Here’s What Vikings And Investing Have in Common

On Saturday afternoon I visited the Vikings exhibition at Melbourne Museum. Over 450 artefacts were on display, making it the largest collection of it’s kind in Melbourne, and boy was it packed! Two things I learned from the exhibition:

1) Vikings’ swords weren’t that heavy, and

2) The importance of silver during trade.

This precious metal became such an important component of trade during the Viking period. Silver coins and ingots were used to balance transactions. Vikings would carry around their own set of small scales to ensure each transaction they entered into was measured accurately and precisely, and the transaction was completed fairly and that they weren’t being cheated.

When I look through the funds that have been used to construct a portfolio for individuals, families, and/or superannuation funds, I am always stumped by the high fees that are being paid by investors.

In business, there’s an old saying, you need to spend money to make money. When it comes to investing however, the more money you pay, history tells us that it has an adverse effect on what you have left in your pocket. Don’t get me wrong, every investment has a cost, even though it may seem as though you’re not paying anything. I recall being told by one “wealth management” firm, their fee to trade international shares for their clients was nil…NIL!? (I wasn’t aware you were a charity). After we did some digging around, we uncovered the firm would take a large clip from the foreign currency exchange. Sure, the brokerage was nil, but unless you understand how these things work, on face value it may seem as though you’re not paying anything.

Most people don’t evaluate the expenses incurred in managing their investments within their portfolio. When you understand how investment fees can dramatically reduce your returns, and when you understand how fees are a strong predictor of future returns, investors should spend more time in evaluating their investment fee.

Why costs matter 1

Sure, 0.50% here, 0.25% there, it doesn’t sound like much over the course of a year, but when you compound this number over long periods of time, it could mean the difference between retiring at age 65 instead of 69.

The impact of fees is two fold. Not only do you lose the annual fees you pay each year, you also lose the growth that money may have had for future years into the future.

To illustrate the significance of fees on an investment, I plotted the below chart, which shows 4 portfolios. Each earning 6% pa, and each invested over a 30 year period. Each portfolio has an internal fee of 1%, 2%, 3%, and 4% respectively.

As you can see, over long periods of time, the net result to the investor is significant. And if for one second you think a 4% pa fee on an investment is unrealistic, just think hedge fund.

Why costs matter 2

You’d be forgiven for thinking that the higher the fee, the higher the quality of the manager. This could not be further from the truth. Research on managed investments has shown that higher costing funds generally under perform lower costing funds. The more one charges, the more difficult it becomes to add enough value to overcome the additional expense.

Research by Vanguard illustrates funds with lower costs have outperformed more expensive ones.:


Nobel Laureate William Sharpe once said:



“the smaller a fund’s expense ration (cost), the better the results obtained by it’s stock holders”

The Australian Securities and Investment Commission (ASIC) in 2017 made changes to Regulatory Guide 97 which forced funds to disclose more information about their fees. Now, disclosure documents issued by investment managers should provide greater transparency to investors in order to help them make a more informed decision.

In my personal and professional opinion, your portfolios’ investment fees should not exceed 0.50% pa, in fact, you could probably get it down to as low as 0.30% pa for a properly diversified portfolio.

There’s an old Chinese proverb that says, If the river is too clean, you will catch no fish.” Meaning, by being too transparent you will not win new business. There are many different kinds of costs when it comes to the world if investments, but they all have one thing in common: If the money is going somewhere else, it’s not going to you.

Like the Vikings, maybe investors should be carrying around their own set of scales.

The Tale of an Unsophisticated Millionaire

It was 1909, in a small Illinois farming community, a little girl by the name of Grace Groner was born. Orphaned at the age of 12, and like many people who grew up and lived through the great depression, Grace Groner was quite frugal with her money.

It’s understood she bought her clothes from garage sales, and rather than buying a car, she walked everywhere. Her one bedroom house in Lake Forest was minimalist to say the least. Grace Groner worked at a healthcare company as a secretary for 43 years. Although she was quite frugal during her working days, she traveled widely upon her retirement, volunteered for decades, and occasionally made anonymous donations to those in need.

Grace Groner died in 2010 with an estate worth $7,000,000 which was left to a foundation she established prior to her death. It’s estimated the estate would generate $300,000 pa in income each year. She instructed that the income would be used to benefit the students of Lake Forest College by funding internships, international study, projects, and grants.

During the time of Grace Groner’s death, Richard Fuscone, a former top Wall Street executive declared bankruptcy – fighting to save foreclosure on his 18,471 square foot, eleven bathroom mansion.

“I have been devastated by the financial crisis which came to a head in March 2008, I currently have no income.”

He writes in his bankruptcy filing.

Richard had an MBA from the University of Chicago, and attended Harvard Business School. Fuscone was viewed by company insiders as a “winner”. Upon his retirement, then-CEO (of Merrill Lynch) David Komansky praised him for his “business savvy, leadership skills, sound judgment and personal integrity.”

Money and finance is one of those industries where the humble 100 year old secretary will outperform a Wall Street titan. In no other industry can this happen. The 100 year old humble secretary couldn’t beat Tiger Woods at a game of golf. And would not be better at open hear surgery than a specialist heart surgeon.

The correlation between financial education and financial success is not guaranteed, as we have seen with Groner and Fuscone.

So what was Grace Groner’s secret sauce? She bough $180 worth of shares in the 1930’s. She never sold the shares, reinvested the dividends, and let the magic of compound interest do the work.

Simplicity unfortunately is not sexy, and investors are attracted to complexity. We seem to think that complex problems require complex solutions, when in fact the converse is true.

Investors’ time horizons are getting shorter, patience is being tested, and we seem to have a desire to over-complicate things unnecessarily. It’s as if the more information we have, the better educated we are, the smarter we think we become, the dumber the decisions we make.

The finance industry is living in a world of hype, false complexity, and over-confidence.

I’ll leave you with this great passage from a Walt Disney biography:

Long-term successful investing is simple, but not easy.

Here’s where you should invest your money

When I tell people what I do, one of the first questions I’m asked never surprises me, “where should I invest my money?” I always struggle with this question, although it’s what we do in our firm each and everyday, because it’s such a difficult question. There’s so much more to it than the question that’s asked. When I respond with, “what are you investing for?”, people are generally stumped. However, the response is also always the same – and it never surprises me either…”to make money”. No sh*t! Why, what’s the money for? When investing, it’s super important to be very clear on what you’re doing, and why you’re doing it. It provides you with the clarity you need to make good investment decisions.

Nevertheless, in an attempt to answer this question, I decided to provide my point of view on major asset classes:


Cash is king. They say you should hold 3 months’ of expenses in cash. I don’t think there’s a hard and fast rule. It really depends on your situation and plans.

  • If you’re young, have a stable job, no intention on leaving your job, 3 months may do just fine. Sure, you won’t be getting much in return but it’ll go a long way in an emergency.
  • If however, you don’t want to be held hostage by your job, hold 12-18 months’ of expenses. This gives you the opportunity to work on your new idea – often referred to as ‘f*** you money’.
  • If you’re retiring or retired, hold 2-3 years’ worth of expenses. You never know when the next financial crisis will cut the income from your portfolio by 25%. It also helps avoid having to sell assets at fire sale prices.

Bonds/Fixed Income

This is where you’re going to get your diversification from your stocks and other risky assets such as property (if you need it). Having said this, if you can stomach the ups and downs of risky assets, and you’re not replying on the income, you could probably build a case not to invest. Personally, I don’t hold any bonds or fixed income (not personally or in my super fund). I can ride a 50% draw down on risky assets without feeling sick. Then again, I’ve also got time on my side. Others aren’t so fortunate.

If you’re retiring or retired, bonds will give you regular cash flow, and provide your portfolio with cushion – when you really need it. Okay, I can already hear you thinking it, what about rising rates and the impact on bonds?

To give you some indication of the performance and behaviour of bonds over the last 31 years, I’ve prepared the below table. It shows us the average return for a world bond index, as well as the best and worst returns and when they occurred (click for larger image):

Source: Returns 2.0

If you’re not convinced, let’s go back even further and see what happens in bond bear markets. Consider the post-war period (1941-1982) when yields on the US 10 year went from 2% to 15%. You know what the worst loss during this time was? 5.01% in 1969 – fairly mild. In fact the average loss during this time was 2.1%. During this same time, inflation averaged 4.49%. Inflation was what hurt bond holders, doing twice as much damage than the impact of rising rates.

Here’s the list:

Source: Ben Carlson

As long as your holding bonds for the right reasons, income, diversification, greater price stability etc., I believe there is a genuine need for bonds in a well diversified portfolio.


First thing’s first, pay off your home loan they say. I totally agree with this concept. If however, you’re in a position to do so, why not invest at the same time?

Personally, I believe most investors should hold property in their portfolio. The downside however, is that it’s a lumpy asset. Especially at current prices, it’s not cheap. Rental income doesn’t get me excited, so what is it? Land. Pure and simple.

I’d be looking for property with development potential (I’m talking residential property – I personally don’t have much experience in commercial property). Land is where the value is derived from, not the dwelling (IMO). Close to transport, freeways, shops, schools, and look for areas where government has a clear long-term plan.

If you’ve got a really long time horizon, 25+ years, look out, further out. I’m talking growth zones. There’s plenty of them – acres and acres of land. The problem is, it’s a 25+ year plan. Unfortunately most investors can’t see beyond the next 12 months, they lack patience.

With prices of dwellings rising so rapidly, it makes it difficult to see exceptional value right now. Then again, it all depends on why you’re buying.

Here’s where Australia’s house prices (real) are (orange line) relative to their long term-trend (blue line). According to AMP, currently they’re sitting around 14% above it’s long-term trend. If you’re buying your family home, which your going to live in for the next 20+ years, and your telling me you think you may be paying $200,000 over the odds. If it’s the property you really want, I say who cares. It always goes back to why your investing.

Source: AMP Capital


If you want your investments to grow over time, you should be looking at a portfolio of shares. The allocation of and the factors you tilt toward will be dictated by your personal needs and tolerance for risk. Whether it’s large, ‘blue chip’ stocks, or small company stocks, which are more volatile, however have provided a greater return of the long run.

Currently, the broad Australian share market is generating income of around 4.5% pa plus franking credits. You’re certainly not going to get this from cash, fixed income, or rental yield (residential).

To give you some indication of the performance and behaviour of Australian shares over the last 31 years, I’ve prepared the below table. It shows us the average return for the All Ordinaries Index, as well as the best and worst returns and when they occurred (click for larger image):

Source: Returns 2.0

As you can see, the shorter your time frame, 1, 3 and even 5 years, the return range is very wide (look at the best and worst returns). Once you move your time horizon to 10+ years, your return range is much narrower. In fact, your worst 10 year return was 4.51% pa! Interestingly, the average return over all the periods except 1 year, are within 34 basis points of each other.

Done properly, a share portfolio could help achieve many objectives, whether it’s to fund your child’s education, help them buy their first home (refer to my comments on property), provide you with a regular income stream whilst growing your wealth, or be the engine room for your retirement.

If you’ve got the time and the patience, you will be handsomely rewarded over the long run. The next 12 months? I have absolutely no idea. And to tell you the truth, no body does.

Bringing it all together

Over long periods of time, your investments will compensate you for the risk you’ve taken. Risk and return is not dead and diversification still works.

Source: AMP Capital

There are many cases that can be built to invest is so many different asset classes. Whatever the investment, it needs to be right for you and your why. Be clear on what you want and reverse engineer it, the investment decision will be much easier.

This is how your neighbour retired with over $5,600,000 working 9 to 5

Have you ever noticed the more you earn, the more you tend to spend? Don’t worry, you’re not alone. Many people seem to find a way of living up to their means or even beyond it. It’s called lifestyle creep, and it affects many.

Then how is it that we hear about all these other folk who have amassed great wealth? You know, that guy who worked a 9 to 5 job and retired with over $5,600,000 (outside of his unencumbered family home). The idea is simple. It’s the execution that will make it happen. Let me explain.

Let’s say the government stepped in and imposed a new 10% tax. You’d scream, you’d yell, you’d protest, and you’d pay it. Why? Because you have to.

This concept is the same. Impose a personal wealth tax on yourself. The money is for you and all the proceeds are going to go to your future self. How much of your regular salary can you do without, no matter what is going on in your life? Before you even get a chance to see the money in your bank account, channel it away into a segregated account that will in turn be invested. This process occurs over and over again with limited intervention.

I want you to think about this number, because this is the number that will largely dictate how much money you will have in the future. The objective is to set you on the path to financial freedom.

Let me show you what I mean. We have 3, 30 year old’s all earning $100,000 pa, all saving through superannuation at 9.5% pa. The first person doesn’t save anything over and above their mandated superannuation savings. The second person saves 10% of their annual income, and the third person saves 20%. Here are the results:

Assumptions: 8.5% pa rate of return, before taxes and fees, 35 years of saving and compound return.

A 10% saving in this scenario more than doubled your end balance, and a 20% saving more than tripled your end balance.

Most people have absolutely no clue of the power of compound interest. Albert Einstein once said:

Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.

This is the habit that is going to make the difference in your financial life and create lasting wealth. It will provide you with options, flexibility and ultimately, financial freedom. So you can take those regular overseas trips without worrying about dipping into retirement funds, you can pay for your children and grand children’s education expenses, you can go set up that charitable organisation that’s been on your mind for years. You can now do all of those things. The key? You need to put in the hard work, be patient, and disciplined. And you need to start early!

In the end the decision is yours. Think about your future, talk about your future, or do something about your future. Because without execution, your ideas aren’t worth much.

Life’s About More Than Money

Life's about more than money

I spend a bit of time on Twitter. It gives me good coverage of what’s going on in the world – super quick. Last night I came across this tweet from NAB:

I’m yet to work the technicalities of embedding tweets into this note, so you can watch the campaign by clicking on the video below:

Life’s about more than money. Said no bank ever. Bizarre, right? Notwithstanding, the ad is brilliant. So powerful. As a father of a two year old boy (pictured above), and with another little bundle of joy on the way, the ad resonates really strongly with me (it even raises a few hairs on the back of the neck). Well done NAB, hats off to you.

The voice over states that, on average, after 18 years, you spend $450,000 on your child with little or no financial return on your investment. So, why do people have children? Clearly, it’s not about the money. There’s more to it than that.

When I’m not on Twitter, I’m helping a few clients with their finances and investments. The most difficult part of my job, yet the most satisfying, is spending time uncovering their goals and aspirations. What’s their life is really about? What are their goals and why? What makes them happy?

If you think loads of money, fetching good looks, or the admiration of others will improve your life – think again. A study by the University of Rochester set out to determine which types of goals led to a happier life.

They interviewed a number of university students and asked them about their goals in life. They separated their responses into two groups; extrinsic or ‘profit’ aspirations and intrinsic or ‘purpose’ aspirations. Extrinsic aspirations were centered around becoming wealthy or achieving a certain look. Intrinsic aspirations were centered around growing as an individual, helping others improve their lives, and contributing to their community.

Over time, they tracked their progress. They found that those with purpose aspirations reported much higher levels of satisfaction and self-esteem about their lives. In fact, they also reported lower levels of anxiety and depression. On the other hand, those with profit aspirations weren’t any happier than when they were at university. These students also exhibited higher levels of anxiety and depression.

In his book Drive: The Surprising Truth About What Motivates Us, Daniel Pink interviewed the authors of this study, and here’s what they had to say:

“The typical notion is this: You value something. You attain it. Then you’re better off as a function of it. But what we find is that there are certain things that if you value and if you attain them, you’re worse off as a result of it, not better off.”

Failing to understand this conundrum — that satisfaction depends not merely on having goals, but on having the right goals — can lead sensible people down self-destructive paths. If people chase profit goals, reach those goals, and still don’t feel any better about their lives, one response is to increase the size and scope of the goals — to seek more money or greater outside validation. And that can “drive them down a road of further unhappiness thinking it’s the road to happiness.”

Different people want different things. For some, it’s about giving their children an education they never had, or giving back to a community who may not be as fortunate. For others, it’s about building a home where they can spend quality, uninterrupted time with their loved ones. Ask yourself why? Why do we direct funds and or our time towards investments that don’t generate a financial return?

Our long experience in wealth management has consistently shown that our clients don’t view the accumulation of money as the end game. They see it as a means to an end, a way of achieving their desired lifestyle.

Your core values about money essentially affect many of the decisions you make in life. So, conversely, when you understand and are clear on what you want to do with your life, the right financial choices and decisions for you personally will become much clearer.

Life is about more than money.

The Pursuit of Happiness

Pursuit of happiness

They say money can make you happier. We all work hard for our money and after spending it on regular necessities, for most people, there’s not much left over. It’s little wonder we want to make certain our limited resources are well spent.

Spend your limited resources on experiences and not ‘things’ says science. Many of us believe that buying material things will leave us happy, however, according to a recent study (Thomas Gilovich – A wonderful life: experiential consumption and the pursuit of happiness), researchers have found that experiences deliver a greater lasting degree of happiness.

Here’s why:


Gilovich says “we buy things to make us happy, and we succeed. But only for a while. New things are exciting to us at first, but then we adapt to them.”

We’re thrilled when we get a raise at work, or buy that new car. The thrill however fades quickly. Our raise is no doubt absorbed into our budget, often referred to as ‘lifestyle creep’, our car loses its new car smell, and soon, a thirst develops for the next ‘thing’.

Experiences however, are a much bigger part of ourselves.


“If called upon to write our memoirs, it is our experiences we would write about, not our possessions”, says Gilovich. “…our experiences collectively make up our autobiography. In a very real and meaningful sense, we are the sum total of our experiences. We are not the sum total of our possessions, however important they might be to us.”

Going out and buying the latest Android phone is unlikely to change who you are, whereas , a short trip to hike the Grampians National Park, or cycling The Peaks Challenge most likely will.

Oh the anticipation

Think about the enjoyment of your last material purchase. How did you feel leading up to the purchase? Maybe a little impatient?

Compare this to how you felt leading up to your last experiential purchase…from the moment you started planning, right through to the memories. It was probably filled with excitement and enjoyment.

Oh the disappointment

Have you ever bought something and thought to yourself, “well…that wasn’t worth it”, while it stares at you for as long as you keep it in your possession. We rarely do this with experiences.

Even the disappointing concert or the holiday that didn’t turn out as planned are quickly rationalized and accepted, “it was great to get everyone together at least”. Studies show that once people have the chance to talk about a negative experience, their assessment of that experience goes up.

Keeping up with the Jones’

Research suggests that we tend not to compare experiences in the same way as we compare material items.

In a Harvard study, when people were asked if they’d rather have a high salary that was lower than that of their peers or a low salary that was higher than that of their peers, a lot of them weren’t sure. But when they were asked the same question about the length of a holiday, most people chose a longer holiday, even though it was shorter than that of their peers.

Its difficult to quantify the relative value of any two experiences, which makes them that much more enjoyable and valuable.

Material purchases may last longer than experiences, but it’s the stories that matter the most. It’s the memories that help shape our identity. Next time you’re thinking about how to spend your limited disposable income, ask yourself what really makes you happy. After all, you’ve worked hard for your money.

Three things to consider when hiring a financial adviser.

interview financial adviser

So you’re looking to hire a financial adviser? You’ve probably got your bank hassling you, some guy on LinkedIn, or a stock broker you met at a cocktail function. There is certainly no shortage of people offering to help you with your finances. Before hiring a pro to help you, here are three factors to consider before you decide who the right adviser is for you.

1. The numbers

When was the last time you waited in a long queue for something? Frustrating wasn’t it. This is certainly not the experience you want when working with your adviser. You want your affairs prioritised. You want your adviser to spend as much time as necessary in analysing your options so that you are provided with a well thought out and considered recommendation (not one that is rushed!).

If you’re looking for a service that is attentive and personalised (not ‘off the shelf’), advice that is pro-active and well considered, your adviser should be ideally advising around 55 to 65 families. Any more than this, it is likely that some aspects of your service will be compromised.

So find out…how many clients or families do they advise?

2. Comprehensive planning

If you’re looking to hire a financial adviser, you’re likely to want someone who takes into account your entire situation – even if they don’t provide you with specific advice in every aspect of your affairs. Knowing where you’re at, what you hold and why, is very valuable when making holistic wealth decisions.

Lot’s of advisers will tell you they take your entire situation into account. Don’t just take their word for it, ask them how.

Each decision you make today will have an impact on your tomorrow. Making sure your adviser takes your entire situation into account when providing you with advice and recommendations is crucial. In the end, that’s what your adviser is there to do – bring together all the bits and pieces to put together your financial picture.

3. The investment philosophy

Staying disciplined through the gyrations, and heart-stopping rises and falls of modern markets isn’t always easy, yet it’s crucial for your long-term investment success and is the foundation of a solid investment management process.

Ask your adviser to describe to you, in simple terms, his or her investment approach. And listen to their response. Carefully.

Do they have a structure? Is there a philosophy, a belief? Are they jumbling their words? Do I believe them? If there is a philosophy, is it documented? These are all questions that are likely to go through your mind while your adviser is speaking.

Is your adviser making decisions based on speculation, a ‘gut-feel’, chasing last year’s winners, or based on a ‘buy-list’ of stocks or funds? Maybe they’re buying and selling stocks frequently?

Your adviser should have a clear and simple methodology. One that is structured and systematic. A system that is persistent and pervasive. One that is based on a rigorous due diligence process where research and hard, factual evidence is the foundation of all decision making. Make sure the odds of financial success are in your favour…and not your advisers.

Next time your adviser makes a recommendation, ask them what the purpose or the objective of the investment is, and how it relates to you personally. Their response will give you a good indication of how well they know you and your priorities.

Above all else, you need to find someone you trust, and someone who gives you the information and guidance to make confident decisions. After all, it’s your financial future.

Here Are 3 Ways to Take Advantage of the Budget Changes

Budget 2016

Budget night used to have the all too familiar routine feeling about it. Speculation of dramatic changes being ‘leaked’, Australians hastily making changes to their superannuation plans or corporate structures based on nothing but speculation. Then…the moment arrives…tumbleweed rolling across Parliament House floors.

Was it a little different this time? We think so. Here are three strategies to start thinking about.

1. Balance your balances by splitting your super

With many limitations being placed on the ability to contribute into superannuation, now is the time to start planning ahead. From 1 July 2017, individuals who want to start a pension using their superannuation benefits will be limited to a $1,600,000 lifetime limit. This means if you have $2,000,000 in your superannuation fund, $400,000 will need to remain in accumulation and will attract a tax rate of 15% on earnings (compared to 0% in your pension fund).

Enter super splitting. As you plan ahead for retirement, individuals may consider splitting their superannuation contributions with their spouse. This includes redirecting 85% of your pre-tax superannuation contributions to your spouse’s account, which allows you to build on potentially a lower member balance, in turn, allowing individuals to move a larger sum of funds (in total) from accumulation to pension.

Furthermore, if your spouse has not utilised the $500,000 non-concessional or after-tax contribution cap, you may want to think about withdrawing $500,000 from your pension fund and making a contribution into your spouse’s member account. This will also help move more funds into pension mode.

You should also give some thought to how your portfolio is invested. You may consider holding all your Australian shares and high income paying investments in your pension account, international shares in your superannuation account, and cash and bonds in your personal name in order to better manage the income tax implications.

Finally, you may want to start thinking about when you actually commence your pension. A lower market value allows you to move the same number of shares/units, however at a lower price. Then again, we don’t subscribe to trying to time the market.

2. Manage your tax BEFORE the end of the financial year

Regardless of your employment status, from 1 July 2017, you can make personal superannuation contributions for which you can claim a tax deduction. Let’s say you earn $150,000 per year and your employer makes $14,250 of Superannuation Guarantee payments into your superannuation fund. You can now make concessional or pre-tax contributions of $10,750 (up to the $25,000 limit) before the end of the financial year and claim a tax deduction for it. Previously you may have had to liaise with your HR or payroll team to estimate your salary sacrifice contributions for the remainder of the year and review it again the following year…it was never a pleasant exercise, not to mention how often contributions were tipped over the limit.

This is a very flexible way to manage your personal finances, however, don’t be fooled, it requires planing and discipline.

3. $125,000 tax deduction in one year? Bring it on!

The Government will introduce a ‘catch-up’ program on concessional contributions (limit of $25,000 pa for which you can claim a tax deduction) by allowing unused concessional contributions caps to be carried forward on a rolling basis for up to five years for those with account balances of $500,000 of less. If you know of an upcoming asset sale, or for whatever reason, you expect to earn a much higher level of income in a particular year, think about holding off on those superannuation contributions until that particular financial year. You should have the ability to contribute five years worth of contributions ($125,000) and claim a tax deduction for it. That will certainly come in handy.

Furthermore, you could use part of the sale proceeds to boost your superannuation fund via a non-concessional or after-tax contribution. Remember, you’ll have a lifetime limit of $500,000, so don’t get caught out!

Whatever your situation, there is no doubt that the 2016 Budget has made planning and thinking ahead more important than ever for those managing their finances. Plan ahead, think long-term (not too long-term as the Government will probably change the rules again), and make smart decisions.

You can read more on superannuation and tax here.

(I’m still trying to work out how Prepare-Trial-and-Hire is abbreviated to PaTH).

Happy planning.

I had lunch with a private investor, and here’s what I learnt

financial independence

Last Friday, I had a fascinating conversation over lunch with a private investor, let’s call her Katie, about the financial decisions she’s made during her life, which have now given her what most of us seek – financial independence.

I’ll share with you today the top three things that stood out to me in hope that you can gain some insight into the power of incremental decisions. They really boil down to the one percenters early on in life.

Credit cards are great, as long as you know how to use them

Credit cards are a bad word these days, but they’ve allowed many, including Katie, to fly around the world (business class), multiple times – for free!

The world of banking is a constant battle to win new customers. To win new customers, large ‘sign-on’ bonuses are offered. These offers are seldom made to existing customers, which means in order to be eligible for such offers, you must become a ‘new customer’, that is, cancel your existing card and apply for a new card (preferably one offering the greatest sign on bonuses. They’re called ‘point chasers’. It’s made websites such as Point Hacks a popular stopover (pardon the pun) for point chasers.

As long as you make smart choices with credit, and remain disciplined, it can help you achieve some of your life goals such as travelling, or travelling in a little more comfort.

Live below your means

This is easier said that done (but it needs to be done). As we make more money, we tend to reward ourselves by spending more. It’s called ‘lifestyle creep’, that is, where your lifestyle improves as your discretionary income rises. The ironic thing is that the more money we earn, the greater the opportunity we have to save more.

Fending lifestyle creep can pay off big time over the long run. Here are a few ways to combat lifestyle creep:

  1. Make lump sum payments off any bad/non-deductible debts
  2. Set up a savings or an investment account and let the power of compounding do it’s thing
  3. Increase contributions into a tax friendly account such as your superannuation fund

By making incremental decisions such as these, it gives you so much more flexibility later on in life. We all have the option, take risks now and be comfortable later, or be comfortable now and take risks later, it’s our choice.

Live for today, but please, save for tomorrow

You hear financial advisers always talking about the future, whether it’s upcoming school fees or retirement. Seldom is it about today. You only live once, so please, enjoy it and do the things that truly make you happy. This however, isn’t code for spend every dollar you earn (refer point above). It is possible to balance today’s enjoyment with the priority of putting money away for later. It requires goal setting, patience, and discipline. Warren Buffet once said, “someone is sitting in the shade today because someone planted a tree a long time ago”.

The best thing you can do is take advantages of new deals, set up some sort of investment account, and live a little less rich than before. Happy savings.