Future Focus: What years of talking to investors taught me about building wealth
A few lessons I’ve collected along the way.
When I first started working in financial services, I thought successful investors all had one thing in common: they were exceptionally good at picking investments.
I made a resolution to follow in their footsteps. I would build my wealth and create financial security by learning how to pick the best investments.
Since that time, I’ve spent years working in financial advice and wealth management, interviewing fund managers and economists, hosting a podcast, writing a book, and covering personal finance. I’ve learned I was looking in the wrong place for my financial salvation.
The investments matter, but they aren’t what separates the most successful investors from everyone else.
Success comes from behaviour, making trade-offs and remembering the role money plays in life. Those lessons have changed the guidance and advice I give and the way I approach my own finances.
The happiest investors know what is enough
I’m in the middle of conducting a survey on the State of the Australian Investor. I’ve enjoyed reading the responses, particularly to the question ‘What is one financial decision you are glad you made?’.
Most of the answers are practical or quote tickers and the year a high-flying investment was purchased.
One answer stuck with me – ‘In 1967 I gave a lovely young lady $11 (that was the price of an item she needed at the time). Three years later, we were married. Still together 56 years on. That $11 was the best financial decision I ever made.’
The investors who seem happiest rarely define success by having the largest portfolio. The happiest investors are content with their outcomes. They know what ‘enough’ is because they know what they want to achieve.
Morgan Housel highlighted the tradeoff between wealth and contentment in his book The Art of Spending Money. Housel believes the happiest people are satisfied with what they have and told the story of his grandmother-in-law.
She spent three decades in retirement living off Social Security in a financial state that bordered on poverty. But she didn’t dwell on what she didn’t have and instead was content with a small garden and reading books from the library. She had little but wanted even less.
Happiness often comes down to the gap between what you have and what you want. You can easily reach happiness by focusing on the side that you control – the want.
Professional investors don’t invest at home like they do at work
Part of being a great fund manager is being a great marketer. Over the years I’ve noticed that despite the compelling sales pitches for a particular strategy many fund managers invest differently in their own account.
This isn’t disingenuous. Professional investors are constrained and guided by a mandate. They may be required to outperform a benchmark, stay within certain risk limits, invest only in particular sectors or asset classes, or meet specific client expectations - all over a relatively short periods of time. Their job is to manage a specific strategy as effectively as possible.
Many professional investors and financial commentators that I meet invest for themselves in a much simpler, hands-off way. Not unlike a chef who works in a restaurant creating meals that require hours of preparation, complex flavour combinations and elaborate plating. At home two-minute noodles might be on the menu.
As an individual investor, they (and you) don’t have the same constraints. You don’t have to own a particular style of investment because it’s your job. You don’t have to worry about quarterly fund flows or whether your portfolio looks different from your peers. Your only mandate is achieving your own financial goals.
The lack of constraints gives you a structural advantage. We often assume that because a fund manager, financial writer or commentator specialises in a particular strategy, they must invest all of their own money that way too. In reality, many professionals build surprisingly simple, diversified personal portfolios because they understand that investing for themselves is fundamentally different from investing professionally.
Most market updates don’t require you to do anything
One of the most difficult parts of my job is trying to write engaging content each week, regardless of what is happening in markets. Priests spend their careers writing homilies each Sunday - all based on one book. My less holy profession and my own desire to provide useful guidance means I write about a similar set of foundational investing principles regardless of market conditions.
The fundamentals are surprisingly consistent. I attended a lunch that brought together arguably, some of the best economists in the country into one room, including a former RBA Governor. They took turns talking about their forecasts for the next 3-6 months and the seriousness of the economic situation that we were in.
I know that economic conditions such as interest rates, unemployment rates and low-wage growth cause many people stress, anxiety and suffering. But I also know that constantly adjusting a portfolio designed for the long-term based on short-term conditions makes little sense.
I anxiously waited for my turn to say that little of this factored into my work given my goal of helping people achieve their goals.
In 20 years, the timing of a 0.25% increase to interest rates will have no impact on your portfolio. The impact of most short-term movements are irrelevant for long-term investors It may concern professionals because it is their job to be concerned. It should not concern you. Focus on the fundamentals.
Professionals expect mistakes. Individuals expect perfection.
Individual investors tend to be unforgiving – at least when it comes to themselves. Professional investors are realistic about the frequency of mistakes for even great investors. s.
Many experienced fund managers are happy to share investments that didn’t work, calls they got wrong, or opportunities they missed. They don’t enjoy making mistakes, but they accept it is an unavoidable part of investing. Many individual investors hold themselves to a much higher standard.
A poorly timed purchase or a fund that underperforms can feel like a personal failure. We replay the decision in our heads and wonder what we should have done differently.
Professionals tend to ask a different question - did I follow a sound process? If the answer is yes, they recognise that good decisions don’t always produce good short-term outcomes. Investing is a game of probabilities, not certainties. That mindset is worth adopting. Success isn’t about eliminating mistakes, it’s about making sensible decisions consistently and accepting that some of them won’t work out.
Time and choice are the assets people value most
When people first start investing, conversations usually revolve around money. As investors become wealthier, the discussion shifts from money to time. Time with children. Time to travel. Time to care for ageing parents. Time to pursue meaningful work instead of simply well-paid work. The value of money is the choice it enables.
That’s changed how I think about financial independence, and I’ve written a little about my journey at the end of this article. The focus shifts from a particular portfolio value to increasing the number of options available to you.
Final thoughts
I’m lucky that I get to enjoy conversations and gain the imparted wisdom of hundreds of investors each year. Some of these conversations are with professionals. Most are with every day people who are trying to create a better life for themselves.
The best lesson from these conversations is to continually affirm that investing is not an academic exercise, but an involved art. It is knowing yourself, what you want from life and balancing the present and the future. Every day is an opportunity to further dispel my original assumption that investing is all about picking what goes in your portfolio.
Invest Your Way
For the past five years, Mark and I have released a weekly podcast and written on morningstar.com.au to arm you with the tools to invest successfully. We’ve always strived to provide independent, thoughtful analysis, backed by the work of hundreds of researchers and professionals at Morningstar.
We’ve shared our journeys with you, and you’ve shared back. We’ve listened to what you’re after and created a companion for your investing journey – Invest Your Way. Invest Your Way is a book that focuses on the investor, instead of the investments. It is a guide to successful investing, with actionable insights and practical applications.
If anyone would like to support this project you can buy the book at the below links. It is also available in Kindle and Audiobook versions. Thanks in advance!
