Investment Strategy

Investment Foundations

Utility Theory

More money allows you to satisfy more needs (utility).

But each dollar gives less happiness than the last one.

This is called ‘diminishing marginal utility’.

Define your own values and goals

Focus on achieving intrinsic goals consistent with your own values rather than extrinsic approval from others or financial success - especially for ‘achieving money worshippers’.

What are values, principles, and purpose?

Values

A quality or standard of behaviour that tell us what is ‘good’.

Expressed in general terms and focusses on what we value.

Often expressed in one or two words, such as “thriftiness” or “honesty”.

Principles

A specific rule governing behaviour that tell us what is ‘right’.

Specific and applied statements outlining how we may (or may not) achieve our values.

Often expressed in statements as “I’ll never …” or “I’ll always …”

Purpose

Provides our reason for being.

It explains why our values and principles are important.

Schwarts theory of basic values

1. Universalism
   • Protect environment, unity with nature, social justic, wisdom, equality, inner harmony.
2. Tradition
   • Devout, accept portion in life, humble, moderate, respect for tradition, detachment.
3. Conformity
   • Politeness, honouring parents and elders, obedient, self-disciplined.
4. Achievement
   • Successful, capable, ambitious, influential, intelligent, self-respectful.
5. Stimulation
   • Daring, an exciting life, a varied life.
6. Benevolence
   • Helpful, honest, forgiving, loyal, responsible, friendship, spiritual, mature love, meaningful life.
7. Security
   • Clean, national security, social order, family security, reciprocation of favours, healthy, belonging.
8. Self-direction
   • Creativity, curious, freedom, choosing own goals, independent.
9. Power
   • Social power, authority, wealth, preserving public image, social recognition.
10. Hedonism
    • Pleasure, enjoying life.

What is Financial Independence?

A situation in which the income you are drawing from your investments is enough to cover your living expenses indefinitely.

This means that you no longer need to do paid work

• freeing you up to do unpaid voluntary work
• or paid work that aligns with your values
• and spend a bit more time on leisure in relationships with others!

Variations on FIRE (Financially Independent Retired Early)

1. Fat FIRE

• More traditional lifestyle who saves more than the average retirement investor.

2. Lean FIRE

• Minimalist living and extreme savings with a far more restricted lifestyle.

3. Barista FIRE

• Work casual job to cover some living expenses (so they don’t erode investments too much)

4. Coast FIRE

• Work part-time job but have enough saved to fund their current living expenses.

3 Key Principles

1. Consisteny ‘save to invest’ at least 20% of your income (before-tax).
2. Avoid dumb investment decisions.
3. Diversify across multiple financial strategies.

Asset Categories

In order of lower risk to higher risk:

1. Cash - Transaction, Savings Account or CMT
2. Fixed Interest - Term deposits, debentures or bonds
3. Residential Property - Apartment, townhouse, duplex or house
4. Commercial Property - Shop, office, Listed Property Trust (LPT)
5. Australian Shares - Australian Exchange Traded Fund (ETF)
6. International Shares - Global Exchange Traded Fund (ETF)

Cash

Once you have a home or investment loan with variable interest rate, you also get a mortgage offset account and redraw facility.

• Mortgage offset is a transaction account with balance treated as principal reduction.
• Redraw facility allows early loan repayments but you still have access to funds.

These are basically a ‘very high-interest’ low-risk cash investment.

• Each dollar saves you paying interest on your loan
• so the ‘effective interest rate’ is the interst rate of your loan.
• The effective interest is tax-free because it was never paid to you.
• The level of risk is low (uncertainty with variable interest rate)
• The funds are still highly liquid (usually 24 hours or less).

Fixed Interest

Examples:

• Term deposits (greater than 1 year), government bonds, corporate bonds and debentures

Key features:

• Low risk, low expected return (but higher than cash), liquidity varies, high tax.

Investment time horizon

• 1 to 5 years

What to invest in fixed interest?

• Some of your financial slack
• Funds that you may need access to within 1 to 5 year time horizon
• such as a deposit on a home loan (for a traditional financial strategy)
• Living expenses for next five years if you are in retirement phase.

Residential Property

Examples:

• Home (apartment, town house, house …) or investment property

Key features:

• Moderately-high expected returns, moderate risk, CGT main-resident exemption
• Cheap financial leverage (borrow to invest), high fees, very low liquidity, non-divisibility.

Investment time horizon:

• 5+ years

Why invest in residential property?

• Long-term control over living expenses.
• Cheap financial leverage.
• Forced saving and long-term tax-effective wealth creation.

Commercial Property

Examples:

• Shop, office space, warehouse, or Listed Property Trust (LPT)

Key features:

• High expected returns, moderate risk, higher income yields than residential property
• Relatively cheap financial leverage (borrow to invest), varying fees, varying liquidity

Investment time horizon:

• 5+ years

Why invest in commercial property?

• Diversification (when purchased on stock exchange using LPT)
• Higher income yields than residential property.
• Small business ‘savings’ and ‘wealth creation’ strategy.

Beware!

Beware of lending to commercial property companies via debentures or unsecured notes

They often have nice and ‘stable’ sounding names.

These property companies usually have a lot of debt on balance sheet.

When the property market turns and asset prices fall, equity quickly drops to zero and investors almost everything!

Australian Shares

Examples:

• BHP Billiton, Westpac Bank, Qantas or Exchange Traded Fund that tracks ASX200 (STW)

Key features:

• Income + growth in price over long-term, liquidity and tax efficient

Investment time horizon

• 5+ years

Why invest in Australian Shares?

• Long-term growth in prices linked to inflation and real economic growth.
• Income from dividends is tax-effective.
• Capital gains can be deferred indefinitely if you avoid selling.
• Diversification reduces risk.

International Shares

Examples:

• Amazon, Google, Tesla, Tencent, or Exchange Traded Funds that track indices

Key features:

• Lower income but higher expected growth, less tax efficient, additional FOREX risk

Investment time horizon

• 5+ years

Why invest in International shares?

• Diversify across other world economies
• ASX200 has a greater focus on minimg, financials, and property
• …and not enough exposure to tech, pharma, and industrials.

Relatively Mainstream

1. Hybrid securities

• Convertible notes, preference shares

2. Energy assets

• Power stations, wind farms, oil and gas

3. Infrastructure

• Motorways, airports, railways

4. Hedge funds

• Speculation, low correlation

5. Private equity

• Leveraged buyouts, management buyouts

6. Venture capital

• Start-ups in tech, medicine, finance …

Non-Mainstream Investment

Cryptocurrencies (Bitcoin)

• Limited ‘value in use’ and generate no cash flows

Commodities (Gold or Oil)

• Driven by demand and supply, cost of extraction, and strategic interactions

Foreign exchange (USD)

• Driven by interest rate expectations, inflation expectations, trade and financial flows

Social and Copy Trading Platforms (eToro)

• Encourage short-term speculation (gambling)

Contracts for Difference (CFD)

• Unsophisticated way to engage in financial leverage for speculators (gamblers)

Financial Leverage

Two types of leverage

1. Operating leverage

• High fixed operating (living) expenses in proportion to total expenses increases risk.

2. Financial leverage

• High fixed interest expenses in proportion to total expenses increases risk (income leverage).
• High levels of debt in proportion to total assets increases equity risk (capital leverage).

Financial Leverage and Investments

1. Your first home

• with a home loan

2. An investment property

• with a property investment loan

3. Your brain (via education)

• with a student loan (HECS or FEE-HELP)

4. A diversified portfolio of shares

• with a margin loan (secured by shares)
• or an investment loan (secured by property)

For whom is financial leverage appropriate?

• Anyone who wants to buy a home.
• Low risk with your personal income.
• Long-term investment time horizon (10+ years).
• Maintain an adequate ‘cash buffer’.
• Able to avoid dumb investment decisions (behavioural risk).
  • High levels of self-control to avoid speculation.
• Higher personal income tax rate bracket.
• Investors who would like to achieve above average returns without resorting to speculation.

Positive v negative gearing

Tax implications of financial leveraged investment

Positive gearing

• Assessable income (rent or dividends) > Allowable deductions (interest and costs)
• Increases personal income tax

Negative gearing

• Assessable income (rent or dividends) < Allowable deductions (interest and costs)
• Decreases personal income tax

Warning

Too many people focus on tax implications of investment and end up choosing dumb investments!

Positive v negative cash flow

Cash flow implications of financial leveraged investment

Positive cash flow

• Cash inflow (rent or dividends) > Cash outflow (interest and costs)
• Increases cash flow (your pie) and flexibility

Negative cash flow

• Cash inflow (rent or dividends) < Cash outflow (interest and costs)
• Decreases cash flow (your pie) and flexibility

Not necessarily the same as positive or negative gearing due to depreciation and other non-cash expenses (accrued interest)

A nice situation can be negatively geared but positive cash flow!

Borrowing to Invest

Financial Leverage and Investments

1. Your first home

• with a home loan

2. An investment property

• with a property investment loan

3. Your brain (via education)

• with a student loan (HECS or FEE-HELP)

4. A diversified portfolio of shares

• with a margin loan (secured by shares)
• or an investment loan (secured by property)

Best to leverage with

Investment loan using property as collateral. Why?

1. Low interest rates (compared to other loans)
2. No margin calls
3. Banks prefer property as collateral
4. Easy to obtain if you have paid off some of the mortgage and property has gone up in value.

But if investments fall in value sharply and you cannot make loan repayments then you could lose your house!

What if you don’t have property?

You want to borrow to invest in shares but don’t have property?

DON’T use CFDs, Futures, or derivatives.

Consider using a margin loan. But be conservative please!

What is a Margin Loan?

Different from an investment loan that has property as collateral. Why?

1. Uses the shares as collateral on the loan.
2. Offered by banks through stockbrokers (such as Commsec).
3. Higher interest rates than property loans.
4. Subject to a ‘margin call’ if the shares drop sharply in value.
5. Flexible payment options such as ‘capitalising interest’.

• Interest just gets added to principal outstanding on the loan and isn’t paid.

6. Can be very easy to obtain if you have a good income.

Capitalising Interest

You are charged interest on the margin loan

• but they just add it onto the principal outstanding of the loan.
• so that it doesn’t affect your ‘net cash flow’ If price gains > margin loan interest then LVR will fall over time.

The interest is still an allowable deduction for tax purposes.

• so investment can be negatively geared (reduces tax)
• but positive cash flow from the dividends (increases cash)

What is an LVR?

Loan to value ration

LVR = Debt / Assets = Margin Loan / Market Value of Shares

If value of shares is $100,000 and margin loan is $50,000 then: LVR = 50,000 / 100,000 = 50%

A portfolio has three different LVRs

1. Current LVR

• Margin loan divided by current market value of shares.

2. Base LVR

• The maximum LVR based on the shares in the portfolio.
• This will depend on the volatility and liquidity of those shares as published in ‘Approved List’.
• For an ETF that tracks the ASX200 index, the standard LVR is 75%.
• so you could theoretically invest $25,000 equity, borrow $75,000 to buy $100,000

3. Margin Call LVR

• The LVR at which you will receive the dreaded ‘margin call’.
• This is normally Base LVR +5%.

The Dreaded ‘Margin Call’

You have exceeded the Margin Call LVR because you borrowed too aggressively and then:

1. A sharp decline in share prices over a short-period of time (usually)
2. A slow decline in share prices over a long-period of time.
3. Flat prices but capitalised interest caused LVR to increase slowly.

Solution:

1. Use your financial slack to pay down margin loan.
2. Sell shares

• Usually bad if they have just falled in value since it will lock-in the losses.

What is a safe LVR?

Many diversified ETFs have a base LVR of about 75%

• Which usually means the margin call LVR = 75% + 5% = 80%.

You need to be able to handle a 50% fall in market values.

• Most stock market crashes are about 30% - the worst are about 50% in developed markets.

If prior to fall in market prices

• Value of investments (assets) = 100,000
• Value of margin loan (debt) = 40,000 (LVR = 40%)

If the assets fall in value by 50%:

• Value of investments (assets) = 50,000
• Value of margin loan (debt) = 40,000 (LVR = 80%) Only just on the threshold of a margin call. Any margin call would be minor and you should be able to handle it from financial slack.

LVR robustness

How much can the value of your share portfolio fall by based on a starting current LVR if margin call LVR = 80%?

• Note that the market fell by 50% in the 2008-2009 global financial crisis

LVR 70% - Market fall 12.5% LVR 60% - Market fall 25% LVR 50% - Market fall 37.5% LVR 40% - Market fall 50.0% LVR 30% - Market fall 62.5%

Remember

• Investment loans (using property) are preferred to margin loans.
• Avoid using Contracts for Difference (CFDs) for financial leverage.
• Positive cash flow is preferred to negative gearing.
• Have you considered the costs of financial distress?
  • What if you lose your job for a significant period (in a recession)
  • How would you meet a significant margin call
• Do you have the self control to avoid speculation?
  • Speculation = picking stocks and timing the market
• Are you investing with a very long-term time horizon (10+ years)?
• Are you familiar with the tax implications?

Longevity and Sequencing Risk

Longevity Risk

Risk that you will outlive your retirement savings:

1. Investing too conservatively … low returns and slow capital erosion.
2. Investing too aggressively … exposed to fast fall in stock market.
3. Relationship breakdown … asset redistribution and higher expenses.

Sequencing Risk

Risk that the order and timing of investments and returns is unfavourable.

It is most significant during last 10 years of accumulation phase and first 10 years of retirement income phase.

You need to watch out for this between ages 50 and 75.

Sequencing and Longevity Risk Strategies

1. Age Pension may provide a ‘cushion’ as assets and income fall.
2. Accept and adapt … cut back in living expenses.
3. Remember that declining health could mean more frugal lifestyle.
4. May be able to obtain some financial help from family (children).
5. Use conservative assumptions when forecasting.
6. Diversify and avoid speculation (especially by bored retirees).
7. Invest next year of retirement income in cash.
8. Invest next 4 years of retirement income in fixed interest.
9. Buy a lifetime annuity if interest rates are high (transfer risk).

Risk Profile

Higher expected returns require higher risk

The higher the targeted expected return

• the higher the risk
• which results in higher volatility in the short-term

Can you keep your eyes on the long term goal:

• when you are experiencing short-term losses?

Can you handle the short-term volatility?

Can you show self-control and avoid selling in a panic?

Investment Risk Profile Tools

Help you to understand how you feel about risk and how you might behave when experiencing losses.

Provide guidelines on how to allocate investment funds amongst major asset categories (cash, fixed interest, shares, property).

Risk profile influenced by values, personality, experiences, and education.

Risk Profile Types

Tend to be very simplistic and try to push people into these different categories:

1. Very conservative

• Averse to growth investments and prefer income investments.

2. Conservative

• Mostly income investments with a small proportion in growth investments.

3. Average investor

• Balanced between income and growth investments.

4. Growth investor

• Mostly growth investments.

5. Aggressive growth investor.

• Mostly growth investments but including some financial leverage.

Asset Allocation

Strategic Asset Allocation (SAA)

Decides an appropriate long-term asset allocation.

Rebalance to the original allocation periodically.

• Asset allocation will deviate from target due to different returns of each category.
• Sell asset categories that have outperformed.
• Invest the proceeds into categories that have underperformed.

Does not require ability to ‘time the market’.

Focuses attention on long-term investment strategy.

Helps to avoid human bias to speculate on short-term ‘opportunities’.

Types of Asset Allocation

1. Strategic Asset Allocation (SAA)

• Long-term target allocation with periodic rebalancing to original allocation.
• Example: Cash 10%, Fixed Interest 20%, Commercial Property 20%, Shares 50%.

2. Tactical Asset Allocation (TAA)

• WARNING extremely hard
• Short-term deviations from SAA to profit from mis-pricing in asset categories.
• Example: You think there is a stock-market bubble so … Shares -10%, Fixed Interest +10%

3. Dynamic Asset Allocation (DAA)

• Continual adjustments to long-term target based on asset category performance.
• Targets are in constant flux.

We will focus on Strategic Asset Allocation

• TAA is far too prone to human bias and DAA is for professional fund managers.

Some things to consider…

1. Investment time horizon

• This will be affected by life stage and need for liquidity to fund large cash outflows.

2. Risk profile

• This affects mix of growth v income investments and willingness to take on financial leverage.

3. Life stage

• Younger people can take on more risk as there is more time to fix problems.
• More mature people need to consider sequencing and longevity risks.

4. Investment goals

• If expected to achieve goals with moderate risk, why take high risk? Avoid greed!

5. Financial literacy and experience

• More alternatives are available with higher financial education and experience.

People with lower financial literacy…

1. Less likely to plan for retirement.
2. Less likely to hold shares.
3. More likely to hold undiversified portfolio.
4. Less able to estimate the time needed to pay off a credit card balance.
5. More likely to incur fees for late payments.
6. Exceeding borrowing limits.
7. More likely to pay higher interest rate on their mortgage.
8. More likely to ignore or misunderstand financial literacy initiatives.
9. Less likely to seek advice from a qualified financial adviser.

Deciding on your strategic asset allocation

1. Cash buffer is in ‘cash’

• Cash buffer is minimum balance in your bank transaction account to pay bills on time.

2. Financial slack is in ‘cash’ and/or ‘fixed interest’.

• Financial slack is your ‘save to spend’ and emergency funds.

3. Funds ‘required’ within 5 years in low-risk investments.

• Fixed interest (term deposits), low-risk infrastructure or listed propery trusts (low leverage).

4. Determine strategic asset allocation for remaining investments

• Consider life-stage, investment objectives, time-horizon, risk-profile, and diversification.

5. Consider adding financial leverage when appropriate.

• Consider higher risk but also higher expected long-term returns, tax advantages.
• Time horizon must be 10+ years and you must be self-controlled (human bias).

FPA Portfolio Construction Process

FPA is the Financial Planning Association of Australia

1. Understanding the client’s objectives.
2. Understanding the client’s risk tolerance.
3. Determine the strategic asset allocation (SAA).
4. Testing the appropriateness of the SAA.
5. Discuss the trade-offs, implications, and alternatives.
6. Determining the investment process that suits the client’s needs.
7. Discuss the investment structure that meets the client’s specific circumstances and preferences.
8. Recommending specific investments and structures.
9. Ongoing reviews.

Investment Tips

1. Save to Invest

• Save at least 20% of your gross income and never plan to spend it.
• Kicks off the ‘investment income cycle’.
• The most reliable driver of wealth for your first 20 years.
  • Investment returns tend to be more important after first 20 years.
• Too many people focus on fancy investment strategies but neglect the basic strategy of just saving and investing over time!

2. Invest in what you understand

• Sophisticated investors avoid investments they don’t understand.
• For example, Warren Buffett (founder of Berkshire Hathaway)
• Avoid unnecessary complexity
• Increase your knowledge over time
  • Read good books and avoid ‘get rich quick’ books or courses.
• Understand clearly how the investment generates returns.
• Understand the likely outcomes in possible future scenarios (risks).
• Understand what events would trigger catastrophic loss.

3. Go with mainstream assets

• Cash (savings accounts)
• Fixed interest (term deposits or bonds)
• Residential property (apartment or house)
• Commercial property (shops, office space, listed property trust)
• Shares in companies in your own country (via ETF)
• Shares in companies in other countries (via ETF)
• Avoid non-mainstream investments such as Bitcoin, Foreign Exchange, Commodities…

4. Understand the risks

• Default or catastrophic risk
  • Chance of losing most or all of your investment (catastrophic loss)
• Total risk (sigma)
  • Uncertainty or volatility of future returns (standard deviation)
• Systematic risk (beta)
  • Sensitivity of investment returns to economic risks
• Higher expected return usually requires higher systematic risk.
• Higher total risk is not necessarily a problem:
  • if the investments are good quality, diversified
  • and you invest for the long term (5+ years)

5. Diversify

• Diversfiy across quality investments
  • If you invest in shares, don’t invest in just one company!
• Diversify across mainstream investment categories
  • Split your investments across cash, fixed interest, property, and shares.
• Diversfiy wealth creation strategies
  • Your ability to generate income, own home, other investments, retirement savings, and own business.
    • but not all and not at the same time

6. Diversify over time

• For a diversified portfolio of quality investments
  • the returns in one year are usually unrelated to returns in the next year
  • this reduce the total risk over the long term
  • returns should converge on the long-term average
  • also a trick called ‘dollar cost averaging’
    • if you are investing a large amount into a high risk investment, then you can decrease your total risk by splitting your investment over a few different years.

7. Invest based on investment time horizon

• Investment time horizon is how many years it will be until you need access to your funds to spend or make other investments.
• Short-term (0 to 1 year)
  • Low risk investments to protect the value of the investment.
  • Cash and some secure fixed interest.
• Medium term (1 to 5 years)
  • Moderate risk investments to protect value while achieving a moderate return.
  • Fixed interest and some low risk, diversified commercial property.
• Long-term (5+ years)
  • Higher risk investments with higher expected long-term returns.
  • A diversified portfolio of quality shares, commercial, and residential property.
  • Use time to reduce total risk - very bad years balanced out by very good years.

8. Avoid speculation

• Don’t try to ‘time the market’ or ‘pick stocks’
• This is not investing - it is gambling.
• Speculators think they are smarter than others (overconfidence bias)
• But most lose in the long-term showing they are not smarter.
  • transaction fees and behavioural biases
• Focus on building wealth by:
  • save to invest
  • diversifying across quality investments
  • investing for the long-term

9. Build your knowledge and experience

• Avoid books or courses that focus on:
  • Getting rich quick
  • Making money through speculation, picking stocks, or timing the market
• Read general books on personal finance and investment.
• Read specialist books on specific mainstream investments.
• Read ‘money’ columns on quality media and websites.
• Avoid anyone trying to ‘sell’ you a system.
• Avoid expensive non-university investment ‘courses’
• Supplement your knowledge with professional advice.
  • but avoid advisers who ‘sell products’ that are not in your best interest.

10. Take action

• Sometimes taking no action is worse than randomly choosing a good investment.
• Many people get ‘choice anxiety’ and do nothing.
• Start small and invest regularly.
• Stick with quality, diversified mainstream investments.
• Stick with large and trusted financial institutions.
• Don’t try to make the ‘best’ choice … avoid the ‘bad’ ones.

Financial and Investment Strategy

Phase 1a: Extreme Saving

1. Obtain a graduate position earning a basic full-time salary.
2. Radical surgery to cut living expenses so you can save 70%.
   • Move back home with parents or live in a cheap shared home, don’t buy a car, don’t buy meals.
3. Build minimum of $5,000 cash buffer in transaction account.
4. Build minimum of $10,000 financial slack in savings.
5. Save an additional $10,000 and invest into ETF that tracks ASX200 (or in my case DHHF through CMC markets).
6. Regularly invest additional savings into ETF keeping records.
   • Probably best to do this in $5,000 increments to minimise transaction fees.

Objective is to build up $20,000 in your ETF.

Phase 1b: Add Financial Leverage

Once you have $20,000 saved in your ETF…

1. Add a margin loan to your share trading account.
2. Borrow $10,0000 using margin loan and invest in ETF (LVR is 33%).
3. Capitalise the interest.
4. Continue saving additional funds into ETF.
5. With time and experience, adjust LVR up to 40%.

Objective is to build ETF to $100,000.

• with margin loan of $40,000 so your equity is $60,000.

Phase 2a: Buy First Property

Once you built your ETF to $100,000 ($60,000 in equity, $40,000 margin loan, 40% LVR)

1. Apply for $500,000 home loan with parent security guarantee.
2. Buy older non-trendy 2 beroom apartment for $500,000.
3. Rent out second room to a border on a ‘non-commercial basis’.

Phase 2b: Build Share Portfolio

1. Only pay the minimum monthly payments on home loan.
2. Continue to add savings to your ETF investment.
   • We are diversifying between property and shares and building investment cash flow.

Objective is to build ETF to $300,000 and have zero dwelling cost. - with a margin loan of $120,000 so your equity is $180,000 (40% LVR)

Phase 3: Zero dwelling costs

We now have no ‘net’ home loan payments.

Our salary has increased at work due to hard work and promotions.

We have kept expenses under control and can save 30% or more of income.

Your friends are all drowning in home loan payments and fixed expenses.

You have a lot of good alternatives!

Phase 3a: Aggressively pay down home loan

If you are happy living in your 2 bedroom apartment…

• Aggresively pay down home loan to cut home loan repayments.
• Salary sacrifice into superannuation to build financial independence.

Consider obtaining an ‘investment loan’ against property to reduce your margin loan to zero and lower interest expenses.

Phase 3b: Aggressively build share portfolio

If you are happy living in your 2 bedroom apartment…

Continue building share portfolio to build investment income.

Salary sacrifice into superannuation to build financial independence.

Consider obtaining an ‘investment loan’ against property to reduce your margin loan to zero and lower interest expenses.

Phase 4: Financial Freedom

Achieve financial independence primarily using super

1. Salary sacrifice into super
   • Up to the concessional contributions cap of $27,500 per year per person.
2. Gradually move investments into super as you approach retirement.
   • Up to non-concessional contribution cap of $110,000 per year per person.
   • Up to transfer balance cap of $1.7 million per person.
   • Try to ‘equalise’ superannuation with your spouse to avoid breaching transfer balance cap.
3. Create a TTR pension at age 60.
   • If you are still working, continue salary sacrificing up to concessional contribution cap.
4. Move TTR into account based pension when you permanently retire.
   • Enjoy tax-free income payments from pension and tax-free investment returns.

Phase 4: Freedom a bit earlier (FIRE)

1. Live a content and frugal life (Lean or Barista FIRE)

• keep living expenses low to achieve financial independence early.
• keep working until superannuation becomes available (age 60).

2. Build a large investment property portfolio (FAT or Coast FIRE)

• with a ‘passive income’ from the positive cash flow (rent).
• continue working only for the satisfaction of the work.

3. Build a large share portfolio (FAT or Coast FIRE)

• with a ‘passive income’ from the positive cash flow (dividends).
• continue working only for the satisfaction of the work.

4. Build a profitable business (FAT or Coast FIRE)

• and sell it to someone else for capital gains.
• continue working only for the satisfaction of the work.