Barefoot Investor: Being filthy rich won’t buy you higher investment returns

You’ve already made your fortune, but you want to invest. The key is to focus on simplifying your life, writes the Barefoot Investor.

Barefoot Investor Scott Pape.

In America, anyone can become president … and that’s the problem!”, quipped comedian George Carlin.

I don’t know about you, but I’m a little over the Punch and Judy show — watching two cranky old blokes beat each other up, with the last man standing becoming … the leader of the free world.

Are these two really the best the ‘greatest nation on earth’ has got?

Well, let me introduce you to another old bloke who might just restore your faith in the US of A.

His name is Chuck Feeney.

Chuck is 89 years old and lives with his wife in a small rented apartment in San Francisco.

He will die flat broke.

And yet Warren Buffett, Bill Gates and Oprah Winfrey call him their “hero”.

Chuck was born in the Great Depression and as a young man answered his call of duty.

It was during the war that he started a little side hustle, selling duty free booze to fellow US soldiers stationed in Europe.

When Chuck got back from the war he continued bootstrapping his little business, working night and day. And a few decades later he’d built it into the largest duty free shop empire in the world.

Here’s where the hero part comes in.

Chuck is the exact opposite of Donald Trump: he’s a real billionaire who is both humble and kind.

Question: What does a down-to-earth bloke who wears a $10 Casio watch, owns one pair of shoes and flies economy do with his wealth?

Answer: He decided to give it all away. Even better, he did it anonymously.

Yes, for decades Chuck secretly gave away his billions. And he’d have continued along that way, except that when he sold his business in 1996 a dispute with a business partner exposed him as one of the biggest philanthropists in history. Yet his story gets even better. After the news broke, he was invited to a secret billionaires’ dinner in New York City.

Oprah was there. So were Gates, Buffett and several other billionaires around the table.

Chuck spent the night telling his story and encouraging his fellow billionaires to follow his lead and “give away your money while you’re living … I’m sure you’ll like it”.

Over the course of that dinner, Chuck inspired Bill Gates and Warren Buffett to kick off their Giving Pledge, which so far has convinced 210 billionaires to commit to giving away at least half their net worth.

“He is my hero. He is Bill Gates’s hero. He should be everybody’s hero”, says Buffett.

Back to comedian George Carlin, who said: “When you’re born you get a ticket to the freak show. When you’re born in America, you get a front-row seat.”

Well, right now Uncle Sam is putting on a helluva freak show.

Yet, for all its faults, the US has an amazingly entrepreneurial culture.

No tall poppy syndrome. And when they make it big, they give big. 

Tread Your Own Path!

American philanthropist Chuck Feeney.

READERS WRITE

I’M RICH! I’M REALLY RICH!

JANICE WRITES: As a result of recently selling our (multi-generation) family business, my husband and I are now $34 million wealthier (after tax).

We have gone to see a firm that specialises in helping ultra-high net worth families like ours. The portfolio they have recommended is not open to the general public (it’s only for sophisticated private equity funds and the like).

There are multiple fees that add up to around 1 per cent, though they say they will have stronger returns than we could expect from the share market.

My husband thinks they sound great, but I am not sure. I told him I was writing to you for your opinion, and he laughed!

BAREFOOT REPLIES: Congratulations on the sale — that’s a life-changing amount of money!

And now for the bad news: being filthy rich won’t buy you higher investment returns.

Really.

A good example is Harvard University’s $42 billion endowment fund (built up over many years by donations from Harvard alumni).

Harvard has literally got some of the smartest people in the world managing their nest egg.

Over the years they’ve deployed high-octane trading strategies, invested in private equity deals, bought natural gas pipelines, even ventured into exotic investments like forests in Latin America.

They literally scour the earth to make money. And yet their returns have failed to match a no-frills index fund over one, three, five, 10, 15 and 20 years.

All that hard work and effort, all that stress, all the millions of dollars in fees, to end up with less than you’d have by simply buying a broadly diversified, set-and-forget index fund.

So what would I do in your situation?

Well, understand that my opinion is worth roughly what you’re paying for it (nothing).

Yet my thinking would be that you’ve already made your fortune.

So I’d focus on simplifying your life, not making it more complicated by paying an Adviser 1 per cent — which in your case amounts to $340,000 a year — to farm out your investments.

Instead, I’d think of your wealth like owning a farm: focus on harvesting dividends … you’ll earn close to $1 million a year.

And just like farming there will be good years and bad years (and there will be 2020!).

Yet over the long run there will be more good years than bad.

And if you never ‘sell the farm’, you and your loved ones can sit back and reap a harvest for generations to come. 

Buying a food van has risks.

ARE WE INSANE?

TAB WRITES: My partner and I have $30,000 saved up.

I have come across a promising opportunity to buy a juice and coffee trailer with an exclusive trade permit in a popular hiking and tourist spot.

Is it insane to relocate and spend the majority of our savings on a business instead of a home? I always wanted to work for myself, and it would be a great opportunity for my unemployed partner to run it.

And I would still keep my current part-time job for financial security at the start.

BAREFOOT REPLIES: Is it insane to spend the majority of your savings on a business instead of a home?

Well, I don’t think I’d do it, even though I do officially make ‘the world’s best smoothie’.

(Seriously, you can ask my kids. Every dad needs to be the world’s best at something, so I claimed it early on.)

Okay, so what’s your worst-case scenario?

Well, that you end up buying yourself a hospitality job with no access to super or guaranteed minimum wage.

And the best-case scenario?

That you’ve stumbled on a gold mine where hungry and thirsty hikers line up all day, and you earn a good return on the money you put into it.

So, is it a good deal?

Well, I can’t imagine that a coffee trailer would be very expensive, so it’s likely you’re paying a premium for the ‘exclusive trade permit’. 

So the first question I’d ask the seller would be: “How did you come up with your selling price?”

Then zip it, and listen to what they say.

Unless they can provide a track record of audited figures, they’re probably delivering you a sales spiel.

And if that’s the case, it’s time to wake up and smell the coffee.

I WANT A CREDIT CARD TOO!

LINDA WRITES: I wish to make a complaint. I am currently working through the ‘Domino Your Debts’ section of your book, and I feel I am missing out.

I have never had a credit card, and the only debt I currently have is my HECS-HELP loan.

I want to experience the joyful fulfilment of cutting up a credit card and burning a final statement but, alas, it is not to be.

Should I sign up for a credit card just so that I can cut it up?

BAREFOOT REPLIES: Yes, you should. But only for the rewards points. (Just kidding.)

You Got This!

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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.

If you have a money question, go to barefootinvestor.com and #askbarefoot

Originally published as Barefoot Investor: Being filthy rich won’t buy you higher investment returns