Chances are, at least one of those words will get you excited a little…
For me it’s all 4
I recently had a discussion on these 4, magical wealth-building ingredients, with fellow podcaster, Reece Reilly, who hosts a podcast and Youtube channel called KiwiTalkz.
Should you repay debt or invest at the same time?
Are interest rates going to keep falling?
Will property prices keep increasing
What is Bitcoin and why should you care?
Why should you hold Gold?
Whether it’s health, having children, politics or money – it’s so hard to learn about anything new without being uncomfortable every now and then with opposing schools of thought. This is especially true if you already have what you believe is a solid understanding in any subject matter. I guess it’s human nature- When you think you’ve figured something out with your learning, it’s easy to be quite rigid about your belief’s and views. Unfortunately, when it comes to investing in particular, I think that many everyday Kiwi’s shy away from learning more because of two reasons: Firstly, they may hear a view that contradicts what they already believe as true, and secondly, sometimes people conflate financial intelligence (ie within the reach of only the intellectually elite) with financial wisdom (something you and I have equal access to)
Take property as an example: I know some really successful property investors that buy property across the country as fast as they’re able to, then use the rental income from the tenants to pay down the debt over time – the idea is that you as an investor are leveraging off the ability of your tenants to reduce the debt for you. This strategy, if followed through to completion, creates a portfolio of cashflow positive properties producing passive income. On the other hand, I know many investors that choose to buy a smaller amount of property in the major city centres only – the thinking here is that the capital gains that can be grown over time, can eventually be harvested by selling off some property later on at time of retirement. Arguably, the end state arrived at is similar, but the journey is different. Is one method better than the other?
If you know me, you’ll know that I like debt, mortgage debt specifically. Not in and of itself of course, but debt used to acquire assets that grow in value at a rate which exceeds the servicing cost of that debt (it’s a mouthful I know!). How much debt is too much? Is it better to repay your mortgage first or invest? These are all questions that screeds of blogs have been written about as they are actually nothing more than common search terms. The more important questions to ask here is how can I use debt to build wealth? What should I invest in before repaying my mortgage? I had a belief around 12 years ago that interest rates would one day converge to zero – because I had this believe, I purchased as much property as I could stomach (I wish I did more, but it turns out I’m pretty cautious!). This is the difference between being financially intelligent and financially wise – not all of us can understand the nitty gritty of complex financial things, but we all have a gut feeling on certain matters.
Property doesn’t increase in value at the same rate as shares it’s true, but everyday investors can access debt to purchase property. We’ve seen that over a long enough time horizon property prices increase relentlessly. This fact, combined with a trend towards decreasing interest rates has been obvious to see for some time now, yet only those with significantly less to lose, are currently playing the game. If you’re currently sitting on equity in your home, and you have income which you believe will be stable going forward, now’s actually a great time to take ground, rather than shrink back.
Gold: Is it a hedge for inflation? Perhaps. I would consider it to be a hedge for something far more serious though, and the fact we’ve seen a significant move up in the price of this precious metal concerns me. Gold is a super fun thing to look into if you’ve ever wondered why people own it, but it’s easy to get lost in the weeds. Many mainstream money people shy away from Gold due to it’s speculative nature. What does it produce? What’s it good for? The same could be said with purchasing shares in airlines, cruise lines and tourism businesses at the moment too – it all relies on the ‘greater fool’ paying more than what you paid for it. So on one side, Gold is a bit silly. On the other side, it’s an alternative asset which has found it’s time to shine. You wouldn’t want to bet the house on this, but many think (including myself) that it could hit $5,000 USD/ounce within the next 3 years (currently just over $2,000 per ounce). This isn’t the value of the metal increasing though, it’s the value of our currency decreasing. That’s the scary part.
Bitcoin: Bitcoin baffles mainstream money people. Like Gold, it’s a store of wealth (albeit a digital version), and a medium of exchange (much easier than trading physical Gold for goods). It’s hard for everyday people to derive revenue by owning Gold though (it’s like a zero coupon bond) – with Bitcoin, you can. In short, Bitcoin is digital money for the digital world. It’s a new solution for an old problem and contrary to to the many bubble-puppets, it’s not going away. Instead of owning it and just sitting on it, you can actually lend out your Bitcoin now, to earn ‘interest’ from it. This one simple function is a sign that a new monetary system is potentially possible using crypto. Currently you have to still be a bit fringe and geeky to really understand this space, but this will change also with time. We haven’t really seen a need for it in NZ until now to be honest (and it’s really still just early stages). Like everything at the moment, there’s a sense that the train is slowing down just long enough for those with foresight to jump on.
So in this podcast with Reece, we’re taking a pragmatic look at some of big problems we need to solve if we’re going to be financially secure moving forward. It’s not enough to rely on old solutions to solve these age-old problems. There’s insights to be found in the ‘already’, but true wisdom lies in the ‘not yet’.