Month: June 2016

The Path to Wealth – the road less travelled

As readers can tell from my last post, I have accumulated a bit of knowledge over the years on how to invest in the stock market.  Most of this has just been reading some key financial blogs rather than consuming massive financial textbooks.  One of my favourite blogs, JLCollinsSnh, has an excellent series on Stock Investment, and I am excited to also share that he has just released his book on the topic,
The Simple Path to Wealth: Your road map to financial independence and a rich, free life
by JL Collins.

I received a free preview copy in exchange for a fair review, which I was quite happy with since I was keen to dig into the content as soon as possible.

In the interest of full disclosure, I also didn’t have time to finish it completely in time for the release. Like most people I have other things going on – holidays, work, other hobbies – that are competing for my time.  That’s why I enjoy taking in financial knowledge in small bite-sized blog pieces;  I enjoy reading about it more  and remember it better by doing so. Fortunately The Simple Path to Wealth is perfect for this method of consumption – being both enjoyable to read and well paced.  A good few breakfasts were spent devouring cereal and a chapter in the morning.

I started off thinking I’d just read a chapter or two to start – I ended up reading 10 and forgetting about lunch.  That’s pretty impressive for a book on money – usually I’m asleep by chapter 2 or finding an excuse to put it down.  JL Collins is very experienced in delivering difficult content in easy to assimilate pieces, and I really noticed this in his chapter on bonds.  He divided the chapter into stages to explain bonds, explaining to only read as far as you thought you needed and then move on.  It was a brilliant idea to actually get me to read about the most boring subject on Earth, and also allowing the reader to not stress too much about how “difficult” the content would be.

Another brilliant chapter included a comparison between Martial Arts and stock picking.  When Mr Collins was learning Martial Arts, he was given a warning – if he was ever tempted to use kicking techniques in a street fight, he needed to ask himself – “Am I Bruce Lee”?  If the answer was “No”, then he should keep his feet on the ground… because it’s always harder and riskier than it looks.  Stock or fund manager picking is exactly the same – ask yourself “Am I Warren Buffet?”.  If you are not, you will come off second best.

The Simple Path to Wealth contains tried and tested wisdom; forged in the fires of several market crashes, a recession and hyper-inflation.  Jim has lived through these, as well as a retrenchment and some “F*** you” moments with his boss, and lived to tell the tale. I really enjoy his writing style, and the serious financial content is lined with gems of his own stories in between.  This makes it a very enjoyable read and you won’t find more down to earth, sensible, advice very often.

I really appreciate how The Simple Path to Wealth is devoid of any horror stories or scaremongering.  In the age of “The Stock Market is doomed!” type stories, it’s a breath of fresh air to hear that it’s happened before, it’ll happen again, and don’t worry – you’ll be just fine if you stick with the ride.

This is advice that I heard years ago from my Dad as I started out on my own financial journey, and it certainly shines through that it’s his love for his daughter that has driven his blog and stock market investing series.  I’m just glad that he’s shared this insight with the rest of the Internet and now offline readers as well.  Here’s hoping that many, many more people will now hear his message, and gain many years of simple stock investment and a prosperous path to wealth!

 

 

Advise to a friend

I decided to share this on my blog as well – some advice I gave to a colleague when he expressed interest in what I was investing in.  People are stunned when I come up with this in conversation, but it’s not that I’m an investing guru – I’ve just read lots of great blogs on the matter.  And I’ve had many years of practice and making mistakes – ever since my Dad got me started with a decent sum of money in an investment account for me to work with (Thanks Dad!!).

I started off with sharing the best investment series I’ve ever read.  I love Jim’s blog – he’s got heaps of great advice and a fantastic writer. 🙂

His full series on investing

If you don’t have time to read all of that (it’ll take a while, don’t blame you), read through these first:

What I invest in

Advise below is from a New Zealand point of view, where I mention FIF or taxes, review your own country’s policies on foreign investment.  If you’re from AU, UK or US you can invest in Vanguard directly and then you just need to follow standard investment tax information.
My hubby and I invest in Vanguard ETFs – VAS (Aus 200 index) VTS (US index), VEU (world index) and NZ index SmartFunds

 

NZ SmartFunds are an easy place to start, but they have quite high management fees
 0.75%.  It doesn’t sound a lot, but it adds up over many years!!
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Vanguard – yay! VEU is only 0.13%
 Compare to Vanguard which is from 0.05% to 0.20%

 

Inline image 1
SmartFunds – 0.75% – not so smart 😦

 

 

Smart Funds allows you to sign up and invest a small amount monthly, like $100 or $500 – might be a good way to start saving and investing, then the investing bug might bite!

 

Downsides to direct investment in AU Vanguard:

  1. International investments over $50k (single account) or $100k (joint account) will mean you’ll have to pay FIF tax.  Below this you’ll need to pay tax on the dividends you receive.  Over $2500 a year in RIT kicks you into provisional tax regardless!
  2. You’ll have to be disciplined to not sell your shares if there’s a market crash, and you’ll be tempted to fiddle with the assets – buy/sell when you think the market is high or low.  It doesn’t work – you just have to leave it X)
  3. Each purchase incurs broker fees, so you have to do the math (And save up enough) for a purchase that’s enough to meet the minimum brokerage fee, else you’re leaving money on the table.
  4. The US and world index funds don’t re-invest the dividends for you.  You’ll be sent Australian cheques that you then have to cash in at the bank where the tellers need to work out every single time how to process an international check!  You can pay your broker to handle that, but it’s more money on the table you could be saving instead.
  5. You need to do the purchasing of shares every now and then – can be anxiety provoking.

Alternative to investing in the market directly yourself:

If you don’t feel confident to tackle the stock market just yet, sign up for a managed fund like SuperLife – they charge lower fees than most fund managers, as they in turn invest in low fee ETFs themselves.  They’ll diversify your portfolio for you across international and local markets, plus they handle all the tax for you as it’s a PIE fund – WIN!  They are pretty much investing in Vanguard like ETFs and Smart Shares on your behalf.

 

 

If I didn’t know too much about the stock market already, and didn’t really enjoy managing my portfolio and tracking it myself, I’d sign up for this.

 

Alternative, alternative to investing:

Simply increase the percentage you save on the Kiwisaver you’re on (You are signed up for it right?? ) [Note this is the NZ equivalent of a employer match saving scheme into a fund that you can’t withdraw on until a certain age/retirement)

 

It’s got tax incentives (I think…) and it should be a fairly decent investment.  You will need to just…
  1. Check what fees your Kiwisaver company is charging ( SuperLife was the cheapest when I signed up)
  2. Make sure your Kiwisaver is going into a “growth” fund or similar that invests mostly in the stock market.  You don’t want it in a “income” or “conservative” type fund – that’s for seniors who are about to cash out 🙂

Kiwisaver is awesome because the employer contribution is like getting a 100% ROI right off the bat.  There is no investment that will give you 100% back for your contribution.  I think my company matches up to 3% or so, but there’s nothing stopping you from paying in more to save up.

I think I’ve had a ROI of 110% so far with the employer and government contributions, and the investment growth – WIN!

Downside is you can’t withdraw until a certain age, except for when you want to buy your first home.  Not being able to withdraw the money could be a good thing!
Hopefully this was useful, and good luck with starting out in investing!!