One guide that all New Zealand investors should read

For years now one of the most sensible, reliable and accessible commentators on investing in NZ has been Mary Holm. She runs seminars, advises government agencies and working groups, writes a great column for the NZ Herald and is generally just New Zealand’s favourite financially savvy auntie.

New Zealanders are not always the best with financial literacy. We are often more scared than we should be of the sharemarket, we are famously not scared enough of piling ridiculous share of our wealth into investment property. We naively invested huge sums into dodgy finance companies and then the government had to bail us out to the tune of more than $1Bn!  We don’t tend to teach financial literacy at schools, except a few courses run mostly by banks, and many of us learned only the basics (or perhaps just bad habits) from our parents.

Thankfully the Reserve Bank is here to save the day.  As part of their focus on financial education they commissioned Mary Holm to write a simple booklet to make the complicated topics of saving, investing, and risk simple for everyday New Zealanders. It’s my favourite kind of book, it’s only 60 pages long, has small pages and has lots of pictures, tables and graphs to explain stuff.

Its available FREE to everybody on the interwebz right here on the RBNZ site:

https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Factsheets%20and%20Guides/guide-upside-downside-a-guide-to-risk-for-savers-and-investors.pdf

Or, if you prefer the crisp feel of a page beneath your fingers. I have limited edition paper copy of the book that I can send out to one lucky winner. Just comment below with your saving and investing questions and I’ll randomly select one lucky winner to send the booklet to.

What’s not to love. A free book which was already free anyway.

Books we love: How to Retire Early – Your Guide to Getting Rich Slowly and Retiring on Less By Robert and Robin Charlton

There’s a quiet revolution in personal finances going around the world at the moment. It’s called FIRE (Financially Independent, Retire Early) and our messiah is the one and only ~Mr Money Mustache~. Before launching into the review it may be timely to go over what exactly FIRE is in order to appreciate the approach in the book  ‘How To Retire Early’.

What is FIRE firstly?

FIRE advocates living frugally, calculating your savings rate AND investing surpluses early and regularly in your working life in low cost funds and being able to retire early due to the compounding effects of turbo charging your retirement stash in this way. Saving and investing more than 50% of your net take home pay is not uncommon in the FIRE world.

FIRE differs from mainstream financial advice in that it advocates virtually solely investing in growth assets like the sharemarket apart from your emergency fund when you are in your wealth accumulation phase.  When you are in retirement you may consider some bonds to iron out volatility but not as much as main stream advisers would recommend. It then advocates a ‘safe withdrawal rate’ on your savings of 4% or less and says you could quite easily leave a lot for your heirs despite withdrawing your capital to live off.

The advent of low cost index funds and the ability to invest and withdraw small amounts regularly has facilitated and made more popular the concept of FIRE. Ie the liquidity of being able to access your funds has made all this possible for the average person starting out.

This goes totally against traditional portfolio asset allocation retirement planning that is telling us to save up huge amounts of money, slowly moving to a more conservative portfolio as we get older and then living off the income from meager returns from conservative investments like term deposits. This mainstream way of thinking may defer your retirement years by many and cause you to save far more than you really need and work for much longer before you retire.

A strong component of the FIRE ethos is keeping things simple, not holding too complex a portfolio and getting on with your life.

Now onto the book…

If you are going down the FIRE way How to Retire Early is a an excellent addition to your personal finance book library. I read this from start to finish more or less in the week it arrived at my door from Amazon (it rates 4.8 stars on Amazon which is an indication of it’s worth).

It’s the real life story of a couple, the Charltons, who have documented their journey to early retirement using the FIRE way of thinking. They explain the maths behind the FIRE concept. The Charltons reached FI in their early 40s in 2004  (after 15 years of working and saving) so they are really ‘walking the talk’ having been FI now for 10 years. They generously lay out all their numbers and go on to prove you don’t have to be earning 6 figures to retire early. Their income averaged around $89,000 between the two of them in their working lives and they retired within 15 years of embarking on FIRE.

The remarkable thing is they started before the FIRE movement started to gain traction. One of their main messages is to invest in yourself and make sure you have trained yourself in something marketable when you are on your journey to FI. They also provide many tips on living below your means.

Admittedly  there is still a lot of aspects of the book that apply only to the US, but there is still enough great general information in there that I’m sure I’ll be referring back to it on many occasions. For eg 401k is our Kiwisaver (although they have many variations on that over there). Also the chapter on the tax advantaged/non tax advantaged funds is not relevant to NZ, nor is the health care section. (they talked about the Affordable Care Act which may or may not stay under Trump).

Some other things to keep in mind when reading this book are:

  • The Charltons started saving for retirement in the early ‘90s when the stockmarket was going through a big upswing, hence why they may have been able to achieve the 11% average gain on their portfolio before retiring. Even though timing isn’t everything, the time in the economic cycle when you start to invest and when you start to retire can have significant effects on your returns and your safe withdrawal rate.
  • Children slow down the path some what (don’t we know that if we have kids!) and maybe add another 5 years to your FIRE target.
  • Housing appears to be a lot cheaper in the US outside of the main cities which allows FIRE aspirants to have a lot more housing options there than in New Zealand to achieve their goals.
  • Health care is one of the biggies they have to take into account over there in the US with early retirement plans. I was thankful for all that is available to us in NZ after reading this. The tip to go down over the border to Mexico for dental and medical tourism was fascinating. Apparently the American retirees park on the border, walk over and there’s a whole load of medical centres on the Mexico side!

The book is very well written, clear and easy to read  – lots of white space- which is a main factor for me in any books I read (I’m doing most of my reading on the internet these days!).  I noticed on reading a few FIRE blogs that you have to get control of your numbers, there’s no way around that. And the ones that have reached FIRE track their numbers fastidiously. The maths behind Mr Money Mustache approach, which is very different to traditional financial planning is all contained in this book with very practical and easy to follow illustrations.

The fact that the Charltons are sharing their numbers and a practical system to enable us to forecast our numbers is a huge gift to the FIRE community and I’d say it’s one of the MUST have books for FIRE proponents. They even share their compounding spreadsheet which is brilliant in it’s simplicity and could easily adapted to NZ conditions substituting 401k with kiwisaver.

The Charltons now travel the world and include their very street wise tips for travel and also for living well but frugally in retirement. (favourite tip of mine was advising slow travellers to go to the local YHA and then sign up an airbnb lodging AFTER you arrive at the town so you can inspect the place beforehand). That’s one cool tip from some savvy travellers.

One thing that came through was that their first trip once they retired was to New Zealand, they love hiking and the outdoors and couldn’t say enough good things about our country! If you want to follow their travels they have a great site documenting all their trips on wherewebe.com. Look out for the NZ section of their gallery!

On their website they also share their fantastically simple planning spreadsheet. If you’re a dab hand with spreadsheets you could easily modify for NZ conditions by swapping the 401k for our kiwisaver and also changing the Roth IRA to your cash holdings.

I’d definitely recommend taking the time to read this book, it’s one of the true personal finance books that follows the mustachian principals. I challenge you to read this book and use the methodology to calculate when you will be FI. It may be sooner than you think! Also a visit to their website, www.wherewebe.com will give you the inspiration you need to continue on the path to early retirement.

Books we love: How to Fail at Almost Everything and Still Win Big – Scott Adams

One of the books that had a really big impact on me was a book by the cartoonist behind Dilbert – Scott Adams.

The book basically goes through his various failures, how he overcame them and ended up being wildly successful.

Along the way he espouses a few principles that are particularly relevant for those of us seeking to become financially independent.  The one that resonated the most with me is that…

…one should have a system instead of a goal. The system-versus-goals model can be applied to most human endeavors. In the world of dieting, losing twenty pounds is a goal, but eating right is a system. In the exercise realm, running a marathon in under four hours is a goal, but exercising daily is a system. In business, making a million dollars is a goal, but being a serial entrepreneur is a system.

In FI terms saving more than you spend is a system.  Trying to save a specific figure is a goal.  Both have value but the system results in long-term habits that consistently move you forward.

For our purposes, let’s agree that goals are a reach-it-and-be-done situation, whereas a system is something you do on a regular basis with a reasonable expectation that doing so will get you to a better place in your life. Systems have no deadlines, and on any given day you probably can’t tell if they’re moving you in the right direction. My proposition is that if you study people who succeed, you will see that most of them follow systems, not goals…

For me, this book was really valuable as it reinforced the importance of mindset. I’m not naturally frugal and have had to work at it.  However, being frugal has become a system in my life and now I get a buzz every time I choose not to waste money.

“Goal-oriented people exist in a state of continuous pre-success failure at best, and permanent failure at worst if things never work out. Systems people succeed every time they apply their systems, in the sense that they did what they intended to do. The goals people are fighting the feeling of discouragement at each turn. The systems people are feeling good every time they apply their system. That’s a big difference in terms of maintaining your personal energy in the right direction.”

Definitely worth a read.  Try your local library!