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FIRE - Financial Independence, Retire Early - Could you do it? · The Money Puzzle

• 0:09
  Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
• 0:12
  Speaker 1: James Kirby, the Wealth Editor at The Australian and welcome
• 0:15
  Speaker 1: aboard everybody. I hope you're having a good break and
• 0:19
  Speaker 1: I wish you a good holiday season and a prosperous
• 0:23
  Speaker 1: new year. And speaking of prosperity, there's a show I've
• 0:28
  Speaker 1: wanted to do all year. It's about the FIRE movement, F-I-R-E.
• 0:33
  Speaker 1: In this case, that means Financial Independence Retire Early. We
• 0:39
  Speaker 1: did some coverage of it during the year, mid-year, on
• 0:42
  Speaker 1: the Money Puzzle podcast. And we were, I suppose, more
• 0:49
  Speaker 1: sceptical and enthusiastic about the concept. And for a variety
• 0:55
  Speaker 1: of reasons, but the core reason was that we were
• 0:58
  Speaker 1: of the opinion that It's just not that easy to
• 1:01
  Speaker 1: do that. And some of the pitches, if you like,
• 1:05
  Speaker 1: on the fire movement, though people are so interested in
• 1:08
  Speaker 1: it and so enthusiastic about it, but some of the
• 1:11
  Speaker 1: pitches that I had come across about it, the presentations,
• 1:14
  Speaker 1: I just thought were a little bit making it sound
• 1:17
  Speaker 1: too easy and perhaps could, to some extent, exploit naivety. Now,
• 1:21
  Speaker 1: I wanted to get someone to come on. Now, the
• 1:24
  Speaker 1: thing on the show, we'll talk about it. The thing
• 1:26
  Speaker 1: about fire movement is it's a movement. It is a
• 1:29
  Speaker 1: set of principles. There is no fire. I can't go
• 1:33
  Speaker 1: downtown and take you to the local branch of the
• 1:36
  Speaker 1: local office. There's no headquarters in Geneva or Washington. It's
• 1:40
  Speaker 1: a concept. It's a set of principles. But I did
• 1:43
  Speaker 1: want to get someone to talk about it, to whom
• 1:46
  Speaker 1: it had made a difference. Someone who is also, to
• 1:48
  Speaker 1: some extent, a financial educator. and could articulate its main ideas.
• 1:53
  Speaker 1: And I have found the very person for the exercise.
• 1:56
  Speaker 1: His name is Lionel Lee. He is an international investment operator.
• 2:02
  Speaker 1: He works with a group called InvestUnite, and they are
• 2:05
  Speaker 1: asset managers here and across Asia. I'm speaking to him
• 2:10
  Speaker 1: actually in Seoul. He lives part of the year in Melbourne.
• 2:14
  Speaker 1: I'm delighted to have him on the show. Lionel Lee,
• 2:16
  Speaker 1: how are you?
• 2:17
  Speaker 2: I'm fine, thank you. Thanks for having me on the
• 2:19
  Speaker 2: Australian Money Puzzle, James. It's an honour to actually be
• 2:23
  Speaker 2: on your show.
• 2:25
  Speaker 1: You're very welcome. Delighted to have you. Delighted to find
• 2:28
  Speaker 1: you after some efforts to try and get what I
• 2:30
  Speaker 1: thought would be the ideal guest. So I explained there
• 2:35
  Speaker 1: about how our listeners were very interested in the FIRE movement.
• 2:39
  Speaker 1: But when I was talking to you earlier and I
• 2:42
  Speaker 1: was struggling even still to try and grab this because
• 2:46
  Speaker 1: I'm the sort of person who wants, I want to
• 2:48
  Speaker 1: see this sort of tangible evidence that it exists. I
• 2:52
  Speaker 1: want to see its charter and its rules and I
• 2:55
  Speaker 1: want to see a sort of hierarchy there. But that
• 2:58
  Speaker 1: doesn't really exist, does it? It's a concept.
• 3:01
  Speaker 2: Yes, I'm very similar to yourself. I like information that's
• 3:05
  Speaker 2: practical and that's useful, especially if we're addressing listeners who
• 3:11
  Speaker 2: are just, to some extent, depending on your podcast, to
• 3:16
  Speaker 2: understand what's really happening in the Australian economy, financial markets,
• 3:20
  Speaker 2: as well as India. personal financial world. So to keep
• 3:24
  Speaker 2: it simple for listeners, FIRE basically just focuses on extreme
• 3:30
  Speaker 2: savings and investing with a goal to retire much earlier
• 3:34
  Speaker 2: than usual. So I'm just summarizing everything that's talked about
• 3:38
  Speaker 2: FIRE in the World Wide Web and also in Australia. Essentially,
• 3:44
  Speaker 2: it is a movement, has no headquarters, there's no branch,
• 3:47
  Speaker 2: there's no chapter, and it was popularized by a book
• 3:52
  Speaker 2: that's called Your Money, All Your Life back in 1992.
• 3:55
  Speaker 2: The other thing to note is fire doesn't originate from Australia,
• 4:00
  Speaker 2: so it's not an Aussie concept. It originated In the US,
• 4:04
  Speaker 2: the book is an American book. The authors are American.
• 4:08
  Speaker 2: And over the years and also in summation, some traits
• 4:13
  Speaker 2: of fire that you might come across in your conversation
• 4:17
  Speaker 2: with our Australian listeners is that Typically, those who subscribe
• 4:21
  Speaker 2: to the FIRE movement, they save between 50% to 75%
• 4:25
  Speaker 2: of their income. That's what they're aiming to do. They
• 4:28
  Speaker 2: might kick up extra jobs. Some might talk about, you know,
• 4:31
  Speaker 2: delaying major spending events in order to be able to
• 4:36
  Speaker 2: save and invest with the goal of retiring earlier than usual.
• 4:40
  Speaker 2: So earlier than usual here would, to me, would just
• 4:43
  Speaker 2: mean before the statutory retirement age.
• 4:46
  Speaker 1: So you tuned into this pretty early, right? Because Your Money,
• 4:49
  Speaker 1: Your Life, which is still out there, of course, needless
• 4:51
  Speaker 1: to say, revised and updated endlessly. It's by Vicky Robin
• 4:54
  Speaker 1: and Joe Dominguez, published in the UK, was a bestseller
• 4:58
  Speaker 1: at the time and remains always available. Tell me, you
• 5:02
  Speaker 1: tuned into this quite a long time ago. It was
• 5:03
  Speaker 1: a pretty fresh idea at that time in the 1990s
• 5:06
  Speaker 1: when you first came upon the idea. What was it?
• 5:09
  Speaker 1: Tell us. They talk about nine steps to transforming your
• 5:13
  Speaker 1: relationship with money. Yeah. What were the key aspects of fire,
• 5:20
  Speaker 1: the principles of fire that attracted you?
• 5:22
  Speaker 2: So I came across fire actually many years after it
• 5:28
  Speaker 2: was published in 1992. So my engagement, I guess, with
• 5:32
  Speaker 2: the principals was in the late 1990s when I was
• 5:36
  Speaker 2: working with the US market. So that's actually where I
• 5:38
  Speaker 2: came across the whole concept of FIRE. The FIRE committee
• 5:42
  Speaker 2: wasn't really there yet, but, you know, it was building
• 5:46
  Speaker 2: up steam.
• 5:47
  Speaker 1: So.
• 5:48
  Speaker 2: Again, for the benefit of listeners who are new to
• 5:50
  Speaker 2: FIRE and without trying to confuse them with the many
• 5:55
  Speaker 2: permutations of FIRE that have taken place over the years,
• 5:59
  Speaker 2: there are four basic principles that I've extracted from all
• 6:05
  Speaker 2: of that. So the number one is what they call
• 6:08
  Speaker 2: the FIRE number. Essentially, that number is just an estimate
• 6:12
  Speaker 2: of how much you'll need to retire. And the way
• 6:15
  Speaker 2: in which the FIRE community derives that number is by
• 6:19
  Speaker 2: multiplying your annual expense by 25. So let's say if
• 6:25
  Speaker 2: our annual expense is $ 80, 000 as a couple, then your
• 6:30
  Speaker 2: FIRE number is just simply $ 2 million, which is $ 80, 000
• 6:33
  Speaker 2: times 25. The second principle I took away is the 4% rule.
• 6:40
  Speaker 2: It states simply how much you can withdraw from your
• 6:45
  Speaker 2: retirement fund in the first year. And then every subsequent year,
• 6:50
  Speaker 2: that amount is adjusted for inflation. So if we use
• 6:54
  Speaker 2: the couple that has $ 2 million, again, in the first
• 6:58
  Speaker 2: year of retirement, that couple would be able to only
• 7:02
  Speaker 2: withdraw a maximum of $ 80, 000. The thing that I extracted
• 7:08
  Speaker 2: from the principles and the concept and the movement that
• 7:11
  Speaker 2: I felt was practical to some extent is that the
• 7:15
  Speaker 2: FIRE movement and FIRE followers prioritise setting up your emergency
• 7:20
  Speaker 2: fund before focusing on investing. And that fund should be
• 7:25
  Speaker 2: three to six months' worth of savings.
• 7:27
  Speaker 1: You're going through the table there. It's very useful. But
• 7:30
  Speaker 1: I think I have to say, it seems to me
• 7:33
  Speaker 1: that's the hardest thing of all. When people have very
• 7:36
  Speaker 1: little money and they want to think about investing, the
• 7:39
  Speaker 1: last thing they're going to be able to do is
• 7:41
  Speaker 1: put away a few months' worth of money.
• 7:42
  Speaker 2: Yes, and I agree as well. It is challenging because
• 7:47
  Speaker 2: you're trying to save and I won't even say invest.
• 7:50
  Speaker 2: You're probably trying to save and pay down some of
• 7:53
  Speaker 2: your big expenditure at the same time. I think that's
• 7:56
  Speaker 2: what a lot of listeners are probably finding themselves in,
• 8:00
  Speaker 2: especially more so today with higher cost of living, inflation,
• 8:05
  Speaker 2: all the variety of woes that are making it tough
• 8:08
  Speaker 2: to be an Australian today. But there are ways to
• 8:12
  Speaker 2: actually save I guess, get around or find a balance.
• 8:17
  Speaker 2: And I guess before going to the fourth principle, one
• 8:21
  Speaker 2: recent example was a conversation that I had with an
• 8:26
  Speaker 2: individual in Ballarat, Victoria. And he was trying to actually
• 8:31
  Speaker 2: build his emergency fund while trying to pay down his
• 8:35
  Speaker 2: mortgage at the same time. Like that's a really tough
• 8:38
  Speaker 2: thing to do, right? But that is the reality. So
• 8:42
  Speaker 2: what we came up with as a solution was, look,
• 8:45
  Speaker 2: if we combine the emergency fund together with an account
• 8:51
  Speaker 2: that actually allowed him to pay down his mortgage, he
• 8:54
  Speaker 2: would get the best of both worlds combined into one.
• 8:58
  Speaker 2: So we found that solution using a offset account and
• 9:02
  Speaker 2: a redraw facility. So his emergency fund would still be intact.
• 9:08
  Speaker 2: He would still build that fund. But as he is
• 9:11
  Speaker 2: adding more money to that emergency fund, it is actually
• 9:15
  Speaker 2: actively paying down his principal on his mortgage.
• 9:19
  Speaker 1: Okay. Now, what we will do, we're going to let
• 9:22
  Speaker 1: you continue those principles. We'll take a short break and
• 9:25
  Speaker 1: I'll let you roll on where you were getting to there.
• 9:27
  Speaker 1: You had four, I think, you've given us four and
• 9:29
  Speaker 1: you can give us the rest after the break. I'm
• 9:31
  Speaker 1: sure people will be very keen to hear what they are.
• 9:33
  Speaker 1: One moment. Hello, welcome back to the Australian's Money Puzzle podcast,
• 9:46
  Speaker 1: our special podcast on the FIRE movement, F-I-R-E, Financial Independence
• 9:53
  Speaker 1: Retire Early. It's a concept. It's a movement around the world.
• 9:57
  Speaker 1: It captures the imagination of many people. One of the
• 10:01
  Speaker 1: reasons I wanted to do this show, especially during the
• 10:04
  Speaker 1: Christmas break, was because it's something that you kind of
• 10:07
  Speaker 1: stand back from the day to day and think about.
• 10:10
  Speaker 1: And I think it captures, as I say, the imagination
• 10:13
  Speaker 1: of many Australians. It's a little bit hard to grasp.
• 10:16
  Speaker 1: It's even harder to get a handle on who and
• 10:18
  Speaker 1: who's in it and how it works. There are meetings
• 10:21
  Speaker 1: around the country from Cooleroy to Melbourne CBD. I've come
• 10:26
  Speaker 1: upon on the internet. There are many different organizations.
• 10:29
  Speaker 2: No one owns it.
• 10:31
  Speaker 1: And there is no one person who can say they
• 10:34
  Speaker 1: are in charge of it or the chief spokesman for it.
• 10:38
  Speaker 1: But today's guest on the show is Lionel Leigh. In
• 10:41
  Speaker 1: the first segment, he was just starting to outline some
• 10:44
  Speaker 1: of the key principles. Lionel, you might just tell us
• 10:47
  Speaker 1: the rest of the key principles of the FIRE movement.
• 10:50
  Speaker 2: No problem. Yeah, I'll just leave our listeners with the fourth.
• 10:54
  Speaker 2: And essentially, the fourth principle is just that you're considered
• 10:59
  Speaker 2: financially independent and you can retire early if you wish
• 11:04
  Speaker 2: once your passive income generates enough to cover your basic
• 11:08
  Speaker 2: living expenses. So that's the fourth principle that I took
• 11:11
  Speaker 2: away from the Fahir movement that I felt was useful
• 11:15
  Speaker 2: and practical for my personal financial needs.
• 11:19
  Speaker 1: Now, the other thing, the last one, which sounds so sensible,
• 11:25
  Speaker 1: where you get to the point where your passive income
• 11:28
  Speaker 1: covers your expenses. Yes. That is a lot harder than
• 11:32
  Speaker 1: it sounds.
• 11:34
  Speaker 2: Yes, and I totally agree with you.
• 11:36
  Speaker 1: What do people in the Australian market generally use for
• 11:42
  Speaker 1: passive income to cover their expenses? Is it property? Is
• 11:46
  Speaker 1: it share market investing? What is it? ETFs? What do
• 11:49
  Speaker 1: they use?
• 11:50
  Speaker 2: The Australian market is fairly narrow in its use of
• 11:57
  Speaker 2: a variety of financial instruments to create passive income. So
• 12:00
  Speaker 2: I would have to say that majority of moms and pops,
• 12:03
  Speaker 2: even the young adults, who are listening in generally head
• 12:08
  Speaker 2: towards real estate. So real estate becomes the common passive
• 12:12
  Speaker 2: income tool, instrument, or generator. Then, of course, there are
• 12:17
  Speaker 2: those that are invested in the ASX, so there's real
• 12:21
  Speaker 2: stock exchange and market. And folks, of course, having fixed
• 12:25
  Speaker 2: income as well, that would include some cash. maybe bonds,
• 12:29
  Speaker 2: term deposits. Generally, those are the three main asset classes.
• 12:33
  Speaker 2: I'm not going to throw in things like, you know,
• 12:35
  Speaker 2: additional assets like crypto and stuff like that. But traditionally,
• 12:39
  Speaker 2: those are the three asset classes that majority of our
• 12:43
  Speaker 2: Australian listeners have their monies in and are using to
• 12:47
  Speaker 2: generate passive income.
• 12:49
  Speaker 1: Okay. Now, can I just say to you, the challenge
• 12:51
  Speaker 1: to me is that this goes really slowly. If I
• 12:55
  Speaker 1: have it in cash... It's 3% or 4%. If I
• 12:58
  Speaker 1: have it in property, the yields are 2% or 3% net.
• 13:02
  Speaker 1: If I have it on the share market, the Australian
• 13:04
  Speaker 1: share market, the dividend yield is about 4.5%. It's going
• 13:07
  Speaker 1: to be a long time before that passive income. This
• 13:11
  Speaker 1: is why I'm so sceptical. Not that I completely admire
• 13:16
  Speaker 1: the individual listener's aspiration to achieve this, but I feel
• 13:22
  Speaker 1: we need to sober up on how long and how
• 13:24
  Speaker 1: hard it is to achieve this. Is there anything you
• 13:26
  Speaker 1: know that I don't know that makes it easier than
• 13:29
  Speaker 1: it sounds.
• 13:30
  Speaker 2: I agree with you, James. It's not easier than it sounds.
• 13:33
  Speaker 2: I wouldn't, even as a self-financed educator, you know, I
• 13:38
  Speaker 2: teach in universities, not just in Australia, but also outside Australia.
• 13:41
  Speaker 2: I've been a guest speaker at private client events, you know,
• 13:45
  Speaker 2: that are organized by banks, financial institutions, wealth managers. I
• 13:50
  Speaker 2: always tell people, The audience, it is not easy, even
• 13:54
  Speaker 2: though I'm being used as a reference. So I'm sure
• 13:57
  Speaker 2: that in your Google search or background search of myself,
• 14:01
  Speaker 2: it probably pops up that I'm one of those individuals
• 14:04
  Speaker 2: who went from being an employee to a ultra high
• 14:08
  Speaker 2: net worth and therefore managed to fire by age 40.
• 14:14
  Speaker 1: You never had a fixed salary. You didn't do it
• 14:15
  Speaker 1: on a fixed salary.
• 14:16
  Speaker 2: I did it partly on a fixed salary. So I
• 14:18
  Speaker 2: was an employee. And when I started, like most of
• 14:21
  Speaker 2: the other folks, I didn't come from a wealthy family.
• 14:24
  Speaker 2: I didn't have any inheritance. So it's purely hard work.
• 14:28
  Speaker 2: So I totally agree. And I support you, James, in
• 14:31
  Speaker 2: your statement to listeners that it is not a quick fix.
• 14:35
  Speaker 2: It's not an easy thing to do. It requires time
• 14:40
  Speaker 2: and commitment.
• 14:41
  Speaker 1: So that's And lifetime commitment, I expect.
• 14:44
  Speaker 2: Yes, that's right. And that's something that I had to
• 14:46
  Speaker 2: do for myself. So, you know, there's a couple of
• 14:48
  Speaker 2: things that even though I encountered the FIRE movement, as
• 14:51
  Speaker 2: I said, in the late 1990s, I didn't think that
• 14:55
  Speaker 2: everything that I picked up was useful, practical, and I
• 14:59
  Speaker 2: could actually implement. Because there were things that were missing.
• 15:04
  Speaker 2: So what was missing was what I actually picked up
• 15:07
  Speaker 2: in my course of work. So I worked in an
• 15:09
  Speaker 2: investment holdings company. I actually have to travel to international markets.
• 15:14
  Speaker 2: I worked in 20 plus markets. I worked with more
• 15:18
  Speaker 2: than 10 industries. And what I've learned in engaging with
• 15:22
  Speaker 2: those corporations, family enterprises, family offices, as well as the
• 15:27
  Speaker 2: ultra high net worth individuals is how they managed and
• 15:30
  Speaker 2: grew their wealth. So for them, it wasn't about FIRE
• 15:34
  Speaker 2: because they didn't need to talk about FIRE. It was
• 15:37
  Speaker 2: more of how they were actively getting wealthy. So I
• 15:41
  Speaker 2: combined what I learned with FIRE and what I learned
• 15:44
  Speaker 2: from interacting with the individuals that had a much larger
• 15:50
  Speaker 2: wealth base what the journey need to look like. So
• 15:54
  Speaker 2: I realized that number one, I had to up my earnings.
• 15:57
  Speaker 2: So if my earnings didn't go up and I was
• 16:01
  Speaker 2: just looking to save more and invest more, I wouldn't
• 16:05
  Speaker 2: have a compounding effect. So I need to up my
• 16:07
  Speaker 2: savings after I up my earnings. So the more I earn,
• 16:11
  Speaker 2: the more I could save. So when I started working,
• 16:14
  Speaker 2: I only had $ 1, 800 a month. That was my salary
• 16:19
  Speaker 2: where I started working back in the late 1990s. So
• 16:23
  Speaker 2: I started work in 1995. A thousand eight. I was
• 16:27
  Speaker 2: a bit more fortunate because I was traveling extensively. I
• 16:30
  Speaker 2: could save a lot of my income. So I managed
• 16:33
  Speaker 2: to save at best 70% of that monthly income and
• 16:39
  Speaker 2: I would Sorry, Lionel, what was the figure?
• 16:42
  Speaker 1: 70.
• 16:43
  Speaker 2: So I managed to save 70. 70.
• 16:44
  Speaker 1: You were able to save 70 of your income. Okay.
• 16:48
  Speaker 2: But I need to disclaim to our listeners that I
• 16:50
  Speaker 2: was fortunate because I was traveling extensively. So I didn't
• 16:54
  Speaker 2: have a lot of expenses, right? And also I was
• 16:57
  Speaker 2: working 17 hours a day, seven days a week. So
• 17:00
  Speaker 2: I had no time to go to the pub at night,
• 17:04
  Speaker 2: for example. So I had very little social life.
• 17:07
  Speaker 1: As well.
• 17:08
  Speaker 2: So that allowed me to save 70%. But what I
• 17:11
  Speaker 2: did with the 70%, the first thing I did was
• 17:14
  Speaker 2: to actually find any kind of savings instrument that would
• 17:20
  Speaker 2: give me the highest interest rate and I would actually
• 17:23
  Speaker 2: put it in. So I just went for Term deposits,
• 17:26
  Speaker 2: I went term deposit hunting. You know, every time I
• 17:29
  Speaker 2: had free time between work, I would go look for
• 17:32
  Speaker 2: term deposits and I would just keep, I just kept
• 17:35
  Speaker 2: putting money in there. Because at that stage of life,
• 17:39
  Speaker 2: I was not in a position to invest. I couldn't
• 17:41
  Speaker 2: afford to lose the small, meager amounts I had.
• 17:44
  Speaker 1: Okay. And is that a fire principle that you start,
• 17:48
  Speaker 1: I suppose, in terms of getting that emergency money at
• 17:50
  Speaker 1: the start, you have to, you can't gamble that, you
• 17:52
  Speaker 1: have to save it. Yeah. Okay. Mm-hmm.
• 17:56
  Speaker 2: That's right.
• 17:56
  Speaker 1: Yeah.
• 17:57
  Speaker 2: So I applied principle number three, right? I applied principle
• 18:00
  Speaker 2: number three without just looking at it as an emergency fund.
• 18:03
  Speaker 2: I looked at it also as a fund that would
• 18:06
  Speaker 2: grow that savings, right? So many a times when you
• 18:09
  Speaker 2: think about emergency fund, we just open a bank account,
• 18:11
  Speaker 2: just keep putting money in there, but it doesn't grow
• 18:14
  Speaker 2: at a high interest rate. So I had to look
• 18:16
  Speaker 2: for the high interest rate accounts. In this case, when
• 18:19
  Speaker 2: I was doing it, there weren't high yield savings accounts.
• 18:23
  Speaker 2: So the best thing I could find was term deposits.
• 18:26
  Speaker 2: So I just went from term deposit to term deposit
• 18:28
  Speaker 2: every time interest rate increased from the issuer. So I
• 18:35
  Speaker 2: did that for a while and then that actually upped
• 18:38
  Speaker 2: my savings. So that also gave me a buffer to
• 18:41
  Speaker 2: start thinking about investing.
• 18:43
  Speaker 1: I know you're just a sample of one, but when
• 18:46
  Speaker 1: you did begin investing as someone to which the adherence
• 18:50
  Speaker 1: to the FIRE movement and its principles has really worked.
• 18:54
  Speaker 1: And beyond the term deposits then, what was your first
• 18:57
  Speaker 1: sort of foray into an investment beyond saving? Yep.
• 19:02
  Speaker 2: So I did actually what every other, I guess the
• 19:06
  Speaker 2: average Aussie would do, which is go buy a home.
• 19:09
  Speaker 2: So my first investment was actually using the term deposits.
• 19:14
  Speaker 2: to save enough to actually put a down payment on
• 19:18
  Speaker 2: a property. So that's what I did. So it's not
• 19:21
  Speaker 2: sexy stuff. It's not rocket science. Everyone else does the
• 19:24
  Speaker 2: same thing. So I did that. And so that actually
• 19:27
  Speaker 2: started my investing, I guess, journey. And also I started
• 19:32
  Speaker 2: looking at the stock market as well. So public equities
• 19:37
  Speaker 2: being another asset class that I encountered during my work.
• 19:41
  Speaker 2: So I get the chance to learn more about it
• 19:44
  Speaker 2: and also then added some of that money to buying
• 19:47
  Speaker 2: stocks as well. But I'm not a trader. so essentially
• 19:50
  Speaker 2: I'm looking to build my investment returns over time and
• 19:55
  Speaker 2: I want to make sure that those investment returns do
• 19:58
  Speaker 2: not get halved along the way so it builds up
• 20:01
  Speaker 2: steadily so I don't go after high risk high return
• 20:05
  Speaker 2: stuff I look for stocks and shares that allow me
• 20:08
  Speaker 2: to get a certain level of dividend. At the same time,
• 20:11
  Speaker 2: it also has capital gains over a long period of time.
• 20:15
  Speaker 2: So I unfolded stables or staples with my stocks and shares.
• 20:19
  Speaker 2: And of course, with the travel, I engaged with different markets.
• 20:24
  Speaker 2: So that also allowed me to think about diversifying my
• 20:27
  Speaker 2: stocks into different exchanges versus just one stock market.
• 20:32
  Speaker 1: Do you deal in individual stocks or in exchange? Not
• 20:37
  Speaker 1: exchange-traded funds? No, I mean ETFs?
• 20:41
  Speaker 2: No, there weren't ETFs then.
• 20:42
  Speaker 1: Was that part of your.
• 20:43
  Speaker 2: Yeah, we're talking about the... Yeah, so I wasn't using ETFs.
• 20:47
  Speaker 2: I still don't personally have ETFs because based on the
• 20:52
  Speaker 2: stock portfolio that I've worked on myself over time, it's
• 20:57
  Speaker 2: behaved like an ETF. So I created my own ETF
• 21:00
  Speaker 2: before ETFs were available. I'm not saying I'm smart.
• 21:04
  Speaker 1: I understand the concept and it's a very strong concept,
• 21:06
  Speaker 1: but I imagine that it was very much a blue
• 21:09
  Speaker 1: chip portfolio. Yes. If you're looking for dividends as well
• 21:13
  Speaker 1: as growth each time. Okay, very good. So interesting. First
• 21:17
  Speaker 1: of all, the emergency fund, then the savings, then the home,
• 21:23
  Speaker 1: then this sort of slow but gradual growth. opening out
• 21:28
  Speaker 1: of your investment portfolio into investment markets, including the share market.
• 21:32
  Speaker 1: Very interesting. Okay, now I'll take a break and I
• 21:35
  Speaker 1: want to sort of stress test the whole concept with
• 21:38
  Speaker 1: you in the final segment. Back in a moment, folks.
• 21:52
  Speaker 1: Hello and welcome back to the Australian's Money Puzzle podcast.
• 21:55
  Speaker 1: I'm James Kirby and I'm talking to Lionel Lee and
• 21:57
  Speaker 1: we're talking about the FIRE movement, F-I-R-E, Financial Independence, Retire Early.
• 22:02
  Speaker 1: Something that really captured our listeners' imaginations during the year
• 22:06
  Speaker 1: and I wanted to do a special episode on it.
• 22:09
  Speaker 1: Lionel is in the investment markets. He's also a financial educator.
• 22:15
  Speaker 1: He also does some work in financial education in universities
• 22:20
  Speaker 1: and schools. As you have heard from the first segment,
• 22:24
  Speaker 1: he's a very articulate advocate. And look, Lionel, I just
• 22:29
  Speaker 1: wanted to throw one or two things at you. I'm
• 22:32
  Speaker 1: sure you're going to have good answers for all this,
• 22:34
  Speaker 1: but there's two or three things I want to ask about.
• 22:37
  Speaker 1: First of all, in our own market in Australia, everybody
• 22:42
  Speaker 1: has to put 11.5% of their savings into super, buy low, mandatory,
• 22:48
  Speaker 1: which is good advice. But it's also a problem in
• 22:52
  Speaker 1: some fashion. One of those ways is that if money
• 22:55
  Speaker 1: is tight, as it is for many people, and you
• 22:58
  Speaker 1: already have to put 11.5% into your retirement, whether you
• 23:02
  Speaker 1: like it or not, right? By law, you must do it.
• 23:05
  Speaker 1: It's mandatory. Superannuation guaranteed charge. Does that dilute or in
• 23:11
  Speaker 1: some way sidestep the need to follow the FIRE movement?
• 23:18
  Speaker 2: I don't think there's actually, it doesn't really sidestep the
• 23:22
  Speaker 2: need to follow the fire movement. I think one point
• 23:25
  Speaker 2: of clarification is we are not encouraging listeners to follow
• 23:29
  Speaker 2: the fire movement. I think my opinion is you should
• 23:34
  Speaker 2: Use what you understand about the FIRE movement as a
• 23:38
  Speaker 2: guiding light. And then apply what you feel works for
• 23:43
  Speaker 2: you to actually achieve your personal financial goals. Whatever those
• 23:47
  Speaker 2: goals might be. Some people are not looking to retire early.
• 23:50
  Speaker 2: They just want FIRE... financial independence. They just want the
• 23:53
  Speaker 2: fi side, but not the re side, right? So it's
• 23:57
  Speaker 2: really up to the individual. But coming back to superannuation,
• 24:00
  Speaker 2: I am a fan of superannuation because there are many
• 24:04
  Speaker 2: fellow Australians out there who are not in the habit
• 24:08
  Speaker 2: of saving. Superannuation to me is a form of forced savings.
• 24:13
  Speaker 2: And I know that 11% is, you know, it's a toughie,
• 24:17
  Speaker 2: but it is... still a benefit for those who are
• 24:21
  Speaker 2: not in a habit of doing so. And that helps with,
• 24:25
  Speaker 2: not so much the fine women, but that helps with
• 24:27
  Speaker 2: their retirement because at least we know that at some
• 24:31
  Speaker 2: point in time, whenever they decide to retire, whether it's
• 24:34
  Speaker 2: before or after the statutory retirement age, they do have
• 24:40
  Speaker 2: some funds there waiting for them to live off and
• 24:43
  Speaker 2: to enjoy life with. I think that the issue I
• 24:46
  Speaker 2: have with the superannuation is more of the fact that
• 24:50
  Speaker 2: because it is seen as passive, you know, my 11%
• 24:55
  Speaker 2: goes there, it takes care of itself. The answer is
• 24:58
  Speaker 2: it doesn't. So you have to, and again, I just
• 25:01
  Speaker 2: repeat myself to listeners, you have to, because it's your money,
• 25:06
  Speaker 2: Pay attention to your super and look for, just like
• 25:08
  Speaker 2: I've done with my meager salaries when I started looking
• 25:12
  Speaker 2: for high-yield returns from savings and term deposits, you should
• 25:17
  Speaker 2: approach the super returns in the same way. Look for
• 25:20
  Speaker 2: ways to actually up your super returns because every percentage counts.
• 25:28
  Speaker 2: due to compounding. And over time, that small percentage increase
• 25:32
  Speaker 2: compounds to a large dollar number at the end of 20,
• 25:37
  Speaker 2: 25 or 30 years, or even 35 years for many
• 25:41
  Speaker 2: young and middle-aged Australians.
• 25:43
  Speaker 1: We shouldn't underestimate the power of compounding. It's a key thing, obviously,
• 25:46
  Speaker 1: in the FIRE movement, that whole thing that basically timing
• 25:49
  Speaker 1: the market rather than timing the market, which is so important.
• 25:52
  Speaker 1: Can I ask you about that? Of course, one part
• 25:55
  Speaker 1: of FIRE is As you say, the second part of it,
• 25:57
  Speaker 1: the first part is financial independence. The second part is
• 26:00
  Speaker 1: retire early. Super doesn't allow you to retire early. You
• 26:03
  Speaker 1: can't get your hands on your super until you retire.
• 26:05
  Speaker 1: So to that extent, it's not very good from that perspective.
• 26:09
  Speaker 1: What about borrowing? What's the approach in relation to borrowing?
• 26:15
  Speaker 1: Because borrowing... at its best, obviously, can magnify and accelerate
• 26:20
  Speaker 1: wealth building. Yes.
• 26:21
  Speaker 2: So I think the word borrowing and the other word
• 26:25
  Speaker 2: that comes to mind would be leverage. So borrowing and leverage,
• 26:30
  Speaker 2: they might sound similar, but they're not the same. So
• 26:33
  Speaker 2: I think when we use the word borrowing, most people
• 26:39
  Speaker 2: are actually borrowing to get into debt. So borrowing and
• 26:42
  Speaker 2: debt has I mean, they're kind of like good buddies,
• 26:46
  Speaker 2: which is not good for the individual. So I cannot
• 26:50
  Speaker 2: use the word borrowing because it paints the picture of,
• 26:54
  Speaker 2: you know, you borrow without consequences. It's like buy now,
• 26:57
  Speaker 2: pay later, right? So it's a kind of borrowing. I
• 27:00
  Speaker 2: prefer to use the word leverage. I prefer listeners to
• 27:03
  Speaker 2: think about leverage because leverage means that there's an active,
• 27:06
  Speaker 2: positive approach that you're taking to the borrowing. So if
• 27:11
  Speaker 2: you are leveraging money assets, you know, you're leveraging your
• 27:16
  Speaker 2: cash to actually then acquire more income generating or capital
• 27:23
  Speaker 2: gains generating assets, then yes, I would say, you know,
• 27:26
  Speaker 2: that's something you should do, which is what I did. So,
• 27:30
  Speaker 2: for example.
• 27:30
  Speaker 1: You're talking about active, tax-deductible, investment-only, investment-focused borrowing, i.e. leverage.
• 27:39
  Speaker 1: Is there any guidelines as to how much or how
• 27:42
  Speaker 1: little someone should engage in that?
• 27:45
  Speaker 2: I don't really have a prescription. I would say that
• 27:48
  Speaker 2: really depends on your circumstances. So the way I would
• 27:53
  Speaker 2: look at it, just to provide some kind of guide
• 27:56
  Speaker 2: to listeners who are thinking about this, and I don't
• 27:58
  Speaker 2: want them to actually start doing it and get into
• 28:01
  Speaker 2: a fix, i.e. become debt-ridden, is that firstly, look at
• 28:07
  Speaker 2: how much cash base you have. The cash base is
• 28:11
  Speaker 2: essentially your protection against leveraging too much. That means that
• 28:15
  Speaker 2: you are able to repay down some of that leverage
• 28:18
  Speaker 2: to be in a position whereby you are actually not
• 28:22
  Speaker 2: bleeding ill financially. Then also look at the cost of leverage.
• 28:28
  Speaker 2: For example, if I were to borrow, you know, let's
• 28:33
  Speaker 2: go back to, I own a property, right? So my
• 28:35
  Speaker 2: property has a lot of equity over maybe the 10, 15,
• 28:38
  Speaker 2: 20 years. I'm looking to borrow on that kind of equity.
• 28:41
  Speaker 2: That borrowing is not free. It is leverage, but it's
• 28:44
  Speaker 2: not free. So if you are actually taking equity out
• 28:48
  Speaker 2: at a high interest rate, then your leverage becomes really costly.
• 28:53
  Speaker 2: So the cost of leverage is important because if you are,
• 28:56
  Speaker 2: say for example, taking equity out and it costs you 6%,
• 29:02
  Speaker 2: but you're putting it into something else that only gets
• 29:04
  Speaker 2: you 5%, you're losing 1%. So you have to leverage.
• 29:09
  Speaker 1: It's not working.
• 29:10
  Speaker 2: So the third thing you need to think about is
• 29:12
  Speaker 2: the cost.
• 29:12
  Speaker 1: It's not working. Okay. Yeah. So do your numbers carefully
• 29:15
  Speaker 1: and the numbers move.
• 29:17
  Speaker 2: Exactly. Exactly. That's right. And so you have to pay attention, right?
• 29:21
  Speaker 2: You can't just sit back and think, okay, the banks,
• 29:23
  Speaker 2: you know, the financial institutions, my broker will take care
• 29:26
  Speaker 2: of everything they don't. So if you've got money and,
• 29:31
  Speaker 2: you know, any kind of assets, well, as long as
• 29:33
  Speaker 2: you've got money, you need to take care of your money.
• 29:35
  Speaker 2: You need to pay attention. You need to find ways
• 29:37
  Speaker 2: to get that money, however little or much you have.
• 29:40
  Speaker 2: to work better for you.
• 29:43
  Speaker 1: It sounds like the idea of set and forget is
• 29:46
  Speaker 1: not your idea at all.
• 29:48
  Speaker 2: Do not ever set and forget. Yeah.
• 29:51
  Speaker 1: Yeah, I like that. I like that. Don't set and forget.
• 29:53
  Speaker 1: I completely agree with you. Okay.
• 29:55
  Speaker 2: Okay.
• 29:56
  Speaker 1: It's very interesting. I really like how you've presented all this.
• 29:59
  Speaker 1: Just one last thing about fire and the fire movement
• 30:02
  Speaker 1: that I wanted to ask. What if things go wrong?
• 30:06
  Speaker 1: So somebody has a plan and they really are serious
• 30:11
  Speaker 1: and they start and they say, OK, I'm going to
• 30:13
  Speaker 1: do this. I'm going to really do this. I'm going
• 30:16
  Speaker 1: to adhere to this. And it's not my New Year's resolution.
• 30:19
  Speaker 1: I'm going to do this for years. I'm going to
• 30:21
  Speaker 1: follow the basic. I'm going to get my emergency fund
• 30:23
  Speaker 1: started so that I can I can cover emergencies of
• 30:27
  Speaker 1: whatever they may be. It might be a surprise health bill.
• 30:30
  Speaker 1: It might be that the interest rates went up and
• 30:33
  Speaker 1: I have to pay more per month. But they've covered that.
• 30:36
  Speaker 1: And they've got their plans and they have their age
• 30:40
  Speaker 1: in mind that they'd like to achieve financial independence. What
• 30:47
  Speaker 1: do you say to people when things really go wrong?
• 30:49
  Speaker 1: They buy a bum property with asbestos in the building.
• 30:53
  Speaker 1: or they were in the share market, they'd never been
• 30:55
  Speaker 1: in the share market, and guess what? There was a crash,
• 30:57
  Speaker 1: you know, six months after they start. How do people
• 31:01
  Speaker 1: get through those hurdles?
• 31:03
  Speaker 2: To answer that question, I guess, to our satisfaction and
• 31:06
  Speaker 2: making it practical for our listeners, I would say, firstly,
• 31:10
  Speaker 2: we need to think about two things. Number one, it
• 31:14
  Speaker 2: is possible to fire. I'm, like I said, I'm not
• 31:17
  Speaker 2: advocate for fire. The way I approach it is I
• 31:20
  Speaker 2: look at fire, air, wealth management as a combination. So
• 31:25
  Speaker 2: I like to use the word fire wealthy. That's what
• 31:27
  Speaker 2: I share with my students. And I know it's possible
• 31:32
  Speaker 2: because I've done it and there are many other people
• 31:35
  Speaker 2: who have done it. That's why we've got so many
• 31:37
  Speaker 2: high net worth individuals and ultra high net worth individuals
• 31:40
  Speaker 2: in Australia. The other thing that's important to think about,
• 31:45
  Speaker 2: fire is net worth. So that's how I approach fire.
• 31:49
  Speaker 2: I approach fire from building my net worth And the
• 31:52
  Speaker 2: reason why I use that word and I repeat the
• 31:54
  Speaker 2: word net worth is because building net worth or getting
• 31:58
  Speaker 2: our listeners to be in the mindset of building net
• 32:00
  Speaker 2: worth means that they are looking at actively taking steps.
• 32:06
  Speaker 2: And those steps are positive to actually save, to invest.
• 32:11
  Speaker 2: And also, it's not just saving and investing, which is
• 32:14
  Speaker 2: what FIRE talks about. But it forgets that you have
• 32:17
  Speaker 2: to work better. You have to earn better. you also
• 32:20
  Speaker 2: have to spend better in order to make your savings
• 32:23
  Speaker 2: and investment grow because it all works hand in hand.
• 32:28
  Speaker 2: You're all good friends, right? It's like having a platter,
• 32:31
  Speaker 2: a beer platter, right? So instead of just enjoying an
• 32:33
  Speaker 2: ale or a stout, you've got the best of all worlds.
• 32:37
  Speaker 2: And at the same time, you need to understand how
• 32:40
  Speaker 2: the world of money works. So what I term the
• 32:42
  Speaker 2: moneyverse because Tokyo Fire, independent of the moneyverse itself, is
• 32:48
  Speaker 2: actually something that doesn't work. It has to be together.
• 32:51
  Speaker 2: So that's what our listeners may lack. And that's a
• 32:55
  Speaker 2: comprehensive understanding. So why am I saying this? It's because
• 33:00
  Speaker 2: when they do this, the chances of them actually failing
• 33:05
  Speaker 2: will be much lesser. So that's the first. Now, second
• 33:08
  Speaker 2: is what happens when, you know, we've done everything right
• 33:11
  Speaker 2: and the universe is against us. And it happens. I've
• 33:13
  Speaker 2: lived through the Asian financial crisis. So you know that
• 33:17
  Speaker 2: I'm not that young. I've experienced SARS before I experienced
• 33:22
  Speaker 2: global financial crisis. You know, all these were major sledgehammers
• 33:27
  Speaker 2: on my portfolio. What I did when I was thinking
• 33:34
  Speaker 2: about my journey, my own personal finance journey and building
• 33:37
  Speaker 2: my net worth was that what if these things happen
• 33:40
  Speaker 2: and I predict the markets going down. So when I
• 33:44
  Speaker 2: looked at the four principles that I shared, what I
• 33:46
  Speaker 2: did practically was to actually change the principles to adjust
• 33:53
  Speaker 2: for these unfortunate circumstances. So when I mentioned about the
• 34:00
  Speaker 2: retirement amount, your annual expenses times 25, I actually used
• 34:05
  Speaker 2: a much higher number. I used more than 25. I
• 34:08
  Speaker 2: actually applied more than 4% in my calculation. And not
• 34:12
  Speaker 2: only that, I actually added in inflation and I added
• 34:15
  Speaker 2: in hyperinflation in my own calculations as well. So the
• 34:18
  Speaker 2: final number that I adjusted for myself every day was
• 34:22
  Speaker 2: much higher, which meant I had to work harder I
• 34:25
  Speaker 2: can work better, I can earn better, you know, I
• 34:27
  Speaker 2: can up my earnings. So all of that provided me
• 34:30
  Speaker 2: with the ability to buffer all the different, I guess,
• 34:34
  Speaker 2: hiccups in the financial markets. But also the other thing
• 34:36
  Speaker 2: to remember is everything in the universe is cyclical, meaning
• 34:41
  Speaker 2: that when the financial markets go down, they will rebound
• 34:45
  Speaker 2: as well. It's just like the elevators, right? What goes
• 34:47
  Speaker 2: up comes down, what goes down goes up. So the
• 34:50
  Speaker 2: important thing is to be able to be in a position,
• 34:54
  Speaker 2: make sure that you're in a financial position to actually
• 34:57
  Speaker 2: sit tight, right? And to, they're trying, right? Sit out
• 35:02
  Speaker 2: and don't go jumping around doing crazy things. When I
• 35:06
  Speaker 2: say crazy things, I mean, you know, start, you know,
• 35:08
  Speaker 2: liquidating there, selling there and put yourself in a more
• 35:12
  Speaker 2: challenged financial position. When the markets recover, then you are
• 35:17
  Speaker 2: actually even more backward than you were. Okay.
• 35:22
  Speaker 1: All right. I like your approach. You've certainly convinced me
• 35:27
  Speaker 1: much more than I had been, Laila.
• 35:29
  Speaker 2: No problem. My objective was not to convince you, but
• 35:32
  Speaker 2: it was just to make sure our listeners ….
• 35:34
  Speaker 1: Well, you have.
• 35:35
  Speaker 2: You have.
• 35:36
  Speaker 1: You have. And I think what we needed to do,
• 35:39
  Speaker 1: we needed to get a show where we spelled it
• 35:40
  Speaker 1: out and we stress-tested it. And we really laid it out.
• 35:44
  Speaker 1: And I think you've done that very well. So thank
• 35:45
  Speaker 1: you very much for coming on the show, Lionel Lee.
• 35:48
  Speaker 1: Great to hear from you.
• 35:49
  Speaker 2: It's my pleasure, James. Yeah, thanks for having me. You know,
• 35:51
  Speaker 2: it's great to be able to chat with one of
• 35:54
  Speaker 2: Australia's most experienced financial journalists. You know, I also contribute
• 35:58
  Speaker 2: to articles to various news media, you know, in around
• 36:01
  Speaker 2: the world. But I must say that I do not
• 36:03
  Speaker 2: have the wealth of journalism that you have. So you're
• 36:06
  Speaker 2: definitely a role model for me.
• 36:09
  Speaker 1: Well, there you go. Well, there's a career for you.
• 36:12
  Speaker 1: There's a career for you in journalism, should you ever
• 36:14
  Speaker 1: wish to do so. Okay, folks, that was Niall Lee.
• 36:16
  Speaker 1: Great to hear from him. Great to hear from you.
• 36:19
  Speaker 1: I hope you're enjoying your break. Be ready for our
• 36:21
  Speaker 1: season coming up, our special season of The Outlook for
• 36:24
  Speaker 1: 2025 coming up soon. Keep the emails coming in. themoneypuzzle
• 36:30
  Speaker 1: at theaustralian.com.au Talk to you soon. Thank you.