Update No. 112 – 10/05/13

A few weeks ago I came across an article about a fellow who had retired at 30. The article is well worth the read; he’s hardly leading a life of luxury, but his achievement within the framework of goals he had set himself is admirable. A huge proportion of success comes down to goal-setting; this guy laid his out and reeled them in.

Wealth creation is something I spend a lot of time thinking about. It is my job to create wealth for my clients so this should come as no surprise. I am (only!) 36 years old, so I expect to have a long runway upon which to compound wealth for both myself and my clients. The charts tell me an ‘average’ Australian 36 year-old (male) can expect to live to 80.5 years, now I’ve always felt I was above average, so perhaps I’ve got another 50 in me… This being the case, I expect I should be capable of managing money for at least another 40 years. Compounding is magic over such periods, at 10% per annum, 40 years turns $1 into $45. If you can average 15% for 40 years, $1 becomes about $268. I would hope that if the markets are approximately like they have been over the last 40 years that a 40-year record in the 10-15% range should be quite achievable. But will it make me (and my investors) happy?

People will tell you money will not bring you happiness. I am torn on this subject; I often enjoy discussing the pathetic nature of many ‘First-World Problems’ you’ll encounter in a wealthy society such as ours. That said, I think I can confidently say I am much happier now than I was 15 years ago. Money is certainly a contributor, as is a healthy fulfilled family life, and a job doing what I’ve always wanted. On money, the net worth my Wife & I possess is more than 10 times what it was 15 years ago, we are not particularly rich now, but sudden changes in economic circumstances do not concern me nearly as much as they would have 15 years ago. This allows a peace of mind I think persons in more challenging economic circumstances fail to properly value.

With a view to preparing for this blog post, I did some research into the money/happiness relationship. This research by the Brookings Institute really ‘flies in the face’ of the idea that there is a point at which ‘happiness’ with your financial situation ‘plateaus’.

The research found:

“While there are some differences in the slopes, the more remarkable feature is simply that for every country, the relationship estimated at low incomes appears to hold in roughly equal measure at higher incomes. In particular, there is no evidence that the slope flattens out beyond any particular “satiation point” in any nation.”

Now I am certain there is absolutely a point in every society where for the average person, the marginal utility of an extra unit of income earned or wealth accumulated is lower than the previous unit. Despite this it is very clearly the case that money does have a positive correlation with happiness.

The other driver for this post was my middle son, he is in his second year at Sydney University & studying Commerce/Law, but still with an incomplete view of his future (as you would expect of a 2^nd year Uni student). He asked if he should look to ‘Big 4’ internships with a view to becoming an accountant. My advice was that an internship would be an excellent idea & accounting is a stable profession with good pay and prospects (I am a CPA, so I feel qualified to comment) that will create a pathway into a variety of roles, but that being ‘an accountant’ is very few peoples overwhelming passion, and to consider that fact carefully. I closed off by directing him to an article that reviewed a fellow who sacrificed a high-flying career in ‘The City’ (London’s financial district for those not familiar with the expression). Now it’s probably easy to talk about sacrificing your career for your passion when in all probability you earned what many would consider a lifetimes wages in the 10 years you worked in The City, but it still takes an admirable level of courage to sacrifice the safety of substantial wealth for a career in something you love – Tony Hansen 10/05/13

EGP Fund No. 1 Pty Ltd. Up by 19.08%, leading the benchmark by 5.50% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 44.95%, leading the benchmark by 26.58% all-time (April 1^st 2011).