If you're in your 40's or beyond, you know you should be doing more than just paying bills; you should be investing, too. I know that's easier said than done but failing to get this sorted now will guarantee a miserable retirement down the track. But how do you invest well and still sleep at night?
Part nine in the ‘Fix Your Money Problems Forever' series.
In July 2007, when I was licking my wounds from the collapse of my marriage, investing was the furthest thing from my mind. I still knew I had to do it – I'd accumulated five properties before the shit met the fan, so I understood its importance. But the thought of starting again had me reaching for alcohol. I just couldn't stomach it.
Fast-forward a few years and with barely an asset to my name, I became a model of frugality. I worked 16-hours days, hustling for whatever work I could find and only reaching for my wallet when paying in kind wasn't an option. Bit by bit, my debts began to tumble and occasionally, I caught the slightest flash of light at the end of a long and dark tunnel. I started to think about investing again.
My past exuberance had cost me dearly; juggling too many balls and too much debt with no safety net at all. When the bottom fell out of the real estate market, the company I worked for began to falter. At the worst possible moment, my income halved overnight. Straddled between a development site and a vacant renovation project, I was unable to change jobs. I needed to be on-site at odd times each day, and a normal job just wouldn't work. In short, I had to take the pay cut on the chin and pray I could convert my projects to cash super fast.
The short version of the story is, it didn't work. And the ending of my marriage was the final nail in the coffin.
So there I was in a little two-bedroom unit, $140,000 in debt and sick with grief over the loss of my two precious girls. I'd cry myself to sleep almost every night. If you've been through this, you'll understand how crippling this is; how suicide can look appealing through bloodshot eyes. When you hit rock-bottom, your priorities change. Making it through each day – hungover and sleep-deprived – is about as far ahead as you can see.
The only things that kept me going were an aching love for my two little girls and an unbelievably patient woman called Yingying. I'd met her a few months earlier at an accounting firm I was visiting, and she became a bedrock of wisdom and support. It's no exaggeration that I probably owe my life to her. A year later, she became my wife and to this day, remains my closest friend and ally. She is nothing short of extraordinary.
Through the tumult, and with her support, I learned to believe in myself again and to think further ahead than the next 24-hours. As I realised too that my relationship with my girls could survive and strengthen despite the upheaval, I felt safe enough to cast my gaze further afield.
The intervening years saw my wife build a couple of small businesses. She'd always been entrepreneurial; having created and left behind a successful clothing business upon emigrating from China. I helped where I could, but my circumstances meant I had to find my own way back; back to where I could create a future I'd be proud to own. It demanded that I work my arse off day and night; chipping away at my debts and earning the right to participate in whatever successes my wife created.
Real Estate Rules
Eventually, after years of struggle and sacrifice, the time came to talk about investing. Despite my past propensity to overcommit, I knew real estate was still the way to go. I've written about this already in another post, Good Debt, Bad Debt and Ugly Debt, but the bottom line is, few investments give you the leverage, the control and the long-term results of quality real estate.
Providing you buy the right sort of property in a middle-ring suburb (close to an urban centre) that has a solid history of growth – preferably one you can enhance with a light renovation – you can build a sizable asset base from which to acquire more real estate (by borrowing against the increasing value). Unlike most other investment classes, you can manufacture growth by enhancing the asset's appeal (and hence value) with simple things like paint, light fittings, render, landscaping, a carport, a set of bi-folds or a build-yourself-kitchen from IKEA. You can rip up carpet and polish floorboards, knock out a wall here and there or add some wardrobes.
There're lots you can do with real estate, and all of it acts as a multiplier of its current value. As the value of the asset grows, it does so based on the new, enhanced valuation. We now own two properties – the first one we lived in together and the one we live in now. Over the next five to ten years, we'll probably buy another two or subdivide and develop the larger of the two, and that will be enough for a peaceful retirement without relying on superannuation (401k in the US) or a government pension. We won't be drowning in Bugattis, but we'll be free as birds.
There's plenty you can learn about this sort of stuff, but as with anything, it's easy to succumb to information overload. My advice is to take things a step at a time and learn from those who've gone before you. Don't put it off but don't go at it like a bull at a gate, either. I strongly recommend aligning yourself with a proven advisor in this field – someone who doesn't sell properties but charges a fee for service. That way, you know the advice is unbiased. I've been following Michael Yardney for years and put a lot of stock in his advice. Plenty of his wisdom is available free of charge but for personal guidance, I'm always happy to pay.
If you do nothing else, make sure you read just three books:
Stocks and Shares
Years ago I heard about a particular stock for a uranium mining company that had just struck a lucrative supply deal. Without hesitation, I jumped online and bought a few thousand dollars worth of shares. An hour later, I dumped the stock and made a $1,000 or so profit. It was exciting, but I knew it was rare, too. Potentially very addictive also.
Most times, I've failed to repeat that sort of gain. The reasons are complex but attributed mostly to the fact that punters like me lack the most critical element to making it big in stock picking – information. Those who control the game deal in knowledge and nanosecond trading timeframes – two things mere mortals don't have access to.
Over time, I've learned from those who play in the big end of town, the best way to invest in stocks is to buy index funds using dollar cost averaging. That means you invest an initial sum that accumulates units in one of the indexes then you contribute a fixed amount each month to acquire more units. When the index is down, your contribution buys more units, and when it's up, your parcel grows in value. It's simple, it's totally stress-free and in more than 95% of cases, you'll beat the returns a fund trader delivers. I figure if it's good enough for Warren Buffett to recommend, it's good enough for you and me.
I currently hold an index fund with Vanguard, and it helps me to sleep at night. If I want excitement, I'll go bungy jumping or play in traffic.
The Best Investment
Noted hedge fund manager, writer, podcaster and thought-leader on life and wealth, James Altucher advocates peace of mind over everything. I couldn't agree more, especially since you and I know that stress is our number one killer.
I'm in lockstep with James in his belief that your best investment is you. By reading, learning and experimenting with ways to generate ideas that will produce income (instead of focussing only on ways to invest your meagre earnings), you expose yourself to infinite possibilities. You can only save so much but your potential to earn more is limitless. I've written about this in more detail in my blog post, The Best Investment for Men Over 40.
In today's connected economy, there are so many ways to turn what you know or what you love into a side business; there's really no excuse for limiting yourself to one pay cheque. Two other blog posts I recommend you read are A Job is Optional and Create a Side-Business from what you Know.
At the end of the day, I'm no financial guru, but I have tried a lot of things. At my age, I value a stress-free life more than anything, so when it comes to investing, my philosophy is very simple.
- Invest in learning how to deliver value to those I serve so I can broaden my income streams.
- Actively invest in property, where I can effect some impact on the returns.
- Passively invest in something that just works without my input, so I don't have to worry about it – Vanguard.
If you combine my method with a deliberate approach to kerb wasteful spending, a good life – financially at least – is definitely attainable.
Tools and resources for entrepreneurs that I use myself.
Books for Entrepreneurs in the New Economy
The 4-Hour Work Week – Tim Ferris
Tim's book is responsible for fuelling much of today's solopreneur phenomenon. A must-read.
The $100 Startup – Chris Guillebeau
Chris debunks the old myth, “It takes money to make money,” with plenty of examples to relate to.
Purple Cow – Seth Godin
Seth is a pioneer from the earliest days of the Internet and a trailblazer in today's ‘connection economy'. Read everything he writes. Seriously.
Jab, Jab, Jab, Right Hook – Gary Vaynerchuk
Gary V is loud, rant-prone and tends to swear a lot. But no one knows social media better. Read and learn.
This post is part nine of a series called ‘Fix Your Money Problems Forever'. Check out the others in this series.
1. Know WHY you’re Spending
2. Don’t do a Budget
3.Good Debt, Bad Debt and Ugly Debt
4. Trapped by debt? Go on a killing spree!
5. Pleasure-seeking may cost you your freedom.
6. Eliminate Crap from your Life
7. To Save Money, buy Premium
8. Create a Business From What you Know
9. Invest Well and Sleep at Night!
Thanks for stopping by and I hope we get to hang out more in the future. And in the meantime, please feel free to share your own experiences. You can email me directly at firstname.lastname@example.org. I respond to all emails. If this was beneficial to you, please consider subscribing and sharing with someone you think would also benefit.
Disclaimer & Disclosure: I'm not a psychologist and I'm not a financial advisor's elbow. This material doesn't constitute financial advice but rather a collection of personal opinions, based on my own experiences. Some of the links on my site are affiliate links, which means that if you make a purchase, I will earn a small commission. This commission comes at no additional cost to you. I provide links to services or products I have used and liked or researched and recommend. Please do not spend any money on these products unless you believe they will be beneficial to you.
Also published on Medium.