Why Some Succeed & Others Fail

It was 2009, I was sitting at a breakfast at what was the Lexus Centre during the time, and listening to Collingwood FC CEO, Gary Pert, talk about Collingwood’s three year plan. The goal was simple – to win a premiership within the next three years. I guess every team wants to win the premiership, so what makes Gary’s desire more worthy than the 15 other teams? His strategy. Collingwood went on to win the premiership in 2010, and came runner’s up in 2011 after finishing the season with a record 20-2 (wins-losses).

Like Collingwood FC, most investors have goals – whether it’s financial independence, regular travel, helping their children, maintaining a legacy, giving back to their community, or all of the above. Yet most investors don’t have a plan or strategy to achieve their goals.

By failing to plan, you are preparing to fail

– Benjamin Franklin

We’re constantly pushing investors to think strategically. To be clear on their goals, and to design a plan, their game plan. All the market reading and analysis, asset allocation and investment selection decisions are worthless without being able to be put into perspective of an overall plan. When I talk about a planning, I think about it as an ongoing process, not as a one off event.

We generally meet investors who are looking for someone to help them manage their investments. After spending hours getting to know them, their family, their goals, their priorities, their concerns, we generally find that there is a disconnect between what they’re telling us they want, and their investments and their balance sheet. The best investment management in the world won’t be of any use to anyone if it’s not put into context of that person’s life.

In the end, it’s more than investment management these people are looking for. They need help with determining how much risk they can and should take, how sustainable is their retirement income needs, what is the most appropriate mix of investments, and how to protect and transfer their family’s wealth.

They’re looking for a strategy, their looking for guidance, they looking for reassurance that they are on the right track and that they are, and will be okay.

AFL legend and premiership coach Paul Roos, summed it up perfectly when he was asked what he was thinking in the last quarter of the 2006 grand final.

Having a plan and following it is far more important to your success than analysing the pros and cons of individual investments.

So, what’s your game plan?


Can Money Really Buy You Happiness?

I think everybody should get rich and famous and do everything they ever dreamed of so they can see that it’s not the answer.

Jim Carey

We’ve all heard it before – money can’t buy you happiness.

Take three people. Person 1 makes $75,000 a year, Person 2 makes $125,000 a year, and Person 3 makes $200,000 a year. Who do you think is the happiest?

According to a recent study, the two people earning $125,000 and $200,000 are likely to report greater satisfaction with their life when compared to the person earning $75,000. However, the study funds that the person earning $200,000 a year is unlikely to be more happier than the person making $125,000. This is because Person 3 has an income above $125,000, which according to the study is the point at which greater household income in Australia is not associated with greater happiness.

Here’s the global income thresholds, where greater income above these levels doesn’t predict happiness.

Before you give up on money as a source of pleasure, here’s when money can make you happy (according to research):

1. You spend it on time

We’ve all faced this decision: Attend that business function, which kicks off at 5:30 pm, or go home and spend time with your family? Work weekends to build that business that will provide for your children, or spend time with them now?

Given the choice between more time or more money, which would you pick?

In our pursuit of happiness, we are constantly faced with decisions both big and small that force us to pit time against money. Of course, sometimes it’s not a choice at all: We must earn that extra pay to make ends meet. But when it is a choice, the likelihood of choosing more time over more money — despite the widespread tendency to do the opposite — is a good sign you’ll enjoy the happiness you seek.

2. You spend it on a fantastic experience

Cast your mind back to the last ‘thing’ you bought (that new gadget, smart phone, etc), that thing that made you smile then quickly faded into the background. Contrast this to that overseas holiday you took, the one you’d been planning for years, or that cooking class you took in Florence whilst you were over there. You recall it vividly don’t you?

Although experiences don’t last as long, the pleasure and satisfaction lasts a lot longer.

People do not have unlimited money, so buying one thing means not being able to pay for something else. Shifting your focus to not just say ‘let me make more income’ but let me just spend my money in ways that are actually making me happy is a really promising strategy.

Living your life isn’t expensive, showing off is.

The Unfair Advantage

What do you think will give you a larger portfolio value at 65: saving $12,000 pa for 10 years or $12,000 pa for 20 years?

Believe it or not, saving for 10 years is the answer – only if those 10 years are at the the early stages of your working life. An investor saving from the age of 35 for only 10 years (to 45) will end up with a larger portfolio balance at 65 when compared to an investor saving from the age of 45 until 65.

How is this even possible? Enter compound interest – earning interest on your principle balance then earning interest on interest, creates a snow ball effect until you’ve got a runaway train working in your favour. In fact, in those 10 extra years, the portfolio’s interest on interest is so great that it feeds on itself to a point where even two decades of regular contributions are unable to yield superior results.

Let’s take a look at an example I put together:

James saves $12,000 pa from age 35 to 45. At age 45, James stops contributing to his portfolio and simply let’s his portfolio grow organically until he reaches age 65. Jenny on the other hand, saves $12,000 pa from age 45 to 65. Both James and Jenny’s portfolios grow at an annualised rate of 7%.

Here are the results:

As you can see from the above chart, James’ portfolio is worth $732,902.59, and Jenny’s portfolio is worth $538,382.12. Even though James only saved for 10 years, his portfolio is worth over 36% more than Jenny’s.

Someone is sitting in the shade today because someone planted a tree a long time ago.

– Warren Buffett

The common feedback I hear when speaking to clients and investors, is that they wish they started saving earlier. Yet investors are forever playing catch up because they failed to plan ahead. To highlight how powerful compound interest is, and the impact it can have on your future life, I ran some more numbers:

Jenny saves $12,000 pa from age 35, and she does so until she reaches age 65. Her portfolio returns a conservative 7% pa. James on the other hand, decides to start saving at age 55, however, he doubles Jenny’s savings rate and saves $24,000 pa. He also decides to invest in riskier assets, and his portfolio generates double the return of Jenny’s, at 14% pa.

Here’s the chart:

Even though James doubles his saving and returns, his portfolio is dwarfed by that of Jenny’s. In fact, Jenny’s portfolio is worth over 120% more than James’.

They say there’s never a perfect time to have kids, I guess the same applies to saving for your future. The snowball effect that compound interest has, in my opinion, is completely underestimated my most people. The longer you go without putting in place a game plan, the more money you’re going to have to forego, and risk you’re going to have to take on just to play catch up. And if things go wrong at precisely the wrong time, just as they did for many retirees during the GFC, it’s going to blow your balance sheet to smithereens.

The point is, there is no amount too small to start investing so that you have a huge advantage in the years to come. Take the unfair advantage and get rich slow.


The Best Way to Lose $5 Billion Dollars

I caught an Uber the other night to a function in South Yarra. I was caught in peak hour traffic, so the conversation with my Uber driver went a little deeper. My driver was a young Indian man who migrated (originally) to Sydney (then to Melbourne) with $1,500 to his name. He’s a chef, although, he’s driving Uber until he finds a new job in Melbourne. His wife is a primary school teacher, and he has two young kids. His biggest worry – that his kids won’t value money and the hard work that comes with it.

During my discussions with clients and investors of late, this is a common theme that has recently emerged – generational wealth transfer.

What will my children’s future hold? How do we pass on our values? How can we protect our family’s assets? These are all questions that are being asked by concerned families. While looking into the future is impossible, there are certainly ways we can help our children prepare for it. I think one of the most important aspects of generational wealth transfer is to understand how the attitudes of our children have changed toward family, work, and money.

According to a recent (US) study by UBS, while most Boomers were ‘on their own’ after they finished college, three in four Millennials still receive financial assistance. Rather than viewing their support as a burden, the vast majority (80%) of Boomers feel good about being able to help their children. Only 10% of Boomers withhold support to teach their children financial independence.

Here’s a true story

It was January 4, 1877 and the world’s richest man had just died. Cornelius “The Commodore” Vanderbilt had amassed a fortune of over $100 million over the course of his lifetime as a railroad/transportation pioneer. The Commodore was of the belief that splitting the family fortune would lead to ruin, so he left a majority of his wealth ($95 million) to his son William H. Vanderbilt. At the time of this bequest, $95 million was more money than was held in the entire U.S. Treasury.

The Commodore’s decision not to split his empire proved right. Over the next 9 years, William H. doubled his father’s fortune to nearly $200 million through proper management of the railroad business. After adjusting for inflation, the $200 million Vanderbilt fortune would be worth roughly $5 billion in 2017 dollars.

However, William H.’s death in late 1885 would cultivate the seeds of folly that would lead to the fall of House Vanderbilt. Within 20 years no Vanderbilt would be among the richest people in America, and when 120 of the Commodore’s descendants gathered at Vanderbilt University in 1973 for the first family reunion, there was not a millionaire among them.

This is the story told in ‘Fortune’s Children: The Fall of House Vanderbilt’. Before I finish this story, I want to highlight a saying popularized by the great Charlie Munger, Warren Buffett’s long time business partner:

Invert, always invert.

Originally formulated by the German mathematician Carl Jacobi, the idea was to solve a problem backwards rather than forwards. So rather than asking, “What’s the best way to keep wealth?”, we should ask ourselves, “What’s the best way to lose wealth?” In the Vanderbilt story we have our answer. So without further ado, I present a step-by-step guide on how to lose a fortune:

Spend money like no one else

Have you ever:

  • Dined while on horseback?
  • Owned 9 mansions on Fifth Avenue (some of the most expensive real estate in New York City)?
  • Thrown a party that cost $5 million?
  • Sunk your yacht and then immediately ordered a larger yacht in order to not upset your wife?

These are just a few examples of the Vanderbilts’ spending decisions during the infamous Gilded Age in American history. Extravagance was all the rage during this period and much of it had to do with the vast amounts of wealth created and owned by a small section of society. It has been estimated that before the Civil War (1860s) there were less than a dozen millionaires in the United States, but by 1892 there were over 4,000! New York City was at the heart of this age of opulence, and the Vanderbilts were center stage for much of this time.

As I read the Vanderbilt story it dawned on me that spending money isn’t enough to lose a great fortune. You have to spend money like no one else. The grandchildren and great-grandchildren of the Commodore were no exception to this rule.

Sell your assets at the worst possible time

You may be asking yourself, “How could the Vanderbilts ever become poor? Couldn’t they just sell their mansions?” Your logic is right, but your timing is wrong. They did sell their mansions and many of their other assets, but at some of the worst possible times.

One of the clearest examples of this was the Vanderbilt vacation home known as Marble House in Newport, Rhode Island. Marble House cost $11 million to build in 1892, which is equivalent to roughly $285 million in 2017 dollars:

However, during the heart of the Great Depression in 1932, Marble House was sold for a price of $100,000, or less than 1% of its price to build! A similar fate befell William H. Vanderbilt’s collection of 183 paintings when they were sold in 1945:

“The very best foreign paintings that money could buy,” which he had purchased for more than $2 million — were sold during the evenings of April 18 and 19, 1945 for a total of $323,195.

The fact remains that if you are forced to sell assets in a market with a few number of buyers, you will take large haircuts. This is especially true in markets for luxury items and other esoteric assets (i.e. art, wine, etc.). Here’s how those assets have performed relative to the world stock market since 1900 (click for larger image):

So, how do you prevent this from happening to you? Have ample liquidity (i.e. cash reserves) so that you aren’t forced to sell assets during market turbulence and drawdowns. If you need to spend money and you can’t, that’s risk. Why? There is nothing worse for an investor than selling an asset at rock bottom prices in order to get cash for essential purchases. If it can happen to the Vanderbilts, it can happen to you.

Never buy an income producing asset

Of all the financial sins committed by House Vanderbilt, this one is probably the worst. During their entire fall from grace there is no account of a Vanderbilt purchasing an income producing asset. This is one of the biggest differences between those who grow wealthy and those who don’t — the wealthy buy income producing assets.

While it is true that the Vanderbilts all owned parts of their railroad empire, they never diversified or expanded their holdings, and their wealth slowly faded away as a result.

You Only Need to Get Rich Once

In the financial ashes of the House Vanderbilt we can learn many great lessons. You only need one big break (or many small breaks) to get wealthy. Once you get there, let the words of the late Commodore guide you:

Any fool can make a fortune. It takes a man of brains to hold onto it after it is made.

– Cornelius “The Commodore” Vanderbilt

Let me leave you with a quote from the book, Fortune’s Children, which perfectly illustrates the Commodore’s relationship with his son:

Today, this relationship is very different. Here’s the latest from UBS’ research:

I guess everyone has a very different way of educating their children about money and finances. However you decide to preserve your hard work and wealth, whether and how you choose to distill your values into your children are all personal choices.

Whether you’re driving Uber between jobs and raising two young children, to multi-million dollar businesses and balance sheets with grown children and fiancés, it’s a growing concern that needs to be addressed. Get the conversation going.

This story was originally posted by Nick Maggiullu – Of Dollars & Data with some personal editing.

How to Invest Your Money

Over the last week, I’ve been speaking with a number of clients and investors about their investment portfolios and how to best allocate capital.

It’s a tough one. With so much content being publish dictating how we should invest our money, it’s no surprise investors are being left a little confused. I feel as though many investors are allocating capital based on how someone else thinks they should live their life, rather than allocating capital based on their own life goals and priorities. I mean, who better to tell us what we want than ourselves, right?

So, I decided to create a blueprint to help you decide how to allocate your capital, with the following caveat: There are many other investment options that are available to investors than what has been captured in this design, although, I reckon you could probably place most of them in each of the buckets I have included. My point is, it’s not perfect, but a good enough guide.

If you have any questions, need clarification, or would like to discuss further, please feel free to get in touch.

Enjoy (click for larger image).

Like any destination, before you decide how you’re going to get there, it makes sense to decide on where you’re going first.

You Don’t Design a House Based on a Weather Report

You don’t design a house based on a weather report.

Robert Frey

When I first heard this analogy from Robert Frey, a former hedge fund manager and quantitative investor, whose firm was bought out by Jim Simons’ Renaissance Technologies, an investment management company who’s performance trumps those of Warren Buffet’s Birkshire Hathaway, I thought it was so simple, yet absolutely brilliant. How true it is.

A snapshot of Jim Simons’ Renaissance Technologies

While many believe that value king Warren Buffett is the greatest investor of all time, his 17.1% average annual return over the last 29 years looks very pedestrian compared to those produced by the 90 PhDs employed by the $10 billion quant shop, Renaissance Technologies.

According to Bloomberg, the notoriously secretive hedge fund has delivered an extraordinary compound annual average return of 40.6% after its 5% annual and 45% out-performance (pa) fees since 1988 (or 2.4 times annually more than Buffett).

If you want to know more about Simons, check out this TED interview titled, “A rare interview with the mathematician who cracked wall street”. The man is a genius.

Anyway, Frey’s quote got me thinking about the similarities between architecture and portfolio management, and how similarly the two professions think.

Architects and Advisers love clients who come to the table with something to say. Clients who have thought about their goals, their ideas, the things that are important to them. It is the basis from which the design will evolve.

Architects and Advisers are trained professionals who have spent years studying, and gaining experience. You hire them as a wealth of knowledge to contribute. So be open to new ideas.

Architects and Advisers (good architects and advisers) will take the long-term into consideration. You want your project and money to last, without having to put more money into it. If you want a classic home, don’t fill it with trendy ideas that will fizzle into the future.

In the end, you need to feel confident and comfortable with, and trust the professional you engage. You’re going to be a team. It’s a personal journey.

As you wouldn’t build a house based on a weather report, don’t build an investment portfolio based on an investment forecast. The weather changes daily, so too do the investment forecasts.

Like you would with your important project, be clear on your vision, and think about what you want to get out of your investments. Seek professional advice. Be open to new ideas, and please, don’t cut corners on the finishings of your dream home. You know it’s not worth it.

Here’s how much you need to save each month to send your kids to private school

Earlier this year, The Australian published an eye opening article, which outlined the cost of sending your children to private school. The article goes on to talk about how much private school fees have jumped over the past decade, and that schools need to justify fee increases on the back of a slowing economy and sluggish wage growth.

Here’s the state of play:

Private school fees

It’s all too easy to look back and grumble at what has happened, and frown upon the so called ‘elitist’ education system. As long as consumers can see the value in a service, no matter what the service is, consumers will pay the price. Someone once told me, “price is an issue in the absence of value,” and I think this is true.

According to ASG, the largest provider of education scholarships in Australia, the cost of sending your child to private secondary school is approximately $395,406.

Like most things in life, whether it’s the purchase of a new home, an investment property, a new car, that big holiday, without planning for, and putting in place a savings program (in advance), it can be very expensive! These big ticket items become a lot easier to not only purchase/acquire, but also manage when you’ve got a strategy, a plan – your game plan.

During a conversation with a client today, he described to me how comfortable his retired parents were, and that they no loner have to worry about money every again. He went on to say that the only reason they were able to live their life this way, is because they had been planning and managing their lives and finances prudently for a long time. Let’s image they hadn’t planned or managed their affairs at all over the years. The probability of them living the lifestyle they live now, is probably quite low.

If you’re serious about planning for you future, and the education of your children is important to you (through private school), here’s how much you need to save each month to have enough money to send your child to private school (secondary education only).

Find the age of your child on the left hand column, and select the rate of return you expect to receive on your investment, and the corresponding number is how much you need to save/invest each month.

If you’re investing in markets like property or stocks, you probably want to refer to rates of return on the far right. If you’re investing in markets like cash or fixed income, you probably want to refer to rates of return on the far left. And for those of you with diversified portfolios, well, somewhere in the middle.

Private school fees

Here’s the key points:

  1. If you want to send your kids to private school, design a plan, and execute it.
  2. The longer you go without investing for it, the more you need to save, or the more risk you need to take, or fund it from cash flow later.
  3. The younger you are, the less you need to save.
  4. Investing in cash for long periods of time doesn’t seem like a good idea over the long-run.
  5. Investing in property and stocks should reward you over the long run, and help reduce the level of monthly savings.


Here’s how much you need to save each month to have $1,000,000 at age 65

I’ve had a few people asking me this question lately, so I decided to crunch the numbers and summarise it into a simple matrix for all. I hope it gives you some inspiration.

Find your age on the left hand column, and select the rate of return you expect to receive on your investment, and the corresponding number is how much you need to save/invest each month in order to reach the target amount at age 65.

If you’re investing in markets like property or stocks, you probably want to refer to rates of return on the far right. If you’re investing in markets like cash or fixed income, you probably want to refer to rates of return on the far left. And for those of you with diversified portfolios, well, somewhere in the middle.

Here’s how much you need to save each month to reach $1,000,000 by the time you’re 65

Here’s how much you need to save each month to reach $2,000,000 by the time you’re 65

Here’s how much you need to save each month to reach $3,000,000 by the time you’re 65

Here’s the key points:

  1. If you have a goal, design a plan, and execute it.
  2. The longer you go without investing, the more you need to save, or the more risk you need to take.
  3. The younger you are, the less you need to save.
  4. Investing in cash for long periods of time doesn’t seem like a good idea over the long-run.
  5. Investing in property and stocks should reward you over the long run, and help reduce the level of monthly savings.
  6. Mandatory superannuation contributions are such an easy way to help achieve these goals. For example, if you’re 40 and saving $25,000 pa, with an annual return of 8% pa, you should have about $2,000,000 by the time you’re 65.

5 Ways to Lose a Client

lose client

We recently met a prospective family who sold a business for a small amount of money, enough for them to retire on comfortably. Following a few meetings and presentations, they advised us they’ll be proceeding with us (woohoo!). This decision meant that they no longer required the services of their existing adviser.

Finding and winning new clients isn’t easy – anyone running their own business knows this too well. With competition increasing each and every day, especially with the ease and speed of technology, businesses are investing a lot of time and money in marketing their products and services – to not only attract new clients, but also retain existing clients. Unfortunately, it can only take a single, simple mistake to lose even your most loyal client.

Here are five ways to lose a client:

1. Slow to respond

You know when you want an answer to something, and you want it right now? Welcome to 2017. More often than not you’re probably receiving emails from your clients, or if they need your advice on something sooner, they’re probably giving you a call. And they probably expect a response reasonably quickly. Responding to your clients a week later, is not reasonably quickly.

Clients have engaged your services primarily because they are time poor and prefer to spend their time on other things in life. So when they need your help, they need your help now. Get back to them within 24-48 hours. It doesn’t have to be with the answer their looking for, but at the very least acknowledge their contact and give them an indication of when you’re likely to have an answer, and find out whether that time frame works for them.

2. Unavailable

We’re all busy. I get it. Don’t forget the reason why your clients engaged you from day 1. They need your help. Being unavailable isn’t very helpful. They’ll bear with it for a little while, but if this becomes a theme, they’re gone. Surround yourself with professional, competent, reliable, and trustworthy people. Introduce them to your clients and make sure someone is always available (and helpful!). Oh, and refer to point 1.

3. Charge hidden fees

Do I really need to explain this one? It’s enough to create doubt and question everything you’ve ever told them. It’s about trust. Because it takes years to build, seconds to break, and forever to repair.

4. Lack communication

It’s okay, your clients will forgive you. I mean, you’re busy, right? Get real! Your clients have engaged you to keep them informed, to keep them up to date, to filter what is going on in the world and translate this back to what it means for them. We all feel a little shaky in times of uncertainty, it’s normal. Put yourself in your clients shoes.

5. Out of touch

If you’re not in touch with your clients’ lives, how on earth do you expect to advise them properly? If you don’t know your client is selling or buying a home, an investment property, a business, or taking that dream holiday that’s going to cost them an ‘arm and a leg’, someone else is going to find out and give them the time and advice they deserve. Give them a call, check in from time to time – not only when you want to sell them something.

Stop wearing your underpants on the outside and start doing the things that would put you out of business if someone else did them. Otherwise they will.


3 Things I Learnt From ‘The Sketch Guy’

Carl Richards

Last week I was super lucky to meet this guy, Carl Richards, AKA ‘The Sketch Guy’. For those of you who don’t Carl, I can detail his bio in this blog, or you can click here. I encourage you to also read his personal story, which featured in the New York Times – titled ‘How a Financial Pro Lost His House’. It’s ironic yet fascinating.

I’ve spent the last 12 or so years helping people manage money. The best part of those years was with a large corporation. The job was great. I learnt a lot, met a bunch of great people, and my network grew dramatically. However, I must admit, in the earlier years, which I believe makes a huge impact in the long run (like investing), I began to feel as though there was supposed to be one way of “doing things”. My education and personal beliefs were challenged. But what do I know? I was a university graduate with a degree in financial and risk management, who made pizza on the weekends.

Deep down I felt as though things could be done a little differently. It was 2 years ago I decided to quit my corporate job and start a real wealth management firm.

Over the years, listening to, reading from, and watching people like Carl has validated my true beliefs about money management, the way clients should be advised, and how a real wealth management firm should be run.

Here are 3 things that I’ve learnt from Carl:


It’s a natural human bias to not sit down and plan for the future. We spend more time, energy, and effort planning our holidays than planning our financial lives. Yet the little time we spend on our finances, we focus most, if not all our time on whether one strategy or investment will outperform another. Seldom do we think about making decisions with our money and investments, and tying these back to our lives.

Our lives are not spreadsheets – they’re a little more complicated. We work so hard, year after year, for what? Only you can answer that question. The best robo-advice offering won’t be able to answer this for you. Or have the open, honest dialogue that a good adviser can have with you. One that should be consultative and creative.
Carl Richards
Simplicity trumps complexity

Think about the iPhone. The entire phone is controlled by one button and touch screen. Yet the complexity behind the screen is mind boggling. Our industry spends so much time and effort to over complicate things in an attempt purport intelligence – when in fact the converse is true.

Just because financial markets are a complex system, your strategies and investments don’t need to be. We work really hard to present our advice in a manner that’s easy to understand. And our goal is to ultimately simplify our clients’ lives.
Carl Richards
Just be yourself

We hear it all the time, “just be yourself”. What does this even mean? For me, it meant being totally transparent with clients. It meant being completely honest, and telling the truth without an agenda or predetermined outcome. People come to us because they want advice. They want to know what we think. When dealing with human beings, people prefer to deal with the real human being. Not a mouth piece for someone or something else.

Dr Thomas Sowell once said, “When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear”.

Carl Richards
Thanks Carl.