Wednesday, May 1, 2019

My Interview with Andrew Craig - Founder of Plain English Finance and Best Selling Author of 'How To Own The World'

Hey everyone,

I was lucky enough to record a podcast with Andrew Craig - author of brilliant finance book 'How To Own The World'. The book has been the second highest rated book about investing on Amazon.co.uk after Ben Graham’s investment classic “The Intelligent Investor”.
I wanted to share my highlights and key takeaways from the conversation here because I have learnt so much from Andrew (over the past few years). If you are interested in personal finance (as you should be because you're in this subreddit) you will learn A LOT from this podcast episode. The notes below are a great summary also.

You can listen to the episode in full here (or just read the below notes):
Website | iTunes | Spotify

GENERAL MONEY TIPS

  • The failure of modern education is that it doesn't teach financial intelligence or rules for making money and financial stability – and this is one of the essentials of the modern world, and that’s why you have to learn it even if that means learning it through self education.
  • State pensions are now lower in most countries because they were created when life expectancy was much lower than it is today, and there were fewer pension beneficiaries. This Forbes article goes in depth about the growing pension problem and gives some alarming statistics. It’s another reason why you should start investing while you are young.
  • ‘’Compound interest is the 8th wonder of the world’’ - Albert Einstein. If you put £5000 at the day your child is born, and if it grows 10% annually – by the time it reaches retirement age that £5000 will turn into £945 000.
  • The global economy is growing at around 10% per year over the last 15 years. With the rise of the global economy you pretty much can, with some education, invest your money and expect high single digits return over the long term.

OWNING THE WORLD TIPS

  • Owning the world means owning all parts of asset classes – that is called diversification by assets.
  • Main asset classes: equities, bonds, cash, commodities & property.
  • Diversification by geography means investing across all the worlds geographies.
  • Between 2007 and 2009, the stock market halved - but oil was at the all-time high, gold prices increased, and Japan and China had economic growth. And that is why you need to diversify by assets and by geography.
  • The wealthiest people and institutions invest and diversify different assets in different markets. For example, the Rothschild family invested all over Europe, Oxford and Cambridge did too, and Ivy League colleges did the same in the US.
  • Online banking, cheaper transaction fees, and various new financial products have made trading and investing possible in the last 10 years - allowing a lot of people in the western world to invest across assets/geographies.
  • People often get swayed by sexy investments and get-rich-quick types of investing, such as Bitcoin or crypto, or the dot.com boom of the early ‘00s.
  • Stocks and shares ISAs (individual savings accounts) is the no.1 thing people should look into to build wealth safely, even though it is not a quick fix, magic pill solution. Here is a quick guide to stocks and shares ISAs.
  • Underperformance risk - when the devaluation of money is more than the interest rates that you receive when you have put your money in the bank or some other financial institution.

PSYCHOLOGY OF INVESTING TIPS

  • Social media exposure and the internet is only heightening the get-rich-quick mentality. Blogs and social media accounts with some sexy headline that promises to get rich in 3 months are more and more prominent.
  • ‘’History rhymes’’ - Mark Twain. Lessons can always be learned from what has happened before, and that’s why smart investors always expect down years and don’t panic when they arrive.
  • Life is a marathon, not a sprint. People overestimate what they can do in one year and underestimate what they can do in 10 years.
  • If you just let your money stay in your account at the bank - you are actually losing money, due to inflation.
  • One of the biggest misconceptions is that learning about finances and stock markets is only for rich people.
  • Learning about money and having your financial life in order doesn't take more time than learning to drive a car.
  • Money is not the root of all evil, and it can make significant changes in the world, like the Bill Gates foundation as the most obvious example.
  • 70% of people who win the lottery are bankrupt in 5-10 years - because wealth creation is all about knowledge and healthy financial habits.

FINANCIAL LITERACY TIPS

  • Modern people live in capitalism, but most of them don't know how capitalism really works.
  • ‘’The Millionaire Next Door’’ by Thomas J. Stanley and William D. Danko is an excellent book about financial literacy, about property and stock market investment.
  • Financial literacy and learning about financial markets can mean a night and day difference in your life, and it is not too hard to learn this skill. It’s quite complicated to become a great trader but to make basic investments you don’t have to be the next Warren Buffet.
  • You should always save and invest 10% of your income, however difficult it may seem. Reframe your mind to spend 90% of your income, it’s a psychological trick that will enable you to keep that 10% for investments.
  • The second big misconception is that you "don't have enough money to invest". If you put 10% of whatever you are making, you will have a decent amount of money when you are retiring, by the law of compound interest.
  • Calibrate your life so you can spend 10% a month - when there is a will, there is a way, even if you are saving 50$ a month. Saving on coffee will save you something, but rent payments are the first thing you should try to save on, and even consider moving if your rent is too high.
  • Don’t spend the money that you don’t have and live above your current earning ability, and especially don’t do it just to impress people.
  • Your first step towards investing, other than reading books and education - is to find a stock brokering firm, and to open an ISA account.
  • With the rise of the economy, investing in the stock market is hugely profitable. Everybody who invested in the UK stock market in 1955, would become a really wealthy person by now, even if they invested small amounts of money in small-cap companies, as this research suggests.

INVESTING TIPS

  • If you invest in risky, and volatile financial instruments over and over again, chances are high that you will strike gold eventually, even though it may not be the best strategy for most people.
  • The tortoise beats the hare – just starting to save a little bit of money now creates a habit and is far more likely to make you invest and gain interest in the long run.
  • Automatic investing every month in something makes you a habitual investor and impervious to the news - because there will always be a reason why you shouldn’t invest. People always think that we are living in far more volatile times than they actually are.
  • Asset allocation changes with age, you subtract your age from one hundred, and that tells you what portion of your investments should be in risky assets.
  • Learn about main investment classes and how will you mix those up – Andrews’ book ‘’Own the World’’ teaches how to think and make money by yourself.
  • Each small step you take takes you to the next place – always keep on learning and try different things without exposing yourself to significant risk. And that’s true in all aspects of life, relationships, health, and wealth.
  • To do good you must first do well – if you have your finances in order, then you can afford to give money to charity, and also help your family and put others in a position to be successful.

WHERE TO FIND ANDREW CRAIG



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