Welcome to Frugal Investors – one of the fastest growing personal investment and finance sites, which pulls together “life management” and “financial management” under one roof.
There are two big issues I see when having discussions with people about how to have a healthy financial life:
1) They don’t manage their personal finances well enough; and
2) They don’t know how and what to invest in with the money that they have saved
Often the second issue has a straightforward root cause – because the investing world is riddled with obfuscation, and the barriers to entry are high. Just to get started the vast majority of people want to charge you for their service.
Frugal Investors is an attempt to answer both of those issues raised above and to set you on a path to financial freedom that lasts for decades, without the need for spending your weekends reading annual reports and analysing companies in finite detail.
At the same time, we cannot tell you what to invest in. Instead, this site is focused on equipping you with the knowledge and ability to make informed financial decisions. Why not instead choose to focus on the right kind of strategy that you can understand and deploy today, which gets you closer to the market, cutting out the very need for costly active funds and expensive advice?
I intend to expose the illogical approaches of many of the investing ideas out there. Frankly, I have spent the last nine years systematically assessing many strategies and concluding that they are either too risky or they don’t work. These include commodity and options trading, derivatives, short selling, investing in bitcoin, small- and micro-cap investment (unless you’re very experienced), forex or currency trading, day trading, speculative property investment, and so forth. There are much more basic and Frugal ways to put your hard earned capital to work, and we’re going to discuss that hemisphere of approaches here.
The transformation in my own life is staggering. I went from being a “Net Loser” in my teens and early twenties, in other words a person who spent far more than they took in, to being a “Net Gainer” when I met my wife and started working towards saving for our wedding. From there and over the next ten years I managed to save 50% of my working salary and invest it towards a deposit for a house and after that to build up substantial retirement savings.
As of September 2019 my wife and I are approximately 10 years away from being fully financially independent and able to retire (and work as much or as little as we want). Please follow me on this journey to financial independence and let’s build a community of Frugal Investors who follow this ‘middle path’ to financial well-being.
Many of the truly eternal investing strategies that can actually make you money over the next 10, 20, 30 and 50 years are free to access. In order to follow them, though, you need to understand what you are doing. Investing without knowledge is like trying to do your job without the necessary skills and knowledge. If you’re an engineer, doctor, nurse, lorry driver or postman, you need experience. Investing is like a small side-job, with tremendous opportunity for reward.
You need to subscribe to a website and apply thinking to understand how these strategies work, but as a general rule of thumb, any approach whereby you need to pay £100s or £1000s to somebody in order to get started is either a scam or a poorly contrived approach.
That is why the vast majority of the content on this site is free and I provide it here for every single person on the planet to benefit from.
There are two forms of financial reward I get from doing this blog:
1) Advertising revenue, which I introduce to ensure there is some compensation for my time; and
2) Financial Coaching & Consulting opportunities with key individuals who want a hands-on coach to support them and to provide feedback after having applied the basic concepts of saving investing for a period of time.
If you like what you see, please get involved by posting your comments and sharing the content with your friends and family. I look forward to sharing my thoughts on what I would loosely call ‘total financial management’ and how I go about institutionalizing investing in my daily life.
I hope that the content of the site speaks to you and I cannot wait to track our progress over the coming decades!
FRUGAL INVESTORS: SMARTER MONEY MANAGEMENT – TODAY
I intend to show you how you can live a sensible and controlled financial life now. Take the work of renowned professor of finance at Wharton – Jeremy Siegel, who shares his ideas independently and free for all to read. The title of one of his books summarises a sound investing principle that you could follow to your dying day: “The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New.”
There are about twelve or fifteen timeless investing books that I recommend in my reading list. However, in the interests of sharing this knowledge with you right away, I will summarise some of the key thoughts and learnings below. If you want to get a sense of my inspiration please access my reading list here. After nearly a decade of learning here’s a few stand out tips:
• False promises: If anybody promises you sustained returns of above 10%, especially when large sums of cash are involved, walk away
• It shouldn’t cost you any money to learn how to invest, as a starter for 10. If you want to have a hands-off approach and to make money, consider a ‘robo adviser’ or just stick with a standard pension.
• Fools rush in: do your reading, in books and on free blogs, or don’t start at all
• Focus on generating income and owning income producing assets. Capital growth is great but normally after getting burned by a recession or two, you’ll retreat back to the ‘tried and true’ approach of owning income-producing assets without getting too excited about a lot of growth assets. You’ll learn all about this on my blog.
• Become a Net Gainer. Frugal Investors don’t have debts and significant drains on their capital. If you are struggling getting by with the basics, then focus on saving more and spending less. Only then can you afford to put your hard earned money to work with investments.
• Build your career and find ways to enhance how much you bring in
• Optimise your tax situation and where possible move your investments into tax sheltered accounts. In the U.K. and Canada this is a pretty easy thing to do and something I advise about on this blog.
• Read, read, read. Warren Buffett and Bill Gates are famous for giving advice that is counter-intuitive, and one of them is to focus on yourself and build your knowledge and your ability to communicate. One of the best and low cost ways to do that is to read (Check out my reading list). Many of you will think about it – few will do it!
• Know that you know nothing. Accept that you cannot predict the future. If you think you can control the future, you’ll end up trading in and out of stocks, and likely you will fall short of your long term financial goals.
• Use data, numbers and fact to guide you. As a senior process improvement professional and investor, my goal is use data numbers and fact to help make rational decisions. I aim to meet or exceed the return of the major indexes, which are the S&P 500 (US), TSX (Canada), and FTSE-All Share (U.K.). Rather than speculate I want to use data to support assertions that I make.
When I first started out I tried to find a good and independent financial coach and they are surprisingly difficult to come by. Most financial professionals are too busy earning exorbitant amounts of cash and they would rather offer you active funds or other products that they take a percentage from, or get financial incentives to recommend. I strongly recommend that you find an independent financial advisor and work hard on becoming tax-efficient and reflecting on how you invest your money, not just what you invest your money in. By that I mean a major focus on your saving and spending habits, and routines for managing your finances. Don’t try to magic away your financial problems by buying a few stocks or shares!
I believe in the power of education to transform the way you do business. Perhaps the most important business of all: managing “You Incorporated.”
DEFINING WHAT FRUGAL INVESTING IS AND WHY WE SHOULD BE FRUGAL INVESTORS
There are many, many personal finance blogs out there and there is a lot of conflicting advice when it comes to how to manage and invest your cash. They are not all right or wrong – the important thing is that you become an informed consumer capable of making rational decisions for yourself!
The reason Frugal Investors exists is twofold:
(1) I see a great deal of excessive risk taking out there and I have seen it pick up particularly between 2013 and 2019. As a result I believe that we will see a material drop in asset prices over the next 10 years (2019-2029) and I would like to arm a large group of readers – fellow FRUGAL INVESTORS – with the tools to do battle and grow wealth for themselves over the next 10, 20, 30 and 50 years.
(2) I am keen to reach my goal of accruing £2,500,000 is net assets and – on the journey to getting there – to coach, train, mentor and educate others to achieve their financial goals. The idea of enabling people to take firm control over their finances, by themselves, without expensive financial counsel really excites me; I think the future will involve a deeper integration between the money you receive (most of which, let’s be honest, is digital) and where you choose to deploy it.
Drawing on my experience as a process improvement professional I look forward to systematically unpicking the best ‘pockets of value’ where you can improve your financial well-being.
So who wants to join a community of like-minded Frugal Investors and build their financial knowledge?
WHAT DO YOU MEAN BY FRUGAL INVESTORS
Let’s define what that is exactly.
Beginning with Frugal. It means sparing or economical with regards to money or food. I want to emphasise a point here that not everybody realises: it is a way of life, with a rich history, and many of the concepts and theories I will engage you with are modern day variations of history.
Frugality makes sense. Why participate in a highly consumer-driven, lavish lifestyle when the planet itself cannot support us doing so? Instead I think we need to celebrate Frugality. We need to save and conserve and be proud to do so because it protects future generations and allows society to enter the next phase of our planet’s and our society’s development: one that would make ancient philosopher’s proud, and I call the Philosopher King’s approach to life. An increased focus on the arts, science, reading, literature and culture; along with family values, virtue and integrity. Believe me, this culture is coming, because there simply are not enough resources on the planet for us to manage these lavish lifestyles, apart from the super-rich.
Let’s turn our attention to Investors – the second part of this – after all this isn’t a website on philosophy nor is it simply about saving money. To invest is by definition to put your money into financial schemes, shares, property, or a commercial venture with the express purpose of making a profit. I am going to ever-so-slightly alter what I mean by Investors: I champion a view of the world where Investors put their money into financial schemes, shares, property or commercial ventures in order to make a profit while reducing risk. There is no point in making a profit if you do so by taking on excessive risk.
WHO AM I?
My name is David and I currently work as a Head of Process Improvement in the legal services industry. Prior to that I was a Senior Process Improvement specialist for a FTSE 100 business.
I love networking and engaging with people on business-relevant problems and finding structured, methodical ways to solve them step-by-step. This often involves working with all levels of people across an organisation, from the shop floor, to team leaders, to middle and senior management, right up to the Exec and the Board. Business process improvement has a great deal to teach us about financial management and what I would loosely call ‘life management’ in general. You will find countless examples across this blog that involve concepts I have drawn from consulting with business leaders to advise them on how to better equip their businesses to improve efficiency, quality and speed of delivery.
I began my proper investment journey in 2011 and since then have amassed a large portfolio of stable blue chip and income generating equities from across the globe. I have spent eight long years learning everything about investing and economics, and I understand what works and what doesn’t work. As a middle-management professional trying to balance a family, work, and an investment portfolio at the same time I understand how challenging it can be to manage your finances properly.
I am a Net-Gainer – this is a concept you are going to hear a lot about on this website. You do not need to FIRE (Financial Independence, Retire Early) – to be happy. To be honest not everybody has the ability to retire extremely early. At the same time, you do not need to work until you are 75 either if you start young and build good financial hygiene. Instead you should strive towards a simple and easy to follow middle road: towards financial stability and independence, where you save far more than you spend, and are building up a war-chest of investments that will last you for the rest of your life.
I lost my father in 2017 to his life-long battle with spinae-bifida and, later in life, vascular dementia. I see it as one of my life’s missions to manage the money that I earn effectively, and efficiently, and to preserve my wealth for future generations (my two dear sons to be precise!) Dad did the same, and so did my grandfather.
THE BEGINNING OF MY JOURNEY TO BECOME A FRUGAL INVESTOR – MY FIRST ENCOUNTER
I started Frugal Investors on 8th September 2019. The idea had been brewing for a while, which is an understatement. My first experience of investing came in July of 1997. The space shuttle Columbia had launched into orbit (I saw it on TV) and unbeknownst to myself at the time Hong Kong was officially returned to the People’s Republic of China by the U.K.
I was running a successful lawn mowing business and I also had a paper route at the time that proudly numbered 118 houses. I was eleven years old. To boot, I had swindled my mother into helping drive me around with the paper route because my back was starting to ache from all of the early morning heavy lifting. I had had a bank account since I was six, and in the middle of July 1997 I walked into the local CIBC bank and made a deposit at the teller.
The teller was a young lady of about twenty-five who smiled broadly as I handed over thirty dollars to put into the account. When I asked for a receipt at the end of the transaction she commented on how business-like I was for such a young man. I did indeed feel business like! Only the problem was, I had no experience of business, and actually most of the customers I had were people who lived in the neighbourhood and wanted to make a bit of a saving on hiring professional gardeners for their large properties.
I looked down at the slip of paper and frowned. ‘What’s the matter she asked?’
‘Nothing much,’ I said timidly. I was disappointed that after all of my hard work there still wasn’t very much in the account. I remember to this day, spending hours, thinking and wondering how at this rate of work I would never have anything near enough to buy a house or a car or anything fancy.
Sensing my troubles she went on. ‘Well you know, when you’re a bit older, there’s stocks and investments you can put your money into,’ she said.
I perked up at this. ‘Really? What are those?’
‘Well,’ she said. ‘I bought stock in this company that mines for gold. Right? And the thing is, I own a part of that company. That is what a stock is, right? When I watched the company for a while it went up and up and up in price. Guess how much I had? I bet you will never guess.’
‘Ten times the amount that I put in, eventually. I started with a thousand bucks and it went up, well, to ten thousand. The stock went up by tenfold, like a rocket.’
‘Wow, that’s amazing! What did you do with the money?’
Her smile sort of faded and she crossed her arms. ‘Well, you know, I had ten times when it went up and I was feeling really good. So I held on for a while longer and it came down again.’
Not sensing where this was going I prodded further. ‘How much did you make in the end?’
‘Well I held on and held on, because I thought, you know it would come back. She turned and thought for a minute. I think when I sold I had made about 30% or so, which, you know is great actually because I still made a profit.’
So as to avoid holding up the line, I thanked her for her time and returned to my mum who had been waiting for me in a set of chairs that sat next to the line. The whole rest of the day I spent thinking about that experience. It didn’t have quite the effect that the teller intended: stocks and investments actually seemed MORE risky than leaving my money in the bank.
What I didn’t realise at the time, and wouldn’t realise until nearly fifteen years later, was that I had been introduced to the concept of RISK, and the inherent challenge of managing risk as one seeks to accrue wealth and live a comfortable life without significant amounts of stress and worry.
Rather than leave each and every one of you to discover these lessons yourself, I’d like to accelerate that journey, and convert you to become FRUGAL INVESTORS yourself.
PRESERVATION OF CAPITAL
Another source of wealth advice came a bit later, perhaps in 2001 or 2002. My parents were divorced and my father, who was fairly well off, lived in another city. When his condition started to deteriorate his financial advisor began to bring my sister and I into discussions around how to manage his finances. I remember the first structured telephone conversation I had with my father’s friend “Mr D.” He managed a successful investment firm in Toronto and he had supported getting my grandfather into business in the 1930s and 1940s.
“Preservation of capital is what you need to focus on,” he said to me, in a raspy and intelligent voice. He knew what sat in the minds of younger people and he referenced it. “You’re going to want to buy a house. You’re going to want to get a new and fancy car. The problem is that once the money is gone it is very difficult to earn back. You need to focus on preservation of capital at all costs.”
I was fifteen or sixteen. I remember how he deftly came back to this point several times. Preservation of capital. He said it enough times that it stuck.
What did it mean? I learned later. It means this. The portfolio earns a stable rate of return, in the form of capital growth and income. If you take money out, you don’t just lose what you’ve withdrawn. You lose the future income that that money could have earned. In other words if you buy that £100,000 Ferrari one day, you don’t have £100,000 any longer. Cars depreciate fast. How much do you lose? Well, let’s imagine twenty years of investing. You lose £100k + (£100k * 1.09 ^ 20) = £560,441 after twenty years. Subtract the value of the car, say £35k in 20 years-time. But add the cost of the gas, servicing, storage and maintenance of the Ferrari for 20 years – say £85k. In total you lose £645,441 on that one thing you bought that you thought was an asset.
It’s unfortunately the same thing with houses: buy a huge house, on a huge mortgage, and it isn’t an asset really. The luxurious space costs you money, as do the extra bills, upkeep and maintenance. We have a very human ability to want to overlook these uncomfortable truths though, don’t we?
Instead I choose to preserve capital and ensure that I never eat into principle.
So please do join me on this journey towards smart, efficient, and shrewd financial management of “You Incorporated,” and let’s achieve our financial goals together!