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Money Series: What will surprise you about investing

In the previous article we made it easier to execute on the vision for our ideal life by automating. Now, let’s investigate the surprises that await on our investing journey.


When we zoom out of our day to day lives, we notice that most things have happened before and therefore, most things will happen again. This helps us predict and prepare for surprises. As investors, this is a gift we can give to our future selves. 🎁

One of the interesting things about investing is that the pleasant surprises are just as likely to generate a poor decision as the unpleasant surprises. So we need to prepare for these too.

There have been some tremendous surprises over the 4 years I’ve been investing. Most of them are incredibly positive (dividends for days), a few of them not so positive (index fund investing is breathtakingly boring). By sharing these, along with how to respond were I to encounter these again today, I’m hoping that you will be better positioned to respond effectively if/when they happen to you. As always, you can and should choose your own course of action based on who you are and what you’re trying to achieve.

I have primarily invested in index funds, but no matter what you do with your money, you are likely to experience a version of these surprises.

Pleasant surprises when investing and how to respond

Pleasant surprise 😀Action 🎬
Combining finances and investing with your partner makes you a better investor (providing you communicate about money regularly!)Create a reliable system to discuss money together by booking a recurring monthly meeting in the calendar. This ‘money date night’ will help you stay on the same page when things change, which they always do.
Create money rules together. These are rules around money that you and your partner come up with. eg. “Discuss any individual purchase over $100 prior.” You can update these over the years.
If you’ve been together for a couple of years and you haven’t combined finances, either get a relationship agreement or ask yourself the question, ‘What is holding us back?’ Find a good therapist and unpack that.
If you don’t have a partner yet, talk about money with people you’re dating! This sets a positive precedent for discussing money for the rest of the relationship.
Your net worth can dramatically increase in a short amount of time, even when you’re investing in a low cost index fund.Even with a small amount invested, when the market is going up, it can take your breath away. Resist the temptation to think ‘I am smart’. Instead, view the increase with a shrug and look forward to the value of your investment dropping so you can purchase more units on sale! This mindset helps prevent greed and ego taking over. A good mantra to deal with this is ‘Don’t get too high on the highs or too low on the lows’.
How little tax you pay when your investments increase in value, when compared to how much tax you pay when your salary increases. The first year I filed my tax return after investing in index funds, I distinctly remember thinking “Ohhh, so this is how people become wealthy.”Happily pay whatever tax you owe. Focus on what you can control and what will make the biggest difference to your net worth over time—your investing behaviour.
How good it feels to invest more when the market is down. It’s like walking into the confectionery aisle and seeing everything is half price.Avoid trying to time the market and just keep investing. The one time you might make an exception could be during historic market crashes. It’s not unusual for cashed-up index fund investors to purchase a little more than usual during these times.
How investing well gives you more confidence to give money awayOpen an account on your internet banking and nickname it ‘Give’. Set up an automation that sends $20 to this account every week. Your job is to give this away each week. Build your giving muscle and have fun! For ideas on giving read this and this.
How good it feels to receive quarterly dividendsAutomatically reinvest them. Unless you’re old, there’s no point in withdrawing them and interrupting compounding. Even tiny amounts reinvested over time make a big difference.
The confidence it gives you in every other area of your life. I love knowing that I’ve got the money side of my life sorted, so I can focus on other things.When you see an opportunity, help others be great with their money. This could look like sharing what you do or giving someone a quick win such as asking if they know about the KiwiSaver Government contribution or donation tax credits.

Unpleasant surprises when investing and how to respond

Unpleasant surprise 😅Action 🎬
Your partner has a different attitude toward money than you doThis is very common. Start talking about it, so you can both understand one another’s views and where they come from. Then create a shared vision to work towards. Listen to couples talking about money on Ramit Sethi’s podcast I Will Teach You To Be Rich.
The value of your investments drop dramatically (>10%)Zoom out and see the bigger picture. Even for a low-risk investment like an index fund, it’s completely normal for this to occur every few years. Remember, you only lock in your losses if you sell. If you continue to buy when your investments drop, you’re getting everything on sale.
Index funds only: Investing is incredibly boringOver the long term, this is perhaps the most challenging thing about investing in index funds. With your automations set up to invest weekly, there’s a lot of time to kill—i.e. the rest of your life.
Reinvest all of this time on the things you love: family, friends, work, passions.
Whenever you are tempted to ‘meddle’ and roll up your sleeves with your investments, notice the thought and then let it go. Remind yourself that you are playing a different game to the one the majority of people play. Unlike property, stocks and crypto investors, you are boring. Own it.
Real estate only: there are a surprising number of unexpected costs, otherwise known as ‘phantom costs’Open an account on your internet banking and nickname it ‘Phantom’. Maintain a minimum that you are comfortable can cover any household emergency e.g. $10k. When the amount drops below this number, make it your top priority to get it back up to the minimum. This way, you never be caught unawares.
Real estate only: managing your property and its tenants takes up a lot of your timeHire a good property manager to reduce this. Treat managing your property like running a business, because this is essentially what it is: a business. If the stress and time-suck isn’t for you, do what many property owners eventually do and sell. Invest in something that will free up your time while delivering similar, if not superior returns, such as index funds.
You have to declare your investments on your tax returnYes, having investments adds some complexity to completing your tax return. The good news is that you are not alone. This is one of the most helpful articles to help you correctly declare investments on your IR3. Or just pay an accountant to do it.
A shiny new investment product comes onto the market that seems superior to the one you invested inIt’s good to be curious as it helps you learn. But here, it pays to zoom out again. What you are invested in is probably already ‘good enough’. For an excellent exploration into shiny new object syndrome read The Happy Saver blog post The Temptation To Sign Up To Endless New Investment Products.
Real estate only: You used your KiwiSaver to buy your first home and now you have no retirement savingsAggressively pay off that mortgage while saving for retirement. It’s very important you do both, to allow compounding to take effect on your retirement savings. This attitude helps you avoid the fate of many homeowners—being asset rich but cash poor.

Having a good handle on your emotions so that you can make consistently good decisions with your money is the key to realising the ideal vision for your life. The same way you would wait a day to respond to an email that makes you all hot and bothered is the same level-headed approach you need to be successful at investing.

Even if you decided to invest in boring old index funds like I have and you are confident in your long term plan, it doesn’t mean the emotions stop. I feel everything deeply, the same as a V-drinking day trader does.

By being aware of the surprises along the way and having a plan for how to respond, we can surprise ourselves at how effectively we are able to steady the ship in any weather, as we sail off into the sunset. ⛵🌅

Next steps

Once you have prepared yourself for some of the surprises that lie ahead on your investing journey, the next step is to expand our definition of wealth so we can become wealthy before the numbers catch up. This will be the topic of the next article in this Money Series. I’ll link to it here once it’s published.

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Notes

Thanks to Christine Chow, Louie Curnow, Cynthia Gao, Rakhesh Martyn, Lauren Parker and Sierra Truong for reading drafts of this.

Also to Dave Cameron, Claire Twyman, Adam Walmsley and Pippa McCormack Wolf for reading a very early draft of this.

Disclaimer: Like your all-knowing uncle telling you the latest stock tip, this should not be considered financial advice.

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