Jellyman Investing – Personal Finance for Australians

https://www.patreon.com/Jellyman_InvestingIf you haven't researched Index Funds, I suggest you start there before investing in individual companies. Should you be brave enough and willing to do the work, you can invest in individual companies. Long term they can potentially provide significantly higher rewards. But remember. With higher reward, comes greater risk. What do you look for in a potential partner and how do you go about assessing those things? Do you give a questionnaire on the first date? Maybe an online survey? Do we interview her family members? Don't do any of those things. Those ideas are exactly why I do finance and not a course on finding love. When selecting individual companies we have to understand a few key concepts. We invest in individual companies because we'd like to make more money. But more money than what? We need to couple risk and reward. If you had two investments both with identical returns, yet one had much more risk than the other. Which would you choose? It's a no-brainer. We choose the one with less risk as it has a higher chance of paying off. To apply this, we need to benchmark the investment against something. Index funds are the way to go. A wide market index fund such as Vanguard Total U.S. Stock Market which mirrors the S&P500 in the U.S. can typically grow somewhere between 7-11% each year with a 2% dividend. It is a relatively low risk by the very nature of it being an index fund.Therefore, when selecting an individual company it needs to have equal or less risk (or volatility) than that of the Index fund whilst providing significantly more return. Otherwise, why take the risk?Next, we need to think about specific aspects that make an investment attractive long term. The key word is 'long term'. That is because we want enough time for Compound Growth to occur. If you're not sure about Compound growth there's an article on my Patreon that goes through it. If a company has little chance of making it into the future, our money will not grow. This leaves us with fewer options to choose from. Primarily strong, robust companies that have a good track record. We're not interested in newcomers that have yet to prove themselves. This track record also shows us that they can consistently generate profits and manage their business well. Next comes competitive advantage. Would you drink any other Coke than Coca Cola? Do you always buy an iPhone no matter how much it costs? Companies with strong brands and a competitive advantage can increase the price of their products with inflation. Those that can't are typically industries where it's a race to the bottom. These include airlines where the cheapest flight wins. Petrol and Gas stations. The next factor is consistency. We want to see consistent performance. This can be done several ways as the internet has made it very easy. We look at earnings, revenue, profit, debt, cash flow and more. We want to ensure no erratic behavior. Finally, we want to ensure we understand the company and the industry it's in. If you're an accountant who knows nothing about fashion, don't invest in fashion brands no matter how good the previous factors look. Reason is that when things change in the market in that industry, or the company itself has dropped in the share price, you won't understand why. Whereas investing in areas you understand, gives you such an edge that you can smell false news a mile away. ConclusionThese are just some basic things I look for when starting to research potential companies to invest in. 

https://www.patreon.com/Jellyman_InvestingWhen you purchase a house you'll have to choose between Variable or Fixed. This refers to how interest rate structure of the life of your loan. Deciding which is best depends on your long-term goals. The Allure and Risks of Fixed Interest RatesFixed-rate home loans are particularly appealing due to their initial stability and predictability. They allow homeowners to lock in an interest rate for a period, usually between one to five years, resulting in consistent monthly repayments. This fixed period offers a shield against immediate fluctuations in the market, a boon during uncertain economic times.However, this apparent stability can be deceptive, especially when low fixed rates are used as lures to attract new customers. For instance, during the COVID-19 pandemic, interest rates plummeted to as low as 2% as part of the Reserve Bank of Australia's efforts to stimulate the economy. This dramatic drop led to an influx of customers locking in low rates, under the assumption that their repayments would remain constant.The challenge arises in the lack of understanding about the impact of interest rate changes. For example, on a $600,000 loan at a 2% interest rate, monthly repayments would be around $1,800. However, when interest rates spiked to nearly 7%, repayments jumped to over $3,300. Such an increase can be financially crippling for many, as they may not be able to afford the higher repayments once the fixed term ends and rates revert to higher variable rates.Variable Interest Rates: Flexibility and UncertaintyVariable interest rates, while offering flexibility, are susceptible to changes influenced by the Central Bank's policy decisions. The primary advantage of variable-rate home loans is the ability to make unlimited additional repayments, which can significantly reduce the overall interest payable and shorten the loan term.However, the risk of variable rates lies in their unpredictability. Rates can increase based on economic conditions, leading to higher monthly repayments. This can pose a challenge for budgeting and financial planning, especially in volatile economic climates.With a Variable rate structure, you can make unlimited additional repayments whereas in Fixed rates, you are capped. Which, if you’re in a position to make large additional payments, you would not be able to under a fixed structure.With Variable, you’re susceptible to increases in interest rates, but also can benefit from drops in interest rates in good times. If you sign on to a fixed rate at 5%, and market rates drop, you stay at 5%. Whereas in a variable structure, you’ll enjoy the rate drop.Key Considerations for HomeownersThe essential factor for homeowners is to prepare for future rate changes, regardless of the initial appeal of a low fixed rate. It's vital to assess not just the current affordability but also the potential for increased repayments in the future. This involves considering a 'buffer' to accommodate potential rate hikes and ensuring that your finances can withstand realistic interest rate changes.Final ThoughtsIn deciding between variable and fixed interest rates, Australian homeowners must weigh the predictability and stability of fixed rates against the flexibility and potential savings of variable rates. Understanding the impact of interest rate changes on monthly repayments is crucial. Homeowners should not only look at the present benefits of a low fixed rate but also prepare for the eventual return to higher variable rates. 

https://www.patreon.com/Jellyman_InvestingThe journey into first-time property ownership often presents a labyrinth of complexities, from dodging aggressive real estate agents to navigating through the myriad of mortgage options from various banks.Undertaking this journey alone can be a daunting, stress-filled endeavor. This is where the expertise of a good broker shines, offering a beacon of guidance and efficiency. These professionals not only simplify the process but can also access a wealth of information rapidly, making the journey smoother.And the best part? They’re free!What is a Real Estate Broker?A real estate broker is not just an intermediary in property transactions but a pivotal figure in your journey to homeownership. Choosing a good, reputable broker is essential - akin to selecting a life partner in marriage. The importance of this phase cannot be overstated.A proficient broker knows how to negotiate favorable rates, complete paperwork efficiently, evaluate your finances to determine your purchasing power, manage risks, educate you on economic changes, and provide early access to government programs and grants.The best way to gauge a broker's performance is by asking for feedback from individuals who have recently bought a house. This level of diligence in selecting the right broker can make a significant difference in your property-buying experience.Key Responsibilities of a Broker in First-Time PurchasesMarket Knowledge and Property Identification: They offer insights into the real estate market and assist in finding the right property.Financial Guidance and Price Negotiation: Brokers provide financial advice, suggest financing options, and handle price negotiations.Property Viewing and Evaluation: They arrange viewings and evaluate the property’s condition and potential issues.Legal and Regulatory Guidance: Brokers navigate the legal procedures and ensure compliance with property laws.Managing Transactions and Closing Deals: They oversee the entire transaction process, ensuring a smooth closing.The Benefits of Working with a BrokerExpertise and Experience: Brokers bring valuable knowledge and experience to the table.Time and Stress Reduction: They streamline the property search and reduce the stress involved in negotiations.Professional Network: Access to a broker’s network can be crucial in finding the right property and deals.Representation and Advocacy: A broker advocates for your interests throughout the process.Choosing the Right BrokerWhen selecting a broker, consider their reputation, experience, local market knowledge, and reviews from previous clients. It’s essential to choose someone who aligns with your needs and whom you trust.Final ThoughtsFor first-time buyers, a broker is an indispensable ally in the journey to homeownership. Their expertise and guidance can demystify the complex world of real estate, ensuring you make informed decisions. Remember, the right broker can turn the daunting dream of owning a home into a manageable and rewarding reality.

https://www.patreon.com/Jellyman_InvestingI want to talk about the journey towards buying your first home. It starts by paying off debt and building your savings. It's really easy to fall off the bandwagon when it comes to getting your finances under control. Here's the way I found to work TOWARDS a house:Set up your automation and accounts for everyday expenses.Build your 6-12 months of emergency savings.Begin investing in index funds.Meet with a broker to assess your financial position relative to how much you'd like to borrow.Readjust your borrowing power based on rising interest rates.Build an additional buffer for post-home purchase (ensures you have enough left over just in case).Buy a house.As you can see, building the buffer is step 2. The buffer ensures that if unexpected expenses occur, we can cover them without becoming mentally derailed. It's hard when you have to move money back and forth between accounts because it feels like progress is being taken away from you.The automation in step 1 will automatically push money towards your savings account. What some people do is create a whole new bank account with a different bank and have the money transferred there. This account has no associated card, which removes the temptation to spend it.Let's add time to the equation. What tends to happen when you've automated your accounts is that it just happens in the background. Before you know it, you've built up enough savings. You might think that the next step is to buy a house. But I actually think people should invest first.Now, before you start telling me it's risky, hear me out. Index funds, which are a basket of stocks that allow you to become automatically diversified, are relatively low risk and have good returns, even in bad economic times. You can even buy index funds specifically tied to property.Because it now takes much longer to save for a house, while you wait for the best time to strike, the value of your stocks goes up. In fact, in my personal situation, after I had my 6-12 months saved up, I began buying stocks each month. But it took a few years before the timing was right to get a house. In those few years, I ended up accruing an additional $15k in stock value, which I could sell to buy my house.Luckily for me, during the time I was buying stock, I was still diverting some of my funds towards saving for a house. After meeting with a broker, he told me I actually had enough in my savings to buy a house, which meant I could leave the stocks to keep growing and still buy a house.This is a win-win situation and gives me a number of options. If I suddenly need cash, I can always liquidate some of my stocks (which I've never had to do). By leaving my stock, it can just grow. Another win for me.Moving my savings towards property means the money in my home is now growing as well. Any renovations I do also build equity.Now, I have mentioned a few times that having equity sounds good on paper, but it's not real money until you sell the asset. That is true. But the way I like to think about finances is to try and have a win scenario for every situation.If the stock market crashes tomorrow, I have cash on standby to purchase stocks at a discount. If the market instead jumps, I already have stocks to ride the wave. If housing prices go down, it's fine because I already have a home to live in. If they go up, my equity increases. If I lose my job, I have several other income streams.Every which way you look at it, I have some form of protection. That is true security. Just because it says 'full-time' on your job contract, doesn't mean you have security.So take it

https://www.patreon.com/Jellyman_InvestingThe history of taxation is as old as civilization itself, originally designed as a means to generate capital, primarily to fund wars. In ancient times, rulers and governments imposed taxes to amass wealth, ensuring they had the resources necessary for military campaigns.The Australian Tax System: A Progressive ApproachToday, the Australian tax system plays a pivotal role in the country’s development. It is structured to fund public services, infrastructure, healthcare, and education. But why do some individuals pay more tax than others?The answer lies in the progressive nature of the tax system, which is designed to be equitable rather than equal. This means individuals and entities with higher incomes pay a proportionately larger amount in taxes, reflecting their greater capacity to contribute to society’s needs.Tax Benefits: Rewarding Beneficial EndeavorsThe Government learned long ago that if you want to move the country in a specific direction, they can tax activities that take away from that agenda, and incentivise the ones that align. It’s actually that simply.When reading the tax code, you’ll actually find that a substantial amount of it, in fact most of it is laws are on how to reduce your tax by pursuing certain activities. These can include but are not limited to: Superannuation Contributions: Contributions to superannuation funds often receive favorable tax treatment. When the population ages, the costs for services especially retirement funding such as pensions becomes a heavy burden for the Government. When they see people investing and making extra contributions to take care of themselves in retirement, it’s one less person the Government has to support. They like this.Education and Research: Tax deductions for certain educational expenses and research activities encourage investment in knowledge and innovation, crucial for the country’s growth. This creates new industries and potential jobs.Charitable Donations: Donations to registered charities are tax-deductible, promoting philanthropy and support for non-profit sectors.Investment in Renewable Energy: Tax incentives for investing in renewable energy projects align with the government’s commitment to environmental sustainability.Tax Penalties: Discouraging Unfavored ActivitiesConversely, the tax system can impose higher taxes to discourage certain activities or to manage economic disparities:Luxury Car Tax: This tax is imposed on expensive vehicles, discouraging excessive spending on luxury goods while generating additional revenue.Capital Gains Tax (CGT): Higher taxes on short-term capital gains discourage speculative investment and encourage long-term, stable investment behavior.Sin Taxes: Higher taxes on products like tobacco and alcohol serve a dual purpose – reducing consumption of harmful products and generating revenue.Progressive Income Tax: High-income earners face higher tax rates, a measure to address income inequality and ensure a fair contribution from all economic segments.A Dynamic and Responsive SystemEarning more but not aligning with Government policy simply means you’re swimming upstream. We work so hard in our jobs that climbing that corporate ladder brings more wealth as well as more stress and time away from our family. The more you earn, the more you’re taxed.The only way to combat this is to start investing, purchasing real estate, starting a business, starting a side gig, investing in renewable energy, investing in index funds and ta

https://www.patreon.com/Jellyman_InvestingLet's talk fear. There are a lot of things to be scared about financially. Job loss, retirement, your children, etc. The amazing thing about finance is that there's usually something we can do about it. It's rarely terminal. We just need to take the right action as soon as we can and let time do the rest. Let's face it. The world is scary out there. Especially if we have a family that depends on us financially. Losing a job for example spells disaster and if you have got the right systems in place, you're in for a world of hurt. The great thing about this is that these issues are solvable. You just need to know how. I'm going to go through 7 of the biggest fears I know people have when it comes to money and then talk briefly about some of the things you can do to put these fears to rest.  Running Out of Money: This is perhaps the most common fear. It encompasses worries about not having enough money to meet daily needs, cover emergencies, or maintain a desired lifestyle, especially during retirement.Debt: Many people fear being overwhelmed by debt, whether it's from credit cards, student loans, or mortgages. The stress of managing and repaying large debts can be a significant source of anxiety.Job Loss/Income Instability: The fear of losing a job and the resulting loss of income is a major concern. This fear is heightened in economic downturns or industries prone to layoffs.Inflation and Rising Costs: People often worry about the decreasing purchasing power of their money due to inflation, especially when it comes to long-term goals like retirement savings.Investment Losses: For those who invest, the fear of making poor investment choices or experiencing market downturns can be significant. This includes concerns about not knowing enough to invest wisely or losing capital due to market volatility.Healthcare Costs: The potential for significant healthcare expenses, especially in later life or due to chronic health conditions, is a major financial fear for many.Not Being Able to Afford Retirement: Many fear that they won't be able to save enough for retirement, or that their retirement savings won't last through their retirement years.

https://www.patreon.com/Jellyman_InvestingIn the previous example, we went through some basics of retirement planning. However, there is a considerable flaw in the previous model. That is, it assumes you have to sell all your stocks at age 70 and then with discipline, not spend it all too quickly. Let's solve that problem. The way I described it previously isn't exactly how you want to do it. But I wrote it that way so you have a basic idea. What we've done is purchase a basic Toyota Corolla. No addition, no customizations, nothing. It's completely plain. We can now consider modifying it in the ways we need. Investing in the way I mentioned has something we call an infinite money glitch. One of the biggest fears people have is running out of money in old age. This method will solve that. So assume our yearly return is 10%. If we have $1M in stocks, by the end of the year, it will grow by 10%. Our stocks are now worth $1.1M. Say we sold $100k worth of stocks to live off. That leaves us with $1M once again. What happens at the end of the next year? Well assuming it again grows by 10%, then the $1M grows again to $1.1M and on and on it goes. This has a few assumptions though. Firstly, it assumes that you're not spending more than $100k. Secondly, it assumes we'll get 10% growth. Thirdly, it assumes to no extreme situation such as needing experimental surgery costing $500k. Fourthly,  we're not accounting for inflation. What happens if it only grows by 5% and we also solve $80k worth over the next 10 years? The stock grow to $1.05M, we'd sell $80k leave us $970k. Say this happens again the next year. Our stock price would grow to $11.02M, we'd sell $80k leaving us with about $939k. As you can see, if this continues we'll run out of money. So the key here is ensuring the growth on your portfolio is greater than your expenses. But done right, it's infinite money baby!

https://www.patreon.com/Jellyman_InvestingRetirement Planning is not as hard as you think. With so many online calculators to help you, it doesn't take long to get some basic figures. To perform the calculation, we need some basic figures. You can put your values in if you'd like. If you'd also like to see this in writing, be sure to check out my Patreon where I'll have an article with the same title. Here we go. We need to start with some basic figures. Do not get bogged down with trying to get this specific because no matter what you do, it'll never be specific. Not only is it a waste of time, but the accuracy is not actually needed. As you'll see, we'll very quickly be able to make adjustments as our life changes. First start by determining your age, your target retirement age and when you think you'll die. This gives you how many years you have left to retire, then how many years of life where you'll need money to live off. A few assumptions though. Assuming your house is paid off by this time greatly reduces monthly expenses. But also keep in mind that you'll be older with more medical bills and possibly some dependents. Hopefully you'll have no debt by then. Lets plug in some values. Assume my age is 35, retirement target is 70 and I'll die at age 90. that gives me 35 years of good investment time and 20 years of survival. Now because we can never get these values perfect, we can add a margin of safety. That means simply beefing up the figures. Instead of dying at 90, we'll die at age 100. Instead of age 35 to invest, we increase to 40. By making these conservative changes, it adds room for the unexpected. For now, we'll keep the figures the same. Assume our monthly expenses at age 70 is $5k. That means, for a given year, our total yearly expenses are $60k. If we plan to live for 20 years, then it's simply $60k times 20 giving us: $1.2M. Wow. So far so good. Now you might be saying, why on earth do I need to worry about this if I have Superannuation or a retirement fund? Doesn't that take care of me? My answer is…'hopefully'. What we learned from the COVID pandemic and many world changing events of the past, is that we never know what the future is going to look like. Placing all our bets on super is putting all our eggs in one basket. Superannuation is also just a company. Its made up of people. People who can make mistakes, charge incorrect fees, make bad investment decisions and more. By taking our retirement in our own hands, we can treat Super as a back up retirement fund. How great is that? Two retirement plans!I'll also add, that should your investment plan for retirement work really well, it can also lead to early retirement. An added bonus. With our retirement fund calculated we can one of many investment calculators to determine  how much to invest. https://www.calculator.net/investment-calculator.html(Be sure to check my patreon for links)According to the website, its approximately $350 a month at 10% annual return will give around $1.2M. Now should interest rates be better then you wont need to invest as much. For example, if interest rates are 12% then youll only need to invest $200. I leave it to you to play with the numbers. But this at least gives you as baseline of what needs to be done. 

https://www.patreon.com/Jellyman_InvestingRight after COVID-19 broke out, the stock markets crashed. Not unexpected. Superannuation funds are tied to the stock market. When you provide money to these organizations, they invest that money for you as conservatively or aggressively as you'd like. But even they are susceptible to market crashes. If you happen to retire at COVID's worst, you may have lost a third if not more of your retirement fund. That's hundreds of thousands of dollars. There's a better way. IntroductionWe've all heard about superannuation, that nest egg we're counting on for our golden years. But let's stir things up a bit - should we be relying entirely on superannuation for retirement? With the market's ups and downs, I've got some intriguing points to discuss. So, settle in, and let's get into the nitty-gritty.Remembering the Global Financial CrisisBefore we jump in, let's take a quick trip down memory lane to the Global Financial Crisis (GFC) of 2007-2008. That was a real game-changer for many people's retirement plans. Superannuation funds took a massive hit, and it was a stark reminder that financial markets can be unpredictable and even unforgiving. If you were planning to retire around that time, your superannuation balance might have seen some dark days. This historical example is precisely why putting all your retirement eggs in the superannuation basket might not be the best strategy.The COVID-19 Wake-Up Call - A Deeper DiveFast forward to the more recent COVID-19 pandemic, and we saw a similar story. The market took a nosedive, and superannuation balances suffered. It just goes to show how external factors, beyond our control, can significantly impact our retirement plans. Life is unpredictable, and so are the markets.Exploring Index Funds - Your Financial SidekickWith all this unpredictability, what can we do? Well, one smart move is getting friendly with index funds. Think of them as a cool, easy-going buddy for your investment portfolio. They're kind of like a cross-section of the market, giving you a slice of everything without the hassle of picking individual stocks. What's great about index funds is their simplicity and cost-effectiveness. They often come with lower fees than actively managed funds and are a great way to diversify your investments.Superannuation: A Closer LookNow, back to superannuation. Remember, these funds are managed by companies, and like all companies, they can have their ups and downs. They also charge fees for managing your money, which can add up over time. Plus, the performance of these funds can vary. It's kind of like a rollercoaster ride – exciting but not always fun. Broadening the Horizon - More Investment AvenuesBut it's not all about stocks and bonds. Consider real estate for potential rental income and value appreciation. Exchange-traded funds (ETFs) are another option, trading like stocks but diversified like index funds. And don't forget international investments, which can expose you to different economies and growth opportunities.Crafting Your Unique Retirement PlaylistSo, how do we mix all these elements for a great retirement plan? Start with superannuation as your base track. Then, layer in different investment styles - index funds for broad market exposure, bonds for stability, real estate for income, and maybe some international investments for a bit of adventure. The goal is to create a diversified portfolio that matches your financial goals and risk tolerance. And just like any good playlist, your investment mix needs regular reviews and updates.

https://www.patreon.com/Jellyman_InvestingThe traditional route to financial security has been through a stable 9-5 job. That's what our parents did and that's usually what they tell us. Climbing the corporate ladder has been ingrained in us since early childhood and schooling and was thought to be the pathway to wealth. However, this path is no longer true in my opinion. While ascending in a career can lead to higher salaries, it also brings with higher taxes and greater responsibilities. This reality paints a sad picture: a regular job, while providing the illusion of stability, is unlikely to lead you to significant wealth.One of the reasons a 9-5 doesn't provide lasting wealth is rooted in how tax systems are structured. In many countries, the tax system is designed to incentivize certain behaviors and penalize others. Those who earn a salary are taxed on their income, often progressively, meaning the more you earn, the higher the percentage of tax you pay. On the other hand, the tax system rewards those who invest, buy real estate, create jobs, create business and provide opportunities for others - i.e. producers. These individuals benefit from various tax breaks, deductions, and incentives. For example, owning a business can offer deductions for expenses, while investing in real estate might provide depreciation benefits and lower capital gains taxes.At the heart of this disparity is the difference between being a consumer and a producer. The 9-5 job often falls into the consumer category. People in this bracket typically work, earn, and spend. Their financial growth is linear and limited by the amount they can earn and save after taxes and expenses. These are usually the people the Government has to support in old age. Producers, however, approach wealth creation differently. They focus on creating value, be it through businesses, investments, or real estate. Their income is not just a function of time spent working but is tied to the value they create and the assets they build. This approach can lead to exponential wealth growth, especially when combined with the advantages of compound growth and smart investment strategies.To move towards wealth, the key is to shift from a mindset of consumption to one of creation. This doesn't necessarily mean quitting your 9-5 job immediately. Instead, it's about gradually building assets that can generate income beyond your regular salary. This could be through side businesses, real estate investments, stock market investments, or any avenue that allows your money to work for you.Not only will a 9-5 not make you rich, but it also creates a very serious bottle neck; a single point of failure if you will. If you only have your job as a source of income, then no doubt your entire lifestyle is linked to that job. Lose the job, lose the lifestyle. This can bring incredible amounts of stress for yourself and your family.Ensuring you have investments and other sources of income, albeit small, is enough to provide you some buffer should the worst happen. My personal experience is that these extra streams of income, also make you a better performer at work because you're not scared to lose your job. You take more risk, you're bolder in your approach and you're willing to try things that could fail. However, if you're scared to lose your job, you'll act conservatively, with caution and strive towards maintaining the status quo. Not exactly a recipe for a high performer. So I advise you to stop blaming the Government. Stop blaming corporations. Start thinking about how you can create value because when you do, you'll be well on your way to enjoying the tax breaks and opportunities that the rich do.