Global Investing Made Easy for You

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The title of this book is what drew my attention at first. The fact that Warren Ingram was the author was also an endorsement that it would be good. Global investing has become more and more important and luckily more and more accessible. I say accessible but not easy. That is because investing by itself can be complicated. But when you add in different countries, markets and laws then it can become very complicated. So Global investing made easy is a very appealing title.

Initially when I started reading I was disappointed. I don’t know what I was thinking but I was expecting a more detailed account of how to invest globally. Instead I found a more holistic approach to investing including the aspects of global investing. Warren’s books are well known for being easy to read and understand. He has a very pragmatic approach that is based on years of his own experience as an investor as well as the experience of advising others. So it is expected that you would find a balanced comprehensive read on investing with a strong focus on global investing.

In the end it actually all made sense. You can’t just consider one type of investing in isolation. Everything is linked and has to be balanced. If you only ever considered one part of investing you would be breaking all the rules of a sound long term investment strategy. You need to be diversified, balance risk and have an appropriately balanced portfolio covering relevant asset classes. So it makes complete sense that you would consider global investing as a part of this strategy. That is exactly what this book does.

What I particularly enjoyed about the book is how Warren shares his own investment philosophies. As a professional financial planner, his job is about finding the right solutions for his clients which may be different from his own choices and strategies. I have always had the view that if the financial professional is not successful themselves then how can they possibly be advising you. Warren obviously has been successful but he shares more about his path to financial freedom and what his strategy and portfolios look like.

You need a dream and a vision

Financial freedom requires you to make sacrifices now for the future. It is all about delayed gratification. We all know that this is very hard to do because the temptation to spend now is so strong. The problem is that you need a dream that is bigger and stronger than the temptation to spend. It is easier to be motivated and disciplined to take the actions to secure your financial future when you have such a dream.

People who achieve financial freedom have an even clearer picture than a dream. They would have a very clear vision of exactly what they want from their financial goals. They would know where they want to live, how they will live, what they will do and how their time will be spent. If you can have such a clear vision it will make the dream tangible for you. Then you know what you are working towards. Having this clarity also helps with planning your portfolio especially international investments.

This has been a very powerful motivator for me. Unknowingly I had done this but didn’t realise how much it was helping me to focus my efforts on the future and forgo some luxuries now. You can do this with pictures or by writing down what it is you want. You can even write a letter from your future self to your current self explaining how you are living.

Finding your passion

Having a strong vision for your future is a powerful motivator but you also need a suitable vehicle to get there. That vehicle is your job or career that earns the money to achieve your financial goals. You need a balance between passion, skill and earning potential. Working on your passion with poor earning potential is not going to achieve your dreams. Working in a job you hate is going to make life miserable and won’t deliver your best work. You need to find that sweet spot in between.

Instead of finding your passion rather find something that you are passionate about and that you are good at. You can find this by a process of elimination.

This sage advice came from none other than Charlie Munger. When asked by a young investor how he could find his passion for a career. Munger said that you should start by excluding those jobs for which you have no talent or natural ability. This narrows the options, from there select what interests you and then finally considering which of them will suit your strengths. If you consider earning potential then you have another filter to narrow the choice.

Financial Freedom

Financial freedom does not happen by accident. It is the result of a well-thought-out and executed plan. Can you see that plan forming? You have a dream or vision that you are chasing and you have a route to get there. Leaving it to chance is no better than playing the lotto and hoping for the big win. I learned this the hard way. I always wanted to retire early but I never had a plan so guess what? Nothing happened, just wasted time and no wealth building.

It is not some clever fancy investment that is going to bring financial freedom. Instead it requires consistent investing and avoiding inaction and mistakes that destroy wealth. Debt is one of those mistakes that will hold you back. The sooner you can eliminate debt the sooner you will be on the path to a wealthy life.

“Those who live without debt early in their careers are always in a better financial position than those who live with debt.”

Studies of the wealthy show that they all plan their finances. If you do not budget or have an investment and retirement plan, you are guaranteeing that you will limit your wealth over your lifetime. Saving and investing don’t happen by accident. The more you plan the greater your chance of financial success and wealth.

Investing 101

Investing can be daunting for those who have not done it before. But like everything else in life you just have to start and learn. There is lots of hype about the best investments with the biggest returns, the latest big thing that you can’t miss. Everybody has their own view and whatever they do is the best. Don’t be scared to be a beginner and start with the basics.

“The key to good investment decisions is to focus on factors that you can control. A sound understanding of how investments work is a good start.”

The basics of investing starts with building a sound foundation. That means that you eliminate debt and have an emergency fund. Without these, you may have the best investment plan but it comes crashing down when you have to sell everything to pay off your debt or cover an emergency.

“There are many similarities between building financial freedom and building a house: if you do not build your house in the right order, it will eventually collapse”

Then once you are ready to invest you have 5 steps to follow

Step 1: Define your investment objective.

Step 2: Establish how much you can put away each month.

Step 3: Decide what assets to buy.

Step 4: Get started.

Step 5: Keep going!

This is just the start but in the chapter Investments 101 there is a whole lot more info that covers all the different types of investments and what to consider.

Portfolio and diversification

The most difficult thing about investing is knowing what to buy. To make that decision you need to apply basic principles of investing. Everyone needs to understand these principles in order to know what to invest in. These principles are diversification, risk management and asset allocation. If you apply these principles correctly to your particular situation you will land up with a suitable portfolio.

Keeping your money in a savings account is not the right decision and guarantees that your money will not keep track of inflation. You would be much better off putting together the perfect portfolio to match your objectives.

Here are some tips

Equities including property companies are ideal for long term growth

Bonds are a stable inflation-beating asset

If you are young looking for more growth you could have 75% in shares and 25% in property companies

If you want a combination of capital growth and income you could look at 50% shares, 25% bonds, 25% property companies

If you are more conservative and want to avoid volatility you would have 35% equities, 40% bonds and 25% property companies

International Investing

As I mentioned earlier this book is about global investing made easy yet most of it is about “normal” investing. I hope you can understand why this is so. Global investing is just one aspect of investing and not something that stands alone or is done in isolation. It all needs to be part of a well-thought-out strategy and plan to achieve your investment objectives. By not understanding the big picture you are setting yourself up for making some bad investment decisions.

International investing is always important but especially so when you live in a small country. The strange thing is investors always prefer to invest in their own market rather than take a global view. This behavior is called home bias and is common in all countries. Consider that the total world stock market size is 95 trillion dollars, South Africa is 1 trillion dollars. So only investing in SA means you are only exposed to 1% of the market. Being in the US you will be exposed to about 50% of the world market, still a clear bias.

Global Diversification

The main reason for home bias is that we always tend to invest in what we know. This is a good thing but it is not good for diversification and spreading risk or maximising growth opportunities.

Some of the reasons you would want to invest in international markets are

  • Avoid political risk
  • Access industries not present in your home market eg big pharma not in SA
  • Access markets that are different to your home market eg Japan vs US market correlation
  • Access higher growth economic regions eg emerging markets
  • Increase exposure to innovation
  • Access markets with more favourable valuations

Some other factors to consider that could go either way

  • Interest rate
  • Currency risks
  • Taxation

“Every investor should have a clear method for determining the ideal international proportion of their assets”

You will need to balance all these risks and consider how they will affect your portfolio over the long term. The worst thing to do is to let the short term volatility of these factors drive your decision. Instead you should have a proper plan and strategy.

Global Portfolio

So in the end international investing is another form of diversification. You would use the same asset classes like equities, bonds and property but they would be internationally based. You would need to consider the inherent risks and benefits of the asset classes and then the country or region risks and opportunities on top of that.

One of the best ways to do this is a Global World Market ETF. These ETFs cover the entire world so you get exactly the diversification you are looking for. The worldwide ETFs also have the biggest global companies in them. You don’t have to worry about knowing the dynamics of each country. You can buy these ETFs in your own country or via international brokers.

I was really encouraged to see Warren’s portfolio looking similar to mine. He had a significant portion of his portfolio in international investments. They were made up of MSCI World Index ETFs, emerging market ETFs and some global investment management companies.

Everyone is different and there is no right answer. Give this book a read and you will find a balanced view on global investing that will help you with your overall investment strategy and path to financial freedom.