12 Jun 8 golden rules of investment – Stuart Wemyss
Like me, you might have grown up playing Monopoly, a fantastic game. I can’t think of a better game to teach young people about money management and investing in property. That’s why I was delighted to receive a copy of a book written by Stuart Wemyss called Investopoly. He joins us to detail the eight golden rules to help you win at the game of building personal wealth.
Kevin: Like me, you might have grown up playing Monopoly, a fantastic game. I can’t think of a better game to teach young people about money management and investing in property. We’d teach our grandkids. We’d play it with them. That’s why I was delighted to receive a copy of a book written by Stuart Wemyss called Investopoly, a very creative name.
In the book, Stuart details the eight golden rules to help you win at the game of building personal wealth. Stuart is a Melbourne-based financial advisor with over 20 years of experience. He joins me to talk about the book and his experiences.
Good day, Stuart. How are you?
Stuart: Very well, Kevin, and thank you very much for having me.
Kevin: Congratulations on the book; it’s a really good read. In the first few pages, you make a great point about questions and answers. Sometimes, it’s not knowing the answers but more importantly the questions to ask. Let’s talk about that.
What’s the most powerful question that we should be asking as property investors, Stuart?
Stuart: Without a doubt, Kevin, I think it’s the question “What actions can I take today so that I’m far better off financially in 20 years’ time?” I know that seems like a long time and a lot can change over 20 years, but what it really does is force you to think long-term.
And I think not only property investors but human beings tend to think too short a term, particularly with regards to finances.
Kevin: Yes, sometimes it’s important who you ask that question of, too, isn’t it? There are so many advisors and each one of them has a system or a theory about the best investment strategies. Is there one strategy that you think fits all situations?
Stuart: Probably not, but I guess one methodology fits all situations, and that would be an evidence-based approached. When I talk about evidence-based approach, I think most financial strategies – so if someone is recommended a particular course of action – can be proven or disproven – more importantly – with simple math and logic.
Nothing is too difficult that can’t be explained with simple math and logic. And if it can’t be explained, then that’s a red flag.
If you’re thinking about investing in a particular type of property or location or property investment strategy, it’s really a case of just sitting down and doing the numbers, and do they all add up? Is it actually going to help you stop work one day and generate a passive income?
Kevin: Yes, it could be a problem if you, one, didn’t understand and you’re just willing to take another person’s advice. You really have to make that proof yourself, don’t you?
Stuart: Exactly right, or ask the advisor to prove it to you. Again, if a strategy is fundamentally flawed – that is that there’s no evidence it’s going to work – they’re going to struggle to be able to do that. And if that’s the case, my advice would be just walk in the other direction.
Kevin: This is a property show, of course, and your book deals with investment and assets such as cash, shares, bonds, and property. How do you advise people going about developing a mixed portfolio of assets?
Stuart: At the risk of losing some of the listeners, I’d like to draw a golfing analogy. Obviously, a golf bag will have a whole bunch of different clubs, and the different clubs will do different things depending on what you need. And the same is true with investing. Property and shares and bonds and cash are all different assets and you need them at different times and they all do different things.
So, it really depends on what stage you’re at in the investment cycle, how close you are or how far away you are from retirement. Also, as I discuss in the book, different assets have different risk profiles, and one thing that I found while writing the book is there really wasn’t much discussion around volatility in property.
Volatility is the amount the price of an asset will change over time. We all understand the share market is relatively volatile, and it has a 20% volatility rate or risk rate, if you like. Property has… And what I did is took the average of Melbourne and Sydney as they’re both very diversified and developed markets. Property has a volatility rate of 10%, half of that of shares. And bonds have a volatility rate of somewhere between 5% and 7%.
So, if you’re a risk adverse investor, that would suggest that property is probably a better asset depending on your life cycle and stage of life than shares.
Also, different assets have different correlations. When property rises, interest rates are going down, and vice versa. I found that there’s no correlation between Australian residential property and the share market, so you can invest in those two assets and that’s okay, but there’s a strong negative correlation between bonds and property prices, which makes sense because bonds are really about interest rates.
So, that says to me that if you’re a property investor and you’re heavily invested in property, then probably you should have a more conservative asset allocation in super – so there’s more exposure to bonds – because that will work at a portfolio level.
Kevin: Talking about property, developing a portfolio, we do know that very few people get past one or two investment properties. What stops them, Stuart?
Stuart: I’m not sure. Maybe failure to think longer term. I think we all over-estimate how much time we have left before retirement, and time just seems to get away from us.
So, I think it’s just about sitting down and developing a bit of a strategy. What does it look like? Is it buy one or two or three investment properties and then contribute to super, or something along those lines? Develop a strategy and then just go about implementing it rather than thinking “Oh, it’s something I’ll get to at some stage,” and one day you wake up in your 50s and you think “Oh, well. I have to retire at some point.”
Kevin: In rule number three in your book, you deal with cashflow. What are your golden rules for good cashflow management?
Stuart: It’s actually really simple, Kevin. It’s the old adage: you can’t manage what you don’t measure. So, it’s really just about measuring it, understanding where your cashflow is going, and then you’re able to make deliberate decisions.
And I find people mostly waste money. My definition of wasting money is spending money on things that really don’t matter, that really don’t add to your standard of living. And you’ll find that if you don’t measure your money, you will be spending on things that actually don’t add to your standard of living, which you can cut out and you don’t actually feel it.
The simple answer is to really just know where it’s going, and there are lots of different apps, and the banks are providing different data and facilities there for Internet banking to help you do that.
Kevin: You’re talking there about banks. The Banking Royal Commission has unearthed some astounding facts about our relationship with lenders. Do you think that’s going to drive more and more people to brokers?
Stuart: I think so, Kevin. And look, I might have a conflict of interest here, obviously. My business is part mortgage broking as well. But I think there are probably three things that people can consider. The first one is that most brokers offer whole of market advice, which means they’ll typically have more than 30 lenders on their panel, which would represent probably 99% of the mortgage market.
The second thing is that it doesn’t cost people anymore to use a broker than going direct. More often, a broker would negotiate a better deal.
And lastly, if you find a broker who’s an investor themselves, it’ll actually pay a lot of dividends, because if they’re investing themselves, they would have been faced with the same challenges that they’re trying to help you with, and they’ll be able to give you good quality advice into how to structure and really how to maximize your property portfolio.
Kevin: Yes. Great advice. Stuart Wemyss is the author of a book called Investopoly. Have a look for it. It’s available at all book stores, Stuart, is it?
Stuart: Yes, absolutely.
Kevin: Excellent. Okay, and Stuart’s company is ProSolution.com.au. Stuart Wemyss has been my guest. Stuart, thank you. Congratulations on the book, I look forward to talking again soon.
Stuart: Thanks very much, Kevin.