How to Use Behavioural Finance to Become a Better Investor

*This post “How to use Behavioural Finance to Become a Better Investor” may contain affiliate links. This means 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.  


“Behavioral finance attempts to explain and increase understanding of the reasoning patterns of investors,including the emotional processes involved and thedegree to which they influence the decision-making process.”

Ricciardi, Victor & Simon, Helen. (2000). What Is Behavioral Finance?. Business, Education & Technology Journal. 2. 1-9.

I am fascinated in research around human behaviour with money and investing. Over and over we hear the same cardinal rules about finance and investing:

  • Spend less than you earn
  • Regularly and consistently invest over several decades
  • Investing in low cost passive index funds is the easiest, cheapest way to grow wealth
  • Minimize fees including brokerage, management fees etc
  • Buy assets that grow in value or provide income rather than those that produce costs (particularly at the start of your journey)
  • Ignore the noise and just stick to your written investment plan

It’s not rocket science! Over the last decades the introduction of superannuation, cheap online brokers, and micro-investment apps have made investing attainable for everyone. It has never been easier to take the simple steps to secure a strong financial future.

So why do most investors struggle to stick to the script?

During the 1990-2000s, Behavioral Finance attempted to answer these questions.

Behavioural Finance: Why do We Struggle to Spend Less than We Earn?

Clever marketing surrounds us almost constantly. Most of us like to believe we are immune to advertising. But extensive human psychology research, aimed at manipulating the audience subconsciously, informs the design of these advertisements.

  • Colour – the background of an advert or show room is purposely chosen for a particularly subconscious association. This is proven to impact consumer behaviour
  • Subliminal messaging – hidden messages within adverts and other media
  • Emotional branding – manipulating consumer emotions to create a loyal customer
  • Autonomous sensory meridioal response technology – Do you experience a shiver or tingle with certain sounds? Brands intentionally create these pleasurable auditory sensations to engage you with online platforms or make consumers more likely to like the product advertised
  • Creating artificial scarcity – Consumers desire brand name product of which there are few available, which is why brands create demand through artificial scarcity.

We are probably far more affected than we ever realize.

Humans also have a natural tendency to prioritize the short term over the long term, so have a natural resistance to delayed gratification. And we are constantly surrounded by messaging encouraging the answer to our problems is a new product.

It’s no surprise so many fail to get past the first step – Spending less than you earn.

The Efficient Market Hypothesis.

The efficient market hypothesis of the 1970s assumed that all market participants are rational and self-interested, and aiming to maximize returns.

The theory suggests all available information is priced into the market already, making it impossible to “beat the market” unless you have inside information (which is illegal) or take additional risk (eg leverage).

It is clear that the stock market as a whole is not entirely rational. There have been many speculative bubbles. Price appreciation has resulted in irrational over-enthusiasm, and further price appreciation until eventually rationality kicked in, and the bubble burst.

Lots of speculators made a fortune during the tulip mania of the 1600s, and the dot com boom of the 2000s. Late adopters (or those that didn’t get out in time) were often wiped out when prices eventually crashed.

Warren Buffet is the most famous investor in the world. He is one of a handful of investors in history to have consistently taken advantage of stock market irrationality to make above-average returns.

Thousands of professional fund managers try to replicate this market arbitrage with a dismal success rate. It turns out, although the market can be very irrational, investors (even professionals) are the cause of that irrationality.

Unless you as an investor are less irrational than the rest of the market, the efficient market hypothesis may as well be true.

Below is an infographic from SPIVA demonstrating the underperformance of funds vs the ASX 200 over 15 years. Active funds actually outperformed the Australian index in 57.76% of cases over the past year, the most positive timeframe.

SPIVA | S&P Dow Jones Indices (

What chance as the average hobbyist investor got?

“People systemically depart from optimal judgment and decision making”

Barber and Odean


The need to invest regularly, no matter what the market is doing is widely advertised. Missing a few days of market returns by sitting on the sidelines awaiting a market correction can result in dramatic damage to overall returns.

Yet market timing is a huge temptation to most investors. It seems so easy to improve returns by just timing those investments a little better. The data tells us it is unsuccessful most of the time. But many investors can’t help but think they can beat the odds. Why is that?

Prospect theory/loss aversion/Regret Theory– Are all based on the fact we hate to lose money and will adjust decisions based on the anticipation of regret.

In fact, we hate losing $100 far more than we love to win $100. This skews our risk assessment. For many, this results in failure to invest at all, due to the fear of the market going down.

Excellent explanation of loss aversion by Quikeconomics

It also explains why investors are so tempted to remove their money from the market when a crash seems imminent. Unfortunately, massive market losses are predicted almost constantly, and the market is rarely predictable.

As a result, investors who divest for fear of a market crash are at a real risk of missing out on the best days in the market.

Delaying investing because of bad market predictions for fear of loss and regret is another example of how you are likely to lose profits by trying to avoid risk.

Anchoring Bias

Holding on to a poorly performing asset (eg poorly picked property investment or individual shares) despite all indications this is a long-term underperformer is also common. Investors cannot stand the pain of selling for a loss. They often demonstrate anchoring bias, waiting for the price to return to what they paid (No matter how long that takes). It’s the tendency for the first price to become anchored in our brains.

Investors struggle to overlook the anchoring to see the opportunity cost of having money tied up in a dud investment – that cash could actually be making money elsewhere.

Fascinating experiments on Anchoring bias – Quik Economics

Hindsight bias

Ever heard someone exclaim they knew something was going to happen, when in fact you know they did not make a strong prediction?

They’re not just lying, you probably do it too. Our brains play a trick on us when new information becomes available, in updating memories, often to include the new information.

When investing results appear predictable due to hindsight bias, it is easy to become overconfident in your ability to predict the future.


For most of us plain old vanilla investing has the best chance of getting us to our goals. But there is an ever-lasting temptation to try and beat the average with a more complicated plan.

The property next door goes up for sale. You know the neighbourhood inside out. It’s a comfortable investment. You may skimp on the research due to familiarity bias, a tendency to favour assets we feel familiar with. Although you might like your neighbourhood, this house is not necessarily the best choice for your portfolio. The decision should be just as rigorously researched as any other investment decision.

When researching an investment decision (and most other decisions), we are prone to confirmation bias, the tendency to screen out any evidence contradicting our desired action and only taking notice of information that supports our case.

Why Don’t We Ruthlessly Minimise fees?

Investors have a terrible habit of flip-flopping inside their portfolio, wasting returns away in brokerage costs as they are chasing the latest must-have stock. It is well documented that lower trading results in higher performance. Much like switching lanes in heavy traffic, it’s unlikely to get you anywhere fast.

Overconfidence is a huge risk to your investing returns. Most of us tend to think we are better than average, obviously, that is impossible! So when we look at the dismal results of the average investor compared with the index and assume we will do better, most of us are deluding ourselves. Those with high skills in other areas tend to assume they will also be better than average in finance, but the skills often do not transfer.

And then to compound this problem is the issue of self-attribution bias. When an investment choice goes well, we tend to take the credit and assume the success was due to our intellectual decision-making. When there is a poor result, some other sucker tends to get the blame!


Humans exhibit herd behaviour. It’s uncomfortable to go against the crowd.

If there are two restaurants next to each other, and restaurant A has a line up outside and restaurant B is empty we tend to assume all the people wanting to go to restaurant A know something we don’t and assume it must be better. Savvy restauranteurs offer free drinks on quiet nights to get the crowd started.

The fear of missing out is a powerful emotion. Reading about investors becoming millionaires investing Bitcoin certainly made me stop and wonder if I was doing it all wrong. It sounds so easy! And fast! I even downloaded a podcast to learn more about this. Alas, I am not convinced I can understand the case for bitcoin beyond the fact the technology has great potential, although we’re not exactly what for yet. Teaching is a great exposer of understanding. If you can’t explain something simple enough for anyone to understand I’m not convinced you understand the concepts well enough yourself.

“Don’t invest in something you don’t understand.”

Warren Buffett

Behavioural Finance Behaviour Modifications

Being aware of these biases we are all prone to is the first step in limiting their damage. The second is to build a system of behaviours that help counteract bias. Some suggestions include:

  • Direct debit your savings out automatically each pay so you have no choice but to spend less than you earn
  • Have a written investment plan that you refer back to when considering changes.
  • Have a time delay (2 weeks? A month?) before making the changes to your investment plan. Document why you changed and your new investment plan
  • Have a plan for when you are feeling nervous about market corrections (not to log into your account until you hear media reports of recovery, JLCollins stock market meditation)
J.L. Collins Stock Market Meditation!
  • Research investments thoroughly but set a time limit by which you need to take action. Accept there will always be some risk, you can only minimize it.
  • Have an investing advisor or knowledgable buddy who you can discuss your decisions with. They will be able to identify hindsight bias, familiarity and confront your confirmation bias
  • Read/listen to many sources of information, including some that don’t follow your investing philosophy. Challenge your assumptions and learn to understand the the point of view
  • Assume you are an average investor. Be realistic about your capabilities. Just because you’re an incredible neurosurgeon* (*insert own impressive profession) doesn’t mean you are also Warren Buffett.
  • Keep an investing journal. Look back to see if you really “saw it coming”.

Behavioural Investing Conclusion

“It is possible that an investors’ biggest problems and their most dangerous enemy is himself.”

Benjamin Graham.

Although traditional economists believe in the idea of rationality in individuals, financial models are oversimplified.

Emotional and cognitive biases heavily influence investor behaviour. The resulting irrational behaviours can cause huge losses.

Only by recognizing behavioral biases in our lives can an individual investor make logical decisions. Behavior-based financial research provides fascinating insights into real financial behavior.

Further Resources for Behavioural Finance Geeks:

From Efficient Markets Theory to Behavioral Finance (

Quik Economics youtube channel

Aussie Doc Freedom is not a financial adviser and does not 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.

Investing How to: Limit Order vs Market Order

*This post “Investing How to: Limit order vs Market Order” may contain affiliate links. This means 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.  

Limit Order vs Market Order Definition

A market order is designed to fill as quickly as possible. You agree to purchase a set number of shares (or dollar value) at the market value at the time. The order will be executed as long as there are enough shares to fill the order before the share price changes.

A limit order is when you set the price you would like to purchase shares at. The order is only executed if the share price reaches the limit order you have set.

How to Investing – Which Type of Order?

Have you recently started the plunge and started investing? Or still trying to work out the finance jargon before you take that leap? Market and limit orders are terminology you will come across when placing a trade (buying any share or ETF) on your broker’s platform.

The thing to remember is your overall investing style. Many readers will have a plan to continue dollar-cost averaging into the stock market on a regular basis, no matter what the market is doing. Remaining disciplined and following your strategy over the long term with dollar-cost averaging is a no-hassle way to get rich slow.

The biggest risk to your investment returns is your human nature. When the market drops, as it did just weeks ago, it becomes increasingly difficult to ignore the media doom spreaders and keep buying. Our brains prioritize short-term thinking.

Limit Order vs Market Order vs Dollar Cost Averaging

For those wanting to dollar cost average over the long-term, I am a strong advocate of automation.

Set up a direct debit into your investment of choice and avoid 90% of temptations to not carry through your plan. If you automatically invest no matter what the market is doing, you don’t need to know about market or limit orders.

Your automated investment will go through as scheduled as a market order no matter the market price at the time.

When the market is down, you will purchase more shares for your regular investment cash. There is no need to try and predict market movements (which seems impossible).

Options to automatically invest on a regular basis include using a micro-investment app (ideal if investing parcels <$1000), investing in a Vanguard diversified managed fund through Vanguard personal investor (quick start minimal research needed), or selecting your ETFs yourself and auto-investing with an online broker.

Micro-investment apps and VPI really suit beginner investors who just want to get started and are not interested/not ready to choose their own investments.

I have accounts with Pearler and Commsec so am in a position to step by step through market or limit orders with either.

Market Orders

As mentioned above, a market order is filled almost instantly (as long as there are enough shares available for sale at the market price at the time).

This is the traditional way to invest in the stock market before auto-investing was a thing. Many investors will still use market orders to invest at preset intervals, according to their investment plan.

It also may be how you would invest if you had come into an unexpected lump sum of cash. Statistically, you will be better off putting the entire lump sum into the market at once, rather than dollar-cost averaging. You do have to be able to stomach the volatility though, and admittedly this is much harder shortly after investing a large sum.

Market Orders with Pearler

Pearler specializes in auto-investing, but you can easily perform a one-off market order as well. Below is a screenshot of my Pearler platform.

You can type the ticker code into the search button at the top, or navigate to the “Invest” tab to choose from a selection of popular investments.

After selecting your chosen investment, the next screen displays the current market price and a graph of historical performance. The “buy” button is pretty obvious.

After selecting “buy” you are taken to the order screen.

Here you are again prompted with the market price and can enter how much you would like to buy.

Auto-deposit automatically debits the money from your linked bank account if there is not enough left in your money market account, but Pay ID allows immediate (particularly if not the 1st transaction) movement of money.

Brokerage is $6.50 with Pearler (unlimited amount) although this is planned to reduce shortly. Pearler brokerage can also be discounted down to $5.50 by paying for credits in advance. Feel free to check out my full Pearler review.

Market Orders with Commsec

Commsec remains the most commonly used online broker in Australia. It is more expensive than Pearler and other modern online brokerage platforms. But many investors stick with what they know and trust, and the longstanding reputation of Commsec keeps some investors loyal.

Again, the platform is pretty easy to navigate. There is a search button at the top of the site where you can enter your ticker code for the relevant investment.

Next, you are taken to a page displaying investment data and an obvious “buy” or “sell” option.

After pressing “buy” you are taken to an order page where you can enter how much you would like to invest today. If you want to purchase at the current price (market order) tick the “At market” box.

Once you have submitted this form, you get to confirm all the details on the next page before finalizing the order. On my first orders, I was worried about making a mistake but it’s all pretty simple as long as you check and double-check each detail.

Commsec brokerage is $10 for up to $1000, $19.95 for $1-10,000 and $29.95 for $10,000-$25,000 as long as you settle using their CDIA account.

Commsec offers T+2 trades, meaning you can purchase shares at the moment, and just have to have the funds cleared in your CDIA account (set up when you open a trading account with Commsec) 48 hours later.

Limit Orders vs Market Orders – Limit Orders

Limit orders mean you do not buy the investment immediately. Instead, you set the price at which you would like to buy and if the share price drops to that limit while your limit order is active, the order is confirmed and investments purchased.

There is a good chance that your limit order will never be fulfilled. If the share price goes up, or dips but not quite as low as your limit order the order will not go through. When there are inadequate shares for sale when the price dips to your limit, it will be partially fulfilled.

If you were relying on limit orders as your normal mode of buying, it is likely that you won’t end up investing as much. The stock market, after all, tends to go up over the long term. If you wait for market dips to invest, you are likely to end up worse off overall than dollar-cost averaging as you will have less time invested in the market.

Limit orders can be useful if you are interested in buying at a discount when the market dips, on top of your regular dollar cost investments. The argument still stands though that if you were going to invest this money, you should have done so as soon as possible to attain the highest profit.

However, I still “buy the dip” when the opportunity arises.

  • I dollar cost average every fortnight into Pearler, and superannuation
  • More savings are aimed at paying off my PPOR mortgage. At 2.6% this is likely to be inferior to stock market returns but provides more freedom (and I am so close I want the debt gone!)
  • When the market corrects 10+% I know eventually it will rebound, it is likely I will make outsized returns when this occurs.
  • The opportunity cost of paying down our mortgage instead of investing in the stock market becomes far greater.
  • I also feel more in control of the situation when the market is dropping by “doing something” that feels useful, I am less likely to panic and sell.

As a result, I have a very simple strategy of investing a set amount at set percentage drops from the high. I don’t monitor the market closely but find I can’t avoid hearing that the market is “crashing” so then set up limit orders to be fulfilled at my predetermined drops in value.

Limit Orders with Pearler

Pearler does offer limit orders. On the purchase page, you simply press “more options to find the limit order option. Pearler limit orders remain active until they are executed, or you cancel them (unlike Commsec below).

I tried this during a recent downturn. I simply used auto-deposit, but of course, by the time the money had cleared into my Pearler trust account, the price had rebounded.

Then the cash was stuck in my trust account earning next to no interest, instead of my offset earning a still unimpressive 2.6%.

Given I would prefer to work on fully offsetting my mortgage unless the market does a significant enough dip, this didn’t really suit me.

I made my 1st withdrawal from Pearler as a result. For those interested in Pearler, I had to provide a little further identification before making the 1st withdrawal and this took a couple of days to process. The money landed bank in my offset as expected after that.

Limit Order with Commsec

This is why I still have my account with Commsec. I can set up a limit order and the money only moves if the trade goes through, allowing my cash to keep saving me the interest in the meantime.

To make a limit order with Commsec, you go through exactly the same process but type the price you would like to purchase at in the “Price limit” box instead of ticking “at market”.

You are then taken to the confirmation page where you can check all the details and submit the order. With Pearler the limit order is active for 1 month, so you will need to keep resetting it if you want to.

When the trade is activated, you will receive an email with this information. You then have 48 hours to get money transferred to your settlement account or risk a fine.

Obviously, you will need to monitor your emails if you have limit orders set up and be ready to transfer the cash quickly. You must be confident your cash will clear in time before the settlement date.

Limit order vs Market order

Market orders are the traditional way to buy stocks. You simply log in and buy at the current price when it suits. But wealth is not often built through one-off or Adhoc investments. Most of us need consistent, regular investing over the long term to build significant wealth. Auto-investing makes this easier to stick to.

Limit orders won’t appeal to many new investors. If you have money that you want to put in the market, most of the time you will profit more by putting in as a lump sum immediately. But if, like me, you have a competing use for your investment, setting up a limit order may suit you.

A limit order means if you want to buy at a specific price you don’t have to spend your days obsessing over market prices (trying to catch the dip).

If you’re happy to watch the market and purchase opportunistically, a market order through a low-cost broker will be more cost-efficient.

Let me know which strategy you prefer – Autoinvest, market, or limit orders. Comment below to learn from each others perspectives.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not 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.

Do You Want to FIRE? Financial Independence Retire Early Australia

*This post may contain affiliate links. This means 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.  

History of FIRE

Before the FIRE acronym was created, anyone wanting to become financially independent had to work it all out themselves. A few did, and mysteriously retired, or lived a life without financial worries. Since some of those smart cookies started sharing the knowledge accumulated, the FIRE community has begun to form.

Vicki Robin’s “Your money or Your Life” book is often accredited with being the very start of the FIRE movement. Mr Money Mustache added fuel to the fire with the most famous FIRE blog.

In the US the FIRE community grew, with many blogs popping up, spruiking the benefits of developing a FIRE mindset.

Articles and forums share valuable information that helps people take smart financial shortcuts, and most importantly, save and invest consistently. Not having to work out all the potential hacks yourself makes it far easier to spend less, save more, and invest wisely. Savers gain confidence in ignoring societal norms and forging their own path when part of an online community of people doing similar (but varied) things. But the really specific US information wasn’t relevant to those in Australia.

FIRE is Spreading: Financial Independence Retire Early Australia

The FIRE movement has been gaining popularity in Australia since the Global financial crisis, with Aussie Firebug started ~2014. Australian blogs have been proliferating over the past 5 years.

Now individuals wanting to improve their financial situation have a wide selection of bloggers and podcasters doing the research and providing the information (mostly) for free.

As a result, the FIRE community in Australia is growing rapidly. Not just for hardcore savers, but for many who just want to improve their financial situation and make a life that bit easier.

Everyone can take advantage of the FIRE knowledge to improve their financial picture, not just those wanting to retire early.

What is FIRE?

The idea of FIRE is to utilize the incredible power of compound interest by aggressively investing (50%+ of income) as early as possible, in order to retire early and live off of their investments.

The 4% rule is a rough rule of thumb guiding FIREYs to accumulate enough to live off around 4% of it annually.

Many FIRE followers are depicted as individuals taking extreme steps to save early retirement.

But as more information is shared, and individuals take on the best way to adjust the FIRE idea to suit them, the financial movement is becoming more based around financial flexibility and optimizing resources.

How To Retire Early With FIRE?

The simplest scenario is for a person (of any age) who wishes to retire in 2-50 years. Based on the 4% rule, the saver needs to accumulate 25 x their required retirement income before declaring themselves as financially independent and retiring.

The maths means the percentage of your income you save and invest is far more important than your actual income. If you earn $50,000 or $200,000 and save 50% of your income, you will be financially independent in around 16 years (assuming 5% real returns).

Financial Independence Retire Early Australia: Withdrawal Rate Controversies

There are ongoing controversies around the 4% rule, and different people may advocate a withdrawal rate anywhere between 3.5-5% depending on the circumstances. Towards the end of the accumulation phase, you will have a better idea of where you sit on withdrawal strategies. Your ideal withdrawal rate depends on:

  • Age at planned retirement
  • Life expectancy (you may have more data than average life span, based on your own health)
  • Flexibility in spending (if you can cut back during market crashes, or take on a part-time job you could manage a higher withdrawal rate the rest of the time.)
  • Do you have a cash reserve to use (and reduce portfolio withdrawals) during market crashes
  • Do you have back up options in case of running out of income (Aged pension, reverse mortgage, selling investment property you had planned to leave in your will)
  • P/E ratio of your investments at retirement (check out Mad fientist’s incredible article and safe withdrawal rate calculator).

Time to Financial Independence

How do you save 25x retirement income? Thanks to Early retirement now, this graph shows how much of your income you need to save to reach financial independence.

Early Retirement Now

If you are planning to retire before your superannuation preservation age, it still makes sense to calculate your FI number, and savings rate using amounts saved inside and outside super.

Once you have worked out how much you need in total, work out how much you will need outside superannuation to bridge the gap until you reach preservation age. Income from superannuation is generally tax-free, so will generally be more efficient

Financial Independence Retire Early Australia: Progress to FIRE

The aim is to become financially independent by the time you want to retire (any age that gives you a good chance of remaining healthy and happy enough to work).

Along the way there are many checkpoints.

It can seem like a long journey along the way, but the fantastic news is that each step you take provides more financial security, freedom, and options, should your circumstances or aspirations change.

I am a big fan of coast FI. For me, it has the best of both worlds. It involves frontloading investing to take maximum advantage of compound interest. Once you have done some short-term hustle to reach “coast” it’s possible to take your foot off the accelerator.

You will have reduced your cost of living to far less than take-home pay and are on track to retirement without any further savings. This allows flexibility in switching to part-time work or switching careers and taking a pay cut without stress.

How to Create a Gap Between Income and Outgoings

To achieve any of the above, there has to be some money to pay off debt, save an emergency fund, or start investing. You must spend less than you earn. Ideally, you want to make this gap significant.

There is a balance to be found between increasing freedom from a bigger savings rate and spending for enjoyment along the way.

Most middle-class Australians can find a lot of wasted spending if they start tracking outgoings. Eliminating spending that brings you no value, and optimizing taxation is a good start with no hardship involved!

The financial independence community often tells us cutting the three big expenses is the most powerful way to increase your savings rate. These are often housing, transport, and food. Avoiding buying as much house as you can afford as a high-income earner is certainly a powerful lever in increasing your savings rate.

Setting a budget for discretionary spending, and separating this into a separate account helps you prioritize fun spending on things that bring you the most value, and reduce waste.

Cutting spending is often more efficient for high-income earners as you will pay so much tax on extra earnings. If you are not already on your top potential income, focussing on your career is likely to provide far higher returns than side hustling. In my opinion side hustles are helpful for high-income earners when they are a true passion of the hustler (it is an enjoyable hobby that happens to bring in some cash) or it is a short-term boost to help you reach the next stage of your financial plan (eg saving for a house deposit).

Financial Independence Retire Early Australia: How to Invest

I strongly recommend making a financial plan before starting to invest. This can be with a professional or DIY.

My other advice is to keep it simple. We have a tendency to overcomplicate things (usually in the hope of outsized and quicker returns). It often results in lots of unnecessary stress and underperformance.

Over history, any investment that is very popular and hyped up eventually crashes. Plenty of people make huge gains in the run-up, but no one knows when the bubble will eventually burst. Fear of missing out is a massive danger to your investment outcome, particularly when everyone around you is bragging about gains (they always go quiet about the losses though).

I am a cautious investor but recognize I don’t need to take large risks. I just need to stick to the plan to reach my goals. Because my assumptions are pretty conservative, I will probably reach my goal ahead of schedule, but that is in the hands of the market Gods!

Avoiding getting scammed is also very important. Please don’t skip this bit thinking you are too smart for this. Intelligent people are regularly fooled by increasingly sophisticated scammers. Always be suspicious when money is involved, particularly if you are a high earner.

The main investment choices (and certainly where most of us should start) are passive stock market investing and residential property.

Passive investing in the stock market can occur inside or outside superannuation. It is the simplest and most reliable to get right. If you hold broadly diversified passive ETF, managed fund, or super with low fees for long enough it will go up. You just have to put enough money in to reach your goal in the desired time frame. Don’t overlook the almost guaranteed good return of passive funds because it is boring but effective!

The big issue with the stock market is, of course, volatility. You can lower volatility by investing in bonds (you will find some inside super) or alternative asset classes with low correlation with stocks (they tend to go up in value when stocks go down).

I have chosen residential property with the aim of rental income smoothing out the volatility of stock market returns. Buying individual properties diversifies nicely from the stock market (and is negatively correlated quite strongly with international stocks). But it is far easier to screw up than passive index investing.

Despite the huge bull market in Australian property leading up to 2016, everyone I personally knew regretted property during this period and ended up selling.

When people are generous enough to share their financial mistakes and regrets, take notes! These are some of the most useful lessons in investing you can receive – what to avoid. Lessons of regret are far more useful I find than stories of success (that may or may not be repeatable). If you can avoid the big errors, you will probably do ok.

I think a 20-year timeframe before retirement is ideal for buying Australian property (growth strategy) as this takes a while to pay off. To find out why I chose to invest in property despite all the horror stories read my 1st ever article.

Involving property in your investment strategy does make things a bit more complicated. You have concentration risk from putting a lot of money in one physical asset in one location. There are risks of unexpected major maintenance. You need to manage a property manager if you don’t want to be managing the property yourself.

Find out about wealth creation strategies here.

Don’t do F.I.R.E. Just to Escape a Job you Hate

Don’t spend 10 years trying to reach FIRE just to escape an unsatisfactory employment situation. But you can use the concepts, ideas, and community motivation to get a space between income and expenditures and build some savings before you take the leap to a better job (even if it pays less).


Lean FIRE is for those planning to live on less than $40,000 US per year. Those aiming for lean FIRE can reach it more quickly as it requires less of a lump sum accumulated.

But they have less flexibility if they have very little discretionary spending. If the stock market has a bad year, they are unlikely to be able to tighten belts much further to reduce their withdrawal rates (although they could still work part-time).

Lean FIRE can be treated as another stepping stone if you are aiming for traditional FIRE. Knowing that you can retire anytime (albeit on a tight budget) provides huge psychological freedom and confidence. Those aware that they are already lean FIRE are not likely to be scared to lose a little income by changing to a more enjoyable job.

Fat FIRE usually refers to those retiring and living off $100,000 or more per year. Which is traditional FIRE for many higher-income earners. Another way people sometimes refer to it is that they have more than 25x living expenses, as an extra buffer before retiring.

Financial Independence Retire Early Australia: Conclusion

There has been a proliferation of financial information online thanks to the popularity of the FIRE concept in Australia and overseas. This information needs to be checked for accuracy but is a great source of new ideas, concepts, and potentially useful financial shortcuts.

Anyone aiming for financial independence by retirement can make use of this information to educate themselves and improve their financial situation.

Whenever you plan to retire, the financial independence community has a lot of value to offer.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not 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.