Tuesday, December 9, 2014

[Opinion] A rambling... what is the real point of investing your money?

If you ask Average Joe why you should invest in property or shares, they will tell that you should do it because their prices will increase over time. In my opinion, this belief is fundamentally wrong. Surely, we invest to replace income from working with income from investments.

Let me tell you what I mean... every month, quarter or however so often we should be buying shares (or any other investment) that generate a regular income. The first goal should be for your portfolio to generate one month's worth of your annual salary (or whatever amount you think you need to live off). Then after that aim for two months and then three months and so on. The end goal to be able to replace your annual salary with the income generated by your investments.

I think we become so fixated on the price of our investments and whether they are going up or down that we lose sight of the bigger picture. I propose forgetting about the price return of your portfolio (I can hear asset managers who focus on selling investment performance protesting). Rather focus on the income. Specifically, focus on your "Income Replacement Ratio".

Income Replacement Ratio = (Annual Investment Portfolio Income)/(Annual Salary)
If you aim to achieve an Income Replacement Ratio of 100% then you are in the pound seat. It is not something that can be done overnight either. It requires a few key ingredients:

  • Investing in companies that generate real (i.e. inflation beating) dividend growth (this is necessary as your annual salary will hopefully increase over time) 
  • Regular investments (invest at least monthly)
  • Start early (don't leave this until you are 10 years to retirement. And trust me if you get this investment thing right and have a bit of good fortune you will be retiring well before you are 65).
  • Patience and staying the course (don't get caught up with latest investment fads)
  • Stop stressing about the macro factors (who would have thought the oil price would be 40% lower than it was a couple of months ago. Invest through cycles)
I am sure I have left off a couple ingredients but I think you get the picture. Thanks for reading my ramblings...

[Bill Gates] Online, All Students Sit in the Front Row

One of my favourite websites is Udacity.com. It is an online learning website. I have said before that I believe this is the future of learning. Bill Gates recently wrote a blog post about online colleges in the US and the great work they are doing. They are making it more affordable and accessible for people to have access to higher education. Bill's post can be found here.

Sunday, December 7, 2014

Review: The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company

The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company
The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company by Steven Gary Blank

My rating: 4 of 5 stars

I am cheating a little here as there are three books in this edition and I have only read the first of the three. Having said that, from what I can tell the remaining two books are more specific than the first book which is a generalist's version of the Start-up Owner's Manual. Okay on to the review.

So the title sounds boring. No one really wants to read a manual. Having said that I am quite relieved that the book wasn't titled "10 Steps to Follow When Launching a StartUp which Will Mean You Will Never Fail" or "The Magic Formula for Startup Success". This book is anything but that. Now, I don't work for a startup but I learned quite a lot from reading the book. First of all, you have to do the hard yards. Blank calls it "getting out the building". The startup founders have to go out and test their business model. The idea of pivot also was intriguing. The idea of pivot sort revolves around: "Founders who succeed observe that something isn’t working in their current business model, orient themselves to the new facts, decide what part of their business model needs to change and then act decisively." (As an aside, in today's world with new skills readily available (think udacity.com) it has never been easier to perform a career pivot).

This is a great book. Anyone considering going down the startup road best read it.

View all my reviews

Thursday, December 4, 2014

[Bogle] Bogleheads and Other Things

The amateur investor loves to quote Warren Buffet. I believe John Bogle has offered more to the investment world than Buffet. I have read most of his books and am a great believer in what he has to say.

Bogle promotes conservative investing at the lowest possible cost. Contrary to what many people think: while he favours index funds, he does also believe in low cost conservative active funds (ala the Wellington Fund in the USA). I would recommend reading his books (click image for link to Goodreads):

The Clash of the Cultures: Investment vs. Speculation

Enough: True Measures of Money, Business, and Life

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

A website inspired by Bogle has also been set up. It is called Bogleheads. It worth checking out.