10 Steps to

Investing
Smarter,
Happier, and
Richer
Everybody has their own reasons for wanting to invest.

Some people want to buy a home, car, or boat. Others are striving for
financial independence. Still others just want to be able to afford a
comfortable retirement.

Whatever your reason is, The Motley Fool is here to help you invest the
right way.

We Fools love everything about investing. We know that investing — when

done correctly — can literally transform small sums of money into life-
changing amounts of wealth.

When you invest, you put compound growth on your side. And make no
mistake, compound growth is an incredibly powerful wealth-building tool.

Consider an investor who simply saves $100 per month. Here’s how that
level of savings would grow over 40 years, when put into three different
types of accounts: 1

Initial Monthly Annual Interest

Account Total
Deposit Deposit Rate

2
Term Deposit $100 $100 4.85% $147,454

3
Savings Account $100 $100 3.10% $95,187

4
Share Market $100 $100 9.6% $480,438

1 All calculations performed using Money Smart’sCompoundInterest Calculator

2 Judo Bank, accessed 18/10/2022: [Link]
rates/
3 Citi Bank, accessed 18/10/2022:
[Link]
4 Australian shares, accessed 18/10/2022:
[Link]
Investing in the share market turns a $100-per-month investment into
nearly half a million dollars over a 40-year period.

That’s the power of putting compound growth on your side.

(Of course, investing returns are never in a straight line, nor are any returns
guaranteed. The above table doesn’t account for volatility, nor does it take
into account the varying levels of risk associated with the various kinds of
accounts mentioned above; it’s meant for illustrative purposes only. But we
hope you get the gist of what we’re saying!)

Now imagine how big this number would be if you were able to invest
$200, $500, or even $1,000 per month.

Or, imagine how much money you’d have if you were able to do better
than the share market’s long-term average return of 9%.

And yet, if you listened to conventional wisdom, you might think that
investing is “too complicated” for the average person. You have heard
that investing should only be done by “professionals” who watch the
market’s movements all day long.

We disagree.

In fact, we firmly believe that good investing can be summed up in one

simple sentence:

Buy great companies and hold them for

a long period of time.

That’s it!
You don’t need fancy credentials or complicated strategies to invest the
right way.

You don’t need to watch the market every day to do well.

All you need is common sense, optimism, and a lot of patience.

This guide is designed to help you get started on your journey to

becoming a great investor. In it, we lay out a systematic approach to
investing that should benefit novice and seasoned investors alike.

Yet, as much as Fools love investing, we know that other financial matters
need to be tended to first. You can’t invest for a long period of time until
your financial house is in order.

That’s why we start by making sure that you are ready, willing, and able to
invest the right way. We’ll start by covering the most important personal
finance principles such as:

Paying yourself first

Eliminating high interest debts
Amassing an appropriate cash cushion
Keeping your short-term money in alternative options like a savings
account
Putting long-term money into the stock market

Second, we’ll walk you through the most important investing principles,
including:
 Buy businesses, not tickers
Be a lifelong investor
Diversify
Fish where others aren’t
Check your emotions at the door
Keep score
Be Foolish and have fun

Finally, we’ll cover some of the more advanced investing topics in detail,
such as:

What types of accounts to open

How to avoid the biggest investing mistakes
What information you should pay attention to, and what you should
tune out
The benefits of investing in index funds
How to discover great businesses to invest in
The reasons you should consider investing abroad
When you should - and should not - sell a stock

If you’re interested in diving deeper into these Foolish principles,

please keep reading!
Intro
Your Ticket to Financial Independence
Why do you want to invest? Some people have dreams of an early
retirement. Others want to be able to provide their children with financial
support when they’re older. And many more want to be able to leave a
legacy for their families. A few just want to buy a really sweet boat.
Whatever your reasons — and there’s no bad reason to invest — it’s really
all about creating opportunity.

You want to earn enough through your investments to ensure your

financial comfort and to be able to do the things that matter most to you.
You may not realise it, but you’re about to embark on a journey to
financial independence. In the same way modest initial investments can
amount to life-changing sums down the road, these few modest pages
might well make a huge difference in your life, enabling you to:

Retire early
Provide financial support for your children and grandchildren
Buy that summer holiday home
Travel the world

If you’re an investor — or a soon-to-be investor — you’ve probably heard of

The Motley Fool. But you might not yet have a good grasp of what we’re
all about and what it could mean for you. The Motley Fool was conceived
by David Gardner, Tom Gardner, and Erik Rydholm, who created the first
issue of The Motley Fool printed newsletter in July 1993. The Fool
debuted online a year later, with the same goal we have today: To help
you to invest for yourself and gain control of your personal finances. We
were founded as an antidote to the conventional wisdom that the
individual investor was doomed to underperformance. In fact, we’ve
proven empirically and unquestionably that individuals can beat the
market.
Our mission is to make the world smarter, happier, and richer. The Motley
Fool truly is a place with a passion and a purpose. There is a lot of
laughter within the walls of Fool HQ. But we are serious about the
business of financial education and advice — after all, your money is on
the line, and so is ours. Our name comes from Shakespeare, whose fools
instructed and amused, and could speak the truth to the king… without
getting their heads lopped off. We speak our minds.

We strive to educate, amuse, and enrich, all at the same time. We know
that most people have never been taught much about finance or
investing, and that a glance through the Australian Financial Review or a
managed fund prospectus can be confusing or intimidating.

In the wake of the global financial crisis, many people stayed out of
investing completely, missing out on the more than 115% gains the
market has posted since 2009. Let us help you untangle and demystify
the world of finance. Give us a little time, and we’ll show you how you can
beat the market at its own game.

We think that the person who most has your financial best interests at
heart is you. You’re the one who should be making the decisions
affecting your financial future. And you don’t need an MBA, a bow tie, or a
pair of suspenders. Believe it or not, some fifth-grade maths is pretty
much all you need. Once you’ve got a little painless learning under your
belt, we suspect you’ll find that taking control of your financial future can
actually be fun. And you can feel good about avoiding the hidden fees,
questionable motives, and high costs for the underperformance so
common among brokers.

You’re the one who should be making the

decisions affecting your financial future.
Tending your financial garden isn’t as mysterious and complex as you’ve
imagined. The professional Wise men of the ASX (the Australian
Securities Exchange), however, would like you to keep thinking it’s too
difficult to do yourself. That way you’ll entrust your hard-earned dollars
to them so that they can generate fat commissions for themselves. (Yes,
there are some good brokers out there worth the money they charge. But
know that most financial advisors earn much of their pay by churning
you in and out of investments, often leaving you with subpar
performance. More on this later.)

If you’re like many people, you want to learn to invest, but don’t know
where to start. That’s understandable, given the plethora of financial
information — and misinformation — out there. Enter this modest guide.
In it we lay out a systematic approach to investing that should benefit
novice and seasoned investors alike.

We first focus on getting your financial house in order, then move into a
discussion of various investment options, and later address more
advanced investing topics.

No material in this guide should frighten or intimidate you. You don’t

need any fancy credentials to understand anything in here, but that
doesn’t mean you should jump immediately into the market whole hog.
Ease into investing. Take it one step at a time. Don’t take any action until
you’re comfortable with what you’re doing. Without further ado, let’s part
the curtains and unveil the Foolish approach to investing.
TABLE OF CONTENTS

STEP 1:
CHANGE YOUR LIFE WITH ONE CALCULATION 01

STEP 2:
TRADE CONVENTIONAL WISDOM FOR FOOLISHNESS 05

STEP 3:
TREAT EVERY DOLLAR AS AN INVESTMENT 08

STEP 4:
OPEN AND FUND YOUR ACCOUNTS 15

STEP 5:
AVOID THE BIGGEST MISTAKE INVESTORS MAKE 18

STEP 6:
DISCOVER GREAT BUSINESSES 23

STEP 7:
BUY YOUR FIRST SHARE 25

STEP 8:
INVEST LIKE THE MASTERS 28

STEP 9:
DON’T SELL TOO SOON 32

STEP 10:
RETIRE IN STYLE 35
STEP 1
CHANGE YOUR LIFE WITH ONE
CALCULATION
If there were an eighth wonder of the world, we’d nominate the equation
for compound interest:

Your money x (1 + i)^n.

(If you’re not a maths geek, don’t worry; we’re going to decipher that for
you.)

Albert Einstein declared this simple formula the “greatest mathematical

discovery of all time.” And it’s your ticket to financial independence.

That’s right — just three straightforward inputs can change your life: the
amount of money you invest; the rate of return you get; and how much
time you have to let your money grow.

Hate maths but like money?

Read on. Since words cannot adequately describe the magical nature of
compound interest, let’s try a few visuals. Here’s how a single $1,200
investment grows over time in three savings scenarios:

The Motley Fool Australia 1

 Annual Interest
Account Initial Deposit Total
Rate

5
Term Deposit $1,200 4.85% $8,318

6
Savings Account $1,200 3.10% $4,140

7
Share Market $1,200 9.6% $54,984

As you can see, simply socking away one lump sum and leaving it alone
could turn $1,200 into nearly $40,000 over 40 years. Not only have you
earned interest, but you’ve earned interest on your interest. And all you
had to do was invest your first paycheck. That said, let’s be honest:
$54,984 ain’t what it used to be. So let’s make one small revision and
invest $1,200 every year. Behold compound interest in a mildly
caffeinated state:

Initial Annual Annual

Account Total
Deposit Deposit Interest Rate
5

Term Deposit $1,200 $1,200 4.85% $147,740

6
Savings Account $1,200 $1,200 3.10% $96,630

7
Share Market $1,200 $1,200 9.6% $523,473

5 Judo Bank, accessed 18/10/2022: [Link]

rates/
6 Citi Bank, accessed 18/10/2022: [Link]
interest-rates/
7 Australian shares, accessed 18/10/2022:
[Link]

The Motley Fool Australia 2

Now we’re at half a million. Not bad, right?

Still, we think you can top it. In fact, it’s not a stretch to get near that
magical $1 million milestone. Just save $2,500 a year (a mere $208 a
month), and at 9.6% you’ve got a million dollars in 40 years. Or stick with
the $1,200 annual contribution but improve your investing skills (which
the rest of this guide will show you how to do). If you are able to beat the
share market’s average annual returns by a mere 3 percentage points,
the $1 million prize is yours.
You see, it all lies in the beauty of that compound interest calculation we
showed you earlier.

The calculation: (Your money x (1 + i)^n) has three variables working in

your favour. Improve one (or all three) and the more your money will
grow.

The three inputs are:

1. How much you invest (your money)

2. The rate of return on your investments (i)
3. How many years you keep your money invested (n)

The best part about compound interest is that it works the same for
everyone, whether you have $20 to invest or $200,000. If you don’t
believe you can become a millionaire with just the resources you have
right now, keep reading.

Typically, the more risk you are willing to take on (by, say, investing in
shares rather than bonds), the higher your potential return. Unfortunately,
risk is a four-letter word to a lot of people: They’re happy to settle for
lesser returns to avoid it.

But stuffing all your savings under your memory-foam bed — or even
relying on safer investments like transaction or savings accounts — can
be far worse for your financial future.

The Motley Fool Australia 3

It’s not simply that they return less.

It’s that they often barely keep up with the rate of inflation, and that
means your money isn’t going to go as far as you think. We Fools believe
the best place for your savings for the long term (key word, as you’ll
discover) is the share market.

In finance textbooks, “risk” is defined as short-term

volatility. In the real world, risk is earning low returns,
which is often caused by trying to
avoid short-term volatility.

There you have it: your ticket to financial independence boiled down to
one simple calculation. But obviously a calculation is only as good as the
variables you provide it with. So start saving right now (as much as you
can), and invest it well. After all, the sooner you get the wonder of
compounding working for you, the sooner you’ll reach your financial
dreams. And that’s exactly what this guide will help you do.

The Motley Fool Australia 4

Step 2
Trade Conventional Wisdom for
Foolishness
In Shakespearean literature, the court jester was the one character who
could speak the truth to power. The Fools of yore weren’t simply stand-up
comics sporting belled jester caps — they entertained the court with
humour that instructed as it amused. More importantly, the Fool was
never afraid to question conventional wisdom, particularly when popular
thought was detrimental to the kingdom’s people.

The fool doth think he is wise, but the

wise man knows himself to be a fool.
- William Shakespeare, As You Like It

See where we’re going with this? For decades, institutional investors have
insisted that only experts can succeed at investing or figure out the best
way to manage your family’s finances. We’re here to tell you that’s bunk.
You can secure a comfortable financial future, and you don’t have to go it
alone.

Our job is to show you how to take control of your own financial life so
you can make confident, well-informed decisions about every dollar that
passes through your hands, whether you’re saving it, spending it, paying it
back, or making it grow.

Most everything in Fooldom is here to fulfil this part of your mission, and
we want nothing more than for you to succeed. Take a look at these
seven essential principles of investing. They represent the core of Foolish
investing and provide the foundation for everything else you’ll learn in this
guide.

The Motley Fool Australia 5

Principle No. 1: Buy Businesses, Not Tickers.
This one is straight from the mouth of famed investor Peter Lynch, who
generated 30% annual returns while at the helm of American financial
services company, Fidelity’s Magellan managed fund. At The Motley Fool,
we buy into a company’s prospects, its future, and its management. We’re
not interested in trying to divine value from a share price chart, and we
don’t blindly invest in a hot industry. We prefer to put our money
alongside a company we believe will generate shareholder value over the
long term.

Principle No. 2: Be a Lifetime Investor.

We’re long-term investors who believe in capitalism and thriving industry.
But we don’t just buy our shares and forget about them. We keep tabs on
them, follow the news, study the earnings reports, and strive to learn
more about the industries our companies operate in. We also add money
to our shares regularly, so we’re continuously saving and investing.

Principle No. 3: Diversify.

We believe in building a diversified portfolio, much like Walter Schloss,
who generated astounding annual returns during his lifetime and held
nearly 1,000 securities. We need not own that many companies, but a
diversified portfolio of at least 15 companies (to start with, building up to
25-30) protects us from the inevitable blips — and allows us to sleep well
at night.

Principle No. 4: Fish Where Others Aren’t.

We’re not interested in following the crowds. We are interested in thinking
for ourselves, doing our own research, and making our own decisions. Bill
Seidman once said, “You never know what the American public is going
to do, but you know that they will do it all at once.” Change is as rapid as
it is unpredictable.

Principle No. 5: Check Emotions at the Door.

We recognise that share prices will move up or down for a variety of
reasons — and often these movements happen daily. We manage our

The Motley Fool Australia 6

temperament and don’t let our emotions affect our decisions. If shares
we like dip for an unjustified reason, we’ll load up rather than sell out.

Principle No. 6: Keep Score.

We believe in accountability and have tracked our positions from the get-
go. Day or night, you can find the performance of all of our picks on our
online scorecards. Does your broker do the same?

Principle No. 7: Be Foolish and Have Fun.

People are conditioned to believe that investing is too difficult for the
average Joe or Jane saver — and that money issues are best left to the
professionals. But we believe you can potentially do it better than your
broker — and we think you should have fun along the way.

The Motley Fool Australia 7

Step 3
Treat Every Dollar as an Investment
You’ve probably heard the adage, “Pay yourself first.” It’s part of the
financial canon — the de facto Rule No. 1 for managing your money. It’s
certainly sound advice, but it might leave you wondering: How much?
How often? Where to put it? What’s next?

Don’t pay yourself just yet

As far as financial rules-of-thumb go, we think we’ve come up with a
better one. In case you overlooked the big, bold headline, we prefer this
mantra: Treat every dollar as an investment. That’s the very foundation of
successful investing. We like it because it offers a clear guideline for
every financial decision you encounter.

An investment is anything that affects the quality of your life. Make

one great investment every day.

To us, an investment is more than a trade you make in your brokerage

account. An investment is anything that affects the quality of your life.
Once the basics (food, shelter, workplace- appropriate attire) are covered,
every dollar equals opportunity. And every day presents new opportunities
to make your money work harder for you, whether for long-term gain
(retirement savings), short-term safety (an emergency fund), or
immediate pleasure (mocha latte — hey, we’re not here to judge).

After a while “treat every dollar as an investment” becomes second

nature. It seeps into your subconscious like a catchy song you just can’t
shake. Soon you’ll be looking for “investment” opportunities in every nook
and cranny. But before you set up your brokerage account and dive in,
make sure you’re not overlooking a few essential rules.

Rule No. 1: Pay off The Man first.

In almost every scenario, there is no better use for your first freed-up
dollars than paying off high-priced debt, which, for most, means

The Motley Fool Australia 8

 revolving credit card or buy-now-pay-later debt. We’ll prove it. Consider
the difference between saving $200 a month and coming up $200 short
and covering it with a credit card. If you assume you stuff your $10s and
$20s into a coffee can, your credit card charges 18% interest, and you pay
a minimum $15 a month toward the balance, here’s where you’d be:

As you can see, “Pay yourself first” points you in exactly the wrong
direction in this scenario. Stashing your cash in a savings account
earning nearly 20 times less in interest than you’re paying on those
lingering credit card balances leaves you $6,288 in the hole after five
years, and you’ve paid nearly $7,000 in cumulative interest charges
alone. The bottom line:

If you have credit card debt, invest in its destruction.

Rule No. 2: Amass a cash cushion.

Stuff happens — stuff that requires you to have some cash on hand —
you lose your job, your car’s transmission fails, your dog needs
emergency tail surgery. If you don’t have the money readily available,
you’ll likely have to patch over the problem with a credit card… which
works against Rule No. 1. Your emergency fund needs to be readily
accessible in a simple savings account. Don’t expect to make a killing on
this investment. The interest you can get on most savings accounts
won’t even keep up with inflation. That’s a bummer, but an emergency
fund is a necessity. How big should this essential investment be? Here
are some basic guidelines:

The Motley Fool Australia 9

Sweat the big stuff and the 80/20 rule
One other thing we want to make clear: Not every “investment” has a
dollars-and-cents return. Or, in more practical terms: Go ahead and enjoy
your daily latte. At The Motley Fool, we’re hardly advocates of
excruciating denial and extreme penny-pinching in the name of
“investing”.

We’d much rather you spend your energy on the big stuff that really pays
off — the 20% of line items on your budget that counts for 80% or more of
your spending — things like your mortgage, cars, travel, insurance, and
any four-figure line items in your budget. Free budgeting tools available
online can give you an instant snapshot of your spending and saving.
Pinpoint your 20%, and earmark a few hours to cut those costs. Then
take those savings and put it to work in bonafide investments — in the
traditional sense, that is. Don’t get us wrong, those lattes can add up. If
you spend your money like a drunken Powerball winner — or even a
heavily caffeinated scratch-its winner — then it’s worth taking a look at
how you’re allocating your dollars. Because even if it seems like small
potatoes today, remember how even small investments can make a
significant difference to your financial future down the road. Not
coincidentally, making those first stock market investments is the topic
of the next step.

Rule 3: If you need the money in the next year, it should be in

cash.

Yes, it might seem contrary for a company whose bread and butter is
stock advice, but investing in the market isn’t the right decision for all of
your dollars, particularly if you’ll need it in the near term. You don’t want

The Motley Fool Australia 10

 the down payment for your vacation home to evaporate in a stock market
— or bond market — crash. Keep it in a savings account.

Rule 4: If you need the money in the next one to five years,
choose safe, income-producing investments such as term
deposits.

Whether it’s your kid’s private high school fund or the retirement income
you’ll need in the not-so-distant future, stay away from the share market.
As with all investments, risk and reward go hand-in-hand when it comes
to “safe” assets. So, in order of “safest” to “still safe but technically
riskier,” we have term deposits. That’s also the order of lowest to highest
yield. Shop around for the best rates; your local bank may not offer the
best deal.

Rule 5: Any money you don’t need within the next five
years is a candidate for the share market.

Don’t get us wrong… we don’t want to scare you away from buying
shares. After all, over five- and 10-year periods, the market’s daily ups and
downs morph into a gently rising upward slope. But the key is time. You
must give your money time to ride through the share market’s bumps and
tumbles to reap the rewards of long-term investing.

We Fools are fans of the share market, and we know our history. Overleaf,
take a look at how shares, bonds, and cash have fared historically,
according to Vanguard’s 2022 Vanguard Index Chart 11 :

11 [Link] Accessed 18/10/2022

The Motley Fool Australia 11

11
[Link] 18/10/2022

The Motley Fool Australia 12

Of course, that’s one long time frame, and in the short run, no one knows
what the share market will do. But make no mistake:

Even if you’re in or near retirement, we think a portion of your

money should be invested for the long term.

That’s because, according to the Australian Bureau of Statistics, the

average 65-year-old Australian male could expect to live another 19 years;
a female of the same age can expect to live an additional 22 years. Of
course, those are just the averages. A 110-year-old, however, should sell
everything and get to the casino while he still can. (Kidding... mostly.)

Of course, there is a sobering reality here, which is that one in four

Australians are expected to outlive their savings by more than 10 years,
with a retirement savings shortfall of around $187,200 per person.

Even if you’re in or near retirement, a portion of your money should be

invested for the long term. So, unless you’re a 95-year-old skydiver who
smokes, expect your retirement to last two to three decades. To make
sure your portfolio lasts that long, you should...

Rule 6: Always own stocks.

Over the long term, we believe equities are the best way to ensure that
your portfolio withstands inflation and your retirement spending.

Cover Your Assets, Fool!

What else determines your asset allocation? That favourite term among
financial gurus: your tolerance for risk.

Risk drives return

Most people base their investment strategies on the returns they want,
but they have it backward. Instead, focus on managing risk and accept
the returns that go along with your tolerance for it. It’d be great if we
could get plump returns with no risk at all. But to achieve returns beyond
a minimal level, we have to invest in things that involve some possibility

The Motley Fool Australia 13

that we’ll lose money. So ask yourself: What would you do if your
portfolio dropped 10%, 20%, or 40% from its current level? Would it
change your lifestyle? If you’re retired, can you rely on other resources
such as Centrelink or pensions, or would you have to go back to work
(and how would you feel about that)? Your answers to those questions
will lead you to your risk tolerance. The lower your tolerance for portfolio
ups and downs, the more cash you should hold in your portfolio. As an
extra aid in determining your mix of shares and cash, consider the
following table, from William Bernstein’s The Intelligent Asset Allocator:

So, according to Bernstein, if you can’t stand seeing your portfolio drop
20% in value, then no more than 50% of your money should be in shares
(stocks). Sounds like a very good guideline to us. And remember that our
appetite for risk changes depending on current market and personal
circumstances. So err on the conservative side if you’re taking this quiz
during a bull market (and vice versa).

Action: Spend less — instantly. Someone somewhere has probably given

you the advice to track your spending for a month to see where your
money goes. But let’s fast-forward the process. Instead of recording your
every purchase for a full month, just do it for three days. In fact, you don’t
even need to track it — just consciously ask yourself every time you whip
out your wallet, “Is this the best investment I can make with $5 or $10?”
We guarantee you’ll start making smarter money choices.

The Motley Fool Australia 14

Step 4
Open and Fund Your Accounts
We’re ready to find proper accommodations for all of your savings needs
and devise a strategy for funding your long-term financial goals. There’s
a vast array of appropriate places to stash the money you may need to
access soon, including basic transaction and savings accounts, high-
yield savings accounts, term deposits and more. These types of
accounts are safe harbours: They won’t provide killer rates of return (and
may not even keep up with inflation), but they do provide a guarantee
that the money you deposit will all be there when you need it.

Keep in mind that one type of account might not best serve all of your
short-term savings needs. For example, cash earmarked for a home
down payment that you plan to make in a few years is ideal for a term
deposit. Your child’s summer camp tuition is better off in a high-yield
savings account. Once you’ve deployed your funds for near-term needs,
it’s time to find the right spot for the money you’ll need to cover Saturday
date nights … in the year 2041.

Long-term parking
Your long-term cash stash (specifically, money designated for your
retirement years) belongs in accounts set up solely for that purpose.
We’re talking share accounts in individual or joint names, public offer
superannuation funds or even Self Managed Superannuation Funds
(SMSFs).

Your superannuation fund

What if you could invest your money in a place where at least a portion of
your contribution was guaranteed to double?

Well, if you’re in paid employment, chances are you have that opportunity
through your superannuation fund account. Under the Australian
Superannuation Guarantee legislation, from 1 July 2022, your employer is
obliged to contribute 10.5% of your salary or wages (up from 10% prior to
this date).

The Motley Fool Australia 15

But wait, there’s more. In addition to the mandated 10.5%, you can also
contribute additional savings to such a fund on a pre-tax basis -- a
concept called salary sacrificing or concessional contributions. With
these additional savings, combined with the 10.5% of your salary or
wages already going into your fund, you’ll have the benefit of
compounding returns until you decide to pull-up stumps at age 60 or 65
(assuming you wish to retire). However, the downside is that any
additional money you pay to your super fund is indeed locked away
until retirement.

Again, this is long-term parking here. If you think that you’ll need savings
for any shorter-term needs, then you’ll need to think again whether
voluntary contributions are indeed the right way to go. If you have your
shorter-term savings goals already sorted, then there’s no better place for
long-term savings than in the concessionally-taxed environment of
superannuation.

If you wish to get started, simply ask your friendly HR colleague for more
information. Superannuation rules allow you to contribute pre-tax money
directly from your fortnightly or monthly pay (within limits; see the ATO’s
website for this year’s concessional contribution limits). That way your
money will grow in an environment where the maximum tax rate is 15%,
and (added bonus alert!) your contributions lower your taxable income
each year, which means a lower tax tab come October.

At age 60 -- assuming you’re retired -- the amounts you withdraw from

super are tax free, but be aware that any money that remains invested in
the accumulation phase of super will still attract the 15% tax rate
(however, this is still a pretty good deal). Your other option at retirement
from age 60 will be to take an income stream where the actual earnings
on your investments are reduced to zero. That means the capital gains
and dividends your portfolio pays you are taxed at 0% before you decide
you withdraw it from super tax-free. It gets complicated and we suggest if
you want to read further on this matter, that you visit the ATO website or
seek financial advice.

Put your savings on auto-pilot

OK, now you know that saving and investing your money is good for you
— just like eating right and exercising. Fortunately, discount brokers

The Motley Fool Australia 16

and fund companies make it a whole lot easier than counting calories
and doing your cardio — through dollar-cost averaging. That’s just an
academic name for automatic investing. It works just like your
superannuation: Money is taken out of your salary or wages before you
can even think about spending it. What are you waiting for? Go ahead,
we’ll wait.

Part II: OK, you’re back. Fantastic. Next, get ready to put your investing
dollars to work outside of your superannuation account. You’ll need a
discount brokerage account first of all and, for a beginner’s guide to
investing in ASX shares, you can check out our “how to” guide here.

The Motley Fool Australia 17

Step 5
Avoid the Biggest Mistake Investors
Make
We’re about to share with you the secret to avoiding a $10 billion
investing mistake. It has nothing to do with more money, a higher IQ, or
superb market timing. It’s mind control. The way we’re wired — our
natural inclinations to seek more information, look for patterns, compare
options, and even flee to safety — is great at keeping us out of harm’s
way in the wild. But these same emotional tendencies are also our
biggest liability when we’re in investing mode. In other words, your brain
is to blame for all those boneheaded money mistakes. Just ask uber-
investor Warren Buffett.

The chairman of Berkshire Hathaway openly admits that a short in his

analytical circuitry — his “thumb-sucking” reluctance (his words) in the
1980s to pick up more shares of Wal-Mart because of a one-eighth of a
point uptick in the share price — cost him $10 billion in potential profits
over time. And this is from a guy who has famously said, “Success in
investing doesn’t correlate with IQ... what you need is the temperament to
control the urges that get other people into trouble in investing.” In other
words, the Oracle of Omaha made a $10 billion investing blunder because
his emotions got in the way. But don’t worry, you can train yourself to
ensure you don’t make the same mistake.

Investors anchor to the idea that a fair price for a

stock must be more than they paid for it. It’s one of
the most common, and dangerous, biases that exists.

The Motley Fool Australia 18

2 traits you must have to be great
The secret ingredients to investing success, regardless of education,
investing styles, or golf handicaps are time and temperament.

Time: As we mentioned, investing in shares requiresa minimum five-year

time horizon. Think of it this way: You’re sending some of your money on
vacation while your other money takes care of the more immediate
chores, like paying for car repairs, a house, or a kid’s tuition. Of course, it
can be tough to be a long-term investor in a short-term world — which
brings us to the second secret ingredient for investing greatness.

Temperament: Successful investors have the abilityto remain calm and

level headed when everyone around them is freaking out. That mindset
makes the difference between investors who consistently outperform the
market and investors who get lucky for a while. The Wal-Mart foible aside,
Warren Buffett says this is the key to his success. When a group of
business-school students asked Buffett why so few have been able to
replicate his investing success, his reply was simple: “The reason gets
down to temperament.”

If you can keep your emotions in check and ignore

the noise, you’ll be able to hang on rather than
selling out at the worst times.

Money, IQ points, and lucky socks are no help when your investment is
down 50%. But if you can keep your emotions in check and ignore the
noise, you’ll be able to hang on (even back up the truck and load up)
rather than selling out at the worst times. If you look back at history and
study how investing fortunes were made, you’ll find it wasn’t by jumping
in and out of shares based on fear and greed, but by buying great
businesses and investing in them over the long haul.

The Motley Fool Australia 19

Hop off the emotional roller coaster

To cultivate a good temperament — one that focuses on the long term,

not the short term, and ignores the crowd in favour of a well thought-out
strategy — channel your inner Warren Buffett. Build resistance to the
emotional triggers that lead to bad investment decisions. Here are a few
exercises we regularly do to keep our cool:

1. Memorise this affirmation: “I am an investor; I am not a speculator.”

All together now: “I am an investor; I am not a speculator.” As investors,
we:

Buy shares in solid businesses. We expect to be rewarded over time

through share price appreciation, dividends, or share repurchases.
Don’t time the market. And we certainly don’t speculate when we buy
shares. Speculation is what day traders do.
Focus on the value of the businesses we invest in. We try not to
fixate on the day-to-day movements in share prices.
Buy to hold. We buy shares with the intention of holding them
for the long haul. (That said, we are willing to sell for reasons we
outline in a few pages.)

We recognize that believing your affirmation is sometimes easier than

living it. To avoid behaving like a speculator…

2. Tune out the noise: Put down the newspaper, turnoff Sky News, and
stop clicking that. And that. And, yes, that too. None of it is doing you any
good.

Fixating on the market’s minute-to-minute news won’t help you make

your next brilliant financial move. At best, all the hours, days, and weeks
spent soaking in sensational stories will yield some talking points for
your next office happy hour.

Mostly, though, it’s noise, and it’s costing you a serious amount of sound
sleep — and maybe even some actual money.

The Motley Fool Australia 20

 You are under no obligation to read or watch
financial news. If you do, you are under no
obligation to take any of it seriously.

3. Spread out your risk: In order to get some quality Zs, you need a solid
asset-allocation plan — meaning a portfolio with a bunch of investments
that don’t always move in the same direction. You need to diversify.
(We’ll get into the details of diversification in a bit.)

Putting an assortment of eggs in various baskets isn’t the only way to

spread your risk. You can also avoid the risk of investing in a company at
exactly the wrong time. Say you’re interested in buying shares of
Scruffy’s Chicken Shack (ticker: BUK), but you just don’t know when to
pull the trigger. The answer? Take a bunch of shots!

Practically speaking, you do this through dollar-cost averaging

(remember, as we discussed, this means accumulating shares in a
company’s shares over time by investing a certain dollar amount
regularly, through up and down periods). So, every month for three
months you purchase $500 of Scruffy shares regardless of the share
price. The beauty of this system is that when the share price slumps,
you’re buying more, and when it’s pricier, you’re buying less. Buying in
thirds is another way to average into an investment: Simply divide the
total dollar amount you want to devote to a particular investment by
three, and pick three different points in time to add to your position.

4. Stay strong, think long! For Fools, investing success is not measured
in minutes, months, or even a year or two. We pick our investments for
their long-term potential. So, resist the urge to act all the time. Make
decisions with a cool head after letting new information sink in.
Sometimes the best action to take is no action at all.

The Motley Fool Australia 21

5. Distract yourself with something useful: If you’re going to obsess
about your investments, use your time productively and review your
investment philosophy and process. For example, pick any investment
that’s interrupting your sleep. Write down why you bought the business in
the first place. Ask yourself: Has any of that fundamentally changed?
This exercise underscores that short-term ups and downs in the share
market have little relevance to winning long-term investments and wealth
generation.

Action: Get in touch with your inner investor. Do you know your time
horizon and tolerance for risk and loss? Do you want to research
companies? Start an investing journal. Every time you think about buying
or selling one of your holdings, make a note of why, how you are feeling
at the time, and what would have to go differently for you to change your
mind.

The Motley Fool Australia 22

Step 6
Discover Great Businesses
When you buy a share, you’re purchasing a stake in a living, breathing
business. Buy shares of your favourite fast-food joint and you own the
place. Literally. Every time someone gets fries with that shake, a tiny bit
of cash drops to your company’s bottom line. Finding great share ideas
can be as simple as opening your eyes. Your fridge, medicine cabinet,
wardrobe, computer: all hotbeds of share ideas. Behind virtually every
successful product or service lies a publicly traded company that’s
cashing in on that success — and that you can join as a business
partner.

Better know a better business

But a great service or product does not a great investment make — just
ask anyone who invested in Solution 6 during the dot-com era. (Never
heard of it? Yeah, that’s kind of our point.) Again, think of buying shares
of a company just like buying a stake in a neighbourhood business. Does
the business have staying power? How much cash flows in and out? Do
you trust the management and employees to do right by you as an
outside investor? Hardly questions you’d need a Harvard MBA to spell
out for you, right?

We’re all just guessing, but some of us

have fancier math.
- Josh Brown

Fools take the same commonsense approach to investing. We’re

interested in the strength of a business. Not past performance, charts, or
whether the shares have split.

Specifically, here are a few things we look for:

The Motley Fool Australia 23

1. A sustainable competitive advantage: Some businesseshave unique,
lasting competitive advantages that allow them to earn outsized profits.
The more durable a company’s competitive advantage, the larger the
“moat” that surrounds its financial fortress. CSL’s scale and operating
leverage, Transurban’s near monopoly over toll roads, and Cochlear’s
intellectual property and strong pricing power are all classic examples of
sustainable competitive advantages.

2. Cash aplenty: Cash is the lifeblood of any [Link] pays the bills and
covers the tab for new growth projects. Fools look for low-debt, cash-rich
balance sheets and steady cash flows. Specifically, free cash flow — the
cash left over after funding operations and growth — fuels share
repurchases and those sweet dividends that show up in your brokerage
account every three to six months.

3. Strong leadership: Is management invested alongsideyou? Do they

have a history of creating value for shareholders? Do they have years of
relevant experience? Do they treat outside shareholders (business
partners) with respect?

If you stumble across a company that nails all of the above, odds are
good that you’re looking at a great candidate for your hard-earned cash.
So you’ve done your homework. Now what?

The Motley Fool Australia 24

Step 7
Buy Your First Stock
You’ve paid off your credit cards. You’ve saved up an emergency fund.
You’ve opened a brokerage account. You’ve done your research,
compared notes with like-minded Fools, and found the stock of your
dreams. Let the guns blaze!

Whoa, there, pardner!

We’re just as excited as you are that you’re ready to be a share owner. But
before you go knocking on Mr. Market’s door, bearing cash and gusto,
let’s keep some perspective.

First, this is just one of many investments you’ll end up owning. You want
to invest in sips, not gulps. Your first purchase should be as petite in size
as it is bold in spirit. Second, don’t forget that your first investment is
possibly more valuable to you as a learning experience than as a way to
boost your net worth. As any craftsman will tell you, there’s no better way
to learn than by doing. A journey of a thousand miles begins with a single
step. And that’s what we recommend to you: Start with a $500 share
purchase of your favourite company.

This initial share purchase will teach you more about life as an investor
than we could ever hope to teach you here. Follow it. Get to know your
company.

Read the half-yearly profit results, listen to the conference calls, and see
how the stock’s daily fluctuations affect you. For future share purchases,
you should keep trading costs and commissions to less than 2% of your
total purchase amount, but you can let that slide on your first buy. But
there’s something else we want you to pick up while you’re making a stop
at your friendly broker: A stake in an index fund.

The Motley Fool Australia 25

The passive investor’s best friend
How many times have you heard someone ask, “How’d the market do
today?” But what exactly is “The Market?” And how do we know how it
did? Usually, the answer reflects the performance of an index — such as
the All Ordinaries or the Standard & Poor’s ASX 200 rather than the
market as a whole.

What’s the ASX 200?

The S&P/ASX 200 index is a market-capitalisation weighted stock market
index of company shares listed on the Australian Securities Exchange.
The index is maintained by Standard & Poor's and is considered the
benchmark for Australian equity performance.

What all indexes have in common is that the value of the index changes
proportionally to the value of the stocks in the index. So when the index
goes up, the aggregate value of the stocks in the index has grown by a
proportional amount, and vice versa.

And you can invest in those indexes — through index funds. These funds
don’t look to beat the market — they look to match it as closely as
possible. That might not sound enticing at first blush, but consider that
index funds offer:

Instant diversification: When you invest in an indexfund, in one fell

swoop you’ve spread your dollars across industries, markets,
currencies, and countries, substantially lowering your risk in the
process.
Low costs: Generally speaking, index funds have much lower expenses
than actively managed funds.
Superior returns: SPIVA’s latest data shows that over 5-year horizons,
73.6% of Australian Equity General funds underperformed the S&P ASX
200 Index. 12

12 [Link]
australia/#:~:text=Australian%20Equity%20General%20Funds%3A.
Accessed 18/10/2022

The Motley Fool Australia 26

But about that stock
Yes, we Fools love index funds, but we also believe everyone should own
at least 15 stocks to reduce your risk and increase your odds for success
— building up to 25-30 stocks as you go. Why? Well, it’s fun (really!). By
owning a stock, you have your own little piece of history, and you get to
witness first hand the power of capitalism and entrepreneurship at work.
But just as important, if you want to beat the market, you simply can’t do
that by investing only in index funds. In fact, your goal for every stock you
buy should be to outperform the index. So get out there and start having
some fun on your way to market-beating returns.

Action: Invest in an index fund, and buy your first stock!

The Motley Fool Australia 27

Step 8
Invest Like the Masters
Growth, value, international. Which style is right for you? If you’re a Fool,
you happily blend together all three! Join us, though, as we walk through
three distinct yet Foolish styles of investing, and see if you can figure out
which way you tilt.

Growth investing, starring Peter Lynch

Peter Lynch is a legend around the halls of Fool HQ. Quotes of his adorn
our walls — “Never invest in any idea you can’t illustrate with a crayon”
and “Although it is easy to forget sometimes, a share is not a lottery
ticket... it’s part-ownership of a business.” At our US headquarters,
they’ve even named a conference room in his honour.

So what makes Lynch so great? A wildly successful investor, Lynch truly

stole our hearts with his booksOne Up on Wall StreetandBeatingthe Street,
both of which were resounding calls for the empowerment of small
investors. By sharing his commonsense and replicable philosophy in a
plainspoken fashion, Lynch convinced a generation of investors that they
didn’t need an MBA or a white-shoe stock broker to invest in the stock
market. The core drivers of Lynch’s growth-centric strategy are pretty
straightforward: Invest in growing, unheralded, easy-to-understand
companies. Here’s how it goes:

1. Buy what you know: Lynch believes that the average investor knows
more than they think. Not only do you consume an array of products
and services on a daily basis, but you’ve developed unique career
insights that can give you a leg up on the Street. Put them to use!
Invest in what you know, understand, and are comfortable with, and
leave the rest for the “pros.”

The Motley Fool Australia 28

2. Seek hidden gems: Lynch highlights that individual investors have a
huge opportunity when it comes to small- and micro-cap stocks. Most
corporate research houses can’t afford the time or staff to cover small-
and micro-cap stocks, and most mutual funds are too large to
comfortably trade in and out of them. The end result is that small caps
are frequently mis- and under-priced, leaving enterprising investors the
chance to buy into small, growing businesses on the cheap.

3. Diversify: Lynch’s Magellan Fund held an incredible 1,000+ stocks

when he finally handed off the reins in 1990. For perspective, that’s
roughly fivetimes the average number held by U.S. equity funds. Lynch
spilled coffee on the Ivory Tower of Modern Portfolio Theory by proving
you can comfortably crush the market despite being incredibly well
diversified. How? By choosing small, growing, well-managed companies
and letting them run.

Value investing, starring Warren Buffett

No offence to the father of value investing, Benjamin Graham, but his
pupil Warren Buffett is The Man when it comes to the practice and theory
of value investing. Value investing is the art of buying stocks for less
than their fair, or “intrinsic,” value.

For Buffett and his legion of value-investing disciples, the craft involves
three steps:

1. Buy great businesses: Buffett looks for businesses that boast strong
brands, management teams, cash flow, and staying power. Serious
staying power. The kinds of businesses that you think will outlive you —
names like Coca-Cola, Procter & Gamble, and Johnson & Johnson. In
Australia, such companies that Buffett could have been interested in
include CSL, Brickworks and Wesfarmers. Once he finds these great
businesses, he looks to buy them when they’re out of favour, and then
patiently holds on for years upon years as these beauties compound
wealth.

The Motley Fool Australia 29

2. Be contrarian: It takes some nerve to buy stocks thateveryone else is
down on, but Buffett has made a living by going against the grain. As he’s
been wont to say, “Be fearful when others are greedy, and greedy when
others are fearful.”

3. Invest for the long haul: As Buffett once said, “Our favourite holding
period is forever.” And if you can’t tell from our section on investor
temperament, we feel the same way!

International investing, starring Sir John Templeton

As with Lynch and Buffett, we celebrate Sir John Templeton’s
philanthropy, intellectual curiosity, and Foolishness. Templeton’s
success was not the result of a proprietary trading scheme, inside
information, massive amounts of leverage, or complicated derivatives.
Rather, like Lynch and Buffett, Templeton succeeded because of sound,
fundamental research and the patience and discipline to hold stocks for
years.

His philosophies have become widely adopted today because they work
and because people realise that in a global economy, it no longer makes
sense to be provincial about investing. But many individual investors
continue to try to time the markets and trade with a short time horizon.

His success also reflected a willingness to look where other investors

would not. Appreciate Templeton for all we’ve said, but also for:

1. Going abroad: In a time when conventional wisdom demanded that

investment houses set up on Wall Street, in Boston, or in London,
Templeton instead fled to the peace and quiet of the Bahamas. He
was one of the first foreign investors to focus on Japan, and he
strode early into Russia.
2. Investing consistently: Templeton didn’t chase a lower-case fool’s
errand by trying to time the market. As he once said, “The best time
to invest is when you have money. This is because history suggests
it is not timing the market that matters, it is time”.

The Motley Fool Australia 30

John meets Warren meets Peter
Again, the perfect Foolish portfolio blends the traits of all these master
investors: A business-focused, diverse portfolio of growth and value
stocks, both foreign and domestic. But your exact mix is a matter of
personal style and risk tolerance.

The Motley Fool Australia 31

Step 9
Don’t Sell Too Soon

When should I sell? This is one of the most frequent questions we hear.
Our glib (yet truthful!) answer: Never. We’ll come back to that shortly, but
in the meantime, here are five reasons we do sell stocks.

The big money is not in the buying or the

selling, but in the sitting.
-Jesse Livemore

Reason No. 1: Better opportunities

Sometimes there’s nothing wrong at all with a company or its stock:
There are simply better opportunities elsewhere that will bring more bang
for your bucks. We will consider selling a less attractive stock (even at a
loss) if we think we can get a better deal elsewhere.

Reason No. 2: Business changes

There’s no way around it: Businesses change — sometimes significantly.
We could be talking about a major acquisition, a change in management,
or a shift in the competitive landscape. When this occurs, we incorporate
the new information and reevaluate to see if the reasons we bought the
company in the first place still hold true.

We will consider selling if:

The Motley Fool Australia 32

 The company’s ability to crank out profits is crippled or clearly fading.
Management undergoes significant changes or makes questionable
decisions.
A new competitive threat emerges or competitors perform better than
expected. We’ll also take into account unfavourable developments in
a company’s industry.
Here, it’s important to delineate between temporary and permanent
changes. In a downturn, financial figures may suffer even for the best-
run companies. What’s important is how these businesses take
advantage of the effects on their industry to improve their competitive
position.

Investor Nick Murray once said, “Timing the

market is a fool’s game, whereas time in the
market is your greatest natural advantage.”
Remember this the next time you’re compelled
to cash out.

Reason No. 3: Valuation

We’re all for the long-term here, but sometimes Mr. Market shows our
stock too much love. We will consider selling if a stock price has run up
to a point where it no longer reflects the underlying value of the business.

Reason No. 4: Faulty investment thesis

Everyone makes mistakes. Sometimes, you’ll just plain miss something.
You should seriously consider selling if it turns out your rationale for
buying the stock was flawed, if your valuation was too optimistic, or if you
underestimated the risks.

The Motley Fool Australia 33

Reason No. 5: It keeps us up at night
It is tough to put a dollar value on peace of mind. If you have an
investment whose fate has whirled such that it now causes you to lose
sleep, it could be time to move your dollars elsewhere. We save and
invest to improve our quality of life, after all, not to develop ulcers. Adding
insult to injury, stressing about a stock might cause you to lose focus and
make rash decisions elsewhere in your portfolio. Remember, there’s no
trophy or prize for taking on risk in investing. Stick within your comfort
zone.

Know when to hold ‘em

So that’s when you fold ‘em. But what about holdin’ ‘em? Remember,
we’re long-term investors, not weak-kneed speculators. Over the course
of what will be a prosperous investing career for you, the market will rise
and fall. Recessions and booms will happen. And all the while, you must
stay focused on the long term. Fear is never a reason to sell.

Action: Put it in writing. Remember that investing journal you started a

few steps back? Use it! For each stock in your portfolio, write down why
you bought it, your expectations, and what would make you sell. Refer to
it frequently — and before you decide to give your stock the heave-ho.

The Motley Fool Australia 34

Step 10
Retire in Style
And now, ladies and gentlemen, the inflation-adjusted million dollar
question: Can you afford the retirement of your dreams?

While you ponder that, it’s likely that a few other questions will come to
mind:

How much money will I need when I retire?

What kind of lifestyle will I be able to afford?
What will my current savings be worth by then?
How much can I afford to take out every year?
Will I need to adjust my plan?
Does anyone have a brown paper bag? I’m feeling lightheaded.

Relax. We’re going to tell you almost everything you need to know about
retirement, right now, in less than five minutes. Ready? Here goes.

[Link] to your superannuation.

If you’ve read this investing primer in order and took the time to complete
the action items, then this part is done. Just to review: pre-tax
contributions to super (up to certain limits) mean you’ll have more money
working for you due to the 15% tax rate. Remember, too, salary-sacrifice
contributions reduce your taxable income, and the investments grow in a
concessionally-taxed environment.

[Link] the right investments.

A lot of people get tripped up on this one. But don’t let it stop you from
putting a plan into motion. We’ve shown you how to construct a well-
balanced retirement portfolio with a whole day’s supply of vitamin D.

The “right” investments for you will change over time as you near the
point where you stop investing new money and start spending what
you’ve saved. But it’s important to remember that retirement is not your

The Motley Fool Australia 35

investing finish line. After all, you hopefully still have many years of
productive life ahead of you after you retire. While the income and safety
of bonds and Treasury bills may seem appealing, approximately half of
your portfolio must still be invested in stocks to ensure you can maintain
purchasing power and avoid the devastating effects of inflation.

[Link] enough.
With life expectancy increasing by leaps and bounds, if you give notice at
the traditional age of 65, you may want to think in terms of a 30-year
retirement. That’s a lot of electricity bills and all-you- can-eat buffet
brunches. So, how much do you need to save? As much as you can. A
more specific answer can be found in the following table, which assumes
you have not yet started to save for retirement:

[Link] your numbers to see if you’re on track (and then run

them again).
Are you saving enough to retire when you want? Are you withdrawing too
much in retirement? There’s one way to find out: Run your plan through a
good retirement-savings tool. Since each will give you a different answer,
try at least three. (Yes, that seems like a lot of effort, but your retirement
is worth it.)

At The Motley Fool, we firmly believe that saving for tomorrow is not
about sacrificing today — it simply requires striking the right life-money
balance.

If you start pricing it out now, you won’t experience sticker shock when
your ticker isn’t quite as strong. Post-retirement expense calculators will

The Motley Fool Australia 36

help you figure out how much that round-the-world trip, fishing cabin, or
class in paperclip art will cost. The good news is that many expenses
decline or disappear completely in retirement. Once you’ve retired, you no
longer have to pay PAYG through your pay and you no longer divert
money to super. And, as discussed previously, retirement income is tax-
free for those over 60 in the majority of cases, with tax on superannuation
investment earnings falling to zero when establishing an income stream.

[Link] paying for other people’s retirements.

Unless the person managing the money in your managed funds is bound
to you by matrimony or blood relation, you probably don’t intend to
contribute to their bank accounts.

Too many investors overpay for underperforming investments, ponying

up 1.4% in management fees (a typical expense ratio) for funds that
barely keep up with their benchmarks. Your generosity is not properly
appreciated. By choosing lower-cost but better- performing funds, you
can add 1% to 2% a year to your portfolio returns. Compounded over
many years, we’re talking tens of thousands of dollars. So keep a sharp
eye on fees.

[Link] how to crack your nest egg.

Finally, the big day arrives! You kissed the boss good-bye, and you’re
ready for a lifetime of... well, whatever the heck you want. It’s time to
begin tapping your portfolio. Should you start with your traditional super,
or your regular brokerage account? This is no small matter. One study
found that choosing the right order could extend a portfolio’s life
expectancy by more than two years. The general rule: Start withdrawing
from non-retirement accounts. After that, move on to tax-deferred money,
and save your tax-free income stream for last. However, there are many
exceptions to these rules, so take the time to learn more before you retire.

Live it up today, too!

We’d be remiss if we did not give proper due to a very important period in
your life: The here and now. In the words of John Lennon, life is what
happens when you’re busy making other plans. At The Motley Fool, we
firmly believe that saving for tomorrow is not about sacrificing today — it

The Motley Fool Australia 37

simply requires striking the right life-money balance. So we’ll end this
lesson with your moment of Foolish Zen: Living rich and getting rich
are not mutually exclusive.

Action: Find out if you’re saving enough for retirement. Well, are you?
That’s what calculators are for! Free retirement calculators can help
with the heavy arithmetic. You will also be able to play “what if ”
games and see the results quickly, should you decide to vary things
like inflation, rates of return, date of retirement, and desired income.

The Motley Fool Australia 38

Conclusion
And that’s it. From shoring up your finances to ensure you’re ready to
invest, all the way through to a successful, prosperous, and philanthropic
retirement, you’re now thoroughly prepared to take control of your
financial life. Investing is about creating opportunities — giving your
children the opportunity to attend the university of their choice; enjoying
the opportunity to see the world with a loved one; exploring the
opportunity to chase that dream of launching a startup company without
the fear of putting your family’s finances in peril. Following the simple
steps we’ve just laid out puts you in charge of your financial future,
opening yourself up for all the opportunities successful investing makes
possible. Fool on!

Congratulations, you’re now a Fool!

You’ve armed yourself with all the information you need to make
outstanding investment decisions. You are ready to take control of your
financial future and open yourself to all the opportunities that entails. But
where to start?

Not to blow our own horn, but we wouldn’t be doing our jobs if we didn’t
offer up our own services as potential path for you to consider. Our
Motley Fool Share Advisor service has been operating in Australia for
over a decade, and in that time we’ve helped tens of thousands of
investors, just like you, on their investing journey. And, as a special “thank
you” for reading this far, we’re sneaking in a “New Member Only” offer…
click the link here to get access to 12 months of Motley Fool Share
Advisor at 63% off our RRP.

Whichever path you choose though: don’t simply buy stocks based on our
(or anyone’s) word. Use any and all stock recommendations as starting
points for your own research. Do you believe in the thesis? Do you like the
company? Is it right for your portfolio? Something could happen that
affects our investment thesis. Make sure you collect all the relevant and
timely information on any company you’re planning to buy.

And thus begins your journey as an investor. Don’t wait to get started.
Your biggest asset is time, but it’s ticking. Fool on!

The Motley Fool Australia 39

Acknowledgements
Special thanks to David Gardner, Tom Gardner, Keith Pelczarski, Robert
Sheard, Michael Knight, Randy Befumo, Bill Barker, Dayana Yochim, Brian
Bauer, Joe Magyer, Robert Brokamp, Denise Coursey, Robyn Gearey, Roger
Friedman, Dari FitzGerald, Sara Hov, Ilan Moscovitz, Jeff Fischer, Ron
Gross, Jason Moser, Alyce Lomax, Jim Mueller, Adam Wiederman, Iain
Butler, Morgan Housel, Scott Phillips, Ed Vesely, Darius Zarghami and all
the other Fools who contributed to this
project.

Copyright 2015-2022, The Motley Fool

The Motley Fool Australia 40