Monday, 14 January 2019

Give Yourself A Demotion

Daughters. Folks

Go ahead.  Give yourself a demotion. 
Have less take-home pay and yet become wealthier.  Huh? What the ... ?

OK, so sometimes we just have to outsmart the brain to get things achieved. Our minds are geared to seek comfort and normality and to avoid tension and growth. So instead of obeying those predispositions, let's leverage it.  Here's how:

Demote Yourself To Get Ahead

1. Swipe 20% off your take home salary. Boom. Demoted.
2. Have your payroll siphon off 20% of your take home pay and funnel it into an investment account
3. Whip out your pencil, budgeting tool or trusty spreadsheet and figure out how to still live well on your newly demoted income. Hint: cognitive dissonance will awaken the mind to help you figure this out.
4. Let your 20% being funneled into an investment account grow and then every three months, take the balance and invest it wisely.

Even if you have retired or hit FI (Financial Independence) this is a worthwhile exercise to snap the mind into action and force renewed flows of earnings into ever-growing investments.  The results can be overwhelmingly amazing. Even if investing scares you, then letting someone trustworthy do the investing for you can reap wonderful results too.

To help your mind document and plan how to live well on a newly demoted income - try this great budgeting tool HERE.  Unlike many budgeting tools that make you grovel around in the past, this one is fully future focused , flexible, user friendly and will forecast your entire budget three years ahead so there are zero surprises.  It comes with a phone app, lets you create multiple accounts, can be used for personal or business purposes, sends you alerts for upcoming items and it totally free for a month.  At least  try it for the month.  I love it and am totally happy to recommend it (I rarely recommend products).
For the purposes of being fully open and honest, I do get a small percentage of any fully paid account that may get created after the initial free month - obviously I ain't gonna get rich off it!

I will be a bit busy for the rest of the month, so will not be posting here again till early Feb 2019

Take care - and always respect your future self :-)


Thursday, 3 January 2019

Thinking Of Solutions - Labor's Proposed Stop To Franking Credit Refunds

Daughters. Folks.

Legislation changes. It always has and it always will. Get over it I say. It is time to let our inventive minds think of elegant solutions to legislation changes.

As you may or may not know, the Australian Labor Party has advised that when it next gets into power it will change the legislation on franking credit refunds. 

In its simplest form, this new legislation can be explained thus: 
Under the Labor proposal, franking credits (company tax already paid on dividends) can still be used to reduce your tax payable, but if no tax is payable, excess franking credits will not be able to be refunded to you.

Blogs, newspapers, forums and rallies have been yelling very loudly about this proposed legislation change. I personally think it is iniquitous, but that is besides the point as there are many legislation changes that I believe to be iniquitous, not just this one.

So, instead of belly-aching, perhaps think about some elegant solutions to soak up all your potentially unused franking credits. One possible solution is to buy dividend growth shares that are either not franked or only partially franked and add these to your current portfolio. 

Here is a list of companies that offer dividend growth and have either NO dividend franking or are only PARTIALLY franked. This list is only an example, there are many more companies that have good dividend growth and are not franked or are partially franked.

SYD Sydney Airport
SKI Spark Infrastructure Group
GOZ Growthpoint Properties Australia
AVN Aventus Retail Property Fund
VVR Viva Energy REIT
AMC  Amcor 
BWP  BWP Trust
CMA  Centuria Metropolitan REIT
TCL Transurban Group
ORA Orora 
CTD Corporate Travel Management 
BLD Boral
AGL AGL Energy
MQG  Macquarie Group
TWE Treasury Wine Estates 
MFF MFF Capital Investments 
SHL Sonic Healthcare

As I am not a financial adviser and this blog post is not advice - always do your own research :-)

Such research will create changes that will respect our future selves.


Monday, 31 December 2018

Short Circuiting Temptation

Daughters. Folks.

If you are anything like me, then having a tenner ($10) in my pocket is a bad thing - it just gets spent. Conversely, if I do not carry the cash then I do not even think about spending. Perverse or what?

I have been thinking about the concept of temptation lately and now realise that I have it all wrong. Instead of beating myself up about succumbing to temptation, I now realise I just need to be smarter and more inventive, not more determined or morally dogged per se.

Being Smarter With Temptation

Here is a list of practical examples to short circuit temptation.

  •   Can't save?  Organise with your pay office to deposit 10% of your pay into a completely separate savings account that is not connected to a card.
  •   Can't get up on time? Put your alarm across the other side of the room.
  •   Spend cash if you have it on you?  Don't ever carry cash (I can't and don't).
  •   Have a weakness for cream biscuits? Don't ever have them in the house.
  •   Big credit card swiper?  Don't carry the credit card, lock it in the mini safe or freezer.
  •   Loath going to the gym?  Kettle Ball at home for 10 mins daily.
  •   Too impatient and scared to invest?  Use a managed fund (e.g. Vanguard) and automate a  weekly Bpay/transfer. 

See, it is just smart planning that is required not necessarily moral fortitude. Finding inventive ways to detour temptation is the trick.  After all, temptation is only one tiny shade greyer than curiosity and curiosity is vital for learning, inventiveness and discovery - so let's not demonise temptation too much.

Letting our inventive minds find simple and elegant short circuits and detours for our ancient habits will put us light years ahead of our old selves and accordingly develop new habits, capabilities, successes and outcomes for our future selves.

Oh, and Happy New Year for midnight tonight!


Thursday, 27 December 2018

Coffee Poor

Who would pay half a million dollars for a latte?  Well, as it turns out, many people do - they just don't realise that they are.

Many management colleagues I've worked with buy a large coffee every single day, sometimes two or three depending on the day's stress levels. Not only that, I see whole cross-sections of the community walking around the streets and shops with coffees in hand - everyone from students to retirees. Oh, and there are also baby-chinos too, just to make sure kids are socialised into the coffee community from very young (I'm guessing).  

Now, don't get me wrong because I love a coffee as much as the next person, however when I do the math, those coffees simply do not taste as good. 

So, I did some math for you and here it is:

$5 per day on coffee = $35 per week
$35 per week invested for 45 years of a person's working life would have returned  ..... drum roll ..... a whopping $575,210.  Yep, well over half a million dollars right there.

(That's using a basic 7% return rate and assuming reinvestment of all returns)

How does our latte taste now?

Trendy, tasty, hip - but hardly respectful of our future selves.

Spare it a thought at least.

Take care folks


P.S.  Oh, if you're feeling smug that coffee if not your thing, then just replace the word coffee in this post for whatever your 'thing' is  :-)

Wednesday, 5 December 2018

The New Fad of Golden Goose Killing

Daughters. Folks.

Modern wisdom dictates that killing off your successes is a good thing when timed correctly.  I read about it all the time now - it is rife in advice being dolled out by all and sundry in the finance world.

Examples of killing off the golden goose: 

  • Selling property for profit instead of holding for its steady rental income
  • Selling shares for their growth instead of holding for their steady dividend income
  • Cashing in term deposits and bonds instead of holding for their steady flow of paid interest 
  • Selling off a profitable business instead of growing it for its steady flow of cash and favourable tax teatments
  • Taking lump sums out of retirement funds instead of drawing down slowly off its earnings
More often than not, cashing in or selling off income producing assets will trigger taxes, stamp duties and fees not to mention the darn obvious ..... instantly stopping the flow of  income. All for the sake of a short-lived profit. Meh.

So many modern investment approaches now have moved away from the wisdom of quiet steady income generation to a fast paced and speculative growth race complete with nail-biting stress and sleepless nights over every tiny shift in the financial landscape of the globe.

Shift the paradigm. Like so.

  • Don't buy an investment property for its potential capital gains - rather, buy it for its long-term rental income. Hold it forever and pass it on.
  • Don't buy shares awaiting their growth and eventual sale - rather, buy into wise steady dividend paying companies producing quality consumer products and enjoy the decades of dividends that drop into your bank account twice a year. Hold them forever and pass them on.
  • Organise your term deposits into 12 equal lots so they attract the highest interest and the pay-outs of this interest is dispersed every month on the knocker. Reinvest the interest if you don't need it that month and only use what you need. Let these term deposits chug along forever. These term deposits will tide you over when rents and dividends go through the odd gloomy patch (perfectly normal ebb and flow BTW).
  • Don't sell that lucrative business - in doing so you throw away a steady stream of post tax income and a wonderful vehicle for genuinely reducing your tax. Build it up so it can be managed with your wise general direction only, rather than your direct daily involvement.
  • Don't cash in that superannuation to pay for a caravan or a new car - just leave it be and roll it into a pension mode that minimises tax. Set it to its minimum allowable draw-down amount. Superannuation (even with all its faults) should be played at its own game and kept alive as long as possible.  The earlier you dip into it, the quicker it will evaporate.

None of these concepts are exciting, sexy or snappy - rather the opposite in fact.  When it comes to money and investing I prefer to tread the old paths. The old paths mean I sleep well at night and watch the financial news with arms length interest.

Go tend those golden geese - their entire singular purpose is to respect your future self. 

Over time, we'll have bred a paddock full of golden geese all faithfully laying their golden eggs every day. We'll  have more golden eggs than we know what to do with.


Thursday, 15 November 2018

The Forgotten Diversification

There is information ad-nauseam about the need to diversify our investments - and rightly so in most scenarios.  Spreading our investments across several sectors and investment types helps us to even out our risk and smooth out volatility over the long term. 

However, most of us are holding a massive risk, unquestioned, socially acceptable and considered to be perfectly normal - even desirable. That huge risk is our job. Our job is a massive risk as it is often our ONLY source of income. This income is undiversified .... risky stuff.

Why is our job risky? Simply because if we lose it, we are stuffed. We do not have another source of income to tide us over or to smooth out the impact.

I'll leave you to think about the benefits of getting a second source of income. Ideally think about getting a third or fourth source of income too.  These sources of income do not need to necessarily all be large.

An ideal diversified source of income from easiest to hardest might be:

  1. Dividend income from LIC's or broad-based Indexed ETF's.
  2. Income from bonds and annuities
  3. Royalty income from IP or publications
  4. Rent from investment properties
  5. Income from a small business
  6. Income from a second job
  7. Ebay et al

All of the above are worthy of consideration in a bid to diversify our incomes and safeguard us from the often-observed event of unemployment. Unemployment after all has the real capability to completely scuttle one's life.

Having diversified streams of income is simply respecting our future selves and arguably one of the most effective income insurance policies we can ever create for ourselves.


Sunday, 11 November 2018

The Warren Buffett Paradox

I have huge admiration and respect for Warren Buffett, arguably one of the world's best investors who made the bulk of his wealth after the age of 50. Mr Buffett is wise, sage and generous with his knowledge.  Those holding his Berkshire Hathaway stocks over the long term are indeed fortunate folk.

Mr Buffett has been quoted as saying that investing money in an S&P 500 index fund (preferably Vanguard) is for most people the wisest investment of all.  This piece of advice has gone like wildfire all over the globe and has arguably been the number one unofficial motto of index investors worldwide. 

However, here is the paradox - Mr Buffett does NOT invest in the S&P 500 himself.  What the?!  Quite so. Mr Buffett instead invests individually in many good quality businesses, reaping their dividends and compounding their growth and preferring never to sell or rebalance his portfolio. His famous publicly listed portfolio is know as Berkshire Hathaway. Those that have bought and held shares in Berkshire Hathaway over the long term have realised a wonderful growth in that asset to date. 

So essentially Mr Buffett does not follow his own advice .... hypocrisy? No actually, not at all.  Mr Buffett understands that whilst he has made a lifetime career of asset accumulation, most people wont, can't, shouldn't and haven't. Due to this, mostly everyone would therefore overwhelmingly benefit from just buying up USA's top 500 companies via an indexed fund, adding to it regularly via dollar cost averaging and allowing it to ride the ebbs and flows of the market until retirement. In retirement simply sell down portions of your portfolio to fund yourself.  This works particularly well for those in the U.S. and quite well elsewhere.

Nevertheless, the fact that Mr Buffett does not invest by buying index funds, but rather buys individual companies for the combination of their capital growth and dividend growth over long periods of time, should instantly pique our interest.  If we can get our head around it, then it is a fabulous method of wealth creation that can be emulated on a less grand scale for ourselves - a worthy endevour and a high paying side hustle if you will. 

I suspect that Mr Buffett, whilst singing the praises of index investing for the masses, is in fact a dividend growth investor. 
The freely available evidence of Mr Buffett's portfolio holdings clearly attests to this I argue.

Personally, I am somewhere in the middle.  I buy actively managed, very low-cost funds which are committed to dividend growth, dividend smoothing, buy-and-hold stock picking and reasonable capital growth. I intend not to sell these ever, but rather to live off the dividends once they match my chosen level of living expense. The corpus will be passed onto my children when I go to the big typewriter in the sky, who in turn will add to the corpus and also live off the dividend income when they so choose .... as will their children after them. Right now however, it's still the day of small things.

Mr Buffett is a clear example of someone who respected their future self.