Not investing is just a recipe for ending up poor

Debt Man column – The West Australian (Business)

For: March 5, 2010.

Bruce Brammall

Debt Man

Bored? Like a long, wet week, we’re charging up on six months of nothingness. No growth from the market since mid-September last year.

It’s been up a bit, down a bit. The net result? Nothing. Ignoring dividends, the market’s done squat. Heck, add six months of dividends back in and you still get the sum total of a donut. The market first passed through 4600 and 4700 points last September and, damnit, it’s still sitting thereabouts.

Is the market recovering? Is this a pause before the PIGS – Portugal, Ireland, Greece and Spain – get contagious and spread their financial swine flu globally?

Will a bunch more rate rises kill off the recovery? Will property buyers finally succumb to them and abandon real estate like Rudd has abandoned Peter Garrett and the ship on his pink batts rescue package?

Is this just a plateau before another great surge?

The most important question is … who cares? You shouldn’t care.

Making major investment decisions according to a gut feeling about the strength of the market, or the economy, or consumer confidence, or what’s happening in China, is a recipe for procrastination.

You can always find an excuse not to invest. You can do it forever. That is, in fact, what most people do.

But that’s a recipe for ending up in the poorhouse. Journalist John Beveridge summed it up succinctly with his alarmingly titled book “Invest or Die”.

Most investors are not completely immersed in markets. They have lives, with careers and kids to spend time with and which they find far more enjoyable than reading stock pages. For them and most others, investing should be automatic, just like superannuation.

In fact, making investing more like superannuation would have a large number of benefits for the majority of investors.

Automatic investing takes out the emotion. It’d take out the guesswork. Take out the “hot tips” that don’t work. Take out the forgetfulness. Take out the fear. And remove procrastination.

By automatic investing, I mean investors making a regular defined investment toward longer-term goals – every month, quarter or every year – no matter what markets are doing. Yes, you’ll overpay for assets occasionally. But just as often, you’ll get an asset cheap.

Irregular investing were done like superannuation, here would be the benefits.

Not trying to time markets

You’re not trying to pick the bottom of markets to buy, or the top to sell. People who actually achieve this do so by luck and not very often. If you’re buying quality growth assets – shares and property – regularly, you will be getting the long-term average.

Removing choice

For employees, superannuation is not a choice. Your employer has to put in 9 per cent every month or quarter.

It’s reasonably widely accepted – a notable exception is Treasury Secretary Ken Henry – that 9 per cent won’t be enough. Most would agree that another 3-6 per cent would probably do the trick. So take away your own choice. Invest a similar amount of money on the same day of every month, every quarter or every year. And if you’re doing it regularly, you won’t miss the money.

Long-term investing

For the average working Australian (let’s say they’re about 40), super is a 25-year investment. That’s until they retire. They’ll live, on average, another 20 years after that. Super is therefore, usually, a 4-5 decade investment. More people need to understand that investing is about lifetimes and invest their non-super money in a similar fashion.

Something resembling a plan

Superannuation funds and the trustees that run them have to have investment strategies – the set of rules by which they invest. However, when most people charge off to invest, they do so without any sort of a plan. What are you trying to achieve? Is it capital growth, or an income stream to eventually replace your own income?

A proper structure

Superannuation is a low-tax structure. And any investing should include more than just passing thought to proper structures for tax and protection purposes. Few investors consider the implications of ownership structures on their investment before they buy.

In these respects, most investors should treat investing the same as they treat their super. Take the choice out of your hands and simply make it automatic.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au .