The Four Philosophies to Rapidly Growing your SMSF
I have seen so many clients purchase the right property in their super fund and so many purchase the wrong property in their super fund. I'm going to tell you the secret of how you buy the best property for your super fund. If you get it right, then your retirement funds will soar and you can look forward to a happy and secure retirement. BUT if you get it wrong, it's not too late to fix it so you can correct the problems and grow your super.
Each week for the next 4 weeks I will be sharing with you how to do this. All this and more valuable information is in my book, The Collapse of SMSFs.. ⇐Click on the link to read more.
So keep reading and keep learning. The best investment you can EVER make is in your own knowledge.
I have created four philosophies for rapidly growing your SMSF. These philosophies are not based on academic theory nor on copying ideas out of an investment textbook or magazine. These four philosophies I have created are based on more than 20 years’ experience that I have had in helping business owners and investors in my accounting practice. In those 20-plus years, I have observed, helped, and seen the best and worst of what my clients have done well and what they have done poorly in terms of investing and in managing their superannuation. I’ve taken this vast amount of first-hand knowledge and experience and have condensed it into what I call the Four Philosophies.
Whenever one of my clients lost money or made money, whether it be in their superannuation, in shares or property, or in sophisticated investments, I have taken intricate and detailed notes on what they did and exactly how they did it. From being involved in hundreds of client meetings, reviewing truck-loads of investment transactions they have done, and scouring thousands of pages of detailed notes, work-papers, and records that I have taken, made, and analysed, I have found four common strategies that exist in nearly all of their investment decisions. Clients following these four strategies or philosophies have made significant investment gains where others have failed. I have boiled down this accumulation of knowledge into a concentrated source that I am going to share with you called the Four Philosophies for rapidly growing your SMSF.
These four philosophies should be the bedrock that surrounds, protects and grows your retirement fortress. They must form the basis of every investment decision that you make when managing your retirement savings. They must become the DNA upon which you grow and protect your retirement savings.
I have collated and curated 20 years of real-life financial records to support and prove time and time again that these work. How? Because I’ve seen the actual results and financial gains these people have made when following these philosophies. I have the records to prove it.
Whether or not your retirement years will be the “time of your life,” or you spend them watching every penny, sacrificing your lifestyle or not being able to pay the rent depends on you deciding to make a commitment right now to follow these four philosophies. A life of backward reflection is about having no regrets.
The Four Philosophies are:
Philosophy #1 – Live and breathe the seven laws
Philosophy #2 – Losing money is unacceptable
Philosophy #3 – Only invest in High Probability Events (HPE)
Philosophy #4 – Timing isn’t everything – It’s the only thing
If you graft the DNA of these four philosophies into your living and breathing retirement plan then you will have a bountiful, independent, and secure retirement lifestyle.
Philosophy #1 – Live and Breathe the seven Laws
You need to set yourself up for success by reading, practicing and adopting the seven laws we have already covered in this book. Living and breathing the seven laws will set you up for success. The seven laws are all driven by one outcome: helping you not to lose money. Nearly every person that I know who has a self-managed superannuation fund or retirement fund has lost money at some point simply because they didn’t practice consistently and totally any of the seven laws. The loss of money could have simply been avoided in 100% of the cases. This is no exaggeration. If they had simply lived and breathed the seven laws they would have made, not lost money. Here are some real-life examples:
· I have seen people lose money by purchasing a dud SMSF property because they didn’t do their due diligence well. They paid over $100,000 more for a holiday apartment than what it was really worth.
· I have seen people lose up to 60% of their retirement savings when the GFC hit, because they didn’t “Go Back to School” and fully understand the patterns in the stock market and in the global financial system.
· I have seen people lose money in their stock portfolios because they didn’t see the hidden clues in following how the stock market moves in relation to interest rates and inflation.
· I have seen people lose money because they simply trusted implicitly and completely what they had been told by dubious and charlatan financial planners and so-called investment advisors.
· I have seen people lose money because they had no “Plan B” for how to rescue their retirement savings, savings that could have been quickly and easily salvaged if they had had alternate strategies ready to be implemented.
· I have seen people lose money because, whilst they had built up a strong retirement fortress initially, through subsequent neglect and apathy and the typical “she’ll be right mate” attitude, they then neglected to adopt a siege mentality and, as a result, their once-solid investment portfolio fell out of favour and plunged in value.
· I know clients who have blindly followed the advice of investment advisors and bought property in 2010 in low socio-economic areas such as Buffalo and Detroit in America, trying to capitalise on the eventual upswing of the US property market after the GFC. Some of these properties have only been rented for six months of the year or were turned into crack houses. The police seem to spend more time there than the tenants.
· I know people who have answered an advertisement in a newspaper to buy property in the US, and then they ended up having to pay tens of thousands of dollars in property back-taxes from the previous default owner.
· I know clients who have bought multiple properties in regional mining areas, paying inflated prices for houses, believing that the growth in the Seurat Basin would be the answer to all their financial woes and would make them instant millionaires. Three years later these properties are now worth less than 50% of what they purchased them for!
Case Study – Friday, 22nd May 2015 – Scott and Julie
I stared disbelieving at Scott when he told me. I could not believe what he had just said.
In his managed fund he had $90,000 invested and for the last three years it had not grown at all. For three years it had gone nowhere! Yet Scott had admitted he knew this fact. Every three months for the last three years he received his quarterly fund statements in the mail, read them and then did nothing about them. He didn’t care.
That’s three years wasted in building his retirement fund. With inflation, he was in fact losing money.
The overarching secret to rapidly growing your retirement fund is to first implement all of the seven laws you have learnt to date, because:
1. If you don’t have a distrusting mindset, and trust all the advice that you are given by family, friends and investment experts, then you will lose money.
2. If you are not willing to go back to school and constantly expand your knowledge and develop your financial intelligence, then you will lose money.
3. If you don’t choose to build a retirement fortress by having a solid trust deed, and review and update that trust deed on a regular basis, then you will lose money.
4. If you don’t thoroughly review and research every investment proposal that you are presented with, before you invest your valuable retirement savings, then you will lose money.
5. If you take as gospel what a property spruiker tells you, that this property that they have found for you is a “sure thing” and you will make lots of money, without first doing your property due diligence, then you will lose money.
6. If you don’t have a Plan B for when your shares drop in value, or you cannot get tenants for your rental property, or the real estate bubble bursts, then you will lose more money.
I have seen time and time again over the last 20 years the exact same scenarios that I have described above. All of these, without exception, could have been avoided if people had simply followed my seven laws. There is no magic formula. There is no secret share-trading algorithm. There is no hidden backroom where the best investors swap the holy grail of moneymaking commandments. Just live and breathe the seven laws and you will not lose money. It’s as simple as that.
The instances where I did lose money myself in my superannuation or in investing in general I can pin down 100% of the time to myself not following my own seven laws. Did I make mistakes? Yes I did. Do I regret what I have done? Absolutely. We are only human. I too have lost money. I can simply say that in 100% of the cases where I lost money, I did not follow all of my own seven laws.
Those who have made money and whose retirement savings have grown in leaps and bounds followed the seven laws in one form or another, and it has paid dividends for them. They now have an exciting, rich and rewarding retirement life and can live and do what they want, when they want. Will this be you?
Case Study – Dan & Mary: Lessons Learnt in Building a Watertight Business
Dan and Mary had built a strong and profitable waterproofing business that had multiple offices throughout the State.
Business profits were ploughed into investment properties in Brisbane and Ipswich, an outer-lying suburb 30 kilometres west of Brisbane. Prior to the GFC in 2008, things were going well. Dan was getting plenty of waterproofing work from builders, and there was a construction boom happening in South East Queensland. The business phones rang hot, and their bank account grew as a result. With the growth came more staff, more debt, and more stress.
They had built a very strong retirement fortress with their SMSF; however, they didn’t see the warning signs that were looming on the property and construction horizon. Dan had invested in non-traditional assets in his super fund, including works of art, rare bank notes, and speculative mining shares. The demand for such specialised investments could fluctuate immensely.
Whilst Dan had done some initial research and had “gone back to school” by attending a few investment seminars and subscribing to a few investment newsletters, he was only doing the bare minimum and not really mastering the fundamentals of investing.
He followed what “celebrity” investment experts in the media were telling him to invest in without doing too much actual due diligence himself. However the warning signs were coming loud and clear and the writing was on the wall:
1. They had bought an investment apartment in an oversupplied apartment market in Ipswich (Go Back to School & Master Your Due Diligence);
2. They continued to aggressively expand their operations in North Queensland, believing that the mining boom would continue and that the surge in new house construction close to regional mining sites would increase (Create a Plan B);
3. They trusted that many of their business customers would eventually pay them. A few large builders and developers in particular had promised to pay their accounts even though after six months, Dan and Mary had not seen one cent from these customers. They simply trusted them too much (Trust No-one & Develop a Siege Mentality).
4. They invested in speculative, overpriced works of art for their SMSF based on unsubstantiated advice from an art dealer that specialises in selling corporate art to investors to then lease them back to their corporate clients to hang in their boardrooms. This art-dealer had a sweet deal; he would get a cut of the sale price from the artist for selling their paintings, he would then charge the purchaser of the painting (in this case Dan and Mary) a buyer’s fee, and he then took a margin on the lease payments for leasing the painting to a corporate client! (All seven laws ignored by Dan and Mary, but followed by the art dealer).
5. There was a looming construction downturn (Create a Plan B);
A pattern was emerging that whilst Dan and Mary were ploughing headlong to expand their business as well as investing in their SMSF, they didn’t follow all the seven laws.
When cracks started to appear in their retirement fortress, they chose to ignore them until the cracks became huge. By then, it was too late. The leaks eventually became a flood, and the business went downhill. Dan and Mary had to sell their properties at fire-sale prices and dump the artwork, bank-notes and speculative mining shares in their SMSF at grossly discounted prices.
I remember clearly them coming into my office one day. I was very direct in my words as to the looming downturn in the mining industry and what effect this would have on the construction industry and on their business. I was also concerned about the specialised nature of the investments in their superannuation fund and how easily their market value could fall. I know when an economy tightens up and spending slows down, exotic investments and discretionary spending is the first to go. At the corporate end of town, fancy pieces of abstract art get sold or returned to the leasing company. This is exactly what happened a few months later. Unfortunately Dan and Mary chose to ignore my advice. To my surprise, they were quite angry that I had contradicted their once successful investment philosophy.
A few months later, I ran into Mary at the post office collecting her mail, and she looked haggard and stressed out. Two of their paintings had been returned to them. The corporate client who had rented the artwork was cutting head-office costs, so they had cancelled the lease. The art dealer could not place the paintings with another corporate client, as they were all looking to reduce their own business expenses. Apparently leasing a painting that looked like a child had painted it wasn’t an essential business expense. The paintings were then wrapped and placed into storage and have not earned any income for their SMSF for over 12 months.
Their other investments had done worse and, in fact, Dan and Mary had lost a lot of money on the share market. Other collectors of bank notes, feeling the cash-flow squeeze, dumped their collection on the market, causing a glut. Consequently, prices fell and Dan and Mary’s collection halved in value in a matter of months. Their operations in North Queensland dwindled on the back of the downturn in the mining and resources boom, and their business suffered as well as their retirement savings.
Live and breathe the seven laws I have given you. When things are going well and your shares, property and other investments are growing, pay even more attention to these seven laws. I have designed these laws to help you to NOT lose money. They are based on more than 20 years of dealing with people exactly like Dan and Mary. Turn your back on these laws or bury them in the dark recesses of your memory and you will lose money, eventually.