Barefoot Investor: Super satisfaction in a life worth saving for

A MUM with a 21-year-old stepson has a plan and a migraine when it comes to his finances. But here’s what the Barefoot Investor suggests he should do if he wants to become rich.

WHEN a mum is planning her 21-year-old stepson’s life (and finances) the Barefoot Investor is a little freaked out. But he does have some tips to help him get started.

MAY ASKS: I need help to do a “full life” money plan for my 21-year-old stepson — and I am getting migraines!

Here is how I picture it: he puts 12.5 per cent of his wage into super, gets married at 25, has a good job, takes out a 30-year mortgage, and has two kids (reports show that having two kids at private school costs $800,000 by the end of year 12!).

He then retires at 67.5 years old and has a “reasonable life quality” of $42,500 income a year, with around $500,000 saved in super.

Is all this possible? Can you help?

You’re never going to convince a 21-year-old guy that he’ll one day be 67.5 years old.

BAREFOOT REPLIES: I just read your question, and I’ve got to be honest … you’re kind of freaking me out right now.

Your heart is obviously in the right place, but you may as well be lecturing him about the danger of venereal diseases.

First, you’re never going to convince a 21-year-old guy that he’ll one day be 67.5 years old.

Case in point: a young Mick Jagger once said, “I’d rather be dead than singing Satisfaction when I’m 45”.

Second, no 21-year-old bloke wants to have, as you put it, “a reasonable life quality”.

He wants Satisfaction, goddamnit!

Here’s what I’d say to him:

Most things don’t matter that much, but there are a couple of things that really do:

Make sure you do well-paid work that you enjoy, and become obsessed with saving money.

The Barefoot Investor Scott Pape. Picture: Supplied

Let’s deal with work first. Fact is, you’re going to spend 90,000 hours of your life at work. Add in sleeping, Facebook and sitting on the can, and there’s not much time left over.

You’ll spend more time at work than you do with your family and friends. So you better make sure you enjoy it, and you better make sure you get paid well.

And saving: if you want to stay poor, do what everyone else does and focus on spending your money.

If you want to become wealthy, focus on saving and investing your money. When you have savings, you’ve got freedom. You call the shots. You’re in control.

Then give him a copy of my book, encourage him to work hard, and have him follow the steps.

He’s got this.

TAKING A BUFFETTING

TINA ASKS: I have been taking you out for date nights (well, your book) and I am up to Date Night Number Two, which is getting my super sorted.

There’s a problem, though.

My ex-boyfriend has said I should not follow your recommendation on the Hostplus Indexed Balanced Fund.

He says that it is not diversified enough, that low fees are only one factor when deciding on super, and that there are better-performing funds available. My super is currently with Asgard. What are your thoughts?

BAREFOOT REPLIES: I actually swiped my super fund strategy from legendary investor Warren Buffett.

Let me explain:

When Buffett dies, he’s investing his entire estate on behalf of his wife as follows: 10 per cent into short-term government bonds, and 90 per cent into an ultra low-cost S & P 500 index fund, which automatically tracks the 500 largest companies in America. That’s it!

Your ex-boyfriend’s claim that the Index Balanced Fund “is not diversified enough” is absurd.

The fund invests as follows:

35 per cent in 200 of the largest businesses in Australia — like the banks, BHP, Rio, Telstra, Woolies and CSL.

40 per cent in 1582 of the world’s largest businesses — like Apple, Facebook, Google, Nike and Nestlé (and the portfolio is partly hedged to protect against currency fluctuations).

15 per cent in fixed interest.

10 per cent is in cash.

That’s better diversification than Mrs Buffett will get!

Here’s you: “Yeah, but what about property?”

Here’s me: “Most Aussies have the bulk of their wealth tied up in very expensive residential property, so it makes sense to balance that out by investing in local and global businesses.”

Here’s you: “Yeah, but low fees aren’t everything. I could get better returns …”

Here’s me: “The Hostplus Indexed Balanced Fund is the lowest cost super fund in the country, and one of the lowest cost funds on Earth. It’s pretty simple: the less fund managers take, the more you make.”

Here’s you: “Yeah, but what about other funds that get superior returns?”

Here’s Buffett: “I believe the long-term results from (investing in low-cost index funds) will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers.”

Warren Buffett, chairman and chief executive of Berkshire Hathaway.

HERE’S A CRACKER

TIM ASKS: I wanted to get your thoughts on the Acorns app and whether using this would be just as good as, if not better than, using a “Smile” saver account for a Mojo.

I want to see my money grow quickly but am unsure whether using Acorns is relatively risk-free and worth it?

BAREFOOT REPLIES: Hold your nuts, Timbo, because I’m about to whack you in the acorns.

You say you want to “grow your money quickly”, but it needs to be “relatively risk free”?

Whack! Whack!

I’ve spoken about the Acorns app before.

Basically, it’s the investment equivalent of putting training wheels on a bike (with a bell and pretty streamers on the handlebars).

The app scoops up small amounts of money from your account and then invests it into exchange traded share funds (ETFs) — and charges an extra layer of fees to boot.

It’s a bit of a gimmick, and I wouldn’t advise committing serious dough to it, and I certainly wouldn’t be keeping my short-term savings in the share market.

In other words, the Acorns app is a Frown account, not a Smile account.

WHEN HOUSE IS NOT A HOME

RIGHT now. Parliament House reminds  me of a seedy share house I lived in when I was at uni: no one could quite work out who lived there, or where they came from, and everyone was busy screwing each other.

Poor, old Malcolm. With the present state of his house it’s understandable he hasn’t been able to get his housemates together to deliver on the “First Home Super Saver Scheme”.

You remember that, don’t you? It was announced by Treasurer Scott Morrison on Budget night back in May as a $250 million “air kiss” to housing affordability.

As ScoMo crowed on the night, “Most first-home savers will be able to accelerate their savings
by at least 30 per cent”.

And then everything went quiet. Yet I’ve been dutifully following it up like Pauline chasing a burqa — in July, I called Treasury and asked what the hell was going on.

It was clear to me the government needed a legislative laxative — the scheme was having trouble being passed into law.

“Not correct”, a spokesman for the Treasurer said, before adamantly adding: “The First Home Super Saver Scheme will be passed in the spring session of parliament.”

Well, on my farm, spring has sprung, and my lambs have been sold at market.

It’s baa-baa for them, and if they can’t get it passed soon, it’ll be baa-baa for the First Home Super Saver Scheme. So what can you do? Start saving for a deposit on your own.

And the best way to do this is to set up your Barefoot money buckets, including a “Fire Extinguisher” online saver account, and then start allocating 20 per cent (or more!) of your take-home salary towards getting your deposit.

Sure, it’s not as tax effective as what was on offer on Budget night, but you can start right now — instead of sitting like a lamb waiting for the grass to grow in Canberra. Chop, chop, ScoMo!

Tread Your Own Path!

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

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