Our guest today is Dave AKA Strong Money Australia. Dave reached financial independence at the ripe old age of just 28. Dave is originally from country Victoria but moved to Western Australia at 18 to take advantage of the mining boom. Roughly 2 years into a job, Dave got a new boss and suddenly going to work each day was a struggle. He discovered investing and financial Independence shortly after and after 8 more years of work, 8 investment properties and a lot a stocks later, discovered that he had reached financial independence.
We chat about Dave’s early years at work, questioning the 9-5 day grind for the next 50 years, investing and much more.
In this episode, we talk about:
- Daves struggles with work early on
- Questioning everything
- Transitioning from property investing to shares
- Dividend growth investing
- Listed investment companies (LIC’s)
and much more
- Strong Money Australia
- Aussie Shares vs International
- Income vs Growth
- Motivated Money (Peter Thornhill)
Aussie Firebug: Why don’t you just start off with a little bit about yourself, mate?
Dave: Yeah, so my name’s Dave and I’m originally from country Victoria but I moved to Perth when I was 18 years old and then I worked as a factory worker basically in a sheet manufacturer and then as a forklift driver and a store man at a dairy factory. The first job was for roughly two years and then the second job was for roughly about eight years and I now live in Perth with my longtime girlfriend and my dog.
Aussie Firebug: Cool, and so you’re 28, is that right?
Dave: Yeah, just about to turn 29.
Aussie Firebug: About to turn 29. And so you left country Victoria roughly ten years ago, did you say?
Dave: Yeah, yeah. Just after I turned 18 basically.
Aussie Firebug: Yeah, so what made you decide to pack up shop and head over to the other side of the country?
Dave: Yeah well I was 18 and I needed a job basically and country Victoria was pretty quiet on the jobs front especially where I’m from; there wasn’t much happening there and I had a couple of mates that actually came over to Perth about probably six months prior and they were telling me how many jobs were available at that time because this is basically the middle of the mining boom back then so there was just jobs for anyone who wanted them so I thought if I’m going to have a better life I’ll probably need to go somewhere where there’s a decent job so that’s why decided to move.
Aussie Firebug: You’re right, and what was that like- heading over there at such a relatively young age, 18 year old bloke, kidding off with a few friends would have been a bit of fun?
Dave: Yeah. So it kind of happened quite fast. So when my mate told me how many jobs there are, I started Googling jobs online and started finding just your average jobs paying $20 an hour or something in a factory and I thought yeah, I could probably do that for forty hours a week and that’s pretty decent money where I’m from and back then so I didn’t really think too much about it. It was basically I could stay in country Victoria and not have a job or I could move to Perth and start making some half sticks and money that would actually get me somewhere and so being one other matter decided to pack up and drive across and actually when I got here, I had $800 in my bank account so didn’t really plan ahead too much because I just figured that there were that many jobs that it would probably work out alright.
Aussie Firebug: Well $800 in your bank account, incredible. Now, I was going to talk about this a bit later but we might as well just bring it up now. So on your side you’ve got that you’ve reached financial independence at the age of 28, can you just talk a bit about how you– so you went over there and got this job, $800 to your name, like no other investments or anything prior to that?
Dave: No, nothing at all. Just my whooping savings there.
Aussie Firebug: So $800; so how do you get from 18 years of age with $800 to financially independent at 28, can you just walk us through the steps of you know, discovering investing and stuff like that and what led you to save so much money?
Dave: Yeah. So I’ve always been probably more of a saver than a spender and as soon as I got a– I did end up getting a job I think within about ten days so my savings didn’t go down too much from $800 so then it was just the case of I was renting with a friend and it wasn’t really costing me too much so even at my $20 an hour wage, I managed to save a reasonable amount and then we ran about moving into a bigger house but with more people which sort of made the rent cheaper. When I reached out and I was like we could save a bit more and then that job had a decent amount of overtime so started taking up a bit of overtime and started building up my savings and back then you could get maybe 5% or maybe even 6% in your high interest savings account so I thought I was doing alright there. So I did that for a couple years then I started thinking that I’m going to have to learn about investing or something because this savings account is pretty cool but it’s probably not going to make me rich so I started researching about investing and I think initially I actually Googled ‘How to get rich’ basically because I was sort of getting a bit depressed looking around at all these older guys at my work and they sort of were hoarding along and they didn’t really look happy and they were just working every week to pay their bills and it just didn’t seem like that was for me so I wanted something different.
Aussie Firebug: You didn’t want to end up like them?
Dave: No, I didn’t want to end up like that. I just didn’t like such a limited life with no choices; you’re basically just working to survive and you never question anything and you just keep doing the same thing every week and it didn’t seem like it was for me.
Aussie Firebug: How many years into the job did these thoughts start creeping into your head?
Dave: Probably round about two years into it, maybe a year and a half, I was maybe 19.5 and we actually got a different boss at that work place. It was fine until we got we got this different boss and then he was just a nightmare so I just thought like man, why do people put up with this and I just started questioning everything: why do people just work forever for a shit boss they don’t like and I don’t know, it just didn’t appeal to me, the regular work forever lifestyle and to get nowhere so I thought that I had to do something different to end up with a different result.
Aussie Firebug: Absolutely, I’m definitely hearing you and I think a lot of people go through a similar thing. You know it’s good if you like your job and that’s awesome but you know, all it takes is management to change or a different boss or a co-worker that you don’t particularly get along with and all of a sudden your great job can turn into a bit of a nightmare. A similar thing happened to me. Just towards the end of my job, it was a great job- I changed jobs the start of last year- and my old job was fantastic but then management changed and it just wasn’t as good anymore. I didn’t really want to come to work to do my job anymore and you know, I had the opportunity that I took it but I had a strong savings and I wasn’t locked in to that job which a few people were, they had to rely on that job to pay the bills and stuff but I could sort of switch jobs and take a bit of a pay cut and still manage.
Dave: See, that’s the thing- it gives you that flexibility, doesn’t it?
Aussie Firebug: Absolutely.
Dave: So even if you love your job today, just to say that next year, you might wake up and all of a sudden realize you don’t actually love it that much; you’re just doing it for the money and then you get a different boss and it just becomes not very enjoyable anymore.
Aussie Firebug: For sure, for sure. So you get this new boss and then everything changes?
Dave: Yeah, basically I just stopped enjoying work really so I didn’t want to be there anymore, I even stopped going overtime. I just did not want to be there and then it got to the point where they actually called me in and my attitude was so bad that they basically said, “We know that you don’t want to be here and it’s got to a stage where we don’t really want you here’s maybe we should just part ways,” and I said, “Yeah, that’s probably a good idea,” so that was my last day at work for that job.
Aussie Firebug: And that was two years in, in WYO, roughly two years in?
Dave: Yeah probably almost two years, about a year and a half, almost two.
Aussie Firebug: Okay, and so you’re Googling ‘How to get rich’, have you discovered you know, investing in financial independence at this stage or you’re just sort of on the cusp of that?
Dave: Yes, I didn’t really know it was a thing back then. I was just sort of Googling how do rich people actually get rich and the Google results come up with the old favorites of property and shares, you know? So I thought well, shares are a bit scary with the market crashes and the fluctuations that don’t really make much sense so I thought when I get another job and start saving, I’m going to get into property and that’s how I was planning to get rich.
Aussie Firebug: The Australian dream.
Dave: Yeah, the Aussie dream mate.
Aussie Firebug: So you get this new job and?
Dave: Yes, so I got a new job and it actually to my surprise pays better than the old job so I was suddenly surprised there and actually I’ll just go back a bit, just before I got this next job, I actually took maybe three months off and lived on my savings over the summer because we were living in a beach house in a coastal suburb, just me and maybe I think it was about four or five other blokes. So I had these savings built up and I thought I actually don’t have to get a job straight away so I might just enjoy the summer while I’m here, just in this beach house because it might not be here next year and then I’ll get a job after that. So I had a bit of a taste of what it’s like to have some money and not have to work and I thought it was the best thing ever really and I thought I’ve got to have me some more of that.
Aussie Firebug: It sounds good. I could just imagine a young bloke with his mates in WYO enjoying the summer without working living off some money, yeah I could see how that’d be nice.
Dave: It was amazing. It was just a bit of a taste of what it’d be like to be rich because we actually lived in, it was like a rundown mansion basically in a coastal suburb here and because it was so rundown, it was quite cheap to rent it especially between five blokes so we were living in a pretty fancy area right across from the water and it was pretty cheap but we loved it and it was just an awesome summer off really and a bit of a taste of what I wanted in the future.
Aussie Firebug: A few parties were had at that place, no doubt?
Dave: Yeah, definitely.
Aussie Firebug: So did that light a fire under your belly to really get back stuck in to the workforce, earn some money and you know, reach the goal?
Dave: Yeah, it really did. I probably haven’t thought about it that much but I think it did. It just showed me what savings can do. You know, if you’ve got savings in the bank you actually have a choice then; you don’t have to just work every week forever with no end in sight. You actually can choose to spend your time differently.
Aussie Firebug: Yeah for sure, couldn’t agree anymore and also it’s good for your mental state at work anyway if you know at the back of your mind well, actually like even now, I’m not financially independent but shit, I could 10 years of working and I could live off you know, what we’ve got at the moment so in the back of my mind, I’ve always got that you know, if I really wanted to I could just scour back to two days a week at odd jobs and live for a decent while without having to go back to work even if it’s just a year or so just to recharge the batteries, I’ve always got that option but I’m really liking my current job at the moment so that’s not something I’m going to do but it’s very healthy to know that you’ve got that option.
Dave: Yeah, it’s like a bit of extra comfort there you know. You’ve got that flexibility and you know that if you get too frustrated that there is actually a way out and you don’t have to put up with certain things and it’s just a different way to live mentally, isn’t it?
Aussie Firebug: For sure, for sure. It’s very underrated sort of say, “You get to financial independence and maybe I don’t want to stop working,” and that’s perfectly cool but you’ll find a lot of people say that they get to financial independence and sometimes their job becomes even more meaningful, you know it’s the same job but once they reach that number, suddenly they enjoy work more which is a weird side effect but yeah, a lot of people say that happens.
Dave: Yeah. It’s funny, isn’t it? Because it’s the same job but the point is they get to choose to get that job, they don’t actually have to anymore.
Aussie Firebug: Correct, yes very important mindset shift.
Dave: It’s pretty subtle but it’s pretty powerful at the same time.
Aussie Firebug: Yeah right. So how long were you in this second job for?
Dave: I was in that second job up until last year. I worked there for I think it was roughly eight years.
Aussie Firebug: Nice, nice. And it was seamless sort of work like in the warehouse, was it or?
Dave: It was a warehouse but it was a milk factory so it was just a refrigerated warehouse that was a bit more pleasant in the Perth summers. You’ve got to work in a refrigerated warehouse, it’s pretty good in summer.
Aussie Firebug: Yeah, cool, cool. So what happened during those eight years? You had your great summer and you got stuck into work for the next eight years? You just wanted to work, is that what happened?
Dave: So I think I was just about 20 when I got this job and it paid decently better than the last job and there was a little bit of overtime as well so I’d start getting motivated about saving and I had a little bit of savings left from my time off so I wanted to add to it so I started doing lots of more hours at this job and started building up the savings and started reading about properties since I’d decided that that was what I was going to do and then it was about to be a case of just keep learning about how I’m going to be able to buy enough properties to retire and build up the savings as fast as I can by just hardcore saving and being super frugal and trying to do those deposits on buying properties so I ended up being able to save a bit, I think maybe- I can’t remember the numbers man, it was maybe like 60-70 grand when I was turning 22 and I bought my first property with that one and then in the next twelve months after that, ended up buying another property with more savings that I did. I ended up just doing so much overtime. I didn’t have much free time, I just wanted to save, save. So I ended up buying another one and I was 23 and at that point, I’d met and moved in with my partner at the moment. I think we met and moved in when I was about 20 and so our finances were separate at that point but she bought a property as well around the same time that I bought mine she had a fair bit of equity in our house because she’s a fair bit older than me so she’d had a prime for quite a while and paid a lot so she ended up tapping into that equity to buy her investment property and then we sort of teamed up promptly and joined all our finances together and it sort of made it a lot easier to save because we’re on the same page and we wanted the same goals and so we just cooled down and started planning together. We have equity in this property and some equity over in this property and we combined with our cash savings and we can buy another one and we just sort of snowboarded from there I guess just through the combination of savings and some equity in the properties that had grown a bit in value and back then it was sort of easy to borrow a lot of money, not so much nowadays, but back then it was. So that really helped us be able to build that portfolio in a fairly short amount of time so that was quite handy and so then it got to the point where I think I was around about 25-26 and our equity was building a bit. We still had a fair bit of savings each year even after paying for the properties because they were mostly negative cash flow capital city properties in Australia so as you probably know, the rent doesn’t cover the bills so you’ve got to put your hand in your pocket. So we still had savings after paying for those and that’s when the finance started to become harder to get, harder to get loans and the regulators sort of started cracking down on loose lending so it became quite hard to borrow and we basically maxed out at that stage and borrowed as much as we possibly could. So we ended up with savings that we weren’t sure what do with because we really didn’t want to pay down debt because we thought we could get a better return investing rather than paying down debt so I actually started looking into where else we could our money in and I was pretty hesitant at shares for a while and that’s why I ended up choosing property. I decided to do a bit more research, I ended up coming across this approach that’s basically investing in shares but instead of focusing on the proceeds, you focus on the dividends and I thought that that made quite a lot of sense since the share price fluctuations for me didn’t seem to make a lot of sense and didn’t seem all that reliable to base an investment strategy on. So we started buying shares that were dividend-focused and we found out about educational material like Peter Thornhill’s book which is ‘Motivated Money’ and the videos on his website which helped us quite a lot in understanding basically just how the share market works and why you should focus on the income and not so much on the share proceeds. It just really put things together for me and it just took away that fear that fear that I had about shares because like a lot of property people, I was pretty afraid of the share market; I didn’t think it made a whole lot of sense and so I went to property in the first place but we started investing our savings in these dividend paying shares like at least with investment companies and some other dividend stocks and we started getting these dividend checks and they were quite a lot and we felt oh this is actually pretty easy: You just put your savings in, get a dividend check and you can reinvest your dividend or you can do what you want with it so it just gave us something more concrete where we were getting these regular returns and we didn’t have to worry too much about the market going up or the market going down so we started focusing more on that. And around this time– I’ve gone blank for a bit mate.
Aussie Firebug: That’s alright. So much to get through so I’ll sort of just let you go on because it was really good what you were saying so I’ll just let you go on but a few things I want to touch on: So first question is actually, how did you meet your girlfriend if you’re doing all this overtime?
Dave: That’s a god question. it was such a long time ago, I think she was in [00:21:41] for a night out, we’d wanted to be friends for a bit and in that moment we just sort of met up and just got to know her well and just went from there.
Aussie Firebug: She might have come to a party at the rundown mansion.
Dave: No, I think it was at the [00:22:01] actually.
Aussie Firebug: Fair enough. Right, what a story! Basically eight solid years and I can relate to it so much. You know you being born in Australia, if you want to make money it’s pretty much probably shoved down your throat in every direction with your parents, your uncles, your aunties, the media, everything is all property, property, property but as I discovered as well, the share market is also– they’re both really good asset classes to be honest but like it depends what you want do and how you want to do it but they’ve both got the merits. Now, you guys started buying properties in capital cities, did you say? Was it like Sydney-Melbourne area?
Dave: Yeah, in Perth we started with, because that’s our city so everyone buys around their own city first, and then so we got quite a few here which haven’t actually done much for us to be honest.
Aussie Firebug: When you say quite a few, how much are we talking here?
Dave: We have four here.
Aussie Firebug: Four in Perth, okay and you’ve still got those?
Dave: Yes we do. One was our house which is rented out now because we’re renting ourselves and we had two in Melbourne, one in Sydney and one in Brisbane.
Aussie Firebug: Wow! My Math is what, seven, is that right?
Dave: A seven and our own house so eight altogether.
Aussie Firebug: Wow, eight properties, incredible. So did you buy the first four in Perth to start with and then you ventured outside the state?
Dave: Yeah, yeah that’s right.
Aussie Firebug: What made you invest outside the state because when you were buying in Perth, it would’ve been peak in the mining bloom I’m assuming so the yield would’ve been pretty good?
Dave: Yeah, so I think the first two properties I bought were actually positive cash flow because the rental returns were actually good back then, I think it was around 2011 so the rental returns were pretty good back then, not so much now though. So they didn’t cost me too much so I was able to save up the next deposit actually quite easily.
Aussie Firebug: So what made you go to Melbourne and Sydney?
Dave: Yeah, it was basically just a diversification thing so if Perth struggled for a while which it ended up doing, then we’d have properties in other cities that would hopefully have grown in value so we could harvest equity from there to continue buying, that was basically the idea; not having all your properties in the one place sort of gives you more optionality and a bit of diversification as well.
Aussie Firebug: Yeah, great. So did you end up with the eighth investment property before you went to shares, like once you went shares, was it no going back or did you double in shares and then still bought investment properties along the way?
Dave: We basically started buying shares straight after we bought the last investment property.
Aussie Firebug: Which was what year?
Dave: That was at 2015.
Aussie Firebug: Yeah right, 2015. We’re of similar age and I can definitely relate to the lending restrictions and everything like that. You know back in the early teens- teenies, whatever they call the 2010’s to 20’s, you could get a loan or more importantly, you could withdraw equity so ridiculously easy. I did it three times with my three investment properties when they went up in value like I did the 20% deposit, it went under 80% loan: value ratio and then I just topped up eighty and it was literally an email to my mortgage broker saying, “Hey, Commonwealth Banking is worth this much, this is the loan, can you like get out the extra 20 grand,” and like literally two weeks later, it’d be in my account. Like that was easy, didn’t cost me anything, like it was just so much easier.
Dave: Yeah, they were sort of bending over backwards back then.
Aussie Firebug: Yeah, I know and the last time I went to do it like it was just so much more difficult and I just don’t even bother to do it now like at the moment it’s just really hard but you’ve got to make the most of it when you get it right. Like that was an opportunity back then that you did and you got all these properties and you used that to your advantage and you know, what kind of position you’re in now.
Dave: Yeah, so we didn’t actually know that obviously, we didn’t know that the finance arena was going to get a lot tougher, we just basically stuck to our strategy which was borrowing as much as we could and luckily it tended to work out more times than not but yeah, I don’t think anyone was sort of guessing that this was going to happen and that it was a short term thing. We just assumed that that’s the way it is and you’re always going to be able to borrow what you need if you’ve got a decent income and you’ve got some equity, the banks will sort of maybe bend the rules a bit and yeah.
Aussie Firebug: When I was crunching the numbers, as long as the cash flow was strong, I wasn’t afraid to loan money to buy properties. I got a lot of people saying oh, “You got your third property you know, all this money and debt,” well I’ve got my parents and uncles and aunties that run businesses and we’re talking millions of dollars they’ve got to juggle so I sort of was brought up with “There’s good debt and there’s bad debt.” So it wasn’t like a scary thing for me to do if the numbers worked and I’d figure out you know, this is how much the property gets from rent, this is how much it’s going to cost, factor in a 2% increase in interest and if the numbers make sense, I’m just going to go for it and luckily the banks’ lending in Australia at that time allowed me to do so. But I think if started again today, I wouldn’t be able to do that like to get three properties. With today’s restrictions, there’s no way, I couldn’t like that. Really, my gains from 2012 when I first built to the last one I bought in 2015 really has like amplified my net worth in the last couple years so you’ve just got to make most of it when it’s available.
Dave: Yeah, that’s spot on. I mean a lot of people are afraid of debt and I just figure that if you’re going to make a total return that’s not so high then the interest payments, it sort of makes sense you know. If you’ve got plenty of extra cash from your job or from the asset itself then even if interest rates go up you’re going to be fine and as long as those assets have half decent returns over time, you’re probably going to come out ahead.
Aussie Firebug: Yeah and like it cuts both ways like if you leverage an investment and it does well, it’s implied and if it does poorly, that’s amplified as well but I think it’s just about being smart with the cash flow is what I always look at when people ask me about property. As long as it’s got strong cash flow, then I don’t care about housing value. If Australia goes through recession and it goes down half price, as long as the rent doesn’t go down half, then you know I can absorb 20-30% rental loss across the three plus an interest rate and I can still hold through that downturn and if you’re crunching the numbers with your investment properties, can you do that because that’s something that you need to consider, not so much how much it’s worth- it’s all about how much it’s bringing in, that’s how we’ll look at it anyway.
Dave: Exactly, that’s a smart way to look at it. Outside it was more prime, the best located properties that we could afford to hold and there’s definitely some luck involved you know. I mean if Australia did have a recession in the last few years and houses probably did drop in value, we probably wouldn’t be retired today because if the value is going to be less than the loan that we have against it, we’re not going to be able to sell it and put the money into shares so there’s definitely some luck involved there no question.
Aussie Firebug: For sure, for sure. So you discover shares, what year was that, 2015 were you saying you bought your first shares?
Dave: Yeah, that was in 2015.
Aussie Firebug: And who- I’m going to put a link in the show notes- Peter Thornhill, was it?
Dave: Yeah, Peter Thornhill.
Aussie Firebug: I actually haven’t heard about him, what’s his story?
Dave: So he might be seventy by now but he’s an ex-finance guy, used to work for fund managers back in the 80s and 90s and so he knows what goes on in there in the share market space and so after he retired, decided to become an educator and he runs courses actually in Sydney and I think sometimes in Melbourne. It’s like a one-day training course of how the average investor should approach the share market and it’s not about studying things, it’s just about that pure fundamental education of how the share market works, what you should focus on, what you should ignore and he’s got a few videos on his website that basically explain the same thing and they just really helped me in cutting through the rubbish that you see basically spoken about in the media about the share market nonsense that goes on and he just explains it in a simple term that even a beginner and a property guy can understand and it just makes a lot of sense and it just took away that fear of the unknown of the share market for me and just gave me something to focus on that really struck a chord with me, the income of shares, just made a lot of sense.
Dave: Yeah right, so this guy really help you understand what the share market is, what should focus on and then I’m going to put a few links in the show notes as well because you have some really good articles about your thoughts on dividend investing and these investment companies and we’re going to them in a second. But so just to stay on track with the title line here, so you listen to this guy, Peter, and you start investing in what in the share market back in 2015?
Dave: Listed investment companies mainly and some dividend stocks as well.
Aussie Firebug: So you were after that dividend focus?
Dave: Yeah, exactly.
Aussie Firebug: I liked how you said before as well, how you get the dividend, you basically just dump your money in this thing which is the share market and it spits out some money at you and you think well this is good, I’m not really doing anything because I got the same feeling when I first got my first dividend like well, didn’t do anything! Like I didn’t have to manage anything, I didn’t have to do like jack on, on it just popped out. It is a magical feeling, isn’t it?
Dave: Definitely. I think that’s why there’s such a love for many people for dividends because it sort of feels like easy money. I mean the company could retain and just there but just to check in the mail or the deposit into the bank which you’ve exerted basically no effort for, there’s no headaches, there’s no property manages or bills associated with, you just collect it and go or you can reinvest it back in and it’s just extremely easy.
Aussie Firebug: Yeah so and you fall in love with investing in the share market, is that fair to say?
Dave: I think that’s fair to say.
Aussie Firebug: And what happens then? So your strategy is shifted, is it, from buying properties to everything in share market and just talk us through a bit about like did you sell down a few properties or you still got all of them, how did that go?
Dave: Yeah so a few things happened at once. In that time around 2015, the finance space was changing. There was absolutely no way we could even have borrowed the amount that we had borrowed at that stage let alone get any more so that was part of the reason for the shift to shares. And then growing knowledge on the share market and of dividend investing really helped us see what kind of income that we could create and because of the lack of expenses really associated with that and the franking credits in Australia, the income that you can get from shares is actually very, very high here especially compared to capital city property. So it became kind of obvious that well, we’re not going to be able to just draw down some equity because originally our plan was to have this big portfolio and we could just draw down a little bit of equity to live on which was sort of doable back then 10-15 years ago but it wouldn’t be doable today. So we started realizing that that was not going to happen so even if we decided to sell out and just have a couple of mortgage rate properties because they were capital city based, you’re only going to be left with a yield of maybe 3% if you’re lucky so your million dollars might get you 30 grand after expenses but then a million dollars in property shares might get you say, 55 grand or something like that of income so it became pretty obvious that we were going to have to change and we were going to have to basically just change our direction and switch assets and just put more money into shares while we take out money selectively out of property over time.
Aussie Firebug: Nice, and it’s so funny because I went through a very similar mindset, I was all on the property same thing. I wanted to own twenty properties and pay off ten and just be like this multi-millionaire property guru but same thing, it just seemed like properties are a good wealth builder at the start of your journey because capital gains can definitely be amplified by the original investment. But once we first had a go at investing in the share market and we got those dividends and stuff like that, the more I thought about it you know with the headaches of property I thought they’ve served me well like they’ve had great gains so far, there’s no shame and I think this is a mindset thing for people which I always find funny. Some people always either are pro-property and hate the share market or pro-share market and hate property but like you can do both, right? They’re both great asset classes so we are shifting now from the property mindset now to more share market but that’s not to say that the properties haven’t great, they’ve been our best performers in our portfolio but moving forward and if you want to retire early, it makes more sense having that passive income that the share market helps you with so totally understand you’re coming from and it’s good that you realize that you know, eight properties deep, some people might think that your mind was made up like that was where you were going to go so it takes a big person to sort of switch strategies and say, well the air force one isn’t going to get us where we want to be and now I’m going to do this so kudos!
Dave: Yeah, exactly. I mean if the information that you’ve got changes then you should change your mind. You just don’t keep going and going just because you’ve been doing it all along, that doesn’t make much sense to me. So it started becoming obvious that we’re going to need to change and so rather than just ignore the information that we had, we sort of swallowed our pride and changed course. But it’s funny you say you wanted to have like twenty properties and make yourself a millionaire, they don’t tell you about that in a magazine, do they? They just tell you about, you just borrow some money, collect these properties and then in 5-10 years, you’re like super rich and you don’t have to work anymore and it looks so easy.
Aussie Firebug: Yeah it’s a small job and I’ve only got three. I could only imagine the amount of extra work you have to do for eight.
Dave: But do you manage them yourself?
Aussie Firebug: No I don’t but like even then the accounting stuff that goes in what and where like the in-house, there’s definitely management involved, there’s work involved.
Dave: Yeah, exactly. Another thing was how you’re saying about some people being pro-property and pro-shares. It’s funny because now that I’ve been talking to quite a few shares guys and quite a few guys who are doing both, I’ve noticed that a lot of the shares converts used to invest in property but when I was investing in property, I hadn’t met anyone who had switched from shares and I started thinking lately I think it’s just the ease of use and the simplified approach that you were talking about earlier, how you just get this cash payment and you’re like well, that was easy, I didn’t have to do anything. And so even if people get lower returns, they don’t mind because it’s so much easier or whenever you know; you get to that point where you’re not really interested in leveraging more end, you just want to simplify the process. You just want this cool lazy income string that’s coming in.
Aussie Firebug: Yeah, for sure. I think it seems to be the natural progression for a lot of people especially in the fire community to start off with property and I think it’s a good asset class especially if you’re like a cheapy or like some sort of tradee that you can put your skills into the investment. That is a real plus that you can’t really do with shares; like you can’t really add value to shares but there’s a lot of different ways you can add value to property so if you’ve got the time and energy and like you don’t have commitments when you’re young, I think you can really thrust and leapfrog your portfolio in the early years but then as you move to be older like we are, the passive income of shares becomes a lot more attractive so I think that may explain a little bit why it’s more of a natural shift from property to shares.
Dave: Yeah, I think you’re spot on there. I mean if someone’s a builder, they can obviously add a lot of value at very little cost to them you know because of their contacts and skills and suppliers and whatever so I think that’s a good point that you make for the average Joe, there’s a– I can’t remember what I was going to say there.
Aussie Firebug: I think it was that the passive income is just a lot more attractive, right, for your average Joe?
Dave: Yeah, yeah exactly. It’s just super simplified; there’s just nothing to do. It’s almost like a savings account. You know you just swipe your money away from one account to the other, buy a parcel of shares and get back to work or go back to the beach or whatever you were doing before.
Aussie Firebug: And the best thing about the index style investment which you know, you invest in listed investment companies which also follow a slightly managed but its similar index style investing.
Dave: Yeah, it’s very similar.
Aussie Firebug: There’s no research to be done, that’s what I love about passive investment is you don’t have to study any box, you don’t have to read anything, you don’t have to be watching certain stocks, it’s just the price is set, the day you want to buy you buy and that’s it. There’s no waste of time, you literally can do it on the phone, you can do it overseas, you can stick to a really high performing portfolio investment strategy with little effort involved. It’s definitely a huge positive for that style of investing.
Dave: Absolutely but I think a lot of people, especially property and I was like this myself, they just hate the CMF and I think it’s– I wouldn’t call ignorant but some people, I think it’s just the fear of the unknown. They see the scary headlines oh this went up today and this went down today and they think, what the f***, how does that work? You know, why has it done that? Because they don’t understand it and there’s only bad things associated with, there’s no good deed. It’s assumed that it’s some kind of crazy casino and you either buy these mining stocks and try and get rich from it. There’s no the slow and steady passive income stream approach.
Aussie Firebug: Yeah, I couldn’t agree anymore and I can’t really blame them that much because unless you are looking for it, all you have to do is think about property prices in Australia in the last 50 years and you think about the share market, the GSE especially 2008 and they’re hearing all these horror stories of people in these cases and their pension money and stuff like that. I can’t blame them too much but once you dig deeper a little bit below the surface and see that no, there is actually a very well backed investment strategy for the share market, then it opens your eyes up a bit.
Dave: Yeah, I mean the GSE was obviously a big event but I know some shares guys who say that there was a massive effect of speeding up wealth creation because IRA would buy these companies or buy these index funds or these investment companies that were trading at super cheap prices on really great yields and it just amplified their returns from then on.
Aussie Firebug: Yeah, kudos to them to have the mental strength to go through that and I’d like to think if I was in a similar situation, I would look at that event as a fire sale for shares and buy everything cheap but you never know until you go through it, until you actually see a portfolio half in value or even worse you know, you never know what you’re going to do.
Dave: Exactly, exactly. No pun intended there, fire sale?
Aussie Firebug: Fire sale, yeah. Sorry, continue.
Dave: I was just going to say another thing I think with property and shares is that the approach that we’re following year with the income stream and the dividends, you don’t have to do anything, it’s all actually really boring and I think that that’s kind of what’s off-putting to young people, I know I would’ve thought it was extremely boring and I’m not going to follow that, I want to get rich and I’m not going to get rich with this silly dividend each year. I know I need to borrow some money and go and buy a half a million dollar asset and get rich that way. I think it’s partly how young people are wired, wired for risk so I think that until we get a little bit older and see things a bit differently then we start seeing this boring approach with this income stream is not too bad after all.
Aussie Firebug: Could not agree any more, I was the exact same like I have to do something outside the box, this strategy that a lot of people working are recommending, it’s too easy. It needs to be more complicated and it needs to be harder for it to really be where the big bucks are. Yeah, definitely thought like that as well when I was younger. Yeah cool, so did you end up selling some investment properties to part more money into the share market?
Dave: Yeah, so what happened was we started investing in 2015 into shares and started collecting these dividends and realizing that that was going to be the income stream for us in the future. So we sold a property last year to generate quite a bit of free cash to invest in the share market and also to have cash in the bank sort of for us to live on as we’re joining up our shares as well because obviously we’ve only invested for a couple of years. We were tired that the income stream wasn’t large enough to sustain services so we used part of the money from the property sale to live on and part of it to invest in shares every month so the income stream gets larger and larger over time and last year, we sold the second property and basically did the same thing. We put a bit of a lump into the share market and we also chip some more into it each month and we used some of the money to live on as well. So I plan to do this for the next probably like ten years. So the plan is to sell off the properties slowly to minimize capital gains tax and also to try and sell at opportune times in certain markets so we decided to sell our Sidney property last year and the year before that was one of our Perth properties. So our third property will probably be the last to go because it’ll probably going through its growth cycle maybe some time over the next 10 years you would say so it’ll probably be the last to go. So we’re just trying to do that and optimize the outcome.
Aussie Firebug: Yeah nice. Now that’s a cool story and I quote from an 18 year old going to WYO and getting this job and then buying these properties, discovering the share market and what you’re doing now, the selling of the properties, awesome stuff. Do you just want to touch on a little bit more about when you actually found out you were financially independent?
Great episode! I really enjoy your interview style, you know how to ask the right questions! Love how down-to-earth you keep things, can’t wait for the next episode.
Dave’s story really is like a blueprint for anyone who finds out about FIRE at a young age:
– Start early
– Keep your living expenses low
– Work hard and save
– Question the status quo
– Learn about investing
– Get started and watch your investments grow
– Hit FIRE before you even know it
Really enjoyed listening to this episode. I liked how Dave stressed the different between “choosing to work” and “having to work”.
Keep up the good work!
Thanks Tina 🙂
thanks for the podcast, this kept me well focused on my morning commute today. Although I was really intruigued and interested in Dave’s story, I found I was a little left wanting regarding the details of his FI – I think the only detail that was divulged was 8 properties and LICs. I felt if some figures were thrown in this would add a whole heap more context to Daves story i.e $ size of his property portfolio Vs Mortgage, $$’s in shares, maybe cost of living for him. I’m not sure if this detail was specifically excluded but thought i’d mention incase it was an oversight.
Also the audio was a bit faded then LOUD etc at times like as if the microphone was moved too far away from your mouths.
Anyways, not having a whine – just suggestions. The content is awesome which is what really matters, keep it up.
We weren’t trying to be secretive or misleading. The figures were left out as Firebug never asked 🙂
In any case, I’m not overly keen to share every detail of our finances/wealth. The portfolio size doesn’t really matter, while if I quoted a large number it might sound impressive, it’s the equity that counts.
A brief article I just wrote recently has a few more figures attached and should give a rough guide to our incomes, net worth and expenses. Hope it helps…
This was a great interview outlining the strategy that has worked for you and is exactly the stage where we are at now. No need to divulge $ amounts. Funnily enough property purchase timing, management workload reasons etc and the desire for passive income has us on the same path.
I’ll work on the audio quality 🙂
I believe Dave has answered your other questions.
Would it be fair to say that leverage into growth assets (real estate) is the major contributor to your financial independence? If you would have put your savings alone into LICs or ETFs (without leverage), you would not be earning enough income today to consider yourself financially independent.
You clearly think that investing in the stock market has advantages over real estate, i.e. simplicity, tax credits, yield. The purpose of my comment isn’t to argue this point, but more to ask about your thoughts on leveraging into the stock market. Do you think it is a good idea? What are some ways that can retail investors most effectively and cheaply obtain leverage into the stock market?
“Give me a lever and a place to stand and I will move the earth.” – Archimedes
Fair question Anthony, I wondered this myself too.
After doing some rough calculations on our savings rate, seems we ended up in basically the same position. This article I wrote for Motley Fool outlines this in a simplified way the results come overwhelmingly from saving as most people in the FIRE community can attest to, especially over a short time like 10 years or less – https://www.fool.com.au/2018/05/23/how-i-saved-and-invested-to-retire-at-28/
And I even did an article on our leveraged properties as well, explaining how the properties on average didn’t actually do all that well, once all costs are accounted for. Reasons are: the relatively short time-frame, huge transaction costs and negative cashflow means the first couple of years of growth is just to get to breakeven before you start making money. Article about our leverage with property is here – https://www.strongmoneyaustralia.com/our-adventures-with-leveraged-property/
As for leveraging into shares – that’s definitely possible. Some people use a line of credit or use equity from their home to invest in dividend-paying shares which can work well if you’re careful about it. The rates are quite favourable, margin loan rates are terrible with increased risk of margin call so wouldn’t bother with that.
I’d be careful with it though, some people manage to blow themselves up doing this because they start trading or they pick crappy stocks/funds. If someone sticks to old LICs or VAS and manages the debt and cashflow prudently, it can work out well. Peter Thornhill recommends using this strategy to pay off your home loan quicker through debt recycling which he mentions in his book. It’s not magic but it can juice returns a little if used carefully.
I actually wouldn’t bother with property if I was to do it again, other people’s experiences and opinions will differ of course. There’s really no need to use leverage at all if one is naturally uncomfortable with debt. You’ll do perfectly fine with strong levels of saving and buying income-producing shares. The rest is just tinkering round the edges.
Hope this answers your questions 🙂
As Dave Gow notes, ” As always, there’s a Warren Buffett quote for the topic of debt. It goes something like this… “If you’re smart, you don’t need it. And if you’re stupid, you’ve got no business using it”. Also, “debt is the only way a smart person can go broke”.
Now, my story with using a Margin Loan is:
I keep gearing levels at around 20 to 25% of my portfolio equity and have never received a margin call over the past 20 years of using a margin loan.
My current gearing level – Loan to Valuation (LVR) is currently 22% of my portfolio equity.
I currently borrow at 3.60% p.a. fixed for 12 months, with the bulk of my Margin loan financing my ownership of Telstra shares (TLS) which is giving me a grossed up return of about 8.0% p.a..
Hence, I am positively geared and financially free!
After listening to this podcast I was wandering if your strategy is going to change at all and if you will consider adding LIC’S to your portfolio. You currently have the three ETF portfolio for diversification but this strategy will be reliant on you building the capital and then withdrawing an income through selling shares. Where as investing for income with LIC’S means you never need to sell any shares and trigger CGT and your income will slowly increase over time, especially with the benefits of fully franking dividends, when wanting to retire and your tax rate is less than 30%.
Do you think asset growth is more important than income growth? As your portfolio is currently geared towards asset growth.
Thanks for the podcasts.
I have definitely considered adding in LICs to my portfolio. They have a very good chance of making an appearance in the next lot of purchases…
I continue to think about the whole ‘selling down’ to fund my retirement. And the more I think about it, the more I lean towards relying solely off dividends.
The Thornhill approach is slowing winning me over… I flip flop a bit though. I just don’t have the confidence in the Australia market as I do with the US/Rest of the world.
If Australia went through a recession and the rest of the world didn’t, I think I would go heavy into Aussie shares. I’ve already decided to bump up my Aussie allocation to 60%.
I think asset growth and income growth are closely related.
I obviously prefer capital gains vs dividends because of the 50% CGT discount (which Thornhill himself has said to be the superior way of receiving income) but the timing and fluctuations make it very hard to rely on it solely in retirement. I’m trying to have the best of both worlds with a decent amount of my portfolio in Aussie shares to get the strong dividend cash flow.
I’m always learning new things by reading online and in books so my strategy is never set in concrete. If I read something that really clicks with me, I usually implement it somehow into my journey towards FIRE.
Sounds like a good plan of attack towards FIRE.
It definitely is a learning process. I was also in the capital growth and SWR camp, but after reading ‘Motivated Money’ and following LIC threads I now think the living of income approach would be more suitable and sustainable, with a 20% allocation towards growth ETF’S.
So maybe 80% LIC’S and 10% VGS and 10% Small caps. Still contemplating at the moment, as I won’t be making any major purchases for a while yet.
Hi Matt, Great to see your mindset shifting away from direct residential property towards ETFs and now LICs.
I hope I can convince you one day that Direct Australian Share ownership is the key to long term wealth creation is to buy quality Australian shares at a discount to their intrinsic value and hold them for the Long Run.
We are a product of our experiences.
Peter Thornhill and I have benefited from buying and owning Commonwealth Serum Laboratories (CSL) shares and watching it rise into the top 20 ASX companies by market capitalisation.
My average purchase price for CSL shares is A$4.68 which I bought 15 years ago. Based on my original purchase price, each share is delivering a gross dividend yield of 41.06% p.a. with zero management fees and hassles straight into my bank account!
That’s awesome Keith!
I hope to have a similar story one day 🙂
“I obviously prefer capital gains vs dividends because of the 50% CGT discount (which Thornhill himself has said to be the superior way of receiving income) but the timing and fluctuations make it very hard to rely on it solely in retirement.” – Matt Aussiefirebug.
I have been FIRE for the past 12 years because of my “Buy and Hold” 100% Australian Quality Growth shares for the long run.
Based on the Current market price of my CSL shares trading at A$185.13 a share on Wed 31 Oct 2018 at 2.00 pm.
Given my cost base is A$4.68, I have A$180.45 in unrealised capital gains which means even if the Australian share market were to halve, I would still never get a Margin call on my Margin Loan.
Rather than Sell and pay huge capital tax on this gain, I use my Margin Loan which to recycle this unrealised capital gains into owning high yield stocks like Telstra which provides the bulk of my retirement income stream that lets me stay retired.
I was surprised to hear that Matt hadn’t heard of Thornhill in this podcast from June 2018 – and that Dave was the one to explain who Thornhill is! Not being smug about it, as I only bought Peters book in 2018 as well! I just thought I was *way* late to the party.
Goes to show how there is no ‘right’ answer, but its all a journey of learning as we go through life, starting at different points. For example, Dave says he wouldn’t even bother investing in property if he had his time again.. yet most of us keep repeating the same patterns. Thornhill at 70+ years goes to show that a lifetime of experience really does count.