Why you should manage your own money

The 3 Cs

There are three excellent reasons to consider managing your own money which we know at the 3 Cs of investing:

Cost, choice, and control.

  1. Cost

The cost of advisory and fund management fees can be very detrimental to returns.

If the ‘average’ annual return from markets is to be about 7-8%, then losing 1% of that makes a colossal difference to your long-term wealth (try putting those figures into a compound interest calculator!).

There’s nothing wrong with paying fees if these costs are helping you to achieve higher returns, but unfortunately in aggregate this has not proven to be the case.

This fact alone makes a great argument for learning the skills to manage your own money.

The fees saved over a lifetime of investing are remarkable enough, but it’s the extra compound growth consequently allowed to flourish which makes for the truly powerful difference.

2. Choice

Most advice is not appropriately tailored to the individual, and most investors and advisors have a ‘home bias’.

But it’s a big world out there, and, because trees don’t grow to the sky, no one stock market can outperform consistently.

In fact, look back through time you’ll find that often the markets that have been the most out of favour over the past year or two become the biggest winners over the following 12-24 months:

Source: Novel Investor

And the research shows that the difference investing in markets which have become very cheap can make to your returns over time is enormous.

Looked at another way, check out the best and worst years in the graphic below for each of the major international stock market ETFs:

For example, the ‘average’ returns from Australian stocks might be about 8%, but this average includes shocking years such as 2008, followed by amazing years such as 2009.

A similar dynamic also applies to emerging markets, and stock market sectors, and investment styles.

The good news is that these days you don’t have to be an expert stock picker, because you can simply invest in a stock market index to capture comfortably strong enough returns.

Fund managers may be reluctant to invest in ‘loser’ markets for fear of looking stupid or losing clients.

But this can be your advantage, allowing you to take full advantage of opportunities as they continually arise in international markets.

3. Control

Mostly advisors will tell you that the best time to invest is right now, and that you must be fully invested all of the time.

But why?

Does that advice help you, or help to generate advisory fees?

Take another look at the worst years in the table above and consider what a 50% loss might mean for your net worth if you’re fully invested in an expensive market.

The key to becoming very wealthy over time is avoiding losses to continue compounding your portfolio and net worth.

And you can do this successfully by thinking of your investments as a series of bets (a strategy known as the Kelly criterion), and by directing those bets towards markets demonstrating value.

By managing your own money you’re free to pick the allocation most suitable for you, your stage of life, risk tolerance, and goals.

Low rates, high returns

The often-quoted ‘average’ returns from stock markets can be a very misleading figure as the graphic above shows.

The average annual return tends to include years of tremendous out-performance (which, for example, we’ll see in 2019), inevitably followed by years of relative under-performance.

Never forget the asymmetrical nature of returns; for example, to recover from a 50% loss then you need a 100% return just to get back to where you started.

When developed markets such as Australia become cheap then, yes, it’s plain sailing: hoist the mainsail and simply let the market bring the great returns to you!

When you’re facing headwinds, however, then you need to work a bit harder.

At this stage in the global cycle, and with many developed markets now so historically expensive, we now believe it makes logical sense to sidestep the potential for significant drawdowns.

The good news is that with an appropriate allocation and a simple rebalancing map, you can achieve comfortably better returns than average through the cycle.

To read more about our coaching programs, see here.

Welcome to Low Rates, High Returns.

Welcome to Low Rates, High Returns

“Rule #1: Don’t lose money.

Rule #2: See rule #1”.

———

Warren Buffett, Berkshire Hathaway.

Net worth: A$125 billion.

This is the first post on our new blog; stay tuned for many more.

Please note the information on this blog and in the book is general in nature, and it can’t take into account your personal situation.

Always seek professional financial advice before making financial or investment decisions.

Our new book was released in 2020, and it explains clearly & succinctly the benefits of managing your own money…and exactly how it can be done safely more profitably than you think.

These benefits are what we know as the ‘3 Cs’ of investing yourself:

Cost, choice, and control.

Thanks to the wonders of the internet it’s now quite well known that it’s possible to get average results, simply by doing what everyone else is doing.

But what if you don’t want to be an average person with average results?

What if you want to consistently generate wealth-creating rates of return without the ever-present spectre of significant loss?

To do better than average, by definition you need to think differently from the herd.

For about the past decade, it’s been relatively plain sailing for investors.

Markets recovered from the last crash and went into a secular bull market where real returns have been consistently strong for more than 10 years.

But the price you pay for an investment matters – as Buffett said, what is smart at one price is stupid at other.

Markets move in cycles, so you need to be aware of how to invest accordingly…and safely.

In 2019 we’re now into the rampant speculation phase of the cycle, with the general public piling into the market at its peak, and it will likely end the same way that it always does.

Which is to say, not well, and probably in tears.

It’s a big world out there, but sometimes an irrational ‘home bias’ limits investors from seeking out stronger (& often safer) returns in international markets.

Why limit yourself?

The good news, as we always say, is:

‘It’s not that hard, honestly!’

Subscribe below to be notified of new posts.

We look forward to sharing your journey to abundant money management.

Short of time? Jump straight to our 8 timeless investment principles here.

Read about how to maximise your long-term wealth guided by the Kelly Criterion here.

You can listen to our full Low Rates High Returns podcast series here (or at Stitcher, Spotify, or Soundcloud).

And you can download a FREE CHAPTER of our new book here (or by clicking on the image below):

FREE Chapter download.,

Please note the information on this blog and in the book is general in nature, and it can’t take into account your personal situation.

Always seek professional financial advice before making financial or investment decisions.

To see more about our coaching programs see here.

G’day, from Pete & Stephen; here’s what’s coming…

Hello, it’s Pete Wargent & Stephen Moriarty here from Next Level Wealth.

Our new book will be released in February 2020.

Here on this blog we’ll post some of our thoughts on why we’re getting set for a period of turmoil in some global markets ahead, and how we can position ourselves accordingly to benefit from this.

Over the past 15 years:

  • We’ve developed 8 timeless principles for prosperous investing;
  • Which today can easily be applied successfully to all market conditions at all times (unlike many passive strategies which work some of the time, but fail to deliver at others); and
  • Are proven to deliver robust returns safely through the cycles.

The problem with some passive or ‘buy and hold’ strategies – which generally become popular in bull markets – is that they work in some decades, but not in others.

A timeless investment strategy is not dependent upon market conditions, and is one that will work today, or 100 years from now…or even 1,000 years from now.

Hence, timeless.

What we’ll look to post here on the blog may include:

  • Some of the key concepts from our new book
  • Why a systematic approach to your investing is critical for long-term success
  • Why the oft-quoted ‘average’ returns from investing can be so misleading
  • Why the key to becoming wealthy is not losing money…so you can continue to compound your returns without being set back by significant losses
  • How you can buy low and sell high to deliver above-average results; yes, you can time the market!
  • The risk hierarchy: how it’s become so much easier today to reduce company-specific risk
  • How you can use the inevitable market cycles and mean reversion to make your money work harder (looking both at home markets and internationally)
  • Why market volatility should be your friend, not something to be feared
  • The Enneagram assessment and the ‘9 types’ – the vital role understanding your personality type plays in investment behaviours & results
  • How a regular rebalancing strategy reduces risk in your portfolio, and can effectively force you to buy low & sell high
  • Real-time thoughts on what’s happening in global markets

We look forward to sharing more here with you in the lead-up to our book launch in Sydney in early 2020.

Remember…it’s not that hard, honestly!

By the way, if you’re interested in working together with us directly you can find out more about our coaching programs here.

Cheers, and happy investing,

Pete & Stephen