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The Fierce Girl's Guide to Finance

Get your shit together with money

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Investing

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.

PropertyYour 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.

One of my fave buys

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.

  1. 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.

  2. 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/

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.

Is doing nothing worse than doing the wrong thing with money?

Sorry to my email subscribers – this link got broken. Here it is again. I am not really that profesh after all.  

I want to confess something. I’m probably wrong.

Some view I hold, some article of faith, some strongly held opinion. It’s completely wrong.

Because you know what? We’re all wrong, some of the time. I was wrong about Trump being unelectable (me, and a bazillion other political junkies).

I was wrong about Beyonce being the only viable winner of Album of the Year at the Grammy’s. (Adele. Huh. Who knew).

And I have been wrong about the romantic suitability of more men than I care to remember (although some of them are burnt into my heart: from Doug the 15-year-old drop-out to Mr Darcy, the 40-something divorcé).

Nobody has all the answers – regardless of how much conviction they show when giving you those answers. (In fact, the more conviction the higher the chance they’re wrong).

This is really important to know when it comes to money, for two reasons:

1. You should run all advice through your own bullshit filter (mine included)

2. You don’t want to let fear stop you from acting

Let’s look at the first one. As a woman, you’re going to come across a bunch of people offering free advice about money. Your folks want you to buy property. Some bloke at work wants to mansplain why you should invest in shares. Some blogger wants to tell you to stop getting eyelash extensions  (oh, that’s me).

Some of it will sound legit. Some of it will make perfect sense. And some of it won’t sit well with you at all.

One of the best ways to increase the sensitivity of your BS filter is to find your own information. Read widely and get a feel for different viewpoints. And then …

Pay attention to the numbers

I work with a wide range of fund managers and they all have a different approach. Every time I sit down with them I totally believe that they have found the holy grail of investment theory. Most of them are indeed pretty good, but it’s their numbers that tell the real story. And those numbers show that some are definitely better than others.

Key take-out? Numbers don’t lie – always look at performance figures. And not just the last year, but the last three and five years – and longer if possible.

Someone can tell you that buying an apartment off the plan and renting it out is THE best way to make a solid investment. But it’s pretty easy to test that theory. Take the purchase price, and divide it by the rent it brings in. This is the rental yield, and it tells you a lot about the return on investment.

An apartment that costs $800K and is rented out at $500 per week, gives a gross yield of 3.25% (before costs such as maintenance and strata). Yield also doesn’t take into the cost of interest on the loan, so it’s a pretty blunt instrument to work out our return on investment.

The great unknown is how much capital growth it will get – i.e. how much the value will go up. Same deal with shares – you can broadly predict the yield on those (as dividends tend to be similar every year), but less so what the share price will do.

So like every decision in life, you have some things you know and some things you just hope for the best on. Everything we do is a calculated risk.

I bought a pair of navy suede ankle boots this week, and there is a risk that I might not get as much wear as I hope out of them. But I took a risk, because they are really cute and they were on sale and I have wanted blue boots for months.

(Side note, I broke my own promise not to go to Wittner. I have a problem).

Key take-out: you can and should run the numbers on an investment, but you also have to accept there is no perfect answer and no guaranteed outcome. You need to identify and manage the risk, through things such as diversification or building in a buffer. (Read this piece about risk if you are interested).

And this brings me to another point. When you are trying to run all these numbers, you may want some help. So, should you use a financial planner?

Probably. Like colouring your hair or getting a spray tan, you can do an ok job yourself, but you will probably get a better result with a professional.

It’s the same reason I pay a stupid amount of money to a powerlifting coach. Sure I could read a book on training, but that book isn’t going to stand in front of me and shout ‘knees out, chest up!’ when my form goes to shit.

So yeah, do the basics on your own. Learn some stuff, read a book or two, get your budget and savings sorted. But if you want to move up from messing around in the weights room to actually building some serious muscle, you need a coach. In this case, a money coach.

How do you find one? Well, asking other people is a good start. But if you don’t have any recommendations to go on, take a look at the FPA website.

But let me explain the industry a bit, so you know what to look out for.

Most planners will be attached to a bank, a big financial institution or something called a ‘Dealer Group’. It’s a complicated thing where they need to be part of an organisation that holds a license. The Licensee takes all the heat of the admin and compliance (there is a shit-ton of it in this industry). The people who work under this license are called Authorised Representatives.

So the person you deal with has some sort of network behind them, whether it’s a bank or a dealer group, and that institution may or may not want to sell you some of their products. What products? Managed funds, margin loans, life insurance, mortgages. Financial products.

Now, these may be right for you. Or there could be something better out there. If you get your make-up done at the Mac counter, they’re hardly going to point you over to the Estee Lauder counter are they? Well, actually there was this one time when the Estee Lauder girl at Nordstrom recommended the Smashbox mascara she was wearing (and it was awesome). So it’s all about finding someone with your best interests at heart, and won’t just push their products on you.

Luckily, there is a law that says they have to do this – i.e. act in the client’s best interests. So regardless of whether they have their own products, an adviser will generally recommend things from an Approved Product List – a list that their Dealer Group has checked out and made sure they are legit. It’s like going to Mecca Cosmetica or Sephora, where they just give you the best of the best regardless of brand.

Key take-out: Make sure you ask lots of questions about why they are recommending one product over another. Think about how long you spend choosing a foundation – and then maybe double it.

The important thing is that you do something. Don’t fall into the trap of thinking it’s all too hard, there’s too much to know, so you’d better not do anything. That’s how you miss out on building wealth, and instead just let your life run ahead of you and your goals.

So if you are a bit scared about getting started on the finance thing, here are some tips:

  1. Do some basic research. Google is your friend. Read Warren Buffet – he makes a lot of sense and is also one of the richest guys in the world.
  2. Speak to a few grown-up people you trust (and who have money) and get their input
  3. Ask around and find a professional you like and trust. You generally get a first session free, so if you don’t click, don’t go ahead. It’s like Tinder, but less awks.
  4. Use the process to think about your goals, priorities and plans. Then map your finances against these.
  5. Ask questions,  don’t be afraid to be annoying and demanding. If you can’t understand it or it doesn’t feel right, don’t do it.

And of course, you can always cruise around the Fierce Girl blog and enjoy its truth-bombs.

Is doing nothing worse than doing the wrong thing with money?

I want to confess something. I’m probably wrong.

Some view I hold, some article of faith, some strongly held opinion. It’s completely wrong.

Because you know what? We’re all wrong, some of the time. I was wrong about Trump being unelectable (me, and a bazillion other political junkies).

I was wrong about Beyonce being the only viable winner of Album of the Year at the Grammy’s. (Adele. Huh. Who knew).

And I have been wrong about the romantic suitability of more men than I care to remember (although some of them are burnt into my heart: from Doug the 15-year-old drop-out to Mr Darcy, the 40-something divorcé).

Nobody has all the answers – regardless of how much conviction they show when giving you those answers. (In fact, the more conviction the higher the chance they’re wrong).

This is really important to know when it comes to money, for two reasons:

1. You should run all advice through your own bullshit filter (mine included)

2. You don’t want to let fear stop you from acting

Let’s look at the first one. As a woman, you’re going to come across a bunch of people offering free advice about money. Your folks want you to buy property. Some bloke at work wants to mansplain why you should invest in shares. Some blogger wants to tell you to stop getting eyelash extensions  (oh, that’s me).

Some of it will sound legit. Some of it will make perfect sense. And some of it won’t sit well with you at all.

One of the best ways to increase the sensitivity of your BS filter is to find your own information. Read widely and get a feel for different viewpoints. And then …

Pay attention to the numbers

I work with a wide range of fund managers and they all have a different approach. Every time I sit down with them I totally believe that they have found the holy grail of investment theory. Most of them are indeed pretty good, but it’s their numbers that tell the real story. And those numbers show that some are definitely better than others.

Key take-out? Numbers don’t lie – always look at performance figures. And not just the last year, but the last three and five years – and longer if possible.

Someone can tell you that buying an apartment off the plan and renting it out is THE best way to make a solid investment. But it’s pretty easy to test that theory. Take the purchase price, and divide it by the rent it brings in. This is the rental yield, and it tells you a lot about the return on investment.

An apartment that costs $800K and is rented out at $500 per week, gives a gross yield of 3.25% (before costs such as maintenance and strata). Yield also doesn’t take into the cost of interest on the loan, so it’s a pretty blunt instrument to work out our return on investment.

The great unknown is how much capital growth it will get – i.e. how much the value will go up. Same deal with shares – you can broadly predict the yield on those (as dividends tend to be similar every year), but less so what the share price will do.

So like every decision in life, you have some things you know and some things you just hope for the best on. Everything we do is a calculated risk.

I bought a pair of navy suede ankle boots this week, and there is a risk that I might not get as much wear as I hope out of them. But I took a risk, because they are really cute and they were on sale and I have wanted blue boots for months.

(Side note, I broke my own promise not to go to Wittner. I have a problem).

Key take-out: you can and should run the numbers on an investment, but you also have to accept there is no perfect answer and no guaranteed outcome. You need to identify and manage the risk, through things such as diversification or building in a buffer. (Read this piece about risk if you are interested).

And this brings me to another point. When you are trying to run all these numbers, you may want some help. So, should you use a financial planner?

Probably. Like colouring your hair or getting a spray tan, you can do an ok job yourself, but you will probably get a better result with a professional.

It’s the same reason I pay a stupid amount of money to a powerlifting coach. Sure I could read a book on training, but that book isn’t going to stand in front of me and shout ‘knees out, chest up!’ when my form goes to shit.

So yeah, do the basics on your own. Learn some stuff, read a book or two, get your budget and savings sorted. But if you want to move up from messing around in the weights room to actually building some serious muscle, you need a coach. In this case, a money coach.

How do you find one? Well, asking other people is a good start. But if you don’t have any recommendations to go on, take a look at the FPA website.

But let me explain the industry a bit, so you know what to look out for.

Most planners will be attached to a bank, a big financial institution or something called a ‘Dealer Group’. It’s a complicated thing where they need to be part of an organisation that holds a license. The Licensee takes all the heat of the admin and compliance (there is a shit-ton of it in this industry). The people who work under this license are called Authorised Representatives.

So the person you deal with has some sort of network behind them, whether it’s a bank or a dealer group, and that institution may or may not want to sell you some of their products. What products? Managed funds, margin loans, life insurance, mortgages. Financial products.

Now, these may be right for you. Or there could be something better out there. If you get your make-up done at the Mac counter, they’re hardly going to point you over to the Estee Lauder counter are they? Well, actually there was this one time when the Estee Lauder girl at Nordstrom recommended the Smashbox mascara she was wearing (and it was awesome). So it’s all about finding someone with your best interests at heart, and won’t just push their products on you.

Luckily, there is a law that says they have to do this – i.e. act in the client’s best interests. So regardless of whether they have their own products, an adviser will generally recommend things from an Approved Product List – a list that their Dealer Group has checked out and made sure they are legit. It’s like going to Mecca Cosmetica or Sephora, where they just give you the best of the best regardless of brand.

Key take-out: Make sure you ask lots of questions about why they are recommending one product over another. Think about how long you spend choosing a foundation – and then maybe double it.

The important thing is that you do something. Don’t fall into the trap of thinking it’s all too hard, there’s too much to know, so you’d better not do anything. That’s how you miss out on building wealth, and instead just let your life run ahead of you and your goals.

So if you are a bit scared about getting started on the finance thing, here are some tips:

  1. Do some basic research. Google is your friend. Read Warren Buffet – he makes a lot of sense and is also one of the richest guys in the world.
  2. Speak to a few grown-up people you trust (and who have money) and get their input
  3. Ask around and find a professional you like and trust. You generally get a first session free, so if you don’t click, don’t go ahead. It’s like Tinder, but less awks.
  4. Use the process to think about your goals, priorities and plans. Then map your finances against these.
  5. Ask questions,  don’t be afraid to be annoying and demanding. If you can’t understand it or it doesn’t feel right, don’t do it.

And of course, you can always cruise around the Fierce Girl blog and enjoy its truth-bombs.

3 money lessons I’d give my 21-year-old self

My first degree was Arts, with Honours in English literature. If you want to know about Latin declensions or 19th century novelists, I’m your girl.

I don’t tell you this to impress you (although, feel free to be impressed), but to give you the context of how financially literate I was when I started my career. I even dropped maths in Year 12!

Now, I’m about to finish the final exam in an Applied Finance course. It’s not a full degree or anything crazy like that, but it’s the pathway to becoming a financial analyst (which I don’t intend to do).

In the 16 years between my first graduation and my imminent second one, I’ve muddled along on my own. I’ve learnt from smart clients and bosses, and the great Tom Buchan hounded me into loving economics. But I am not a numbers person, I don’t love maths and I can’t split a bill to save to myself.

Yet here I am, talking about money and stuff.

If I can do it, anybody can. However, there are things I wish I’d known earlier. If I sat my 21-year-old self down, this is what I’d say.

Capital Growth + Income = Returns. Think about all your savings in this way. Capital growth is when your asset increases in value without you doing anything to it. Your house’s value goes up while you live in it, or your shares increase in price while you own them.

Income is what you receive along the way. Think rent on an investment property, interest on a savings account or dividends on shares.

Every investment or asset will have some or all of these ingredients, e.g:

  • The house you buy to live in receives no income, but it gets capital growth.
  • A bluechip share portfolio will usually have a bit of each but skews towards income (more about that here).
  • A savings account has no capital growth but will pay income from interest.

There is no perfect combination of growth and income; it’s like lipstick. One that’s super glossy and glides on beautifully won’t stay on past your morning coffee. You can get one that makes it well past lunch, but it dries your lips out like a desert. Every lipstick has some combination of shine and durability, but the perfect ratio doesn’t exist.

Generally, the younger you are, the more you look for ‘growth’ assets because you’re building your wealth. When you’re retired, you generally need more income because you don’t have a paypacket. There are a hundred different scenarios in between, so you need to decide what’s important to you.

Every dollar you spend is a dollar you can’t make money from. The thing about money is that it can make you more money. Buying a house, investing in shares, contributing to super, even just getting interest on a bank account: all of those things give you more money – FREE money! Because that’s what capital growth and income are: money you DIDN’T HAVE TO EARN by working.

So, while it feels good to drop 100 bucks on eyelash extensions (don’t get me started on the ridiculousness of that price point), that’s money you could have put towards a holiday, or a home, or a degree, or any number of things that will actually improve your life.

If you can look me in the eye and convince me that extensions have genuinely improved your life (better job? hotter man? happier heart?) then go ahead. For example, I genuinely, deeply believe being blonde is an expensive but essential part of my life. But that means I don’t do other things like spray tans or nail salons.

It’s part of my approach to mindful spending and while it’s not perfect, it means I have some money leftover to do other, more productive stuff.

Get to know your money personality – and manage it. Everyone has their own approach to finances . I’m the ‘going broke saving money’ type: I can’t go past a sale … but still buy stuff I don’t need. (And, of course, it’s not a bargain if you don’t need it).

The key is to identify your own quirks and work around them (e.g. I try to avoid shopping malls in January). It’s all about self-awareness.

In a partnership, it’s more complicated. I was often in a tug-of-war with my ex-husband because we had different ideas about our money. He spent far more on ‘stuff’ than I’d like; I spent more on travel than he wanted. Neither of us was right or wrong, but if I had my time again, I would keep more money separate, accept that we have different priorities, and work from that basis.

Nobody is perfect, and I’m certainly not . I still get mad at myself for breaking my own budgets. I am the worst at claiming back money from my health fund and the tax office. I never have all of my shit together, all at once.

But like most hard things, doing a little bit to improve, all the time, can have a big impact.

Do you know some Fierce Girls who could use this advice? Share this post! Or subscribe if you want more real talk and lipstick analogies.

An Insider’s Guide to Finance: the risk-reward relationship

I’ve taken plenty of risks in my life. Some were productive, like packing up and moving to London. Leaving my marriage was a big risk that was hard to take, but the right thing to do. Wearing neon patterned tights with a crushed velvet skirt to a mufti day in year 7 – that risk did NOT pay off in either social or fashion terms.

When it comes to money, you need to get comfortable with risk. You see, there is a thing called the risk-reward premium, which means the higher the risk, the higher the (potential) reward.

This also means you can put a price on risk – the riskier the deal, the higher the stakes.

It’s why a car loan has a much lower interest rate than a credit card. The car can be repossessed if you can’t pay back the loan, while the credit card is ‘unsecured’ – they can’t come after you for the delicious cocktails you just bought, and the bank manager won’t fit into that Kookai dress. So the risk is higher for bank and more expensive for you.

Risky Business?

Now I am not saying let’s go to Vegas and put it all on black.

But when you invest, you want to balance the risk within your portfolio and within the asset class so that you get a good return while not losing your money.

Ok wait, I just dropped some jargon there. Let’s break it down.

Your portfolio is your entire wardrobe.

Your asset classes are each section: shoes, dresses, underwear, activewear, etc.

We talk about being ‘underweight’ or ‘overweight’ certain types of investments. For example, when the banks aren’t performing well, you might sell off some of those stocks and become underweight in banks. Or if you think resources are about to get hot again, you buy more and go overweight.

This can apply within one asset class – so you can be overweight on running shoes and underweight on high heels, within the broad ‘footwear’ asset class.

Or it can apply to the broader asset classes, so you have heaps of activewear, but not much in the way of work clothes (yep, me). That would be like having a lot of property (your own home) but only a small parcel of shares.

So now we have the lingo, let’s talk about risk. Here’s what you need to know:

1. You need some risk in order to make money, and that’s ok.

2. You can manage that risk by spreading it around – aka diversification

Now let’s talk more about that.

Why risk is ok.

Risk is what makes you money. It’s the old adage of ‘nothing ventured, nothing gained’. So it’s safe to keep your money in a term deposit in bank, but that’s not going to make you money.

In fact you could even lose money in the bank.

Wait, what?

Thing is, there are heaps of different risks when it comes to money, and one of them is inflation risk. You know how a bag of lollies used to cost 20 cents when you were a kid, and it’s $2 now? That’s inflation.

The value of money changes over time (it’s a really complicated backstory as to why), but let’s just say, inflation usually runs around 2-3% per year. (It’s lower than that right now, but has often been 5-6% in the past 30 years).

If your money is in the bank getting 2% interest, and inflation is 2%, you aren’t making money, but you’re breaking even. But if inflation goes up to 2.5%, you’re actually losing money. The dollar you put in buys less than what it bought a year ago.

This makes intuitive sense right? Things cost more all the time.

So that’s called Inflation Risk, and it’s a risk you face even when you think you’re not facing a risk. Crazy huh.

Here are some other fun and friendly risks:

Interest Rate Risk – The risk that interest rates will change and affect your investment. For example, you buy a property at 5% interest from the bank and then interest rates go up. Suddenly, the $2000 a month mortgage that was covered by rent becomes $2200. Not only do you have to find more cash, it changes the yield – i.e. the return you’re getting for the money you spend.

Liquidity Risk – The risk that you might not be able to turn your investment into cash as quickly as you need to. In the example above, you decide to sell the house as you can’t cover the repayments. But a bunch of other people have been hit by rate rises and are selling too. And with home loans more expensive, the number of buyers falls. So you might have the house on the market for several months, even drop the price. The property investment has low ‘liquidity’ and it can cause all sorts of headaches.

Market Risk – You can be the best stock picker in the world – or pay the best stock picker – but if the whole market falls, it’s pretty likely your investments will fall too. Economies – and the markets they’re part of – are always cyclical. They go up and down – that’s as much a part of life as the fact that you’ll get your period on the exact day you don’t want it to come.  The trick is to be prepared for the cycle and have diversified your risks – that way you can manage the dips when they come.

This is just a short list to give you a flavour. There are plenty more, like

  • sequencing risk (the risk that your investments are in the toilet right at the time you need them);
  • credit risk (the risk that the company you lent money to – in the form of bonds – goes under and doesn’t pay you back);
  • operational risk (the risk that you invested in a company run by morons who bugger it up and lose your money); and
  • concentration risk (the risk that you put all your eggs in one investment basket and then drop the whole darn basket).

You can make friends with risk

I’m not trying to scare you though. You don’t avoid investing just because there are some risks. If I listened to my mum about all the risks of going on holidays to the US (being shot, getting raped, the plane crashing, the car crashing…) then I’d never go.

What you do is manage risk, by being clear about your time horizons and your goals. (A financial adviser can totally help you there).

The rule of thumb is that you only invest in shares if you have at least a five-year horizon, because that’s how long you need to smooth out their ups and down (technically called volatility).

An investment property generally needs even longer because of the costs and drama associated with buying and selling.

And with your superannuation, you have 30-40 years to smooth out the returns, so if you’re young (under 45 or so) then you can tolerate even more risk in the hope of getting higher returns.

Spreading the risk is crucial. The ideal (possibly over your lifetime) is to have a bit of everything. Not just a property, not just shares, not just a term deposit, not just bonds. A bit of everything.

But you can start small. For example, think about a managed fund or ETF if you already own your home. Think about buying listed property instruments (REITS) if you already have shares but can’t afford an investment property.

Basically, don’t just buy a bunch of super cute high heels but then never have any good flats you can walk in.

Risk in a nutshell

So here are the takeaways you should know about risk:

Risk is a part of life, and investing. But if you stay away from crazy, get-rich-quick, too-good-to-be-true investments, you can tolerate and manage risk effectively.

There is also risk in doing nothing. Letting your money sit there and track inflation is a risk, because you risk your future returns and wealth.

So don’t be scared of risk – because the other side of it is reward. Imagine if you never took the risk of drinking too much, wearing too little and partying too hard – what fun stories would you have to remember? Investing is just like that, but with less booze.

Photo credit: Aaron Perkins

 

I saved some money. How do I invest it? (And WTF is an ETF?)

Let’s assume you’ve been following the Fierce Girl principles, and now you have squirreled away a nice lump sum. Maybe it’s $1000, maybe $5000 (you go girl!).

Now you want to put it to work, as it’s part of a long-term goal. (If it’s for a holiday or something in the next year or two, you can stop reading now and leave it in the bank.)

But if it’s for your F*ck-off Fund, a home deposit or for general unspecified future uses, you might want to invest it. Or you might not. Totally up to you. You don’t go around telling me how to live my life (unless you’re my mum, who provides ‘guidance’ on key issues like not ‘burning the candle at both ends’ and wearing singlets).

So I won’t tell you what to do with your money. Partly because that’s kind of illegal, since I am not a financial adviser. Mostly, though, because it’s a personal decision.

However, you still want to know some of the options. But let me make a couple of important points about investing – at any level, from novice to bad-arse billionaire.

1) Only time will tell you whether you made the right decision and 2) Nobody has the secret answer (except Biff, the bad guy in Back to the Future II, who has the Sports Almanac and can bet on everything ahead of time).

If you’re not Biff, then, like the rest of us, you’re making your best guess based on the information you have at the time. Even the rich guys in suits running the finance world – are basically doing that.

Their advantage is the quality of their information – they know a shitload about the thing they invest in.

But they don’t know if China’s economy is set to stop growing, or what would happen if Trump won the election, or whether there’s a huge meteor about the hit the earth and snuff out humanity. (If it’s the latter, I hope it’s about the same time as the Trump victory.)

The upshot of all this is that I want to give you some options, but encourage you to make a decision that suits you, your goals, personality and lifestyle.

Risk and return

Advisers often talk about ‘risk tolerance’, and get you to do a quiz about it. It’s way less fun than a Buzzfeed quiz like “What Sexy Halloween Costume Should You Wear Based On Your Favorite Food?” (actual quiz, yo!).

But it’s useful to know how much risk can you handle and still sleep at night, and how much can you afford to lose if it all goes pear-shaped.

There is a general concept that more risk brings more reward in investing (aka the risk-reward premium). That’s a vast simplification, but it does explain why you earn bugger-all on bank interest and generally more on shares.

Below are a few options (by no means the ONLY options) that you might want to look into, ask smart people about and generally educate yourself on. Most of them are focused on shares, or things can be traded on the sharemarket, because:

  • that’s where you can boost returns in an easily accessible way.
  • they work well when you have a small amount,
  • you don’t need to borrow to buy them, and
  • you can sell them at any time (unlike a property, for example).

Option 1. Leave it in the bank. A very smart friend of mine, who works in finance, is convinced this is the best option at the moment. Everything is expensive. Central banks have run out of ways to pump up their economies. It’s tough to get a good return. In her words, “The risk premium doesn’t justify the return”, if you invest in shares and the like.

Pros: A bank account is a safe bet. Deposits are guaranteed by the government.

Cons: Your money grows by receiving interest (and not much), not capital growth. i.e. the underlying value of it doesn’t go up, as it could for something like a property or shares.

If you do take this option, be sure to find the absolute best interest rate by comparing accounts on a site like Mozo or Finder. Term deposits are useful if you don’t need the money anytime soon – you get a bit more interest by promising the bank they can have it for a certain time. You can still get it back if you need it, but you forfeit some or all of that interest.

Option 2. Buy an ETF – aka an Exchange Traded Fund, which can be bought and sold like shares, through a stockbroker or online trading account. These tend to track an index (which is made up by a number of listed companies), but unlike an actively managed fund (see below), nobody is picking each of the stocks for you, so it’s cheaper in terms of management fees. Indexes track a lot of different types of assets, such as Australian equities, or even something more exotic like global shares, gold bullion or cyber security stocks.

There are lots of ETF providers these days, such as Betashares (disclosure: they are a client of my agency) and Blackrock iShares. My smart friend, mentioned above, picks ETFs as her second choice. I have exposure to them through the Acorns app, which is kind of like a buffet approach, where you have a whole bunch of ETFs, and can start with a really small amount (I kicked off with fifty bucks).

Pros: A good ‘toe in the water’ if you want to become an investor. You don’t have to decide on one company, so your investment becomes more diversified with a range of assets – i.e. all your eggs are not in one basket. ETFs are easy to buy and sell. There are lots to choose from. And you don’t pay a lot for the privilege.

Cons: You are tied to the performance of whichever asset class you have bought. e.g. if you have Aussie equities and they go down, so does your investment (but they also go up too). They can also be a bit confusing as there is so much choice – see an adviser if you aren’t sure. Or consult the oracle of Google and read reviews. And as with any market exposure, the worst case scenario is losing what you invest. That’s unlikely, but it’s not like the ‘sweet dreams’ security of a bank deposit.

How to get going: These are ‘exchange traded’, so you generally need to buy them through a broker – one of the online brokers will do the trick. Acorns is easy – you download the app and link it to your bank account.

Managed Funds – This is the traditional model, where a bunch of smart people pick investments on your behalf, bundle them up and manage them on your behalf. It’s quite similar to ETFs, in that you buy units in a fund and the value goes up or down based on the performance of the underlying assets. The main difference is that most funds are run by people (known as ‘actively managed’). As a result, there is a pretty big spectrum of performance, both good and bad, at different times.

Pros: If you pick a good one, you can make decent money – annual returns of above 30% are possible. Depending on the fund, you can also get more control and visibility over their investments – for example, Australian Ethical’s managed funds are all screened against their ethics charter, so you aren’t accidentally investing in a company that runs detention centres or digs up coal. (Also one of my clients, and I invest with them too).

Cons: You tend to need a bigger chunk of money to get started. If you pick a dog, you can be paying relatively high fees for poor performance.  When deciding, you should look at long term (i.e. 3, 5 and 10 years) performance.

How to get going: You can apply straight to the fund (some are even old-school paper forms), or some can be bought on the ASX through a service called m-Fund. Again, you’ll need to use a broker for that.

Listed Investment Companies (LIC’s)

These are very similar to both managed funds and ETFs – you buy shares in a company that is listed on the ASX, and its sole purpose is to buy shares in a lot of other companies. You can learn more about them here.

Pros: These often have lower fees than managed funds, but still have an active stockpicking approach behind them. There are some very reliable and established ones with a solid track record, that can give comfort to the novice investor. I used to work for AFIC, the oldest LIC in Australia, and it has weathered all sorts of storms since 1927 (including the Great Depression) and is still popular.

Cons: As with managed funds, you are exposed to losses if they pick poor performing stocks. While you can trade them on the ASX, some LICs don’t have a lot of people buying and selling each day, so you might not get the price you want at the time you want to sell.

How to get going: Once you have found an LIC that meets your needs, you buy them on the ASX, via a broker.

Self-funding instalments – These are a handy little thing that don’t get a lot of press, but can be a good way to boost your earnings by borrowing. Another smart friend of mine said she started her portfolio with these, way back when, and it was a great way to make money over 5-6 years without too much risk.

They are available on offer for a few blue-chip stocks (which tend to be the safest type of direct share investment), such as Westpac. They work like this: say you put up your $1,000, the SFI will match your investment (ie. you get $2,000 worth of shares). Then when the shares pay dividends , instead of you getting the money in your pocket, it goes towards paying down the loan amount.

Pros: You returns that are higher than what you money would get in the bank. It’s an easy way to dip your toe in the water. You can trade the SFI like any other share.

Cons: It is a long-term investment. You are still reliant on the performance of the underlying share and its ability to pay dividends. Borrowing to invest can magnify your gains but also your losses.

How to get going: these are exchange-traded, so you would buy them through an online broker.

Direct Shares – This is basically saying ‘I’ll have five hundred bucks of Company X shares please’ and own them in your own name. The only cost is the broker you have to use to buy them.

My view is: if you know what goes into deciding what makes a company a good one to buy, at a good price, you’d realise why so many people pay others to do it. I have done the basics of company valuation and it’s hard and scary and full of maths. And then there is the research about the company’s business model and strategy, where it sits in the industry, its competitive position etc. It’s a tough gig, and I prefer to leave it to the experts.

Pros: no management fees, buy whatever you like and exclude what you don’t.

Cons: Unless you’re an analyst or read analyst reports, there’s a good chance you’ll pay too much for the shares, or buy shares that don’t meet your needs for capital growth or income. It’s also hard to diversify (i.e. spread your risk) with a small amount of money.

New, fancy, fintechs

There are some newer investment options such as peer-to-peer platforms. Brickx, for example, lets you buy a small share of a residential property. I neither condone nor advocate these – you need to make up your own mind and/or wait to see how they perform. I mention them here to make the point that there are new ideas and ways to invest emerging all the time.

Well if you made it this far, well done. I would say the key is to do your own research and do what makes sense to you. If you are a bit scared, just start small. But don’t feel like investing is too hard or complicated – there are lots of tools and products out there to make it totally do-able.

PS: I’m not an adviser, this is not advice, please do your own research and/or see an adviser before you hand over your cashola.

photo credit: Jeff Belmonte Contando Dinheiro via photopin (license)

Insider’s Guide to Finance Part II: Financial Advisers

Financial advisers have had a bad run in recent years. But writing off all financial advice because of a few bad ones is like swearing off dating just because you watched The Bachelor choose Alex over Nikki (I know right!). Certainly there are stupid, incompetent or greedy advisers out there. But there are stupid, incompetent and greedy people everywhere, and to be honest, I would say quite a few of them make it onto reality shows.

So would I recommend using an adviser? Yes and no.

As I said in another post, I generally support outsourcing to experts. I certainly don’t let any of my finance clients write media releases, and they don’t let me manage millions of dollars of other people’s money. It works out pretty well.

So here are some reasons you would consider working with a financial planner:

  • You have a pretty big goal to reach, such as starting a business or buying a house.
  • You’re undergoing a change such as marriage, divorce or having a baby.
  • You want to make sure you are on the right track with planning for your retirement.
  • You want a roadmap that keeps you focused on a goal, with a tangible plan to get there.

Advisers actually do quite a lot more than just tell you where to invest your money. They can look your life insurance (read more about that here), how to manage your tax affairs or help with ‘estate planning’ (i.e. they make you get a will).

HOWEVER.  There are a few things you should know about the way the industry works, so you go in with your BS detector ready.

Not all advisers are created equal

Remember in Clueless, when Cher explains her virginity? “You see how picky I am about my shoes, and they only go on my feet!”

clueless

So ladies, be like Cher. Be highly selective when choosing an adviser, because there is a wide spectrum. Some advisers only have a diploma, while others have a degree (although this is set to change in the next couple of years, under new government rules).

A degree is not, in itself, a guarantee of knowledge or integrity. And similarly, plenty of good advisers have gained lots of experience on the job, regardless of having done a uni course.

However, it does pay to look at their credentials. Ask about their qualifications and experiences. Ask for testimonials. Ask your friends and family. It’s your money, and you want to be like Cher with it.

Know enough to call BS on their advice

I got a big financial plan done many years ago, and part of the recommendation was to get a margin loan to buy shares (more about them here). It was late 2007 and the markets were great. In fact the whole economoy was great, and Australia was ballin’ like Beyonce in a pool of dollar bills.

beyoncemoney

Anyway, by the time I got around to implementing the advice, I knew enough to be worried. The sub-prime loan thing was happening in the US (a precursor to the GFC). It looked like the boom could be over soon, after a  period of ridiculous high growth. And anyone with a passing knowledge of economics knows EVERY boom has to have a bust. The trick is working out when.

So I sat out the storm. We kept our money in the bank, and soon enough, the sharemarkets dropped by more than 30% – which would have meant my margin loan got called in, and I’d have lost money or had to spend more.

This isn’t to say the advice was bad. But it came at the top of the markets, and I wasn’t comfortable with the assumptions underlying it.

The lesson here is, do enough reading and learning on your own, so that if something doesn’t sound right – for you – then you can say no. Or ask more questions. Or marry someone for 72 days.

The people who lost their homes in financial advice scandals such as Storm Financial were told that despite a really low income (sometimes just a pension), they could make hundreds of thousands of dollars. If they had had enough basic financial literacy, they would have known it was total BS. (If it sounds too good to be true…)

It’s like when you are in a shoe store and they only have size 38, but you are a size 39. That sales girl will tell you they are leather, they will stretch, yada yada yada. But you know in your heart those things will give you nothing but grief, blisters and pinched toes. So, you need to take advice (from anyone, including me) with a grain of salt, and listen to your own gut feel.

Someone, somewhere, wants to make money off you

You know when you go to the beautician for a facial, and you’re paying your 80 bucks for the service. But then she tells you your skincare regime sucks, and tries to offload 200 bucks worth of overpriced Dermalogica on you. And somehow, in the moment, a $60 moisturiser seems like a really good idea. (Newsflash: it’s not, and it never will be).

Well, the same thing happens in finance. If you go to a financial adviser at a bank, for example, they are bound by rules to recommend the best financial products for you. But it just so happens that the bank has a whole suite of financial products to offer too. “Look, here’s a managed fund I prepared earlier!”.

And just like the beautician is going to offer you the product that makes her money (I know, she swears by it, she really does) – the adviser is also possibly going to sell you a product that makes money for his or her venerable employer: the bank.

It’s called ‘vertical integration’, and while the finance industry didn’t invent it, they have built a huge business out of it.

Not every adviser is part of this vertically integrated structure. Many independent advisers are deadset against it, in fact. And I am not here to say who’s right or wrong. There are fantastic advisers – both independent and aligned – selling a wide range of products in a highly ethical way. It’s just good to be aware who is making money, and where, and how.

Know what you’re buying,  ask questions, and consider whether you couldn’t get a really bloody good moisturiser at Priceline for $12. (I have, and look at my youthful skin!).

So how do I get started?

Asking friends and family for recommendations is a good start. Check out the Financial Planning Association website. Follow some advisers on LinkedIn and see if you like what they say. I wish you well, and hope you never again buy a pair of shoes half a size too small.

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Photo credit: https://www.flickr.com/photos/dskley/

An insider’s guide to finance: Managed Funds

Ever wonder what goes on in those shiny city skyscrapers, where billions of dollars change hands each day? Nah, me either.

But that’s because I have seen it first-hand. Don’t believe what you saw in The Wolf of Wall St. Most of it is just guys sitting in front of computer screens, or in meeting rooms with poorly designed PowerPoints. (My friend Amara disagrees and says I just don’t work with the right people, but I call it as I see it).

Anyway, I’ve worked with clients across the finance industry: banks, super funds, insurers, fund managers, advisers, fintechs. You name it, I’ve spruiked them to the media, advised their executives and probably gone drinking with them.

However, I’m not one of them. So I have a particular perspective.

And when people ask me questions like ‘what should I invest in?’, it’s not easy to answer, for two reasons: it is breathtakingly complex and also full of bullsh*t.

So I’m going to do some posts to help you sort through the BS, and share with you what I have discovered about the way money is managed, invested, lent and looked after.

Lesson 1: There is no secret formula.

There are literally hundreds fund managers in Australia, whose job it is to invest in shares (aka equities) on behalf of you, me and our super funds.

And every fund manager has their own style of investing. I liken it to girls and diets. Some swear by Atkins, blood type, food-combining, paleo or low-fat. Trends also come and go,  like the cabbage soup diet (which didn’t ever achieve much other than epic farts).

Fundies are the same. There are broad categories of investing, and within those, each one has tailored their own version. So you’re not just on a paleo diet, you’re on a low-carb paleo diet with an autoimmune protocol. (That’s actually a thing, for realz).

Let’s take, as an example, ‘value’ investors. They are the equivalent of shoppers who comb the racks at outlet malls looking for one perfect pair of Jimmy Choos marked down by 80%. So they buy ‘undervalued’ companies and hang out until they become cool. So, actually, it’s more like buying last season’s shoes and waiting five years until peep toes come back in.

Another style is ‘quant’ (short for quantitative). These guys don’t even bother going into a mall. Their shopping equivalent is creating an algorithm that sweeps eBay and buys one bargain pair of heels from every seller. There is still human input, but it’s mainly data-driven.

There are so many more styles, and sub-styles. Saying you’re an Australian equities fund manager is like saying you like Electronic Dance Music. Sure, but do you like house, deep house, dub-step, jungle, trance, or just Calvin Harris (and your rave pass gets revoked if it’s only him).

All these styles do well at different times and in different market conditions. It’s like how I love the last couple of seasons, when midriffs came back in fashion, because I can totally rock a crop-top (regardless of whether it’s age-appropriate). But when boho chic was all the rage, I totally floundered, because I look like a bad hippie hangover in flounces and frills.

Value investors are having a hard time right now because assets are overpriced and there aren’t many bargains to find*. It’s like the beginning of the winter, when boots are like $300 each. I never, ever buy full price because you know they will be on sale in two months. Value investors are like that, but they sometimes have to wait years for valuations to come down.

Ethical investments, by contrast, are having a stellar period, because they don’t invest in some of the industries that have been having a tough time in the last couple of years, especially mining. And they have more investments in booming industries like healthcare and technology, so it’s happy days for these guys at the moment. (Click here if you want to know more about that).

All of this stuff is swings and roundabouts though. Just like I am set up perfectly for a world where big butts are in fashion, I am going to be sad when big boobs come back in vogue. And they will.

Why pay more? 

The other thing about these funds is that they have different fee levels. ‘Active management’ is much more time-intensive and therefore more exy on fees. ‘Passive management’ is where they basically just follow the market – these are generally called ‘Index Funds’ and they have lower fees.

It’s like the difference between going to the hairdresser to get foils and complicated layers every six weeks, versus having your natural colour and a trim at Just Cuts.

Active managers would argue, as would my hairdresser, that you get what you pay for.

I pay a premium to my hairdresser and my fund manager, because I think both are worth it. My hair is frizzy and mouse-brown and needs a lot of help. I pay for ethical investments, because I am a greenie, leftie tragic. That’s totally my choice.

You could easily get a low-cost, Index fund or an ETF that will do the job of helping you grow your wealth.  You can also get a thoughtfully selected range of managed funds that will help meet your goals and possibly perform better than competitors (known as ‘outperforming the benchmark’).

So what’s a girl to do?

Well, you have a range of options.

Warren Buffett (one of the world’s richest men) reckons everyone should just do the Index Fund thing. Who am I to argue? If you want to, check out MoneySmart’s info on choosing a managed fund, and it talks about them in more detail.

ETFs (Exchange Traded Funds) are very much in fashion, and are another low-cost way to access investments via the stock exchange. I have exposure to some through the Acorns app, (which I’ve talked about here, towards the end of the post), but it’s not a large amount. That’s one of the good things about ETFs – you can start small. MoneySmart also has some good info on this.

Speak to a financial adviser. I know, you are all like ‘no, I can’t afford it’. I am generally a fan of investing in professional advice from people who know more than me (hello, divorce lawyer fees). However, I do think you need a good BS filter as well, because advisers do generally want to make money out of you. Start at the FPA if you want to find one, as their members have to be highly qualified.

If you don’t trust a financial adviser in a suit, consider getting some robo-advice. Which is not as fun as it sounds, because it’s not like Dexter on Perfect Match. (If you don’t know who that is, either you’re too young, or I’m too old).  It’s basically digital advice from companies such as Stockspot  (I am not advocating them, it’s just an example).

If only we could get advice from adorable 80s robots
If only we could get advice from adorable 80s robots

Now, if you aren’t sure why you’d want to buy shares at all, that’s a different conversation and you should probably read this post. Simply put, shares can be a good way to start building your wealth if you can’t afford a property and are pissed off at getting 2.5% interest from the bank.

Just don’t feel bamboozled by all the different managed fund options. Start small and simple, get comfortable, do a bit of Googling and reading, and I swear, you will be rich enough to buy an 80s robot in no time.

*Bonus learning – If you are interested in why assets are overpriced, it’s because of monetary policy (see this post for a primer). Interest rates are low, so everyone has more money to spend on buying investments. Also, because interest rates are low, it’s not much use sticking cash in the bank, so people buy shares and bonds and buildings to get a higher return. But when everyone does that, prices go up. It’s a tricky balance.

Photo credit: Kevin Jarrett

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