Hey fellow Ozbargainers,
Long time lurker here. I’ve read many, many portfolio or financial situation posts on these forums through the years. I feel like there is a lot of good-natured and well-meaning input, some more technical than others — but also as these threads go on, they tend to veer towards either cynicism or outright hostility. I thought it would be time to contribute to the community and write a “rule of thumb” post for future reference’s sake, and so we can avoid this cycle of posts and unnecessarily pointed emotions (as finances often bring out in us).
Myself? I am qualified to work in financial planning (RG146), but am not actively licensed, as I do not professionally work as a financial planner. Important: this does NOT constitute individual financial advice, and I am not recommending any products or asset allocations here in particular. Please consult a professional IRL for this.
So here it is - a brain dump of my experience - roughly by age and asset band:
If you are <25, make sure you have a $2000+ rainy fund. Avoid bad debt like credit card debt. Aside from that, earn that cash, and go enjoy life. Make connections. See the world. Invest in your credentials. Get the best education you can get - formal or otherwise. Have some f*ed up memories. At this age, failure is almost inevitable; not only that, it is enviable (for older folk), and as long as it’s not unrecoverable (like a drug charge in Bali), experience is your main asset as an emerging adult.
If you are 25-35ish and/or <100,000k (across all assets) - you should really focus on starting to save a reasonable sum of money every year (10% of your post-tax income is a great start - say you earn 100k a year, put aside $8000 a year give or take), set aside however you wish depending on your life situation. Your disciplinary power is your main asset as a young adult.
If you are <35-40 and hovering in the 100-500k bracket - especially if you have property, or are in line to inherit a deposit from Bank of Mum & Dad - great! Use it wisely. In Australia, (also New Zealand and Canada), residential property’s not a terrible long-term investment, just be very careful with what and where you buy. Set some extra money aside after all of that if you can (don't not live, though), with exposure to international shares being important (whether through super or ETFs). Your earning power or business, accumulated judgement, and ability to obtain leverage is your main asset as a mid-aged adult.
If you are >40-45ish and don’t have >200k in your super OR don’t own property - especially if you are in debt (i.e. you have a net negative position), be that credit, car loan, or otherwise - you don’t need to invest. Start saving. Call a debt counsellor (many of these are free services). Your assets are what will make or break your quality of life as you progress further in life.
Now, getting into the heavier net worth categories, which, matter of fact, often come with age, entrepreneurship and/or family advantage.
First, if you are negative net worth - don’t bother investing. Pay back your debts first, before investing. (The only exception to this is mortgage offsets, which I consider an “intermediate” level strategy, which I won’t expand on further.)
If you have less than $500k, I cannot recommend Barefoot Investor highly enough (it's not perfect, and I don't agree with the ING sell, but the bulk of it is brilliant for 95% of people reading this). Provided you are reasonably OK with numbers, a bland, low fee, growth-style ETF, bought in over every couple of months with spare cash, plus some super contributions with spare savings is genuinely ample.
If you are in the $1m bracket, a high street financial planner starts becoming useful. If you have the capacity, knowledge and inclination to DIY invest - absolutely learn to do it. A couple of good, low-fee ETFs, a small pile of blue chips, and maybe even a carefully chosen investment property on the side will be enough. Yes, you need to start being with your portfolio when you get into the late 6 figures (including property). Be very careful with who you hand over your money to.
When you start passing the >250k combined household income or >2m bracket (with or without property), this is when you need to seriously and closely consider structuring, tax optimisation, and investment advice as decisions early on can drastically impact your overall financial position later down the track, say in 5-10 years time.
And should you have more than that, you are wasting your time reading this post ;-)
Otherwise, here are some really, really simple age-old rules:
Don’t buy a vehicle more than your salary, and don’t buy it on more than 50% financing if it’s not a tax write-off (say for a business/ABN purpose).
Property is guaranteed shelter, a powerful connection and anchor, and for most people, their most effective mandatory savings scheme. But don’t forget - a mortgage (latinate, think mort - death, engagement) is a guaranteed burden until death, literally. With great opportunity comes great responsibility.
Super is well, super tax effective. For the non-Australians or multi-tax residents — related saving schemes (ISAs, 401(k)s, KiwiSaver, etc.) apply here too. When thinking about super, put aside what you know you won’t use. Think of it like a time capsule. I find that $10-20/week for someone starting out in the career life is great - keep in mind you can also get the government to match part of your contributions when your income is lower.
Diversification is the only free lunch, but it is only effective when you need to manage your risks. There is no point DIY risk-managing $1000 or even $10000 worth of investments. Limit your portfolio complexity until you hit the mid 6-figure mark. A bland, one-size-fits-all ETF or similar, does the trick in the meantime. (Vanguard, Blackrock, Betashares and any Main Street mutual fund sell these). And as always, lower the fees, the better. This is true in any investment.
Ultimately, something like more than three quarters of your return is based on good spending/saving behaviour and asset allocation alone. Vanguard and other investment planners have done countless studies on this field, and those two factors largely decide your financial fate (correcting for life’s ups and downs, of course).
And perhaps most controversially - learn the difference between investing and speculating. There are far too many long-term negatively geared property "investors" with no exit strategy, who laugh at crypto HODLers but cannot understand the irony.
In summary: start simple, stay humble, and don’t forget to ask for help if you ever need it - but be careful who you trust. Ask around and don’t be afraid to get a second opinion on anything.
Thank for reading. Hope this helps.
cd54 out.
Holy wall