How to avoid risk when investing

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

“I wouldn’t invest in the stock market, it’s too risky”

My colleague, 2021

Investing is often portrayed by the media as some sort of giant casino. The image in many of our minds is of chalkies running back and forth amongst an absolute din of noise, whilst wealthy investors make large “Bets” on the next big thing.

If this is the way you approach “investing” in the stock market, it truly is risky. This sort of short-term speculation is gambling. Exciting for some, but completely different from the boring investing that is likely to provide good long-term returns.

Really long-term investing in broad-based index funds is the exact opposite of gambling at a casino.

The casino is rigged to make a consistent and reliable profit. Over the long term, despite exciting moments and wins along the way, gamblers are guaranteed to lose. In contrast, with passive broad investing, you are guaranteed to win if you stay invested long enough.

The certainty of investing gains probably only comes after 20+ years of investing, however. But you are highly likely to do well over 5-10 year periods as well.

Investing for under 5 years? No one can tell you how your investments will perform. More than 50% of the time you will gain, the rest of the time you will lose. This is why most investment information sources suggest a minimum time frame of 5-7 years to invest in the stock market.

Wanting to Avoid Investing Risk Altogether

“Successful investing is about managing risk, not avoiding it.”

Benjamin Graham

No one can completely avoid risk in investing or life. Crossing the road, eating a meal and even walking involves some risk of death according to this cheery site.

As with most things, it is not about avoiding risk altogether (it’s impossible) but minimising risk, weighing risks against likely benefits and minimising controllable risks.

When selecting an investment, the first thing we should look at is risk. This is important to consider before getting seduced by the promised returns. Exceptional promised returns often involve large amounts of risk (or downright scams).

There are many different types of investing risk, but some of these you have some control over.

Investing Risk: Inflation Risk

Inflation risk is almost inevitable. Over time, the price of goods and services goes up. It’s not really noticeable (usually) in the short term, but is obvious looking back at historical prices.

Your parents have probably thrilled you with long stories about their first job paying only $20 per week. Wages increase (hopefully) to compensate for the increase in the cost of living or the other way around. Everything gets more expensive.

The Reserve Bank of Australia aims to keep inflation at around 2-3% per year, over the long term. A little inflation is healthy for a growing economy. Too much, or too little is generally bad news for the economy.

If you hoard all your extra income in a savings account earning around 1%, your emergency fund is actually decreasing in real value (aka purchasing power).

If $30,000 was enough to fund 6 months of living expenses in case of an emergency in 2021, in 2031 you will need over $40,000. And that is assuming you have completely resisted lifestyle inflation!

Including interest earned, you would have only $33,138.

This leaves us with two options to maintain an appropriate emergency fund

  1. Ensure your emergency fund is earning more than the rate of inflation (hopefully remaining 2-3%).
  2. Keep adding a little extra to your emergency fund each year to compensate for inflation

It also makes it obvious that saving large amounts of money in a bank account is not getting to get you very far. If you want to outearn inflation over the long term, investing that extra is more likely to achieve your goals.

Australia has been living through a period of unusually low inflation recently. Due to the quantitative easing instituted in response to the COVID-19, there has been lots of talk about hyperinflation.

Risk in Investing: Longevity Risk

This is the risk, in the case of retirement savings, that you live longer than your savings last.

It’s a common and understandable fear among retirees. It is also a compelling reason to make sure your money is earning optimal returns for the risk taken.

It’s probably better to be alive and having to scramble to find some extra cash vs dead.

There is also the risk of the opposite – not living nearly as long as expected, and missing out spending all that dough!

Back up plans in case your investments don’t perform as well as you hoped can be formed. If you have planned to live off the income off your investments (eg investment property), the assets themselves may need to be eventually sold.

Continuing to earn money through a small part-time gig you enjoy can significantly reduce your portfolio drawdown. Earning $10,000 per year means you need $250,000 less in retirement savings according to the 4% rule. Renting a room in your home could provide some income, and company for those wanting to stay in their family home for longer.

Reverse mortgages of your principal place of residence have generally been a poor deal but could be used if all other reserves are gone. The aged pension is tiny, but many people live on this entirely. We are fortunate in Australia to have this government safety net for those that can’t provide for themselves.

Minimising basic living expenses and owning your own home outright can help the aged pension stretch to cover a reasonable standard of living. FIRE bloggers often live on not much more than the aged pension, whilst renting!

Sequence of Return Risk

Whilst no withdrawals are being made, the order of positive and negative returns make no difference to the end result. In the graph below a sequence of returns “A” were positive for the first 7 years and negative for the last 3 years. Sequence “B” includes the same returns in a different order – the negative returns occurred in the 1st 3 years. The portfolios are worth the same at the end of 9 years, regardless of the sequence.

Once withdrawals are being made from a portfolio, however, the sequence of returns is very important. The same sequences A and B are tested in the graph below. For the first year, 4% of the total portfolio value was withdrawn. For each year following, this original withdrawal was increased by 3% (accounting for inflation.

The lines representing the two scenarios meet on the top graph, but there is a gap in the bottom graph. Portfolio B underperformed portfolio A despite the two portfolio’s cumulative returns being the same.

This ties into longevity risk. If you are unlucky enough to retire immediately before a period of negative returns, you’re more likely to run out of dough.

You can mitigate this risk by

  • Having adequate cash savings to live off until the market recovers
  • Keeping your options open for the first few years after retirement to perform some paid work
  • Withdraw less than 4%
  • Reduce your spending in years of market underperformance

Investing Risk: Volatility Risk

Volatility is a retrospective view of variation in an investment’s performance.

The terms “risk” and “volatility” often seem to be used interchangeably. But most people would consider investing risk as the chance of losing a significant amount of money.

Some investments are more volatile than others. If you were to invest then fall into a coma for 30 years, this volatility wouldn’t matter. The cumulative returns would be all you would care about.

The biggest risks with high volatility investments are:

  • Your time frame. You need to be investing for long enough to ride out the volatility and get the good returns promised over the long term. 7-10 years minimum is commonly recommended for the stock market.
  • Your risk tolerance. If you panic and sell during a crash, you are locking in those losses. If you are able to ignore your investments until many years later (much harder to do than it seems) the volatility is likely irrelevant. There is more discussion on risk tolerance here.
  • Horizon risk – the chance your time frame will dramatically shorten due to a change in circumstances. Unemployment, for example, could mean you needed to withdraw your investments far earlier than expected.

Liquidity Risk

In the case of that sudden change of circumstance (unemployment), would you be able to access your investments to withdraw them?

This is known as liquidity risk. It is very individual whether this is a big concern to you.

If you have other more liquid assets (eg emergency fund), you may be happy to have a relatively illiquid asset (eg investment property).

If you think you may need to withdraw within a few years, you probably need a less volatile asset to reduce the risk of losing money when you withdraw.

Concentration Risk

This is the risk of having the majority of your assets in a single (or related) investments.

For example, a pharmacist lives off his income from the pharmacy he works at and invests in pharmaceutical companies (because these are within his zone of competence). If there is a major change to the profitability of pharmacies from legislative change, both his job and investments are at risk.

Another example may be to convert your super to an SMSF and use most of the balance to purchase a single investment property in your hometown. If something happens to the market in the area your investments are concentrated in, all your investments will suffer.

Market Risk

This is a risk of changes in the market affecting your investment, whether it be property, shares or bonds. Much of this risk can be reduced by diversifying investments. Putting your eggs in many baskets reduces your personal loss if one basket is dropped. Market risk can result from:

Event Risk

COVID-19 was an example. A highly unpredictable, dramatic event that affected all our investments (at least in the short term. It’s impossible to anticipate all potential events so some of this is out of your control. Event risk can be internal (change in management of the company you have invested in), or external (Global pandemics etc).

With property investing, there may be a new highway built close to your property causing noise pollution. Council plans should be checked prior to purchase, but new plans may arise years after purchase that can have a dramatic effect on your investment value.

Secular risk

Secular risk is a change in the competitiveness of your investment.

There may be new competition, such as Uber if you had invested in a taxi company, or a brand new block of flash apartments making your new 10-years ago unit seem old and daggy.

There may be technological advance that makes your investment obsolete (Blockbuster video).

Customer habits may change, damaging industries. COVID-19 was pretty bad for the cinema business.

Interest rate Risk

Those with borrowings (property investors and homeowners as well as high-risk investors borrowing to invest in shares) are affected by interest rates. Bond investors also care about interest rates, as bond values tend to go down when interest rates go up.

Currency risk

When investing or spending overseas, the exchange rate matters. Investing in the world stock markets is generally considered a good idea, as Australia is a tiny part of the world economically.

Exchange rate changes will alter the spending power of your portfolio in Australia, for better or worse. You can reduce this risk by “hedging” to your home currency for an extra cost.

If you want to retire overseas, hedging to your current currency makes no sense. The exchange rate to your planned country of retirement will make a huge impact on the quality of life possible with a given portfolio.

Credit Risk

Credit risk is relevant to those who invest by lending money.

Peer to peer lending is unsecured lending, offering good rates to investors and borrowers, but with risk to the investor if borrowers default.

Bonds are essentially like loans to companies, or governments. Lower rated bonds have a higher risk of default (and loss of capital).

Presumably, the global financial crisis is still a little fresh in our minds to be trusting mortgage-backed securities anytime soon. These sounded like a pretty safe investment, but banks were lending more and more aggressively until the entire system collapsed.

Legislative Risk

Governments can introduce new laws that can advantage, or disadvantage your investments.

An example would be the hotly debated issue of Franking credits. Franking credits were introduced in Australia to prevent double taxation. If you own a share in Woolworths, which pays a dividend out of the profit made this quarter, tax has already been paid on that profit at the corporate rate of 30%.

If you as an investor then receive the dividend and are taxed, the dividend has been taxed twice.

Instead, the Australian tax office provides a tax credit, known as a franking credit for the 30% tax already paid. If you are in the 45% tax bracket, you will only have to pay the 15% owed.

If you are paying no tax (because you are a retiree), you will receive a tax refund of 30% of the dividend. This is extremely popular with retirees and has encouraged a whole generation of “dividend investors”, who select investments because of their history of dividend payments.

If these Franking credits were disallowed, all those investors who had designed their investment strategy around the tax outcome will be disadvantaged. It would be a similar situation with negative gearing property investors.

Risk of Being Scammed

Most of us think we are too smart to get scammed. We are wrong. You cannot be too careful, and should always be watching for scams that get more sophisticated every year. Check out the new Netflix series “Money, Explained“. The episode on “Get Rich Quick” explains the psychology on why we are so gullible, and even the experts admit to getting scammed. It’s a great series, enjoy.

How to Manage Risk in Investing

I recently read a comment by Warren Buffet about pretending you only had 20 investing decisions to make in your life. Many of us change investment strategies too frequently. Spend your time considering carefully before committing to an investment, and plan to make it a lifelong investment. Consider risk first, and minimise as much as possible. Diversification reduces much of the market risk and is considered the only “Free lunch in investing”.

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Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.

The Incredible Importance of Financial Literacy

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

I may be unnecessarily showing my age. There was a time when I was mystified by but aspired to understand the finance section of the newspaper. The National paper used to have pages of tiny print like this at the back, with abbreviated company names and a whole lot of numbers.

This mysterious represesentation of the financial world intrigued and intimidated me.

Those beginning their learning about personal finance and investing can find it mysterious and intimidating. Often, people feel high-level finance and investing education is not made for “People like them”.

Personal finance and investing for everyone. Over the years, investing has become a lot easier, with a far lower barrier to entry. With micro-investment apps, even students and low-income earners can now invest small amounts regularly. Given enough time, small amounts are all that is needed to create considerable wealth.

All the information in the newspaper (and far more) is available from a quick google search. Definitions and explanations can be quickly found online. But for most of us, all this data is completely irrelevant anyway. Most will start with broad-based indexed ETFs to rapidly diversify as they build.

After a few years of learning and observing, some investors will include thematic ETFs and individual stocks in their portfolios.

Over the decades, personal finance has, in contrast, become a lot more complex. And whenever things get complex, consumers tend to get cheated. With student loans, credit cards (instead of a cash economy), and buy now pay later schemes, consumers need a far higher level of financial literacy.

What is Financial Literacy?

Financial literacy is the understanding of financial concepts and the ability to use these to guide your financial decisions. Compound interest is the most important and powerful concept to understand.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Albert Einstein

Whether you pay or earn compound interest is a major determinant of your financial future. This really separates the rich from the poor…. and continues to widen the gap.

Why is Financial Literacy Important?

A US Study found more millionaire teachers than doctors or pilots. An understanding, and application of money concepts is therefore even more important than income earned.

Doctors, on generally high incomes will find it much easier to build wealth than teachers on their traditional wage IF they are financially literate. But teachers and other lower-income professionals can outsmart higher-income professionals with better financial literacy.

If you want to move along the 10 stages of financial freedom, it is essential you build financial literacy.

When is Understanding Money Concepts Important?

Those that dismiss learning about money as superficial and materialistic are usually fooling themselves.

Their intentional financial illiteracy impacts their future as they make daily financial decisions. Neglecting financial literacy can result in being stuck in a job after you want to move on, or retire or an inability to take time off for family. Ironically, by “not being interested” in money they can end up stuck having to work for money when they really need to take time off, or want a new career.

Financial literacy rears its head when we:

  • Choose to pay for groceries by credit, debit or cash
  • Buy lunch out (is it budgeted for?)
  • Buy a home
  • Choose a mortgage (and what a confusing trap this is)
  • Choose a career
  • Increase / decrease hours at work to balance your lifestyle (do you need to? can you afford it?)
  • Study / put in the hours required for promotion or not
  • Buy a car
  • Take on debt, or don’t (credit score)
  • Plan a holiday (and how to pay for it)
  • Set a retirement age (and hit or miss that goal)
  • Choose your childrens’ school
  • Sign up for the employer’s superannuation
  • Submit an annual tax return
  • Take out any insurance
  • Do or don’t consider asset protection once you have anything worth protecting
  • Have to navigate hundreds of offers, and potential scams, by email, post, phone, social media and in-person
  • Do or don’t get round to writing a will

How to Build Financial Literacy?

Poor people, people of colour and women perform on average more poorly in financial literacy tests. Check out the Standard and Poor’s financial literacy study.

Learning everything you need to know is not a fast or simple process. You will never know everything, or make the perfect decision every time. But improving your financial literacy will give you a chance of making helpful decisions, avoiding major errors. This, in turn, will make your future life easier, with more options.

“Money is better than Poverty, if only for financial reasons”

Woody Allen

Books

Find a book, there are so many to choose from. Best personal finance books – Aussie Doc Freedom. For those that aren’t particularly interested in finance, a book a year is a good start. Many readers, I suspect will be enthusiastic finance buffs and will need to be reminded to borrow books from the library where possible to keep costs low!

Blogs

If you like blogs, subscribe to one. You can subscribe to Aussie doc, or another blogger that resonates. It is especially useful to follow someone that is “like you”. We all benefit from role models that make our aspirations seem more possible.

Podcasts

Podcasts are great for the time-poor (aren’t we all) and those less enthusiastic about reading. Build it into your routine – a podcast for the journey home from work will build an enormous amount of knowledge over a couple of years. Here are my favourite podcasts.

Youtube

I confess, I still haven’t got round to making a list of youtube recommendations. There’s a whole lot of “Get rich quick” / scammy content out there to sift through. Some of the podcasts in the recommended list also have youtube channels. These are probably a good starting point if your preferred mode of learning is videos as they are recommended, reputable content producers.

Magazine

Money magazine is a paper print magazine (for now). If you prefer to have a physical magazine once a month, this is a pretty good source of information regularly.

Financial Literacy Courses

There are a few free structured courses on how to start investing in the stock market, including on the ASX website, the RASK website (free beginner and paid advance).

Regardless of your choice of mode(s) of information consumption, make a routine of regular reading/listening/watching over time. Try and get your information from 2 or 3 sources to make sure you get different viewpoints.

Reading a weekly finance email subscription is even manageable for those studying for exams.

Make a Written Financial Plan

Work out your goals and make a written financial plan. Every time you are about to make a big mistake, refer back to the plan. You should have a plan clear enough that, on receiving an unexpected windfall or inheritance, you already know what to do with it (as it just accelerates your original plan).

How do you Know When You’re Financially Literate?

There really is no endpoint to financial literacy, this is lifelong learning and new information will be available over time. Similar to your primary career, treat your finances as a lifelong journey you need to continue to learn and update yourself in.

You are financially literate enough to understand and identify the risks in investing, and know which risks are acceptable to you.

Financial Literacy for Kids?

Teaching your kids to manage their own money before they leave home and screw it all up with the first credit card offer is worthwhile. School’s are overburdened with curricular demands, and although there is a trend towards including some financial literacy learning, it is likely to be minimal.

Our job as parents is to teach all the skills your kids need to be independent (and as much as it’s possible to “teach,” happy) adult, contributing to society.

Allowances and/or pocket money give kids an opportunity to explore spending and saving as well as delayed gratification.

Conversations about the cost of groceries and what actually happens when you swipe your card teach your children important concepts.

Childrens’ money habits are apparently already largely set by age 7 (scary!).

A “Bank account” (excel document) paying generous interest can incentivize savings. I may live to regret setting up my 8-year-old’s “bank account” to pay 12% interest per year (paid monthly), he is very motivated to save!

Subscribe Now

Sign up as an Aussie Doc subscriber for a weekly email with the week’s articles and any useful resources I’ve found in my reading. It’s a low effort, easy and free way to improve your financial literacy over time.

Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.

What to do when your dream job becomes a nightmare

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

When your dream job becomes a nightmare….

Many discover financial blogs by googling “How to retire early” after a particularly bad day, week or month at work.

Only 15% of the population are happy in their jobs. But readers of this blog are doctors and other professionals that have worked hard to be where they are today. So what do you do when that dream job becomes a nightmare?

Do you Really Hate Working at Your Job – Or Did you Just have a Bad Day, Week or Month?

We have had all had awful patches at work. Perhaps you feel out of depth, or weighed down by the huge responsibility on your shoulders. My heart breaks a little for this new doctor working in the NHS.

(S)He doesn’t really hate his job. They don’t even know how to do the job yet. This employee in distress is overwhelmed with a sense of responsibility, unsupported and unfamiliar with how to perform the job well. It would be very interesting to see how he/ she went (it’s been 6 years).

Things should not be this extreme for doctors in Australia in 2021. But in a system seemingly hell-bent on preventing us from doing our jobs well, alcohol abuse, depression and suicide are devastating.

I have little experience outside medicine, but have been listening to a podcast recently aimed at US lawyers managing stress and burn-out. It all sounds very familiar, and I find the strategies described very relevant to managing my own stress.

Knowing the difference between a bad patch and hating your career choice is important, and will require some careful reflection. Don’t rush into any big decisions until you have worked out exactly what the problem is.

When a Bad Day turns into a Bad Year

Sometimes the bad patch becomes a long term dread of work. Work out what the real issues and what to do about it. You do not need to stay trapped and unhappy.

For the young doctor who has qualified with mountains of debt, then hating the job and thinking they are not suited to being a physician, don’t panic. There are so many different specialties, some without patient contact. It is very possible you just haven’t been exposed to your ideal career yet.

If you are in this situation, consider talking to a career advisor. Actively seek out unusual rotations and try different things. There are other options including working for pharmaceutical companies, or using your transferable skills in completely new careers. I had a young doctor under my supervision a few years ago who was a bit lost and couldn’t find her specialty. I was so thrilled to hear from her a couple of years later confirming she’d found it – in Pathology, a specialty few ever get any exposure to.

The newly qualified professional disappointed with the reality of their career, or experienced mid career professional getting disillussioned, there are plenty of options to improve the situation.

When Your Dream Job Becomes a Nightmare: What are the Causes?

Is It Just the Discomfort of Starting a New Job?

Are you just starting a new job and feeling uncomfortable? Feeling incompetent because you don’t know how to perform the job well is unpleasant. I used to hate this part as a junior rotating every few weeks. As far as I can work out, there isn’t really any way to avoid it. Being aware that your discomfort will likely resolve once you know how to do the job will help you stick it out. When you dream job becomes a nightmare in this situation, it can often eventually become the perfect fit – once you have adjusted.

Is it the People You are Working With?

The people you work with often make or break a job. Don’t be fooled into thinking you love or hate a particular profession or specialty because of the crowd working with you at the time.

Unfortunately, medicine, like most professions still hasn’t eliminated harassment and bullying. Human resources can be an ally in assisting with these issues, or not. If you are suffering from these serious issues, speak to a trusted senior colleague for help, your boss or HR department. Keep written documentation of all harassment and bullying incidents.

Most of you, hopefully, will not be suffering from any serious workplace issues. But “not fitting in”, or being excluded at work can significantly impact your enjoyment of work. Not feeling respected or accepted by your collegues can make work life unsatisfying.

If you don’t get on with your employer, it is unlikely you are going to have a great time at work. Maximum efforts should be made to have a positive relationship, but occasionally you just can’t do anything right. If you have a difficult boss, work out a way to improve the relationship or move on to a new job.

Is it the Work-Life Balance?

Sometimes work is crazy, and takes over a bit. As long as that is balanced out by time you can slow down at work and prioritise your family, this may be ok. Some love to immerse themselves in work. It’s all very individual, based on your own priorities and life stage. But if you feel you are constantly being asked to sacrifice your off time for work, resentment can start to kick in.

Do You Feel Appreciated and Respected?

Feeling appreciated at work is such a boost to job satisfaction. It’s often the quiet hard worker who does more than the rest, and struggles to get noticed. The loud, flashy co-worker brags about their work and gets all the appreciation too often. Thanking people for their work, highlighting and feeding back strong performance is so important to sustain motivation. If your seniors don’t do this, remember how it makes you feel, and change the system when you rise the ranks.

Being treated as an interchangable number doesn’t feel good. All you quiet no-fuss achievers, I see you! Thanks.

EveryDay Frustrations

Employers have a habit of trying to skimp to save a dollar, resulting in hours of (wo)manpower wasted (at far greater expense). Health care providers have to be up there with the top offenders and it drives us nuts.

Computer systems that don’t integrate and take ten minutes to switch on. Inadequate pieces of equipment so that you spend time searching for a bit of kit several times a day.

It’s super frustrating and negatively impacts on your productivity. Request those bits of equipment. Sometimes it’s an exercise in maintaining your sanity to purchase your own (label and keep under lock and key!) Use the minutes your computer takes to turn on to say the Serenity prayer.

The Serenity Prayer

A Lack of Power

When your dream job becomes a nightmare, a lack of power over your work is often a major contributor.

You may not have any bargaining power to improve your work place. Depending on the size of the organisation, you may not ever feel you have much control. This lack of power to implement seemingly simple solutions can be a source of frustration.

Politics

Political astuteness is required as you rise the ranks in most organisations. This doesn’t come naturally to many of us. It is often difficult to understand why we cant just get on with the job in hand.

But where there are people there are egos, and potential obstacles. Manage the people and their egos, and you have a little more power to change your workplace for the better.

Discomfort with managing political situations can decrease job satisfaction, but gets easier with improvement in political astuteness and advanced communication and negotiation skills.

Culture of Blame and Attack

If you are constantly watching your back, it is very hard to relax and enjoy a job. Everyone makes errors sometimes. If the wolves are poised to pounce and attack as soon as a coworker makes an error, the culture of your workplace has got serious issues that take time and effort to improve.

Don’t contribute to the problem. If a coworker makes an error, support them and help them to fix it. Hopefully they will pay it forward!

Work Unsuitable for your Capabilities, Character or Morals

If your work is too hard for you to complete, or too mindless to engage you, it is unlikely you will achieve any degree of job satisfaction. If it is too hard, ask for help and get the extra training required to make your life easier!

Underchallenging work needs to be examined to work out whether it is actually necessary. If it is, it can sometimes be outsourced to a more junior colleague or administrative officer. If only you can do the work and it is important, find ways to make it more tolerable. Take breaks and time this work for when your brain needs a break.

If it conflicts with your values, moral injury results, a major contributor to burnout. This is not a healthy situation to exist in. Change what you can and protect yourself with a large dose of self care regularly.

When Your Dream Job Becomes a Nightmare: Unrealistic Expectations

Perhaps you thought you would be saving lives as a day 1 doctor, but instead you find yourself following an older physician around, acting as a secretary.

Maybe you expected your time at work to be all about fulfilling your aspirations, and the inevitable drudgery has taken you by surprise.

All jobs will involve parts of less enjoyable work. In most careers, you will start at the bottom of the pecking order. Learn as much as you can to prepare you for when you get that desired responsibility.

Tasks that need to be done, but are boring and/or monotonous are made more bearable with a positive attitude. Find out what makes the situation more pleasant for you. A cup of tea whilst I work and background music makes most monotonous tasks more manageable (sometimes even meditative).

What Brings You Job Satisfaction and Joy at Work?

Before you write your resignation, or worse throw a fit and walk out, you need to decide what kind of work would be better.

This can take, time and reflection. Stanford’s life design team suggest keeping a diary for a few weeks. Make sure to document any time you notice you have been in a “flow state”. A flow state is when you are absorbed in your activity and time passes fast. This kind of work is obviously pitched at the right level, and interesting enough to fully occupy your mind without checking the clock, or daydreaming.

Reflect on which part of your job (and previous jobs) you enjoyed. What was it about them that you enjoyed? Was it the interactions with others, the mental stimulation, problem-solving challenge or getting to complete a task without being interrupted.

How could you get more exposure to this kind of work by life design?

What are You Good at?

What are your strengths? Are you good at your current jobs, or part of it? You are more likely to enjoy a job, and have pride completing it if you perform well.

Sometimes other people can give you surprising insights into your strengths. A nurse commented on a patient needing an “Aussie Doc special” (using my real name of course). On enquiring, I found out this was de-escalating angry patients.

The secret to de-escalating angry patients is not surprising. Taking the time, listening intently and finding out the patient’s point of view, and agreeing on a solution or explaining with empathy why expectations are not able to be met. I don’t particularly enjoy this task, and find it emotionally draining. I usually take a few minutes to gather and prepare myself before going in, wearing the appropriate attitude of helpful enquiry.

It’s a lot easier not to make the patient angry in the first place! But I think I will dread the task less after the confidence boost from my colleague. Also, note the clever use of political astuteness of the nurse in this situation!

In What Ways Can You Pivot?

Are there ways in your current job that you can pivot towards the parts you like, and away the parts you don’t like. Make an active effort to spend more time on tasks that align with your strengths and preferences. Find ways to make the less enjoyable tasks more bearable.

No one likes a complainer, but if there is a specific issue you feel is unreasonable, speak to your boss, ideally with a solution ready.

If the boss or your colleagues are phoning you frequently on your days off, perhaps it’s time to form some boundaries. Be polite, explain your situation and that you want to maintain longevity and enthusiasm for the job by having adequate and quality recovery time.

Know what you do and don’t have power over. Banging your head against the wall trying to change something you don’t have the power to influence will burn you out with no benefit.

Sometimes performing some freelance (locum) part time work for a different employer can provide insight into whether it is your career you hate or the specific environment in your workplace.

If you are considering changing job, look for roles that can move you more towards your strengths and preferences. Don’t rush, choose carefully and try not to burn bridges by making it obvious you are looking for work elsewhere.

For those looking a major career change, consider talking to a career coach, and maintaining professional CPD accreditation for a period after the switch, in case of a change in heart.

Don’t Ever Trap Yourself Financially

Jobs can change rapidly. If and when your dream job becomes a nightmare, the worst situation is to be completely trapped financially. The larger the gap between income and expenditure, or the size of your savings and investments, the more freedom and options you have in pivoting to a more enjoyable situation.

Always maintain a healthy gap between income and expenditure, and save and invest the difference. Even if you “Never want to retire”. It will provide you options and choices as life throws you unexpected twists and turns.

Maintain Professionalism and Relationships

Maintaining your professionalism throughout these difficult times is important. Most careers involve a small network. People talk. Particularly as you rise in the ranks, when applying for a new job your potential new colleagues are likely to know your old ones. Don’t give yourself a reputation as a complainer, difficult to work with or lazy.

It takes 20 years to build a reputation and 5 minutes to ruin it

Warren Buffett

Take the Leap

It can be scary to make a change, particularly after a long time in one job, or to switch careers when you have invested so much to the initial plan.

You and only you are responsible for your life and future happiness. Take your time, consider your options and plan your move carefully.

But set yourself a deadline to take action. Don’t stay in a nightmare job just because it was once your dream.

“What If I fall?”

“Oh but darling, What if you fly?”

Peter Pan.

Call to action – Aussie Doc Freedom is not a financial adviser and does need offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant

boosting cash flow TO GET AHEAD

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Are you itching to get ahead and start investing, but being held back by a lack of savings? Progress saving and investing is slow and demoralising initially. Getting a headstart with a boost of cash flow can speed up the journey. Feeling like you are actually getting somewhere helps you stick to the investing plan, instead of giving up. Sometimes, asset prices are increasing faster than you can save!

If you are a professional early in your career it is likely that you don’t have tens of thousands of dollars to get started. If you are interested in optimising your finances, it is well worth digging deep to find a cash flow boost.

The good news is, a little hustle to boost cash flow through some extra income, or cutting expenses in the short term can deliver outsized results over the long term. The faster you can get into investing, the better your returns should eventually be. As long as you don’t fall victim to FOMO and buy rubbish assets!

“Cash flow is having the right amount of money in the right places, at the right times, every time.”

Adam Steward, Debt collection Expert

Adam Steward, Debt collection expert

Hurdles for New Investors

There are two large hurdles new investors need to get over to get started.

  1. Knowledge deficit
  2. Cash to invest with

By reading (and subscribing) to this blog, your knowledge will grow over time. Read and/or listen to a range of sources to get a balanced view overall. Build your knowledge gradually, but don’t let learning delay investing. You can get started with simple index (or micro-) investing with less than a weekend of learning.

You need a good money management system place to capture a portion of your income for saving and investing. Some sort of an emergency fund is essential before starting to invest. If your fridge (or car, or laptop) dies, you don’t want to be forced to sell investments.

Sometimes you just have to suck it up, dig deep and go the extra mile. Pay down debt, build an emergency fund, get your home investment property deposit, or build an ETF starter fund.

After the initial hard work, you can set investing on autopilot, and it will get far easier.

So how do you boost cash flow enough to get started?

Cutting expenses

How much money are you earning? If you are wasting large amounts of it, and are earning over $180,000 it is likely more efficient to look at cutting costs first. If you are in the top tax bracket, you can save $1 extra by earning an extra $1.45 or cut the $1 from your spending. The more tax you pay, the more efficient it is to save money over investing more.

Most people waste some of their income on low-value spending, even if they aren’t high earners. Start by looking at the really boring stuff – bills. Can you save on your electricity and other providers by switching to another provider? Do you actually utilise your current phone and internet plan or could you cut back to a more basic plan without noticing the difference?

Shop around for insurance and indemnity cover. A few hours spent finding hundreds of dollars to save without compromising your lifestyle could be an excellent investment. Cancel insurance policies you don’t need.

Save some cash on groceries. Perhaps use that huge points balance you’ve been saving for nothing in particular? Check your fly buys, Every day rewards and credit card point balances. Can you use them to reduce spending for a month?

Do a pantry and freezer challenge, where you spend only on fresh fruit and vegetables, and use up (rather than waste) the piles of food in your home. Time to get creative with improvised recipes!

A no-spend month, where you spend no money on discretionary items can help reset your spending habits and build a cash cushion for emergencies, or an investment starter fund.

Tax is probably your biggest lifetime expense, so don’t pay more than you have to! Salary sacrifice and make sure you claim everything you are entitled to at tax time.

Sell stuff you No Longer Use

Most of us have impulse buys at home that we never use. If you are looking to boost cash flow to start investing, hunt your house for treasures. Plan a weekend to put them for sale on market place and let people come get their bargains. Yes, you will have no shows, but if you plan for a weekend at home chilling, it’s no big deal. If you have rarer and more valuable items, it may be worth putting it on other sites and actually bothering to post your items to buyers.

Boosting Cash flow with Your Current Job

Earning extra through your usual job, through overtime or a promotion is the most practical, accessible and reliable way to increase income for most nigh income professionals. You have already developed these skills, that are in demand. Can you move to the next level, or take on a few extra shifts boosting cash flow for your investments?

Medical professionals will usually have no difficulty obtaining overtime. This is the easiest and fastest way to earn extra cash fast. If you love your job, it’s the perfect solution, it’s nice to help your colleagues so they are not short-staffed.

But if you’re weary of certain challenges (or people) in your workplace, too much overtime can risk burnout. Sometimes a change is as good as a break.

Boosting Cash flow by Moonlighting

Using your in-demand skills to moonlight for another employer is another option. It can have advantages of broadening horizons, building your network and even finding new ideas to take back to your usual workplace. It may even result in a job offer that’s better than your current employment.

But the flip side of this, is many of us will need permission from our employers to moonlight. Most (in my experience anyway) will happily approve it if you have a positive work history, with little work absence.

As most will be paid more working in the field they already have qualifications and skills, it is often an easy way to boost cash flow.

Boosting Cash flow with Side Hustles

Starting your own side hustle, or business on the side of your usual employment involves time, risk and no guarantee of return.

If you have a well-paid career, you should only start side hustles if your primary motivation is passion, not money. But if you don’t need cash imminently, and would like to build another income stream, a side hustle may be perfect. Your favourite hobby could be a perfect passion project if you don’t feel monetizing it would spoil your enjoyment. If you need to make some cash to make up your property deposit, probably best to stick to the day job.

There are side hustles you can make (small amounts) of money quickly. These may be appropriate for those that do not yet earn a high income, and have little ability to work extra hours in their own occupation. Examples include driving for uber, uber eats deliveries, surveys and cashback rewards.

It may take a little sacrifice in terms of working more hours or spending less, but to get ahead, a cash flow boost will help you get started investing. Set yourself a time limit, and hustle hard to reach your short term goals. In the long-term you will look back in fond memory at this hard work, to produce a little extra cash that compounds over the decades to produce incredible outsized results.

Are you creating a cash flow boost through extra income or cutting expenses? How are you gathering enough cash to get started investing?

Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.

Winning lotto – time vs money

Do you indulge in playing lotto? Do you know what the chance of winning lotto in Australia is?

According to Lottoland, the chance of winning the Saturday lotto jackpot is ~ 1: 8,145,060. You have a far higher lifetime chance of dying of a lightning strike (1:138,849) or a hornet/wasp/bee sting (1:59,507) or choking on food (1:2,535).

If you are daydreaming about winning lotto because your dream job became a nightmare, read this.

Assessment of Risk

As a doctor, I discuss risk with patients all the time. It’s pretty clear we humans are terrible at assessing chance, due to psychological biases. Our odds of dying in an aviation accident are immeasurably small, yet odds of dying from heart disease 1 in 6 (US data). I have talked fellow passengers through panic attacks flying commercial, yet never known anyone hyperventilate over eating a beef burger!

Over 10 million of the 19.4 million adult Australian population brought a lotto ticket within the last 12 months. The concern with these articles is that the lotto players are banking on an unrealistic outcome (winning lotto) rather than saving and investing their way to financial freedom.

But Australia actually seems to be a nation of savers and investors. I was pleasantly surprised to read that 79% of Australians save regularly. Furthermore, 9 million Australian adults hold investments outside their super and primary dwelling. A quarter of these investors have started investing within the last 2 years. Women now make up 45% of all new investors.

So why do we still buy lotto tickets, when many of us are on a far more reliable path to financial freedom?

Winning Lotto Fantasy

My partner buys a lotto ticket once or twice a year, and although really not a gambler myself, I really enjoy prolonging the fantasy of winning. Does anyone else enjoy planning out in surprising detail how they would spend and give away their winnings?

Most of my planning is simply an acceleration of my existing financial plan. Boring, I know! I’m not someone who likes to draw a lot of attention, so I can’t imagine buying a showy car.

My lotto fantasies always involved gifting a lot to my favourite family and friends. It would be a lot more fun to be able to do whatever I wanted if I have those people to share it with. If I were to win lotto, I would hope to win enough to pay off their enormous mortgages, to free up some of their time to spend having extravagant fun with me.

After that, the fantasy turns to the absolute freedom I would have over my time. I would continue to work, but more part-time, and I would be ruthless about giving up work I didn’t enjoy.

9 Extra Hours

Recently I stumbled across Physician on Fire’s inspiring post on the 9 extra hours a day he has available since his early retirement. I realised fantasising about winning the lotto is not really about the money, but time and choice. Physician on Fire has won the “Time Lotto” and has all the extra minutes to fill with all enjoyable and important activities.

I try and squeeze this blog, two delightful children, learning a musical instrument and exercise around my work schedule. It is invariably the exercise that gets dumped, although I have such amazing walking tracks near our home I love to go for a 2-hour hike when I get the chance. An extra hour or two per day would provide so many opportunities!

How Would You Spend Your Lotto Winnings?

I have spoken before about fantasising about winning the lotto. It is a useful strategy to broaden your thinking, remove all “realistic” limitations and think about what you would do if money was no object.

I came up with the idea of having a family discussion and vote each year on which charities to donate to. Then I realised there is literally nothing stopping us from doing this already, just on a smaller scale.

What would you do for meaningful work if you won the jackpot? Many professionals I know would, although they may change the type of work. Most would want to adjust their schedule to include less hours of work, and more time off and schedule flexibility.

Indulging in these fantasies, then thinking about them carefully often leads to the realization that you have far more control than you realised. How can you get yourself closer to that dream life without winning lotto?

“In the end, we are our choices. Build yourself a great story”

Jeff Bezos

Time and Options are the Ultimate Reward that Come with Money

Do your lotto fantasies come down to how you would spend your time differently? As you become more financially secure, money becomes less important. Do you really want to show off in a flash car, and designer clothes? Is that really important to anyone?

Imagine you have been wildly successful in a business you seized the financial opportunity to create. You are making more money than you have ever imagined, can buy literally anything you want.

But, the business requires your presence for 6 days a week, often late into the evening. And you hate the work you have to do. You cannot outsource the work, it is reliant on you. And if you stop running the business, the income will dry up fast. Will driving a sports car for your long commute back and forth to work really make this life sentence bearable?

Focus on what is really important in life. Once able to pay the bills without worrying, time becomes more important than money.

What Would you Do with 540 Extra Minutes Per Day?

Realising that it is the time, and not the money that defines your future gives you more control. How would you spend the extra 540 minutes a day?

What lessons can you learn from the fantasy and implement right now, or work towards over the coming months and years? How close to your perfect life can you come?

Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.

steps to prepare for the Financial year end

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

The financial year in Australia is soon coming to an end. Due to the tax cuts this year, you may be receiving a larger tax refund (or smaller tax bill) than expected. Schedule a morning or afternoon right now in your calendar to put in the work and claim everything you are entitled to. Ironically, income earned through your own hard work (personal services income) is the least tax efficient income to receive. Optimise your tax as much as possible, and consider funnelling your refund into starting a more tax efficient income stream.

Financial Year Dates

The financial year in Australia runs from 1st July to 30 June each year.

The ATO requires tax returns be submitted by 31st October, or you risk a fine. This is true for partnerships and trusts as well as individuals.

For those that are already registered with a tax agent, this tax return deadline may be extended. When it is in your interest to delay your tax return submission (ie you are expecting a tax bill) speak to your accountant about your individual deadline.

If you are expecting a tax return this year (anyone with simple taxes and a few deductions), it is in your interest to get this sorted asap. So book your appointment with your tax agent and book a time in for yourself to prepare.

Do you Need a Tax Agent?

Any professionals performing their 1st tax return should definitely hire a tax agent. Ask your colleagues for recommendations to find one that is familiar with your profession and will be able to prompt you to claim appropriate deductions.

If you tax is very simple, and you have performed tax returns through an agent in the past, it is pretty easy to submit your own return, based on previous years.

I can’t see the benefit of attempting to submit yourself if things are more complicated. It’s probably easier to pay a professional if you own investment properties, a trust or are self employed. Your tax agent fee is tax deductible (next year).

Actions to Take Approaching the Financial Year End

  • Schedule a full morning or afternoon to gather all your income and deduction information
  • Schedule an appointment with your tax agent or yourself to submit your return
  • Review your financial plan
  • Rebalance your portfolio if you plan to do that at end of year
  • Now is a good time to update your continuing professional development documentation and make sure your on track to hit your goals

Gathering Information

The ATO website should automatically record income information for employees. You can check on the my Gov website, or your PAYG certificate if your employer still provides one.

Any self employment income through the tax year needs to also be recorded. Hopefully you have kept a track of this through the year, otherwise you will need to search through your online banking to make sure you have got this right.

Investment income also needs to be declared, including bank interest. Bank interest is easily found on your online bank website. Investment income can be a bit more tricky. My experience with micro-investment accounts RAIZ and Quiet Growth in previous years has been that they produce all the documentation, but not for some time after the tax year. Share sight can summarize all your investment income from multiple brokers, and advertises it’s handiness at tax time. I’m signed up as I have brokerage accounts with Pearler* and Commsec but can’t comment on how easy it will be until after I’ve completed the 1st tax return. I’ll let you know!

Next you will want to gather information on tax deductions. If you have a small business, or lots of deductions, it may be worth having a separate account or credit card purely for tax deductible expenses. This makes it a lot easier to keep track of it all.

Deductions May include:

Uniforms – You are able to claim for work specific attire – so scrubs with logos can be claimed, generic smart clothes for clinic unfortunately not.

Education Expenses Relevant to your Current Employment – this needs to be with the aim of increasing your income over the long term. Books, journals and course fees are common deductions.

Stationary – note books, pens, headphones, USBs and cables for work use can be deducted.  A bag purely for work use of reasonable cost, stethoscopes, otoscope and other work specific equipment is deductible.  Paper and ink for your printer is deductible if it is used for work purposes.

Working from Home – If you have worked from home, as many of us have this year there are special rules for 2020-2021. A “Shortcut method” has been introduced where you can claim 80c for each hour you have worked from home. This instead of claiming individually for work related portion of electricity, phone and internet bills, heating and cooling and cleaning. Unfortunately, you cannot use this shortcut method if you were working from home before March 2020. Check out exactly how you can claim on the ATO website.

Home office furniture and equipment (e.g. printer and laptop) can be claimed immediately if they cost under $300. If they cost more, you will need to claim them as an annual depreciation.

Postage costs – for work related post

Tax cuts – You don’t need to do anything about claiming the extra tax you have paid since the 2021 tax cuts. These will be automatically refunded as part of your claim.

Schedule an Appointment

This is an insane period of time for accountants. If you are keen to get your hands on a tax refund, book in early. If you owe money, call your accountant and work out when is the best time to book in.

But also schedule an appointment for yourself to do the prep work. 2-3 hours of work preparing everything for a thorough and accurate tax return could pay very well!

Most people find that other people’s priorities trump their own. There is a good chance if you haven’t actually scheduled a time in your calendar, that you will be scrambling to get it together in an hour before your tax agent appointment. Being called into work to cover a gap in the roster, your child getting sick and a million other dramas will inevitably arise to prevent you getting your tax prep work done.

Missed deductions are wasteful, and inaccurate information could score you a stressful tax audit and get you into trouble. It is not worth getting into strife with the tax return.

Other Financial Year End Activities

Review your Financial plan

Either the financial year end, or the start of the calendar year (or both) are great times to review your financial and life goals. Priorities change, and you want to make sure you are still working towards goals that are meaningful for you. It is also extremely motivating to tick off the goals you have achieved, and reflect on the progress you have made in a year towards the huge goals.

Rebalance your portfolio

The financial year end is also a good time to rebalance your portfolio, if this is consistent with your rebalancing plan.

Continuing professional development

I know. This is very painful! But you’ve got to review your continuing professional development plan and submit all your documentation at some time. Why not get it over in one lot? If you need to pace these exciting activities, at least take the financial year end as an opportunity to schedule your CPD year review and submission(s).

Get sorted for the financial year end! Schedule those appointments. While your busy adulting, subscribe to this blog so you get even better at financial adulting, creating a life of abundance and choice.

Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.

Victorian Residential Tenancy Act CHANGES 2021

This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Are you, or are you considering becoming a Victorian Landlord? You have probably heard a little about the recent legal changes to the Victorian Residential Tenancy Act that were finalised in March 2021. You have also probably heard some drama about increased costs to meet the new laws and more power to the tenants. Some have even declared that property investing is no longer a viable option in Victoria! More than 130 reforms have been introduced, making getting up to date a bit overwhelming.


I own two investment properties, recently buying property for investment in Victoria. In this article, I will summarise the changes to the law, and we’ll check out how fair the new laws are.

The changes to the Victorian residential tenancy act have been created in order to make renting a fairer and safer proposition for tenants. As much as there seems to be a general sense of resentment towards landlords, most of us have lived in rental properties.

Around 25% of Victorian residents rent. I have appreciated the availability of fairly priced, good condition properties I have rented. I have also resented the excessive rules and found it difficult to understand why I couldn’t hang a picture on the wall.

Now I am on the other side of the fence, as landlord I want to provide safe, good condition properties at a fair price to my tenants. Of course, I wouldn’t have become a landlord if I didn’t want the investment to pay returns. Residential investing has to produce a profit, or else why would investors accept the considerable hassle and risk of owning a rental property.

Many of the changes are what any reasonable person would expect (eg a functioning toilet!) Some, however provide opportunities for abuse. I’ve highlighted the changes I consider potentially concerning.

Victorian Residential Tenancy Act – Tenant Selection

It is unlawful to discriminate against renters based on their personal attributes such as age, race, religion or disability. Pets cannot be unreasonably refused, but tenants still have to ask permission. Rental providers can only apply to VCAT to refuse a pet.

Landlords can’t request “inappropriate information” in a rental application – for example the renters bond history. I’m not sure I understand why this is inappropriate.

Rental providers cannot encourage someone to enter a rental agreement by misleading or deceptive conduct or statements.

Advertising for Rent

Your investment property can no longer be advertised with a rental range. It has to be advertised for a fixed rent. Landlords and agents cannot ask for or invite rental bids above the asking price.

Unsolicited bids of higher rents by the potential tenant in order to secure a property as still allowed.

Signing a Tenancy Agreement

Certain information now has to be disclosed to the potential tenant when a tenancy agreement is signed:

  • If the property is to be sold
  • If the rental provider is not the owner of the property, and the rights they have to rent it out (subletting)
  • Mortgage default and the home is going to repossessed
  • The property is supplied electricity from an embedded electricity network (ie a block of units are all contracted to a single electricity provider, which may not be the cheapest).
  • There has been a homicide in the property or common ground within the last 5 years
  • The rental property complies with all the legal minimum standard
  • If there are any outstanding recommendations from the gas and electricity safety check
  • The home is registered under the heritage act 2017
  • The property has been used for trafficking or cultivation of drugs of dependency over the last 5 years
  • The home has friable or non-friable asbestos identified
  • The property is affected by a building or planning applications
  • The home or common property is known to have building defects or safety concerns
  • There is a current dispute between owners, occupants or the manager that affects the property (Owners corporation act 2006)

I can’t even imagine how awful it would be to have a homicide in or around your property. Or then how difficult it would be to rent when you have to disclose this to potential tenants. This is an unlikely nightmare situation I hope none of us have to tackle!

Bond

Landlords cannot ask for more than 1 months rent as a bond, or required payment more than 1 month in advance if the property rents for $900 / week or less.

A condition report must be completed at the start and end of the lease.

I can imagine the bond can be grossly inadequate if you get a nightmare tenant who destroys a property. 1 months rent as bond has been fairly standard before these changes though, so I don’t think this changes much. Rental providers must have to rely on their landlord insurance in these situations.

Safety Checks

Landlords need to perform gas and electricity safety checks every 2 years for all new rental agreements after 29th March 2021.

Fair enough. Will increase costs to landlords and tenants, but if it improves safety no-one can really argue with that.

Victorian Residential Tenancy Act Changes – Minimum Standards of Rental Property

These have been improved.

Door locks

  • External entry doors should be fitted with a deadlock if possible
  • If this is not possible, the external doors must be openable with a key from the outside, and lockable from the inside with or without a key.
  • External doors opening onto a common area (unit corridor) are excluded from this rule

A lockable door seems like a pretty reasonable demand!

Ventilation

Ventilation of the property needs to be compliant with the ventilation standards of the building code of Australia

Vermin proof bins

  • Council bins must be provided

Toilets

A rented property must contain a functioning toilet. It must be connected to an appropriate waste system and in a room or structure intended to be used as a toilet area (the mind boggles!).

Bathroom facilities

Must contain

  • Hot and cold water
  • A wash basin, shower/bath
  • Minimum 3 star rated shower heads

OK. So it has to be a bathroom. You might need to replace a shower head.

Kitchen facilities

Must have

  • a dedicated food preparation area
  • A sink with hot and cold water
  • A stove top in good working order with at least 2 burners

Again, expectations are pretty basic.

Laundry facilities

If provided must have a reasonable supply of hot and cold water

Structural soundness

Rented property to be of structural soundness and weather proof

Again, only in line with very basic expectations of a property you would accept living in yourself.

Mould and dampness

Each room must be free of mould and damp caused by the building structure

Can imagine this might cause dramas for those with old properties. But no-one wants to get sick. It’s got to get sorted.

Electrical safety

Must have electrical safety switches installed

Seems like a basic safety thing. Don’t want any electrocuted tenants!

Window coverings

All windows in the bedrooms and living area must have coverings that can block light and provide privacy

I don’t have window coverings in my living room, there is no privacy concern. It will help temperature control though. An additional expense, but a one off cost at least.

Windows

  • External windows that can be opened must remain open and closable
  • Where possible, locks are to be provided for all windows. If the window is not capable of having a lock, it must have a latch to secure against external entry.

Again, an additional one off cost and will improve security. Depending on where your property is located depends on whether that extra security is required.

Lighting

Rooms and corridors should have access to natural or artificial light

Were you just going to have your tenants use torches?!

Heating

  • A fixed heater is required in the main living area of all homes
  • If a fixed heater in the main living area has not been installed, an energy-efficient heater (2 star minimum) must be installed
  • From 29 March 2023, the heater in the main living area must be an energy-efficient fixed heater (minimum 2 star rated)
  • If the rental property is in an apartment block and installing an energy efficient heater is not feasible the energy efficiency requirement does not apply, but a fixed heater is still required. 

A one off additional cost, although may be a significant one. I’m not sure why Victorian properties don’t seem to be that well set up with heating, it gets so cold! Get it sorted and have happy warm tenants who hopefully stay longer.

Damage & Urgent Repairs

Renters must report damage as soon as possible.

If they have made a reasonable attempt to contact the rental provider or agent and the urgent repair has not been fixed immediately, renters can now pay up to $2500 for an urgent repair.

If a renter paid for urgent repairs up to $2500 because the rental provider did not respond, the rental provider must pay the renter back within seven days. Previously rental providers had 14 days.

The list of urgent repairs now includes:

  • Failure to comply with minimum standards
  • a failure or breakdown of cooling appliances or services
  • Failure or breakdown of any safety related devices
  • any fault or damage that makes the property unsafe or insecure.

Open to abuse unfortunately. Whilst you have reasonable tenants and reasonable landlords, this isn’t going to be a problem. In fact, you wouldn’t need it, but obviously some landlords have not been fixing urgent safety / comfort issues promptly so here we are. Tenant screening and treating them well will hopefully encourage them to reciprocate your reasonable human approach to issues.

Keys

Rental providers need to provide a free set of keys to renters. Extra sets should be provided at reasonable costs.

They kind of need to get in. Ripping tenants off over an extra set of keys is not cool.

Modifications

Tenants can make simple modifications without seeking permission, including:

  • Picture hooks or screws for wall mounts, shelves or brackets on surfaces other than brick walls, 
  • Wall anchoring devices on surfaces other than brick walls to secure items of furniture, 
  • LED light globes which do not require new light fittings, 
  • Low flow shower heads if the original shower head is kept, 
  • Blind or cord anchors, 
  • Hardware mounted child safety gates on walls other than brick walls
  • Security lights, alarm systems or security cameras that do not impact on the privacy of neighbours, can easily be removed are not hardwired 
  • Non-permanent window film for insulation, reduced heat transfer or privacy,
  • A wireless doorbell,  
  • Replacement curtains if the original curtains are retained by the renter,  
  • Adhesive child safety locks on drawers and doors,  
  • Pressure mounted child safety gates,  
  • A letterbox lock.

In contrast, painting requires the landlords permission, but should not be unreasonably refused.

Properties under the heritage act will need permits for many modifications, and renters need to adhere to these rules.

Before the end of the rental agreement, the renter must reverse the modifications (fair wear or tear excepted) or pay the rental provider for the cost of reversing them, unless both parties have agreed otherwise.  

Most of these seem very reasonable, and may encourage your tenant to stay longer. If renting didn’t feel so much like living in someone else’s house, it wouldn’t be so unappealing.

Paying Rent

Once you have your tenant in, you can only increase rent annually.

If your tenant is behind on the rent, but pays back within 14 days, any notice to vacate is cancelled. This can occur up to four times in a year.

This could be annoying. But I guess if they are in financial dire straits, and they are actually paying the rent it’s certainly better than not paying the rent. I’m not sure why you would abuse being able to get away with paying rent late repeatedly, if you still have to pay it. I’m sure there will be a few who just want to annoy the landlord!

Domestic and Family Violence

If a renter is experiencing family violence they can change or terminate the rental agreement and not be held liable for damages in some circumstances. These requires an application to VCAT, who will consider the tenant’s claim within 3 days.

We all know domestic and family violence is a huge problem. Who wouldn’t want to help someone escape from this situation? Involvement of VCAT reduces the risk of non-genuine situations.

Eviction

You can no longer throw someone out of their rental accommodation without a reason. Say what?! Why would anyone do that? Landlords now have to give a “Valid reason” including sale, change of use or if the owner is moving back in.

A renter can be evicted if they are violent towards the landlord, agent or neighbour

Ending the Tenancy

Renters can request their bond be returned without the landlords agreement.

This goes through an independent body to make sure it is fair and not a greedy landlord trying to maximise profits unfairly. I’ve never been through this process, but hope they are fair to both sides.

Renters can end the tenancy if the property isn’t structurally sound.

A professional clean can only be a term of the lease if it is required to return to the property to the condition it was (apart from fair wear and tear) at the start of the lease.

Landlords need to give the tenants 14 days to collect left behind at the end of a tenancy. The items need to be kept safe in the meantime

Not sure about this. Beyond a significant emergency, I’m not sure why tenants would leave belongings or why the rental provider should clear up after them, and store it! Reasonable if the tenant has left in an emergency, domestic violence, which I assume is why this law was created. But I don’t think it’s uncommon for tenants to leave houses full of “stuff” rather than getting rid of it.

You can find the full information on changes to the Victorian residential tenancy act here.

Rents are Likely to Increase

No one can argue with increased safety precautions, but they do unfortunately increase costs. The gas and electricity safety checks, installation of window locks and new heaters will produce extra costs that will eventually be passed on to tenants.

Risk and Potential for Abuse from the Victorian Residential Tenancy Act

Some of the changes do increase risk for rental providers. You can no longer choose to have pet free tenants in your property. Rental providers now have to apply to VCAT to stop a tenant bringing a pet to a rental property. Pets obviously cause more wear and tear to the properties, increasing costs. Some owners are irresponsible pet owners. It is wonderful for responsible pet owners that rent that it will be a lot easier to find a property. But the extra costs are again likely to increase rent.

The urgent repair law applies to heating and cooling equipment. Fair enough if the air conditioning is broken in the middle of summer. Hopefully common sense will prevail and tenants will realise that if the air con breaks in the middle of the winter that’s not urgent and vice versa. Landlords need to be aware that they need this cash available at short notice.

Victorian Residential Tenancy Act – Conclusion

Most of the new Victorian residential tenancy act laws are what any reasonable tenant and landlord would expect. There are extra safety precautions that will increase costs (and eventually rents), and hopefully safety. A nightmare tenant can abuse the grey areas, making tenant selection and screening even more critical since the changes. Your property manager needs to be on top of helping you ensure your property is up to date with the latest requirements.

Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.

Portfolio rebalancing for australians

This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded but does add a conflict of interest.

What is Portfolio Rebalancing?

Portfolio rebalancing refers to resetting your investment portfolio back to your intended asset allocation. Rebalancing can refer to restoring the asset allocation to each asset class, ETF or even individual stocks. It can occur at a pre-decided time interval (quarterly, bi-annual or annually). The purpose of rebalancing is to improve returns, and reduce risk and volatility.

Rebalancing forces the investor to purchase investments at a discount (when they are underperforming) and sell overperforming assets. It goes against our natural inclination to hold on to (and buy more “Winners”, right before they crash.

A predetermined percentage deviation from the intended asset allocation can trigger an investor to rebalance. If an intended asset allocation was 50% stocks, 50% bonds, the investor may rebalance once either stocks or bonds reaches 60% of total investments. The purpose of rebalancing is to reduce risk and volatility.

Examples of Asset Allocations – If you keep things simple and have one ETF per asset class, rebalancing is the asset classes and ETFs are the same.

Hopefully you have set goals, written down a financial plan, decided on active vs passive investing and decided on an asset allocation.

You now have to decide on a rebalancing strategy.

Is Portfolio Rebalancing a Good Idea?

In Vanguard’s white paper, average annual returns over 90 years of back testing were as follows:

  • No Rebalancing 8.74%
  • Monthly Rebalancing 8.39% (rebalanced if met threshold of 10% deviation from asset allocation)
  • Quarterly Rebalancing 8.26% (rebalanced if met threshold of 10% deviation from asset allocation)
  • Annually 8.20% (rebalanced if met threshold of 10% deviation from asset allocation)

This does not tell the whole story. Volatility affects investors emotions, and risks them selling at the bottom of a bear market, locking in losses. The timing of your need to draw down your portfolio also will dramatically affect whether you would have benefitted from rebalancing.

Volatility also has a direct effect on cumulative investment returns.

The annualised one listed above is an average of annual returns. The problem is, volatility reduces the actual returns received.

Take this fictitious example of two companies – one making dog jackets, the other dolls. The dog jacket company has stable and consistent 5% growth every year for 10 years. The doll company is far more volatile. Some years have great returns, others are negative. The average return overall is 5% for this company too.

Disclaimer – In case you hadn’t guessed, I have no idea of the investment potential of a dog jacket or doll company!

Investors who invested in the dog jacket company and held for 10 years have significantly more cumulative growth than investors in the doll clothes company.

YearDog Coats R US
Annual returns
$10,000 invested in
Dog coat company
Dolls
Annual returns
$10,0000 Invested in
Dolls
15%$10,50015%$11,500
25%$11,025-5$10,925
35%$11,57615%$12,564
45%$12,155-5%$11,936
55%$12,76315%$13,726
65%$13,401-5%$13,040
75%$14,07115%$14,996
85%$14,775-5%$14,246
95%$15.51315%$16,383
105%$16,289-5%$15,563
Average return5% 5% 

This seems counterintuitive. But to recover a 50% loss in your portfolio the following year, you need an annual return of 100% (not 50%). The effect of volatility and compounding is captured with an annualized return, calculated using a “geometric average”.

Does Portfolio Rebalancing Improve Returns?

Vanguard tested several rebalancing scenarios. The full white paper is here. They compared the effect of rebalancing on a 60:40 stock: bond portfolio. They back tested data over 90 years in several scenarios to compare returns and volatility:

  • No Rebalancing
  • Monthly Rebalancing
  • Quarterly Rebalancing
  • Annual Rebalancing
Vanguard White paper

As you can see from the lower graph, there is a slight improvement with quarterly rebalancing over no rebalancing over a 90 year period. There was minimal difference between returns for the monthly, quarterly and yearly rebalancing schedules.

Most of us don’t have 90 years to invest. Poor performance in the early years of drawdown can dramatically damage your portfolio longevity. This is known as “Sequence of Returns” risk. At times the unbalanced portfolio outperforms the balanced, at other times it underperforms. You can see from the graph above why many early retirees in 2008 had to go back to work.

A 60:40 stock: bond portfolio may be considered very conservative among readers A factor in the good long-term performance of the unbalanced portfolio in Vanguard’s white paper may be that over time the portfolio became more heavily weighted towards stocks, giving the investor a more aggressive portfolio over time. The end unbalanced portfolio would be far more aggressive, and be expected to perform better over the long term. Those with a more aggressive portfolio may find the benefits of rebalancing more significant.

Rebalancing makes sense. Why make an asset allocation at all if you aren’t going to stick with it?

How Portfolio Balancing Works

There are three main approaches to a portfolio rebalance strategy

1. Rebalancing Portfolio with New Money

During the accumulation phase of investing, the most cost effective way of rebalancing is to add funds to the underperforming asset.

If your 60:40 investment portfolio has become 70:30 stocks : bonds, your next investment will all go to bonds. This works well in the early phases of investing. But, as your portfolio grows, growth will dwarf your contributions (hopefully). If you have a million dollars invested and invest $1000 per month, you would never achieve a portfolio rebalance with this method.

With Pearler*, your account can be set up to automatically add your next investment into the lower performing asset, rebalancing each time without additional cost. Sign up for a free brokerage credit* through Aussie Doc freedom.

2. Selling Performing Assets, Buying more of the Underperformers

Once your portfolio reaches a certain size, you will have to sell and buy assets to rebalance. Unfortunately, both buying and selling assets costs brokerage fees. Fees eat into returns. Minimising fees is a powerful way to boost your portfolio performance.

Optimising your rebalancing schedule to maintain a reasonable asset allocation whilst minimizing fees is important. Most sources suggest rebalancing every year, and only if the asset allocation has deviated 5-25% from the plan.

Another strategy is to rebalance within superannuation. It makes little sense to me to ignore your investments inside super. This is still your real money, even if you can’t get to it for several decades. Invest outside superannuation to fill the gap, but approach asset allocation and rebalancing by looking at all your investments as a whole. Rebalancing your overall exposure within super is more cost and tax effective.

For those with a Self managed super fund this is pretty simple. For those of us in industry funds, choices are a little more limited. Some offer a “Self invest” option, but examine the fees carefully. Otherwise, adjust your asset allocations within super to roughly rebalance your overall portfolio. Note the set up and ongoing costs of a SMSF are significant, and not worthwhile for many.

3. Retirement Portfolio Rebalance Strategy

The opposite of the first strategy. Withdrawals are made preferentially from the highest performing asset. Initially, with a high portfolio balance, this is likely to be inadequate. But withdrawing from the winning asset will reduce brokerage costs of rebalancing with strategy 2.

When Should You Rebalance Your Portfolio?

There are 3 approaches to consider:

1. Time Based

Every year, as long as assets have deviated more than 5-25% from the intended asset allocation. This is easy and involves minimal emotion. So set a date such as your birthday, new year or tax time and check your portfolio. Adjust as required

2. Rebalance when there is a Significant Market Movement.

This involves monitoring the market, and rebalancing during a time of stress. Logging into your account during a major bear market risks panic and emotional decision making. In March 2021, the brief but dramatic COVID bear market had almost correctly corrected within a few weeks as long as you hadn’t sold. Selling the losers at this point locks in the losses. Experienced and professional investors may be able to use this and keep a level head. I ban myself from logging into investment accounts during a crash!

Active rebalancing also involves extra costs. Selling winners means you are crystallizing winners. High income earners generally want to defer income until they are no longer in a high tax bracket. Selling means you will have to pay tax on the gains, even if you are simply recycling the funds back into another investment. On top of that buying and selling assets cost brokerage fees. These are good reason to rebalance infrequently (yearly or even two yearly). They are also good reasons to optimise your purchases to keep investments inline as much as possible. Check out Pearler’s automated investment option with automatic rebalancing.

3. A Mixed Approach Combining the Two Above Approaches.

Many will review and rebalance at a set date but also if there are significant market movements. I try not to watch the market too closely (I’m working on it, OK?). But it’s almost impossible to avoid hearing about a significant market correction. So, my own easy strategy is to review and rebalance yearly, and invest extra during significant corrections. Corrections >20% are anxiety producing. Every news outlet and social media channel is screaming that the sky is falling. Working extra shifts and shovelling money into the market gives me something to focus on!

Asset Allocation Changes with Age

Asset allocation may need to change as you get older, or once you hit your goals. As you get older, investors can tolerate less risk. If you have already hit your goals, you don’t need to take as much risk.

This is different from portfolio rebalancing. Instead, this is a review every 5 years to assess whether your asset allocation is still appropriate. Reviews should be performed whilst the market is dull, and you are calm. They should be scheduled and this schedule followed to avoid disguising a speculative interest in a new asset as “reviewing your asset allocation”.


Portfolio Rebalancing Pros and Cons

ProsCons
Reduced volatilityBrokerage costs and tax on capital gains eat into benefits
Optimises return for level of risk appropriate for investorComplexity increases with investments inside and outside superannuation and property investments
Encourages you to buy assets at a lower price and sell at a higher priceMiss out on gains if rebalance part way through a bull run
 Involves checking your account and risks emotional decision making

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Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.

Pearler Review: Auto-invest with Low Fees

I have now been investing with Pearler for around 9 months! The platform has continued to improve since I signed up.

My original Pearler review can be found here. I wrote the original before I formed an affiliate relationship with Pearler. As time goes on my feelings have not changed.

As of March 2022 ASIC have made it clear affiliate relationships with financial products is not acceptable for finance bloggers without an AFSL, so there are no longer affiliate links.

I will continue to update my Pearler review in this article.

Pearler Review: The Bottom Line

Pearler designed its platform for long-term investors mainly interested in passive ETF securities. The ability to automate investments regularly is unique and the big selling idea of the platform.

They based the platforms on the needs of the financial independence crowd. But you don’t need to be a hard core FIRE enthusiast to use Pearler’s auto-invest feature.

 

Most investors perform dismally over the long term because they:

  • Fail to stick to the simple plan
  • Pick individual stocks and underperform the market
  • Buy stocks impulsively based on hunches and media articles
  • Waste much of their gains on brokerage fees
  • Panic when the market crashes and sell at the worst possible time
  • Fail to invest at all, because it’s too complicated and risky

 

Pearler aims to:

  • Prioritise automated investing to help investors stick to the plan
  • Providing a simple platform that’s easy to use
  • Encouraging long-term investing in diversified portfolios of index ETF securities
  • Forming a “Pearler community” of like-minded long-term investors
  • Charge low (and decreasing) Pearler brokerage fees
Aussie FIRE Book, funded and organised by PEARLER available FREE here.

What is Pearler?

Pearler is an online broker for long-term Aussie investors. It was founded in 2018 by three friends based in Sydney. It allows investment into a variety of Australian stocks and ETF products directly.

 

Pearler Review: Automated Investing

Pearler is the only broker to support automated investing. Automation is an incredibly powerful tool in helping investors resist the urge to self-sabotage. It’s the number one way to stick to a long-term investing plan.

If you have to cancel a direct debit to skip an investment, you are far more likely to stick to the plan of investing every quarter. If you have to press “buy” each quarter, it is more likely you will find an excuse not to. There are always competing priorities for our money.

Starting investing in the share market for the first time is initially exciting, but it quickly gets a bit boring. Once your balance starts to build, it doesn’t seem to grow much on its own and contributions don’t increase the balance quickly either. Once you get past this painful part, the growth in your investments will eventually be enough to encourage you.

But you’ve got to get past the boring painful bit. Automation will help.

 

Does Anyone Else Offer Automation?

At the time of writing, none of the other Australian trading platforms offers a fully automated investing experience.

Vanguard personal investor allows automated bpay or direct debits into its managed funds or cash management account (earning 0.35% interest).

It is easy to automate investing into super, through salary sacrifice or regular bpay deposits. It may also be the most tax-efficient way to invest for double-income couples.

My $115/ fortnight spouse super contribution (which attracts a $500 tax annual rebate) leaves my account quietly. Every few months I have to check it’s still working as I don’t recall noticing it!

Stealth investing is a thing.

 

Brokerage Fees vs Other Online Brokers

Pearler has competitive brokerage fees of $9.50 for an unlimited investment amount.

The fee is around half of Commsec brokerage and on par with Self wealth. Even cheaper brokerage is possible through non-CHESS sponsored accounts.

Investors don’t legally own the shares or ETFs in their non-CHESS sponsored account though.

 

Review Pearler: Free Brokerage

Pearler offers selected brokerage free ETFs with three ETF managers as long as you hold the investment for at least a year. You will have to pay brokerage on the eventual sale of assets. The brokerage-free ETFs I looked at had slightly higher management expense ratios (MER), around 0.4%.

The graph below shows investment returns paying brokerage and MER of 0.2% vs brokerage-free ETFs and MER of 0.4%. In this scenario, the investor is $1000 ETF every month. The brokerage-free option is advantageous in this situation.

In the next scenario, the investor purchases $3000 four times a year to save on fees. Paying brokerage is advantageous after a few years in this situation.

Whether the brokerage free ETFs are right for you probably depends on how much you are investing, how often, for how long, and whether the ETFs available suit your needs.

Is Pearler CHESS Sponsored?

Pearler Investments is a CHESS-sponsored broker. CHESS Sponsorship means you legally own the shares. If the Pearler platform collapses, your shares can be moved to another brokerage account via a share registry. In the case of Pearler and Commsec, Computer share is the share registry.

Some trading platforms are not CHESS Sponsored (notably Superhero) which means investments are held in trust for you.

A couple of days after purchasing your shares, you will receive a letter from Computershare, the CHESS registry.

If you wish to set up dividend reinvestments, you need to log in to Computer share and register for dividend reinvestments for each investment individually. It’s not hard to do, just worth knowing.

I had assumed as I owned the same investments through Commsec, the dividend reinvestment plans would continue with Pearler. Wrong! I had to work out how to deposit a cheque in 2021.

 

Pearler Review: Set Up Hassle

The actual sign-up process was quick and easy, I was able to complete it all online in less than an hour. Opening my Commsec account a few years ago seemed a lot more challenging. The set-up process with Pearler was far easier. It all seemed intuitive.

You need to verify your identity and link a bank account. Pearler makes the required steps as easy as possible.

Pearler offers the ability to share your profile with friends, but the privacy level is up to you. Adjust your profile between “Public”, “Within Pearler”, “Unlisted” and “Private”.

 

Accounts Available with Pearler

You can open an individual or joint accounts with Pearler.

A Self-managed super fund or trust account is also possible with Pearler.

You can open a minor’s custodian account. The taxation here gets a little complex, and it’s definitely worth checking with your accountant before opening an account.

 

Pearler Review: The Trading Platform

Pearler is a long-term investing platform. It is designed as a simple interface, in contrast to other platforms designed for short term traders.

Pearler provides the information needed by long-term passive investors.

Pearler now displays the live market price for instant direct buy/sell screens. If you are making direct stock investments, the exact price may be important to you.

Pearler displays CXA Stock Exchange (CHI-X) end-of-day market prices elsewhere on the platform, which may vary from the live price by small amounts. As a long term investor, this is more than adequate for me.

On opening your Pearler account, you come to the Dashboard where your current balance is displayed along with historic progress. You have tabs for Auto invest, invest and transactions.

Auto invest is where you can set and adjust your regular direct debit requests to Pearler.

Invest is where you can directly buy / sell with instant deposits.

Transactions will show all movement of money in and out of your account.

Investment Strategy

Make sure you have set goals and made a financial plan. If you don’t know where you are going you are likely to end up lost! You will structure your investment strategy to meet these goals.

Micro-Investment Accounts

Many online reviews will talk about how expensive micro-investment apps are. Certainly, once you get a certain amount invested, and over the long-term, they are more expensive than having your own brokerage account. But they can be the easiest way to end procrastination and get started. You can also generally direct debit into them, and automation is a very powerful tool in investing.

You could also reduce the cost with RAIZ, which has a “RAIZ rewards” section. If you don’t already use cashback, these savings can fully cover your RAIZ fees for some time (particularly for families who tend to spend more).

Pearler are releasing a micro-investment account, where new investors can start their journey to financial independence with as little as $5. The full details are not yet out, but watch this space!

This has the potential to take new investors from their very first investment as a student to building financial independence with the Pearler personal finance marketplace. I’m looking forward to find out if Pearler can complete with similar products already on the market.

 

Choosing a Target Portfolio

Seasoned investors can simply go to “Auto-invest” on the investing platform and search for the “ticker symbol” (abbreviated code) for the ETF securities or individual stocks they want.

You get to choose what percentage of your target portfolio you want to allocate. Your Pearler account now allows you to compare diversified portfolios with multiple target portfolios calculators.

Remember to consider any other financial assets as part of your overall asset allocation eg super, property, cash. If you have a large cash emergency fund in a bank account, do you really need some of your investment portfolio allocated to cash?

Most beginner investors, as well as financial independence seekers, will choose a simple allocation to ETF securities.

 

Methods Beginner Investors Have Selected a Portfolio Allocation:

  • Copying a micro-investment portfolio allocation. They are generally allocated to a range of ETF securities. This is simple to copy the asset allocation in your broker account
  • Starting with their super portfolio allocation. Either copying the allocation or adding ETF securities that are inadequately represented.
  • Choose a Vanguard diversified investment product that suits their risk profile. Buying through Vanguard, or copying similar allocation with a broker
  • Based on reading eg Simple Path to Wealth

 

Pearler Review: Template Portfolios

If you click on the portfolio and select to adopt it, Pearler automatically adjusts your portfolio allocation to match.

It’s important not to get stuck trying to achieve perfection.

Stop procrastinating.

Set a limit on your learning time, make a simple asset allocation and set it up. You can always adjust as you learn more.  Or get professional advice.  Just don’t leave it in the too hard basket (the years pass quickly!)

You can view profiles and portfolios of other Pearler investors who have chosen to be public. The profile sharing feature is not for copying someone else’s asset allocation. The idea is to allow comparison and perhaps encourage discussion and investigation.

 

Pearler Review: No research reports

Pearler has no due diligence and no research on the website. 

The other big online trading platforms such as Nabtrade and Commsec display data from Thompson Reports, Morningstar, and Trading Central. These big platforms provide lots of data for individual share pickers to delve into.

All this is absent in Pearler. It does not even display a PE multiple or volume on their website. This keeps the platform simple, without distractions.

 

Auto Invest Feature

You set your automated investing to invest by direct debit regularly by any set number of weeks or months.

In an ideal world, many of us would direct debit a small amount each payday into our Pearler account. However, paying brokerage monthly (or fortnightly!) is not cost-effective unless you’re investing large amounts each time.

The more you are investing each time you pay brokerage costs, the better deal you are getting. But the more time your money sits outside the market before investing, the longer you are missing out on market returns.

Pearler has a handy Investing Frequency calculator to work out the optimal frequency of investing for you. Mine is ~ 7 weekly.

 

Your Auto-Invest Cash Takes 2 Days to Invest

Your cash is invested according to your portfolio preferences.

If the share price doesn’t multiply neatly into your investable cash the leftover cash will remain in the cash account until you next invest. I have only had up to $75 in my cash account so far.

Your cash deposit is initially cleared into a Macquarie bank client trust account. This is not in your own name but held in trust on your behalf.

The money is held here until (for up to two days) Pearler invest your cash. You receive an email to confirm receipt of the cash and then again when it is invested.

You can choose to invest immediately or have them hold your cash until you reach a prespecified sum (say $5000) to save brokerage.

 

Manual Instant Pay One-off Investments with Pearler

Although automated investing is the number one feature that makes Pearler popular, it is sometimes handy to be able to buy ad hoc investments.

Pearler now offers instant deposits through OSKO or Pay ID. This invests your money immediately at market price, known as a market order.

Pearler has introduced the ability to use a limit order. This is when you set the price you would like to pay (below the current market price). The purchase goes through if the price drops to your limit.

If the price never drops to your “ideal price” you don’t get to purchase the investment.

For ordinary times, most people use a market order as they know the rough price, and want the order to go through (which it will as long as someone is selling the investment you want).

US Shares

Pearler now offers US shares through the NASDAQ and NYSE. Brokerage is $6.50 + 0.5% margin on the foreign exchange, currently ~0.37% of your investment amount. Superhero advertises free brokerage US investing but charge a 0.5% margin on foreign exchange.

In case anyone is suffering from the same misunderstanding I did, it is not necessary to invest in the US stock exchanges in order to purchase the US or international index ETF securities or managed funds. These are available through the ASX.

 

US investing is for those wanting to invest in specific companies, such as Google.

Mobile Phone App

Pearler obviously had to launch an app. It works well, is easy to download to your phone as is pretty much an identical replication of the easy-to-use website.

This is useful for those who don’t own a computer, but otherwise a dangerous temptation to check your portfolio several times a day!

I don’t need the encouragement!

If you have more willpower than me and think you’ll find it useful, download the app. For the weak-willed, keep investing apps off your phone.

 

Pearler Integration with Sharesight

Pearler integrates seamlessly with sharesight. This is an easy process to set up, involving just a few clicks on your Pearler platform.

At the end of the tax year, I printed out the promptly provided end-of-financial year summary and delivered it to my accountant. This provided all the information required for my accountant to claim franking credits and submit information accurately.

 

Are Your Investments Safe with Pearler?

Sanlam Private Wealth Pty Ltd is the Australian Financial Services Licence holder for Pearler Investments pty ltd. Pearler is an Authorised Representative of Sanlam Private Wealth.

Pearler is a CHESS-sponsored broker. This means the investments legally belong to you and can be transferred to another investing platform whenever you like.

Pearler has bank-level security with 2-factor identification for changes to auto-invest or one-off financial transactions.

Customer Support

Phone contact, email and online chat directly from the website (the easiest way to get a response). This has been fabulous so far.

I provided feedback and received a response within an hour. Initially, the auto-invest had limited flexibility, I let them know I would like to invest 7 weekly (random!) and they quickly reassured me they were already working on it.

Within days, the auto-invest function had changed to a completely customizable number of weeks or months. Impressive!

 

Financial Independence with Pearler

Pearler is an investment platform designed for financial independence or other long-term investing goals. You can purchase exchange-traded funds, US and Australian direct shares.

Pearler focus on low fees, automated long-term investing, and easy tax reporting through Sharesight. It is a secure, safe, and popular online broker.

Pearler is growing and improving rapidly. Pearler investors now have over $140 million invested!

If you are a long-term investor looking for a broker with automated investing, Pearler is worth looking into. 

Aussie Doc started investing with Pearler in January 2021. I use auto-invest to regularly add to my small, but growing portfolio of ETFs. We are considering opening a small custodian account in Pearler for children to watch some of their education funds grow over the next decade.

 

 

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 financial decisions.

Five Ways DINKS can Harness their Financial Super Power

Double income no kids (DINKS) households have higher disposable income. Couples without kids have between $5000 and $23000 available each year, in comparison to couples with kids.

But childless couples have an army of marketers targeting messages to purchase luxury goods at the DINKS demographic. Advertising and subconscious marketing influence us far more than we like to admit.

Decide for yourself what your priorities are, resist clever marketing and make a financial plan. The extra disposable income available to DINKS provides them with an incredible opportunity to get ahead, just as long as they can resist the consumerist brainwashing.


Definition of DINKs (Double Income No Kids)

Households with two income producing adults, and no children are known as DINKS. The term is generally meant to mean all couples that intend to have no children. This demographic generally have more disposable income, so are particularly attractive to marketers of luxury goods.

“Empty nesters” whose children have grown and left home and couples who are delaying having children for a few years can also benefit from a period of increased disposable income.

How Much Do You Save by Not Having Kids

Incredulous wanna be parents have to ignore the horrifying infographics on the costs of raising a child. It seems impossible that a child could cost so much, and unfeasible to afford. This graph is based in the US, but divides expenditure on children by income.

But of course, how much you need to spend on a child is very different to how much people actually spend. So, what is the bare minimum you are saving by not having kids?

Bare Minimum Spend on Kids

In 2018, a new budget standard was created based on research into Australian family spending.

It is not easy to completely separate essential from discretionary spending for these families. But, I have included the research based on unemployed families. Presumably, any discretionary spending for these households would be minimal. These numbers are probably pretty close to the bare minimum spend on kids.

These families spent an extra $106.47 weekly on average if they had a single child (rather than no children). Two children cost $280 per week.

The largest additional expense for families with children was food. Other expenses counted including clothing, household goods and services, transport, health, personal care, recreation, education and housing.

Higher Income Families Spend More

You can bet your professional colleagues with kids spend a lot more on their kids. Working families often need paid childcare for pre-schoolers. For the uninitiated, the average cost is pretty shocking at $113.57 per day.

At the average day care cost, a high income household earning $354,000 would pay $17, 717 a year to put a single child in day care three times a week. A professional couple with household income of $250,000 would pay $8,858 for a single child in care 3 times a week post-subsidy.

The child care subsidy covers up to 85% for families with no income, and gradually decreases support as household income rises. Families are eligible for a 50% subsidy until their income hits $253, 680. Families with a household income of $353, 680 receive no child care subsidy.

How Much Are DINKs Saving by Not Having Kids?

Depending on how you look at it then, a couple who have no children are saving:

  • $5,536 per year in comparison with an unemployed household with 1 child (no childcare)
  • $14,560 per year in comparison with an unemployed household with 2 children (no childcare)
  • $14,394 per year in comparison with a professional couple with 1 child in day care three times a week
  • $23,253 per year in comparison with a high income household with 1 child in day care three times a week

Luckily for parents, day-care fees don’t go on forever. School fees are extremely variable, from a couple of thousand a year to cover books, uniforms and trips in a public school to over $40,000 in some of the most exclusive private schools in Australia.

As children get older they get more expensive, both through groceries and extracurricular activities. The above numbers probably significantly underestimates annual costs as the kids get bigger.

With an extra $5000 to $23000 in income to spend, DINKS may be feeling pretty flash with cash!

Downsides of being a Couple with Dual Income, No Kids

We all like to think we are in control of our decisions. In reality, we are being subconsciously influenced by many factors. Check out this awesome (17 min) TED talk by Dan Ariely – are we in control of our decisions?

Businesses are falling over themselves to take advantage of our psychological errors, and sell us products we don’t need.

Consumerist Choices Are not in Our Best Interests.

It’s well documented humans are not good at predicting what will make us happy. 7.9 million people brought a lotto ticket in the financial year 2017-18. Yet studies have shown winning lotto doesn’t have a long term effect on happiness.

Our society has become extremely consumerist. We are all bombarded with advertising daily. So many hard working people are working more and more to buy more stuff they don’t have time to use.

Time spent earning enough to cover the latest gadgets, furniture upgrades and fashion items is time lost from socialising and relaxing. Yet these items don’t actually seem to improve our happiness. Check out which types of spending really have an influence on happiness.

So why do we make seemingly irrational decisions?

Factors Influencing Our Decisions – Biology

Of course it all comes down to sex! Our behaviour is unconsciously influenced by biological instincts.

Men have been demonstrated to participate in conspicuous consumption (i.e. buying a luxury car) in order to appear attract a sexual mate and in male-male competition. Women are no better, being motivated to buy luxury items to improve their appearance when competing with another woman over a male.

It makes you wonder how much control we have over our own decisions. Are the reasons we give ourselves for purchasing luxury goods just us trying to rationalize an unconscious instinctual behaviour? Can a $2500 handbag really be ten times better than a $250 one?

Factors Influencing our Decisions – Comparison

Conspicuous consumption involves expensive purchases to improve social status and the appearance of wealth. It’s the classic case of keeping up with the Joneses.

“Conspicuous consumption refers to people’s behaviour of purchasing lavish goods in order to signal wealth and superiority”  

Thorstein Veblen

From the Dutch lottery article quoted above, the winners did not have a long-term improvement in happiness. Incredibly, neighbours of the winner significantly increased conspicuous consumption in the months following the win. Neighbours of lotto winners purchase more new cars and exterior home renovations!

The Bandwagon effect is the term marketing psychology researchers give to the way a celebrity endorsements make consumers willing to pay more for a product.

“Luxury is a necessity that begins where necessity ends

Coco Chanel

None of the above will surprise you, we all see these behaviours everyday. It’s all depressingly superficial. And it gets worse.

It turns out a wearing easily identifiable luxury brands will make study participants act more favourably towards a person.

When an interviewee in a mock job interview wore a shirt with a prominent luxury label, they were more likely to be recommended for the job and allocated a higher pay.

A charity collector wearing a luxury brand label collected more donations than the same collector wearing a no brand shirt.

“The present research suggests that luxury displays may be a socially learned strategy that commands beneficial treatment from others”

Social Benefits of Luxury Brands as Costly Signals of Wealth and Status

I have got every job I went for without designer labels so it’s not essential!

Factors Influencing Our Decisions – Marketing

There is a whole area of research dedicated to taking advantage of your instincts and psychology to sell you luxury items. Some of the techniques used include:

Making the item appear scarce –

An exorbitantly expensive item becomes more attractive because of the price. When most people can’t afford it, for those that can afford it, it becomes a symbol of their success.

Brands also create a sense or scarcity by using selective distribution, limited edition production and waiting lists. Some even create scarcity and a sense of exclusivity by allowing people to purchase only by invitation! We all want to feel special!

Brand Name –

I’ve always seen the production of clothing with the expensive brand displayed prominently as odd. It seems like a free advertising for the company, at the wearer’s significant expense. Clearly I think a little differently from most.

There is, after all, little point in conspicuous consumption if no-one realizes you are wearing a Dolce & Gabanna bag. The displaying of the brand is largely what makes the item attractive. As long as other people will recognise the item’s expense, it is a powerful social signal of wealth and social superiority.

Priming –

Priming is a series of marketing techniques using subtle cues to manipulate your thinking.

Repetitive priming involves showing you the same sorts of stimuli repeated. It’s why if you click on a facebook ad, you will receive further related advertising repeatedly over the next few days. You are more likely to purchase after seeing a particular product “everywhere”.

Verbal priming is effectively word association. When study participants were asked to read a list of words loosely related with the elderly eg grey, Florida they walked more slowly than control subjects.

Visual priming is altering customers’ thinking by exposing them to images. Imagine you were in the market for a new car and there were two competitors with a similar offering.

Car 1 has a better safety rating and features but is more expensive. Car 2 is less expensive but doesn’t have the same safety features.

The manufacturer of car 2 may make a webpage with a green background with money to influence purchaser’s to prioritise cost. Car 1’s manufacturer may design a webpage background with crash test dummies to encourage buyer’s to prioritise safety.

A full exploration of marketing psychology is beyond the scope of this article, but this makes for pretty disturbing reading.

5 Ways DINKs Can Harness Their Super Power

1. Recognise as DINKs you have Extra Disposable Income

Lets assume, from the above calculations that the annual extra income is

  • $5,536 for a lower income couple (<$80,000)
  • $14,560 for a moderate- high income couple (<$250,000)
  • $23,253 for a high income couple (>$350,000)

It’s very easy for this money to be spent unconsciously, on purchases that don’t bring much value. If you chose to invest this money in a broad based index fund, assumed to earn 7% annually each couple could over 18 years have:

  • $170,731 for the low income couple
  • $449,033 for the moderate – high income couple
  • $717,127 for the high income coupl

Just by investing the bare minimum saved by not having children. That seems like a nice boost to your superannuation. Those that don’t want kids shouldn’t waste the opportunity to get ahead.

For the wannabe parents reading with horror. Don’t worry, kids are worth more than a million dollars in the joy they bring to those of us that want them. Make sure you take advantage of the extra income before you have kids and plan ahead if you can.

2. Make a Plan

By far the most powerful thing anyone (not just DINKS) can do to secure your financial future is to make a plan, write it down and automate it as much as possible.

Work out what your priorities are. Centre your plan around what’s important to you both as a couple.

It often seems overwhelming and intimidating to make a plan for the next 20-40 years.

Don’t worry, it can change and in fact a good idea is to check in every year to review if anything should be altered based on your changing priorities and aspirations. Just make a start.

3. Pay Yourselves First

Work out how much to put aside to reach your goals. Automate this out of your account into your chosen investment regularly.

“Live like no one else, so that later you can live like no one else

Dave Ramsay

If you can’t yet afford to save how much your plan requires, get started anyway. Consider starting by investing how much you are saving by not having children. Or 20% of your income. Or anything.

Work out where to put your savings and how to build wealth.

4. Spend the Rest on What Gives You Joy

Spend what is left over, whilst avoiding bad debt. We haven’t considered little Sebastian’s soccer coaching or Anastasia’s harp lessons, so you will likely still have more discretionary spending than your child obsessed mates.

Work out what spending really brings value to you and your household.

DINKs have $5000 – $23000 or more annual discretionary income available in comparison with their mates with kids. A little conscious effort and planning can capture this potential and build wealth, and financial freedom. Comment below what you will spend the extra cash on (after paying yourself first). What spending brings you joy?

Aussie Doc Freedom is not a financial adviser and does need offer any advice.  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.