Retire in Seven Years?

Dear Scott,

I just came across an article in Forbes describing how it would be possible to retire in seven years by investing half your income in closed-end funds (CEFs). What do you think of CEFs? Are they worth investing in?

Tammy

Hi Tammy,

I read the same article, right to the bottom.

Then I clicked on the following ad:

The #1 BEST new trick to rapidly burn belly fat & detox (start this tonight).

Apparently the best new trick is eating avocado, and buying a lot of their expensive pills.

You and I both read the same thing: clickbait.

It’s an American article, but a closed end fund is the equivalent of a Listed Investment Company (LIC), like the Australian Foundation Investment Company (AFIC), or Argo Investments (ARG). They’re perfectly decent investments (that I own!), though they have largely been superseded by simpler Exchange Traded Funds (ETF) index funds.

Retiring in 7 years, or getting a six pack doesn’t require gimmicks, just a lot of hard work.

Scott.

Where Are They Now?

Hi Scott

I sent you an email over 5 years ago; after my husband left me pregnant with our 3rd child. I was a terrified mess. I'm writing to give you an update and to say thank you.

My children are now 10, 7 and about to turn 5. We are still in our family home and my name is the only one on our mortgage. I have paid off my credit card and cut it up, I have renovated our bathroom with cash, and we are about to go on an overseas holiday. Best of all, I’ve got $30,000 in the bank, offsetting my mortgage. Your book has changed mine and my children’s lives. I’m teaching them everything I know and they're going to have the best start to life financially once they start working.

Tara

Hi Tara

I love a happily ever after – thanks for the update! Now let me break this to you: the book I’ve just written is even better than The Barefoot Investor, and it’s written directly for kids like yours. It’s out in a few weeks, and if your kids are anything like you, they’re going to absolutely love it.

Scott.

Barefoot Calls a Single Mother in the Middle of the Night

Hi Scott

I’m a 57-year-old single mum. I bought a property 3 years ago and work, as a nurse, almost every day to make ends meet. I get anxious when I think about the age I will be when I finally pay off my house, age 71! Will I even be able to work at that age? Then I start thinking of how to make money quickly. The lotto obviously is not going my way, so I looked into the stock markets and opened an account with CoinDaq. They are very helpful, but I do feel uneasy. I invested $2,500 and they supported me, so I added $2,500. I made 23% profit, about $1176.17. Which I’m excited about but somehow it seems too good to be true? Now they try to convince me to take $50,000 from my super and then I will make up to $9,000 a month with a ‘bonus’ of about $230,000 every 3 years. What is your opinion about this?

Kind regards

Linda

Linda,

As I’m reading this, it’s currently 4:35 am, (see above).

I’m debating whether I call you right now and completely FREAK YOU OUT.

It would go something like this:

“Good morning, it’s the Barefoot Investor. You are being robbed RIGHT NOW!”

(I’d scream ‘RIGHT NOW’ down the line, for dramatic effect).

Then you’d bolt upright in bed, and listen nervously for the burglars rifling through your stuff.

However, they didn’t climb through a window, and nab your telly Linda. They came in via your computer, and they convinced you to willingly hand over your cash.

Linda, they are scammers.

Literally the very first website that comes up when you Google ‘CoinDaq’ says:

“Coindaq is a scam site”.

The robbers have already stuffed $5,000 of your money into their duffle bag. Yet they haven’t left. They’re now searching around for the big pay day: your superannuation.

Again, to be clear:

YOU ARE BEING ROBBED RIGHT NOW!

No matter what they tell you, never ever speak to them again.

Scott.

If You Move I’ll Kill You

“If you make so much as a sound … I swear I’ll kill you”, she hisses.

It’s 4.30am, my morning alarm has just gone off, and Liz has been up all night with our 18-month-old.

So I creep down the hall in the pitch black – past our sleeping toddler – praying that I don’t hit a landmine piece of Lego.

Why do I get up so early?

Well, with four kids, a book that’s about to be launched, and a full-time farm, life is busy … so I follow the army motto: get up before the enemy.

And it seems, post the pandemic, that we’ve all won the battle of being able to work from home … yet we’re losing the war. A new study from La Trobe University has found that working from home increases the likelihood of weight gain, exhaustion and burnout.

The main reason cited in the study is a lack of routine. So, as someone who’s been working from home for the past 20 years, I thought I’d share with you my routine.

You need to get up at 4.30am and START BLOODY WORKING!

Just kidding.

It’s not just the start of the day that matters … its also how you end your day. So let me tell you about a simple little ritual I follow at the end of each day that has radically reduced my stress and overwhelm.

First, I set an alarm on my phone for the end of my work day. When the alarm goes off, I grab a nice knock-off drink and close every single one of the tabs in my browser(s).

Then – and this is important – I shut down my computer.

Watching the computer screen go blank is my visual cue that the work day is over. And then I go full 1980s and leave my computer in the office.

My final step is to go for a walk outside without my phone. Sometimes it’s only 10 minutes. It’s just a way to get my body moving, and it helps me mentally transition from work-Scott to taxi-dad.

Soldier on!

Tread Your Own Path!

The Scumbag Landlord

G’day Barefoot,
 
My wife and I are very lucky. We own two investment properties that basically pay for themselves. Trouble is, we live in another state and rent ourselves. If we sold our two rentals we could afford to buy a family home for cash — but we feel obligated to our tenants. Both rentals have long-term tenants and we charge about $50 a week less than market to help them out. If we sold, they’d be out on their own and unlikely to be able to afford to rent anywhere nearby, and their kids would have to change schools and I’d feel like a scumbag capitalist. What should we do to not make two families homeless but get ourselves into our own home?

Brendan
 
Hi Brendan,
 
You sound like the sort of bloke I’d like to have a non-alcoholic beer with.  
 
As a renter yourself you understand just how absolutely bonkers things are right now:
 
The national rental vacancy rate sits at just 0.9%, according to SQM Research. Meanwhile, rents have rocketed up 20.1% in the last 12 months alone!
 
I have never seen anything like it.
 
It’s a terrible situation, and one that I’m glad I don’t have to grapple with … as a renter, or a landlord.
 
After all, my share portfolio doesn’t have feelings (nor does it suffer burst water pipes at 3am), and my dividends just magically appear in my bank account a couple of times a year.  
 
That said, if I were in your shoes I’d sell the properties and buy your own family a home. That’s not because I’m a scumbag capitalist, but because your first responsibility is to your family.
 
Besides, there are other ways to help struggling people in your community than renting out a few joints slightly below the market rate. You could volunteer at a local food bank, or you could donate money to the Financial Counselling Foundation, who help and fight for some of the most vulnerable people in our community.

Scott.
 

You’re a Puppet, Barefoot

Scott,

I read last week’s column. You’re pushing Vanguard?! Oh you really are an elitist WEF puppet.

Eva

Hello Eva (name unchanged),

Thank you for your comment. I always enjoy the nasty ones that get me Google-ing.

Turns out, ‘WEF’ stands for the World Economic Forum, and the conspiracy theory you seem to be alluding to is known as the ‘Great Reset’, which suggests that a secret group of capitalists and politicians are trying to control the economy.

Now, Eva, I really don’t know if that’s much of a secret — isn’t that just what sociopath billionaires and power-hungry politicians kind of, well, do?

Yet I have to pull you up for putting Vanguard in the same pot. If anything, it’s the exact opposite. Jack Bogle set up Vanguard in the 1970s to stick it to the Wall Street capitalists. He could have become a billionaire but instead chose to put investors first, so he set it up as a not-for-profit. Vanguard created the first index fund and has driven fees down for all investors the world over ever since.

Scott.

Mexican Wins the Lottery … Twice!

Scott,

I know you may get millions of emails every day, but I hope your team can forward this one to you. I’m Mexican and I came to Australia in 2018 and became a permanent resident. I came here carrying a 10-year debt from back home. But then I stumbled upon your book, and with the advice you gave I finally paid off my debt and no longer owe a single dollar (or Mexican peso). Thank you! You taught me something that I will carry for the rest of my life, and I cannot wait to start building a better future.

Gerardo

Hi Gerardo,

What I love about your story is that you won the lottery by making it to Australia … and best of all you know it. That’s given you a perspective that a lot of people born here simply don’t have. This country truly is the land of opportunity, and now that you’ve got your money sorted there’s no telling how far you’ll go. You Got This!

Scott.

My Thoughts on the Kim Kardashian Fund

I am fascinated by Kim Kardashian.

Did you know she started out as a wardrobe stylist for Paris Hilton?

It’s true.

Yet what’s even more impressive is that she basically stole Paris’s playbook:

She was in a porno, got famous … and then parlayed her fame into a business empire.

The success of her clothing business, Skims, and her cosmetics line, KKW Beauty, have turned Kim into a self-made billionaire, worth a staggering $2.6 billion, according to Forbes.

And now Kim is launching … an investment fund.

I feel like a 16-year-old fanboi scrolling on Insta:

OMG! OMG! OMG!

Yet, instead of buying stocks on the share market, Kim’s firm plans to buy private businesses.

These are called ‘private equity’ funds (as opposed to buying shares on the stock exchange).

Here’s the investment pitch:

A promising fashion label gets an offer from Kim to buy their business. Then Kim wears their clothes and posts the pics to her 328 million Instagram followers, creating an instant hit. And a few years after that she’ll flick the company off for a huge profit.

SHUT UP AND TAKE MY MONEY, KIM!

Hang on. In reality, that bounty will go to Kim’s booty, and not the investors in her fund.

If history is a guide, her investors will likely earn below average returns because of the high fees funds like hers charge. And it makes sense: there is only one Kim Kardashian, and she doesn’t need your money.

So let’s talk about people who do need your money.

Your super is much more likely run by a bunch of middle-aged men … with 74 people following their LinkedIn profile. Just like Kim, they’re hunting for private deals, though unlike Kim it’s arguable whether they can add any value to their investments. Yet they sure have fun doing it. And they pay themselves really well. But their results are often like Kim’s 2012 song ‘Jam (Turn It Up)’, which is a truly awful piece of autotune.

Case in point, one of the world’s biggest super funds, CALPERS (the California Public Employees’ Retirement System) just took a multibillion-dollar bath on their private equity investments … which proves that even the biggest boys in the finance sandpit don’t always get it right.

And that is why I don’t invest in industry super funds that have private unlisted investments. After all, many have tried and failed to keep up with the Kardashians.

Tread Your Own Path!

A Sticky Issue

Hi Scott,

My kids are beyond excited about your next book (you’re a big deal in our household). I asked my local bookstore but they didn’t know anything about it. Will it be released this year?

Lauren

Hi Lauren,

So my new book went to the presses this week (an Aussie printer, not in China!). However, the printers are in hell right now. Reason being, I insisted my new book have stickers as a reward system.

They turn the book into an adventure and make it more like a kit than a book.

It totally rocks … and it’s something I’ve always wanted to do, but I couldn’t find a publisher crazy enough to spend that much money on a wild idea. So, let’s all have a moment’s silence for the printer who has to add pages of stickers to the back of each and every copy of lots of books.

The official launch date is early November but I’ll be letting you Barefooters know ahead of time so your kids don’t miss out!

Scott.

We're overdue for a stock market crash ...

Hi Scott,

We are well overdue for a stock market crash.

They happen, after all, on average every 10 years, and the last one (discounting the Covid-induced flash-crash) was 14 years ago.

And I still have PTSD from the GFC. People on the verge of retirement wrote to me in tears as they watched the value of their super dissolve in front of their eyes. They had no idea how much risk their super fund was taking … until the market crashed.

So now is a very good time to talk about what’s going on with your super fund. And a word of warning: it’s not good news if you’re in one of the large, top-performing funds …

New research from SuperRatings has found there is a “high risk at retirement” for many of the current top-returning super funds.

Huh?!

Aren’t we supposed to pick a super fund with high returns?

So what makes these funds so risky for older workers?

Well, it’s generally because they are invested more aggressively than the funds they’re competing against. That is, after all, how they get to the top of the performance tables: by taking more risks. There is no free lunch in finance, so tattoo this on your arm: “The higher the returns, the higher the risks!” Of course, taking on more risk is fine for a 17-year-old apprentice … but it’s not so sweet for a 64-year-old chef.

Still, that’s how most of our biggest super funds roll: they throw everyone – young and old – into a one-size-fits-all investment pot.

However, there is another type of super fund. It’s called a ‘target date super fund’.

These super funds invest based on your age. In simple terms, they automatically reduce the amount of riskier assets, like shares, in your portfolio as you get older and closer to retirement.

It works like this: our 17-year-old apprentice would start out aggressively invested in shares to build her nest egg, and then throughout her working life the fund would gradually – and automatically – become more conservative to protect her nest egg by beefing up her defensive assets like cash and fixed interest as she nears retirement.

It’s a simple, elegant and almost set-and-forget solution.

I say ‘almost’ because most of the current funds have their target date set at age 65, when you retire. (If I was a cynic I’d say it’s set at that age so you go see a financial planner.)

Enter Vanguard Investments.

Last month they received regulatory approval to launch a super fund. They're still fine tuning things, but later in the year they expect to launch a target date index super fund that will automatically adjust your portfolio all the way through to your 85th birthday.

The older I get, the more I value simplicity in my life – especially when it comes to investing.

I don’t like my returns being eroded by high fees, so I invest my super solely in low-cost index funds.

And I really like the idea of not having to meddle with my super as I get older.

So let’s hope the top-performing funds – who collectively invest for millions of Aussies both young and old – take heed of this new type of offering and build something even better for their members.

Tread Your Own Path!

Disclosure: I invest in some Vanguard index funds but not their super fund (because it doesn’t exist yet!).

Happy Father’s Day

One of my earliest memories was tagging along with Dad as he volunteered for Meals on Wheels.
 
“Perhaps that’s where I got my social conscience from”, I wondered.
 
“Ha!” he laughed.
 
“Huh?” I said.
 
“Well, I hate to break it to you, but you never went to Meals on Wheels with me”, he replied.
 
“I did, however, occasionally help out the local mortician. I’d basically just comb the stiff’s hair and spruce them up a bit before they got put in the casket. That’s what you probably remember. They weren’t old mate – they were DEAD!” he roared.
 
That story explains a lot about my childhood … and the man who raised me!
 
Now, we have a Father’s Day tradition here at Barefoot that’s been going for almost a decade. It’s called the Ultimate Father’s Day Present: a chance to open up to you. So, if you’re lucky enough to have your father still with you, whip out your phone, hit ‘record’, and ask your dad the following five questions:

• How did you meet Mum?

• What advice can you share with me about money, life and happiness?

• What does being a dad mean to you?

• What are you most proud of?

• How would you like to be remembered?

Chances are this video will one day be much more valuable to you than anything you’ve purchased from a store. I know that because throughout the year people send me emails like this one from Jude:
 
“Hi Scott, I just lost my dad and I’m devastated. Although he lived to the ripe old age of 94 it is still an enormous void that has been created in my life as we were very close. Years ago you suggested we interview our dads and record it. I actually did it. I just watched the video and although I bawled my eyes out, it will be one of the most beautiful memories I will have of my dad”.
 
Happy Father’s Day!
 
Tread Your Own Path!

The Cocaine Mumma

Hi Scott

I’m a happily married mother in my mid-thirties, with two kids under four. We’ve been Barefooting for seven years, and I went to a financial advisor to sort all my insurances out so my family is financially safe in the event of something bad happening to me. However, I made a terrible error of judgment. When I first filled out my "health" summary I did not even think to mention ad hoc trying of some recreational drugs in my early 20s. Yet during the 1.5 hour interview Zurich asked some specific questions and I answered honestly (as I was told I must by law!), and now I've just received an email saying my insurance request has been declined and that no one is likely to insure me given my past recreational drug use!

Given the statistical facts in Australia around "have you ever tried a recreational drug" it must mean people DEFINITELY lie when answering those questions, and so now I just feel really really STUPID for being honest. If no one will insure me, how do I protect my family in the event of my TPD or death? I'm so scared. I won't sleep knowing they will suffer from their stupid mum and her stupid youth, and my poor husband if he's left with the mortgage. And the final insult: the financial planner has hit me with a bill for $750!

Natalie

Hi Natalie,

I doubt you got knocked back for smoking a doobie.

(Sorry for my bluntness, that’s just how I … roll).

Fact is, most insurers are going to ask you about your drug use – because most people downplay it – even Presidents: Bill Clinton once said ‘I smoked weed but didn’t inhale’.

Uh-huh. Sure Bill.

What most insurance underwriters are looking for is evidence of using hard drugs (heroin, speed, cocaine, and meth), which correlates to a higher chance of risky behaviour, self-harm, permanent injury and death (and therefore a higher chance of them having to pay out).

So if I were in your shoes, I’d be mad as hell at your financial advisor.

They should have alerted you to the fact that this question would be asked, and pre-prepared back-up documentation to give to the insurer, which explains it happened over ten years ago, that you’ve been drug free since then (if you have!), and that you are now a responsible mother with no intention of dropping an ecstasy tablet and dancing to the Wiggles on a Thursday afternoon playdate.

However, now that you’ve been rejected by an insurer it will make it very difficult for you to get insurance anywhere. So I’d make sure you have basic default insurance cover via your super fund, and tell your financial advisor to stick their $750 fee in a pipe and smoke it.

Scott.

A letter from someone on the inside

Every so often an email comes through that punches me right in the guts.

Here is a letter from someone on the ‘inside’.

Dear Scott,

I find myself in an abusive marriage, which has become worse over time. The abuse has been slow, but became drastically worse since our children were born, as I have relied on him more (I’m a stay at home mum).

I didn’t notice the red flags in the early days of dating. My husband can project being a family man and a wonderful husband to the outside world, while I have become a shell of the woman I once was.

He has punched walls, called me crazy and even gets upset at me asking him to pick up groceries. He treats me like an inconvenience. He has multiple online affairs. I am scared of what he’ll be like as our children get older. There are behaviours that he does with our kids that don’t sit right with me, but I feel powerless to stop it.

My husband significantly out earns me and would even if I had a job. He has a much better education than I do. He is also more intelligent and charismatic. I am too scared to leave because of the financial implications on my kids. My parents have told me they can’t provide any assistance or accommodation for me and my kids. I don’t want them to go hungry or end up in dangerous accommodation situations.

Anonymous.

Heavy, huh?

Let’s discuss two super-practical things to take from this letter.

First, women don’t consciously decide to shack up with abusive psychopaths, much less have kids with them. Like this woman says, she ‘missed the red flags in the early days of dating’.

So let me give you a red flag.

Before you have kids, grab my book and start doing the Barefoot Date Nights with your partner. The very first step encourages you to share your basic day-to-day spending money. If your partner flat-out refuses, that’s a red flag you probably want to talk to your mother (or best friend) about.

Reason being, as this woman says, ‘the abuse has been slow, but has become drastically worse since our children have been born, as I have relied on him more’. Stay-at-home mothers are selfless, and they often not only lose part of their identity, they also lose their income, and that can put them in a vulnerable position.

Second, women don’t consciously stay with abusive psychopaths, much less subject their kids to an abusive household. They stay because the constant abuse shatters their self-confidence, and they believe they are financially trapped. As this woman admits, “I’m a shell of the woman I once was”.

So here’s a way to slowly rebuild your confidence.

Take back control of your situation by calling 1800 RESPECT (1800 737 732), and speak to a family violence expert. Even if you’re not ready. They’ll take you through your options. Here’s one thing I’ve learnt as a financial counsellor: when you walk out one door, five new doors open. There are amazing people willing to walk alongside you, and they’re on the other side of that door, waiting.

Tread Your Own Path!

Counting my blessings

Hi Scott,

I know you probably get a million emails but I am hoping this one gets to you. I was around 30 when I read your book (7 years ago now) and I took your advice and set up my insurances through my super, upped them accordingly, and set up a good health insurance policy for my family. Fast forward 7 years and I have had cancer twice. The health insurance recommended to me by the government website has been excellent, they paid over $150K worth of surgery and chemo for me. I managed to claim my life insurance so I can invest it for my kids and I also have a decent income through the income protection insurance. Because of you my 2 young kids have a property each and I have a share portfolio which is paying for their school fees and any holidays we take. I can't thank you enough and think of you often when counting my blessings, of which I can still count many!

Tiana

Hi Tiana

In my book I wrote about facing your financial fire … you’ve done it twice! Your kids have not only grown up seeing their mum make smart financial decisions, they’ve watched you face the toughest challenges and win. What a legacy to leave for your kids!

Lost Treasure

Hey Scott,

I thought I'd take your advice and check out the Government's Moneysmart website to find my unclaimed millions. No luck, but searching under my maiden name I was astonished to find my 95 year old Dad's name! Two old savings policies he'd taken out in his late teens on commencing work. Dad's over the moon and I still can't believe I found it. There’s so much unclaimed money out there!

Betty

Hi Betty

That’s amazing … and also potentially depressing.

Let’s hope it wasn’t sitting in cash (or worse, earning nothing) for 77 years!

This is your yearly reminder to head over to ASIC MoneySmart and do an unclaimed money search. It’ll take you 2 minutes.

Scott.

Hiding My Savings from My Hubby

Hi Scott,

My hubby racked up debt under both of our names from a repeatedly failed business idea. I’ve told him it’s risky and not to do it anymore, but he just resents me for ‘not supporting him’. He’s a financial bully. I have now left work and had a baby, so he can’t get money from me at the moment (he always tells me to give him money). Yet I secretly saved lots of cash before I left work. I keep it in a UBank USaver, but is it still best kept there? Do you have advice for people like me who have a financially reckless spouse?

Lisa

Hi Lisa,

‘Financial bully’ is another name for ‘abuser’.

You absolutely did the right thing saving up a secret stash before you went on maternity leave – without it you’d be in a very vulnerable position.
What advice do I have?

First, being married doesn’t mean you should have to put up with being bullied.

Second, I’d suggest you both see a relationship counselor to get to the bottom of these issues. Unless you confront it head on, things are unlikely to change.

Finally, if he refuses to get counselling, you should go and see a financial counsellor yourself (1800 007 007) and get some strategies to help build up that potential getaway fund … which is okay in UBank or any other account that he doesn’t have access to.

Scott

Save my mum, please!

Scott,

Help, Help, Help please. I need to save my mum from certain death! I know this sounds dramatic but the situation is dramatic. Last June, my parent’s house was damaged by a storm and it’s still not fixed. My elderly mother’s been suffering massive panic attacks since this enormous tree fell on their house and then in January my father suddenly passed away, adding to her stress. Do you have any advice on how to get RACV Insurance to deliver the service my parent’s have paid for? My siblings and I fear the stress will kill her and soon!

Cathy

Hi Cathy,

I understand.

The RACV should have assigned your mother an assessor, a claim number, and contact details.

I would take what you’ve written to me – though put it in her words – and have her email it to the RACV, and request an urgent review and response within ten business days.

If she doesn’t get an adequate response, email me back, and I’ll take it on for her.

Scott.

I Don’t Pay My Best Employee

Today I want to introduce you to the best worker I’ve ever had.

His name is Robbo, and he started working for me about six months ago.

Each morning I get up at 5am and head over to the barn to start work … yet I’m always beaten by Robbo, who’s already well into his workday, quietly getting the job done.

Robbo is the nickname I’ve given to my robot mower.

When I first got Robbo, a landscaper mate of mine mocked me:

“You paid a grand for that thing? Geez, they saw you coming!”

Today he’s the one eating grass. My lawns look like a freaking bowling green.

In fact, they’re actually a little too good. People either think we have a full-time gardener, or that I’m that manic neighbour who edges his path and keeps plastic bottles on his lawn to ward off weeing dogs (you know the guy).

If you read the reviews on robot mowers they’re almost universally positive. “Why didn’t I get one of these years ago?” they say.

Probably because they weren’t invented. They’ve been around since the nineties, but they really took off a few years ago, mainly in Europe, where there are millions of them.

My prediction?

Jim’s Mowing needs to sharpen up their offering.

But don’t weed-whack me, Jim! It’s just that I can foresee that robot mowers will gradually fall in price … and in a few years you’ll have one.

That’s because they’re essentially a plastic Tonka truck (about the size of a vacuum) with a $6 cutting blade, powered by the same 20-volt battery that goes into your cordless drill.

All you need to do is lay down guidewire around the perimeter of your yard (or not – the latest robots do this automatically via GPS). It’s all hooked up to an app on your phone which assesses rainfall and calculates the growth rate of different sections of the grass (via artificial intelligence). Then it works throughout the night cutting a few millimetres off your grass with each turn (which acts like a fertiliser), before it heads back to its charging base.

For me, it means I can spend more time with my kids (who really should be mowing the bloody lawn themselves!). In fact, I’ve just now hired ‘Rodney’ – a robot vacuum – to work night shift at the barn.

Tread Your Own Path!

I Was on FIRE and Now I Just Want Out!

Hi Scott,

I am 21 and got sucked in by the FIRE movement. I put $50,000 (my life savings!) into diversified high-growth index funds last year when values were reaching historic highs. Now everything's starting to crash, and my parents have been encouraging me to sell my shares and move the funds into a savings account before it drops further (in doing so, I would make a loss of at least $7,000). I had originally invested this money for the long term, with the aim of selling the shares in five to ten years’ time. Do you think my parents have the right idea?

Sarah

Hi Sarah,

No, I do not think your parents have the right idea.

I think your parents love you, and they want to cocoon you from the risks of the big bad world.

(And as a parent myself I totally understand their motivation.)

Now, this is important: the really important life lessons – the ones that shape you – happen when things don’t turn out as you planned.

And, Sarah, you’re having one right now.

The FIRE (Financial Independence Retire Early) movement involves living frugally in your 20s and 30s and investing up to 70% of your income into low-cost index funds so you can retire in your 40s (or earlier).

For me it’s the financial equivalent of the grapefruit diet. It gets impressive results, but it’s incredibly hard to sustain over the long run. It’s just too hardcore for most young people.

However, its underlying principles – save hard, and invest long term in low-cost index funds – is absolutely, positively the right way for you to go.

With that said, here are three things for you to think about:

First, you say you plan on selling your shares in “five to ten years’ time”. That’s not enough time to benefit from the power of compound interest. Ideally you want to hold your shares throughout your life, reinvesting the dividends along the way.

Second, even though it seems bad, the share market actually isn’t down that much right now. There’s every likelihood that you’ll suffer a 50% drop in the value of your shares at some stage. That’s the price you pay for getting high long-term returns. So shop for shares the same way you do clothes: if you work out prices are down and shares are on sale, get excited and buy more.

Finally, if the reason you’re wanting to sell is to buy a house, DON’T SAVE IN THE SHARE MARKET. Instead park that money in an online saver or term deposit.

Know this: there are millions of people reading these words, wishing they were you: a young intelligent woman at the start of her adult life with a well-stocked share portfolio, and loving parents.

You Got This!

The Hard Road

Hi Scott,

Five years ago my brother died of cancer, then a month later my fiancé of six years left me – after he had finished spending the last of my savings (he was a drug addict and terrible with money). I was a 29-year-old woman making a starting wage of $16 an hour, struggling to get back on my feet. Then a year later a workmate recommended your book, and it changed my life.

Fast forward to today and I have paid off all my debts and have a combined $50,000 in shares and cash. I come from a very poor family that always struggled financially, so I feel like a millionaire in comparison to my previous life. Words can’t convey how grateful I am. Thank you for changing my life!

Tanya

Hi Tanya

You’ve walked a hard, lonely road: death, debt, heartbreak and betrayal … but you’ve made it.

I’ll let you in on a little secret: you probably feel better than most millionaires, because research has found that money only gives you a short-term sugar hit. It doesn’t make you happier over the long term (even though we all think it does). Yet what you’ve achieved on your own has built your self-confidence and transformed the way you look at the world – and that is truly life-changing.

You Got This!

Scott.