Ignore Advertising and Resist Greed
Monday 23 May, 2016
Leading investment advisor, Stephen Christie, offered Warrane students some investment advice when he spoke after formal dinner on Wednesday 13 April 2016. He advised them to do all they could to resist advertising and avoid greed.
The man who has worked in the investment and finance industry since 1995, and has provided financial advice as the Head of Private Wealth Management at Ord Minnett and Asset Allocation for Goldman Sachs JBWere Private, said it was all about getting the basics right. That meant not falling for the marketing message suggesting that success is all about possessions that can be financed through debt.
“Attitudes to money and finance have very serious consequences in life,” he said. “There is a big difference between being successful academically and successful in life.
“There is a material percentage of people who fail to get their life in order and as a result they have very difficult relationships and very difficult lives. Behind this - and it is pretty sad – can often be a failure to deal with money.”
Mr Christie said that he had seen many people’s lives become difficult because of a failure to deal with money and due to “imperfect attitudes to money”, particularly in their relationships with their spouses or partners.
“There are enormous pressures in society today - and they have always been there - as to what a successful life looks like,” he said. “All you have to do is turn on television or YouTube. You might see a Rolex advertisement. There will be a message like, successful men, sportsmen and so on wearing Rolex watches, driving racing cars and the message is that success is owning a Rolex.
“So there is enormous pressure out there that success means money. How does this become a problem for a large percentage of people? It becomes a problem because most people can’t afford to buy unlimited cars, Rolexes or ski overseas every year. They can’t afford to buy a massive house with a harbour view straight out of university.
“I have seen people like successful barristers, successful doctors, successful lawyers, who have done the hard yards and they figure they are entitled to this. And so they overspend. They spend more than they earn. How do you spend more than you earn? You borrow.”
Mr Christie said he knows couples who have separated because over a period of time they had suffered from inflated expectations, in particular about how the husband should provide for the family.
“These couples overspent and then had severe financial problems and pressures” he said.
“What it all comes back to is an unhealthy attitude to money - there is enormous pressure out there to spend more than you earn, to measure your success by the possessions you own - fancy watches, cars, holidays and so on. And young people like yourselves need to start thinking about these things now - the pressures to spend more than you earn.”
Among the people Mr Christie advises are people he says should be wealthy but are not. Many of them are under severe financial pressure because they have spent all their money.
“So be aware of the pressures you are under to spend in order to validate who you are,” he said. “They are real, they are pernicious and they are coming at you through marketing on the internet etcetera.
“Why does this tend to come about in relationships and marriages? It is because you love this person and you want to give them everything they should have...
“Debt is very easily available and debt is how people get into financial trouble.”
Mr Christie said he was not suggesting that people should never go into debt at all.
“If you borrow money for investment purposes and the return you get from the investments is higher than the cost of debt, it can be fantastic,” he said. “I am not talking about that sort of debt - you should borrow at times if you are in business or finance, to lever up a good idea and make money.
“What I am talking about is personal debt. Telling yourself: ‘I want a new car. I don’t have the discipline to save for it. You know what, I’ll borrow some money and buy that car.’ Or: ‘I don’t have enough money for that holiday, but I have got a credit card, so I’ll just whack it on the credit card.”
Mr Christie pointed out that if a person has a $2000 credit card debt at 18 percent and they pay it off with the minimum repayments, it would take almost 20 years to pay off the debt.
“Credit card debt is a shocker for young people, as are mobile phone bills, internet bills, holiday bills and so on,” he said.
“If you come from a wealthy family you might think it doesn’t matter. One or more members of the couples I mentioned earlier often came from well off families and sometimes if you do come from a very wealthy family, it is even worse – you can be detached from the reality of money.
“Spend less than you earn. I am an investment specialist and unless you spend less than you earn you are not going to have anything to invest.
“How do you spend less than you earn? Well, it sounds pretty obvious, but you need to know how much you earn and how much you spend. Some people delude themselves about how much they actually spend. “They will say they only spend fifty or sixty thousand dollars a year, but when you add up what they are spending it can be three hundred or four hundred thousand dollars. So you need to have a budget.
“When you buy something, it is not just money passing through your hands, it is your sweat and labour and time. Most people I know think nothing of buying a coffee each day - say $3.50 a day. Over a year that can add up. It takes almost a week of your time each year to pay for your daily coffee, once the tax man has had his cut, if you earn around $50,000 a year.
“If someone said: ‘I have a job for you. You work for a week and you don’t get paid anything, but you get a free daily coffee for a year, would you make that trade? You may or you may not, but you need to think about how you spend your money. You might not want to work for a week for that cup of coffee, you might want to work for the week for a holiday overseas.
“But most people don’t think about it, they just spend it and they can end up finding when they are fifty that they have nothing. Or, even worse, they find themselves in their early 30s and they are having children and they are under financial pressure. And there is nothing like financial pressure to lead to relationship problems.”
Mr Christie advised the students to learn how to save while young. For instance, when a pay rise comes along, save it.
“Start learning about money, saving, finance and investment - diversification, getting rich slowly, compound interest and things like that. Those people who can actually save a little more and start saving at a younger age, shouldn’t have a financial care in the world.”
People tended to think that the financial stress in Sydney was concentrated in the poorer areas, but the truth was that financial stress was also often located in aspirational areas like Sydney’s well-to-do North Shore, where debt levels are often higher.
“That is because there are all of these people with high incomes, but even higher expectations and it’s tough.”
After his talk, Mr Christie was asked about the most common mistake mum and dad investors make. He said it was thinking that there are people out there who believe the future is predictable.
“If you think there are professionals out there who can predict whether the stock market is going to go up or down, if you think that, there are a hell of a lot of charlatans who will tell you and sell you things on that basis.
“People chase high returns, but high returns involve high risks and you can lose a hell of a lot of money. High risk, high returns are often peddled by charlatans. Some people lose everything.
“The alternative is to diversify, invest across classes and wait patiently. Greed is fear and you don’t let fear rule your investments.
“And when the world is collapsing around you - as it will, as it did during the GFC and the tech wreck - you don’t sell.
“Your investments have to be as boring as your homework.”