How Do They Afford That?Investing is not a one-size-fits-all approach - and every generation has different priorities and strategies. Roger Montgomery, founder of Montgomery Investment Management, joins Canna Campbell - a financial planner for almost 20 years - and Fear & Greed's Michael Thompson to look at investing for Gen Z, Y, X and Baby Boomers.
Visit www.montinvest.com, sign up for Roger’s insights at www.rogermontgomery.com, and check out Roger's book, Value.able. Montgomery Investment Management is a supporter of this podcast.
The information in this podcast is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.
Canna Campbell is a Corporate Authorised Representative and Corporate Credit Representative of Wealthstream Financial Group Pty Ltd ABN 35 152 803 113 Australian Financial Services Licensee AFSL 412079.
Welcome to How Do They Afford That, the podcast that peaks into the financial lives of everyday Australians. I'm Michael Thompson. I'm a writer and the co host of the podcast Fear and Greed Business News and as always, I'm a Canner, Campbell Financial Planner and founder of Sugar Muma TV, the financial literacy platform that you will find pretty much everywhere YouTube podcasts like this one, obviously, books, Instagram, threads, TikTok and more. Hollo Canna, Good morning, How are you. I'm going well, and I'm looking forward to today's episode because it is going to be big and it is going to I reckon this will answer more listener questions in one episode than anything we've ever done before.
We've got a lot to cover and there are some things that have really been burning at the back of my mind that we're going to sort of unpack today.
I'm looking forward to it. Investing. We're talking about investing. Obviously, investing isn't a one size fits all thing, which I think is something that we've established over the course of this podcast so far. Someone who's in their twenties, for instance, might have a very different approach to an investing compared to someone who is approaching retirement or who has already retired. So today we are going to look at investing at different life stages and generations. What to consider if you're a baby boomer or gen X, or a millennial, gen y, gen Z, all those things and to do that we are getting some help. Roger Montgomery is the founder of Montgomery Investment Management. He has more than three decades of experience in funds management and related activities, including equities analysis and stockbroking. He is also the author of best selling investment book value Able, and is a supporter of this podcast. Roger Montgomery, welcome back to how Do They Ford That?
Thank you both for having me, really really great to see you again.
Oh we are absolutely honored and I cannot wait to pick your brain and ask your whole follow questions that are burning on the tip of my tongue.
Before we get into any of that. As you're listening, please know that anything we talk about is always general in nature. It is never personal, investment, strategic or product advice. It is purely for financial education purpose only.
Absolutely remember we do not know what your risk profile is. We do know what your goals are, what your situation looks like, what's important to you. So please always bear that in mind and know that this is general in nature.
Roger can I start with a fairly broad statement, and I suspect there could be an error or two in it, but I'm just going to put it out there. Starting with the youngest investors, a couple of key principles here, get started early and aim for growth. Does that sum it up reasonably? Well?
Look, I think there's merit in the philosophy, no doubt about that. When I think about this particular generation, which is Generation Z, I think about my kids. My eldest is twenty three, the oldest Gen Z is twenty nine or thereabouts, and the youngest to be fourteen. My youngest is fifteen. I wrote my book to give them a recipe if I came to an untimely demise. I wanted to give them a recipe for how to invest in shares. They don't care about shares, they don't care about investing. They're not even thinking about it, except for my eldest, who at the moment is working in the cryptocurrency space in Tokyo. He does some fascinating stuff there, so he's interested in profiting and making money and growing his wealth, but not the traditional way. He's not thinking about shares, he's not thinking certainly not thinking about bonds, wouldn't even know what a bond is, and he's not thinking about private credit or other asset classes. Really, for him, it's about a high growth asset where he can make a lot of money very quickly. That happens to be cryptocurrencies for him, and property, and he wants to take his profits from digital currencies and plow that back into property as quickly as he can. I think there's merit investing in property, but I also think that there's merit in sticking to what you know and what you're good at. He really does know that space very very well, So why would he venture outside into something that he doesn't know anything about unless he's guided into that by somebody else.
You've talked to us before we've and definitely go back and have a listen to the previous episode that we've done with Roger, because it is a fantastic guide as to what to look for in quality companies to invest in. Do you find it perhaps frustrating then that there is a generation here who is perhaps not looking at those same principles of investing that you've gone through, when you've laid this out in terms of what people can look for, and looking at the history of a company and then using that to make some kind of educated projections about what is going to happen for that company in the future that shares seem like a fairly obvious logical place for a young person to be investing in. Is that at all frustrating that suddenly that there isn't this attention that you go If you got onto this right now, you could be setting yourself up for life.
Yeah, it look because I don't know the people who aren't taking it up.
Yeah, I'm not frustrated by Yeah, it's a very kind of zen approaches. Actually, it's not trying to control things control.
What does frustrate me though, is I had a little experiment where I was allowed by my wife to have access to Instagram and Instagram reels, and it was properly turned off because I quickly became quite addicted to it and I was saving all of these bizarre things and anyway, but that during that short exposure, I saw lots of financial advice. I saw I was privy to financial advice on reels. Some of it was reasonable and conventional, some of it was just plain bizarre, And I worry for a generation of people such as this generation jen Z, who are digital natives, you know, they've been brought up on this technology. They're not getting their advice from financial advisors. They're not getting their advice from people who know what they're doing. They're getting their advice from peers, and there is don't have that experience, and they don't know what they don't know, and because of that, there is some dangerous stuff that's being offered to them as advice. And I worry and I'm frustrated by that because there's been a lot of work done by the generations that have gone before them, and it's frustrating that that generation is going to make the same mistakes that the generation before them made by not listening to the advice of the generation before them.
So it's like, stick with what you know for one thing, is kind of the first part of it, but also make the most of all of the work that has already been done in terms of explaining these principles. And that episode that you spoke to us about is a great example of that. It is a how to guide as to what to look for a starting point for your research.
There are millions and millions of people gen X and baby boomers who have lost billions of dollars trading shares and futures and derivatives using charts. And when I turned on Instagram reels, there were these young kids promoting charts and I thought, oh my gosh, you know I tested well. I used to work for BT Australia. We had an algorithm. We worked on algorithm that I worked with another guy, a business partner of mine, and we were at one point we were the biggest traders of the Nikeye Futures index on the Tokyo Exchange Tokyo Futures Exchange, and we learned what works and what doesn't work. And I can assure you that when you take all of these charting techniques and digitize them and test them, which is what we did. We back tested all of this stuff over many, many years and across markets to see if they were robust or not. They don't hold water, they don't work. It's the most bizarre thing. If you don't mind, can you indulge me a very quick little story, please, there's a thing in charting called support and resistance, right, and support is supposedly the level at which the share won't go below, and resistance is the level above which it won't go. But if the price breaks through resistance, then according to this reel that I watched, the price will go keep going up. Well, let's suppose the price in the middle is two dollars, support is at a dollar fifty, and resistance is at three dollars, for example. So the theory goes that you don't buy the shares at two dollars today. You wait for it to go above three dollars, then you buy it. Think about doing that in real estate. Imagine going to an action and you're there with your dad or your mum, and you say, Mum, I really want to buy this apartment. It's going to go for two hundred and fifty thousand dollars. Oh no, no, no, we'll come back next year and see if it's gone through three hundred thousand, then we'll buy it, because then it might go up further. That's absurd, And if it doesn't work for one asset class, it's not going to work for another asset class. It's nonsense and I see a generation of young people making the same mistakes that all the generations before them have made. It's just a waste of time, and it's so sad that they're going to lose a lot of money.
The one thing that I completely agree with absolutely everything you're saying, and I have to say, people, you know, viewers watch these people on these reels selling these programs and software trading systems and charts and graphs, and they don't realize the person in front of them is actually not actually a successful investor.
They're a successful salesperson indeed.
And that's where I think the smoker mirrors is just causing a lot of problems and people investing is it takes, as you know, you've got three decades of experience when it comes to investing, it's experience, it's education as a huge amount of analysis, not having the right connections, like I mean, I won't even go through the long list of skills and intuition and education you need. And these everyday people thinking they could just pick it up by doing a two hundred and ninety nine dollars course. I used to feel like it's just insane.
I used to meet a lot of this is fifteen twenty years ago, met a lot of dentists and doctors who took up trading. They and I pointed out to them, you know, you've done a dozen years of study to become qualified at what you're doing, and you think that this is something that you can just you know, read a book and that's going to be enough. You know, charting behind the charts are businesses. We talked about this the last time I was on the program. You know, behind those charts. Turn the charts off. You don't need those. You just need to look at the operating performance of the business and you'll be able to pick the right things from that. The charts is kind of an attempt at a shortcut, and it's a really clumsy attempt.
The second thing that really worries me and infuriates me to a certain degree is the lack of understanding of risk. You have this young generation who has motivated and driven, you know, they want to get ahead financially, which I think is admirable, but they don't understand risk, and they are self educated, and they are making these massive decisions with their hard earned money, not under standing the risk that they're taking. And this is where I find most self educated, and I does not necessarily mean when I say self educated that they actually really do know what they're doing. No one knows what a risk profile is. And if that anyone goes and see a financial planner, one of the first documents they're going to sit you down and go through with you is a risk profile. Now people will come to me and say, you know, I invested in this and that, and they're high risk investments. So as far as I'm concerned, they should be just going to the casino with the level of risk that they're taking. But when I do a risk profile with them, which has you know, mean there are hundreds of different risk profiles out there, but the quality ones, Suddenly people realize, oh, hang on, no, I would never take that type of risks. And I'm like, well, look what you're doing over here. It doesn't make sense. But they, just as you just said, they don't know what they don't know, and I'm interested to know that.
What are your thoughts of.
Risk profiling is something you would recommend someone does as part of getting into building up a share portfolio and investing in share How valuable do you see it in someone understanding the importance of understanding timing with shares, and I'm I say timing and trying to pick the market, but time and going okay, well I need this money to pay for a deposit in five years, Maybe shares aren't the smartest thing necessarily to use all my money for right now.
Yeah, I would look. We talked a little bit the last miles on the program about private credit and private credit. I think if you're going to need the money in two, three, four years, then the stock market, unfortunately, it could be on its knees when you need the money. Yeah, because the stock market is volatile, and so private credit probably offers a more attractive alternative. If your time horizon is longer than that five years plus, then I would say, well, that's enough time for the stock market to recover and you'll probably do okay, particularly if you're investing regularly, so you're not just making a lump some investment today and then putting in the bottom drawn forgetting about it, but you're regular. Adding that way, if the market is volatile in the intervening five years, you can buy more at a lower price and that will help with the recovery. That will accelerate the recovery but a couple of points that you made that I think is interesting. I'm going to be really unconventional here. I think nothing teaches you risk like losing money. Yes, right, do that when you're young. Do that good. And I've contradicted what I said earlier. But if you're going to lose I remember a friend of mine and I was in Melbourne. We're at university, and this is back in nineteen eighty nine, and I remember both of us saying we were coming up with an idea for making money in the markets, and we thought ten thousand dollars is a lot of money. My mum went garranteur on a loan for me to get the ten thousand dollars. My friend was very, very wealthy, and it was nothing for him to get ten thousand dollars. So we put our ten thousand dollars in. We turned that twenty thousand dollars very quick into forty thousand dollars. And this is back in the late nineteen eighties. I thought I didn't need to go to university. I thought, why am i UNI? I'm just going to keep doing this this is I can quit UNI and I'll be fine. But then over the ensuing couple of weeks, we lost all of our money and I ended up working at a fish and chip shop for a year and worked at a nightclub to pay my mum back because she was guaranteur on the loan, the ten thousand dollar loan. Nothing taught me risk like losing money. But I'm glad that I did it then because both of us said at the time, look, when we're in our forties and fifties, ten thousand dollars won't matter that much to us, So now's the time to do it. It seemed like all the money in the world, But inflation and salary increases and property price increases over time diminishes that initial risk that you thought was a lot.
Yeah.
I noticed that I was in an auction on the weekend and there was a person bidding at the auction and they were bidding in you know, twos and three thousand dollars increments, and the other bidder was bidding an eighty thousand dollars increments. Well, you know, every time it went up two thousand dollars, they'd bid another eighty and an event, you know, after three bids they were knocked out. And I think that's a function of the fact that they were thinking about what the property is worth today, not realizing that, you know, at an average increase of about seven percent, which is what Australian property prices, particularly houses, have gone up by over the last fifteen years or so, that property is going to be worth twice as much in ten years time. So the extra eighty grand is not that much when you realize that, you know it's going to be worth a whole lot more So when you're young, you can you can afford to have that perspective. You can afford to think about ten years time, fifteen years time, twenty years time, and you can afford to take a few risks. They have to be measured. You don't want to bet the whole farm, although that's what I did. You know, I didn't to work to pay it off, but it taught me risk, which came in very, very handy for the rest of my investing career.
And that's exactly what we want to do here, is make sure that whatever you decide to do, you understand the risk involved. And and you know, I'm a very aggressive investor like yourself. You know, I'd say ninety five percent of my investment portfolio, including my super is predominantly shares. I'm in it for the long gain's aggressive risk.
Ye say, that's aggressive, but if you understand your risk, it's rational risk taking.
Exactly, which is an aggressive And this is the frustration as a financial planner. I actually think I invest very conservatively, and I think my investment portfolio is extremely boring, but from an acid point of view, and with my financial.
Planning license, all your money and that's.
It's technically deemed as high growth, which is you know, then considered highly volatile and high aggressive, even though I think it's incredibly boring. But you know, that's the difference and understanding my risk and understanding obviously the financial education piece and how valuable it is.
So then the younger generation, you know, generation Z my son who's invested inverted commas, invested in crypto, you know, he understands that risk. He knows, he's been through a couple of cycles, he's seen how far it can fall. He gets it. But he's still committed to it and he's that's what he's doing, so he knows the exposures that he's taking. It's when you don't understand the risk, that's when that's when bad things are going to happen that are unanticipated. Bad things can still happen, you know, to you, but you anticipate it and you ride through it because you know what the long term outcome is going to be. So for that younger generation gen Z, you know, they can take a few risks early. That's okay, all.
Right, all right, So that's I mean, and we may have to leave gen Z behind now because we have a number of other generations still to get through. But really we are talking essentially an acceptable level of risk, and the risk kind of varies depending on the age and the individual.
You know, it's not fair. I mean, it's really hard to talk about a generational investing because, as I said earlier, I've got three children, two adult children who are gen Z and one teen, and they're all completely different people, and they have different different appetites for risk and different attitudes to money. One as a saver, one is a spendthrift, and they're going to have different lives as a consequence of that, but that's who they are.
All right.
What we're going to do is, in a little bit, we're going to take a break. And after the break, I want to talk to you about the kind of the middle generations, because to me that kind of feels like where there's a fair bit of gray as to indeed as to the perhaps the right mix for those generations. But before we do that, we've talked about the young. Let's talk about the other end of the age spectrum, but also the other end of the risk spectrum. So we're talking about kind of older Australians, people who are either quite close to retirement or have already retired. And assuming then that if we when we're talking about young people, we are talking about the ability to take a few more risks, presumably that's not the case for this generation.
Yeah, and Canna, you and I were talking about this before we began recording the podcast. The conventional wisdom is that as you get older, you invest more conservatively, you invest more for income. But what that does is if you follow that recipe, you miss out on growth. And as you pointed out, you know, if you're retiring at sixty five today, you've got twenty and potentially thirty years of spending that you have to finance. It could be.
Really dangerous and detrimental to your financial will being to follow that Bonds fixed interest cash generic recommendation.
So I'll give you an example. Thirty years ago, my friends introduced me to red wine, and I have since. I've had a love of red wine for a very long time. And back thirty years ago when I was introduced, I bought a bottle of Penfoldst. Henri La. It was called a claret. Then the French preventedors from using We're not allowed to call it claret anymore. But it was fourteen dollars ninety nine a bottle, which in your mid twenties you're kind of going, oh, come, well, you know it's more than a six dollar pad tie, but you know it's it's fourteen dollars. That wine today is one hundred and fifty dollars, and in fifteen years time it will be three hundred and forty dollars for the same wine. Now, the point I'm making is, if you're retiring today and you're enjoying St. Honri A one hundred and fifty dollars a bottle, you've got to grow your money at the same rate that wine is increasing so that you can still afford to drink it in twenty years time or thirty years time or fifteen years time. So it's really important that you have growth in your portfolio. You have to have some growth. And if you deny yourself that growth, and what's going to happen is the income that you are generating, it's not going to grow. And consequently, the purchasing power of that income is actually going to start declining. So what you can afford to buy today, you won't be able to afford when you're in the lane eight years of your retirement.
And that's when we see people start to eat into their capital. You know, the superanneration portfolio starts to reduce because they having to sell off investments to help plug the holes in the budget and the living expenses. And once you start that speed at which the funds or investment portfolio significantly reduce.
Yeah, there's a balancing that goes on. You know, if you're in your nineties now and you've got twenty million dollars sitting aside and you're eating bread and water because you're just living off the income, you know, well, that doesn't that's crazy. You know, you can probably go on a holiday and you can spend some of that money that you've got there. You could spend some of your capital and you're going to be okay, depending on how committed you are to leaving something behind for others. But you're right. The biggest problem I see amongst people is not planning for being healthy and well for long enough. And that's something that needs to be funded, and it really can only be funded through growth. I mentioned earlier. Private credit. I think that and I'm plugging it because I think it's an emerging asset class of vital importance because it has lower volatility, less risk, but it also delivers a reasonably attractive return. So I think that's going to solve some problems for a lot of retirees.
Can I talk to you both about something that we have talked about in the past, and I think you both have a strategy along these lines, and you call it different things, but kind of you've got what you call your sleep well strategy sleep well yeah.
And nurse thy rhyme to send everyone off to sleep with for low.
It and the whole idea is about allowing for volatility during retirement. Can you just give us a quick kind of summary as to how this works on why it's important.
Well, my financial wisdom to people is as they approach retirement to try and have at least two years worth of living expenses set aside in cash. Now, the reason why I recommend that is is if you have a high growth portfolio that's predominantly you know, equity based or private equity, you have bought yourself up to two years for the market to recover. So if the share market, which naturally does experience, is a pullback, a correction of high levels of volatility, you're never backed into a corner where you have to start selling things down at.
A low price exactly, means less assets left over to.
Recover exactly, crystallizing those losses I do know, whatever.
So you don't want to be forced to sell it lows exactly.
And by having two years worth of living expenses in cash, you can actually just switch off the dividends, turn off the TV, unplug the computer screen, go on holiday if you want it, because you've got two years with the living expenses there. And history shows that on average takes about eight months for the market to recover. When we look at all you know historically, all the sort of call them crashes have happened previously, so that means you've got a six month buffer on top of that, it takes away that stress and that anxiety, and it means that you can even if you want to potentially reinvest those div ends whilst share prices are potentially discounted. So it just keeps you. It's safeguards your financial well being and still allows you to invest for the long run and not having to you know, follow that Herd mentality of when you get old and retirement, you've got to look at bonds of interest in cash and those those investment asset classes which I fear won't go the distance and won't provide those longevity benefits that we definitely need when you look at the life expectancy and retirement. So if your average retirement sixty five, life expectancies eighty eighty five male or female, that's call it fifteen twenty five years. Where the living expenses, that's a long period of time you've got to live off your investment portfolio or superannuation or asset base those fundsy to outlive us. So this allows you to be able to access those that investment classes but also have a controlled element of risk from a proactive level.
Yeah, look, I think actually what you're describing is really sensible, and I'm confident that having.
I feel really proud, thank you well.
Having liquidity short term liquidity is vital because what it does is it gives you something called optionality over cheap prices. So if you've got let's say you've got a couple of years of needs set aside in something that's attracting a reasonable yield but at the same times not exposed to volatility, then you can draw on that to add to your other buckets, to add to your other investments if the market does fall, and you can recover the loss much quicker if you're adding at the lows, So that makes really good sense. Another metaphor that I think is useful is the construction of a boat. So if you imagine that the hull of the boat, you need that hull to stay afloat, so you have a large proportion of your assets in this is for retirees and pre retirees. You have a large proportion of your assets in secure, safer, more stable assets, and the liquidity pool is in that building the hull of the boat to keep you afloat. Then you have an outboard engine that gets you moving, so you have some growth assets. They represent the outboard engine. And then if you really and not everyone has this appetite. We were talking about this earlier, that not everyone invests the same way and has the same risk appetite in the same generation. You know, there are some people who want a higher risk exposure, you know, they want something a little bit spicy and whatever that is. That's the turbo on the outboard engine, and it's in proportion. So the bulk of your assets are in these conservatives safe Admittedly, they can be high yielding, you know, they.
Can be safe boundaries.
Yeah, indeed, and again I bring up private credit. You know, that can be the bulk of that. That's your core. And then you've got a lesser exposure to growth that's your outboard engine, and an even smaller exposure to high growth and more speculative things that might just you know, might pay for a night out or might pay for a holiday or whatever if it comes off, and you don't mind if that money is lost, And that's the turbo on the outboard engine. The engine isn't dependent on that to keep you moving forward. Whether that's there or not, it doesn't matter. So that metaphor, I think is also a good one for frameworking how to prepare for retirement and how to invest during retirement.
I love it all.
Right.
Self interest is telling me that we need to move on. And it's self interest because I want to get to those middle generations. I want to get to the millennials and the gen X because I kind of fit into the slightly older end of the millennial generation and it is an area where there is well for me at least, a great deal of uncertainty as to what is the right approach. We're going to take a quick break and we will come back in a moment and get into millennials, gen X and what on earth we should be looking at. CANA. We are talking today about investing across generations, and we are joined in the studio by Roger Montgomery, who has done a fantastic job so far of taking us through the youngest generation and the older generations and what we should be looking at. Let's jump into the middle generation. So this is kind of millennials in the age range of say, kind of late twenties through to kind of early mid forties, so kind of twenty eight to forty three. That in that kind of range at gen X, which is mid forties, up until kind of late fifties.
Yeah, also fifty nine.
Yeah, And so it's a very large kind of range in there. There's a couple of days. But we are not talking about people in their first years of work anymore, and we are not necessarily talking people that are on the very cusp of retirement. We are talking about a big mass right in the middle. I'm in that mass. What is the right approach and this might be a question that's too broad, what is the right approach to make sure that your portfolio is set up the right way to actually achieve what you need those what you need to achieve for those age demographics.
Well, I'd like to invite myself back on the program to talk about something called the bucket strategy, which is a strategy that I wrote about a little while back. So we'll come back and talk about that one that answers that that question about how to approach investing and how to allocate to different asset classes, and I'll detail that a little bit more. But maybe if we could just take a step back and can I give you some shocking statistics about these age groups?
Oh dear, please do Yeah.
So seven percent of Generation X seven percent not seventy seven takes financial advice.
Funny you say that, Michael, do you ever follow my financial advice that you have free, unlimited access to.
On occasion I have been known to consider it.
I think the only advice you took was to invest in an air fryer.
It was very good advice.
I don't think that's an appreciating asset. I think if you pop that out on the nature strip, Council will come and take it away for zero. Well.
I certainly appreciated he did buy the Rolls Royce. It has changed our lives in terms of improving the efficiency of cooking and everything as it has made a difference. But the broader point, like seven seven percent.
Classic example, seven percent formally take financial advice. I'm sure there's many more that you know will take advice over a beer and a glass of wine at a barbecue. In terms of those taking formally taking financial advice, seven percent, you know the biggest block, how do you find a good one? You listen to this program. Obviously there's a very good one right here. The way people have asked me this question before, how do I find a financial advisor that's reputable? How do you know if you're not in the industry. You know, I've been in this industry my entire life since the day I left university. So for me, it's easy, it's you know, it's my narrative. But how does somebody who's not in the industry he can choose And the simplest way is, you know, there are governing bodies for financial advisors that hand out awards every year. They are awarded financial advisors. And my hope is that people will look to awarded financial advisors to find the really good ones. Now that's a simple way. I don't know. I'm not going to name anyone. I don't you know, I'm not going to do that. But you know, you can Google and you can find awarded financial advisors or advisors like you that are willing to put their neck on the block, their head on the block, and publish what they're doing and what they think because you know, like me, I get called up about my previous calls. Hey, Roger, you said property was going to do X, and it's done. Why he said this, stock was going to say this and it did X. You know, we're taking risk all the time, and over thirty years for you to be able to do that consistently. You know, you have to have built up some kind of track record, so you want to find those advisors that have that track record.
I have to say I hate those awards. I've nominated quite a few times ago and actually said, please take me off right, I don't like it. I just I just don't. I feel really uncomfortable.
Sorry, But they're peer reviewed. Some of the better ones are peer reviewed. So your peers are saying, can I you're really good at what you do. You know. But if your peers are saying you're really good at what you do, then other people should know about that, and they should hear about that. You're doing them a disservice by not making your name known.
Yeah, it's also a good starting point, it feels as though, at least because there are a lot of names out there, and at least this is a point at which to start your research because you're not necessarily going to look at that list and go, yep, I'm going with that person. Kenny, you've talked about the point that when you are investigating potential financial planners, that you should actually interview them, that they should be Yeah, you have to do that. This is the starting point that this gives you some names to work with. I asked for a recommend that I talked to my accountant because I really trust my accountant. It gives us great kind of tax advice. And I said, do you know anyone that you have worked with over a long period of time that that you would recommend.
So, Michael, I like to think about frameworks. So you know, when we're talking about the younger generation, the framework is, you know, it's okay to take a few risks. They feel like big risks, but that's okay at your age as long as it doesn't destroy you emotionally. When we talked about older generations, you know, the framework was. You talked about one framework, which was making sure you've got two years a sign. Mine was the boat construction idea. You know, the framework for finding a financial planner start with an awarded list and then go and interview some of them.
And I have to say, from my point of view, when I talk to other financial planners, I love hearing what other financial planners do in their personal lives.
Indeed, because I am.
Never going to take financial advice from a financial plan that doesn't much the beat of their own drum and follow us own wisdom.
Well, they do say plumber's pipes are always leaking.
Well, I didn't don't know about that because I feel like I've got my financial ducks lined up and I've always been passionate about you know about that. But you know, ask a ask a financial planet, like how do you invest?
What do you do?
Because they need to be the one that inspires you, motivates you, empowers you for a long period of time and for three times which are tough and challenging and you're exhausted and you just want to throw the budget out the window. You need that fincial plan goes. Yeah, I get it. It's tough, it's hard, it's frustrating. There are setbacks, but hanging that keep going because I'm doing this too, and I'm going to hold your hand and you know, use the analogy of a swimming coach can't do the lapse for you, but they will walk up and down. Yeah, there are long in the morning and train. Yeah.
The other thing that you know, and this has just come to me is, as you've spoken, Warren Buffett and the late Charlie Munger had a very pithy quote about seeking advice and it's worth remembering. I think they said Wall Street is and they were obviously relating to the US markets. They said, Wall Street is the only place in the world where people who drive rolls Royce's take their advice from people who catch the subway.
Yeah.
You know, you talked about people eating their own cooking, and it's really important that they've become successful from investing the way they're advising you to invest. You know that that's a sensible framework as well. I think that's really smart.
You need someone to tell you it's going to be worth it, because it is.
Yeah, back to me, I'm sorry the listeners. Back to the older millennials, and I'm speaking on behalf of them. Where on earth do we start?
Yeah?
Okay, so here's here's more interesting stats. Very quickly, eighteen percent of gen X have at least one residential investment property. Only eighteen percent really yep, eighteen percent. Forty eight percent of gen X worried about running out of money during retirement, thirty percent are worried they'll never have enough savings to retire, and three quarters seventy five percent think that the high level of government debt means that the government won't be able to fund our retirement. Now I think gen X, and I'm a gen X, you're a late gen Why. I think we've swallowed a message hook line and sinker. We have been told that we have to fund our own retirement. It's a relatively new concept, right, and it all started in nineteen ninety two, right with the advent of superannuation, which was only three or four percent at the time. But we have now swallowed hook line and sinker that we're responsible for our own retirement, and the government is going yay, we're no longer responsible. We've convinced everyone they're responsible. And the problem that we're going to face, I think, and this is a big concern for me, is that for my generation and the generations that come behind me. I'm fifty three years old, so I'm in the middle, the upper end of the middle of gen X. I actually think that government debt and really mismanaging the fiscal budget. The level of debt is going to get to a point where it is so large because the population of working Australians is so much lower than the population of retired Australians, the responsibility of the government is going to be too onerous and consequently they'll dip into retirement savings, they will use superannuation as a source of long term funding, and they will prescribe that part of my SUPER has to be invested in this project that the government's going to do. And that's not legislation that exists today. But if you look at the chronology of legislative changes over time, superannuation was invented by baby boomers for baby boomers and the generations that come after them.
Well, bad luck for you.
This is controversial, highly controversial, highly unconventional. But I do believe that I will have to work longer before I can access my SUPER. I will not be able to access as much of it as generations before me as quickly as they have been able to. And there will be all sorts of rule changes and legislative changes that make sure that that pull of money is accessible by government and less accessible by me.
And what used to fund kind of major infrastructure things that I don't know building.
And you know what, you can't prove that I'm wrong right now, and I can't prove that I'm right. It will take fifteen or twenty years and will come back and review it.
Then I actually agree with a lot of what you just said, and I have thought I've had the same suspicion and concern to a certain about eighty percent of what you've just said.
So the consequence of that is that I don't think it's such a bad thing to have some money accumulating outside of SUPER. I know the advice for Generation X and Generation wise to maximize your contribution to SUPER, and that's fair. There's merit with the way legislation is constructed today, you should be maximizing your contribution to SUPER. But what that advice doesn't take into account is what the legislation is going to look like in fifteen or twenty years time, and how it might change. And knowing that it might change, and I believe that it could change, I think there's also merit. And this is all I'm saying. There's merit in building some assets outside of SUPER as well.
It's insurance policy, indeed, because otherwise it does feel very unfair, doesn't it that you would be making long term decisions for your financial future based on what is the situation now? But I suppose there is.
There is If you're the youngest gen Y today, you're not retiring for thirty five years based on current legislation. Do you think the legislation in thirty five years is going to be the same as it is today. I suspect not.
Yeah, a lot cospect.
Successive governments will have made some changes.
So okay, So we're talking then about taking a fairly cautious of you in a way.
It's a fied approach. So I want you to you know, if your gen X and gen Y, you should be definitely putting a large you know, I talk about paying yourself. I tell my kids make sure you pay yourself first. So when you buy something, you're paying Apple. You know, when you're paying Netflix, you're paying the pub owner for the beer, you're paying them. Don't pay them first, pay yourself first. And you know every age group should be doing this. You put some money aside that secures your future first, and then spend the rest. But put money aside and build your assets. And all I'm saying, Michael, is I think there's merit in maximizing super but also maximizing what's outside of super.
Okay, And so to deal with one of those stats, the very very low number of people that are actually getting financial advice, it's the easiest way to kind of clear up what is what still feels to me like a bit of a gray area for these middle generations where you just there this question mark over how aggressive should I be investing, how much risk should I be taking on at the moment when I'm kind of in this in the middle where I'm not You guys, it's likely you've.
Got a mortgage. You know, a third of households in Australia have a mortgage, a third don't, a third own their property, and a third don't own a property and don't have a mortgage. The majority of that third that have a mortgage are in the two generations you're talking about. Sorry I interrupted, You.
Know, you're absolutely right, And there was there was some data to back that up in the last couple of weeks that just showed just how big the mortgages are, particularly in that in the older millennial age range, that this is the this is the generation that is most weighed down by kind of mortgage debt as a percentage of income, et cetera.
And part of the reason is because we had children later than our parents. You know, if you've got a baby boom a parent they had they had you in their twenties. You know, they were in their early twenties to mid twenties. I was born to a twenty two year old mum, and you know that's that's just not considered generally.
Now.
You know, people are having kids in their thirties now, and because they've had kids later, they're setting up their families later, they're getting mortgage starting their mortgages later. So they're going to be carrying those mortgages potentially into their retirement. And that's a very different prospect to the generations that came before them. So managing managing your assets, and managing your wealth has to be finally tuned, much more finely chuned than generations that came before us. Can I just say this about mortgages. One thing about mortgages. If your interest rate is say seven percent, and you're on the highest tax bracket, then your pre tax dollars that you have to your pre tax return, the pretax equivalent return that you need is circle twelve to thirteen percent. So unless you know of an investment there's going to get you a better than thirteen percent return, you should pay the mortgage off.
Oh wow, right, because your.
Pre tax return is so high that is a guaranteed return. By the way, no other returns are guaranteed. Paying off your mortgage guarantees you, if you're on the highest tax break a twelve to thirteen percent return on your money by paying off that mortgage. If it's a seven percent interest rate, so you should be paying off the mortgage. Get that done. That's a guaranteed return.
Non deductible debt. That's what I say. And then you can if you wanted to factor in a cycling strategy.
Okay, well you can talk about that. I don't even heard of that.
Oh well, we need to chat. But so in essence, what you're saying is because of the longevity issue, because of the potential risk of legislative changes to superannuation, because of medical technology and the way we're running our lives later and that having children takeing out a mortgage later in life, we really need to invest, as you say, with a focus on the long run, regardless of what generation we technically belong to. And obviously we need to take into consideration our individual needs. You know what our value system is and what where we sit with risk and how comfortable do you feel. But but the end of the big picture is is we need to be investing for the long m when it comes to picking our underlying.
Yes, there's some you know this episode that we're recording today, you know, we're not going to get into the steps for building a property portfolio or the steps to building a share portfolio. You know, building up your equity is the property prices rise and reducing your debt. But you know that's we haven't got time for doing all of that. But what I will say is, you know, the one bit of advice that I saw on reels on Instagram reels that did make sense was early in a mortgage, if you can make big lump some payments. You know, if you come into extra money, you can knock off more than the minimum that is going to shorten that is going to shorten that mortgage. That's going to bring down your debt much faster. And as property prices increase, that allows you and unpresum that's what you meant by debt recycling, that allows you to reborrow and then buy other growth assets.
Absolutely.
Okay, So really we're talking some of the key principles here for these generations are diversification. It is about being mindful of your superannuation and acknowledging that that is still an enormous kind of asset and the important of making the most of that and getting some advice if you need to in terms of kind of how to make the most of that, but also consider building your wealth outside of superannuations.
And if we can take one step before that, or take into consideration a step before that, and that is sit down and work out what you know, what are you good at, stick to what you're good at, and if you need to invest in asset classes that you don't know much about or you don't aren't good at, then you are one of the ninety three percent of gen X that isn't getting advice, and you should go and get some advice. So, for example, you might sit down and you say, you know what, I really like the idea of building a property portfolio. You know, I'm going to be indifferent to the asset class today, or I really really like the idea of building a shit portfolio. Okay, we'll start your journey there. Get to know more about that, or find out find an advisor who's going to be able to help you with that that specific asset class that you're passionate about, but don't go into it boots and all into an asset class that you don't know anything about.
Can we bring it full circle because we have run out of time here and just go are there any a couple of key lessons that younger investors can learn from the older generations? What are some of the mistakes that you have seen made by investors in the past that then you touched on this earlier, But I think it's just such a great way to kind of look at it and go that when you made the point about how people have lost billions and billions of dollars, we need to learn from some of these mistakes that have been made.
Sure, I think I think your best opportunity for creating wealth is to start a business. That number one. So if you've got any not everyone has the predilection for entrepreneurialism, and if you don't, that's over. But just be mindful your greatest opportunity comes from starting a business. If you don't want to start a business, then you need to learn about investing and you need to start early. In both cases, the best advice I can give is start soon. Think of a snowball and think of a really long ski hill, you know, and just think about how that snowball hypothetically builds up as it rolls down. There was a book written about Warren Buffett, one of the most famous books about Warren Buffett, and it's called Snowball, and the idea, you know, the metaphor is the snowball rolling down the hill and accumulating wealth the longer it runs. So start your snowball early, and because you've got a really long runway, it's going to be a very big snowball at the end. The other piece of advice that I would give, and I think this is really important. When you're young, you don't think long term. You can't think long term because you haven't been around long term. One of the things that helped me was having children. Was really interesting. When I had my first son, I was twenty twenty eight or twenty nine, and he gave me perspective because I realized, my gosh, one day, this little, tiny, gorgeous ball of flesh and blood and skin, he is going to be twenty one. He's now twenty three, you know, And that time went in a flash and it gave me perspective. And I think when you're young, you don't have that perspective. You don't think you're ever going to be old. Trust me, you will, and so start early. You know, invest for the future. You might not think it's relevant today, but get started because it'll come whether you like it or not.
Roger, there are so many individual kind of nuggets that you have shared with us today. It's probably one of those podcasts that will have to go back and listen to kind of two or three times in order to fully absorb it. Thank you so much for coming in today.
Always a pleasure. I wish we could talk for longer.
There's so much more I know, there's a lot, even more to unpack. The deeper we'd keep digging, the more we find.
That was Roger Montgomery, founder and chief investment officer at Montgomery Investment Management, a supporter of this podcast. Visit mont invest dot com for more information, or you can sign up for Roger's insights at Roger Montgomery dot com and don't forget to pick up a copy of his book as well. Value Able canor I know that that has become very popular in your house.
My three year old takes and well I am not allowed to take it back from her. She screams Blue murder.
She sounds like she's a savant. If she's reading that book at three, it.
Is upside down that she loves it.
That is quite incredible. All right, Kenna, How do we find you if we want more information?
Best place to get in contact with me is on Instagram at Trugu Mama.
Tv and you can hear me every day with Sean Aylmer on Fear and Greed, Australia's best business podcast. Thank you very much for listening to How Today. Afford that remember to hit follow on the podcast and the very best thing that you can do is tell somebody else or Betty yet send them this episode and they can also benefit from all of the wisdom that we've had today. Thank you very much for your company. Join us again next week.
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