee, depreciation and insurance costs. Let’s recalculate our benefit for the year after including these costs:
- Negative Gearing Benefit (including maintenance fees & costs) = $7,190. Just like without health, there is no point to money and freedoms, if you don’t have control over yourself to keep $14,940 to keep the property for the year to get negative gearing, you shouldn’t be overly concerned about this
I know I lost you a while back when I wrote Interest Component of Mortgage, so here is a FREE NEGATIVE GEARING CALCULATOR to do this easily or Google one!
7. Offsetting: Same as negative gearing I love this feature. It is the most tax efficient way to save & invest in Australia – the only way which results in $0 tax per year. It is making money by ‘saving’ money by lowering what you ‘owe’ to the bank for a mortgage or investment. When you keep spare savings in an ‘offset account’ you do not pay ‘interest payment’ for that day, month or year on the ‘linked loan’ account.
- Same investment property from previous example which has a ‘interest-only’ loan of $850,000.
- I have saved $30,000 in my savings and I merely keep it in my off-set account. The money is readily available, gives me a debit card, I can move it whenever I want and has a PayID feature as well.
- For every day, month, year I keep my money there. The interest payment is calculated as: $850,000 – $30,000 = $820,000 and I saved $1500 per year on my payments by just saving in one particular account. The stress free, practical, real dollar saving without letting go of the dollar from your account.
- Pro tip: How about getting your family & close friends to save all their money in one account – at the end of year you all get a share or perhaps it will bring you closer to buy another property together, as equal/split partners – The bigger the offset amount the bigger the saving benefit.
Wait – What REALLY is an Investment?
What counts in investment is a couple of things, especially the last point which makes all of the other ones meaningful:
- A reasonable guarantee of invested money to be returned (return of capital),
- Reasonability check around contribution to society (economic/commercial function) which can be measured (valuation)
- Protection against serious losses
- Should provide you with an adequate return. The adequate return is an amount of return, however low, which you are willing to accept (personalised don’t wants & wants). Fact: Did you know the Inflation Rate in Australia averaged 4.90% from 1951 until 2023. I would say this is a good proxy for baseline ‘adequate’ return over long periods.
- You have or proactively working on your financial intelligence to enhance your knowledge and build a wealth strategy which allows you to live in accordance to your values.
Fun tip: Anyone who says, high risk and high reward, ask them back so if they had $10million dollars but they don’t wake up tomorrow or lose their one eye and see their brain overclocking in real time.
- False Messiahs of Intellect: LTCM (Nobel Prize Winning Economists), Bernie Madoff (Hedge Fund Champion), Elizabeth Holmes (New Steve Jobs of Medical World) to Sam Bankman-Fried (FTX Shrine of Crypto) – they all have one thing in common – The people who believed the magic of intelligence, hype, muted rational thinking and more importantly didn’t work on their financial IQ.
- The Forbes 30 Under 30 have also been arrested for frauds and scams worth over $18.5 billion to date and still actively counting!
A lot of what’s sold as expert advice is narcissism dressed as confidence sold to unconfident people at a premium price – Mark Manson
Imagine your first investment of $2,000 as a garden. If you plant all the same types of flowers in one spot, and something happens to them, your whole garden might wither. But if you plant a mix of flowers in different areas – like roses (stocks), sunflowers (bonds), evergreens (property), and tulips (commodities) – even if one group faces difficulties, the others can keep your garden flourishing. Diversifying is like tending to a vibrant garden that thrives in all seasons!
Now every time someone says, ‘superannuation default’, balanced, asset allocation, diversification or any other buzz word – remember they’re talking about the ‘garden’ and its needs, benefits and your input to ensure it works towards your financial freedom. As per empirical research into the history of investments, more than 80% of the returns generated in the investment markets are a function of asset allocation decision (garden) of diversifying across the ice cream flavors (investment asset classes) – traditional and esoteric ones (Source: Investment Governance for Fiduciaries – CFA Society).
The easiest, wise, prudent & safe way to get started is to buy a READY MADE garden through Index/Passive Funds or Exchange Traded Funds (ETF). The best thing is, these ready made gardens are listed on Australian | London | New York Stock Exchange, so you always have an option to buy and sell them with minimal impact on capital value over a preferred investment cycle (~5-7 years). Instead of constantly frantically finding the countries, industries, sub-industries and local/international companies and garages which solve the world’s problems – you can buy simple passive, index funds and/or ETFs which provide you with a diversified asset allocation ensures exposure to all major asset classes, across most geographies, meaningful industries, sub-industries and companies.
Fun Fact: No wonder….some people including the most successful investor in the world i.e., Warren Buffet has it as the default bequeath & will strategy. He has instructed the trustee in charge of his estate to invest 90% of his money into an S&P 500 index fund after he dies!
I love these tips he shared in his recent Berkshire Hathaway Annual General Meeting.
- What gives you opportunities is other people doing dumb things. In the 58 years we’ve been running Berkshire, there’s been a great increase in the number of people doing dumb things (‘shit’).
- If you’re paying 12% or 14% on a credit card, you’re saying, ‘I’m going to earn more than 14% on money.’ If you can do that, come to Berkshire Hathaway.
- You should write your obituary and try to figure out how to live up to it.
I know your inner monologue is going…Ohhh wait…you are holding me back from my amazing talents of knowing the stock market. When your financial literacy and investment circle can decipher company balance sheets, income statements, EBITDA based valuation, mean variance optimisation, modern portfolio theory, objective understanding of assessing stock valuation, their business proposition, cash flow, balance sheets, stock repurchase, general partner, Beta, P/BV, P/E, sharpe ratio, calmar ratio, bottom up allocation to private placements – then by all means go nuts, buy into your cousins new buy in-early and exit & reinvest in another unicorn idea, start a fund, buy into anything that moves…you’re the master of your own destiny powered by financial intelligence & self-knowledge. Check out this amazing excerpt image which gives you fundamental, easily referrable information around cost, benefits, risk and girl/boy (financially educated) math around direct shares, property and ETFs. (Source: Mission Possible by David Scollon)
Until that happens, here are some readily available services you can access today to start investing with as minimum as AUD$2,000 dollars. Again, this is not product advice, but they pass all the ‘investment classification criteria’ and the rule of thumb to ‘avoid serious losses‘ – Refer ‘Critical Tip for Avoiding Scams’ below.
Buyer Beware: Make sure you read PDS, FSG and TMD and fees & charges schedule as part of signing up for these services. This is the paperwork (stuff) you sign with these organizations which protect you and their interests. They are pretty financially literate so make sure you also glance through them for suitability, personal circumstances, wants & needs assessment. Also to test the depth of their knowledge, ask them to explain these documents to you like a toddler.
- Stockspot – A great venue and personal favorite.The feature I like is that they charge a flat fee for portfolios under AUD$50,000. Also, they make your profile on facebook, google and simple login.
- Feel free to use my referral code (Referral Code: 4LJ2WROJ) if you feel you’ve learnt something from this piece. You’re not obligated to do so, so you’re free to choose.
- Vanguard Personal Invest – Another simple platform to access the market by a variety of Index Funds and ETFs. The feature that I like is they do not charge buy/sell spreads (see it like parking fee at the beach, pretty much mandatory & great kicker if you go there often)
- Spaceship – This is another good venue for getting exposure to ready made gardens.
- Beta Shares Direct – Again another great household name with great choices of Index Funds & ETFs. They also don’t charge parking fees at the beach for some of the offerings.
Critical Tip for Avoiding Scams: The litmus at a pub test for protecting yourself against serious losses is as follows:
- Does the company get regulated by a tax payer & government funded regulatory body? Like Australian Securities & Investments Commission (ASIC), Australian Prudential Regulatory Authority (APRA) and/or other bodies within the country you’re investing in? Duh it is 2023, we’re not bound by binary investments avenues on plain domestic & offshore allocations.
- Also, does the company offering the product have an ABN/ACN Number (see it as a rego plate for the service seller) or any other registration number which allows them to sell what they are selling?
- Does the company has an office, have a coffee next to it. Mainly, when we get scammed we can protest and make instagram/Tiktok (social media) stories about despite being intelligent, beautiful, having UTS degree, wearing a tie to word, have a title to show I am smart and deserving of everything i see – but it is so sad, toxic business type people take advantage of me.
- Did you know that post Banking Royal Commission Fireworks in 2018. The government has established an authority called Australian Financial Conduct Authority which gives you a free lawyer & representation for misconduct and I signed the paperwork they couldn’t explain to me and life’s short/YOLO zone under AUD500,000. Lodge a complaint here.
Lastly, remember It is not TIMING the market, but about TIME IN the market. According to JP Morgan, If you invested 10,000 in January 2003 till December 2022, the sheer difference in actual money terms if you keep holding your portfolio versus if you just miss 60 best days in the market is $60,639. The cost of missing 60 days out of 7,303 days or merely 0.82% of the days over this investment period. The best day in the market is usually the day after the worst day in the market, the second best day in the market is the following day!
Thank you for reading and I can assure you after reading, applying and using the tools in this series you are definitely relatively more financial literate than an average novice investor. I genuinely admire your wisdom and determination to seek a better financial future, and I am here to support you every step of the way. Again, whatever I say comes from my subjective prism, so uncover your own myth, reach out to share something that has helped you achieve your financial success and freedom.
Eat well, read books, study yourself, expand your mind, do better and get better. Last but not the least, YOU are your greatest investment
Note to Reader: This is not a product and/or personal advice which is tailored to your personal circumstances, return & risk tolerance. The average amount advisers charge $2,070 for limited advice and $3,280 for comprehensive advice (Investment Trends 2022). If you are like most of us, you don’t even have this much money left over after lifestyle, bills, avocado toast, I am so cool and wear a tie to work and subconsciously have committed every breathing moment to the default church/mosque of hedonism. I will add all objective studies local and international have found that people who get advice fare better off than the ones who don’t – if you have sizable investment assets, superannuation balance, out of super investment portfolio, insurances then I would highly recommend to see a licensed professional for personalised advice.
Sources:
- Ex-NBA star went from $108 million to bankruptcy
- Household Expenditure Survey, Australia: Summary of Results, 2015-16 financial year | Australian Bureau of Statistics
- Lottery winner now works seven days a week as a delivery man after blowing fortune
- https://www.lovemoney.com/galleries/64958/lottery-winners-who-won-millions-but-ended-up-with-nothing?page=4
- How Much Super Should I Have At My Age? – AMP
- ABS Rental Statistics: New insights into the rental market | Australian Bureau of Statistics
- https://www.aihw.gov.au/reports/life-expectancy-deaths/deaths-in-australia/contents/life-expectancy
- https://www.abs.gov.au/statistics/labour/employment-and-unemployment/retirement-and-retirement-intentions-australia/latest-release
- ATO Simple Tax Calculator: https://ato.gov.au/Calculators-and-tools/Host/?anchor=STC&anchor=STC#STC/questions
- INVESTMENT GOVERNANCE FOR FIDUCIARIES – Michael E. Drew & Adam N. Walk
- JP Morgans – Principles for a successful retirement
- Intelligent Investor – Benjamin Graham
- The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
- The subtle art of not giving a f*ck – Mark Manson
- Jess with Money – Jessica Irvine
- Rich Dad Poor Dad, Robert Kiyosaki
- 4 Hour Work Week, Tim Ferris
- Principles – Ray Dalio
- 100 Million Offers – Alex Hermosi
- Mission Possible – David Scollon (A mentor, colleague and mostly an amazing investment consultant)
- Millionaire Mindset
- Divorces in Australia – Australian Government
- Survey: Certified Divorce Financial Analyst® (CDFA®)
- Revealed: King Charles’ Private Fortune Estimated at £1.8 Billion
- Think and Grow Rich by Napoleon Hill
- The Richest Man in Babylon by George S. Clason
- The Millionaire Next Door by Thomas J. Stanley
- The Wealthy Barber by David Chilton
- The Automatic Millionaire by David Bach
- The Total Money Makeover by Dave Ramsey
- Rich Dad’s Guide to Investing by Robert Kiyosaki
- The One-Page Financial Plan by Carl Richards
- The Art of Money: A Life-Changing Guide by Bari Tessler
- PIMCO: What is a Bond?
