10 Questions to ask yourself in building Financial Muscle.

What to invest in how? So much on offer- everyones an expert. Everyone is 'pushing' something. Perhaps Bitcoin? How about gold? Day trading options or currencies? Can’t go wrong with property. Nope, shares are the way! Bonds, bonds are safe. Only in my own business mate.

A 30 year career spent in the investment industry globally has taught me many things and many lessons.

Perhaps the greatest challenge and danger to overcome for investors I have observed, that they rarely consider, is their childhood and family background impacting the bias they have for or against particular investments. In this last of 4 articles on real wealth are 10 questions to ask yourself when choosing your investments.

Much more can be learnt from further insight to each of the questions below, extending well beyond a short article. Changing Life and Wealth conducts a limited number of retreats each year followed by a 1:1 coaching program to equip you with all you will need to DIY your own wealth with less risk, less cost and more enjoyment.

Question 1: Does the typical profile of its price movements (volatility) match my intended time frame?

• Getting access to when you’ll need it in the amount you’ll need is important. Not all investments are readily cashable or for a fair price at short notice, nor only within 2-3 years of having first invested. Costs to purchase as well can reduce the overall return if cashing out under 5 years. Examples include property syndication, property speculation, private equity and investing in unlisted businesses.

Question 2: Am I happy with just 1 or 2 investments (eggs all in one basket)

• Big bet concentration risk. Direct property investment, unless part of a syndicate, means you are betting on the national and local economy, the geographic location, the industry supporting it and so on. Get it wrong and your wealth takes a big hit. Allowing love for a particular ‘lumpy’ investment creates unnecessary increased risk.

• Extra skills, knowledge and time? If you do, be prepared to put a lot of extra effort in making the right call to purchase it, when and for how long to hold it; then finally when to sell. As all your wealth is riding on one or two investments, only an idiot short-cut’s this with only cursory or biased assessment. Pay for someone else to do this on your behalf, and this is never the agent, broker or promotor of it let alone friends and family.

Question 3: Why do I have the bias views on particular types of investments I have? How can I avoid this?

• Growing up. Books, conversations, actions around money. What did your parents do, discuss or avoid with money around you? What lessons did they teach you? How did they spend and invest money? Science has proven this creates huge bias in what we invest in and how.

• Education levels and interest in investment/money: Schools are crap at teaching anything to do with money. So what have you read and from who over the years? Newspapers and TV don’t cut it by the way.

• Good/Bad events in my past/close to me. Good outcomes and especially the bad ones, these also create bias. Often those experiencing poor outcomes are themselves to blame, but its unlikely you will have witnessed impartial open introspection in this regard. Same too for someone that was ‘shrewd’ but really it was dumb luck.

• How I measure previous returns. This is poorly done by so called professionals and advisers, and so great caution must be applied in looking at data-based factual past returns and having a methodical construct to take a balanced view on future prospects.

Question 4: Am I willing to separate bias and emotion to an investment?

• Human tendency for bias is hard wired. Behavioural Economics (BE) is where data meets science meets phycology meets anthropology. Reading the basics about BE will alert you to common typical mistakes our brains will lead us into when investing that you can easily avoid.

• Desire and ‘likes’ versus being hard headed at arms-length. Part of the above is human attachment. Property is perhaps the greatest one. It’s by no accident that individual investors are almost always invested in residential, in houses they like in areas they are close to; and its why institutional property investors are not! Familiar is not a good reason to invest.

Question 5: Where am I sourcing my information from? Confirmation bias’ and ‘echo chambers’.

With technology it’s even more likely we ‘like’ and tune into sources that confirm our existing view and beliefs. This is highly dangerous when investing. It won’t help you- it’s useless information. Seek out the view opposing. Learn why they have it. A pointer; Our Actions come from Attitudes that come from our Values that come from our Beliefs.

Question 6: How much sustainable growing cash payments will this investment likely produce and do I have to make further investments in it for it to continue to do so?

Historically it’s about fact and data. It either has or hasn’t. Does or doesn’t. The future is a judgement call based on all this plus a view on what will likely cause it to change or continue, and the probability of it doing so. You need to do this.

Question 7: Do I understand how this investment makes money?

• How does it produce earnings or a profit? Learn how and keep reading /asking until it sounds right.

• How does it grow? Again the same.

• What factors drive this? Again the same approach.

• What should I be looking for after I have invested? This helps answer when to hold and when to fold. Most fund managers will admit this is their greatest weakness, holding on when they should have sold. To do this well you need a set of rules set before you invest as a trigger for holding, buying more or indeed selling.

Question 8: Am I falling victim to the herd?

• Fads and gold-rushes. 300 years ago it was Tulips, then the South Seas, then railroads. Now Bitcoin. Enough said.

• The masses are rarely correct when investing. Making money involves strength and courage to not always follow everyone else. Having a clear set of rules and doing your homework with an adviser if need be.

• Feeling ok to be and do it different. Takes time but it will happen if you do the above. Read a book on Warren Buffet and Charlie Munger if you need a pepe talk to hang in there.

• Assume future returns will match previous ones. It’s what most do and it leads to carp outcomes. Don’t do it!

Question 9: Will I be able to cash part /all of it in when I want for the price I will need in the future?

• Do I need to and if so when? Plan for it and if it won’t work easily don’t invest in it or as much as you figured or the way you intended. E.g. invest in property if you choose it but perhaps via a managed fund.

• How do I prepare for this. A portfolio of many investments delivers the flex you’ll need. Thinking ahead for when you may need to spend capital is the other. Allocating your money into ‘buckets’ of Short term liquids, Long term income, and Growth for much later, is a tried and proven way.

Question 10: How much hands-on attention do I want to put into it?

• Managed v direct. De-risks, access 24/7 expertise, improves liquidity. All this versus hands-on approach.

• Time and skill. If say you are a builder that has subdivided land with upmarket and downmarket experience and good access to capital, then this can match the benefit of placing it with professional managers.

• Use of an adviser. Like car dealers around 90% are not up to the mark in terms of success, ability and knowledge. They aren’t bad people but they are part of a system that’s geared against you. Choose very carefully indeed as a good one will make a massive difference over time. Pay well for it.

• Access. Investing in the best opportunities in technology is unlikely to be in Australia or any small country. Utlising managed funds and there new off-spring managed accounts can be a ideal way to get the opportunities you should have. Offshore also means less risk- not more.

Knowing these answers = Real Wealth = Financial Muscle. It may, feel overwhelming but it need not be. Reading a bit, a short retreat- based workshop, followed by fortnightly coaching for 45min a time is all you need. Over time as you get stuck in you will acquire more ability than you can probably imagine. It needn’t cost a lot in terms of time or money.

You don’t need to be above average educationally either. Visit our website to learn how.