Learning The Importance of Money From A Young Age

Why do we observe that some people are very prudent with money, saving and investing for the future, while there are others who spend recklessly and tend to live only for the moment? Perhaps, it could be due to their understanding about money from a young age that carried over to their adulthood. In this article published in yesterday’s Sunday Times Invest section, “Compounding your investments pay dividends”, we can see how Mr Christopher Forbes, the head of an investment platform, learnt about the importance of money from a young age as his father was thrifty but often worried about meals and monthly expenses. So, for today’s 156th week of our #SundayTimesRecap series, let us learn from his attitude towards money when growing up, and his philosophies towards investing so that we can apply the relevant ones to our life and investment journey:

1. The early years that shaped his view of money. His father was a building surveyor, while his mother was a Japanese who worked in various odd jobs from mortgage approvals to working with ballroom dancing apparel and teaching Japanese at night school. They did not grow up wealthy, but his parents afforded a lifestyle that enabled him and his brother to have basic holidays, dining out during birthdays, and ensured that they grew up educated to get good jobs. At 13, he saw people with nice cars and lavish lifestyles while working as a caddy at a golf club. It inspired him to want to be wealthy like them, and after discovering that they were mostly involved in banking and finance, it led him to study and fall in love with finance. Sadly, his father, who taught him the importance of money by diligent saving, had dementia at an early age of 55 years old and died after a 16-year battle. Through his father, and now with his background in finance, he was able to come to the realisation that his parents’ lack of investments had held them back financially. Therefore, he sought investments besides savings to grow his personal financial portfolio.

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2. Compounding your investments is the single biggest gift in the financial world. The important part of investing is to start early and have discipline, both in terms of consistency in your monthly investing and in managing your portfolio in good and bad times. When investing feels great and you’re making money, that is the time to consider your position. When it’s all so painful and you’re losing money, that’s the time to buy. Retail investors often do the opposite by chasing performance, buying hot stocks, and selling them after their investments are in the red. The best investors buy cold and sell hot instead.

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3. What his current focus is on. He spent 16 years chasing money at almost all costs, which led to burnout, stress and strains on his personal and professional lives. Now that he has a young family, he has finally managed to detach himself from outcomes, and instead spend most of his mental space being present and focused on doing the right things. Whenever he chased money, it broke something in his life. With maturity, he realised that if he just did the right things, the financial side of his career would take care of itself. Therefore, his current sole focus is to ensure that his children have the best possible education and opportunities. Managing his emotional attachment to money and breaking free from outcomes really helped him focus on what matters.

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4. How his personal financial portfolio looks like. It is reasonably diverse and contains 10% insurance, which includes general, critical and life insurance, and 28% of a concentrated portfolio of high-quality equities (largely Dow Jones and FTSE 100 businesses). Another 5% is in some speculative businesses he owns through a broker in industries such as iron ore, nuclear energy and gold miners. He also has 20% in private equity, 15% in corporate bonds and another 15% in UK individual savings accounts and 5% cash. Lastly, he has 1% in crypto and alternative investments like whiskey and watches.

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5. What his biggest investing mistake and best investment is. His most expensive mistakes are from following financial experts such as those on social media like Reddit, analysts, and management teams with misaligned interests. Other mistakes include diversifying too much, not cutting losses quickly enough, and locking in profits too soon on his winners instead of letting them run. However, his best investment was in 2019, buying some corporate credit bonds and invested in an Indian non-bank financial company and a Vietnamese bank. The blended yield was roughly 6%. Both bonds dropped in value during Covid-19 to an implied yield of 30 to 40% each - he continued to buy all the way down and increased his investment to almost four times the original size. By doing his homework, speaking with analysts, reading company reports, seeking an independent view on both businesses, he was confident that he did not need to worry about a default. Therefore, he held both to maturity and continued to pick up semi-annual coupon while enjoying the price appreciation on the bonds. This experience taught him a lot about his abilities and anchoring in his analysis of the situation. The easiest thing was to sell the bonds at the maximum point of fear, but instead he doubled his position, and it paid off handsomely.

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Reading his story, we know that we cannot turn back the clock to study finance from a young age. But what we can do is adopt the same mindset when investing, to invest when it feels painful to do so when prices are falling, and to think twice about your position when we feel great. With the right mindset, the next step is to find the right instruments to invest in. Let my teammates and I guide you during our next webinar, when we will share lesser-risk strategies that you can invest to create a monthly income stream that lasts you a lifetime - “The Lifetime Income Streams” happening next week Thursday 20th Jul 2023 at 8pm. Register for a seat – select “Invited by Victor” - here: https://www.thelifetimeincomestreams.com/tlisvip and I look forward to see you soon!

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