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 in 2011 I tried, again and again, 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 offering 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 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:
- 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.
- 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 forwarded 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.
HOW MUCH CAN I MAKE INVESTING IN STOCKS AND SHARES?
I will illustrate this with a point I made to a friend, recently. He asked me whether he should put his money with a certain investment firm that promised 35-75% returns per year. I cannot give direct financial advice, but I did make this point to him. The stock market over many hundreds of years is “up” about two thirds of the time. This means that stock prices on any given day rise about 66% of the time. The benefit is clearly weighted towards long term investors. However, was it generally reasonable to suggest that you can make 35-75% a year – every year?
For the slightly more advanced answer, I sent him a copy of the following table, which illustrates the average return that the US stock market (S&P 500), the U.K. stock market (FTSE All-Share) and Warren Buffett’s Berkshire Hathaway (one of world’s most successful investors) since 1998:
|Year||Investor Return US (S&P 500)||Investor Return UK (FTSE All Share)||Warren Buffet’s Return|
Although there have been two very significant and negative events where stocks did terribly (the Dot Com bust and the Great Financial Crisis), the average return of the American market is still about 8.2% per year. That’s slightly below the long term average of 9.7% since 1926 or just short of 10%. One of the best investors of all-time has managed 11% since 1998 and has a historical average annual return of 20.5% (due largely to much higher rates of growth when his company was smaller and more nimble).
Unless you dedicate yourself full-time to investing, well, expecting a 20% annual return is a bit like saying that you can enter the Olympics next year and win at the 100 meter run. Only, you’re not a professional athlete and the odds are overwhelmingly stacked against you.
What is the root-cause of the confusion here?
People who claim you can earn 35-75% per year are playing semantics. If the claim is that you can earn that rate of return for one single year, then absolutely. Look at 2013. If you had owned the S&P 500 you’d have earned 32%. If you owned Berkshire you’d have earned 33%. Technically if you had a small cap fund I bet you smashed that return in that given year.
However what’s your average rate of return, and over what time period? Often this is where the truth comes out. Many of those strategies that are complicated and confusing – with very high rates of returns – have appalling track records when you look at 5, 10, and 15 year time frames. They are like shooting stars.
Frugal Investors look to put their money into stable, predictable ‘things’ that offer them reasonable rates of return without taking on too much risk. I hope to articulate to you how this works in a fair and impartial way through the blog. There is no ‘one way of doing things’, but there are ways to educate yourself and profit over the long run through your understanding of how it all works.
So there you have it! Let’s make a start and bring you into the light with Smarter Financial Management – Today.