How to Invest in an Overvalued Market

The stock market has been on a remarkable run since the pandemic-induced crash in March 2020. The S&P 500 index has more than doubled from its low point, reaching new record highs almost every week. Many investors are wondering if the market is overvalued, and if so, how to invest in such a scenario.

What Does It Mean to Be Overvalued?

A stock or a market is considered overvalued when its current price exceeds its intrinsic value, which is the present value of its future cash flows. There are various methods to estimate the intrinsic value, such as the discounted cash flow analysis, the price-to-earnings ratio, or the asset-based valuation. However, there is no definitive or objective way to measure the intrinsic value, as it depends on many assumptions and estimates.

One popular indicator of market valuation is the Shiller PE ratio, which compares the current price of the S&P 500 index to its average earnings over the past 10 years, adjusted for inflation. The higher the ratio, the more expensive the market is relative to its historical earnings. As of October 2023, the Shiller PE ratio was 38.6, which is well above its long-term average of 16.8 and its median of 15.81. This suggests that the market is overvalued by historical standards.

Why Is the Market Overvalued?

There are many possible reasons why the market is overvalued, such as:

• Interest rates: A lot of central banks have increased interest rates over the last two years to combat a higher amount of inflation. Generally, low interest rates make borrowing cheaper, stimulate economic activity, and boost corporate profits. They also make stocks more attractive relative to bonds and other fixed-income investments, as they lower the discount rate used to value future cash flows. However, the opposite is true for higher interest rates, which is why we have seen the market have a massive run on the back of predictions of rate cuts over the short-medium term.

• Fiscal stimulus: The U.S. government, and the majority of developed economies, has enacted several fiscal stimulus packages to support the gloably economy during the pandemic, accounting for trillions and trillions of dollars. These stimulus measures have increased consumer spending, business investment, and public infrastructure. They have also increased the money supply and the federal debt, which has lead to inflation and potentially higher taxes in the future, however the central banks seem to think they have done a good enough job currently to stem and even beat inflation.

• Earnings recovery: Despite the pandemic, many companies have managed to maintain or increase their earnings, especially in the technology, health care, and consumer sectors. These sectors have benefited from the shift to online services, e-commerce, and digital entertainment. The earnings recovery has boosted investor confidence and optimism about the future growth prospects of these companies.

• Emotional trading: Some investors may be driven by emotions, such as fear, greed, or FOMO (fear of missing out), rather than rational analysis. Emotional trading can lead to herd behavior, momentum, and bubbles, which can inflate the market price beyond its fundamental value. Some examples of emotional trading are the GameStop saga, the meme stock craze, and the cryptocurrency frenzy. And now potentially the AI driven bull market that we see before us.

So, How do we Invest in an Overvalued Market?

Investing in an overvalued market can be challenging, as it involves balancing the risk of a market correction or crash with the opportunity of further gains. Some possible strategies are:

• Diversify your portfolio: Diversification is a key principle of investing, as it reduces the exposure to any single asset, sector, or market. By diversifying your portfolio across different asset classes, such as stocks, bonds, commodities, real estate, and cash, you can reduce the overall volatility and risk of your portfolio. You can also diversify within each asset class, by investing in different sectors, regions, and styles, such as value, growth, or dividend stocks.

• Rebalance your portfolio: Rebalancing is the process of adjusting the weights of your portfolio to match your target asset allocation, which reflects your risk tolerance, time horizon, and goals. Rebalancing can help you maintain your desired level of risk and return, and avoid being overexposed to any asset, sector, or market. Rebalancing can also help you take advantage of market fluctuations, by selling high and buying low, and locking in your gains or losses.

• Set stop-loss orders: A stop-loss order is an instruction to sell a security when it reaches a certain price level, which is usually below the current market price. A stop-loss order can help you limit your losses and protect your profits, in case the market drops sharply. However, a stop-loss order can also backfire, if the market rebounds quickly after triggering the order, or if the order is executed at a lower price than the specified level, due to market volatility or liquidity issues.

• Consider shorting for experienced investors: Shorting is a strategy that involves selling a security that you do not own, with the expectation of buying it back later at a lower price, and profiting from the price difference. Shorting can be a way to profit from an overvalued market, as it bets on the market decline. However, shorting is also very risky, as it involves borrowing the security, paying interest and fees, and facing unlimited losses if the market rises instead of falls. Shorting is not recommended for novice or long-term investors, as it requires a high level of skill, knowledge, and discipline.

Timing the Market vs. Time in the Market

Some investors may be tempted to time the market, which is the act of moving money in or out of the market based on predictive methods, such as fundamental, technical, or economic analysis. The goal of timing the market is to buy low and sell high, and avoid the market downturns and capture the market upturns. However, timing the market is very difficult, if not impossible, to do consistently and accurately, as it requires predicting the future, which is uncertain and unpredictable.

Many studies have shown that timing the market can be detrimental to long-term returns, as it can cause investors to miss the best days in the market, which often occur during or after the worst days. For example, according to a study by JP Morgan, a $10,000 investment in the S&P 500 between January 1, 2003 and December 30, 2022 would have grown to $64,844 if the investor stayed invested for all days. However, if the investor missed the 10 best days in the market, the investment would have shrunk to $29,7082.

Therefore, instead of timing the market, investors may be better off staying in the market for the long term, and taking advantage of the power of compounding, which is the process of earning returns on returns. By staying in the market, investors can benefit from the long-term upward trend of the market, and smooth out the short-term fluctuations and volatility.

Basically, the stock market may be overvalued by some measures, but that does not mean that it will crash anytime soon. The market can remain overvalued for a long time, or even become more overvalued, as there are many factors that can influence the market price, such as interest rates, fiscal stimulus, earnings recovery, and emotional trading. Investing in an overvalued market can be challenging, but not impossible, if investors follow some strategies, such as diversifying, rebalancing, setting stop-loss orders, and considering shorting for experienced investors. However, the best strategy may be to avoid timing the market, and focus on time in the market, as history has shown that staying invested for the long term can generate competitive returns, regardless of market valuation.

Before looking to jump into the market and begin investing, we would highly suggest to talk to a professional financial adviser or coach that can help you to make the right decision for you and your long term goals.

Until Next Time,

Take Back Control

Risk versus Reward: How to Balance Your Portfolio for Long-Term Success

Investing is all about the future, but having a solid understanding of the history of markets can provide clarity and confidence when dealing with uncertainty. One of the most important concepts in investing is the relationship between risk and reward, which measures how much return you can expect for taking on a certain level of risk.

In general, the higher the risk, the higher the potential reward, but also the higher the chance of losing money. Conversely, the lower the risk, the lower the potential reward, but also the lower the chance of losing money. However, risk and reward are not always proportional, and different asset classes can have different risk-reward profiles over time.

Historical Returns by Asset Class

One way to compare the risk and reward of different asset classes is to look at their historical returns over a long period of time. For example, the following table shows the annualized returns and standard deviations of several asset classes from 1985 to 2019. You can check out the Vanguard Asset Class tool to check out data from 1970 through to 2022 here.

Historical Returns by Asset Class - 35 years (1985-2019)

Data for the graph above on 34 years of returns and volatility for each asset class.

As you can see, stocks have historically delivered the highest returns, but also the highest volatility, among the asset classes. Bonds have offered lower returns, but also lower volatility, than stocks. Cash has provided the lowest returns, but also the lowest volatility, among the asset classes. Gold has been a volatile asset class, with returns that have varied significantly over time. REITs have been a relatively high-returning and high-volatility asset class, reflecting the cyclical nature of the real estate market.

However, these historical averages do not tell the whole story. The returns and risks of each asset class can vary significantly from year to year, depending on the economic and market conditions.

There is no clear pattern or ranking of the asset classes over time. Some years, stocks outperform bonds, cash, gold, and REITs, while other years, the opposite is true. Some years, emerging markets lead the pack, while other years, they lag behind. Some years, gold shines as a safe haven, while other years, it loses its lustre. Some years, REITs boom as property prices soar, while other years, they bust as property prices collapse.

How to Manage Risk and Reward in Your Portfolio

So, how can you use this information to balance your portfolio for long-term success? Here are some tips and strategies to consider:

• Know your risk tolerance and return objectives over a time horizon. Before you invest, you should have a clear idea of how much risk you are willing and able to take, and how much return you need or want to achieve your financial goals based on a time period. Your risk tolerance and return objectives may depend on factors such as your age, income, expenses, savings, time horizon, and personality. You should also review your risk tolerance and return objectives periodically, as they may change over time.

• Diversify across asset classes, sectors, geographies, and styles. One of the most effective ways to reduce your portfolio risk and increase your portfolio reward is to diversify your investments across different asset classes, sectors, geographies, and styles. By doing so, you can reduce the impact of any single asset class, sector, geography, or style on your portfolio performance, and benefit from the different sources of return that each one offers. For example, you can invest in a mix of stocks, bonds, cash, gold, and REITs, as well as in different industries, countries, and market segments, such as value, growth, and quality.

• Adopt a long-term perspective and a disciplined approach. Investing is a marathon, not a sprint. You should focus on the long-term performance of your portfolio, rather than the short-term fluctuations of the market. You should also follow a disciplined approach to investing, such as using a buy-and-hold strategy, a dollar-cost averaging strategy, or a rebalancing strategy, to avoid emotional or impulsive decisions that may hurt your portfolio performance. By doing so, you can take advantage of the power of compounding, which can significantly enhance your portfolio returns over time.

• Seek professional advice. Investing can be complex and challenging, especially in uncertain and volatile times. You may benefit from seeking professional advice from a qualified financial planner, who can help you design and implement a portfolio that suits your risk tolerance and return objectives, as well as provide ongoing guidance and support.

In summary, risk and reward are two sides of the same coin in investing. You cannot have one without the other. However, you can manage your risk and reward by understanding the historical performance of different asset classes, diversifying your portfolio, adopting a long-term perspective and a disciplined approach, and seeking professional advice. By doing so, you can balance your portfolio for long-term success.

Did You Know that You are an Investor Already?

Most people know that they get paid superannuation, however most people do not go beyond that. They don’t see it as their money, until they get to the age of 40-50 years old, which is a HUGE mistake!

Your superannuation is YOUR Money and it is really important you understand what you are doing with your money. It can be the difference of between an extra $50,000-200,000, or more even depending on your earnings, at retirement. Which I am sure would go a long way to being able to travel the world when you retire, if that is what you want to do.

Your Superannuation is your first investment, which started as soon as you got a job. As Living in Australia and working in Australia means legally your employer must pay your superannuation guarantee.

The minimum superannuation pay for each eligible employee is 10% of their ordinary time earnings (OTE). However, it's scheduled to progressively increase to 12% by 2025. - ATO (1)

Which means 10% of your income will go towards your super every year, so if you earn $100,000 before tax, you will have roughly $10,000 contributed to your superannuation. The best part, all super contributions made up to $27,500 is taxed at a smaller rate than your wages that get paid to your bank account.

Any contributions that are made are taxed at 15%, which is a lot less than the average 32-37% of your income that gets taxed, depending on how much you earn.

You not only save money by having super, but you also can make a lot of money from the returns your fund will get for managing your money.

Of course, you want to make sure that you have the right fund and the government has even provided a great website that will compare your current fund with up to four other funds that may get you better results down the track based on previous performance.

Check out the Your Super Comparison Tool here

The above comparison tool is great, however it does have some short-comings, which are due to the fact that it doesn’t filter funds based on ESG (Environmental Social Governance), therefore you don’t know where your money is going and if its ethical. As well as the fact it only compares based off of the previous 7 years of annual returns and the annual fees.

Which, in hindsight, if you are 20 or 30 years old, you want your money in a fund that has been able to perform well for much more than just seven years.

However, the tool is a great start to seeing whether your fund is performing well or not and can give you some good insight into how other funds are performing.

The main reason as to why you should not just choose the fund that is the best-performing from the Your-Super-Tool comes down to the fact that every person’s circumstances are very different and depending on your age, you may not want the highest performing fund. Generally speaking, the higher the annual returns, the more volatile the returns can be.

If you have only six years left to retirement and you are in a very aggressive fund, that may affect you significantly if the markets were to have a down-turn.

Hence why it is always best to speak to a professional advisor and work with one to set-up your superannuation.

I believe it is especially important for when you are younger as well, when you get to about 21-29 years old, you should be essentially starting your professional/trade career.

Which means your super contributions will be much higher from your employer than it was previously. There are a whole range of things that you need to figure out due to your increased super contributions that will possibly make you a lot more money than the general fund that your super fund will put you in.

Not to mention there is insurance within super as well, whereby that eats away at your retirement savings, but it may be the only way you can afford to get life insurance, TPD (Total Permanent Disability) and Income protection. Therefore, you want to know what insurance is going to suit you the best and how you may need it to change when you have a baby, build a house etc.

But it is all really hard to figure out all by yourself, which is why using an accredited Financial Planner is the way to go!!

There are so many things that can go wrong if you choose the wrong fund, but there are a few tools at least to get you started.

I hope this has helped and that brings us to the end of our beginner investors guide.

If you have found this guide valuable, I would love it if you shared all ten blogs with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

Until next time,

Take Back Control

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References:

1. https://www.ato.gov.au/business/super-for-employers/paying-super-contributions/how-much-super-to-pay/

Stock Market Corrects-Covid Disrupts Economy

I missed last weeks blog due to exactly what the title says above, Covid doesn’t disrupt the economy, it disrupts lives!

I have been sitting in bed the last three to four days with what has felt like the worst flu of my life, nausea, dizziness, constant headaches, lack of any energy at all and to top it off, my nose just started running…

But we aren’t here to take pity on my plight, if anything we are here to take in the lessons of the last two years. And one thing we have learnt from the last two years is that the economy is set-up by human productivity, and Monetary policy.

So what happens when monetary policy (money-printing from the central banks) will start to ease by potentially as early as the end of next month due to the most recent CPI (Consumer Price Index) report?

**If you are unsure of what the CPI report is and inflation in general, check out this website https://www.investopedia.com/terms/i/inflation.asp

What happens when schools go back and we potentially get an up-tick of Covid cases and therefore more people isolating at home? Therefore decreasing productivity…

I am not one to make predictions or bring out the crystal ball, however I can definitely see how the economy may slow down a little this year, or at the very least within the short-term.

You can see this portrayed through the volatility we have seen in the stock market recently!

All you have to do is check out the last week in the ASX200…

The ASX 200 over the last 5 Trading Days is down 6%

Which is moving into correction territory, which is when we see a drop of 10%.

Source: google.com.au/ASX 200 chart

I am not trying to bring out a fear at all about the market dropping or the economy slowing, but I do want to bring you the facts, just as Covid has disrupted our lives for the last two, nearly three years, there will be more disruptions to come.

You need to know the facts, to make educated decisions and understand that this year may be a tough year for investing.

But there is a silver lining!!

Where there are corrections and down times in the markets, this brings about opportunities for us investors.

I want to teach you the most important lesson as an investor in the equity markets, by simply showing you the graph below;

Source: https://topforeignstocks.com/2017/06/14/the-historical-average-annual-returns-of-australian-stock-market-since-1900/

What you see above is 100 years of data from the All ordinaries index, which later was taken over by the ASX 200 inde. Now as you can see, there are a heap of downturns and corrections in the market, but the main thing I want you to concern yourself with is the starting point of the graph on the y-axis at the very left of the image.

You can roughly see that at the year 1900, the index was priced at about $50, by the end of the century we can see that the markets had increased significantly, even with a heap of downturns and multiple years of catching back up afterwards. The market always ends up better off.

That is why you should not concern yourself with the recent drop in the market, nor the disruptions happening with Covid still running rampant within the community.

If history is anything to go by, we will see the market back in the green and making leaps and bounds, when that will happen, we do not know, but right now, when the market is fearful, it is the best time to invest!

In my next blog, I will be completing the beginning investor series, I look forward to seeing you then,

Until next time,

Take Back Control

If you have found this Blog valuable, I would love it if you shared it with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

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** The article above only should be used for educational purposes only and is not financial advice, if you wish to invest in the equities market, I highly suggest that you seek advice from a professional that you trust!

The Ultimate Investing question… Passive or Active?

Over millennia, we have seen debates around the world about whether you should be an active investor, whereby you have a pretty active role in choosing the assets you buy and sell in your portfolio. Or whether to be a passive investor, whereby you follow the market or a trend you believe will be big in the future.

Over the course of the last few decades, we have seen a pivotal change in the overall consensus of investing, with more people moving into the passive camp.

Today, I want to highlight the advantages and disadvantages of both and to educate you on why I have decided that I shall be an active investor for my own portfolio.

Once you have read through it all, it is up to you to make up your own mind about what style of investor you are going to be.

Passive Investing: “Passive investing is an investment strategy to maximize returns by minimizing buying and selling. Index investing in one common passive investing strategy whereby investors purchase a representative benchmark, such as the S&P 500 index, and hold it over a long time horizon.” - [1]

Advantages:

• Diversification, being able spread risk broadly, such as when you invest in the broader market, such as an S&P 500 index.

• Lower fees

• Tax efficiency

• Less time needed for research, simplicity: You do not need to research into every stock or financial product.

• Can dollar cost average, instead of timing the market: You can decide to invest a small sum of money every month, three months etc. Rather than trying to time the market, you consistently invest for a set period of time.

Disadvantages:

• Subject to total market risk: Whereby if the broader economy is not doing so good, the markets will correct/crash.

• You will not see returns higher than the market: As most passive funds, ETF’s etc. They only track the overall market performance.

Seems like a pretty good idea, rather than doing all the work to research the market, just follow the overall market trajectory and returns. You spend less on fees and it is much more tax efficient to put all your money into one index. In fact, for 80-90% of you who are reading this blog right now, it is probably the most effective way to start and continue investing for the long term.

However, with the current market climate and with interest rates on the expected rise, I suspect that active investing will get bigger again over the next few years…

Let’s see why!

Active Investing: “Active investing refers to an investment strategy that involves ongoing buying and selling activity by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions.” [2]

Advantages:

• Flexibility: Active managers aren't required to follow a specific index. They can buy those "diamond in the rough" stocks they believe they've found.

• Hedging: Active managers can also hedge their bets using various techniques such as short sales or put options, and they're able to exit specific stocks or sectors when the risks become too big. Passive managers are stuck with the stocks that the index they track holds, regardless of how they are doing.

• Tax management: Even though this strategy could trigger a capital gains tax, advisors can tailor tax management strategies to individual investors, such as by selling investments that are losing money to offset the taxes on the big winners.

• Risk management: Active investors and fund managers can select stocks based on the prevailing market conditions.

• Short-term opportunities: Active investors can make use of short term (3 months or less) opportunities, which in turn gives them a range of tools to choose from when investing.

• Have more opportunities to invest in different asset classes: Active investors and funds are more likely to be able to delve into different asset classes, therefore diversifying risk away again.

• Can meet specific needs of ethical and moral criteria: With most passive funds, a lot of them do not meet a lot of investors criteria, such as not to invest in mining, or child slavery. When you invest in the top 500 companies in the U.S for example, you have no idea what these companies are doing with your money.

Disadvantages:

• Very expensive: The average expense ratio is 1.4 percent for an actively managed equity fund, compared to only 0.6 percent for the average passive equity fund. Fees are higher because all that active buying and selling triggers transaction costs.. All those fees over decades of investing can kill returns.

• Active risk: Active managers are free to buy any investment they think would bring high returns, which is great when the analysts are right but terrible when they're wrong.

• Poor track record: The data show that very few actively managed portfolios beat their passive benchmarks, especially after taxes and fees are accounted for. Indeed, over medium to long time frames, only a small handful of actively managed mutual funds surpass their benchmark index.

• Minimum Investment amounts: Some Actively managed funds in fact need a minimum to invest in that fund, such as $10,000. Or some brokerage platforms need a minimum of $100 per trade etc.

As you can see, the age old question of Active versus passive comes down to a few things, whether you have the time to do the research, whether you are ok taking on more risk for more specific investments, and also whether you can take on some more complexity regarding tax etc.

At the end of it all, it mostly comes down to whether you also believe the wider market will do well over the long term or whether you have the confidence and knowledge to beat the markets over the long term.

Majority of the time, you won’t beat the market, so it is truly up to you to decide whether you are a passive or active investor.

I have decided that I want to follow along the path of active investing, to test my own knowledge and because I believe that the overall markets will not increase significantly over the next ten years. I do not see a lot of growth to be had, however I may be entirely wrong and therefore you need to make your own decision on what you should do as an investor.

Let me know in the comments below what path you will choose,

Until next time,

Take Back Control

If you have found this Blog valuable, I would love it if you shared it with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

_______________________________________

References List:

[1] - https://www.investopedia.com/terms/p/passiveinvesting.asp

[2] - https://www.investopedia.com/terms/a/activeinvesting.asp

How to Begin Investing with as Little as $5 Today!

Wow, we are already halfway through the Beginner Investing Series and I have thoroughly enjoyed writing about some of the things I have learned along the way from my own investing journey.

Of course, this particular series was always meant to be simple and basic, but it was meant to get right to the crux of what I wish I had known before I started investing.

Today though, I will go through how my investing journey began, to give you a great picture of how you to may be able to to start investing with as little as $5.

First of all, my investing journey began after reading “The Barefoot Investor- The only money guide you will ever need.” [1]

Not unlike what you are doing right now, by reading my blog series, I started by just simply seeking to understand how I could make myself more financially savvy and also so I could save up a deposit to buy a house with my wife.

Reading the book, produced a spark that led to me taking action and implementing the steps to help my wife and I to save a deposit for our house, start investing outside of Super and to truly set ourselves up financially.

The spark gathered momentum and I started delving deeper into understanding finance, reading Tony Robbins, “Money: Master the Game” [2] was taking it to another level again. (For a more basic and stream-lined version, check out “Unshakeable.” An amazing read and a must if you want to start investing.)

I can hear you saying, ok but where can I start investing right now, for as little a $5?

Well rest-assured, here it comes…

I want to introduce you to the world of micro-investing!

Yes, if you believe it, you can actually invest your money in an app starting with as little as $5, some may even be as little as $1.

I started my own investing journey using the micro-investing app called Spaceship [4] and I invested using Spaceship up to the point where I felt finally comfortable and knowledgeable enough to take on the markets myself.

Why did I do it and therefore why should you consider it as well?

1. Time in the market is more important than timing the market

What do I mean by this, I mean that over the long-term, you are more likely to earn a good solid return by having your money in the markets than if you were to try and time it by waiting for everything to dip.

I learned that its better to start investing now and micro-investing apps actually make it possible, rather than waiting to save up $2,000-$5,000 to invest into an ETF, you can start NOW!

2. You can learn by putting some skin in the game!

Learning about your own behaviour whilst having some money in the market was probably the most important aspect I learned and what you can learn with small amounts of money, rather than risking big amounts to start with.

You can learn how you behave when their is a correction in the market (when shares drop by up to 10%, meaning you lose 10% of your money) which is vital to your investing career. Do you pull out because you don’t want to see yourself losing more money? Or do you wait it out until the market goes back up, no matter how long it takes?

Learning this early on has been vital to my own investing success so far. In the last year alone, my own portfolio has grown by 20% and retracted by 10%, but if you do the math, it means it is still up!

3. Finally, it gives you time to research how the market works!

The most important aspect of micro-investing, at least what I got out of it the most, was that I had time to put some money in the market, whilst researching and learning more and more.

You have first-hand experience and you can delve even deeper again by researching into different investment funds, listening to podcasts and learning as much as you can about investing.

If you don’t want to do this, you probably are not cut-out to do active investing, as you need a sound amount of research and knowledge to actively invest.

You may be better off, when you have built up enough money in your micro-investing portfolio, to either seek an advisors guidance or to sink most of your portfolio into ETF’s (exchange traded-funds) that follow a specific index.

I will actually be running through the difference between ETF’s and managed funds in my next blog, as I believe it is really important to understand.

I hope that helped you and if you are interested in micro-investing, it is best to do your research, as Spaceship is not the only app you can start investing with. Another product you could look into is Raiz, but I would highly suggest reading through the PDS and understanding what each investment in the app entails.

At the time of writing, I do not hold any funds in any micro-investing apps.

Until next time,

Take Back Control.

If you have found this Blog valuable, I would love it if you shared it with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

_____________________________

References:

[1] - To check out Scott Pape’s book, click the link - https://www.amazon.com.au/Barefoot-Investor-2018-Update-Money/dp/0730324214/ref=asc_df_0730324214/?tag=googleshopdsk-22&linkCode=df0&hvadid=341744699688&hvpos=&hvnetw=g&hvrand=7682030752416799449&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9072139&hvtargid=pla-407488791778&psc=1

[2] To check out Tony Robbins, Money: Master the Game, click the link - https://www.catch.com.au/product/money-master-the-game-7-simple-steps-to-financial-freedom-book-by-tony-robbins-796952/?offer_id=37134769&ref=gmc&gclid=Cj0KCQiA15yNBhDTARIsAGnwe0VRyuWdatGHDWjUxavDFYUbByQnFrcymYiK0YJQ-0sLIv240boZhYUaAlxxEALw_wcB

[3] To check out Tony Robbins, Unshakeable, click the link - https://www.amazon.com.au/Unshakeable-Your-Guide-Financial-Freedom/dp/1471164950/ref=asc_df_1471164950/?tag=googleshopdsk-22&linkCode=df0&hvadid=341744699688&hvpos=&hvnetw=g&hvrand=14442430285955173354&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9072139&hvtargid=pla-672857091020&psc=1

[4] Spaceship website - https://www.spaceship.com.au/

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Disclaimer:

General Advice Warning

The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Take Back Control’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Where should You Invest your Money?

Once you have decided to start investing, it is really hard to actually decide on where you should invest your money. There is so many different investment vehicles and markets to invest your money that it can get a little overwhelming.

That is why I came up with a simple list (I am a bit of a list maker if you haven’t noticed already) that will help you to start deciding in what investment products/vehicles that could help you achieve your dreams.

1. Invest in what you know!

2. Understand your risk tolerance and how you may act if there are any market corrections

3. Understand that there are multiple investing vehicles out there, such as the bond market, term deposits, REIT’s (Real-estate investment trusts)… It is not all just shares, crypto and cash in the bank.

4. Consider talking to a trusted advisor who may be able to align your dreams, personal values and financial situation with the investing vehicle that is a right fit for you.

First thing, you need to make sure that you are investing in something that you understand!

The Great Oracle of Omaha, or better known as Warren Buffet, potentially the greatest investor of our time, states that he “Only invests in what he knows and understands… the business has to be simple”

Warren Buffet is a world renowned investor and has an amazing track record of beating the S+P 500 index (An index that tracks the top 500 companies within the USA) over a very long period of time, by doing what he knows best. By buying businesses, because he knows business!

Therefore, what you should do is invest in what you know best too. You should understand what you are investing your money, because if you don’t understand it and your investment decreases in value considerably, you may sell at the wrong time.

In fact, the great Peter Lynch, another long-time investor that I admire said, “You can outperform the experts if you use your edge by investing in companies or industries you already understand.”

Secondly, you should understand your risk tolerance…

One really easy way to do this is by investing a small amount of your hard earned cash in the markets, cash that you don’t need or you are happy to never see again.

I used this simple method of putting money into a micro-investing app (whereby there are no brokerage fees and you can invest as little as $5) to start to understand my own risk tolerance. Sometimes, you just need to have some skin in the game and take a little risk to see what you are like when the markets are going up or coming down.

Thankfully, I was able to see a bit of both, as I had money invested last year in March 2020, whereby the market corrected by a bit over 30%. Meaning I saw my investment and hard-earned money decrease significantly, but I was not phased by it due to my own education, in fact I saw opportunity to buy in even more.

But there were some that did not actually do this, in fact some took money out of their super and sold at the worst possible time.

Which is why understanding risk tolerance is so important to understanding where you will invest your money!

Thirdly, Shares, Crypto and real-estate are not the only investment vehicles out there!

In fact, there is a whole world of financial markets out there…

Ranging from Bonds (whereby you loan money to a bank, government or business and receive interest on that loan essentially) to the Foreign Exchange markets (whereby you can exchange currencies etc.).

You can even buy into Real-estate investment trusts, if you don’t want to buy and hold a physical warehouse or factory, you could buy a portion of it through the REIT.

Which brings me to my final point.

The financial world is a jungle, full of predators, poison ivy and dangerous products/investment vehicles that could leave you disoriented and full of dismay.

That is why having a local guide, such as your trusted Financial Advisor, who is a professional in navigating said financial jungle, can show you how to not only navigate through the jungle. But can show you the plants that you can eat that won’t kill you financially, show you a clear path through so you can reach the other side and also reduce any stress or anxiety you may have about getting lost along the way.

Investing can be scary, it can be exciting and it can truly help you to attain all of your dreams…

And having a trusted advisor who can guide you into the right investment vehicles is worth more than anything you could ever dream of.

If you follow these four simple steps, your investing journey will be smooth-sailing and you will know exactly where to invest your money that is not just right for you, but will help you sleep better at night!

Which is probably the most important thing when it comes to investing and finance.

Until next time,

Take Back Control

If you have found this Blog valuable, I would love it if you shared it with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

Understand these 3 Investing Secrets before You Invest your first $1…

Before you actually begin investing your hard earned money and look at putting your money into businesses and assets, you really need to understand a few things about yourself!

If there is one thing that I have learned from my Financial Planning Degree so far, it is that your emotions get in the way of making sound investing decisions for the future. Behavioural Finance is an interesting topic which delves into the deep recesses of your mind to understand the psychology of people’s spending, investing and saving decisions.

Three well known economists and psychologists laid the frame-work for what is to be known as behavioural finance today; Daniel Kahneman, Amos Tversky and Richard Thaler. All three of these academics wrote papers that has led to our understanding of how investors and even the markets, can make irrational decisions when it comes to managing their portfolio’s. (1)

I won’t delve into Behavioural Finance today, however I will delve into the three cornerstones that should be driving all your investing decisions from here on in. You need to leave emotion (mostly fear of missing out, herd behaviour, greed) at the front door and make every investing decision based on your;

• Risk Tolerance

• Personal Goals for investing and Time you have to put into it

• Personal Values (Environmental Social and Governance)

Understanding these three core things about yourself and why you are investing will help lead your decision making process in all of your investments. Including the investments you make in yourself, such as potentially starting up a business, doing personal development etc.

Firstly, understanding Risk Tolerance is really important.

I am going to use the example of my wife and I, as we have very different risk profiles, where I am seen as very aggressive in my investing and my wife is a little bit more risk averse.

My wife does not like losing money, in fact, she would rather look out for all the savings in the supermarket and is very much of the mind that losing money, no matter the potential upside in the future, is not worth it. She would get anxious and even pull money out of the investments early if she saw a sharp decrease in value.

She would probably rather invest in assets that have a lot less volatility and have consistent income, such as bonds or term deposits.

Whereas I have already ridden waves and corrections previously, in fact, just last year, when we had a 30% decrease in the stock market, I saw the sales stickers that my wife normally sees in the supermarket and decided to buy more, my wife on the other hand would have just seen red.

Therefore, I am more prone to investing in different asset classes than my wife, I also am in what we call the accumulation phase of my life, where I am accumulating wealth. Your risk profile may change as you age, potentially as you stop earning income from a job and retire, you may need to re-assess your own risk profile.

Which comes down to understanding your Personal Goals and the Time you are willing to invest in making your investing decisions.

You truly need to understand why you are investing, I delved deeper into this in one of my Vlogs that you can check out here .

To know your personal goals and why you are investing in the first place will help you to make those key decisions of whether to BUY, SELL or HOLD your investments.

An example is you want to earn capital gains from a company and you find a really great growth company, with revenue increasing by 20% year on year for the last six years. Other than wanting to earn money from that company, what is the reason you would invest in it in the first place?

To save for your future kids education? For an early retirement? So you can see great growth over the next 10 years and then use the capital gains to help create a home deposit?

Investing with an end in mind is super important, which means you need to know your personal goals first. The other thing that goes hand in hand with your goals is understanding how much time you want to be able to put into your investments.

Do you want spend less than an hour per month on your investments? Maybe you have more time and want to spend 1-2 hours per week. Either way, you need to know your goals first and foremost, to then be able to understand how much time you will want to put in.

An example for this is, you may want to set yourself up with no financial worry or stress in the future, that is your goal. Therefore, you won’t want to be watching the markets or spending hours researching for the next up and coming company every week.

Your goals and the lifestyle you wish to live will determine the time you spend on your investments and finances, make sure you understand this along with your risk tolerance and you will know the best assets and investing products to park your money!

** If you are not too dissimilar to the example above, you may want to reach out to a Financial Planner to truly understand your risk profile and personal goals. They can guide you into the right investment vehicles and products for you and your goals!

And finally, understanding your Personal Values is just as important as Risk Tolerance and your Personal Goals.

Do you believe in Free Speech? What about equal rights? Or are you super passionate about climate change?

Would you put your money in a company and support them to grow and become bigger, if you knew they were an arms company?

You need to know where your money is going if you are going to be an investor, because the worst thing that could happen is you start investing in a company or ETF (exchange traded fund) that supports mining or arms manufacturing, but your personal values are against those particular things. Imagine learning that your money helped create guns, or fossil fuels?

These were the two things that my wife specifically said she didn’t want me to invest our money by the way. Therefore, I have only invested our money in companies that I have researched extensively that have nothing to do with mining, the creation of fossil fuels or manufacturing of weapons.

Now, you may have a difference in values and don’t care if you invest in those things or not, however it is best to know what your values are and do your research, or hire an advisor to help you to do so.

So, those are the three secrets you need to understand and know before you start investing, so this and you will be leagues above the average investor, I can assure you!

Until next time,

Take Back Control

If you have found this Blog valuable, I would love it if you shared it with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

______________________

References:

1. https://streetfins.com/intro-to-behavioral-finance/

When Should You Start Investing?

I always say, the best time to start investing was twenty years ago, the next best time is Now…

But, there is no point starting to invest and start working on accumulating wealth if you have not done the following!

1. Paid down most commercial debts (ie; car loans, BNPL payments, personal loans, credit card loans)

2. Grown an emergency fund or save-your-ass fund

3. Have developed an automated cash flow/budgeting system that means you can sleep at night.

4. Set-up your Superannuation and review it every 12 months

You could potentially add, buy your first home, to that list if that is a goal of yours in the next three years as well. Essentially, to take a phrase from the well-known Dr. Jordan Peterson, you need to “set your house in order” before you can take on bigger goals, such as investing for the future.

What does, “set your house in order” mean?

Well, it is quite simple, it means that you need to open up the financial closet and clean it out, dust for cobwebs and put your brave pants on to see if there are any nasty creepy crawlies hiding in there.

Which is why you need to complete steps one to four from above, and potentially add step five of buying your first home as well.

Once you have completed all of the above, that is when you can start looking at investing and taking your wealth more seriously. The best part is, you are already investing inside of your super. As long as you are employed, your employer has an obligation to pay you superannuation in Australia, which has tax benefits to you and will be an automated way for you to invest for your future. I would suggest that you check your Super balance and make sure you have been getting these contributions, and if you have not, ask your employer immediately!

(I will not delve into Super in this article today, however I will have a Superannuation series later down the track where I will go through all the Do’s and Don’ts of Super.)

Another reason for setting your house in order and cleaning out your ‘financial closet’ is to make sure that you are not losing sleep at night over money. A survey was complete by the Financial Planning Association of Australia and they found that 20% of men and 27% of women are somewhat stressed about finances.

Which means almost a quarter of those surveyed were most likely losing some sleep at night due to money, which should never be the case, not if you clean out your closet and “set your house in order!”

And finally, the most important reason to not start investing until you have done the above is because you don’t want to lose out on your investments.

Investing to accumulate wealth should be a mid-long term endeavour, meaning you should be holding an investment for seven to ten years. That means, if you have an emergency pop up, you do not want to have to sell that investment, and potentially make a loss, because you didn’t have your house in order.

Investing money in the share market, crypto or any other volatile investment vehicle, that you need today or over the next twelve months, means you increase your risk of losing some or all of that money.

You need to make sure that if you are investing any money, you should be investing money you do not need. I take the mentality that I may even lose all of that money, not that it will happen, just so that I never have to think or worry about having to dip into my investment and potentially lock in losses if something came up.

So, when should you start investing?

When you have been able to set your house in order and cleaned out your financial closet.

Once you have been able to do all of steps one to four and potentially step five, you will be free to use the excess money that you do not need to invest. That is when you could set up a meeting with a professional, such as a Financial Planner, to help you with your investment choices that is specifically tailored to your goals and dreams for the future!

Over the next article, I will be delving into understanding where you could start investing, based off of what risk tolerance you may have and potentially based on your own personal goals, values and the time you want to achieve these.

Until next time,

Take Back Control

If you have found this Blog valuable, I would love it if you shared it with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

___________________________

References:

1. https://fpa.com.au/fpa-community/financial-planning-week/

What I wish I had learned 10 years ago about Investing!

Put simply, if you want to know what the number one thing that I have learnt the most since undertaking my studies as a Financial Planner at university is that the best time to invest was 20 years ago, the next best time is TODAY!

A lot of people have used the planting of a tree analogy, where if you want a tree to grow to maturity, the best time to plant it would have been 10, 15 or 20 years ago, the same is for investing. Which is due to one of the most powerful tools you need to have if you want to set yourself up for the future and finally break from financial stress and worry.

The mathematical concept and the greatest wealth creator of all time comes down to one simple concept…

Compound growth and compound interest!

I touched on this a little bit in my earlier article, “What is investing?” However, I want you to truly understand the power of compounding when it comes to investing, because it truly is the game-changer.

Firstly, what is compound growth/interest?

“Compound, to savers and investors, means the ability of a sum of money to grow exponentially over time by the repeated addition of earnings to the principal invested. Each round of earnings adds to the principal that yields the next round of earnings” - Investopedia.com (1)

I daresay, this definition is great, however its best to truly understand compounding by going through a real-life example. I am going to use two people and two different scenarios, one started investing/saving at the age of 18 years old, one started investing 10 years later at the age of 28 years old.

I love graphs, I am a bit of a visual person and it was not until I actually started playing around with some compound interest calculators that I started really understanding what I had missed out on over the past 10 years…

Let’s have a quick look at the two scenarios in the graph below; (2)

Two scenarios of investing, whereby one investor started at age 18 years old, the other started at the age of 28 years. They invested for 32 years and put in $100 regularly every month for 32 years.

Based on the graph above, which is using a pretty conservative 7% annual return over 32 years, (Australian shares on average returned 8.8 per cent annually over 20 years to December 2017) (3) we can see that starting investing 10 years earlier makes a huge difference on the compounding effect.

You can see illustrated in the graph that person 1, who started investing in the share market at 18 years old with an initial deposit of $10,000 and depositing $100 monthly until the age of 45 years old, has been able to accrue $219,414 by the end of the 32 years.

On the other hand, person 2, who started 10 years later, has only been able to accrue $103,111 by the same age of 45 years old.

That is an astounding $116,303 difference…

And here is the rub, the 18 year old person only had to invest $48,400 over the 32 years that they invested, working out to be a measly $1,512 per year. Whereas, person 2, who started at 28 years old, had to invest $36,400, working out to be $1,654 per year over 22 years.

For an extra $12,000 invested from person 1, they were able to get an additional return of $104,303 overall.

I know who I would rather be…

That is just one scenario between two hypothetical people, however imagine if you had started investing when you were 18 years old, I wish I had. However, I started at age 25 years old and I probably lost out on nearly $100,000, but that is ok, I am alright with that, because the teacher does not appear until the student is ready to listen/learn.

I just hope that I can appear in time for you to take action and start investing TODAY, so that you don’t make the mistake of losing out on all those returns that myself and person 2 would have lost.

Going back to the tree analogy, the best time to plant a tree was 20 years ago, but the next best time is right NOW!

So go out and…

Take Back Control

If you have found this Blog valuable, I would love it if you shared it with friends and family. The more the merrier, as I want to see each and every one of you learn to Take Back Control of your Life-Health-Wealth !

References -

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1. https://www.investopedia.com/terms/c/compound.asp

2. https://moneysmart.gov.au/budgeting/compound-interest-calculator

3. https://www2.asx.com.au/blog/investor-update/2021/evolution-of-income-investing-on-asx#:~:text=Australian%20shares%20on%20average%20returned,per%20cent%20in%20that%20period.