The future of wealth creation

The model of wealth creation I was taught as a kid was simple; study hard, get a good job, save your money. Straightforward. But completely ineffective. This ‘philosophy’ goes a long way toward explaining why many people of my generation spend their life buried in debt, working in an unfulfilling job and wishing they would win lotto and escape. No strategy, no advice, no mentors and no support makes it almost impossible.

But what about now? With access to so much information, it should be easier to chart a course to financial wellbeing, but much of that information is inaccurate or unhelpful and confusing. As a result, there is a greater willingness to seek advice. As advisors however, we have to realise that priorities have shifted. The “work hard, save your money” approach has been replaced with work hard, travel extensively, enjoy experiences, be open to change and new opportunities.

So, wealth creation strategies have to incorporate new levels of flexibility. They have to allow for more career changes – potentially across multiple states or countries, more liquidity to enable quick changes of direction and more cash flow to facilitate lifestyle choices.

The end goal is the same, but the game has changed.

 

Words by John Di Natale. John is a Managing Director of Equi Wealth. He is an international speaker, wealth creation specialist, financial planner and licensed estate agent.

Am I putting property on a pedestal?

“What’s the best thing to invest in?” “Well, it depends…”

That’s not the cop-out answer it first appears to be. It really does depend. Helping our clients develop their investment strategy, choose investments and manage them is a key part of what we do.

Of course, there are lots of investment options and there’s no absolute right or wrong. There are good investments, there are better ones and there are worse ones. You could invest in shares, or bonds, or options, or bitcoin or a dozen other things.

 

I’m happy to put my bias on the table.
I think property – specifically residential property
should be the foundation of your investment portfolio.

 

Why? Well, let me give you a few reasons.

One. Most people understand property to a reasonable level. It’s the one investment class that most people will get involved in at some stage over the course of their life. Those of us fortunate enough to buy our own home or buy an investment property will have at least a basic understanding of finance, capital growth, perhaps leverage and the buying and selling process.

Two. It’s relatively easy to understand the fundamentals that drive the growth of property values. Population growth, demand for housing, proximity to services and amenities such as transport, schools, shopping centres, cafes and entertainment.

Three. Perhaps most importantly, residential property is the best performing asset class over the last 10 years.* In fact, bricks and mortar has produced an average annual compound return of 8.1% That’s taking into account the total returns from the assets including increases in value and income such as rent and dividends for shares. And that’s across all the major capital cities in Australia. Most likely, if your property is in Melbourne or Sydney, you’ve done better than that.

What’s surprising is that Australian shares produced an average annual compound return of 4.3% over the 10 years. Global shares did slightly better at 5.5% and Australian bonds returned 6.1%.

Yes, I know this is not the whole story… We have to take tax into account and how much actually ends up in the owner’s or investor’s pocket will depend on their marginal tax rate, whether the assets are owned inside or outside superannuation or other structures, income distributions etc.

BUT, this is a big tick for making sure that you get into property and make it a key part of your investment portfolio.

Four. Banks like property. There is no other asset class that is as well regarded by the banking sector when it comes to leveraging for finance. That means you can utilise equity to a greater extent to secure other investments or raise money for whatever else you happen to be doing.

So, when people ask me what’s the best thing to invest in, my go-to answer is still property.

*The reference to property being the best performing asset class is based on the 2017 Russell Investments/ASX Long Term Investing Report.

Is it about time you had a check up?

You’ve heard of a check up, right? The type of check up you go and see your GP for on a regular basis, just to make sure you’re on track for a long and happy life. We’ve been sold on the idea for decades and we’re still told about the various tests we should have done when we reach this age or that. It makes sense to be pro-active. The earlier you act, the more likely you are to avoid the nasties.

Have you ever run a scan on your computer? Just to make sure it’s free of bugs, worms and scammers whose uncle died and left them 14 tonnes of gold they’d like to store in your garage… Of course you have. Again, it’s become a habit even to the extent that we set it to happen in the background automatically.

What about your wealth creation plan; who is reminding you to keep that in good shape and when was the last time you really put it to the test?

If you’re like most people, I suspect you might be quietly questioning whether you in fact have a wealth creation plan – other than work hard and save. If you actually do have a plan, is it current, does it reflect changes in your circumstances, has it been adjusted for changes in legislation, is it being implemented consistently and is it actually working? In other words, are you on track for the life of your dreams where you spend your days ticking things off your bucket list – or are you headed for that long, slow agony of retirement on the pension?

If you think your plan might need an overhaul, don’t worry; it can be a painless process. Getting a clear understanding of your current position (I know you know, but some people just “don’t know were all the money goes..”), defining your goals, then developing and implementing a strategy to get you there. That’s what a wealth creation health check should do. As the saying goes, your bank balance will thank you later.

Take advantage of the opportunities that are out there right now. Make the most of government grants, tax saving structures, stamp duty concessions or whatever else may be relevant for you. Review your current arrangements for additional leverage and potential savings – lower rates, better products, lower risk, bigger benefits.

The key of course, is getting started. Just like the doctors appointment, this is an easy thing to put off until next year, or when you get the new job, or when the kids finish school, or when you turn 50 or 60 or… So here’s an important question to ask yourself: “if I stick to my current plan and keep doing what I’m currently doing, will I achieve my goals?” If the answer is no, you know what to do. Make that appointment. Get that check up!

 

Words by John Di Natale, Director of Equi Wealth
Licensed Real Estate Agent, Financial Planner

Popping the housing bubbles bubble

Apparently we’re in “the grip of a housing bubble”. If your bits have been feeling a little errr, constricted, this could be the explanation.

What is a housing bubble anyway? In high school they told me it’s always good to start with a definition, so here’s mine:

Housing Bubble (def): Device for driving traffic to media websites, catch-cry of the week for economists and property commentators, mythical object only seen by the eyes of a blind virgin on a full moon.

I’ve been doing quite a bit of reading and here’s what I’ve learned about the bubble – not much. Economists and experts can’t agree on how to define a housing bubble, let alone whether or not we’re in the grip of one. Nor can they agree on what the implications of the bubble might be for homebuyers, first homebuyers, investors, downsizers, developers, the banks and government revenue.

So, what is this thing called a housing bubble? The best definition I can find is that its simply when property prices reach a level that can no longer be sustained and they drop to a lower benchmark. Of course there is no agreement on what that lower benchmark should or will be and whether that drop will have any flow-on effect or even go on to become a fully-fledged recession. This rise, a slight drop and then rise again is what property prices have been doing at pretty regular intervals for the past hundred years or so. I’d say that’s a market correction, rather than a bubble and its influenced by factors other than price – like population growth, household income, savings levels, tax policy, buying psychology and many others.

If you want to talk about a bubble, you could perhaps point to mining towns where property prices were pushed to ridiculous levels and then “popped” when the mining companies pulled up stumps and left town. If you’re an investor, there’s an important lesson there about “hotspots” vs. good investing fundamentals, but that’s a discussion for another time.

Interestingly, the chief executives of National Australia Bank, Westpac and Commonwealth bank, testifying at a parliamentary inquiry into banking this week, said that while they have some concerns about aspects of the housing market, they don’t believe prices are over inflated. Read, there is no bubble. Rather they claim, the higher prices are supported by the fundamentals.

Bubble or no bubble, about to pop or not, the fundamentals should continue to be the major drivers in your purchasing and investing decision-making.

Life is for living. All the best on your investing journey!

A letter to my children

Hi kids,

Attached to this letter is a Savings Account form. I’d like to you to fill this out and open an account.

Why? Well, a few reasons. Let me explain.

If you pay any attention to the media (no, not Facebook, I mean the news) you’ll know that its getting harder and harder for people in this country to buy their first property. So much so, that the government put in place a First Home Buyers Grant to try to help people get the deposit for their first property. As a nation, we’ve become pretty crappy at saving money. We spend more than we earn and have record amounts of individual debt.

On a more personal level, you don’t have to look far to realise this is true. My parents and many of their friends worked hard all their lives; and what do they have to show for it? In many cases, an average house in the outer suburbs, still not paid off by the time they die.

Many people my age, including me, have a big mortgage and too much credit card debt. They’re living in a house they don’t really like but can’t afford to fix it up or move to a better one, driving a car that is getting too old and haven’t taken their family on a proper holiday in years. Like them, I’ve made some poor decisions, spent too much time focused on the wrong things and been too afraid, lazy or uninformed to be in a better position than I currently am.

I’m not saying money is all there is to life. Far from it. There are lots of other things in life we should be grateful for, but financial security – having enough to live the life you want without having to stress about money all the time – is important too.

I’m writing to you because I want you to have the benefit of that experience and not make the same mistakes.

I met today with a financial planner who works with property investors and many high net-worth individuals. We had lunch and a long and interesting discussion about finances, investments, money management, taxation strategies and similar things.

Then he said something really interesting: most people don’t think. They live their lives going to work, paying the bills and going back to work.

That certainly got me thinking. He gave me some good advice on questions I had. Then we got talking about you and I learned that some of the banks have special accounts to encourage young people to save for their first property. The accounts reward good saving behaviours and will help you build financial security and own your first property faster.

Some of the accounts allow you to put the money you save into superannuation if you decide you don’t want to buy a house. Superannuation is a long term saving strategy to help you have enough money and live the lifestyle you want when you decide to retire.

I want nothing more than to see you happy and financially secure so you don’t have to stress about money and sacrifice your lifestyle like 90% of the population does. What’s amazing is, that it’s actually not that difficult to set yourself up for life – as the saying goes. Most people just put it off because they’ll “start next year” or “haven’t got enough time” or “haven’t got enough money yet” or whatever other excuse they come up with. Here’s the thing. Time is finite. We only get so much of it, so what’s important is what we choose to do with it.

I’m not going to push you or remind you or harass you, but I’m happy to discuss this with you at any time. I hope you are mature enough to give this the attention it deserves.

To help you, here’s what I’m offering to do. I’ll contribute an amount equal to the average balance of your account every six months. If the balance of your account is $1,000 or above for six consecutive months, I will contribute $1,000. If the average balance is $5,000 I’ll contribute $5,000 and so on until you are in a position to buy your first property.

I suggest it would also be worth starting to understand the benefits of saving, investing and property ownership, depreciation and tax benefits, capital growth – as a starting point – so you begin to realise how much of an effect this will have on what the rest of your life looks like.

I’m happy to speak with you about it any time, or otherwise, apparently there’s this thing called the internet…

Love you,
Dad

Why you should love Monday

If you’ve spent any time on Facebook or Insta or whatever you would have seen them. Thousands of them! Some with cats and cartoons and animations and Spongebob and Garfield and Homer. I’m talking about the “Thank god it’s Friday” and “I hate Mondays” stuff that goes around.

It’s interesting that so many people are basically unhappy when the week begins and can’t wait for it to be over. Not that I don’t look forward to the weekend, I do, but I’m not a huge fan of Fridays. They remind me that the week is nearly over and I probably didn’t get to everything I planned to.

Mondays on the other hand are awesome! They’re an opportunity to start again! Re-focus, check that the goals still line up with where you’re headed, re-set priorities, get into another exciting week and get shit done.

Mondays are like a mini-January 52 times a year. Most of us use January to review how we’re tracking. How did we go on achieving our goals for last year? What are our goals for the year ahead? What changes do we want to make and how will we make things happen? As an aside, a client was telling me that January is one of the busiest months for online dating sites, so I guess people are re-setting goals in all areas of their life! But I digress…

So here’s a thought. Rather than complain about Monday, celebrate it!

Make use of each Monday to do a quick review of whether your plan is on track. Oh, and if you don’t have a plan, that’s probably one of the reasons you don’t like Mondays. I’m sure another week of going nowhere doesn’t sound too exciting to anybody. In that case, use Monday to map out your plan and then get into the week ahead.

Give Mondays some love! They’ve been badly done by for too long.

Free lessons I should’ve paid more attention to

In my mid twenties, I didn’t know very many really successful people. Despite my parents regularly reminding me that you have to choose the right friends and mix with the right people if you want to get anywhere, I wasn’t really exposed to much of an entrepreneur mindset.

Oh sure, I knew some business people, but their thinking revolved mainly around making enough cash to live on. There was no focus on building asset value or tax minimisation.

Then I met someone who opened my eyes – even though it took me a long time to realise the influence he had on me. This person was a highly successful Australian sportsperson. A household name now, you’d know him from his TV work. My accountant at the time introduced us both into a small venture, which taught me more than I realised at the time.

There were a number of things that struck me as a little strange about this person – and all the people he associated with – given my limited experience to date.

Firstly, they were extraordinarily happy. Even though they were working hard, they were enjoying the journey and seemed to appreciate the little things in each day. They didn’t talk about the past. Their focus was on the present and how that would affect the future. They were successful, but at the same time humble and grateful for the opportunities that life had given them.

This was at odds with what I had been accustomed to. Whilst I knew some reasonably successful business people, they seemed to be constantly groaning under the burden of their efforts. Some were bitter about things that had happened in the past – sometimes the dim distant past – and held onto grudges of relationships or deals gone bad. Some were arrogant about their success and used it to position themselves as somehow superior to those who were just working to carve out a living for themselves and their families.

In contrast, my new associates were much more down to earth. No doubt they were big thinkers who knew they had lots to offer, but were more interested in adding value than feeding their egos. They weren’t just focused on our business, but on the good that it could do and the contribution it could make.

There were other qualities too.

They were more disciplined than most. Maybe it was the rigours of training and competition that taught them that focus on the goal is critical. With each goal firmly in mind, working on the right things, teamwork, repetition, systems and processes became the drivers of success.

They weren’t afraid of problems. In fact, they seemed to relish facing and solving them. It was a different mindset; one that seemed to know that problems were just part of the journey. It was almost a game to overcome them. Importantly, they encouraged everyone around them to do the same. Coaching came naturally and they made great mentors, sharing their knowledge and positivity with the others in their team.

No matter how many issues, setbacks or challenges, they seemed to have the ability to stay positive. Rather than throw their hands up in frustration or change direction, their response was usually along the lines of, “that’s interesting, how can we fix that?” Somehow, they seemed to have the ability to stay relaxed and focused, even when the stress levels should have been high.

These people were fun to be around because they were excited, motivated, and passionate about what they do. Never once did I hear one of them moan about having to work late or it being Monday morning. They didn’t see their business as work. It was more about who they are, than what they do.

It seems to me that these qualities are just as important as they ever were – maybe even more so! Successful people still display the same characteristics and put them to good use each day in building their wealth.

New Year’s resolutions are a complete waste of time

Ok, I confess, I’ve done it too. Even though I know there are important things I should be doing, I wait. I wait until tomorrow, until Monday, until the New Year. But if I look back, the only thing that waiting has ever achieved is wasting valuable time!

At this time of the year, its easy to think “Oh well, its December, everyone will be in party mode for the next few weeks and then I have holidays, so I’ll wait till the new year – and then I’ll get myself organised…” No! Don’t wait! This is in fact a really important time for thinking and planning and most importantly acting upon the things that will literally change your life. I know that’s a big claim, but I’m very comfortable making it. Let me tell you why.

It’s a sad fact that most Australians will retire completely dependent on the pension for their survival; almost three quarters in fact. And survival is about all the pension will fund in your so-called golden years. According to a report from Rice Warner Actuaries, single women will be worst affected with many unable to maintain even a ‘comfortable’ lifestyle. The pension will make up more than 90% of retirement earnings for most people. I don’t know if you’ve had a look at what the pension pays, but its not very exciting.

Lets think about that for a moment. In this land of opportunity, many of us will retire needing a government handout to survive. I know what you’re thinking; “not me!” I hear many people say they will have passive income so they don’t have to work so hard in 10 years, or maybe twenty. That would be a good outcome, I agree. But when I ask about the plan for making that happen, the details are usually sketchy. And when I ask what they are doing right now to make it happen, that’s when the wheels really fall off.

Here is the frustrating thing: creating a financially secure retirement – and living a better life between now and then – is not impossible. In fact, with some good advice, a sound plan and consistent action, you could even say it’s not that difficult. And yet, for some reason, most of us don’t take action. I suggest that has less to do with not caring and more to do with not really knowing where to start. I’ve been working with business owners and professionals for almost 30 years. I still find that most people don’t have a plan and don’t reach out for help. That’s why we’ve added financial planners, finance brokers and property experts to our team over the past couple of years.

So, what to do? Get a plan. Get some help. Get advice. Take action. Make it happen and make 2017 your best year yet!