What is a Stockbroker? How to Invest in the Stock Market

Are you wanting to start investing in shares, wondering what is a stockbroker? Or overwhelmed working out which stockbroker is best?

Before investing in the Stock market you should have:

Paid off any bad debts – You won’t outperform the interest rates on bad debt. Find out what are good debts, bad debts and what’s the difference.

Worked out your goals

Decided on a broad wealth building strategy

Made a financial plan.

Have cash available in case of emergency

You should then know:

  • How long you have to invest before you want to start withdrawing
  • How much cash you have to invest and how often
  • Whether you are aiming for capital gains, dividend income or total return
  • Understand your risk tolerance
  • Whether you plan to use an active or passive strategy, or a core and satellite approach

How to Start Investing in shares:

What Are Shares?

Shares are sometimes known as stocks or equities, these all mean the same thing. Shares are an easy way to benefit from partial ownership of businesses. Businesses are divided into many “shares” for sale to investors.

The businesses get an injection of cash, the investors get to benefit from the profits (or not) from the business as long as they own the shares.

IPOs

Companies “float” on the stock exchange in order to raise money, often to fund business expansion. This is known as an Initial Public Offering (IPO).

An advanced skill set is required to pick the few of many IPOs that are not overpriced and will provide good returns over the long term.

IPOs can be accessed through your stock broker, sometimes from the company directly or via online platforms that often allow fractional ownership (Investing with small amounts of money from each investor).

Purchasing Shares on the ASX

The secondary market is where most people buy shares. Shares are brought and sold via the Australian stock exchange (ASX). What is a stock broker’s role? A stockbroker coordinates the buying and selling of shares on the ASX.

The price of each share is set by the continuous balance between the supply and demand of shares available.

If more people are optimistic (Bullish) about a company so want to buy it, the price goes up. If more people are pessimistic (Bearish) about a company and want to sell, the price goes down.

The share prices of individual shares (and the entire stock market) can fluctuate wildly in a day.

Trading on the Stock Market

The whole aim of the game is to buy low, sell high. Sounds simple.

Stock market traders try to do this by buying and selling to make quick profits (often in the same day). The stock market in the short term is extremely unpredictable, “trading” is gambling for most.

Any profits that are made are then taxed at your marginal rate (but offset against losses).

What is a stock broker’s interest in trading? Each time you buy or sell investments, the stockbroker is paid a brokerage fee. Many platforms encourage active trading, as it makes a greater profit for the stockbroking platform.

Picking Stocks

Share prices of individual companies can fall to zero. Even companies “Too big to fail” sometimes go broke. You could lose all of your investment if you choose a company that completely collapses.

It is common for professionals who have excelled in their field to assume their brilliance extends into the world of finance. Even Warren Buffett suggests passive index fund investing.

How to Make Money on the Stock Market

It’s no secret that you make money on the stock market by buying low, and selling high. The stock market as a whole has increased in value consistently over time. It should be easy to buy low, and sell high several decades later.

Stock market volatility (along with lots of media hype) is powerful in whipping up storms of greed and fear.

Our emotions often lead us to buy high (not wanting to miss out) and sell high.

What are the Benefits of Investing in the Stock Market?

Owning a business has the potential for creating limitless income (think inventing the next Amazon).

But starting your own business also involves huge amounts of risk, and results in your assets being vulnerable due to concentration risk (all your eggs in one basket). Doctors, in particular, are known for often doing poorly when starting businesses.

The benefit of share ownership is that you can own a tiny part of thousands of businesses, all over the world with a few clicks!

How to Start Investing in Shares: What are the risks?

Volatility

For the uninitiated, investing in the stock market often seems akin to gambling. Prices rise and drop in seemingly random and dramatic patterns.

The thought of putting your own hard-earned cash into an investment that could halve in value tomorrow is unappealing.

Humans have a tendency to focus on the short term. Historically the best investors are those that have died, followed by those that forgot about their investments!

You need to forget about your investments, and set yourself a reminder to check them in a decade!

Risk vs Volatility

Financial literature talks a lot about risk tolerance. The idea is that some people are innately more risk-tolerant (aggressive) than others. Robo- and financial advisors ask a series of questions to ascertain your risk tolerance and base your investment recommendations on that.

The general idea in investing is that to get a bigger return, you have to take on more risk. Investing in more index funds vs bonds in your portfolio is associated with higher risk (actually volatility) but over the long term should deliver higher returns.

Volatility is often referred to as risk in financial literature. I think of them separately. Risk to me is the potential to lose your capital. Volatility is the bouncing around of your investment value, and potentially sleepless nights from losing money on paper (unless you sell!)

Investing in a single investment or stock (e.g. Myers) that could go bust involves risk. Investing in a broad, passive index (e.g. VAS), involves little risk of losing all your capital. It can however involve a lot of volatility. If you sell at the wrong time, you can lose a lot of money.

Risk Tolerance

High risk investments should not be taken on by those who cannot afford to lose their money.

A couple I know received a significant inheritance, but already in their 60s had little time for compound growth. They were seduced by a commercial property development deal (through their own builder-renovator) with a promised return of 15%. The couple, with no previous investing experience, invested (and lost) the lot.

Another retiree withdrew his entire superannuation to invest in a franchise. It was far harder to make a profit than he thought. The business went bust, now he is living off the aged pension alone.

Always consider risk first. Be very careful trying to make up for lost time by chasing investments with higher risk and return. Always understand the risk you are undertaking thoroughly.

Volatility Tolerance

A common error is to overestimate your own volatility tolerance, chasing higher returns in the hope the market continues it’s upward (bull) run forever.

The market always falls. The media scream that the sky is falling, and the world will never be the same. The outcome depends on your behaviour. If you panic and sell, you will lose money. If you can hold your nerve (and even invest more), when the market recovers you will probably be unbearably smug.

Developing Volatility Tolerance

I don’t think volatility tolerance is a set characteristic. The volatility in the market takes some getting used to. On my first exposure to the stock market, I did what many newbies do, panic.

With a couple of thousand invested, I sold when my balance dropped. As a medical student, I had been advised to open the account by a family member. Despite the fact I had no idea what the stock market was about, and needed the money later in the year to eat! I shouldn’t have been invested in the first place!

With repeated exposure over the years, through superannuation, micro-investments and LICs, I have developed more volatility tolerance.

I had to ban myself from logging into my superannuation account in March 2020. However, I did invest more during the downturn, which soon recovered.

This is a huge reason, in my opinion, to start investing before you have decent money to invest with.

Practice and go through the emotional rollercoaster of market ups and downs with a micro-investment account first.

Only by experiencing the volatility with your own savings will you understand your own volatility tolerance (and it may grow with experience).

If you grow a reasonable amount in your micro-investment account, the fees become inefficient. It is then time to withdraw and invest via a stock broker.

How Long Do You Need to Invest in the Stock Market?

Because of the volatility, and short-term unpredictability of the stock market, investing for a period of less than 7-10 years is generally not recommended.

If this is cash you need, and if it fell in value you would still need to withdraw it, don’t invest. Don’t invest your student loan money you need to pay for food later in the year!

It is Never the Right Time to Invest in the Stock Market

In December 2016 the media were warning of an impending crash, and my “financial advisor” (actually insurance salesman) talked about moving investments to cash.

Every professional seemed to think there was a crash about to happen. The returns in the 3 years between these dire warnings and the actual (fairly short lived) crash were impressive.

It feels like swimming against the tide. It’s nerve racking. But someone is always forecasting a crash. If you listen to the constant fear mongering, you may never enter the market.

Most of the time, by delaying investing you are missing out on good returns. Far less often do you succeed in waiting until after the crash.

Even then, what do you do after the crash, when there are still warnings it’s going to drop again (as currently post COVID market recovery).

Have a Strategy for When the Market Does Crash

Markets crash. If you invest in the stock market, you need to accept your investments halve in value sometimes. Having a strategy to handle this will help you get through it without doing anything stupid.

My strategy is simple:

  • Don’t log in to check investments while I’m hearing horror stories.
  • Only check in on investments once I hear several announcements of the recovery.
  • If I can earn some more or have spare cash, invest in tranches for every 10% drop (I actually find doing this helps me feel like I’m in control of the situation)

Debt Risk

Aggressive investors may use leverage to augment market returns. Leverage also means you can lose more than your investment.

You are reading an article about how to get started investing in the share market. Margin lending, debt recycling and leveraged ETFs are not for you yet, if ever.

How to Start Investing in Shares: Minimum Investment

The minimum investment in the Australian stock market is $500.

But in order to purchase or sell stocks (or ETFs), brokerage fees need to be paid.

Brokerage fees are often the same whether you are buying $500 or $10,000 of a stock or ETF. Therefore, buying in parcels of $3000+ is more cost-effective.

You can use an investing frequency calculator to decide how often you should invest with the money you have available.

How to Start Investing in Shares: Choosing a Stock Broker

Brokerage Fees

Full-service brokers are old-school, an expensive broker who provide full service including advice. Brokerage fees of $50 or more are involved in each purchase, so you would need to be confident the broker has adequate expertise and your best interests are aligned with his / her own.

Online brokers are what most investors will use, and are certainly more cost-effective for passive investing strategies.

Different brokers use different fee structures. Don’t be fooled by the ad claiming “Brokerage fee” trading. A brokerage fee does not mean fee-free. All these companies need to make a profit. Compare the fee structures carefully to decide what is the most cost-effective option is for your planned investment schedule.

Types of Fees

Brokerage

This is the traditional fee model. Brokerage is charged by the company on purchase, and selling of a share or ETF. Online brokers tend to charge $10-$20 per trade (up to $10,000 – $20,000).

Management fee

Many companies are using “brokerage fee trading” as their advertising angle. Instead of a brokerage fee on purchase or selling, they charge you an annual fee for all your funds invested.

For those wanting to invest little and often, this fee structure can be more efficient in the short term.

Micro investment robo advisors are a reasonable option for getting started in the share market.

Because management fees are charged every year, they can end up costing a lot more than just paying brokerage for long-term investors.

Micro investment apps are really a stepping stone, before investing using a stockbroker once $20,000- $30,000 is accumulated, confidence and strategy developed.

Inactivity Fee

Some brokers charge an inactivity fee. If you don’t trade within a specified time period, you are charged a fee.

To be avoided if you plan to an irregular investor (for example purchasing once you have $10,000 saved).

Part of my emergency plan in case of drop of income or other financial disaster is to stop investing in the share market.

Being charged an inactivity fee in this situation is unhelpful, and I suspect I would forget to close the account.

Access to International Markets

If you plan to buy international funds, you will need a brokerage account that has access to overseas markets. Not all Australian brokers do. You can easily find this out on the website or the decision tool below.

If you are looking at international funds, you will want to look at the exchange fees charged. This is how some international brokers earn their income.

You can generally access broad international ETFs via the ASX, so only need true access to international markets if you plan to trade international stocks.

Online Advice and research

Some online brokers try to bridge the gap between a traditional online “discount broker” and an expensive “full-service broker”.

These platforms charge additional fees, but provide access to research and recommendations to help with stock picking.

Cash Management Account & Ability to Buy Quickly

Some brokers make you transfer cash into a cash management account before buying. These generally pay low interest.

For regular, dollar cost average investors this probably doesn’t matter. For anyone wanting to take advantage of market dips, you want to be able to buy quickly. Some brokers allow you to buy, and then transfer the money to cover the purchase.

During times of extreme market volatility, ANZ share trading platform completely failed. If you were looking to buy during the dip, this would have been frustrating.

Online Safety

The majority of security breaches with online share trading are user error. In order to minimize your risk, set complex passwords, and never share them.

  • Don’t use shared computers for share trading.
  • Ensure you are logging into the actual stock brokers website and not clicking on a scam link.
  • Keep a record of your shares somewhere other than your stockbroker.
  • Check the share register (your shares should be registered) in case of fraud.
  • Keep your anti virus protection up to date.
  • Only log in to your online broker with a secure internet connection.

Stock Broker Safety

Your stockbroker should use high-end encryption to hide the data you are entering from anyone else.

They should have a security area on their website explaining what steps they take to ensure top-notch security

The broker needs to have a financial services license, and insurance to cover any claims.

They should have a robust, 2-factor log-in process and procedures for handling fraud.

Size and reputation

How long has the broker been in business? Is it backed by a bank or large financial institution? Are there online reviews available?

Customer support

If there is an issue, what sort of customer support is available. Is a phone number to call important to you?

What is the broker’s process if your account is fraudulently accessed?

What Happens if the Stock Broker Goes Bust?

When a broker states shares brought through them are CHESS-sponsored, that means you legally own the shares. You will receive a Holder Identifier Number (HIN) that proves ownership. If your broker was to go out of business, you can use the HIN to transfer your shares to another broker.

The alternative to CHESS sponsorship is the custodian model. This means the stockbroking company owns the shares and maintains a register of what you are entitled to. If the stock broking company becomes bankrupt and ceases to trade, it may be more difficult to prove ownership.

Easy to Use Interface

Last of all, is the platform intuitive to use? Does it display information in a way that makes sense to you? Do you want a mobile app, and if so is this available?

What to Invest In

Investing should follow an overarching strategy you have worked out in advance. That can begin very basic and evolve over time.

Starting with broad-based Australian and international index fund ETFs is a common and easy strategy. Check out Passive investing Australia for more reading on designing your own portfolio.

Ordering your Investment

If you have a full-service broker, you will need to call them. For the majority of us, investment purchasing will occur online.

When you have chosen your investment, you will put an order in on your broker’s online platform. With stocks, there are a set number of each stock in existence. There is no guarantee that the stock you wish to purchase will be available (someone needs to be selling). With large company stocks and ETFs with good liquidity, there should always be stock available.

You can purchase using a market order or limit order.

Quantity or Value to be Brought or Sold

You can order a set number of shares or a dollar value you want to buy or sell. I’m not sure why you would want a specific number of shares, it seems easier to order the dollar value you wish to invest.

Market Order

A market order is when you order the stockbroker to buy the stock as soon as possible.

The speed of the transaction is dependent upon the actual processing time, and the purchase occurs at whatever the market price is at the second the order is filled. In a volatile market, the price can move quickly.

If there are not adequate shares available, your order can be only partially executed, or executed at two different prices, if the market value changes partway through the transaction. This is more likely to occur in very large orders or less liquid stock.

If a market order is placed outside ASX trading hours (only 10 am-4 pm Monday to Friday), a market order will be filled at opening. There can be significant variation in price between closing and opening, due to the number of orders placed.

For the passive dollar cost averager, who wants to invest every month or three with little regard for the price, market orders are very appropriate.

Limit Orders. 

Limit orders allow you set a maximum price you want to buy at. This can be useful for investors who are purchasing out of trading hours (they are at work).

You set a time limit for the order to go through (could be the same day, or within 30 days for example). The stockbroker will execute the trade if they can match your order with a seller.

There is, however a risk that the trade doesn’t go through. If the price of the stock increases above your maximum buy price, you may have to change your order to buy the stock. If you are going to buy it regardless, a market order is easier.

Limit Orders to Take Advantage of Dips

Limit orders can be useful if you want to buy extra when the market is dropping. You can set up a buy order if the price drops by 10%, 20% etc and means you don’t need to obsessively watch the market.

If you have had to transfer the cash for the purchase into your cash management account prior, it is earning minimal interest in comparison with your offset account. If you (i.e. with Commsec) can buy and then transfer funds, you must transfer the funds within the time limit to avoid a fine. Commsec email you when a trade goes through to prompt you to transfer funds.

Limit orders can also be used in selling stocks, to set a minimum price you are willing to sell your investment.

Trailing Stop Loss

A trailing stop loss is a strategy used by traders to limit the loss made. A sell order is set if the investment falls a preset amount or percentage. This makes little sense to passive long-term investors, given the aim is to buy low and sell high.

“Bid” and “Offer”

Many stockbrokers display the bid and offer prices. These are the maximum a buyer has bid, and the lowest price a seller has offered to sell the stock.

These are only an indication of the prices available the second you are looking at it. The prices bid and offered change second to second (and may have altered by the time your market order has been processed).

Paying for You Shares

Some stockbrokers require the funds for an order to be already sitting in your trading account. Others allow you to place the order, then transfer the funds from your bank account within 48 hours. If you fail to transfer the funds in time (for example by setting a limit order and not noticing it has been executed), a fine (~$100) will be applied to the account.

Share Registry

Once you have purchased your investment, you will receive confirmation from the share registry, with your holder identification number (HIN). This is the documentation you need to prove ownership in the event your stock broker ceases to exist, or there is fraudulent activity on your account. It makes sense to keep physical and electronic copy backed up somewhere safe.

Monitoring Your Investments

If you have an active investment strategy, you will need to monitor the performance of your investments regularly, and rebalance your portfolio 2-3 times a year.

If you have a passive strategy, automation is your friend. The best investors historically are those that either died or forgot about their account! If you have multiple ETFs, an annual or bi-annual rebalancing will keep your portfolio allocation roughly aligned with what you intended.

The largest risk to your investments is your itchy fingers! People tend to be constantly distracted by the next big thing, or are tempted to withdraw investments to pay for lifestyle purchases. A clear strategy, written plan, and discipline are required to be a successful investor.

Be Mindful of the Tax Man

Every time you sell shares, you will have to pay tax on any profits made.

Dividend income is the regular income provided by some shares and ETFs (instead of profits being invested back into the company for expansion). Dividends are taxed at your marginal rate (45% if you earn >$180,000).

Capital gains are the increase in value of your investment between purchase and sale. No matter how much the stock price has increased, you are not taxed on capital gains until you sell.

Capital gains tax is also generously discounted by 50% from your marginal rate as long as you have held your investment for over 12 months.

A focus on capital gains over dividend income, therefore, makes a lot of sense to most who still receive employment income, and don’t intend to live off investments for many years.

ShareSight Makes Tax Time Easier

ETFs are tax-efficient, but at the same time add complexity.

Sharesight is a free (for up to 10 holdings) online platform that tracks all your investments and provides all in one tax reporting.

What is a Stock Broker: Comparing Australian Stock Brokers

What is a Stockbroker: Commsec Review

Commsec is more expensive than many of the new online trading platforms. Its appeal comes from being the largest, and most trusted stockbroker in Australia, and also the ability to trade quickly and transfer the cash over after. The platform also boasts a host of features, online education and an active online community discussion group.

Set Up Hassle

To get started opening a Commsec account online, the initial steps are easy and clearly set out. It takes a few days after this for Commsec to contact you, with a few more steps until you are ready to trade. It wasn’t completely intuitive and felt challenging at the time, but their phone customer support was great.

Fees

Brokerage fees start at $10 for trades under $1,000, $19.95 for trades up to $10,000 and $29.95 for trades up to $25,000. There are cheaper options available. Some still prefer to use Commsec if they trade infrequently and value the ease and security of the Commsec platform, or want to take advantage of limit orders with 48 hours to transfer the funds after investment purchase.

There are no management fees or inactivity fees.

Access to International Markets

Commsec do offer international trading, although you have to set up a Commsec International share trading account, separate from the regular share trading account.

Cash Management Account / Ability to Purchase Quickly

The above fees are only relevant if you are happy to open and settle into a cash management account, rather than directly from your bank account.

Given you can purchase at any time and move the funds into the cash management account within 48 hours, this seems acceptable. You will want to make sure your bank is capable of making fast transfers. I checked my banking website and then tested timing how long it took to transfer $1 to my cash management account before assuming I could get the money cleared within 48 hours.

Other Features

Commsec allows investment accounts to be opened up in joint names, trust, companies and self-managed super funds.

Commsec pocket is a micro-investment platform that is CHESS sponsored. It offers a choice of 7 investment choices and $2 brokerage for up to $1000. It allows automated regular investing.

For those with a commonwealth bank account, investing $1000 at a time, fees are comparable to Commsec. This certainly looks like an option for those overwhelmed by investment option, and a great way to get into a regular investing habit. Over the long term, paying brokerage will work out cheaper than paying a management fee as with Vanguard personal investor (0.2% annually)

Commsec is integrated with Sharesight, making tax time simpler.

Size & Reputation

Commonwealth is the largest bank in Australia. It is the most trusted, and most commonly used stockbroker.

Customer Support

There are email contact details and phone contact details on the Commsec website. Customer support are friendly and patient

What Happens if they go Bust?

I don’t think anyone could imagine the biggest bank in Australia going bust, and suspect the government would bail them out if some catastrophe did occur. However, never say never, I guess no one thought Lehman brothers collapsing was a likely scenario (see the Big Short, available on netflix).

Commsec is CHESS sponsored, so as long as you keep your share registry paperwork, you could move your investments to another stockbroker if Commsec collapses.

Easy to Use Interface

Once the account is open and functional, the platform is very easy to use. They have a mobile app as well as a desktop site. There is a lot of educational material on the website, and Query buttons next to the options to help.

What is a Stock Broker: Self Wealth Review

Self-wealth is the best known of the new online trading platforms that undercut the big players on brokerage fees. It is CHESS sponsored. The major appeal is the low brokerage fees. If you buy shares monthly, this could save you over $100 in a year.

Set Up Hassle

Captain FI reported in that setup is relatively painless. It is still not instantaneous, as there is identity verification processes that need to occur (as with all brokers).

Fees

Selfwealth charges $9.50 for a trade of any size. It’s half the price of a $10,000 trade with Commsec.

Access to International Markets

US and Australian trades available

Cash Management Account / Ability to Purchase Quickly

Selfwealth does not allow you to trade from your own bank account. You must transfer funds to the cash management account before you can trade, and this often takes 2 days to clear. This is a non-issue if you are regularly investing no matter what the state of the market. But it makes it very difficult to take advantage of market dips.

Other Features

Self-wealth premium is a paid feature (with a free trial) where you can see what trades other self-wealth members are making. Of course, it is fairly likely they know no more than you. Following others blindly rarely leads to good outcomes, and we know from studies of fund managers that last year’s top performer is rarely next year’s top performer.

Self-wealth can also allow you to open an account as an individual, joint account, trust or company.

Self-wealth is integrated with sharesight, making tax time simpler.

Size & Reputation

Self wealth has been around since 2012. Over 46,000 active investors are using the platform. It has a small proportion of Commsec’s customer base and trust, but growing rapidly.

Customer Support

Customer support available includes live chat and email, no phone contact available.

What Happens if they go Bust?

Because Self wealth are CHESS sponsored, as long as you have your share registry paperwork you can transfer your shares to another platform

Easy to Use Interface

SelfWealth won the Fintech Business of the Year award at the 2016 Optus My Business Awards. Reviews suggest it is an easy to use platform.

What is a Stockbroker: Pearler Review

Set Up Hassle

Currently slow. Still in beta testing so expected to improve significantly as processes are ironed out. There is currently a waitlist so it can take a few weeks to be approved.

Now out of beta testing. Sign up was very smooth and minimal hassle

Fees

Trading is $9.50 per trade up to $17,500. Brokerage is discounted if you purchase credits in advance – currently down to $6.33.

Access to International Markets

US trades are in testing currently

Cash Management Account / Ability to Purchase Quickly

Funds are transferred into a client trust account with Macquarie prior to the purchase of investments.

The platform is not suited to purchasing on market dips quickly. As you will hear, Pearler is very much a platform built around dollar cost average investing regularly and automatically.

Other Features

The really exciting part of Pearler is the combination of the advanced auto-invest feature with very reasonable fees. It is even possible to set a target portfolio allocation and allow the platform to invest your regular investment in whichever investment is most underweight.

Automation is an extremely powerful tool in achieving goals. If you have to log in to your share trading account and transfer a few thousand dollars of your hard-earned cash every few months, there is a temptation to delay investing or forget about it all together.

I anticipate now Pearler have paved the way, other brokers are likely to introduce automatic investing as a feature.

Pearler is also integrated with sharesight, making tax time simpler.

Size & Reputation

Has quickly built a customer base and trust. Particularly popular with the FIRE community, for which the platform was designed.

Customer Support

Phone contact and email as well as instant messenger. My queries were responded to quickly.

What Happens if they go Bust?

Pearler is CHESS sponsored, so as long as you have your share registry paperwork you can transfer your investments to another broker.

Easy to Use Interface

Intuitive interface, and the team have been extremely responsive to feedback and making improvements when they are suggested.

Read more in my detailed Pearler Review.

What is a Stock Broker: NAB trade Review

Set Up Hassle

Will need to provide identity verification and Tax file number.

Fees

NAB trade offer smaller trades, $14.95 for up to $5000.

$5-10,000 trade is $19.95.

NAB Trade also offers international trades, with brokerage starting at $14.95

Access to International Markets

Yes. US, UK, Hong Kong and Germany markets available

Cash Management Account / Ability to Purchase Quickly

You will set up a NAB trade cash account as part of the set up process. It can take up to three days for cash to clear before you are ready to trade.

Other Features

NAB trade allow you to open an account as an individual, joint, trust, minor, company or SMSF

Size & Reputation

NAB is one of the “Big four” banks of Australia. As such, it is a huge and trusted platform

Customer Support

Phone or email

What Happens if they go Bust?

Again, seems very unlikely the Australian government would let one of the big four banks go bust.

Easy to Use Interface

Similar to Commsec, NAB Trade have a user-friendly platform, and mobile app available.

What is a Stockbroker: ANZ Share Investing Review

Set Up Hassle

Requires identification verification as do the others.

Fees

The standard (default) account will charge you $19.95 per quarter unless you have $10,000 in holdings or have made a trade in the last six months.

You can get out of this by changing to the basic account, but by the looks of the site you need to actively remember to do this to avoid fees.

Brokerage is relatively expensive at $19.95 for up to $5000, $24.95 between $5,000-$10,000. Fees are discounted for the second and subsequent trade within a month.

Access to International Markets

Access to US, UK, Canada and Asia. Brokerage starts at $59!

Cash Management Account / Ability to Purchase Quickly

Identification will require verification. Process takes 1-2 days. Have to have funds cleared in your share investing account before you can make a trade.

Other Features

There is a learning centre which contains articles claiming to give you the knowledge to become an “experienced trader” hmmm.

Size & Reputation

One of the big four banks, so the public have faith in ANZ as a bank. The share trading, however have a poor reputation for being slow, failing to process trades.

Customer Support

Phone

What Happens if they go Bust?

Shares are CHESS Sponsored. Very unlikely to go bust, but could move shares through your share registry account

Easy to Use Interface

Not from reading online reviews. Even if you bank with ANZ, have a look elsewhere to see which stockbroker is ideal for you.

What is a Stock Broker: Westpac Share Trading Review

Set Up Hassle

The usual setup process with identity verification will occur, and you need to provide your TFN.

Fees

For the “Investor” account $19.95 per trade up to $18,136 with no monthly fee.

Access to International Markets

Trade US stocks online, 25 other international stock markets by phone only.

Cash Management Account / Ability to Purchase Quickly

The cheapest brokerage listed above is with their “Cash Investment account” which you will need to wait for funds to clear before investing.

Other Features

Westpac offer their own “Ready made portfolios” for overwhelmed beginner investors. The management fee though is 0.42% for the “Growth portfolio” which is more expensive than Vanguard’s Personal investor.

You can open an individual, joint, company, trust or smsf account

Size & Reputation

Westpac being one of the big 4 banks is well trusted and very large.

Customer Support

Customer support available by phone

What Happens if they go Bust?

As a Westpac Share Trading client, shares will be broker sponsored by the Australian Investment Exchange (AUSIEX) on the CHESS subregister.

Easy to Use Interface

Westpac have an easy to use online interface and an app.

Conclusion: What is a Stock Broker?

A stock broker is the intermediary you need to help you buy investments listed on the stock exchange.

Which stockbroker is best suited to you depends on

1. How large / often trades you will make

2. Whether you need to access international markets (beyond large international ETFs available on the ASX)

3. Whether being able to buy quickly (without waiting for funds to clear) or auto-invest is important to you

4. Whether you are happy to go with one of the new online brokers, or feel more comfortable with an old school bank with plenty of market share and long standing reputation.

$1000 trade$5000 trade$10000 trade$15000 tradeInternationalNotable Features
Commsec$10$19.95$19.99$29.99YesAble to purchase before transferring cash
Self Wealth$9.95$9.95$9.95$9.95USAward winning platform
Pearler$9.95$9.95$9.95$9.95USAble to set up auto-invest regularly 
NAB Trade$14.95$19.95$19.95$29.95Yes
ANZ Share Investing$19.95$24.95$29.95$29.95Yes
Westpac Share Trading$19.95$19.95$19.95$19.95Yes

Looks carefully at what a stockbroker fee structure is to choose the best broker for you. Ensure your stockbroker has “CHESS sponsorship” to make sure that even if the stockbroker goes out of business, you can prove ownership and move your investments.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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No More Keeping Up with Dr Jones: New Year New Finances

New Year New You? Focus on moving in a positive direction in 2021

Most doctors are blessed with having a meaningful and rewarding career they love.   The average intern wage is around $70,000, rising well above average Australian income within a few years. 

Doctors are in a privileged position of earning enough to cover the necessities (food, shelter, transport) fairly easily.  This then allows opportunities and choices that only comfortable incomes can provide.

The oddities of behavioural economics can quickly become preposterous in those with higher incomes.  Many households feel trapped financial commitments, often not understanding where their generous incomes disappear. 

Some doctors will spend everything.  They fail to save enough for investments, emergencies, timely, lavish retirement or (planned or unplanned) time off work.

While income is barely adequate, people dream of paying bills worry-free.  Many feel that this financial security would be “enough”. 

But barely as soon as this income level is exceeded, and the household is financial stress-free, aspirations tend to grow.  It only seems reasonable to treat yourself to a better car, a bigger house and more luxurious holidays.  Somehow the income is never quite enough to pay for everything.

The pleasure brought about by indulgent purchases tends to be short lived, even if it provides ongoing greater comfort.  We become accustomed to the greater level of comfort, and take it for granted.  

Hedonic adaptation is described in a recent study which found even lottery winners’ long-term happiness wasn’t affected positively by their windfall.   We risk never achieving contentment by continually chasing the next indulgence. 

 

New Year New You: No more Mindless Spending

When people no longer have to worry about paying their bills, they can stop organising or planning their money. 

Discretionary spending on luxury expenses tends to grow and fill the gap between income and expenses.  Previously considered “Luxury spending” soon become considered “Essential spending”.  Gym and golf club memberships, subscriptions and upgraded car payments are all valid ways to spend the money you earned – if you value them.

Thoughtless spending can increase to a ridiculous level.  It’s easy to dismiss the 200%+ premium paid for convenience when $5 or even $20 doesn’t seem significant.  The sense of value for money is lost, and replaced with “I can afford it” or “I deserve it”.    In reality, this wasting of seemingly small values may be robbing the spender of more significant future rewards.

 

Do you track your spending to see how much really disappears through these thoughtless, often impulsive purchases?  Is there a better way this money could be directed?  Retirement savings, kids’ education savings and charitable contributions are contenders (maybe you have other ideas?).   There has been a trend of social media of posting what has changed in your life in the last decade.  Think ahead another 10 years, what would you like to have achieved?  Does it really include buying more stuff to show off?  Do you have any meaningful aspirations? 

Spending should be guided by the priorities of the household. It seems as if this should be obvious and automatic, but often the two become separated and it a wake-up call to bring them back in to alignment

New Year New You – No More Keeping Up with The Joneses

Status symbols are everywhere, from the houses we live in, cars we buy and clothes we wear. People seem to aspire to showing off how rich and crass they are.  The phrase “Keeping Up with the Joneses” is thought to originate from a 1913 cartoon about exactly this human behaviour.  The rise of mass media, then social media has just added fuel to the superficial, self-indulgent fire of consumerism.

Advertisement is cleverly designed to take advantage of the almost unanimous insecurity of humans that we are not enough.  How else can you explain the ridiculous decision some make to pay thousands of dollars on a bag? 

Marketing aims to convince our subconscious the product is needed to “keep up” or boast!  The most successfully promoted brands not only get consumers to pay top dollar for a product but plaster the company brands name across the product as free advertising!  And we consumers seem to lap it up!    

It all seems pretty silly, and most of us have probably rolled our eyes at hugely popular social media influencers making a living by posing as the images of “perfection” we apparently want to be.

But are doctors immune to this behaviour?  Certainly not!  Shackling themselves to excessive mortgages to buy the best house in the best suburb and buying luxury cars are not terrible decisions if the personal value or investment potential of these financial decisions are weighed carefully against opportunity costs.

The More You Earn the Less You’re Paid

Income tax in Australia is progressive, meaning the more you earn the more you’re taxed.  Tax rates peak at 45%.  In reality that means, as a fully qualified specialist, you work for less net pay as you work more hours.  Good news for those interested in lifestyle optimisation; cutting down to part-time will likely mean a smaller cut in income than you would expect. 

In the example below a specialist earning a generous, but not unrealistic $250,000 gross annually for full time work and is considering cutting down to 30 hours per week. 

  Full time Specialist 0.75 FTE Specialist
Gross Earnings $250,000 $187,000
Net annual Take home $164,000 $130,028
Average Take home per Hour $79 $83

Now this is a simplistic comparison, not taking into account the medicare levy, childcare rebates (which would both be more advantageous for the lower earning specialist) or the likely lower opportunities for career progression associated with part-time work.

Some doctors clearly live for the job and love to be there all the time?  Others enjoy work more when they’re working less, or wish to spend more time caring for children.

New Year New You: Make Active, Conscious Spending Decisions

With a small amount of active planning, and practising conscious “switched on” spending a healthy surplus (or freedom fund) should be easily found which can be directed in to investments to provide you with choice in the future. 

At the intern stage, most will have significant student loans to pay off, but there is no rush.  Plan to live within your means during this year.  Spend less than you earn and save something regularly (no matter how small and seemingly insignificant).  Increase your savings each year as your wage goes up, and when they start to become significant (always surprises me how quickly this seems to happen) start considering a plan for making your money work for you. 

There are many distractions along the way, and you will be surrounded by doctors buying fancy cars, and expensive houses, spending money as if it’s burning a hole in their pockets. 

Subscribe to something that will help remind you to keep spending in line with your values, and set yourself a date to review financial goals once or twice a year (New year and tax time for me).  

Remember to Allow Fun Money

It’s important to have some completely guilt free money – an allocation for each person in our household to spend how they see fit. 

Our discretionary spending budget is allocated and automatically transferred to our individual accounts every pay day.  It stops me feeling guilty for ever buying anything frivolous, allows me to save for selfish, but wonderful experiences, and stops my partner from raiding the financial cookie bin. 

We also have a holidays account, which I have recently emptied to take the family to Lapland – a once in a lifetime trip I admit is self-indulgent but in line with my familys’ priorities.

What are your financial goals for 2020 and beyond?

 

Property to Invest in – Mixed Capital Growth / Income Focus – Smart Money Lounge

The Smart Money Lounge –Thanks to George at the Smart Money lounge for this week’s wealth building strategy – finding property to invest in with mixed capital growth/income focus.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

George is a health care professional with a side hustle blogging and podcasting at Smart Money Lounge. I’m itching to hear what he has to say!

What are your investing goals?

100k/year passive income for me and my wife

What is your investing time frame?  How far along are you?

Difficult to say as we plan to slowly taper off part-time work over many years, as we build our passive income. We are lucky in that our professions offer a lot of flexibility in this area.

As a rough estimate, I would say we are around the half-way mark.

What the most powerful wealth building tool available to you?

Id say my tertiary education/skills.

I was only able to gear into investment properties as a result of them.

What wealth building habits are you utilizing to reach your goals?

Earn as much as possible

Save as much as possible

Invest the difference in a way which maximizes returns while minimizing risk.

What is your strategy to achieve this?

Buy and holding quality blue chip assets that produce an income.

What makes your strategy suit your personal situation?

By focusing on a strategy of ‘accumulation,’ I can reduce costs involved with buying and selling assets. I believe that this is the quickest way to reach my financial independence goals.

Where do you stand on home ownership vs renting?  Why?

Renting in most cases as it is cheaper.

In particular living at home, house sharing and renting out a room in your accommodation can largely reduce costs of dwelling.

Renting also offers you more flexibility if you need to relocate for your children or for work purposes.

Where do you stand on the great property vs shares debate? Why?

Property to invest in, if carefully chosen, and the suburb researched thoroughly.

I believe that in the current environment only select suburbs in Australia will generate decent capital gain returns.

Where do you stand on investing for capital growth vs income?  Why?

I believe that a balance needs to be struck between the two.

Do you have any financial regrets?

Yes, I have made lots of investing mistakes, but luckily they have been relatively small and haven’t set me too far back.

Any final suggestions?

  1. Find a financial independence target in regard to income/net worth and use it as your goal
  2. Work backwards and engineer a plan to reach that figure as quickly as possible. Understand that the three levers of wealth accumulation are earning, saving and growing your money. Work out if any these areas are holding you back as a ‘bottleneck’ to wealth accumulation.

If you are interested in hearing more about what I have to say, you can check out my blog and podcast at www.thesmartmoneylounge.com

To check out all the personal wealth building strategies shared by finance bloggers and podcasters with Aussie doc freedom see The Ultimate Guide to Wealth Building Strategies – the step by step guide to building wealth, including wealth building strategy index.

Wealth Building Strategy: Captain FI’s Cocktail of Passive Index Funds, Websites and Property

Thanks to Captain FI for this week’s wealth building strategy: A cocktail of Passive Index investing, websites and property.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

Captain FI is a young pilot in Sydney who through scholarships and incredible dedication managed to get through extremely expensive pilot training without getting into debt! He is working towards financial independence, and runs the Captain FI blog and podcast.

Pilots are high income professionals, also prone to lifestyle inflation, similar to medical professionals. Captain FI has bucked the trend and has achieved so much. Even the sky’s not the limit for this young pilot!

Website: www.captainfi.com

“9 to 5” profession: pilot 

Side Hustles:

Investing, website business, tutoring, flipping, matched betting 

What are your investing goals?

Fat Australia FI $6000 per month 

What is your investing time frame?  How far along are you?

I Want to reach FI by 30. Currently 29…. pretty close – About half way to my goal but business is accelerating that 

What the most powerful wealth building tool available to you?

Living cheaply, high wage, Website business income

What wealth building habits are you utilising to reach your goals?

Regular investment, DIY and gratitude 

What is your strategy to achieve this?

Investing my wage into Index funds, websites and property 

How long have you been using this strategy?

Index funds, 3 years, websites 1 year

Were there other strategies before?  If so, what made you pivot?

Initially, all money went to pilot training, then I tried property and managed funds, stock picking and finally settled on where I am at now 

What makes your strategy suit your personal situation?

I don’t have a lot of free time so value passive income 

Where do you stand on home ownership vs renting?  Why?

Rent because it’s cheaper.

Buying investment properties for long term capital growth and rental cash flow.

Only buy PPOR (principal place of residence aka own home) when you need the family stability 

Where do you stand on the great property vs shares debate? Why?

Interest rates are so low, so I personally buy shares rather than pay down a mortgage.

The power of cash on cash returns due to leverage is great too, so I am trying to max my serviceability out on investment properties on interest-only loans. Any surplus cash goes into index funds 

Where do you stand on investing for capital growth vs income?  Why?

Income is needed to FIRE, capital growth is somewhat more tax effective and this compounds faster, but ultimately you will need to either switch capital growth into income assets and pay a capital gains tax event, OR slowly sell down parcels for income.

Capital growth sell down strategy exposes you to risk of a market crash especially damaging early in retirement, so realistically I think building a baseline income of income assets (which won’t be as sensitive to market swings) to cover basic cost of living, and then concentrate on growth which you can sell down if favourable circumstances.

So both. This is what I’m doing 

Do you have any financial regrets?

Not investing sooner, being dumb picking stocks, spending far too much on my flying training 

Any final suggestions?

Track your expenses! 

To see all the Australia FI wealth-building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth-building strategies.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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How to Invest in the Stock Market: ETF vs Index Fund vs LIC

It is easy to become confused and overwhelmed whilst learning how to invest. The terms ETF vs index fund are often used interchangeably, and inaccurately. Meanwhile, Scott Pape advises Listed Invested companies (LICS) in the Barefoot investor (the book anyone with an interest in finance has read!)

Investors can sometimes delay getting into the market for YEARS due to hurdles like deciding between an ETF and an index fund. Working out how to actually purchase the investment (and which broker to use) stops others!

Time in the market is the most powerful wealth building tool. We must end the procrastination!

This How to invest in the stock market series aims to tackle the confusion in working out what to invest in, and how to do it!

A clear strategy and some confidence is required. Beginner investors need to prioritize fee minimization. Also, they need to decide whether to start with Exchange traded Funds (ETFs), an index fund or Listed invested companies (LICs).

Before actually starting to invest you need to:

Once you have decided you want to invest in the stock market without a financial advisor you will want to decide on:

  • DIY or start with robo micro-investments if you don’t have much money, time or both. If you are overwhelmed by options, signing up with a robo-advisor will get you into the market (in a sensible portfolio) in minutes.
  • Passive vs Active investments
  • ETF vs Index funds vs LICs
  • How to purchase your investment
  • Rebalancing and reviewing
  • Behaviour in stock market volatility
  • Tax

Passive Vs Active Investing

Passive investing has become increasingly popular in recent years. Very few professional investors (in Australia or the US) can outperform the index on a long-term basis.

It is very difficult for professional investors to compensate for the fees they charge.

Enthusiastic amateur investors perform, unsurprisingly, worse. Attempting to compete with professionals working full time with access to far more data, computer algorithms and experience, seems foolish.

Passive investing is a good place to start for the vast majority of investors. If you want to actively pick shares, consider the “Core and satellite” approach. This is where the majority of your portfolio is in passive funds, with small amounts invested actively by “stock picking”. You need to have undertaken plenty of self education and research into stock analysis before starting.

The amount of effort involved in attempting to outperform the index by a small amount is disproportionate to the returns.

Listed investment companies are actively managed. As the fees for older style LICs are comparably low (AFI is 0.14%), these are included in this article.

ETF vs Index Fund vs LICS

Index Funds

An index fund is a type of managed fund. They are passively managed and designed to own every share included in the relevant index. An index is a collection of shares, such as the top 300 Australian shares (ASX 300).

Index Funds Are Brought Directly From the Investment Company

Index funds are usually brought directly via the company website. No brokerage is required, but there is usually a minimum initial investment.

Index Funds Purchase is Processed at the End of the Trading day

Index funds can only be brought or sold only at the end of the day. This means the exact price you are purchasing at is unknown.

This may not be important to automated dollar cost average investors, but may be undesirable for those investing with a lump sum.

Index Funds are Ideal for Automated Investing

Automation is generally helpful for investors. It reduces impulsive investment strategy changes, and so will usually improve returns.

Dividends are automatically reinvested in index funds. This saves brokerage, tine and the risk of non-compliance with your own plan.

Index Funds Have Minimum Initial Investments

Until recently, Vanguard offered multiple index funds with a $5000 minimum initial investment.

Fees were slightly higher than the ETF, but the funds could be brought and sold without brokerage fees.

The absence of trading fees made the index fund appealing to those wanting to dollar cost average small, regular investments.

I hoped research for this article would help me decide whether the index or ETF was most fee efficient.

Index Funds Have Higher Fees than ETFs

Unfortunately Vanguard have stopped offering these managed funds to individual investors outside of their new “Personal Investor” service (at an additional 0.2% management cost on top of the fund fee).

This is disappointing! I am not willing to pay the additional fee (that now makes the ETF easily more attractive).

Vanguard have improved their VPI offering massively! Obviously, I wasn’t the only one unimpressed. There are now no additional management or brokerage fees for buying Vanguard products through Vanguard.

I have been unable to find another index managed fund with an acceptable management fee and minimum investment. As of 2022, VPI is a reasonable option. I have not changed over as I’m happy with Pearler.

Index Funds are Less Tax efficient than ETFs.

Because of the need to liquidate stocks when investors cash out, capital gains tax is paid within the funds.

ETF vs Index Fund vs LICS – Exchange Traded Funds

An ETF is also a type of Managed fund. ETFs can be active or passively managed.

Passive ETF’s can be based on an index fund, such as an ETF tracking VAS (containing the largest 300 shares in Australia).

ETF’s can also be narrow, such as a Marijuana ETF, purchasing only marijuana stock.

ETFs with the words “Synthetic”, “Inverse” or “Leveraged”, or covering only a narrow sector of the stock market, are an active, and higher risk strategy.

Most early investors are looking at a broad, passively managed index ETF.

To find this kind of ETF you are looking for the words “Index”, along with “Australian shares” or “World / international shares” depending on whether you are looking to invest domestically or internationally.

ETFs Are Purchased on the Stock Exchange

You need to open a brokerage account to purchase ETFs. Brokerage fees are charged on purchase and selling of ETFs, just as they are with individual shares, or LICs.

You will need to sign up to one of the many online brokerages (or full service brokerage if you want advice at a price).

ETF Fees are the Lowest but Brokerage Fees are Paid on Purchase and Sale

ETF fees are often very low, often slightly lower than the fees for index funds or LICs.

The basic Vanguard Australian shares ETF (VAS) charges only 0.1% per annum. The international shares Vanguard ETF (VGS) costs 0.18% per annum.

The minimum purchase for ETFs is as small as $500, but small regular investments like this are going to attract lots of brokerage fees.

The same brokerage fee often applies whether you are purchasing $500 or $5000 worth of an investment.

Due to brokerage, it is more cost effective to save up and buy a few thousand dollars of your ETF at a time (eg quarterly). If you want to work out how frequently is the optimum purchasing routine for your situation check out this calculator.

ETFs Can be Brought Any Time the ASX is Open – You Know the Exact Price You Are Paying

ETFs can be brought any time the relevant stock exchange is open, important for traders and those trying to time the market.

If you are buying in large parcels irregularly, your exact purchase price may be important to you. Check out my Commsec Review

Automated Regular Investing is Now Possible (eg Monthly / Quarterly)

For many of us, automation is really powerful in helping us stick to our investment goals.

Up until recently, it wasn’t possible to automate ETF investing.

Pearler is a new broker, set up specifically for those wanting to regularly and automatically invest in ETFs.

I have not tried the platform yet, but Captain FI gave a detailed review here. Automation is a powerful tool in keeping your investing consistent.

ETFs are Generally More Tax Efficient

ETFs tend to be more internally tax efficient than index funds or LICS.

An ETF is sold by an investor to another investor, via the stock exchange. When an index fund is sold, the fund manager sells securities to free up cash, incurring capital gains tax for all other investors in the fund.

ETFs, however, can be more complex in their tax treatment due to their trust structure. Sharesight can make tax time far simpler for ETF owners, and is free for the first 10 holdings.

Because ETFs are a trust structure, they have to pay out all dividends each year. Dividends can be irregular, resulting in increased tax burden some years and little control over the income withdrawn.

It also means more brokerage fees need to be paid to reinvest the dividends during the accumulation phase.

ETstF vs Index Fund vs LICS

Listed Investment Companies (LICs)

With LICs, you are buying shares in a company that invests in the stock market.

These are generally active investments, although the older style LICs such as Australian Foundation Investment Company charge fees comparable with index funds.

LICs Are Brought on the Stock Exchange

Similar to ETFs, you will need a broker to purchase LICs. Brokerage fees are paid when purchasing and selling.

LICs are Closed Ended Funds – Meaning they Can Trade Above or Below the Cost of the Underlying Assets

The “Net asset valuation” (NAV) is the value of assets owned by the LIC at the time. Due to LICs being a “closed end structure” (there are a set number of shares at all times), the share price of the LIC can fluctuate above and below the NAV according to supply and demand.

Barefoot investor suggests buying at a discount to NAV. Trying to time purchase at a time when the stock market seems undervalued, and the LIC is trading at a discount to NAV is a recipe for endless procrastination!

Don’t be distracted by trying to time the market, just plan an investing schedule and stick to it.

ETF’s are open ended structures which means there is no limit to the number of “shares” that can be sold.

LIC Dividend Smoothing & Reinvestment

Dividends tend to be more even over time, as LICs are allowed to withhold dividends for a later time. This is often important for investors that focus on income over total return.

There are more options with dividends than in ETFs or index funds.

LIC dividends can be automatically reinvested (saving brokerage). Dividends from AFI or Whitefield can also be substituted, a potentially powerful strategy for for high income earners to defer income until post retirement (and then with a 50% capital gains tax discount).

I feel the dividend substitution (DSSP) is the one big advantage for LICs for high tax paying investors. Tax can be deferred completely until you are in a lower tax bracket (post retirement). Income is also taxed as capital gains rather than income, so qualifies for the 50% capital gains discount after 12 months invested.

There is no Minimum Investment with LICs

There is no official minimum investment with LICS. Brokerage fees mean that most will want to invest thousands of dollars at a time, similar to ETFs.

LICs and Tax

LICs are not as tax efficient within the investment as ETFs, but for high income earners wanting to defer income until post retirement, may save tax. The DSSP gives high tax investors an option for investing tax free, or to be taxed at half the rate.

Summary

Index funds would be great for dollar cost averaging small amounts, but have become far less accessible with $500,000 needed to invest.

Broad index fund ETFs are generally tax efficient. Brokerage costs have to be paid when buying and selling ETFs or LICs, but can be minimized by investing less often, with larger amounts.

Automation is probably the best defense we have against the biggest threat to our investments: ourselves. It is now possibly to automate ETF investing with Pearler.

Dividend income from ETFs has to be paid out, and can be irregular.

The old school LICs are actively managed funds with similar fees to ETFs.

LICs are generally not as tax efficient as ETFs within the fund. LICs do, however, create potential for high income earners to defer all dividend income until post retirement, when they are on a lower tax bracket.

Choose you investment, and set yourself up with a brokerage account this week. Automate investments if you can, to minimize the risk of pulling out of your investing commitment.

What’s your vehicle of choice en route to financial freedom?

Passive Income Streams Using High Yield Property & Active Shares – The Frugal Samurai

Thanks to for The Frugal Samurai for this week’s wealth building strategy: Building passive income streams with high yielding property and actively managed shares.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

The Frugal samurai is a financial services professional with more than decade’s worth of experience and a side hustle blogging and podcasting at The Frugal Samurai. I’m curious to hear what a real finance professional chooses to invest in himself.

The Frugal Samurai is the Side Hustle King! 

What Are Your Investing Goals?

  • I have 3 core goals which I focus on when it comes to the numbers side of things.
    • $150k p.a.in passive income streams or $6m in net assets using a conservative 2.5% withdrawal rate.
    • I like to use 2.5% because, even if we don’t hit that number – hopefully it will be close. I actually wrote a series on how to approach FIRE, the final part is here.
  • Option to fully retire at age 50
  • Option to work part-time from age 40
  • I recently achieved a personal goal I set myself of $1m in net assets by 30 (read here).

What is Your Wealth Building Time Frame? How far along are you?

As mentioned above, those are the numbers and goals I am looking to achieve in conjunction with MrsFrugalSamurai.

We are probably half-way or thereabouts currently, so on track. Although the end point would depend on kid(s), unexpected emergencies, life events, bonuses, winning the lotto (!) etc.

I do post about my net wealth ex-PPOR and ex-MrsFrugalSamurai’s numbers on the blog (latest here).

What is your Wealth Building strategy to achieve this?

Most of our equity is held in residential real estate. Although we do have a decent share portfolio as well as healthy superannuation balances (for our age group).

How long have you been using your strategy?

I first bought property when I was in my early 20’s, and even then I wish I had started sooner.

Compounding works better the earlier you do it, if only I bought when I was legally able to!

Growing up I never went all-out in terms of spending or travelling or anything major. I was a massive nerd (still am) who just picked up reading investment books as a hobby.

It’s ironic that I un-learnt everything I was taught at uni (B. Comm degree) when I first started working, and my personal investment philosophy and experience was self-taught because I actively wanted to learn more.

Were There Other Strategies Before?  If so, What Made You Pivot?

For sure, I really, really, really thought I was going to be a gun stock picker straight out of uni.

I entered the work-force smack bang in the GFC and saw some unbelievable valuations for individual stocks. Of course, like many young ‘un, I made some early and quick wins – and thought this was it.

Took a $40,000 mistake (read here) for me to realize, “hey, maybe you’re not y’know… good”. $40,000 was a lot of money back then (still is), but for someone with only a year or two of earnings – it was huge.

That’s when I decided I needed to properly research and educate myself before committing.

Property Passive Income Streams

When I was younger, I deliberately targeted higher yielding properties with at least an 8% gross rental yield in metro locations on a principal and interest loan.

This is because I wanted to mitigate the risk of not having enough cash-flow to support the mortgage if anything was to happen. As the loans are amortizing, I am both building equity and reducing my liabilities from day 1.

Further, I’d hope that metro locations would mitigate any rental vacancies as the population pool is big enough. And as the properties are also in affordable areas below the median price of their respective locations, I’d hope that there will always be tenants for them. It has helped tremendously with the lowering of the cash rate through this time – pure luck.

Stock Market Passive Income Streams

Our share portfolio is actively managed. This might cause some consternation among the FIRE community that we aren’t passively ETF’d.

But I’ve always believed that if one day I fail to outperform the index over the long-term – then I would revert to ETFs. I am ahead, but barely!

Incidentally, MrsFrugalSamurai’s portfolio is outperforming mine by leaps and bounds, so maybe you should interview her!

As an aside, I think residential real estate here in Australia is very unbalanced.

The housing market is literally “too big to fail” in my eyes, because 70% of the housing is owned by owner-occupiers, the vast majority of household wealth is in the primary residence for most families.

Coupled with the main drivers of profitability for the big 4 banks are in residential mortgages, and it’s in their interest to minimize loan defaults; and the fact that the property sector is a huge employer for jobs directly and indirectly – I think the risk of the property sector failing is minute given the chain reaction it would cause for the Australian economy.

Not to say that it won’t, but I think we’ll have many more things on our mind than the value of our investments if housing defaults. By then, it won’t matter what asset class we chose.

What makes your passive income streams strategy suit your personal situation?

After losing my shirt with shares, I read up on any investment books or material I could find. That’s when I realized that many billionaires and multi-millionaires own real estate. So I decided to give that a go. The more I learnt, the more comfortable I felt.

I guess it comes down to the fact of information asymmetry – in that with shares, key knowledge and information is retained by the company insiders, but with property, there is an abundance of publicly available information for the astute investor to find, to help you make the right decision.

Further, I’ve been called many names, cheap, frugal, tight, handsome… but there is one which I find particularly endearing albeit controversial, and that is “shark”.

Some reason, I have a decent nose for sniffing out a bargain or at least the art of negotiating.

You can’t buy BHP shares worth $35 for $30 at market, but in property – many things are negotiable.

I am certainly not a real estate purist though, it just happened that way.

Where do you Stand on Home Ownership vs Renting?  Why?

I did a Youtube video on this very topic! So exciting (watch here) but for those of you disinclined, ultimately it comes down to your life goals and financial position.

Although I think it makes sense that if the rent is cheaper than the mortgage repayments in the same location, using that free cash flow to invest elsewhere makes sense.

You could invest it on the stock market, either passive or active – or even become a rentvestor.

With credit so cheap though, if you can afford to – it probably makes more sense to own. Just be aware that we are at record low interest rates, which means they will rise at some point.

Where Do You Stand on the Great Property vs Shares Debate? Why?

This is indeed a great debate for the ages, and also the topic of a Youtube video! I don’t know why but whenever I read up on blogs, forums and social media groups – people are so adamant for one over the other.

I think both are fantastically good and should have an allocation to every portfolio.

There are some serious gains to be made with shares if you can out-perform the index.

But you can’t really beat the leverage you can receive from property, nor the generous tax benefits state and federal governments provide.

If you had to twist my arm, I would probably say property edges it here in Oz, based on what I mentioned a few questions earlier.

Where Do You Stand on Investing for CapitaI Growth vs for Passive Income streams?  Why?

This is probably the next great debate. Personally, for me income is king and capital growth is queen.

I get there are many commentators who say that capital growth is what helps you to achieve FIRE, but at the end of the day, I think income is what gives you options.

I would rather have many flowing streams of income than sitting on a huge paper gain. This is because with capital growth, you need to realize it via selling, which is akin to killing the golden goose.

What do you need to do then? Unless the gain has been extravagant, you would need to re-invest it elsewhere.

With income however, the aim is to buy back the most valuable commodity, that being time. No point sitting on $10m of paper at age 90 right!

That being said, don’t think for one second that I am against capital growth – no way, growth is a beautiful thing, the more the better.

Do you have any financial regrets?

Yes, so many to mention.

  • Not starting out investing earlier
  • Listening to the wrong people in the beginning, I’ve since learnt to only follow and listen to those who have achieved what I want to achieve.
  • Not buying more Sydney property during the 2012-2017 boom.
  • Many, many properties and stocks coulda, shoulda, woulda.
  • Not going into business on a couple occasions when the opportunities presented themselves.
  • Mucking around with my career in my 20s
  • Gosh, too many, I am becoming more and more depressed writing them out… will stop now.

Aussie Doc – Awww…... Sounds like you have big goals and are well on the way to achieving them despite a few errors!  

Any final suggestions?

I had many final quotes and quips which I thought would be a witty way to end this interview, but it’s late and I’m missing valuable English Premier League action, so would end it by saying that the absolute key to personal finance is to “spend less than you earn and invest the rest”.

Everything is a derivative of that equation. If you can always remember that rule and take action on it, you should come out OK.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.  Find out about the Victorian residential tenancy act changes.  

 

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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Capital Growth Property, Passive Shares and Tax Arbitrage – Aussie Doc Freedom

Aussie Doc Freedom is not a financial advisor and can offer no advice. This website aims to provide accessible, understandable information to help readers make informed decisions with professional help

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

This is the Aussie Doc Freedom strategy. We are a household of a high income earner, stay at home spouse (working a few hours to break up the week) and two small kids.

I am a doctor 7 years post specialization, almost 4 years into getting serious about investing after returning from extended parental leave/ mini retirement.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

Name/ Online identity:

Aussie Doc @ AussieDocfreedom.com

Aussie Doc Freedom is a money management and investing site for doctors and higher income individuals.

What are Your Investing Goals?

We are aiming to be financially independent by 2035. I would like to choose when, where and whether to work from age 55.

We are saving for the kids future. Aim to have money invested specifically for their university tuition fees, or to help towards a home deposit or 1st investment if they choose not to attend tertiary education.

I greatly value freedom and flexibility over my time. Currently I work part-time and plan to continue this long-term. I like to save enough to cover half pay long service leave to allow more holidays while our kids are young.

What Is Your Investing Time Frame?  How Far Along Are You?

We are around 1/3 of the way to financial independence.

What is the Most Powerful Wealth Building Tool Available to You?

Income, borrowing capacity, mindset and interest in finance.

What wealth building habits are you utilizing to reach your goals?

Automation is the most important. Money directed automatically into an account for investing.

Mortgage on investment properties are forced savings. I can’t not make the repayment!

Not caring about keeping up with the Jones’s

What is your Strategy to Achieve This?

With a high and low income earner in the house, there is a good opportunity to utilize some tax arbitrage to improve income returns.

We do not need more income now, but will need it in ~15 years time. As a result, a capital gains strategy in property a good fit for us.

The high income earner buys property (carefully, with professional help) that is expected to perform well for capital growth.

The properties will be negatively geared due to relatively low yield, but around the 20 year mark income will finally outpace income from an equivalent value high yield property.

The growth in property value will out grow the return we could get on the stock market due to carefully utilized leverage (with risk well examined!).

With our planned properties brought, we will pivot to passive investing in the stock market in the low income earners name, and also in superannuation. This will provide money we can withdraw until the properties start producing adequate income.

How Long Have You Been Using this Strategy?

Strategy developed slowly over the past 4 years. Until recently, we planned to buy a property each with a higher income property in the lower income earner’s name.

We realized we really needed the capital growth and it would be far more affordable in the higher income earners name due to a 47% tax deduction.

We will eventually have to pay more tax once the properties start producing income, but this way worked out slightly better over the long term based on assumptions. It also puts us in a less vulnerable situation if interest rates increase significantly (due to tax break).

Were there other strategies before?  If so, what made you pivot?

For years our strategy (when we were both working and earning more even income) was to pay the mortgage down and salary sacrifice into superannuation.

Interest rates were higher then, and we would have both paid tax on any investment income.

We did not want to commit to investment mortgages until I returned to work after having our last child

What makes your strategy suit your personal situation?

Leverage increases risk and potential rewards. However, negative gearing is a strategy suited to higher income earners with plenty of surplus.

Having a very low income/ long term stay at home spouse makes investing outside superannuation potentially even better. Not only is it more accessible, but we will pay 0% tax instead of 15%.

Where Do You Stand on Home Ownership vs Renting?  Why?

I was certainly taught, like many, that “Rent money is dead money”. After buying our principal place of residence 12 years ago, and it providing no growth outside inflation I have learned first hand that not all property goes up.

I do think owning your own home outright by the time of retirement is important. Nobody wants to move house in their 80s because the landlord is selling surely!

If you want to live in an area with good capital growth potential, buying a home (if you can afford it!) is the best of both worlds. Otherwise, seriously consider renting and investing in better quality property or the share market

Where Do You Stand On The Great Property vs Shares Debate? Why?

Like most subjects there is regular heated debate over, there is not a clear winner. There are pros and cons of both. I like utilizing the leverage that comes with property investment, but realize this comes with extra risk.

I prefer to have some rental income in retirement. After watching the horrors of the GFC as a young doctor, I feel having my entire retirement portfolio in the stock market could be extremely stressful.

Where Do You Stand on Investing for Capital Growth vs Income?  Why?

If you can afford it, capital growth will pay out bigger over the long term and tends to be more tax efficient. Capital gains tax is discounted by 50% once assets are held for a year. The downside of capital growth is that it is a long term play. Particularly with property, you ideally want to start 20 years in advance.

Do You Have Any Financial Regrets

I’ve made plenty of financial errors, like most people. But generally, I have been conservative with my income, utilizing it to pay down debt.

Of course, I wish I had brought a Sydney property ahead of the latest boom, but at the time, I wouldn’t have had the knowledge of which professionals to help me choose carefully. Better to not have brought than to have brought a lemon which has ended up in negative equity!

Any final suggestions?

Spend less than you earn, read regularly, start a regular investment and stick to it.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

See full terms and conditions in footer

Wealth Building Strategies: The Ultimate Step By Step How To Guide

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

Are you wanting to get started wealth building, but unsure where to start? So much information is available online.

Many hours can be wasted online without a clear actionable step by step approach.

You need to decide on a path and take action on a reasonable (not perfect) investing plan, or you will be still in the same spot in a year (or 5).

Above all, time in the market is the most important factor in investment returns. Ending the procrastination is critical.

Everything you need to make decisions will be outlined in this articles and it’s links.

Put Some Time Aside to Take Action

Stop procrastinating and work through the articles if you haven’t already.

The wealth building strategy index below is a collection of personal wealth building strategies of a series of financial bloggers and podcasters.

You have an unusual opportunity to read the actual wealth building strategies of these knowledgeable and well financially read individuals.

When making large decisions, it’s important to get more than one perspective, because it allows comparison between different strategies.

Then you can make more informed decisions on which strategy (or combination) is right for you.

No financial advice is provided in this blog. All decisions should be run past your financial advisor and accountant to check their suitability to your personal situation.

Set Your Goals

It’s hard to get the journey right without knowing the destination! This can be really tricky, particularly if you are in the fortunate position to be thinking several decades ahead.

The first step in working out goals to aim for is to dream. Read Big Hairy Audacious goals to start turning dreams into goals.

Work out your goals for retirement (the biggie!), at what age and rough income required. This is really hard 30 years in advance. You can always use your current spending as a guide, and adjust investment returns for inflation. Choose an age you would like the choice to retire, depending on health and passions at the time. After all, if you are fortunate enough to still be passionate about your work, no one is forcing you to retire!

What other goals do you have? Parental leave? A fellowship? Extended travel? Children’s education funds? Special holiday? Car?

Write them all down in preparation to work them into your financial plan.

Make a Financial Plan

You can do this with or without professional help.

The most important issue with making your own financial plan is not being overwhelmed by the need to make it perfect. It should be reviewed every year, and will be changed as your life and circumstances change. There is no such thing as perfect, it just needs to be reasonable.

Read the detailed information on how to make your own financial plan.

Many will want professional help with their financial planning. This is often the case that are severely time poor, who are intimidated or uninterested by the world of finance. It could be important for those with more complex situations including businesses.

Unfortunately, even with professional help, knowledge and understanding cannot be outsourced completely. Great care, research and reference checking is required to choose a financial advisor you can trust. There are a few unscrupulous ones out there. Choose carefully.

A financial advisor should have his or her interests aligned with your own. Because commissions provide motivation that is not aligned with your interests, if you want financial advice, you should pay for it.

Many financial advisers are now moving to an annual fee for ongoing service since the Royal commission. A one off strategy session is not cost effective for them, but an annual fee is often excessive for those without significant assets and complexity.

Once a financial advisor is chosen, you need to understand what they are advising. If your financial advisor convinces you to invest in a high risk strategy that goes wrong, no one is going to rescue you. You must understand the risks of investments chosen.

Spend Less than You Earn

In order to build wealth, a gap between your income and expenses is essential. There is no magic a financial advisor can do to eliminate this fact. First you need to know the current situation. The larger the gap between income and expenditure, the faster you can accumulate wealth.

There are three ways to grow the gap.

Wealth Building: Increase Income

If you are early on in a career with good earning potential, maximizing income is a powerful lever in increasing your savings rate. Just make sure to save most of each pay rise to avoid lifestyle inflation keeping up with the Joneses.

For medics, here is some information on how much doctors earn in Australia. If you have skills in demand, consider whether rural medicine is for you. Financial benefits can be great, and it ‘s so rewarding.

Wealth Building: Decrease Spending

Increased earning is increasingly inefficient due to our tiered tax system. Once you are in the top bracket, 47 cents cents of every hour is lost to taxation, reducing your hourly net pay significantly.

Annual spending kept under your top tax bracket would optimize spending and allow any money earned above the threshold to be directed into tax efficient investments.

Optimize spending would look like spending $50, 600 per year on a single moderate income or $125,000 on a gross income over $180,000. 

It’s usually a lot easier to avoid overspending in the first place than to have to cut back. Which is where readers who are still early in their career and have an interest in their finances before they’re on the big bucks have a massive advantage.

Avoiding the drift state, and giving your money a job to do intentionally as your income increases will be a powerful wealth building tool.

After reaching your top income potential, living like a resident (or an average income individual) will allow you to shovel cash into investments and make fast progress over 3-5 years.

Parents taking parental leave often lose this potential with extended time off. It’s even more important to plan ahead if you want to be a parent.

Increase Your Savings Rate

Many bloggers focus on savings rate. Your obligatory superannuation contributes 9.5% of gross income, which is a start.

After this I tend to work in savings/net income, it’s easier.

Dev Raga (medical finance podcaster) suggests 20% of your tax return. The FI crowd try to save 50% + to reach complete financial independence as soon as possible. It is entirely up to you, depending on your goals.

Everyone needs to be financially independent before reaching retirement, where you will need to live off the income from investments.

No high income earners should be considering the aged pension, in my opinion. Few of us could live on $17k per year! And after a long well paid career, there is no excuse for taking resources instead of being self reliant.

Everyone Needs to be Financially Independent By Retirement

The table below demonstrates the difference in time to financial independence (when the numbers turn green). Financial independence is usually defined as having 25 x your annual spending in investments, based on studies back testing this against previous stock market performance.

The resulting 4% withdrawal rate has a more than 90% chance of not running out of money over a 30 year retirement.  There is some controversy around this, but it’s a good place to start. Especially if you are young and forming a detailed financial plan is a little overwhelming.

The table below demonstrates time to reach financial independence, assuming a 7% compounding growth rate. Money has to be invested to achieve around 7% to achieve this.  Stashing cash in your bank account or offset will not (earning currently 1-3%).

When the numbers turn green, the scenario has reached financial independence based on the 4% rule.

The actual income doesn’t matter. The time to independence will be same no matter what income, as long as you invest the same percentage of net income.

You can see, those with 41 years before they wish to retire are fine saving 10% of net income (that probably equates to superannuation contributions).  This may make sense for those starting work at 18 and retiring at 60. 

Increasing to a 20% savings rate takes an impressive 11 years off time to financial independence. Of course, reaching financial independence does not obligate anyone to actually retire.

But would you like the freedom to choose exactly what you want with your time in around 30 years time? I agree with Dev Raga on this, for early starters saving 20% of their net income provides a lot of benefit for small sacrifice.

For the majority who have left it a bit later, the increase to 30% takes a significant 6 years off time to independence. Increasing further to 40% takes another (probably worthwhile) 5 years off. 

Going hardcore and saving 75% will result in financial independence in a total of just 7 years.  This is what a lot of the FI crowd are chasing.  

Choose the Right Savings Rate For You

After reaching a 40% savings rate, further increases provide less and less benefit. Is cutting another 10% to achieve a 50% savings rate worthwhile to take 2 years off time to independence worth the lifestyle sacrifice?

Probably not for most.

But increasing savings rate 20% above your ideal savings rate can create an immediate lifestyle improvement – reducing you working hours by 20-40% (depending on tax rate).

Not everyone wants to work part time, but it is a great way to combat burnout, have time to spend on hobbies and interests outside work.

Wealth Building: Reduce Tax

Have you seen the adverts warning us how much difference a 1% increase in investment fees damages long term returns?

Imagine the effect of paying 15% extra in tax!

Optimizing taxation is a powerful factor in improving returns.

SuperAnnuation and Salary Sacrificing

Many young people are put off investing in superannuation due to its inaccessibility until reaching preservation age, and legislative risk of the government raiding the cookie tin when they’re short on cash.

It is very likely superannuation will get less generous over the years. But it is in the governments interest to get people to put money into super instead of relying on the aged pension. Superannuation will always be advantageous as opposed to investing outside super.

Many articles warn about the inaccessibility of super, and advice not putting extra in too young. I think the inaccessibility can be a big advantageous to us in fighting the biggest risk to our investments – ourselves!

As long as savers have an emergency fund, superannuation can trap your money and help you stick to your plan, rather than impulsively withdrawing it for a holiday.

The graph below shows $10,000 invested and earning 7% compounded over 30 years. The difference between taxation at 15% and 37% is $224, 561 at 30 years! After 20 years, you would have $98, 703 more by investing $200,000 of your own money inside, rather than outside super.

Are you likely to earn more than $260,000 in your later career? If so, you will max the allowable $25,000 concessional contributions.  Savings are post tax (at 45%) at this income level.    

The biggest advantage of superannuation is contributing at a young age, and allowing it to compound for decades in a very tax efficient environment.

Take advantage of any “employee match” where extra contributions get matched by your employer. You’d be mad to give that up!

Check the articles on superannuation and salary sacrifice.

Consider trying to take advantage of more of your concessional cap at a young age. You can’t get that compounding time back!

The last step in reducing your tax bill is to optimize your tax return.

Defensive Strategies – Protect What You Have

Save an Emergency Fund

Before you start investing, an emergency fund needs to be saved. The often quoted 3-6 months expenses may seem excessive. It all depends on your situation. You need to have enough saved to cover emergencies that could affect you, requiring quick access to cash. Read about how much emergency fund you need.

Insurance

All health care professionals, and many other professionals need liability insurance. Make sure you actually choose the right company for you, not just sign up with whoever turned up to your university.

Doctors can check out my comparison of liability insurers.

As income and responsibilities grow, insurance needs increase. Getting income protection at a younger age, on a lower income will save a lot. It’s worth putting in the time to get it right. Work out if you should protect your income.

There’s no point in saving and investing to lose it all. May sure you have the essential insurance covers (and Ideally no more!).

Avoid the Worst and Most Common Mistakes

Make sure you read about Money Confessions of a 40 Year Old Doctor – (aussiedocfreedom.com) My mistakes and other common financial errors to avoid.

The whole idea of this blog came from making a financial error, which I later discovered my colleagues had already made. If only we talked about money!

Asset Protection

The best time to think about asset protection is when you laugh at the thought. Assets! What assets!

Consider getting advice about ownership structure when buying your home, particularly if you or your partner will be entering a high liability risk occupation (eg private surgeon).

Definitely think about this carefully before buying investments. I think only a minority of households will benefit from a family trust, and it’s not for us right now.

Reduce or Optimize Debt

Debt can be productive , tolerable or extremely destructive. Before buying your home, consider whether it can be counted as productive debt. I

f it is a great asset, with good capital growth potential, it will as it grows in value, allow you to leverage into more investments.

If like most people, your potential home is not a great investment in its own right, this is tolerable debt.

You will want to take into account the investment potential of the home before deciding how much of your income you want to tie up.

A home is just too expensive to consider only lifestyle considerations.  Consider reverse rentvesting if your workplace is not in a good capital growth area.  

Read more about debts, to avoid like they’re COVID, debts to minimize and those you can embrace if it suits your attitude towards risk.

If wanting to take on tolerable or good debt, improving your credit score will make it easier and cheaper.

If you have already made some booboos and taken on bad debt, welcome. I guess your human too. Start to unravel those mistakes by breaking free of debt.

Wealth Building Strategies:

Now comes the big decisions. And there are quite a few to make. The strategies that will suit you depend on your timeline, goals, current savings and investments, legal liability, borrowing capacity and surplus cash.

Some of the big questions included

I have produced articles on some, but not yet all of these strategies. As more articles are written, they will be added here. But these will obviously be biased by my own perspective.

Wealth Building Strategies Index

If you had a room full of people with a serious interest in finances (but no conflicts of interest), there would be lively debate over strategy.  In reality it’s very personal, and there is no one perfect strategy.

For this reason I am asking finance bloggers and podcasters to explain their personal financial strategy.

By having multiple different viewpoints from those in the know (who spend many hours reading finance every week!) I’m hoping the reader will gain a lot of knowledge and insight and ideas.

They will be released over the next few months, and will be available here as they are published. I will enjoy reading through the different strategies, and challenging my own thinking with the different perspectives.

I encourage readers to keep an open mind, avoid just reading the strategies you are already keen to pursue. Challenge your thinking by reading about other strategies and make sure your not missing any important considerations.

Passive Income Wealth Strategies Index

Capital growth property, passive shares & Tax arbitrage – Aussie Doc Freedom

Passive Income streams using High Yielding property and active shares – The Frugal Samurai

Cocktail of Passive Index funds, Property and Websites – Captain FI

Mixture of Capital growth and income Property – Smart Money Lounge

Building Income through Dividends and Rent – Medical Financial podcaster Dev Raga

Pivoted from Property to shares and now financially independent – Dave from Strong Money Australia

Building financial knowledge – Keepinitfrugal

Growing dividend income with Miss Balance

Everything in moderation – Serina Bird (the Joyful Frugalista)

Building financial Knowledge – Keepin’ it frugal

Building dividend income – Miss Balance

Automated investing into diversified assets – The Flawed Consumer

Focussing on financial and environmental sustainability – Sustainable living

….

Have I included Everything you Needed?

This article has worked through every step in securing your financial future, and eventually achieving financial independence.

So, have I missed anything? Let me know what you’re irritated wasn’t included (I’ve been there at the end of a long blog post!) Tell me the answer you were looking for and I’ll do my best to research and answer it for you.

Now get to work! No progress will be made without action. In 10 years you will look back in amazement at the wealth building you have achieved if you start today.

 

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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