When/why did you start thinking as an investor?

[Glebe]

Hi everyone,

I have undergone a psychological metamorphisis over the last 6 months. Whilst I read Rich Dad Poor Dad and a few other investment books about 7 years ago, it didn't really change me. I was at uni and focused my energies on having the time of my life, and I don't really have any regrets there.

But in my opinion I was slow in getting out of the investment blocks since leaving uni and joining the workforce. Instead of riding the property boom my wife and I simply bought a small apartment as our PPOR, and with some managed funds, this represented the extent of our investments.

Nonetheless, our savings discipline and good wages have enabled us to pay off the mortgage, and reaching this goal has awoken the investor in me. I am ready for phase two. I am back at Somersoft having first come across these forums in a different format in about 1998 or so and have learnt so much and change my thought processes so much over the last few months.

So much has changed: we are now renting, our apartment is currently on the market, I am in the process of establishing a trust, I've prepared domestic balance sheets, domestic cash flow statements and retirement planning spreadsheets. Our trust is going to be purchasing some leveraged equities over the next few years and ultimately will own our PPOR which we will rent.

We believe we can be financially independent at age 45 with some conservative projections and this has empowered our lives. Whilst we have so much still to learn, so many successes and failures to experience and so many goals to meet, we firmly believe we are now living in the mindset of the investor and it's a great place to be.

So my question to you all is why and when did you start thinking as an investor rather than a wage earner and spender and how has this empowered you?

 

[The Y-man]

History......

But in my opinion I was slow in getting out of the investment blocks since leaving uni and joining the workforce. Instead of riding the property boom my wife and I simply bought a small apartment as our PPOR, and with some managed funds, this represented the extent of our investments.

Crumbs, I must be REALLY slow then.......
It took me 9 years to get into investing - didn't have a PPOR, no managed funds, no savings..... still no PPOR and discovered trusts only recently!

If you are getting good wages now, and are disciplined with your budget, my personal opinion is that your $2.5m by 45 sound like a VERY conservative goal...


Cheers,

The Y-man

 

[Glebe]

Thanks for your encouragement. Overall I'm happy enough with what I've achieved in the past. It was good watching the mortgage drop each pay. But it's only in the last few months that I've thought about getting to a position where passive income will allow retirement. Previous to that the thought process was about paying current house off to purchase a bigger house and so on. Thanks to Somersoft I'm now thinking more macro, and less micro. Beginning with the end in mind, that sorta thing.

But yeah, I'm more keen on everyone's thoughts about their own situations I find this mindset extremely liberating and I'm sure there are great stories wating to be told.

 

[The Y-man]

Numbers...

Hi Glebe,

Looking at your signature note, I did a bit of number crunching (sorry, just like to do this sort of stuff.... )

Plan: Retire at age 45 with $2.5 million.
Current age: 27.
Current net worth: $270 000.
Money still required: $2.23 million!

I would have to assume you built the $270k in say the past 6 years (with little/no investing). So let me assume you are able to continue putting this amount aside - $270k in 6 years = $45k per year.

To get to your $2.5m target by 45 ($2.7m in 20 years time, $12.5m in 40 years), your investment returns would only need to be 7.2% pa (net) - which could be achieved by many managed funds.....

Let's ramp that up to 10% pa just for fun - $3.9m in 20 years, $29m in 40 years.....

Now, this is very simplistic, as it takes absolutely no account of taxes, inflation, children, etc etc etc.... but it gives you some idea of the possibilities.

Keep at it - you're going great guns. "Wish I had started back then!"

Cheers,

The Y-man

 

[Glebe]

Hi Y-Man,

This is a bit of a side issue, but I'm happy to play. I've forecast my wife and I saving $42 000 a year in today's dollars for the next 18 years. I've also forecast our $270 000 returning 8% over the next 18 years. The compounded result is a touch over $3 million dollars which invested at 5% would yield $150 000 a year in 2022 dollars. In 2004 dollars this is $88 000, or $62 000 after tax, enough for wife and I to live on comfortably.

We don't plan on having kids but of course with such long term projections it needs to be flexible to allow for changes in circumstance like ill health, job losses etc. It's not written in stone.

Anyway, point of all this is that I now have direction and the education and the willingness for this to occur. Whether our fortune is share dependent or property dependent or both or neither or whatever is not an issue for now.

Keep at it - you're going great guns. "Wish I had started back then!"

Thanks. I'm not sure of your situation but the fact that you're here means you have the education and the interest. No doubt it will fall into place for you too. What dream car will you buy when you're financially independent?

 

[always_learning]

First of all I think you should be congratulated, at the age of 27 to have the discipline to save and pay down a mortgage and build up a $270K of real assets. Few people could match what you have achieved and it shows that you are really a capable person.

No kids yet....hmmm, lets just say they will change your outlook and your lifestyle! But anyway at 27 no need to hurry, but $42K of savings can be seriously eroded by a couple of kids (and decimated if you use private schools).

As for your plan, just my thinking but your goal is not such a good one as it talks about means. What your goal is if my reading is correct is $150K year in 2004 passive income; this is your real goal correct? If god came down and miraculously $150K indexed to inflation into your bank account each year, you goal would be reached.

So then the question is “by what means” this can be achieved

• Rental returns, owning enough cash flow positive property to return after costs $150Kyear. I would suggest that a 2% net yield on $4M worth of property could achieve this.
• Shares: I confess limit knowledge here, however from my research few people achieve financial independance from share investment via retail funds. However the right shares at the right price purchased with deep knowledge of the industry and company appears to be the most reasonable way to invest well.
• Living off Equity, using cash bonds to live off increased equity of your property portfolio, very sexy idea, you would need own $3M of property yielding below average historical gains of 5% to achieve this. Good news it that doesn’t mean you must own $3M outright, you could have only 20% equity $600K of equity.
• Owning a small business that you don’t have to work on/in every day. Or the rich-dad way of building a business and separately owning the real-estate the business is occupying.
• Build a bigger business that can be floated.
• Become a solicitor and charge $7K for work which you quoted at $2K.

My point is that you don’t need $2.4M, this is the wrong goal and limits your thinking, your goal is to earn $150K/year.

Oh yes is your wife going along for the ride? If things moved backwards and/or you trusted someone who couldn’t deliver would you or your wife panic? My own plan of retiring the 1-Jun-2012 with a income of $200K/year has “run-a-ground” and it (the plan) has been put into dry dock for a refit (rethink).

 

[Glebe]

AL,

Thanks for your reply - you're quite possibly correct in suggesting I should be placing more emphasis on the returns and less on the asset value. I will move this direction as I age, but for now I think my focus on capital growth is appropriate. I will dwell on your advice though, thanks for the thoughts.

Yes the wife is along for the ride. In fact we wrote a pact the other day which went along the lines both of us agreeing that financial independence is the game and the undertaking of manageable risks along the way is par for the course and that should something go pear shaped neither will be to blame etc.

We genuinely don't think we will have kids. People tell us we will change our mind, if we do, so be it. But we think we're inner-city trendoid DINKs and that's the way it's gonna stay

When and why did you become an investor and how has it changed your life?

 

[Peter Parker]

So my question to you all is why and when did you start thinking as an investor rather than a wage earner and spender and how has this empowered you?

I agree with some of the investment books that say that this happens in various stages or levels at various times.

For me the relevant levels are:

Stage 1 - Saver/Accumulator: Apart from a couple of years (1988 & 1990) where expenditure marginally exceeded income, I have generally had a net positive savings rate since approx age 12 or 13. Nevertheless I had no savings goals, I had limited access to shops until age 17-18 and almost no interest in buying things. So I was a saver by default with no clear plan.

Stage 2 - First foray into investing: Opened term deposit in 1993. (uni student at that time). Apart from the (low) interest on that, all growth was through saving the difference between expenditure and income, which averaged approx 20-25% of income. No budgets were used to achieve this - merely a rejection of buying stuff I didn't need.

Stage 3 - First concepts of research and diversification to reduce risk (1994-95): When I got first 'real' FT job put savings into a term deposit. When savings rose another $5k, I'd open another term deposit with another bank. Research involved comparing interest rates. Again no budgets - savings just naturally accrued as expenditure growth slowed (after big jump from student to worker).

Stage 4 - Concepts of an investing portfolio (late 1995). After nearly 12 mths in the workforce, I was secure enough to invest long-term. Realised that yields from term deposits were low compared to other investments and these were highly taxed.

Produced a written plan to better invest the annual surplus by making regular monthly investments and the creation of a diverse portfolio of directly held shares, managed Aust & OS share funds, managed property funds, fixed interest while maintaining term deposits. Plan included an asset allocation policy, set monthly savings (through managed funds), projections through to the year 2000 and the production of progress reports every 12 mths (later every 6 mths). The plan also had a sentence about allowing flexibility to purchase a home around the turn of the century. Set portfolio aim as being capital growth at acceptable risk fuelled by high savings.

Saw financial planner for the first and last time in late 1995, but they offered nothing more than what was in my plan. By 1997 the aim of a diversified and rapidly growing portfolio was achieved, though savings and not returns still drove most of its growth. A selection of managed funds comprised more than 50% of the portfolio and the portfolio enjoyed steady growth since.

Stage 5 - A more active direct investor, more research, leverage and risk-taking: Realised that though the portfolio had grown well employment still comprised nearly 90% of income. Changed investing aim to 'replacing job income with passive investment income'.

Awoke one night (in Dec 2002) wondering 'if I bought cheap houses in the country, would the rents allow me to pay then off with minimal input from me?'. Hastilly jotted down a few ideas and numbers then went back to bed.

Realised that it could work and bought heaps of property books. Wary about borrowing for shares, but was open to it for residential property. Discarded idea of buying own home as figures showed renting + investing would be better. Decided to maintain existing portfolio of managed investments and shares (in a modified form) while adding direct property to the mix and managing portfolio as a whole.

Read heaps of books and discovered this forum Also a case in the family where my grandfather had built up a retail business, bought the land, retired, sold the business, kept the land, added an extra building and collected the rent as retirement income was a revelation (I'd known about it, but the recipe as stated above only became clear very recently).

As with the previous stage, concrete action started about 3-4 mths after the first initial idea and has continued since.

So to answer the question, I was a saver before working, and become a full-blown investor (stage 4) soon after starting work. As to it empowering me, it may have, though it's too soon for me to tell that Stage 5 will be successful in the longer term.

Regards, Peter

 

[Garry K]

AL,

Yes the wife is along for the ride. In fact we wrote a pact the other day which went along the lines both of us agreeing that financial independence is the game and the undertaking of manageable risks along the way is par for the course and that should something go pear shaped neither will be to blame etc.

We genuinely don't think we will have kids. People tell us we will change our mind, if we do, so be it. But we think we're inner-city trendoid DINKs and that's the way it's gonna stay

When and why did you become an investor and how has it changed your life?

Congratulations on the honesty. If you are both working towards the same goal, it doesn't matter what others think.
Even if the strategy does change somewhere down the track, better to start of committed now, than do nothing because one day something might or might not happen.
I suspect this is a picture of your generation.

GarryK

 

[mjanos]

My Start

Up until Forty I had a house with a small mortgage. I thought that property investment was for idiots as you were subsidising rentors and you would be better off just saving money and receiving bank interest. I thought that you couldn't make money in the sharemarket except through managed funds and their returns weren't that great at the time. I KNEW all this because I dealt with statistics all day.
At Forty I realised that I had been puting only minimum into my super. My eldest child would be eighteen on my 55th birthday and I would probably need to work until I was 70 as my kids would still be home and just a pension and a small super was just not a option.

I thought I might try a (single) investment property. Bought one of Anita Bells books and one of Jan Somer's books. I didn't like Anita's book much as it didn't suit my temprament.

Jan's book struck a chord though. I read it straight through in a sitting. Booted up the computer, got out a spreadsheet and did the calculations myself. I then kicked myself around the room for at least an hour for being such a moron. Within three months I bought my first three properties. Luckily this was in 2002 before the end of the boom.

Shares were a similar story. Found some good books. Got hooked. First year lost money, Second year broke even and this year I am in profit. I found out that a lone investor with the right psychology and a good trading plan can make good consistant returns.

Michael

 

[The Y-man]

... my question to you all is why and when did you start thinking as an investor rather than a wage earner and spender and how has this empowered you?

Sorry, never actually answered the question in my previous posts on this thread

For myself, I can not pinpoint a specific event or occurence that changed the thought process. It was more a gradual change and a dawning realization.

I have always been a saver - but spent it as soon as I could afford the next doodad....

Getting married was certainly a big catalyst that diverted the $20,000 p.a. car budget to something else (yes, that is how much my car used to cost me per year). My wife also got hold of a book called "Rich Dad, Poor Dad" and the rest is history as they say....

What dream car will you buy when you're financially independent?

The funniest thing is that the wealthier we have become, the more mundane the car has become. It has gone from a BMW to a Toyota (with a Ford and Holden in between...).... must stop this trend......

I am trying to get capital expenditure approval and business justification for.........
http://www.westfield-sportscars.co.uk/xtr4.htm


Cheers,

The Y-man

 

[The Y-man]

For myself, I can not pinpoint a specific event or occurence that changed the thought process. It was more a gradual change and a dawning realization.

I've done more thinking about this.
I used to think that term deposit rates (5-6% back then) was about the best you could get.

It was only after reading "Rich Dad, Poor Dad" that I understood what shares, real estate and managed funds were. I was still a bit cautious and coy, when the OMP-IP 220 Series 2 prospectus landed in the mail.

In this, they were putting in claims of how they were aiming to get 15% pa returns (or whatever it was - with the usual historical performance has absolutely nothing to do with future returns warning), with CAPITAL GUARANTEE. This sounded very attractive to us, and I wrote the cheque for the minimum subscription immediately. This is the date I mark as the date of the first investment - December 1997.

FYI - I still have that fund, as it matures after 10 years - Dec 2007. As at end of September 2004, it has performed at 23% pa annualised from Dec 1997 ($1.00 shares have gone to $2.60) - which has outperformed many other funds and shares I have held.

Cheers,

The Y-man

 

[geoffw]

FYI - I still have that fund, as it matures after 10 years - Dec 2007. As at end of September 2004, it has performed at 23% pa annualised from Dec 1997 ($1.00 shares have gone to $2.60) - which has outperformed many other funds and shares I have held.

I bought some managed fund super thingos in England in 1990. They have performed almost as well.

Between 2000 and 2003 they lost 25% - not taking currency changes. With currency changes, they had lost 33%. Over the whole period- slightly better than a term deposit.

Not a spectacular start to an investing career. It took me another seven years to invest again.

 

[skater]

Thinking like an investor is something that crept up on us in one of the worst times I can recall. This is my history -

At age 26 I bought PPOR as a single female with borrowed deposit from parents. Previously had briefly thought about buying some land at Windsor that was for sale for $5000, but spent this on a car instead. BIG MISTAKE.

In the next 12 months met & married husband & enjoyed 2 incomes. Spent all excess money.

The following year saw hubby retrenched, me pregnant and housing loans at 17-18%. Next I lost job as well. We held on for the next couple of years surviving on rice & baked beans & taking any job we could to survive. We also tried several businesses & lost even more money. In desperation started selling full colour Business Cards door to door to Businesses in the area. Was able to make enough to live on & gradually developed a stable & profitable Business over a number of years. This gradually expanded into promotional products as well and we were becoming quite complacent with our success. Also by this time the mortgage had reduced by half, not to mention the interest rates had stabalised to reasonably decent levels. My main concern at this time was to find a way to finalise the mortgage because we never wanted to be in a bad way financially again.

I saw an add in the local newspaper by one of those mortgage reduction companies and was eager to find out how to eliminate the mortgage ASAP. We made an appointment with the Rep & he pulled out all these graphs & showed us that for several thousand $, we could get rid of our mortgage early & buy an investment property & they would monitor it all for us, and, of course, there would be a management fee on top of this (to them) each month.

Well, after seeing this my brain went into overdrive & I did a whole lot of research. I found out I could access the kind of loan he was recommending (LOC) without all the fees to his company. I also discovered that the most we could borrow was only $100k, and there was nothing nearby remotely in that price range. In fact to get that first $100k proved to be the hardest of any loan we have ever accessed. This was due to the fact that we were self employed & our taxable income was in the vicinity of $12000 combined. This was November 1997, so not that long ago.

Our first IP was bought in Campbelltown NSW for $90500. This was a mortgagee sale & was in very poor condition. Because we had such a low income, we had decided that the investment could not afford to loose us money, so we needed close to a 10% return to cover costs. (before we had ever heard of positive cashflow, or any "Gurus" that promote this type of investment). We spent approx $5000 and every weekend on renovating, & had it tenanted at $185pw within 2 months. The R/E said get it revalued, so did @ $120000.

All was going smoothly when, in 1999, we decided to start another Business to run simultaneously with the first. ANOTHER BIG MISTAKE. We borrowed money & started a Roller Skating Rink. Both houses had appreciated in this time & we had a strong business plan alongside the fact that we both have a lifetime of experience within the Roller Skating industry & community, so thought it was a sure thing. Within the first 6 months of opening we were in serious financial difficulty, & this is when the thinking changed (although looking back it could have been more like gambling than investing).

We were in trouble to the tune of $1000 - $1500 per week, so had to do something and do it fast, or we would have ended up bankrupt. (We had everything in our own names, both businesses, both houses, and had another 2 years to run on a lease for the Skating Rink that the Landlord was going to enforce (he was a Solicitor). The bank had a profit & loss statement from us that was showing a generous profit (dated 4 months earlier) and they had given us a verbal agreement that we could borrow another $100k.

Based on this profit & loss statement alone (they never asked for an update, so I don't believe we did anything wrong) I flew to Tasmania, as we had decided that this was the one area within Australia at the time to find the largest yield for the smallest investment, & bought 2 houses @ $28k leased at $105pw & $56k leased at $145pw. The thinking was that if we could survive the next couple of years, at least we would have some assets at the end, or if worse came to worse, we would loose it all (but we were going to anyway).

Hubby then got a job and left the running of the Skating Rink to me & the children. We employed a junior at very rare intervals when it could not be handled by us alone. The other Business was left in the hands of our Sales Rep, & hubby would do all artwork afterhours (after being gone for 12 hours a day and taking on any O/T that came up on top of this). During down time at the Skating Rink, I would look after any other admin on both Businesses.

Next step was to move into the upstairs flat at the skating rink (this is very generous as it was two filthy cockroach infested rooms with a bathroom in very poor condition, no airconditioning and windows that ran the length, so that in summer it was like a sauna). Sell our PPOR, pay off the business loans, put our anticipated losses aside into an offset account and use what was left to buy a new PPOR (to be used as an IP until we could unload the Skating Rink). The loan for this one would also be cashflow positive as it had a reasonable size deposit.

We now still had to be very careful about money, but had contained our losses, & had 4 positive cashflow houses. There was a light at the end of the tunnel.

Those 2 years were extremely stressful and very, very hard for the entire family, but I don't regret a thing. They were huge learning years. The kids learnt a lot about family, compromise, business, work ethic, disipline, that you can do anything if you give it a go & don't give up. They both learnt valuable skills they can apply later in their working life.

Since then things have become more normal. We never did move into our PPOR, as hubby changed jobs, so moved closer to there, so it remained an IP & have bought more since then. We still have the original Business, although it is only a shadow of its former self and keep debating if it is worth keeping or not. Now, though, the focus is definately on investing & working towards hubby having an early retirement.

Sorry for such a long post.

 

[The Y-man]

Sorry for such a long post.

Nothing to be sorry for! Compelling reading

Cheers,

The Y-man

 

[Glebe]

Yeah what a great post. Seems that dash to Tasmania was a brilliant decision. Glad the humble pie you guys had to eat turned into a learning experience and springboard to wealth. Well done!

 

[skater]

Thanks guys.

The great part about it all is that the job that hubby got while we were in that mess ended up springboarding him into another, much better job (you know the saying about being in the right place, right time) and he now earns almost double. Our net worth, while not quite $1mil is slowly approaching that milestone.

None of this would have happened without those 2 years of hardship, so no complaints from me.

Cheers

 

[geoffw]

I agree Y-Man- thanks for the inspiration Skater.