Welcome to Finance and Fury.

What is important when it comes to investing? Or which is the more important – what you know or what you do?

Sometimes the more you know – the harder it is to invest – information overload – can be a curse of knowledge – if you knew nothing but over the past 20 years just bought index funds – better off than if you knew everything (which nobody does) but never invested a single dollar –

In this episode – talk about Investing actions – over knowledge

  1. Obviously, knowledge helps – helps you plan and know which actions to take – but the actions that you take can make the difference between Financial Independence or Financial dependence
  2. Taking action versus theory – why? Well even sometimes fundamentals aren’t important – the knowledge of fundamentals
    1. Even at the moment – The current market gains – even against a backdrop of deteriorating economics and fundamental news and data – this is certainly a worry – but it does make sense with Central Banks furiously flooding the system with liquidity
      1. So the risk of using knowledge is essentially fighting the Fed – and that is a losing position
    2. Market has a pavlovian response to the Fed now – Something that I have learnt more during the past few months
  3. This podcast – provides lots of theory and hope I am providing knowledge – important to not get bogged down in this solely – needs to be practically applied –
    1. However – On mass – I can tell everyone what to do – as that wouldn’t be right – one solution doesn’t meet everyone’s needs – would be irresponsible –
    2. but you can use strategies that you learn to practically apply

 

How to start taking actions – process of how to build you own Simple Rules to live by

  1. Life has to be an iterative process – Iteration is the repetition of a process in order to generate a sequence of outcomes. The sequence will approach some end point or end value. Each repetition of the process is a single iteration, and the outcome of each iteration is then the starting point of the next iteration
    1. Take actions and learn from them = what doesn’t work change – what does work keep doing – demonstrable actions is important
    2. Do more of what works and less of what doesn’t.
  2. Use your knowledge to build rules – over time You will build additional Rules – and these will help you make action – keep the process going – action after action
    1. Takes some time to get rules in place – then action can flow

 

Set goals and be actionable – it sounds very simple – but there are steps involved

  1. Always remember – You are investing in your future – have to put goals in place
    1. Need to know where you want to go to get there –
      1. Actions – if you were going to take a road trip – planning and actions
      2. You can know where you want to go but unless you get in the car and drive you aren’t going to get anywhere
  • Won’t run through goal setting – but there are workbooks and tools in the members section of the website if you haven’t got any or need help – financeandfury.com.au
  1. You can negotiate with your future self – and your future wealth – Be actionable about it – if you want it, you can get it – Start now and never stop – The future catches up on you – just have to adjust course
  2. Earlier you start the more you will have – the more actions you will take – the more you will learn – the more your future will thank you
  1. When looking at goals – Think long term and big picture – Think about what your future looks like
    1. What you want to do, and how much you need to do it
    2. Rule of 20 – Plan to get a 5% income off investments – E.G. – $100,000 = $2,000,000 asset base
  2. If you aren’t sure what this looks like – Work it out
    1. Need to have a plan in place as it is hard to work towards something that you don’t know
  3. Invest well and don’t lose money repeatedly – Taking appropriate actions – first step is to watch out for taking too much risk – but also not enough
    1. Normally the thought when it comes to investing and the risks associated are that you are going to lose money – normally the first thing that comes to mind
    2. But there is another major risk in investing – losing money by not investing – sounds weird but you miss a good future opportunity through sitting on the sidelines through your life – i.e. holding cash long term
      1. So you can eliminate either one, but you can’t eliminate both at the same time
      2. Need to take some risks for rewards – but how do you position yourself between the two – by taking the right actions –
  • Caution is important – but taking actions over time will build investment maturity – but any investment discipline that you build over the years does not work if it is not followed
  1. Remember that losing some money is part of the investment process – I have lost plenty of money over the past 15 years of personally investing – but I have learnt a lot for them – they are expensive lessons
  2. It comes back to managing risk and volatility
  3. important to have a process that can mitigate the risk of loss in your portfolio- if done right – does this mean you will never lose money? Of course, not.
  4. The goal is not to lose so much money you can’t recover from it and set up a portfolio and investment actions that ensure that you take the right level of risk
  5. How – quality and diversification
  6. Quality – Don’t invest in hope of large instant gains – takes years to get good compounding gains, doesn’t happen overnight – investing out of hope = Losing funds will destroy your future
  7. Diversify – to start – At least 15 – 30 companies (or a few ETFs/LICs) across different asset classes and sectors
  8. REMEMBER: Invest in line with the big picture – i.e. Passive income of 5%
    1. Having 20 properties is no good if they are negatively geared – costing more than you earn
  9. The one action that can make things worse is giving in to your emotions –the desire of getting rich quick – or panic selling –
    1. Constant battle against the desire to get rich can lead to investing in bubbles or getting caught out in a fraud like Bernie Madoff or Storm Financial
  10. Ignore your emotions – Unemotionalism – important to not get trapped by making a bad decision based around fear or greed
    1. If you are too emotional – may have the tendency to buy at the top and sell at the bottom – why?
    2. Get trapped into the emotions of everybody in the market – euphoric when prices are high or sell when everyone is afraid
      1. Takes time to reduce your emotions when investing – practice and patience
    3. Therefore – unemotionalism is one of the most important criteria for taking successful actions in investing
      1. if you can’t be unemotional – and train yourself not to be – maybe you should not invest your own money 
      2. Investment action of contrarianism – doing the contrary of what everybody else is doing – therefore not being emotional is one of the basic requirements for contrarianism
    4. Major emotions – fear and greed – these are what drive the market
      1. Invest out of greed – wanting returns – sell to avoid loss – makes markets crash – these two emotions are why being unemotional when it comes to your money is a very hard thing to do.
      2. Take for instance – times such as now – logic states that we must participate in the market long term – but the fear of the market going down may be holding people back –
  • That is where these emotions – if they are felt strongly enough create a situation of taking extremes – not investing at all or investing everything hoping the market continues on a bull run  
  1. Do emotions still seep into our decision-making process? Of course. Paying attention to greed and fear of others is important –
    1. Pay attention to your emotions – others are likely having them as well –
    2. But making Emotionally driven decisions void the investment process- When markets are trading at, or near, extremes do the opposite of the herd
  2. Be patient – Don’t rush in based on fundamentals like PE or Yield – as these may likely be changing soon – Don’t try to go for big wins quickly – Doing this is the only way I have lost money – investing out of hope

How do you improve? One small thing at a time. That is the process to improvement.

  1. Financial habits are built through the positive feedback of cue, action, and reward.
  2. These decisions years ago have improved my position now.
  3. That is the relationship with good habits. Keep improving you slowly over time.
  4. Taking actions put you into the Pareto distribution or 80/20 rule.
    1. 20% who have 80%, they have been able to grow good habits, that have compounding effects
    2. It is as simple as investing and waiting. $20k today would be $80k in 14 years at 10%
  5. Track your progress to get to your ideal future
    1. Be honest with yourself – somebody has to (or have your partner keep each other accountable)

Summary for Putting it in place and continue making actions

  1. Figure out what you want to do
    1. Hardest part for some people to answer
    2. Look at your expenses – What your ideal lifestyle costs
    3. Also, when do you want it by?
      1. Time matters thanks to inflation – $1 today is not $1 in 10 years
    4. Apply the rule of 20
      1. What asset base will you need?
      2. Apply inflation – 2.5% by the time
    5. Reverse engineer your targets
      1. Play around with online calculators with how much you need to save each money to get there
    6. Just do it – Action is more important than planning – not that planning isnt important – but doing both is even better
      1. You can know what to do – but if you don’t do anything then it will never happen
      2. Start taking actions – if you aren’t already – Don’t be a victim – don’t blame others
      3. Take control as nobody else will do it for you

Thank you for listening to today’s episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

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