Barefoot Investor: Invest in your life, not just your bank account

Most of the things society has us chasing won’t mean a thing when we die. One of the world’s greatest investors has revealed the secret to obtaining real wealth.

Let me tell you about one of the greatest investors you’ve never heard of.

His name is David Swensen.

Swensen was responsible for investing Yale University’s endowment (the money it uses to fund its education).

Over his career, he grew that pot from $US1bn ($1.28bn) … to a staggering $US31bn.

His returns were so impressive that Bloomberg said, “there’s David Swensen, Warren Buffett … and everyone else”.

With his track record, Swensen could have become one of the richest men on Wall Street.

And, early in his career, Swensen had countless opportunities to quit managing money for Yale and start his own hedge fund. If he had, he would likely have become a billionaire many times over. Rich enough to own an island, a fleet of jets, and mansions all over the world.

Yet here’s the really strange thing about David Swensen:

He didn’t.

Instead, he continued working for relatively low pay (by Wall Street standards) managing money for Yale.

Unlike most Wall Street fund managers, who get their significance from the investment fees they skim off the top, Swensen was driven by the fact that his investment gains helped the institution change young people’s lives.

Even better: while other “masters of the universe” fund managers had plush offices and chauffeurs … Swensen helped out the university by turning up in front of a chalkboard to teach an investing course to students.

Tragically, Swensen died last week, way too early at the age of 67.

There was a lot written about his investing genius. (Interestingly, Swensen, like Buffett, was a vocal critic of expensive actively managed fund managers and argued that most people, including large pension and super funds, should invest in index funds.)

Yet there has been much more written about what author David Brooks calls his “eulogy virtues”: The time and effort he put into mentoring the young investors he worked with. The encouraging letters he sent to his students. And the fact that he was still teaching that investing class just a few days before his death.

Now, you don’t have to be an investment genius to gain the secret to Swensen’s true wealth. Simply put down your phone and spend a few minutes thinking about your own funeral.

Many people (men in particular) spend much of their lives pursuing things that look impressive on their resume:

Fancy titles. Money. Power. Respect. Status trophies.

Yet the person delivering your eulogy won’t talk about the car you drive, the title you attained, the balance of your bank account … or any of the other things that society has you chasing.

Instead, they’ll talk about the kind things you did. The courage you showed. The difference you made.

David Swensen understood this. And his legacy lives on in the hundreds of students whose lives he changed.

Rest in peace, David Swensen.

Tread Your Own Path!

If you snap up a fixed-term home loan, read the fine print.

FIXED OR VARIABLE?

Hi Scott,

I am wondering, given current home loan interest rates, whether you still recommend a variable home loan with no frills and extras. Fixed-term home loan now rates are as low as 1.9 per cent, so they are very tempting!

Erin

Hi Erin,

Yes, they’re low right now.

However, the banks have begun hiking their fixed term rates, especially their four- and five-year fixed-term loans.

Why? Well, I guess they’re picking up what the Reserve Bank is putting down: money may be dirt cheap now, but with the economy on steroids it’s unlikely to be in four or five years’ time.

So should you snap up a fixed-term rate? Well, it’s a personal choice but, if you do, read the fine print: they’re generally not as flexible as variable loans and it may restrict how much you can repay. For most homeowners, getting the lowest variable home loan rate you can find, and paying it off as quickly as you can, still makes sense.

FOLLOWING MY DREAM

Hi Scott,

I am trying to follow my dream of buying my own home before I turn 30, even though I am on an average wage. But my accountant recently put me in touch with his property advisory team and they are adamant I should buy an investment property (with their help) as a way to pay less tax. It has got to a point where I have started ignoring their calls as they just will not listen to me. Am I being too stubborn or am I doing the right thing?

Tash

Hi Tash,

Interesting predicament.

Here’s what I’d email your accountant (feel free to use it):

Dear Mr Accountant,

I’m breaking up with you and your firm, effectively immediately.

It’s not me, it’s you … and your salesmen mates who keep hassling me.

Seriously, they remind me of a desperado date I’ve been on before (I know they only want one thing, and they won’t take “no” for an answer).

It’s all a little creepy and, dude, I just don’t need that from my bean-counter.

Regards, Tash

If you have an uncomplicated set-up (pay-as-you-go job, no investment properties), you should be able to complete your tax return with myTax through myGov. And if you need to maximise your deductions, check out the ATO’s myDeductions app.

Put the money you save towards your house deposit, not these clowns.

Most employers ask five key questions.

THIS IS HOW TO GET A JOB

Hi Scott,

Something to brighten your day. My almost 15-year-old recently applied for (and got) her first job at a local ice-cream store. She based her application on your example in The Barefoot Investor for Families. Now my 11-year-old believes she should also be allowed to get a job at the ice-cream store. She even wrote an application letter following your book’s example. Let me quote you a few lines: “I want to work at Gelatissimo because I love ice-cream, and I want to bring the joy of sweetness to others. I am able to work at any time, any day, any hour. My biggest strength in the ice-cream business is eating ice cream.” This gave us a good laugh and we love her enthusiasm, though we won’t be letting her loose on the workforce just yet.

God bless, Janice

Hi Janice

Congratulations on your teen getting her first job!

As for your 11-year-old …

She had me right up until the part where she hinted that she’d be getting high on the boss’s supply.

Other than that … I’d hire her!

No brain-freeze for that girl … she’s not going to have a problem getting a job when she gets a bit older.

Now, for those of you following along at home, let me explain what Janice is talking about.

Most employers – regardless of whether its Macca’s, KFC or an ice-cream store – essentially ask these five questions:

Why do you want to work for us?

When can you work?

Why should I employ you?

Are you going to work hard?

Who can vouch for you?

So in my book I boiled down the answers to these five questions into a double-page, plug-and-play resume template teens can complete in one evening. However, it’s more than just a resume, because in the process of putting it together teens get two benefits:

First, they get a pre-written “cheat sheet” they can take along and use for their interview.

Second – and more importantly – they learn empowering stories that will change the way they see themselves.

It’s an absolute killer … just not for 11-year-olds!

Got a money question or a story to share? Got to barefootinvestor.com and #askbarefoot

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need

(HarperCollins) RRP $29.99

Originally published as Barefoot Investor: Invest in your life, not just your bank account