Speculation Might Make You Wealthy – Patient Investments Definitely Will
Independent financial planner Brendan Dunn unpacks the value of smart investment decisions and patience in long-term wealth planning.
- Player: Brendan Dunn
- Company: Verso Wealth
- Visit: verso.co.za
Brendan Dunn CA(SA) is an Independent Financial Planner at Verso Wealth (PTY) LTD. Brendan is passionate about guiding clients through important financial life decisions. He continually looks to upskill himself so that he can continue to add value to his clients and help them to make the most well-informed decisions possible.
Q: What is the most valuable learning or piece of advice you've had that has been fundamental to the way you think about money and investments?
A former employer of mine once counselled me "You and your wife need to have your own money. You need to be financially independent of each other." This is something that really stuck with me.
Independence and autonomy lead to happiness and empowerment. She will be able to pursue her own future possibilities without having to rely upon me or vice versa. She will have money to spend wherever and however she sees fit and she will have her own income at retirement.
Q: Do you see a correlation between a wealth mentality and successful financial management – what has been your experience in observing this?
Money is psychological and emotional. Every person has a unique relationship with money. Having a wealth mentality is highly correlated to successful financial management. Those people who are committed to making every single cent count and who want to achieve their goals are the same people who are on top of their personal financial management.
If a person has a wealth mentality, they are often more open to learning and improvement when it comes to their financial management. They are not afraid to ask difficult questions of themselves and of their advisor.
They are committed to achieve their goals, even if it means delaying gratification and being a bit more ruthless with their spending in the short term.
Q: What mistakes have you seen people making when it comes to personal investing and wealth building?
We are all guilty of impatience when it comes to our investments. Being invested in growth assets (Equity and Listed Property) can be a volatile ride. Growth assets are frequently up and down and having the patience (or bravery) to ride through these trends and to keep contributing each month and a little bit more each year will be of tremendous benefit to us in the long term.
The temptation is always to stop contributing or withdraw our investments when markets are down, and performance is poor. It is in these times when it is most important to stay where we are and to keep contributing: Asset prices are low and the buying power of each rand we contribute is high.
Q: Einstein referred to compound interest as the 8th wonder of the world; are there other powerful levers many people don't know about or take advantage of?
I think what we do not appreciate enough as investors is that the most important thing is how much we contribute towards them.
By contributing as much as we can and diligently increasing our contributions each year, we are taking a significant amount of luck out of the equation.
I say luck because if we do not contribute enough towards our investments, we are expecting extraordinary returns or profits to boost our investments to the levels we want to reach. It is nigh on impossible to accurately predict investment and market returns. Why leave too much of it to fate? The more we contribute, the lower the return we will require to meet our goals.
Q: What is the one tenet you ascribe to above all else?
Diversification is key. This applies to what assets we invest in (Equities, Property, Bonds and Cash), where we invest in them (locally or offshore) and in what vehicles we invest through (Share portfolio, Unit Trusts, Retirement Annuities, Endowments, Tax Free Investments etc.). Each of these forms of diversification have distinct advantages and should all form part of our portfolios.
Q: What lessons would you teach your kids about from a young age?
- They are in control of their money: I would teach them how to plan what they spend and how to track what they spend. This will give them awareness and the ability to reflect.
- The money you do not give to others (spend) is yours to keep.
- Money can work hard for you if you know how to invest it and you have patience.
- Read. Read. Read. Read. Read. Read.
- We all have two ears and one mouth, and we should use them according to that ratio. We need to listen more and speak less.
- Respect every person equally regardless of who they are, what they do and where they come from.
- The biggest things we want to achieve in our lives are likely going to be expensive and ambitious. They are going to require focus and discipline to achieve.
- The four key virtues to embrace are: Honesty. Generosity. Patience. Humility.
Q: Which single book, podcast, blog or youtube channel would you recommend to people interested in investment?
Book: How Much is Enough by Andrew Bradley
Podcast: Personal Finance with Warren Ingram on the Money Show with Bruce Whitfield.
Q: Outside of unit trusts and stocks, what investment vehicles are you interested in and why?
Commercial property. It's an asset class that can be well diversified. You can have multiple tenants on one property and you can adapt the property to have multiple facilities, for example: converting some existing warehousing into shop space, office space and restaurant space on the same premises.
It's for this reason that I like Real Estate Investment Trusts (REITs). They are listed on the JSE like shares and each REIT is a property portfolio in of itself. Having a few carefully chosen REITs in our portfolio is vital. They provide regular income distribution (REIT (rental) income) and they appreciate in value.
Q: What's the latest fad influencing investment decisions that you think is over-rated?
We all like to make money and we like to do it quickly. It's exhilarating. We are pioneers in the newest, biggest and best thing. We are going to make a fortune by investing as much as we can in X (insert Company name, Cryptocurrency name, Mortgage Backed Securities name, Tulip name here).
Creating, diligently contributing towards (a little more each year) and never drawing from a well-diversified, low-cost and taxation efficient investment strategy is not going to shoot the lights out in one, three or even five years. It's going to take 10, 20, 30 and 40 years and many ups and downs to reap the benefits. Life is a marathon and simple and boring win the race every time.
This is speculation, not investment. Investment isn't exciting. It is simple and boring. But simple isn't easy: It requires a tremendous amount of patience.