Invest like a boss

Made to measure? Ready to wear? All about off-the-plan apartments

Last week I witnessed the glorious sight of 120 women drinking wine and listening to a seminar on getting started with investing.

Girls Just Wanna Have Funds was a puntastic pleasure. I liked Molly’s description of investment being like the free weights room at the gym: full of men and very intimidating.

(Personally, I am that bitch – the one who struts around the weights room, frowning at men who don’t unrack their weights).

Anyway, the seminar focused a lot on listed investments such as shares and ETFs. This is great, because they can be a wonderful way to get started. (Click here for an explainer).

But I know that when many Australians think of investment, they think of property. And so, I wanted to talk about something in the news recently: buying off-the-plan apartments.

I know people who have done this successfully, so I’m not here to throw shade at the whole idea.

But when a big developer went bust last week, it added to the negative headlines around this sector. Remember the infamous Opal Tower, whose residents were evacuated at Christmas thanks to some big concrete cracks? It was followed by a similar issue in Mascot recently.

As a result, people are scratching their heads about whether purchasing off-the-plan is such a great idea. So, let me give you a quick rundown on the pros and cons of this style of investment.

Why do developers sell off-the-plan?

So they can borrow money to build. Most developers don’t just use their own money for a project; they usually need a loan.

And the lender wants to know that buyers have put their money on the table to provide ‘debt cover’ for the loan. Once the lender feels comfortable that they could be repaid if things go wrong, they’ll stump up the money for construction to start.

Why do people buy off-the-plan?

Lots of different reasons, but here are some:

Brand spanking new – nobody else has lived there when you move in. Some people really like that. You can often choose the fixtures and finishes too, so it is like buying a made-to-measure wedding dress – the design is standard but the details are yours.
Lock in a price upfront – this is appealing in a rising market. Say you agree to pay $500K and then the market rises by 5% over the next year – your asset has increased in value by $25K without you doing anything.
Have time to save up – the time that the developer spends marketing and building the property is often a couple of years. So, you have that time to keep saving and boost your deposit/reduce your mortgage – all the while knowing you have locked in a price that won’t go up.
Depreciation tax benefits – when you buy a property as an investment, you may be able to claim ‘depreciation’ as the property ages. It’s quite complicated, but it can give you some tax benefits.

So, there are definitely upsides to the idea. But there are some risks to consider too:

The project may not go ahead. The developer normally has to wait and sell a good chunk of the units – maybe 75% or more – before building can start. In the market peak, when projects sometimes sold out in days, that wasn’t such an issue. But at this point in the cycle, sales have slowed significantly.

So, it could take months or years to reach the minimum debt cover; and in the worst case scenario, they never get there. That doesn’t mean you lose the deposit – you have just have that cash locked up in some sort of trust account, earning little to no interest. The contract should have a sunset clause that says if the project doesn’t start by X Date, the buyers can have their money back. So, be clear what that date is when you sign up!

The value of the property might fall by the time it’s finished. As explained above, you can make money in a rising market by locking in a price and just waiting. Perhaps that $500K unit is worth $550K the day you move in.

But in a falling market, it can lose value instead, and the unit is now valued (by a professional valuer) at $450K.

It’s only a paper loss at this stage – i.e. you don’t lose the money until you sell it. But where it can cause trouble is if you’re getting a mortgage. The bank will agree to lend a percentage of the VALUE, not the PRICE. So, if they are providing 80%, it’s 80% of that $450K. If they won’t go any higher, you need to find the extra money somewhere else. If you can’t find it, you may have to walk away … and lose the deposit.

The finished building may be poor quality. That’s what happened with the Opal Tower. Most finished buildings end up with some defects, anything from broken tiles to leaking windows. Many only appear over time, and the builder is contractually obliged to fix them within a certain period from completion.

It’s when that period is over, or when the cause of the problem is unclear, that things can escalate.

I should point out that this isn’t unique to new buildings. My own apartment block is 20 years old and had a very expensive water seepage issue a few years ago. That’s why the strata has insurance and collects a sinking fund. Although if that’s not enough, you can get hit with a ‘special levy’. Home ownership can be hard!

The developer could go broke before it’s finished. This is a remote risk, but the key is to be aware of what your contract says. We don’t know all the facts yet, but word on the street is that Ralan, the developer who just collapsed, had convinced its buyers to release their deposit to cover interest costs. This is highly unusual – some are saying it’s even illegal – but the fact is, everyday buyers wouldn’t have realised what they’d signed up to.

And if it’s true (as some have suggested) that the conveyancers they used were recommended by the developer, it’s even fishier.

Life pro tip: whatever big purchase you make, always get your own, independent advice, from mortgage brokers through to lawyers. Don’t use the people your vendor recommends!

So, should you buy off the plan?

It’s totally up to you. Like every single investment, there are risks and rewards. The key is to see them all in advance.

One option is to buy recently completed apartments – this ‘residual stock’ may be marketed as ‘Final Release’ and is made up of the units that weren’t sold in the pre-sales period. They don’t want to dump them on the market in a fire sale, so they sell them off one by one. These are an option if you want a brand new place, but also want to see it first – like a wedding dress that’s ‘off the rack’.

Overall, any investment comes down to your personal goals and preferences. Buying property for investment creates concentration risk – i.e. putting all your eggs in one basket – but some people like the feeling of being able to see and touch their investment. If you’re buying to live in it, the risks (and benefits) can be different, but they still exist.

Before you make any decision, be sure to have a clear view of your timeframe, risk appetite and lifestyle preferences. And please, if you do go ahead, get decent legal and tax advice. Think of it as part of the cost – you need someone providing you with objective advice and pointing out any red flags.

August 12, 2019 0

Two insider tips from the finance industry that may just make you rich

Haha sorry about the clickbaity title. But it’s kind of true. These two things may just help you get past your fear and lack of confidence about investing.

You see, there are a lot of vested interests who like to make investment seem haaaard and scary and complex. (So you pay them to do it for you, ya see?).

But it doesn’t have to be that hard, I swear. So, here I offer you two truth-bombs to consider.

1. It’s all about the big picture, not the details.

There’s an investment concept called ‘asset allocation’, and before you hit the snooze button, let me explain why it’s important. It refers to the big ol’ mix of investments you have, like a recipe.

A bit of property here, some shares there, here’s a parcel of bonds, and here’s a pinch of alternatives!

Each ‘asset class’ has its pros and cons, and when you mix them all together you get a delicious mixed fruit cake. (psych! fruit cake isn’t delicious at all).

People selling you investment products will often tell you theirs is the best. Performance this, fees that. But you know what’s more important than the separate ingredients? The recipe you start with.

(Actually that assertion is a hotly contested debate in the industry, on a par with the great Kimye vs T Swift battle).

Broadly speaking though, having a good, diversified mix of investments is pretty damn effective for building wealth. The recipe should be matched to your goals and timeframe.

When you go to a robo-advice service like Six Park or Stockspot, they are helping you choose the right recipe for you. They’ll also help with the ingredients, of course, through ETFs and Index funds (more on that below). So robo-advice can be a good (low-cost) way to get your head around the whole shebang.

The takeout: Don’t worry about finding the ‘perfect’ fund manager or picking the ‘hot’ stocks. Just make sure you have the right mix of investment types (i.e. asset classes) to meet your goals.

2. Investors do stupid things … all the time.

That’s why markets are so choppy. At the moment, some of the most valuable stocks on the ASX are trading way beyond their intrinsic value. Take Afterpay – the favourite frenemy of the cash-strapped millennial shopper.

It’s currently overpriced because investors are piling into it in a frenzy.

The stock is currently trading at an astronomical high – a Price Earnings (PE) ratio of over 180 forecast earnings . You don’t need to know what a PE ratio is, you just need to know that even hot-tech-fave Google only has a PE of around 20.

Basically this stock is as popular as a fidget spinner in the playgrounds of 2017 (and personally, I think it’s heading for the same fate).

Markets boom and they bust. Particular stocks are in fashion, then they aren’t. Investors get caught up in ‘irrational exuberance’, and pile into the same companies, based on a good feeling and some comforting projections in an Excel sheet.

When a professional investment manager does this, it’s called ‘active management’, and they charge handsomely for it. Unfortunately, they aren’t always worth the money.

But you can avoid these professionals and their big bets by just ‘tracking the index’. You see, there’s an alternative to active and it’s called – surprisingly – passive!

Rather than picking particular investments, you just follow the market. The passive-vs-active debate is a long-standing one and I’m not here to adjudicate. (Unlike Kim vs Taytay, where I am team Taylor to the death).

I will say, this week the New York Times published a piece (which I stumbled across today – after I’d planned this post), where the author opines:

“I had accepted the imperfect choices and high fees imposed by so-called active mutual funds, and I had compounded those liabilities by buying and selling at the wrong times.

“The Dalbar data leads to the inescapable conclusion that most investors, this one included, are bunglers: We panic and exult at the wrong moments, impairing our chances of success.”

He goes on to conclude:

“Most people, including me, would be better off if we gave up on being smart and stuck with a simple approach: long-term holdings of diversified, low-cost index funds, using only money we can afford to tie up for years.”

So if you are wondering how to get in on this passive investing gig, you could do worse than read my aptly titled post ‘WTF is an ETF‘, or check out Canstar here. If you want to dip your toe in the water, I like Raiz, because you can invest a small amount.

The takeout: there are simple, low-cost ways to access investments like shares, and they are totally within your reach and skillset.

July 29, 2019 2

3 Key Investment Concepts explained by The Spice Girls

It’s Sunday morning, I still have glitter all over my face from last night’s Oxford St make-up, and I’m drinking coffee in bed. The only thing that could make today better is dropping some knowledge bombs on you all.

If you didn’t hear about the Great Disappointment of 2019, last week Mel B told us that The Spice Girls were coming to Australia, before clarifying that actually it was just a vague intention.

Anyway, since this Girl Power phenomenon was a huge formative influence on my life, I decided to give them their own Fierce Girl post. And sneak in some learning at the same time.

So, here I give you three important investment concepts they should really teach at school but usually don’t.

Capital Growth – this is when an investment or asset increases in value over time, without you having to do anything.

Capital Growth is the Spice Girls of the investment world. For that brief moment of joy where we thought the band was touring Australia, my friends and I considered how much we’d pay for tickets. ($1000 was too much, $999 we agreed was ok). Those girls haven’t made an album in decades but they get more valuable over time!

With assets, homes are the most common example of a capital growth play. We buy them and hope they’ll double in value every seven years and in a rising market, that does happen. But all markets follow a cycle, so if you buy at the wrong time, you may either miss out on capital growth, or see it go backwards. (Read this post for more info).

When people buy shares, they are often looking for capital growth, especially if it’s an up-and-coming company that doesn’t make a profit. You don’t get any dividends in this case, but hopefully in a few years those $1 shares are worth $5. I already wrote a whole post about how buying shares is like choosing husbands (here). But when I think about it, it’s kind of like creating a girl band. They could end up as the Spice Girls, or they could go the way of Bardot (sorry Sophie Monk).

Ouch, my nostalgia-o-meter just kicked into overdrive and I feel old AF

Yield – Income – Dividends

These are all basically the same thing, and refer to the cashola you earn from owning an asset. Also known as passive income.

Do you ever wonder how Sporty Spice seems to live an A-list lifestyle, even though we haven’t heard much from her since the 1999 dancefloor banger ‘I Turn to You‘?

Yep, that’s right, she’s living off royalties. Apparently all five girls have co-writer credits for their songs and get paid when people play or perform them.

This is the kind of passive income I want in my life, but since I have zero musical talent, and am probably past my prime girl-band age, I’ll have to buy some blue-chip shares instead.

Retirees are big on ‘yield stocks’ like Telstra and the Big Four banks, because they need income to live on day-to-day.

For myself, as a young investor, I’d rather re-invest that income to grow my nest egg, and in fact many companies have an option for doing this. It’s called a Dividend Reinvestment Plan (I know, they could have catchier name). Say you have $1000 worth of Telstra shares and they pay a 7% dividend, instead of taking that $70 and putting it in the bank, they just give you $70 worth of their shares. It all happens automatically once you sign up for it, and you don’t need to pay a broker (which is normally the case for buying shares).

It’s as easy as letting Spotify create a Pop Queens playlist for you. (Athough, tbh, I’ve made my own and it’s great. You’re welcome).

When it comes to property, rent is the key income stream. If you have an investment property where the rental income is enough to cover the costs of the mortgage, strata and other bills, it means it’s positively geared. (‘Gearing’ refers to debt, so it basically means the income is greater than the cost of servicing the debt).

If the rent isn’t enough to cover the costs of owning the property, you have to put your hand in your pocket to top it up. This means it’s negatively geared – as you’re making a loss on an investment.

If you’re thinking ‘wait, what, why would anyone want to make a loss on an investment?’ then you have obviously never experience my dating life, which is all about putting in more than I get out. (Although I’m down with that now).

The key insight here is that investment losses are tax deductible. So, say you have to cover $10,000 a year of investment property costs each year, you can reduce your taxable income by that amount. i.e. maybe get a sweet little tax refund.

Like, I see how this is good for people who hate paying tax to the government (ok, literally everyone). But I personally don’t relish the idea of finding extra money all the time, which is one of many reasons I don’t have an investment property. But if you do, that’s great and no judgement – you do you, boo!

I just think people get excited about negative gearing but forget they are still making a loss, AND the strategy relies on the property increasing in value (capital growth) to make it work. Which is not happening much at this point of the cycle, and also is dependent on where and what you buy.

Anyway, this isn’t meant to be a rant about Australians’ obsession with property, but a rant about how important the Spice Girls have been to our lives (if only I had a photo of my platform sneakers from 1997.) So let me get to the next point…

Diversification

Of course there are more investments you can make than just shares or residential property. There are bonds, REITs, commodities, infrastructure etc. A sensible portfolio will have diversification, and that is exactly where the Spice Girls have excelled.

Each member is unique and brings something different. Well, I think Posh’s contribution is minimal, but someone may want to fight me over that comment.

When we were young women looking at the fab five, we could all identify with something, whether it was their hair colour, fashion sense or personality. Having a bit of everything helped to make a great band.

Finance is the same. If you just put all your money into property, then you might be missing out on the returns of shares, for example. These asset classes are often ‘uncorrelated’, which just means they do their own thing: while property is falling, the sharemarket could be soaring – which is happening right now. So if you have a bit of each, you spread the risk. When Ginger Spice was in a bad place of eating disorders, yoga videos and questionable solo songs, Posh was marrying Becks. Markets and people all move in their own cycles.

Wow, this was quite a long post so if you’ve stuck with it, well done. Your prize is a night on the Spice Girls red bus, which is now an Air BnB. Enjoy!

Sleep well surrounded by 90s nostalgia, Fierce Girls!

June 23, 2019 0

I got totally rejected by a guy the other week.

Baffling, I know.

So, we met online, organised to meet for a drink and he walked in and looked pretty cute.

He’s gainfully employed, seems to have his life together and has a command of basic English – all of which you can’t take for granted in modern dating life.

We are having a good conversation and it turns to investment. He has a couple of investment properties; one of them is okay-ish and one of them is a dog. But he’s planning to buy another one.

So in my very direct way I’m like, ‘what about diversification?’ and ‘why go further into something you’re clearly not great at?’. Then I continue, ‘Haven’t you thought about shares? Can I recommend you research low-cost indexed funds? Your investment strategy sounds pretty dumb’.

In the retelling of this to my friends, the general consensus was (in Whitney’s words) ‘boner-killer’.

Whereas I thought I was helping him reassess his life choices in a positive way, apparently I was just coming off as a difficult, mouthy blonde.

You won’t be surprised to hear I didn’t get asked for a second date.

All week I kept thinking of Clueless, when Cher says, ‘did I stumble into some bad lighting?’.

Money, men and masculine energy

But my sad/non-existent love life is not the point of this post. What I started thinking about was the great sense of confidence old mate had about his investments, even though, in truth, he was not that good at it.

To his credit, he has done something. He’s made a move, and he’s owned it.

I think of this as a masculine kind of energy. Apparently I have a bit too much of that myself, because no guys ever want to date me. But what’s wrong with backing yourself sometimes?

What I see sometimes in the women around me is a lack of confidence in their financial ability. They see money as something complex and threatening. They think of ‘investment’ as a big, scary word.

So they leave it alone, do a budget that gets them through to payday, buy a house they can just afford, pay their compulsory super … and that’s it. They don’t plan world domination.

Or they let their partner do the heavy lifting on the finances, and thereby open themselves to him making a bad decision on his own.

So I’d like to throw a challenge out to all my ladies. How about we all be a little more blokey when it comes to money?

And I don’t mean ‘use things without reading the instructions and then screw it up’.

I mean ‘hell yeah, I’ve done the research, spoken to the experts and educated myself. I’m going to take action’.

What sort of action? Well that depends where you are on your journey. Perhaps it’s starting out with the above-mentioned low-cost index funds. Maybe it’s buying an investment property. Maybe it’s adding more to super. Maybe it’s just setting up a high-interest savings account.

The key is to make a decision. Don’t second-guess yourself to the point of paralysis. Educate yourself to the point of confidence. Then go out and OWN IT.

Just don’t use it as a dating strategy, or you’ll end up like me, watching Chvrches concerts on YouTube, in my underwear, writing blogs and eating 85% dark chocolate.

Wait, that sounds fucking awesome … no wonder I’m single.

February 18, 2019 3

It’s not you, it’s them: why finance seems boring AF, and what you can do about it

If finance seems about as exciting to you as a relationship with Aidan, I’ve found one of the reasons why.

I had this insight while witnessing one of the beloved rituals of the investment industry: roadshows.

It goes like this: you have an investment product to sell. You want stockbrokers and financial advisers to sell it, so you go around town presenting to them. There is a PowerPoint that’s been through 20 versions. A slightly weary senior management team who has given the same spiel three times that day. And a group of finance people who vie to ask the smartest-sounding questions.

I’ve been at a couple of these briefings lately, and holy hell, what a sausage-fest they are. At the first one, there were no women in the audience. At the second one, there was just one among about a dozen men.

So, there are all these statistics about women’s lack of participation in investing. Women invest less, feel less confident about their decisions and often leave it to their partner (some good stats here).

And when I look at who’s running the show, I think ‘well, duh’.

What’s does ‘women’s investment’ look like?

I’m not sure, really. One of my inspirations, Sallie Krawcheck, is a serious boss-lady who has thought about it a lot. She used to be CEO at a giant finance company, and these days she runs a women’s investment firm called Ellevest. (It’s in the US, so I haven’t invested with them, but I totally would.)

Sallie has a lot of data and insights into why a female-focused investment firm needs to exist, which I won’t replicate here. Check out the website here. Broadly, we have different goals, income patterns and attitudes to money – so why not have our own approach to investment?

But nearly all women have worn men’s clothes before. Maybe you stole a perfect t-shirt from your husband, shopped in the men’s underwear section, bought a pair of Cons, or inherited your dad’s 1970s maroon tuxedo jacket and worn it out on the town (thanks dad!).

So you would know that just because something is designed with a man in mind, doesn’t mean it’s wrong for women. And investing is the same.

Sure, most investment products were created by a bunch of guys with a serious Excel spreadsheet addiction. And yeah, they are packaged up and sold by a bunch of guys in suits. And the language and marketing around them is created without women in mind.

Who cares? Invest anyway!

Let’s not wait for the finance industry to achieve gender diversity. I’m not sure it ever will. Instead, let’s take matters into our own hands. Here are three things you can do right now to take control of your finances and low-key smash the patriarchy.

Educate yourself – Take time to understand the basics of money management, investing and financial lingo. This website is a good start (of course!) but there is also a wealth of information out there (pun intended). Start at www.moneysmart.gov.au, get to know The Barefoot Investor, head on over to www.financy.com.au, or just ask your smart, financially literate friends where they learnt about money.
Make a plan – You don’t have to go and drop a few thousand on a financial planner. Set a SMART goal, map out a plan to get there and then allocate your funds accordingly. This is literally the basis of all financial planning, so if you can do this for your next goal, you’re streets ahead. (Some goal setting tips here)
Dip your toe into investing – Not all investments need $50k in cold hard cash to get started. Microsaving apps like Raiz (formerly Acorns) can get you acquainted with investing on a small scale. You can buy an Exchange-Traded Fund (ETF) for a few hundred dollars (learn more in my post here). If you love property but can’t afford your own place, you can buy a little bit with companies like BrickX (I haven’t invested with them so I’m not endorsing it, but you can always do your own research). The point is, you don’t need to be a baller in a suit, wearing a Rolex, to get started as an investor.

Remember: just because the finance industry is dragging its feet on gender diversity, you don’t have to miss out on making money. Take charge and take your seat at the table!

June 25, 2018 0

Four things rich people do … that you can too

There’s a section in my favourite gossip mag, ‘Celebs – they’re just like us’, where photos like Reese Witherspoon hauling groceries to her car make us feel good – as though there’s not much separating our humble lives from theirs.

Well, I’d like to propose a column called ‘Rich people – they’re just like us. Except not really’.

My career has thrown me in the path of many rich people (who, curiously, don’t call themselves rich most of the time).

They are like us in that they struggle with personal relationships, self-esteem and whether to eat dessert or avoid the calories.

But they are unlike us when it comes to money. I’ve noticed a few things that they have in common with each other, and it might help you too.

Like another favourite section of the gossip mags, here’s my version of ‘Rich People: steal their style’.

1. They spend money to make money

Wealthy people have wealth managers. It might be a financial adviser or private banker (probably both). They have an accountant to minimise their tax, a lawyer to set up trusts, and then they pay fund managers to invest their money. And they’ll pay a lot for these services, if they see value.

The reason for having a coterie of advisers is that each one has specialist skills to maximise return and minimise risk.

Key take-out for you? Don’t be afraid to invest in professional advice. A good financial adviser could make a difference of tens or even hundreds of thousands of dollars over your life.

A good accountant will make your tax and investments work harder for you (and likely give you a way better tax return).

Even a good career or business coach can make a difference to your earning potential and success. (Mine pushes me to be tougher than I naturally am)

2. They don’t avoid risk, they manage it

I get it: you work hard for your cash so you don’t want to risk it in investments you don’t understand. But shoving your cash in the bank will not build your wealth these days.

Most bank deposit rates barely keep ahead of inflation. For example, inflation is running at around 2%, you’re getting 3% interest, so in fact you’ve only made 1% on your money.

The key is to understand risk management. Diversification is key to that – having your eggs in a few baskets. Another is paying attention to the fine print, so you are only taking risks you understand.

Related to the first point above, good advisers will help you manage risk according to your timeframe and goals. And I’ve written a whole post about risk here – check it out!

The other thing rich people do is insure the hell out of everything. There’s a place called Lloyd’s of London that’s been around since the 1700s, where you can go and get insurance for anything from a giant container ship through to J-Lo’s butt (true story).

It’s a global institution, because insurance has been at the heart of the economy since men were wearing wigs in an un-ironic way.

Insurance is a crucial part of risk management, so if you haven’t seriously looked at your income protection and life insurance, now is the time. (Oh wait, here’s a handy guide I wrote!).

3. They are masters of debt, not slaves

There’s a concept called ‘productive debt’ (aka ‘good debt’), and it’s worth understanding. It’s the debt you take on in order to invest and make more money.

A home loan is the most common form of this debt. But there are also investment loans, such as a margin loan to buy shares. Business loans are also in this class – borrowing to build and grow a business is a big driver of our economy.

‘Unproductive’ or ‘bad’ debt is borrowing money to buy something that just costs you money – a car loan for example. The car you have at the end of the loan will be worth less than you paid for it. Credit cards generally fall into this category too.

I know, you may feel like the investment you made in an Urban Decay Nude II palette at Sephora is productive and will improve your life. But unless you’re an Instagram sensation, or land a millionaire husband who was lured by your perfect eyeshadow contouring, you will not make money out of it.

Good debt still has to be carefully managed, as there are risks associated with borrowing. For example, if the value of the asset you bought goes down, it can create issues. But when used well, leverage (as debt is also known) can magnify your gains.

I’m not saying all rich people use debt to build wealth. I’m saying that many of them use debt strategically and with a goal in mind … not just because they can’t manage their cashflow in between paydays.

You can learn from these people by thinking about debt as a tool, not as a fallback for bad money habits.

4. They pay attention to their finances

One thing you learn in consulting is this: big clients paying $20K a month have zero shame in questioning a $25 taxi fare you’ve added to their invoice. The same goes for rich people. Just because they’re rich doesn’t mean they’re careless with money.

In fact, they are generally the opposite. They won’t begrudge spending $20 on a cocktail, but they will check their bill in a restaurant. They won’t mind spending thousands to pay an investment manager, but they will expect strong returns.

And they will ask questions. Lots and lots of questions. The more money they are going to hand over, the more questions they’ll ask.

You should do the same. Whether it’s a phone bill, a bank statement, a payslip or an investment statement, pay attention to the details. People and companies frequently get things wrong. Some will deliberately rip you off. Get ahead of them.

And more broadly, take just as much interest in your finances as you do in the ASOS sale email or the finer points of make-up contouring.

Ultimately, nobody will ever care about your money as much as you, so you’re in the driver’s seat.

April 15, 2018 1

The lazy girl’s guide to making money

One of the burdens of modern life is choice.

Choosing how to spend your time (Facebook, or read a damn book?). How to spend your working years (I’ve spoken to three friends this week about their career dilemmas). How to spend your emotional energy (obsess over 3% body fat gain, or not?).

And nowhere is this more prevalent than deciding how to spend money. So many things seem pressing or important.

We buy stuff because we are used to the instant gratification of retail therapy.

The pressure to look hot, young, thin and hair-free sees us scooting into salons to address our perceived shortcomings.

And the social groups we move in demand a certain level of spending, on everything from dinners out to expensive hen’s days.

No judgement about any of these things. We are all at the mercy of these forces. (God knows I think far too much about botox on a bad day.)

A very tempting – and understandable – response to this is to minimise the choices we make. In other words, choosing not to choose.

This is not an ideal plan.

You know the 80/20 rule, right? AKA The Pareto Principle. It says you get 80% of your outcomes from 20% of your efforts. (Nice easy summary of it here). Like, 20% of your wardrobe gets worn 80% of the time; 20% of the people in your company do 80% of the work. And so on.

The same applies to your money. Not in an exact ‘whack out your calculator’ way, but in a general sense of doing a few things right can have an outsize impact.

So, here I offer unto you: the lazy girl’s guide to doing the right thing with your money.

Tip 1. Start retirement saving early – The magic of compound interest means the earlier you start, the greater the gains and the less the pain. I know, super is boring and you have to pay of home loans and HECS debts and stuff.

But here are some amazing numbers. Laura is 30 years old and already has $30K in super. She’s earning $75K annually, and putting the standard 9.5% of that into her super. If she works for 30 years, she will end up putting just $213K of her own money into that nest egg.

But she will end up with over $1.1 million!

That’s because most of the money comes from compound returns – the light pink bars in the graph below. This is a simplified version of retirement saving: in reality, her salary will go up and down, and her rate of return will too. But it gives you the picture.

Now, if Laura puts in just a little extra – say 12% of her salary – she will end up with $1,321,429 – an extra $212,000! That’s a lot you can spend on a round the world retirement trip, just by putting away a couple of hundred extra every month.

MoneySmart.gov.au Compound Interest Calculator

On the downside, if Laura takes four years off work to have some kidlets, then she only has 26 years to work that magical compound interest. So, her total nest egg goes down to $791,566. Yep, instead of $1.1 million.

Again, that’s simplified, because the amount would actually depend which years were taken off, and where in the savings cycle she was up to. But it illustrates the reason there is such a huge retirement savings gap between men and women (like, close to 50% I’m sad to say).

So, the action points here:

Add a little extra to your super as early as possible – ask your payroll peeps about salary sacrificing.
If you are off work or going part-time, your spouse/partner can make contributions into your super and may get some tax benefits too. (Nice summary here)
Another option, if you’re on a low or part-time income, is to make an after-tax contribution of up to $1,000 to super and the government will contribute 50% to match it – up to $500. More on that here.
For goodness’ sake, please roll all your super into one account! Paying multiple fees and insurance policies is like standing in the shower tearing up hundred dollar bills. Most funds do it all for you these days, so pick your fave fund and get in contact. The difference at retirement could be tens of thousands of dollars!

Tip 2. Pay down debt faster – This applies to all debts, from credit cards to car loans. But I want to talk about the biggest, hairiest debt: your mortgage.

A quick play on an Extra Repayment Calculator shows that on a $400,000 home loan, paying an additional $250 per month would mean:

You save almost $52,000
You pay off the loan 5 years and 7 months earlier^[i]

Think you can’t afford that extra money? I challenge you to find it.

It’s you and your partner not buying a coffee every day (yep, for realz – $8 x 30 days = $240).
It’s cutting your grocery bill by shopping in bulk or somewhere like Aldi (did you read this post?).
It’s getting your hair done differently so you go every three months instead of every six weeks (I did this and it changed my life).
It’s putting on your big girl pants and not buying shit you don’t need, three times out of four (the fourth time, well, hey, we are all human).

Whether it’s a hundred bucks or a thousand, looking for ways to chuck extra money into your mortgage puts you so far ahead. You can either get out of debt faster, or leverage the equity you build up to invest in another property.

Find a better deal – On the loan mentioned above, you’d save $33,683.69 over the life of the loan, by moving from an interest rate of 4.04% p.a. to a loan at 3.63% p.a. (yes, these loans exist).

Plus, you’d be paying almost $100 less as the minimum repayment each month. That’s money you could either have in your pocket, or ideally, pay off as an additional amount.

Yes, refinancing means a lot of paperwork, but get a good broker and they do the hard work for you. Whatever you do, don’t pay the ‘lazy tax’ by staying in an expensive home loan.

Use your offset or redraw – These work in slightly differently ways but have the same effect: they reduce the amount that your interest is being calculated on.

If you think about it, 4% of $100,000 is much less than 4% of $150,000. So, you want to be paying interest on a smaller principal amount.

Redraw – this lets you access any additional funds you’ve paid above the minimum repayment. Say you’ve paid an extra $5000, you can get it out in an emergency (a real one, or ‘I need a holiday before I kill someone’).

Offset – the balance “offsets” the interest charged on your mortgage. Say you have $10,000 in an offset and $300,000 on your loan, you only pay interest on the equivalent of $290,000.

It’s similar to the redraw but a bit more dangerous because it’s easier to access. Often a redraw takes a day to process, whereas you can have an offset mixed up with all your normal bills and banking.

Even if you don’t have a mortgage, you can apply a lot of this thinking to your saving.

For instance, look for better deals on the interest you get paid – or even look at other types of investments depending on your timeframe and goal. (Check out this post for some tips).

Track your money and expenses so you can find extra savings. And always pay yourself first. Just like you pay your mortgage repayments before everything else, your savings should go into a different account before you even see it, hold it or think about spending it. Ideally in a different bank!

Start early. Pay off debt. Sounds simple huh? It is in theory, but can be hard in execution. If you’re not convinced you can do it, maybe part of the challenge is to tweak your attitude to money.

May I recommend one or two posts I’ve prepared earlier?

Mindful spending – what it is and why it matters:

https://fiercegirlfinance.com.au/2016/08/28/mindful-spending-what-it-is-and-why-it-matters/

What’s holding you back from being Fierce:

https://fiercegirlfinance.com.au/2017/05/01/whats-holding-you-back-from-being-fierce/

That’s it. Now go forth and be fierce.

October 8, 2017 0

6 of the best: Fierce Girl’s top posts to help you makeover your money

I’m gonna call it. The Fierce Girl’s Guide to Finance is going places.

Last week we had our first original content posted on Mamamia: a Money Makeover, helping Theresa make a plan to save $25,000. Check it out here.

Then The Daily Mail got wind of the story and got in touch. Let me tell you, after 17 years in PR, the idea of a journalist calling me (about something good) is absolute bliss! Usually we have to shop our stories around and beg journalists to write them.

The outcome was a story where I seemed to scold everyone a lot, but hopefully also provide some useful tips (read it here). And just in case anyone was wondering my age, they helpfully plastered it everywhere. I hope the undertone was ‘wow, doesn’t she look great for her age‘.

I think the reason for this momentum comes down to a few things. Firstly, there isn’t much competition. Not many others are talking to women about money in a no-bullshit way.

Secondly, it’s an idea whose time has come. Ridiculous house prices, rising energy costs, stupidly high uni fees, and a stubborn gender pay gap are just some of the reasons women are realising why we need to look after our own interests.

Turns out, middle-aged white guys in suits aren’t racing to share their power or wealth with us. Huh, who knew? (As a group that is – individually, my dad is actually pretty good at giving me money).

The third reason is obviously the awesome content being pumped out by these fierce fingers. But let’s not dwell on that.

The blog has been around for just over a year, but there are lots of new readers. Hi ladies! Thanks for coming by!

So, let me point you to some of the most popular or useful posts. (NB: this is not like a TV show where they run out of budget for a whole new episode so they just have a storyline full of flashbacks. It’s because there is good content that could be useful to you).

1. How to think about your money as though you’re in an episode of Sex and the City.

The 4 best friends who will make you rich

2. Hacks to help you overhaul your approach to money (even if it’s not January)

7 money resolutions you can keep in 2017

3. How to set up your banking to make your life easier and your spending more enjoyable

The secret to guilt-free spending

4. How mindful spending can help you have a better relationship with money

Mindful spending: what it is and why it matters

5. What to read if you’re thinking about buying a home or are freaking out about not doing it

Can I afford my own home? Part I and Can I afford my own home? Part II

6. How to get started with investing

Buying shares is pretty much like choosing a husband

September 17, 2017 0

Investing 101 – Explained in shoes. Because, why not?

There is one important things that bad-arse, grown-up ladies do with their money.

And no, it’s not buy designer handbags.

Ok maybe some do – but that’s not what this post is about.

No, what really grown-up ladies do is invest their money. Don’t be put off by that word ‘invest’.

You don’t need a finance degree to invest.

You can get someone to do it for you if you like.

Just like you don’t need to be a colourist to get your hair coloured, you don’t need to be a finance expert to invest.

You may want the guidance or input of a financial adviser. But you can also get a feel for it by starting small and being smart.

What sort of investments?

Well there are lots of ‘asset classes’, but the most popular ones in Australia are shares, property and cash. They all have different pros and cons, so I like to explain them like a shoe wardrobe.

Cash: your work flats – Not very exciting, and not much benefit to your outfit, but geez they are comfy and reliable. Especially if you have to hike to a meeting at the other end of town.

Similarly, putting cash in the bank has a low return, but you know you’ll get all of it back at any time.

Now, I don’t believe you should go to important meetings in flats. And so with cash, it’s fine for some purposes, but it’s not an ideal long-term play because of two reasons:

1) Opportunity cost – the longer you have it in the bank getting stuff-all interest, the more you miss out on the sweet gainz you could be getting in something like shares or property. There is also no way to reduce the tax you pay on any interest, so you pay your marginal rate (i.e the same as your income tax).

2) Inflation risk – as inflation rises, the buying power of your money decreases. If you are getting 2% in the bank, and inflation is 2.5%, then you effectively lose money, because it’s worth less than before. (I have a whole post on this if you’re interested – here)

Now, if you’re really committed to cash because you’re risk averse or don’t quite know when you’ll want your money back, there is a subset of cash called Enhanced Cash (or similar names).

It tends to give you a couple of percentage points higher than a bank deposit, but is still pretty safe. Think of it as a strappy summer flat – a bit more pizzazz but no real risk of limping home in bare feet, with the balls of your feet burning.

One example is Smarter Money Investments, which I name here because I know the guy who runs it – he is a massive nerd and gets great returns (and for full disclosure, my employer owns some of it). There are other products out there which you could consider from a range of fund managers.

These products aren’t exactly the same as putting cash in the bank, but they are low on the risk spectrum. Make sure you read the fine print.

Property – Your winter boots – If your boot wardrobe is anything like mine (extensive and carefully curated) then you’d know there are hits and misses. I have faves that have done the hard yards and been a damn great buy.

Then there are ones like the blue velvet over-the-knee pair. They were on sale, I had to own them, but now I can’t find anything to wear with them. In investing, this is called ‘poor asset selection’.

Buying investment property is really dependent on how well you choose. Unlike the velvet boot purchase, your property choice should be carefully researched, highly rational and based on solid data sources.

Despite what people say, not all property goes up in value, all the time. It is true that property has been the best-performing asset class in the last couple of decades, but that is an average.

Some locations or house types languish, or even go down. So while property can be a great way to build wealth, it needs more than a good knowledge of colour swatches and Ikea assembly.

The latest Russell Investments report looking at historical returns, warns that even though residential property is the best performer on average, “there was wide variation between regions, dwelling types and suburbs, with some areas declining”.

This is a risk of single-asset investing – imagine if every time you went out, all you had were those blue velvet boots!

So, just be really well-prepared if you go down this road. And if you don’t want to go it alone, you have a couple of choices.

Real Estate Investment Trusts (REITs) – these are a collection of properties parcelled together, and you buy ‘units’ of them on the ASX, a bit like you buy shares. The value of the units can go up and down depending on the market (and don’t always reflect what’s happening in the rest of the property sector. They got hammered in the GFC, for example).
However, they give you a different flavour to traditional shares (aka equities) and the cost of entry is lower than stumping up for a house or apartment. They also give you access to more than just residential property – so you can own offices, warehouses and other commercial buildings. This provides diversification.
Work with a professional property adviser – Someone like Anna Porter, who is a Fierce Girl-style powerhouse, if you ever get to see her speak. Her company does all the research and then advises on which property to buy. There are lots of similar advisers out there – but make sure they are independent and not just trying to spruik an overpriced new development.

Overall, Aussies love property investment and aren’t going to stop any time soon.

But I will just say this: don’t assume that just because you live in a house, you know how to invest in one.

It requires skill, knowledge and yes – luck – to get right.

Shares – your fancy, going-out-to-dinner heels. They give you great rewards (you feel so sexy) but they also have more risks – from tripping over, through to searing pain in your foot.

Shares have historically given great returns. (Nice chart on that here). But they do it with more volatility.

If you happen to put money in just before some stock market craziness, then, yeah you’ll lose some of it quicker than a Bachelor contestant loses her shit at a rose ceremony.

But, just like the resilient young ladies of The Bachelor, you’ll get back up and repair your losses over time. You need time and patience though – if you lack either of those, you could turn the ‘on paper’ loss into a real loss.

That said, there is a lot to like about shares. Not only are they strong performers in terms of returns, they are liquid (i.e. you can usually sell them way faster than a house). You can buy just a few and pay nothing more than a brokerage fee for the privilege, whereas property needs a big upfront investment and has quite a few of costs, from stamp duty through to legal fees.

I’ve written more about shares in this delightfully named piece: Buying shares is pretty much like choosing a husband.

Which investment has the best returns?

You know I’m not going to give you an easy answer.

The thing to remember with any investment is that when people (i.e. the media, finance types, blokes in pubs) talk about returns, they are often talking about that whole asset class.

The Russell Investments report shows that:

Australian shares returned 4.3%, before tax, in the ten years to Dec 2016. But that’s the market average. You may have bought some shares that went bananas and made 20%. Or you bought some that tanked and you barely broke even.

Ideally, neither of these things happened, because you had a diverse portfolio where the winners and losers balance each other out.

You can do this by investing in managed funds, listed investment companies or exchange-traded funds. (More on that here).

Residential property returned 8.1%, before tax, in the 10 years to Dec 2016. Yeah, almost double the return of shares. But that’s a helicopter view. There are people who made way more than that because they picked a lucky location; then some people in places like Perth and Mackay who watched their properties fall 20% or more in value.

There are also more asset classes than what’s discussed here (alternatives, international shares, fixed income etc). I have just focused on the most popular.

Then there is tax. And it’s complicated.

Broadly speaking, property investing can be good for people who have a high tax bill, as they can declare a loss and claim it as a tax deduction (the oft-discussed ‘negative gearing’).

And for people who pay low or no income tax, Aussie shares can be great because of dividend imputation (aka franking credits). Now I won’t explain these, because working them out literally made me cry in my finance degree. But the outcome is, the less tax you pay, the more you get a bonus return on top. (If you’re interested, I co-wrote this article on the topic).

Of course, you should discuss these tax-type things with an accountant or financial adviser. My main point is that looking at a headline return isn’t very accurate – it depends on your costs, tax rate and timing.

You can start small

Despite all these caveats and warnings, the message I want to give you is this: investing is a key part of building wealth (remember the Four Best Friends Who Will Make You Rich?). Letting your cash sit in the bank forever or spending it whenever you get it, won’t get you closer to your ideal lifestyle.

The more you learn about it now, and the earlier you start, the more you could make over time.

Don’t be afraid to start small. I’ve been running a little portfolio on Acorns, and it’s doing well. Even popping $500 into a managed fund or listed investment company can be a good start.

That’s the key though: you need to start somewhere.

And if all this seems like a lot of information, that’s fine too. It’s totally ok to ask for help. Talk to an adviser, or a trusted friend or family member. You don’t have to be an expert to be an investor.

Photo credits:
M.P.N.texan Good Shoes via photopin (license)
https://www.flickr.com/photos/reverses/
https://www.flickr.com/photos/simpleskye/

August 12, 2017 2

The Fierce Girl's Guide to Finance

Get your shit together with money

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