Invest like a boss

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

You have 300 paydays left. Seriously. So, what’s your plan?

Last week, I ruined everyone’s Friday by dropping this truthbomb.

Seriously, if you’re in your 30s and plan to retire in your 60s, you don’t actually have many paydays left.

It’s easy to work out (if you get paid monthly). Pick your imagined retirement age, minus your age now, and multiply by 12. Because I have aggressive early retirement plans (and am kinda old), it’s an even lower number.

Yep, just over 200 times to wake up and feel rich for three days. 200 times to scour my payslip working out how much leave I have accrued. 200 times to go down Pitt St Mall feeling like a baller.

That’s not really many times at all, in the scheme of things.

And if you’re planning to take time off to raise kids, then you can minus out at least 6 of those paydays, and maybe a lot more.

So, now that we have all had a moment to face reality, let’s talk about what we do with this information.

Running the numbers

Our time in paid employment is a gift. Not just to our smashed-avocado-loving selves of today, but also to our future, chilled-AF party selves. We are all Baddie Winkle, somewhere in the future, drinking with Miley Cyrus.

How do we do we achieve this? We take charge, that’s how. We do a mutha-effing BUDGET! Woot!

Ok I said that in an excited way because I know you’re about to hit snooze. But go with me here.

How to do a Budget that doesn’t hurt your head or induce anxiety

A budget is all about giving you data that makes you better at decision-making. And information is power! So, I recommend a combination of:

MoneySmart’s great online budget planner (click here), which sets out all the costs you have right now. You can choose weekly, monthly or annual for each item, and it averages it all out for you.Then you can run it as a monthly, quarterly or annual budget. It even gives you a pie graph – awesome!
MoneySmart’s TrackMySpend app (in the App store or Google Play) – record everything you spend, and I promise you shit gets real very quickly. You can just do it for a month if you like – but it gives you powerful data.

Once you have this data – a combination of ‘forecast’ and ‘actual’ numbers – you can make informed decisions. In particular:

What does it cost to be me?
These are your fixed costs. A useful way to think about this is to have different versions – the ideal you, the average you and the bad you. Kinda like Kylie Minogue in the awesome video for Did it Again.

My ideal budget is when I don’t buy three pairs of boots at the Wittner sale (they were super cheap) and don’t have Priceline accidents (when you go in for Panadol and come out with three new lipsticks). My average budget is when I actually do those things.

And my bad budget is when I buy stuff I don’t need due to premenstrual angst or emotional turmoil. To be honest that version of me has been tamed these days, so I usually fall into the first two. And my latest budget has Priceline accidents built into it.
What’s a reasonable savings goal?
There is no magic number for this. At least 10% is good, but if you have done your real budget (the average you) and there’s genuinely not enough left over, then do 5% or whatever. If you can do more, then happy days! The key is to do something.
Also, it may not even be real savings at this point – it could be paying down bad debt like a credit card. Or, at the other end of the scale, it may be going straight into an investment like a managed fund or ETF (more on that here). In any case, it’s the money you allocate to being a responsible adult who does sensible things with your future self in mind.

And once you’ve answered these questions, you can feel more in control and less like ‘it’s all too hard’. Simples!

July 19, 2017 2

Don’t panic and start early: wise words from rich people

One perk of my job is that I get to hang out with some pretty rich people.

Ok, when I say ‘hang out’, I don’t mean we are drinking champagne on their yachts. More like, we are in meeting rooms and they are telling me the finer details of their investment strategy, so I can PR the shit out of it.

How rich? Well some are just really well-paid, others have a few million sunk in their fund management companies, and a handful are serious, yacht-owning, penthouse-buying ballers.

(On a side note, they are generally totally low-key about their wealth – you have to notice their watches, or do the sums on their ‘funds under management’ to get the idea).

Anyway, because I love you Fierce Girls, and am always thinking about ways to help you own it, I have been asking these people what advice they have for the mere mortals among us. Here are some of the wise words I’ve heard.

Don’t Panic. This is from a lovely fund manager who grew up on a pineapple farm and has just launched one of the biggest listed investment companies on the ASX. Oh, and he was a professor of finance at one stage (WTF).

His message was that in the current housing market, it can feel like you have to do something fast or you’ll miss out forever. That’s a natural reaction when prices go up as fast as they have been. And it doesn’t help your FOMO levels when you read about 30 year old property barons. (By the way, Buzzfeed has a very interesting take-down of these stories – recommended read).

Yes house prices are crazy, especially in Sydney and Melbourne. But every generation has its challenges in getting onto the property ladder.

My Gran and Poppa lived in a car container for the first year of their marriage. Gran said she felt pretty lucky, because all some people had was a tent! That was actually a thing in post-war Australia – building materials were rationed, hence all those pokey little fibro cottages. Buying land was kinda easy, but building a house on it? Not so much.

And then our parents’ generation struggled with 18% interest rates and a major recession. Yes, they were still spending less in comparison to wages (as I explain here), but I’m sure we can all agree it felt pretty fucking stressful at the time. And unemployment was high AF, so there was also the chance you could lose your job.

Yes, it’s hard and scary to buy property now, but it always has been. You have to accept that and find a way around it. Maybe you can’t buy in Sydney, for example, but can you buy somewhere else for under $500K and rent it out? Probably.

You still need to do boring things like cut back your spending and save like a tight-arse – but I can tell you right now my Gran was not getting her nails done when she was living in a one-room shed with a husband and a baby.

And if you play the long game, knuckle down, and get serious about saving, you will get there eventually.

Start investing early and take on more risk when you’re young – This solid piece of advice comes from one of my favourite low-key rich people. He manages ridiculous amounts of money for ridiculously rich people, but still gets excited about getting a great deal at the Anytime Fitness near his apartment building. And when I say his building, this guy’s company literally built and sold the whole thing.

Anyway, the point here is two-fold. Firstly, the earlier you start, the easier it is to make gains – this is the magic of compound returns. Please go play with this calculator to see what I mean.

The second point is that you can tolerate more risk when you’re young, because you have a longer investment horizon. If you lose a little bit one year, you have more years to make it back.

Markets are volatile, so you have to build in the likelihood of loss every now and then. In fact, most super funds work out their investment risk based on how often they can lose money. A medium-risk option might tolerate 2-3 years of negative returns over 20 years, while a higher risk option would make a loss in 4-6 years – although aiming for higher returns too. (There’s a good explanation of this concept here).

The upshot is, you can’t make all the money, all the time – but if you have time on your side, you can upsize your risk profile, as well as capture the magic of compound returns.

As you get closer to retirement, and have less time to make up for losses, you should dial down your risk profile accordingly. Some super funds now just do it for you – it’s called a ‘lifecycle’ strategy.

(If you want to read about risk and the different ways it applies to your money, check out my earlier post.)

The key here is that you don’t have to drop a million bucks on a property to make this advice work. You could sign up to the Acorns app, for example, and start socking away loose change into an ETF. (Of course, do your own research on it).

But remember, you can start small, just as much as you can start early.

So that’s it for now. I have a few more nuggets of advice up my sleeve, which I’ll share in future. In the meantime, ladies, stay Fierce.

May 7, 2017 0

The Fierce Girl's Guide to Finance

Get your shit together with money

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