May 14, 2018
Investing is easy when you know
the rules, and according to today’s guest, there are only eight
rules to investing.
If you’re interested in becoming
a successful investor today’s show is for you as we discuss the
eight rules of investing with Stuart Wemyss.
Stuart is a financial planner,
an accountant, a mortgage broker, and a successful property
investor. He’s also an author, and he’s with us today to talk about
his book Investopoly.
Interview with Stuart
Why did you write Investopoly?
- Investing is easy when you know
the rules – just like winning the game of Monopoly. I wanted to
shares these rule – a simple formula to help people build wealth
and not get fooled into investing in dud investments.
- The rules aren’t my opinion.
They are simple, irrefutable laws, rooted in math and logic. They
are evidenced-based and can be observed working in markets for
- Applying those laws makes it
very easy to (1) avoid making mistakes (2) work out what to do next
and (3) be a successful investor.
Golden Rule #1 Play the long game
- Long term financial decisions
promote exercising delayed gratification – patient investors are
rewarded, impatient ones are not
- Market are not efficient in the
short run – so thinking short term creates anxiety and doesn’t help
you invest wisely
- Over the past 30+ years returns
are relatively similar: Aussie market = 9.25%, property market =
12%, US market = 10.5% - so its not a question of which “asset
class” provides the best returns. More about which asset class
suits you and your stage of life.
- Best question you can ask
yourself: “what action can I take today that will result in me
being a lot financially stronger in 10, 15 and 20 years?”
Completely ignore short term impacts.
Golden Rule #2 Know how much income you need and by
- Stephen Covey’s advice: “begin
with the end in mind”.
- You don’t need a map until you
have a destination.
- You need to set two important
goals: how much income you need in retirement and by
- Look at what you are spending
today – that’s probably a good indication of what you will
- You have to expect to live a
lot longer due to medical advances. Will you live until 90? 100?
Therefore, you don’t want to have to eat into capital in retirement
= get asset mix right.
- Retirement increases the risk
of clinical depreciation by 40% - due to the absence of
and growth. So, maybe the answer is to keep working? Or
find something to do in retirement that “contributes” to others and
things that promote personal “growth”.
Golden Rule #3 Spend less than you earn and invest the
- Commit to an annual surplus
that you will contribute towards building your financial future
(this could be home loan repayments, super contributions, property,
shares, etc.), then spend what’s left over.
- It is your ability to
consistently allocate a surplus cash flow (year after year) that
will have a massive impact on whether you will be a successful
- If you are not a “saver” then
redefine “saving” as “future spending”
- Merely just measuring cash
outflow is typically enough to bring it back into line:
- I suggest allocating all
outflows into seven categories: financial commitments, utilities,
health and education, shopping and transport, entertainment, cash
- If you don’t have a surplus
income at the moment:
- Reduce the regularity of any big discretionary items e.g. go out to
dinner once every 8 weeks
- Commit to saving future income
increases (pay rises, bonuses, etc.)
- Make sacrifices like holidaying
every 2-3 years instead of annually
- Get help from an accountant to
help you measure and manage cash flow.
Golden Rule #4 Grow your asset base first and then tilt
- When we build a house, we do it
in a certain order because that yields the most efficient and
robust build. We should invest in a certain order too – for similar
- More income = more tax. Whereas
with growth you don’t pay tax until you sell the investment. This
is the power of compounding capital growth.
- Compare two investments that
generate a gross return of 10%: 4.5% income + 5.5% growth versus 2%
income + 8% growth = 21% higher return in 20 years’ time after all
tax is paid! That is the power of investing for growth first and
then tilting towards income.
- Select assets that provide most
of their total return in growth and relatively low proportion of
- How will capital growth help
fund retirement? Sell assets, with enough time income will be
substantial, invest in other income-style assets, sell one property
and reinvest in bonds, etc.
- You need to develop a financial
model in order to work out how much to invest, when and in which
Links and Resources:
Stuarts’s special offer: Save
30% off the price of his book Investopoly
Go to https://www.prosolution.com.au/books/
and use the code “Yardney” to get a
Some of our favourite quotes from the show:
“I’ve found that it’s not just
understanding the rules, you’ve actually got to stop people making
mistakes. You’ve got to stop people from doing what they feel like
doing and getting emotionally involved, rather than sticking to the
rules.” Michael Yardney
“You’re going to require a lot
more money in retirement than you think. First of all because you
shouldn’t compromise on your lifestyle, and also because you’re
probably going to live a lot longer, so you don’t want your money
to run out before you do.”
“If you don’t have an asset
base, you don’t have any money choices.”
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