Barefoot Investor: Lessons learned in tough times last a lifetime
It looks like we may be heading into a deep recession but that’s no reason to start raiding your super and all the more reason to start preparing immediately. None of us knows what’s ahead but the best we can be is ready, writes the Barefoot Investor.
Barefoot Investor
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I have never seen anything like it. Last week my inbox was overflowing, and this email, which l received from reader named James, summed up the reaction to my column on 93-year old gardening guru Peter Cundall.
“Thanks for writing about Peter Cundall. I already admired him but now I hold him in awe. Amazing bloke and national treasure. Your best column ever in my humble opinion.”
As I’ve been out on the farm this week toiling away with the kids, I’ve been thinking a lot about Peter.
Partly because he’s emailed me most days with advice on our orchard.
He’s convinced us to go nutty — we’re planting a lot of chestnut trees!
Yet more so because all the things I and many people respect about him — his resilience, his stoicism, his kindness — all of which were forged in the depths of the Depression.
Okay, so maybe we don’t have it anywhere near as tough as Peter did.
Yet we are living through a moment in history right now — and our kids are watching us.
Which means that now is a golden chance to teach your kids lessons that will last them a lifetime.
That doesn’t mean you need to scare them or lecture them.
Rather, use this uncertain time to explain to them about how risky the world can be and the importance of working hard, the safety of saving, and the dangers of debt.
The silent generation — people like Peter who were raised in war and depression — came out stronger because of it.
Now, I’ll get to your questions in a moment, but first, keeping with the family theme — next Sunday is Mother’s Day!
It creeps up on you, right?
Well, there’s one person who doesn’t forget: your mum (and possibly the wife of your children).
So whip out your phone and set a reminder to send her some flowers (see, this column just paid for itself!).
Also, for next week’s column I’m looking for your best Barefoot mum stories.
So if you have a great story about your mum — how she’s raised you, the sacrifices she has made, how she’s been a true Barefooter (or how you’ve helped her become one) — I want to hear it.
Head over to: barefootinvestor.com/askbarefoot/
Everyone whose stories I publish next week will receive a signed copy of The Barefoot Investor for Families.
Now, let’s get on to your questions.
Tread Your Own Path!
STARTING IN THE SHARE MARKET … BY RAIDING MY SUPER
JANE ASKS: Now that we can take money out of our super, can I run a plan past you? I am thinking of taking out the maximum $20,000 from my super and using it to buy a mixed bag of shares, since the market has fallen so much. I am 34, so there is plenty of time for it to compound. The value would grow like it was still in super but without all the fees and charges, right?
BAREFOOT REPLIES: No, No, No, No, No, No, No … just freaking NO.
Jane, you’re doing it all wrong.
Your question is taking me to a bad place where I haven’t been for a good 12 months.
Seriously, I knew I was in trouble when my mum rang me last year and scolded me: “Scott, I think you’re being a little rude to your questioners lately.”
True story.
Since then I’ve been chanting “serenity now” affirmations when people ask me what I politely refer to as “Bob Katter questions”.
But you’ve really tipped me off.
I feel like I’m John McEnroe on a line call: “You cannot be serious!”
You want to take money out of your super, where it’s taxed at an incredibly low rate. Where it’s protected from bankruptcy.
Where you’ll eventually retire and pay zero tax.
And you want to put that money into shares in your own name?
Where you’ll be taxed at a higher rate.
Where you’ll likely pay higher fees.
Where you’ll probably one day scratch the itch and sell them, then “invest” the money in a banana lounge from Harvey Norman because it’s on sale.
No, Jane. Just no.
Here’s what I want you to do: Do not touch your super. Fact is, you are already investing in shares — via your super!
If you’re going to do anything, just make sure you choose a super fund with ultra-low fees.
And that’s the same advice I give my beautiful mum.
IF WE’RE HEADING INTO A DEPRESSION, DO THIS
KEVIN ASKS: I have been reading people saying that all this stimulus (especially in the US, where the Federal Reserve is printing trillions of dollars) will soon lead to massive inflation and then recession. Even the world’s biggest hedge fund manager, Ray Dalio, says we are heading for a depression. And I have to say I agree. I am a long-time reader and have heard you say before that your advice does not change. But surely it must now, given this unprecedented moment in economic history?
BAREFOOT REPLIES: I agree, it does look like we’re heading into a very deep recession.
Yet will that lead to a full-blown economic depression?
Honestly, I have no idea.
That’s because the global economy is far too complex for black-and-white economic predictions.
Personally, I cringe when I hear the word “depression” bandied about.
Why? Because it’s a very emotive, click-baity word that’s not particularly useful.
After all, if you’re a small-business owner who was already struggling to stay afloat before we went into lockdown, the next few years could feel like a depression to you.
On the other hand, if you’re cashed up and ready to buy, a market downturn can be a life-changing experience.
And that’s the rub: it’s your financial situation that matters most, not some arbitrary classification that an economic historian may, years from now, use to describe this economic period.
So what’s my advice?
Back yourself, son! You seem convinced that we are heading into a depression, so start preparing for it immediately. Begin to aggressively pay off your debts, squirrel away a sizeable savings buffer and start looking for extra ways to earn dough.
Or, in other words, start following and applying the Barefoot Steps.
A HOLE IN MY HEART
MANDY ASKS: Last March I came across your book. Since then, it has completely changed how my husband and I use our money. We have paid off $8000 on a credit card, and this year our loan will get hammered using our “Fire Extinguisher” account.
But the biggest help was earlier this year. My cousin’s two-year-old daughter relapsed with leukaemia, with no more options left for treatment. My cousin and I are very close but he lives in Ireland. With our Mojo, we were able to drop everything and be there for his daughter’s final weeks. I was able to support my cousin and his wife through the hardest time of their lives. With tears in my eyes and a huge a hole in my heart, I thank you for giving me that gift.
BAREFOOT REPLIES: That is a beautifully written, emotional response — and it shows exactly why people should get things together.
None of us know what’s going to happen next. And to be in the position where you could do what you did is one of life’s great gifts.
The events that have already happened this year — fires, floods and pandemics — have taught me that right now is a really good time to have a Mojo buffer. You never know when you’ll need it.
The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins)RRP $29.99
If you have a money question, go to barefootinvestor.com and #askbarefoot
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.
Originally published as Barefoot Investor: Lessons learned in tough times last a lifetime