Market Beating Returns Is Not What You Really Want…
I know what you’re thinking. Is he going to go all deep and meaningful on us now? Anyone who knows me, it’s not my style.
I’ve spent many years in front of clients and I want to share some wisdom that will help you focus on the things that you can control. The things that actually matter, the things we all really value.
It’s a bit like men are from Mars and women are from Venus.
I’m not kidding you. Maybe I should write an article about that…
Helping you cut through all the noise & distracting media will help. Less confusion, the right focus leads to a happier more enjoyable life.
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Return on Investment
While achieving good returns on your investment is a critical part of any financial plan. Many over complicate it or try to go too hard at the expense of their lifestyle.
We will discuss the stress-free way of investing further in the post.
Here’s the thing, the whole financial industry is what I call one big pornography channel. Spitting out information to confuse, scare and ultimately make you purchase a product.
In the main its the providers of those products that win the day.
You’re against it from the start.
Real advice is not product focused, but all out the outcomes you are working towards. Helping you use your financial resources in ways that enhance your lifestyle now and into the future.
However, there is a way of blocking this all out and winning the day.
You see, money is a means to an end. It’s there to either improve our life or give us time back. Time back to do things that matter to you.
Where’re going to get to that part in a minute.
Investing without a purpose
Matt and Christine become clients a number of years ago. Both had worked extremely hard over their working life. Matt was an engineer, Christine was a teacher.
They were in their mid-sixties, with Matt now looking to retire at the age of 67. Christine loved her job and wanted to keep going. She worked a couple of days a week in the TAFE sector and absolutely loved what she was doing.
When we were reviewing their current position they had investments all over the place. There was no strategy here. Like most people, you accumulate various investments over time. To the extent, they had a couple of a million dollars in investment properties combined with significant debt levels that went with it.
When we looked at everything there were a couple of properties combined showing a capital loss of $250,000. Like most trying to get ahead financially, they were talked into buying two apartments in Melbourne. Like most of these type of investments, they were sold on the upside. The problem was it was at the top of the property market in Melbourne. All they got to see was their capital going down the drain. May as well gone to the casino and put it all on black.
Our role was to bring clarity and expertise on what was possible with what they had.
We were able to sort this all out which led to the two Melbourne properties being sold, creating a substantial loss along with another property that realised a nice capital gain for them. Besides Matt wanted to retire and didn’t want to have to stress about this anymore. They had to cop the loss. Had they sought advice earlier they would not have needed to purchase these properties. They would have been ok without the added stress and cost.
They had saved a nice amount in super which along with some other properties Matt was able to retire.
The purpose of mentioning this is that they had no purpose behind their investment strategy. They just chased the returns with the expectation it would set them up for retirement.
The downside of this that they were looking forward to spending more time with their grandkids throughout the week. They loved their grandkids like most grandparents.
Christine also loved to paint. They wanted to add a second story on their house to create a space. More room for their grandkids to enjoy and for Christine to paint.
Unfortunately for them given the investment decisions they had made, this was not going to be possible at this point in time. While we all make mistakes, especially when it comes to money, they can cost us big time. There must be a purpose for every investment you have. It’s not a great idea to just invest for the sake of it.
I had another meeting with Joe, he was in his mid 40’s, in his second marriage with a young daughter.
Joe was earning a good income, over $150k pa. He was quite aggressive with his investment strategy trying to make up for lost time.
He had never received any advice and went out and bought two expensive investment properties. Like most, he was expecting this to be his early retirement plan.
So, why did he come and see me?
He was at a point in his life where he had spent a significant amount of money on updating his home, staring down the barrel of large investment loans that were about to be refinanced.
His concern, he was going to have to compromise on his lifestyle.
While he was comfortable with the decisions he had made, he was now concerned he might have gone too far.
His whole focus on generating returns was starting to hit him from a lifestyle perspective and no doubt caused a significant amount of stress.
What a horrible position to be in.
It also comes back to knowing your numbers. In this situation, Joe had not done the groundwork.
Given his level of income, he shouldn’t have to worry about money. It’s more common than you think.
It’s important to have a measured, balanced approach to your investment strategy. After all, you want some fun along the way.
The Over Confident Investor
This story I remember very clearly still today. It was during the Global Financial Crisis.
My client came into me one day, and like most meetings conversations turn to their family members. She started talking about how concerned she was for her son.
Her son, thinking he knew what he was doing went out and borrowed a significant sum of money and invested into the sharemarket.
Here’s the thing, this is great if done right. Done wrong and it can be devastating.
At this time the Global Financial Crisis had just started. My client was telling me how he had now started to get depressed due to the losses he was suffering and she was so concerned about his health.
How horrible that was my client and her son. No one should ever be in that position.
No Stress Investment Strategy
Here’s the thing, investing is quite simple if you follow a couple of simple rules. Ignore them and it can end in disaster.
For every investment made, there must be a reason. Investing for retirement. Investing for children and grandchildren. Investing to pass onto the next generation.
There is always a but. It must still allow you to live your life, not too excessive, but within your means.
#1 Build up a rainy day account (usually 3-6mths of income)
#2 Hold the next 12-18mths worth of expected capital expenses in cash.
#3 Invest the remainder based on the goal you are looking to achieve. Whether it’s retirement, gifting to children/grandchildren, holiday home etc.
#4 Determine the level of risk you are willing to take. When we talk risk it’s the amount of downside you are willing to bear.
#5 Understand that investment returns come largely from the way you allocate your money between different investments.
#6 Know that it is extremely difficult to outperform investment markets. If over 80% of professional investment managers struggle to outperform investment markets, how have you got any chance? If you have no idea about investments, used Exchange Traded Funds. They can be bought on the Stock exchange through a share broker. They represent a part of the market. For instance the top 200 Australian businesses.
#7 Minimise your fees as much as possible. The more you pay the less you will have in the future.
#8 Invest regularly.
While the finance industry makes this complicated and confusing, it doesn’t have to be that way. Don’t get sucked into the noise and next shiny investment…
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Return on Life
When I refer to Return On Life, I’m not referring to some high spiritual feeling. Having said that for some this is what it will mean.
It’s more about time well spent.
If you have a think for one moment all the good things in life you remember they will come down to experiences you’ve had.
Time and time again when I speak with clients and what matters most, investment beating returns or achieving everything you set out to achieve. They all come back with being able to achieve everything they set out to achieve.
I’m not saying this for you to ignore investment returns, but rather understand what they are and not to fully focus on that outcome.
The Farmer and his investments
I remember very clearly a meeting I had with a long term client during the Global Financial Crisis.
They had been farmers for their whole life, sold up and retired. The husband was the main talker in our meetings. In most instances, the wife would sit there and ask the odd question from time to time.
In this particular meeting, the husband was discussing the investment returns on some of the investments they held. As we always tell our clients, every investment has their place. There will be ones that go up and ones that will go down from time to time. They’re not going to move in the same direction all the time.
We are focused on setting up investment portfolios that achieve client outcomes and sometimes there will be investments that underperform.
The husband wanted to keep discussing these particular investments, for which we had recommended holding. They were an important part of the portfolio.
As we were having this conversation, I noticed the wife was rolling her eyes ( not uncommon by the way), not happy with her husband carrying on about these investments.
At that point, I politely asked this question, “How would you feel if you never ever beat the market but achieved everything you set out to achieve in your life? Would you be comfortable with that?
I remember very clearly the wife’s expression changing, she had gone from rolling her eyes to a little smirk on her face as the husband paused for a moment. He said, of course, I’d be happy with that. Then that’s where we need to focus.
The answer to this question helped them focus on what was truly important. There’re still clients today and focus more on the bigger picture and less about the individual investments.
I don’t tell this story to understate the importance of monitoring you’ve investments, but to help you focus on the areas of your life that actually matter.
Spending time with family, spending time with grandkids, traveling the world, hooking up the caravan and spending 6mths in the top end, helping the kids out financially or using your time and expertise helping a charity organisation.
One thing that makes my blood boil…
Time and time again I hear advisers discussing different types of investments. This fund manager, that fund manager. Some meetings these advisers have with clients are 90% focused on investment discussions. It makes my blood boil.
Set the investment strategy up from day one and keep it simple. These discussions should only represent a small part of a meeting with an adviser.
Why you might say? There is only so much we can control and know investment markets are going to do is near impossible.
But the industry has been built on it through the sale of investment products over time.
While we have strategies around how our clients invest.
We prefer to spend our time helping clients live better lives. How do they use what they have to make their lives better, to make the money last or include more experiences?
How can they use their money so their time is well spent?
And, they are the things we have control over.
Yes, we help educate our clients on investments, but we also have strategies in place to ensure money is there when they need it and they don’t take any more risk than required.
It’s about helping our clients navigate the complexities in the finance world so they win the day.
Couple Approaching Retirement
I had another conversation more recently with another client. We are in the midst of putting together their retirement plan. Now, as in most couples, but not always, the husband had been fully focused on the individual investments in his portfolio. I don’t think the wife really cared that much, as long as the money was there when they needed she was ok with that.
He loved looking up the investments he held and taking the odd punt every now and again. However, when things didn’t go quite his way, he got down about it.
Recently we had discussions about really simplifying their investments, based on some of the information we provided above. They had built up a large investment portfolio with little structure to it at all.
When we were talking about the upcoming changes we wanted to make, the comment from the husband nearly made me fall off the chair.
These were his exact words. “I’m not going to want to follow my investments as I have in the past, I’m going to be too busy to worry about them”. Wow, this guy had gone from someone who was so focused on his investment portfolio to someone who wanted less involvement and more time for living life. I knew these guys pretty well. Had been advising them for over 10 yrs. It was a big change in his approach.
Now, that’s what it’s all about.
Another quick comment from a client recently when we were discussing their investment portfolio and we were discussing what was important. The wife turned to me and said “I just want to know I’m going to be ok and that I can do everything that I want too”.
I know I’ve done my job when my clients are no longer worried about their investment portfolio and are more focused on how can we make the most of the time we have left.
So, what are you focused on? Return on Investment or what really matter’s Return On Life.
Let’s imagine for a moment you’ve reached the good old age of 90, sitting in a rocking chair reflecting on the life you’ve lived. What would your 90-year-old self be saying to you? I don’t think you’d be there high fiving your younger self about the investment returns you’ve made over the years.
It’s going to be a combination of I should have done more or you’re going to proud of all the things you achieved.
Time had been well spent is what really matters…
Where’s your focus?
Hope that’s been useful…
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Glenn Doherty – CFP – Founder & Financial Organiser at Jigsaw Private Wealth
Mob: 0401 253 729