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7 ways to build your wealth
I have a problem with our national obsession with bank bashing. At times, the banks deserve a real bollocking but, in reality, the real target of this criticism should be you!
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Here’s why.
We let them rip us off
Yep, so many of us join in with the chorus of accusers who say the banks are ripping us off but they’re only doing it because they can. We’re either lazy or have a ‘don’t care’ attitude about our bank selection, our product choices and we don’t do research into the best deals. All these things pose a bigger threat to our future wealth bottom lines than how the banks treat us. Sure, they might have ripped off a few customers big time but, generally, all they’re doing is charging higher prices. But lots of businesses do that e.g. some lawyers, accountants, expensive clothes shops, airlines when we want to travel, etc.
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She wants to get rich
Recently I promised a listener on my radio program On The Money (on Talking Lifestyle) that I’d solve her very special problem, which I think she shares with many Aussies.
The first part of her problem is, in fact, very unique to her. You see, she’s in her low 30s and owns three investment properties and the bank won’t lend her any more money, despite the fact that on her calculations, she can service another loan!
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What wealth building option do I have?
Yep, this is a very special young lady, who must be a pretty good income earner with a high tax bill to get three loans for three properties and it wasn’t surprising that she asked me: “How can I build my wealth in other ways, if the bank won’t lend to me for another investment property?”
This girl is aspirational and even inspirational!
What about shares?
Of course, I suggested it was time for her to think about stocks but this is where she stumped me when she said: “But I don’t like or trust shares.”
Shares –v- property
Like many Aussies, she trusts property but not shares. This is understandable because few shares have had the consistent growth and the low levels of drama that say owning a property in Paddington in Sydney has had. Properties in such areas have been consistent price risers. That said, however, if someone bought at the top of the market in the previous cycle, they might have made a loss if they sold not long after they bought. Sure, over time, the price rises resumed and over the past three years they have spiked brilliantly for homeowners in this blue chip suburb.
Property rises can be suburb selective
And those who own a place in Albert Park, Melbourne would have a pretty positive view on property when they read recently that house prices there were up 40% in one year!
Let’s do a comparison
If I compared a Paddo terrace to blue chip stocks like CBA (even with its recent dramas), it was a $26.75 stock in the GFC and is now $76.62. On the other hand, it was a $59 stock before the GFC and a $92 stock in March this year.
However, if you bought the stock in 1991 at $6.79 when it listed, you would have made a 1,166% return on your investment! With shares, it’s great to buy at the right time but if you bought CBA at the top before the GFC, you’re now up about 30% plus you’ve had about 10 years of dividends at about 6%, so you’re up about 90% in total. And that’s with living through the closest thing to a Great Depression the world has seen since the 1930s.
Property values can fall too
By the way, properties on the Gold Coast and Palm Beach in Sydney fell over 30% during the GFC, so not all properties (just like shares) are equal.
7 ways to build wealth
My young listener could do a number of things to build her wealth after the bank has said no to another investment home loan, such as:
Buying a home to live in and paying it off quickly as this is tax effective, though I think she is a Robert Kiyosaki disciple and therefore only wants to rent but own lots of investment properties.
Salary sacrificing more income into super so she benefits from the magic of compound interest over the next 30 years.
If she has a redraw facility on any of her home loans, take money out at home loan interest rates and buy a collection of blue chip shares, an Exchange Traded Fund or ETF for the top 200 stocks, or even have a look at our Switzer Dividend Growth Fund, which is designed to be a consistent income payer.
Go to the comparison websites and make sure she has the lowest rate credit card and the lowest rate home loans on her properties.
Start a part-time business, say advising people on investing in property and then grow it into a big business!
Go to the super comparison websites to see if her super fund measures up on fees and performance with the top 10 super funds over 3, 5 and 10-years.
Go to an honest financial planner/accountant and lay her life goals, her income, her expenses and other assets and liabilities on the ‘lawn’ and let an objective set of eyes look at her situation so an integrated plan gets constructed. This is my best piece of advice for her.
Get advice!
I remember a fund manager saying to me that he worked with a financial planner who was a tax expert and after looking at someone’s whole story, he’d invite them in and pass them a note which read something like this: “I will save you about $40,000 in tax and other fees a year, based on your current circumstances and I will charged you $10,000 a year to keep advising you of opportunities to build your wealth.”
Obviously, he got a lot of clients but the point I want to make to my young listener is that free advice is often worth what you pay for it. However what I’m writing here is an exception to that rule!
Buy at the right time
For those who worry about stocks, the best way to overcome that is to start buying after a crash and let the money ride higher crash after crash. The chart below shows what happened to $10,000 between 1970 and 2009, which was the year after the GFC market crash:
Generally, I argue timing the market is hard and even costly but a young person could easily wait for a crash to happen and then buy the best companies in Australia and even overseas and just let the investment ride. The blue line shows how $10,000 becomes $453,166 over 39 years, despite six big market slumps.
My best advice for wealth builders
The best advice I can give someone who yearns to build wealth is to have the desire to get richer and then get advice and insights, even if it comes from books, websites, newspapers, radio, TV, etc.
Set a goal then make it happen!
Make making money a goal and you’ll make it happen, especially if you learn from people who have actually done it.
