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. 


Saturday, 10 November 2018

Dead Simple Money

Daughters. Folks.

Sometimes we need to go back to the foundations, because money, investing and saving really are dead simple.  What makes it difficult is all the money "noise" we hear around us.

1. I nearly feel stupid having to say this, but the bedrock of all financial success is simply built on the following -  ALWAYS SPENDING LESS THAN WE EARN.  No amount of fancy math, investing expertise, fancy deals, business models or tertiary education can nullify this timeless principle

2. Building an independent stream of income from wisely executed investments is a basic adult responsibility.  It is not optional and has nothing to do with being clever, privileged or lucky. IT IS MY RESPONSIBILITY TO PROVIDE A PERPETUAL STREAM OF INCOME FOR THE FUTURE.  It is not the governments responsibility, it is not a societal expectation nor is it a right that any of us be supported by someone (including a spouse) or something else.

3. If we hold consumer debt then we have been tricked, groomed and enslaved by consumerism. We need to simply forgive ourselves and IMMEDIATELY TREAT OUR CONSUMER DEBT AS A PERSONAL CRISIS. Eliminating this crisis requires our total unwavering attention until sorted.

4. HOLD INCOME-PRODUCING ASSETS FOR EVER.  Consumerism has even ensnared sensible folk into believing that selling-off the golden goose is logical. The rampart buying and selling of real estate, shares, bonds and businesses is by and large idiocy and making someone else very wealthy besides ourselves. Buying and selling more often than not attracts unnecessary taxes, unnecessary fees and ignites dangerous emotions. Old money is wise money. With old money/wealth, the corpus can be then bequeathed generationally forever.

5. TIME AND PATIENCE ARE NON-NEGOTIABLE.   In today's immediacy-driven world, time and patience are universally sneered at as inefficient. Change and innovation are glorified at all costs. However, what is nearly forgotten is that the effects of time and patience, in the context of investing wisely, are at first subtle and imperceptible .... but then quietly snowball into an unstoppable tidal wave of abundance. The power of time and patience is barely even noticeable within an initial 10 year time span (most folk have become financially bored and wandered off within the first 10 years).

Holding these five principles as personal financial truths will put us light years ahead of much of the world's population. These principles fully respect our future selves, the future of our families and the future of our communities.

Take care


Tuesday, 30 October 2018

You Need a Plan

Daughters. Folks.

I talk to and converse online with so many good folk that are invested in the stock market and who do so WITHOUT an investment plan and method.
Those without an investment plan and method are always going to be on the hunt for the best stock, the best this or that, the best market timing and it is evident by the indecision they display and the ceaseless talking and surmising all over the 'interwebs'.  Blown about by every wind of financial doctrine. Noise.
Having a sound investment plan and sticking to it through thick and thin is MOST of the battle won. Conversely, fiddling with our portfolios (if indeed they are portfolios - often they're just a mish-mash of holdings representing our thinking at the time of purchase) is a sure-fire way to lose money unless we are just dumb lucky. Some of my worst investing mistakes where from fiddling, tinkering or changing investment plan and method ..... or those times I have decided to have a little bit of 'fun' with a stock holding or two.

My Simplified Investment Plan and Method
My investment plan is this: To own a portfolio of LIC's (Licensed Investment Companies stocks) both inside and outside of superannuation which will grow to produce a gross dividend income of $60K per annum. 
My investment method is this: Save a minimum 20% of my net income. Each time $5000 is saved, then buy the best value at the time out of one of the following LIC's - AFI, ARG, MLT, BKI, DUI or AUI. 

My investment measurements
1. Amount of stocks owned 
2. Annual dividends received

Simple. Elegant. Respectful of my future self.

What's your plan?


Thursday, 18 October 2018

Snap Your Brain Awake

Daughters. Folks.

I always rabbit on about ensuring that 20% of every dollar that comes our way we need to invest for our future self. But what if we could invest more .... 30% or even 40% (gulp) or be really ridiculous and say 50%.  Imagine how quickly we could become financially independent (FI) if we wisely invested half of every dollar that came our way. Don't glaze over - stay with me.

Now you think I'm being silly expecting everyone to take living on 50% of their current income seriously, but you'd be wrong - I am being serious. If you do not think that you could live on 50% of your income, then think again.

You CAN live on half your income. Here's proof:
  • If you were a couple and one of you lost your job you'd be instantly doing it.
  • If you both got demoted (for whatever reason) you'd also be doing it.
  • If you were the sole earner and had to go onto social security, you'd be more than doing it.
  • If you were a couple of pensioners and one of you sadly passed away, you'd be doing it.
The above four examples are quite realistic and happen regularly in a normal society - any one of these scenarios may have already happened to you at some point on your life. The point is, when these types of life events happen and your income instantly halves, you survive .... somehow.  It's that "somehow" that is the key.

"Somehow" the human mind switches on, snaps open, breathes in sharply and goes into overdrive to ensure survival. We do whatever it takes and we become super resourceful and hyper-aware of opportunity in all its forms (oh if only my mind were this keen normally). 

So, what if you purposely created your own mock demotion, your own pretend lay off, your own faux loss of income and ACT is if your income has been halved. We have already established that we have the capability to survive (even thrive).  What if you took control and created an experimental life scenario and halved your available access to your income? How would you go?  If you took it seriously and allowed your resourceful survivor brain to kick in, you'd actually do very well. Humans are hard wired to become highly efficient and resourceful in times of scarcity - even our metabolic physiology is totally geared up for it (who knew!?)

So here is a challenge. With agreement from your family/partner/self, just for one single week, live on half your income. Just for fun.  Just as a challenge. Just for the adrenaline rush. Just for the achievement. Just to snap your brain alive. Just to prove me wrong ..... oh, and put the other unused half of your income aside, untouched.

The thing is, the human mind is working at its full potential when in a state of cognitive dissonance. By controlling this state of mind and leveraging it for a purpose, great things can be realised and achieved.

Go on - I dare you to give it a shot.  At least do it to supercharge some practical respect for your future self.


Thursday, 11 October 2018


Daughters. Folks

The strangest of all human behaviours are never more evident than when the stock market crashes.  So much fear, so many wild stories, sell-sell-sell, dramatic news headlines, so much moralising, oodles of I-told-you-so's, tears, fortunes lost, suicides, despair ...... my dear parents STILL talk about the 1929 crash and they weren't even born then!

Now here's the strange thing - bear with:

  • For mostly everyone, when groceries items become available for 50% off specials - shopping trolleys get filled up with glee.  
  • When our favourite clothing store has an 80% off sale - whoosh! ..... we are down there in a flash and bring home a haul. 
  • When run-out sales on last year's car models happen, everyone knows it is a true bargain and snigger at those who paid full price just months previous. 
  • If we get $20 off from couponing or get our free loyalty-card coffee or a free burger - it's just fabulous. 
  • We spend years hunting for a bargain house/property and when we find it, we settle the deal quick smart.  The smugness lasts a lifetime. 

We all love genuine bargains .... and so we should.

Well, let's play a stupid game now and see what it would all look like if we acted in the above circumstances like we do when the stock market crashes. Here goes ..... ready?

  • When groceries go on 50% off special we all recoil in shock and go and eat at an expensive restaurant and gossip dramatically about the cheap groceries. 
  • Our favourite clothing store has an 80% off sale, so we panic and sell all our clothes on eBay for less than a dollar and are reduced to only wearing our PJ's. 
  • Ford has an end of year car run-out sale, so we immediately sell our new cars for $1000's less than we paid for them without a second thought and catch the bus everywhere instead. 
  • We pay the cashier $20 extra dollars for handing across our coupons, we pay for a coffee but walk away without collecting it and we pay our money at McDonalds drive-thru and then race through the exit gate without waiting for our meal. 
  • The neighbour sells their house/property for a substantial loss, so we immediately sell ours for an even greater loss than they. We consider this wise and tell everybody how lucky we were to have dodged a bullet.

We are petrified of a bargain and would willingly sell all our possessions rather than live in a world where prices drop.  We suffer from serious emotional troubles when we see prices becoming cheap on anything at all.

Or course, the above list is all serious madness of the highest order - this never happens.

Never happens?  Oh yes it does! EVERY SINGLE TIME good quality stocks and shares become available at cheap prices, otherwise well educated and wise folk sell up their shares in utter fear for the cheapest prevailing price and throw away years and years of hard saving and investing. True story. Every time. Complete and utter madness. It is this irrational fear-frenzied selling behaviour that creates the wildest of stock market crashes .... and it happens every 10 years or so.

Just stop and reflect - take breath.

Daughters. Folks. Here is a piece of wisdom. Buy quality dividends-bearing stocks during a stock market crash, every time it crashes and be always purposely saving in readiness to make these cheap purchases. 

Genuine wealth is made from buying quality dividend-bearing stocks at low prices and holding those purchases forever, never selling and reinvesting the dividends for generations into the future.

Here are some absolute stock market facts:
  1. The stock market repeatedly crashes due to the cyclic, irrational, fear-fueled selling.
  2. You can count on the stock market crashing - and you should. 
  3. The stock market always bounces back after crashing and continues on to grow to new heights.
  4. The average person lives through several stock market crashes in a life time.
  5. Stock market crashes are simply excellent value stock sales for wise, patient and prepared people.

So, simply await these crashes like you would any shop sale, buy up big and stockpile (pun, but not a pun) just like you would when you find any other type of genuine bargain. This is financial wisdom.

As the wise old fellow Warren Buffett has been known to say - "Be  fearful when others are greedy and  greedy when everyone is fearful" (or something very similar). Unlike me, Mr Buffett is qualified to comment ..... my advice is always do your own research and seek independent advice.

Keep an eye out, there might be some good stock specials happening soon enough.

Buy quality dividend-bearing stocks very cheaply, hold them forever and reinvest every dividend to truly respect your future self.


Sunday, 7 October 2018

DIFM Investing

Daughters. Folks

Usually - no, mostly, people will not invest even if they are savers. Investing has so many user road blocks like paperwork, tax considerations, audits, record keeping, market timing, fear of downturns etc that it just takes investing off people's to-do list. Essentially, investing is too difficult.

So all of you that are active investors will scoff at these blocks to investing, however the statistics show that investors that are successfully creating financial independence for themselves are actually far and few between. This is where I believe that using an investment product and paying a reasonable fee for it is far more preferable compared to not investing at all. DIFM (Do It For Me) Investing beats the pants off not investing at all - yes, even with reasonable fees accounted for.

All you dedicated DIY (Do It Yourself) investors out there will be rolling your eyes by now, but please do the math. Surely using DIFM investing with fees under 1% for a decade or two still puts us miles ahead of not investing at all. I know you will begrudgingly agree.

OK, so for those of us who just are not going to do DIY investing (mostly everyone), then using a quality DIFM investment provider with reasonable fees and great transparency is a sensible way to proceed and start investing. 

Essentially with all DIFM investing, all you have to do is: 
1.) Set your account up.  
2.) Select your high-level investment approach.  
3.) Automate your weekly/fortnightly/monthly amount to invest.  
4.) Then, forget about it and go about your life.

If you live in the UK, then check out  Nutmeg

If you live in USA, check out Betterment or Wealthfront

If you live in Australia, check out Stockspot or Vanguard retail funds

I say it is better to use a DIFM investment company than to not invest at all.  

DIFM investing is a great way to respect our future selves without the need to get all obsessive and boring about investing. Even the purists would agree that length time in the market is key. After all, if you wait 10 or 20 years to start learning all about DIY investing and getting interested in it "later on" or "one day", we would have easily missed out on hundreds of thousands of dollars ..... or more.

Respect your future self - take action today.


NB: I am NOT a financial adviser, so please get independent and qualified advice

Also, I am NOT affiliated with any of these products and do not get payments or benefits for mentioning or linking them.  I do use Stockspot and Vanguard products in Australia for a small percentage of my investment portfolio.