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Chapter 1: What common investing traps do experts fall into?
Investing is one of the most powerful tools you have for building real financial security. It's also an area where it's surprisingly easy to get it wrong, especially as you build up knowledge. Because a little bit of knowledge can be a dangerous thing and it can actually create some traps. that mean that even as you're trying to do everything right, you end up shooting yourself in the foot.
These mistakes are common, they're costly, and most people only spot them in hindsight. Well, Chris Walsh is the co-founder of MoneyHub, where they have all sorts of brilliant guides to help you with your money. He's also, by his own admission, someone who has fallen into these investing traps himself.
My number one has been not dollar cost averaging. Single shares are also problematic.
Because here's the thing about these investing mistakes, they usually don't feel like mistakes at the time. They feel like opportunity, like confidence, like you've finally figured something out.
To borrow money to buy shares, risky.
But the good news is it's also incredibly fixable once you know what to look for.
It's a trap and I know this is, we're trying to focus on investing here, but you go backwards when you have all this personal debt.
So welcome to Making Sense. It's the podcast for people who want financial freedom without giving up their coffee. I'm Frances Cook, financial journalist and fellow financial freedom seeker who makes money simple for you. Today, the bear traps you don't always see coming and how to be a truly smart investor.
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Chapter 2: How does dollar cost averaging help in investing?
not doing the dollar cost averaging is really really kind of a sad thing because there's so much media there's so much market news there's so much stuff on reddit on socials and people just get spooked so that's been something which i've made that mistake in the past now i've sort of moved beyond it single shares are also problematic
In the past, perhaps when I was younger, it's like, oh, let's go all in on this. And I like funds. I like ETFs. But there's so much hype. And I would say to people, don't be put off by investing if you see markets move and just it's time in the market. It's not trying to time it. But there's lots of mistakes people make.
And those are certainly two which catch people out like over and over again because it keeps repeating.
100%. And I think part of the problem is some of the simple things that you mentioned there. They're very simple strategies. And it feels like we should be doing more to get more. The idea that these simple strategies can be the best ones feels counterintuitive. You mentioned dollar cost averaging, which, yeah. Love that strategy. It's still the core of my strategy as well.
I've been doing this for years now. Dollar cost averaging is the cornerstone of how I invest. For anyone who hasn't come across it, can you give us like a little nutshell definition of what that is?
Sure. So it's basically every week or every month you put money into the market. Now the market will move up and down as you do that, but you're always getting in at some sort of price.
and then over time that's your sort of dollar cost average i'm not trying to explain it with the term but say you buy it at one and then next month it's one dollar ten and then the month after it's a dollar twenty and then the next month it could drop because there could be some drama and it could it could go back down to a dollar ten then you've actually averaged out at a dollar what 12 i can't do the math on that but that's what you're kind of doing rather than missing out altogether
Dollar cost averaging, it's used by Wall Street, it's used by large financial institutions, Australian Super, it's used by KiwiSaver, and it's basically proven to work. So if you're in the market for a long time, and most people listening to this will be, then it's the way, like I think, is just to offset the risk of trying to time the market or anything like that and just be in the market.
And, you know, you only have to look at the S&P over the last 10 years. Yes, it's gone up. Yes, it's gone down. But if you've committed to that every month, every week, every fortnight, whenever, if that's likely to have been higher in the last 10 years,
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Chapter 3: What are the risks of picking single stocks?
And I don't think they use these taglines now, but it's not really about that. It's about making prudent financial choices for the long term. And that's why funds, and you mentioned the ETFs and indexes, they're just long-term winners when they're the right ones. Obviously some themed ones can get a bit crazy, but like,
it does seem to work well for people and that's what kiwi save is set up to be you're not going into some exotic stuff there you're not doing single stocks that's not the mainstream it is about looking at growth looking at aggressive looking at balanced and moving with the market to some degree some of them of course are actively managed there's just lots to kind of learn and i think people make these mistakes with just like going all in on stocks and it puts them off when they go wrong
And that's what I don't want to see when people see that negative 70%. What's my food bag done? I think it's down 85%. Allbirds, before it became an AI company, was down 99% or 98%. The AI pivot from Allbirds blew my mind. I mean, nothing wrong with Allbirds. Of course, they were a success for a certain point. Well, obviously, something is wrong with them because they're...
shutting down but um but it's that kind of stuff which you just get caught out and you don't seem to get caught out with these index funds and with well-managed funds um which is why a lot of money is pouring into them just be very wary of those single stock supernovas because it's really depressing when people post their you know down 95 staff oh sorry i don't i don't want to spiral
No, but it's true. It's true. We have to have these conversations so that people can guard their money. And I saw some analysis around Allbirds saying, yeah, hey, we're not doing shoes anymore. We're doing AI. Okay, bit of a pivot.
And this is analysis that there's not heaps behind yet, but I think it's very interesting market analysis where there's a whole bunch of sort of auto investing happening these days. It happens on keywords that is automatically scraping the internet. And so as soon as they had AI in the company description, there was a whole bunch of auto investments that happened, boosted the share price.
And then the people came back in and was like, out. And so the share price bounces back down again, which I thought was very interesting. And I would say, yeah, that's probably good analysis where I'm sure that was a big factor. Fascinating environment that we're in on that point. You mentioned something previously as well, which I think is a really good point.
This idea of the invest in what you know. And you're right. That was everywhere a couple of years ago saying, you know, invest in what you know. If you go out and you buy some Nike shoes, that shows that there's strong demand. You should also invest in it. And I think that's such a misread of the invest in what you know idea. And I would love your thoughts on this.
My thoughts are like, I love burgers. Having a burger on a Friday night, great time. Burger fuel, love it. So good. Am I going to invest in burger fuel? No, I'm going to buy the burgers for sure. But I know that I'm putting my money somewhere. I'm not getting it back. And the idea of investing in it, I worked in a cafe for a hot second many years ago. I don't know hospitality.
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Chapter 4: What does 'invest in what you know' really mean?
And I think it was a way to induce people into investing because it's like, well, I don't know what to invest in. And so it's like, well, invest in things that you like and brands that you like. This is very dangerous because Burger Fuel, for example, did its IPO 2008, 2007. I remember going there and there was this campaign of, would you like shares with that? Yes.
And the share price did nothing much. And they look, they, but they expanded, they went to the middle east, but that's an example of, did people really understand the economics of licensing agreements, of franchise arrangements, of actual making burgers? No, it was just this sort of hype. And so that share is now not listed. I think, yeah, I like Nike shoes.
Well, not, well, not me personally, but do I then go and buy the share? No. Like, you know, I like flying in New Zealand. I do. I'm not going to go in and buy the share. You know, there's lots of things I like, but, you know, they're paying me to use them in a way because they're losing money. Rocket Lab came out and, you know, that's been a massive success. But for a time it wasn't.
And, you know, the share price has now obviously done what it's done. But if people have got into that, they think, wow, you know, and I'm very pleased for them. But that is really quite rare. And this is why...
investing in what you like or invest in the brands you love i you know my food bag is an example of that people plenty of people love it um and it's got very qual it's a very quality product um the share price has not reflected the growth or the market's love for it so i think just be very careful on that and this isn't just me saying all this stuff to try to get people into funds it's just objective
It just works for 90% of people, you know, and it's tricky that, isn't it? Where obviously not everything works for everyone, but funds are so proven. They're such a simple way to invest. And again, I feel like sometimes a resistance to them comes down to people thinking, oh, it must be more complicated than that.
Yeah.
Yeah.
you get because you do a lot of events right you must have these conversations with people do you run into that sort of attitude people just want to wake up not feeling stressed about money and a way of doing that really is not by going into a shares account and or a stock account and lining up a whole bunch of uh stocks i think i think long-term investing in funds or etfs or actively managed funds if you want to
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Chapter 5: Is borrowing to invest a smart strategy?
But no, so people, if they are self-employed, I understand that they won't want to then manage it themselves and they'll just go and find an S&P 500 ETF or a fund. But for employees who don't want to forego that 3.5% and soon to be 4% next year because their employer's contributing, I find that problematic.
You're basically missing out on pay rights.
You are. And yes, it's taxed and there is some, you know, people say, well, it's not the full 3.5%, but the problem is if you're not doing that and you're doing it yourself, the chances are it'll fall off. And so it seems like so sensible just to do it, but there's almost this KiwiSaver, sort of alt KiwiSaver mindset that like, oh no, don't do it. It's the government or whatever. It's like...
And it's like, no, it's just going into like quality products for the most part. Plus your employer's helping you. And then the government will also top you up $261 if you earn under 180K a year, which is like 98% of people. And so this is just free money. And you don't get much free route like these days.
Take what you can get.
I would say KiwiSaver should not be overlooked. It's not a bad thing. It's not the government. The government's not going to take your money going forward. Fortunately, most people do like it. But the contribution rates, if you read the FMA reports,
are terrible and people are on these long-term suspension savings suspensions and it's like no can we just please do it i know 3.5 you are going to feel that but it's short-term pain versus long-term gain it's like we've just relaunched our compound interest calculator and you can put it in you can put in say you're contributing 500 a month which is a lot but like if it was if it's 200 a month plus that government contribution once a year
And then you watch that over 30, 40 years, even if you choose like 3%, 4% net, you're going to end up with a lot. If you have to think back to Warren Buffett, he made most of his money after 50. So people aren't expected to have all this wealth growth in their 30s and their 20s, 30s. and so on, it comes, it just compounds. So compound interest, people, that's just have a look at it.
Think about it. Try it out. Invest for the long term. That's it. It's not hard.
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Chapter 6: What financial foundations should you have before investing?
Usually that's what happens when you retire, you just drip feed yourself it and plus your super. And you want to be in the market long enough to accumulate more so you can move your lifestyle up from X to Y. Time in the market means you're going to be there for the long run.
And it doesn't matter what the Dow did or what the S&P did or what the NASDAQ did or what the NZX did on the Tuesday versus Friday versus the following Monday. It doesn't matter. Long term.
Well, this is the thing. I mean, this is off the top of my head. So I'm pretty sure these numbers are right, but the details might be wrong. Nobody hold me to this. But S&P, you know, as we've been talking about a lot, famous, you know, index fund aggregator, indices aggregator. And they also put out so much fantastic research.
They are watching the market all the time and crunching the numbers, very smart people. And they just put out some new research showing, now I believe it was over the last 15 years or 86% of active fund managers underperformed the index, which is like 86% is a wild number. That's huge. And you can take this from different times, but that's a pretty long period of time. Those are professionals.
Those are people who studied. They probably have their master's in business and finance and all that stuff. They're very, very smart people. They're in it all the time. And they are failing at picking an individual stock that's going to outperform just buying into a fund and leaving it alone.
Meanwhile, the rest of us, kids to feed, jobs to go to, going to try and read the news, not just the financial news, going to try and see our friends, our family. By the time we hear about something that could make a good stock pick or whatever, it's probably been a week. All of the decisions that happen that those active fund managers do, they do that in seconds to try and beat the market.
I just kind of feel like as an average person, if you're trying to do this yourself, you don't stand a chance, right?
It's tricky by the time you get a stock tip from someone at a barbecue. Is it too late? Well, it depends how early it was in the day in the barbecue. Because otherwise, because you might pass it on to other people. But stock tips around... Oh, we saw this in the 80s. Yes, I am old enough to remember that.
And there was suddenly groups of friends sort of became shareholder, sorry, share investing clubs. And there was a huge bubble and they're all giving, like getting tips off each other. It's very dangerous. And, but people deep down, I think humans do want some excitement with your investing because it's their money.
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Chapter 7: Are you maximizing your KiwiSaver benefits?
Okay. I'm not a fan of leverage investing within the share market. I always, I'll go back to, we were flying, this is years ago, to the Melbourne Cup. And a friend of mine logged into his ASB securities, a margin lending account, and he owed a lot. And then we went over, the first night we went to Crown Casino, there's a big group of us. He'll be proud of the story.
And then he just put his credit card in, which is an ASB credit card, and took out like 500 bucks.
and put it on black and it was red and it's like i'll take out twenty dollars i'll i'll think about it way too much and then i'll just go and actually redeem the chip or whatever it is and i'll get back my money um so it's appeals to a certain personality who likes risk plenty of people like risk but to borrow um to invest in the sense of shares
look i'm not a fan because there's too much debt in this country anyway credit cards crazy amount of debt none of it half of it not being paid off so it's long-standing debt then you've got those buy now pay later I'll call them ghastlies. Um, you know, they've kind of died down a bit, but they're still there. And then you've got personal loans, car finance.
Do we need now debt to take positions in stock to borrow money, to buy shares? Risky.
Well, this is what gets me as well. I mean, this is the 87 share crash, which New Zealand was hit really hard by. Some of the, you know, it's easier to look back. Good old hindsight. We can all see a lot more with hindsight.
And a lot of the stuff that I've read about why New Zealand was hit so hard by that was because we had been borrowing a lot to buy those shares, you know, extending the mortgage as far as you could take it in order to buy more shares.
And the problem is, you know, it's like we talk about all the time is like share market money is meant to be for money that you can leave alone for five to 10 years. If you've borrowed, you have to make those debt payments no matter what. And like you say, interest rates go up. That debt that you've got could become more expensive. It could be more than you're planning on right now.
And then you're going to have to make that payment no matter what. They're going to come and collect it. Meanwhile, your value of your investments might have cratered. It could recover. That could be fine as long as you give it several years. in that period of years, you're going to have to keep making those debt payments.
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Chapter 8: How can you correct past investing mistakes?
It's spinning plates, but not in a good way. Normally spinning plates is like, oh yeah, I've got lots on. It's all going well. But this is stressful. And why do you want all this debt? Look, I am very anti-debt. It drags you backwards. It drags you backwards. I mean, there's cheap debt and everyone loves cheap money when you can lock in for five years and at a low, low interest rate.
It's like, yes, I timed it. You know you didn't. You were just there at the right time. You got lucky. You got lucky.
but um i'm gonna have to make a comment around some of these cards that do the whole no interest payments i won't name them but everyone knows them sorry no interest and no repayments for say three years two years and i think those things i've read financial statements of around those companies is like They make so much money off the interest because they rely on people.
Oh, you bought this lovely sofa. You bought this TV. And suddenly now it's due in two years, but you don't have any money to pay for it. And so, okay, well, we've lost two years of interest, but we're going to get you for- playing the long game.
Three or four or five years they are playing the long game and okay it's unsecured debt it's a credit card type debt but I get emails and we have now a guide on it how do I pay off a credit card with an average salary so a lot of people are stuck on five to ten grand
And minimum payments, we've just launched a minimum payment calculator just to show how toxic some of these minimum payments are, because some of the banks charge as little as 2%. And their interest rates will be like 21%, 20%. So paying it off $1,000, if you just did the minimum, it's years and years and years. And so it's a trap.
And I know this is, we're trying to focus on investing here, but you go backwards when you have all this personal debt.
I've noticed this across a few of your different guides. And by the way, do hit us with the guides because no problem with that. That's why you're here. I love the guides you guys have got. You're absolutely prolific on the topics that you tackle.
But there was a theme that I noticed coming up across a few of the different investing articles where you talk about having the financial foundations sorted first. underrated because I think investing is one of those fun parts of money where you're like, oh, I'm going to put money in and I make money back. And that's exciting. Who doesn't want to make money? That's great. But it can go wrong.
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