Investment rules for success by Mike Beal, your Sunshine Coast Financial Planner

Investment rules for success by Mike Beal, your Sunshine Coast Financial Planner

Here are my top seven investment rules for success based on over twenty years working with clients as their financial planner:

1. Spend less money than you make.

Save the difference.  Invest in good quality, low cost investments.  Be patient.

2. Compound interest.

These days I cringe to think of all the money I’ve wasted in the past that could have been invested and compounded.  Take a look at the graph which shows the value of $1 invested in the year 1900.  A bank deposit would now be worth $236 yet the same $1 invested in Australian shares would now be worth over $559 thousand   The magic of compound interest – start now, no matter how small.
Graph of compound interest results for Mike Beal Financial Planning blog

3. Don’t put all your eggs in one basket.

This one is self-explanatory.  It’s fairly common to come across an SMSF that has only a few investments.  For example, Australia’s share-market is dominated by financial shares and mining shares and makes up less than 2% of the world’s stock markets.

4. Turn down the noise.

Like every trough, in the middle of the GFC when the markets had plummeted shares were absolute bargains – but it’s difficult to invest when every headline is screaming doom and Armageddon – this is the noise – but of course, these are the best times to invest.  Have a strategy and stick to the strategy.

5. Invest long-term.

This comes back to the other rule relating to compounding.  Even for people about to retire you need something that’s going to fight inflation.  Investing your life savings of $1m now at term deposit rates of 2.5% will give you $25,000 p.a., however, if inflation’s running at 2.5%, your ‘real return’ is nil.  And of course the $25,000 income this year is not going to buy as much as the $25,000 you receive next  The great thing about shares and property is that the income increases over time, e.g. dividends increase and rents increase allowing you to fight inflation.

6. Be a contrarian.

When you go to the supermarket and baked beans are on special for $1 you might buy two cans.  If they’re not on special you might only purchase the one.  The opposite occurs with shares, in the middle of the Global Financial Crisis, nobody was interested in purchasing shares – of course, this was the best time to be purchasing shares – when they were on special.  When shares do particularly well, after they have risen substantially in price, this is often when people want to buy shares – when they’re not on special, when they’re at the highest point in the cycle.

7. Super

Superannuation is like a giant illegal tax haven – which is completely legal!  For a couple, you can have $3.2m in super at retirement without paying a single cent in tax.  The challenge is getting enough money into the super environment before you retire.  Successive governments have made it harder and harder to get money into the super environment by restricting the contribution limits.  Get as much as you can into super!

If you’d like any more information please give me a buzz or drop me an email.

Kind regards, Mike Beal, your local Sunshine Coast Financial Advisor, 0409 799 279 or