This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 14 January 2017.

The start of a new year is always an exciting time; an opportunity to look ahead with hope and anticipation. To push the reset button and forget about the year gone past. And what a year that was! 2016 was not the worst year we’ve ever seen – no major wars, crises or market collapses, but it still seemed to be a dramatic one. The UK decided it didn’t want to play in the European sandpit anymore; Malcolm Turnbull snuck back in the Lodge by a wafer thin margin and in the US, well, let’s just say that everything is apparently going to be great again! The truth is, every year has its ups and its downs. Humankind has an amazing ability to create new and novel ways to do both good and bad. From an investment perspective, the key to surviving any year is to make sure you have a plan. The old saying, failing to plan is planning to fail, really is true. Sure the odd major event might throw a spanner in the works (such as another global financial crisis), but having a financial plan helps to keep you pointed in the right direction, regardless of the odd bump encountered on the way.

A good financial plan is one which can adapt to the world around it. Just as circumstances change, so should your planning. Unfortunately, governments have a tendency to make unanticipated decisions which can have a major financial impact. While it’s not necessarily a requirement to predict those adverse decisions in advance, it is advantageous if you are able to adapt your finances to the new regime. The issue of superannuation is a perfect example of the ability of regulatory change to cause chaos. While you would assume the government is happy for more and more of us to be financially self-reliant during retirement, that is not necessarily the case. For every dollar that we squirrel away in superannuation, the government loses a few cents in additional tax revenue. It’s a case of long term gain (fewer retirees on the Age Pension) versus short term pain (less tax revenue now). Unfortunately, few politicians have a timeframe which extends past the next election. From their perspective, a few extra cents in tax now, is better than saving a few dollars in pension payments in twenty or thirty years’ time. That will be someone else’s problem, while the current crop of pollies will be retired on their generous government pensions by then. Here’s a new year’s resolution for our political leaders – stop squabbling amongst yourselves and let’s make government great again! It can’t be that hard, can it?

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 31 December 2016.

As I write this, we’re nearing the end of the year. In fact, if you’re reading this in the paper, it’s New Year’s Eve and you are no doubt debating whether or not to stay up until midnight to see in the New Year. I’ve found that as we started to have children, each successive one seemed to lop an extra hour off my ability to make it to midnight. With three kids this means I’m lucky to make it to 9pm. In pre-children days that was when the party was only getting started. Now however, I know that by six in the morning I’m likely to have two, if not three, small people yelling at me and demanding to be fed and entertained. Only a man more brave (or foolish) than me would stay up until the wee hours, knowing that was the fate which awaited him.

The end of the year is of course a perfect time to look back and consider your progress and achievements, particularly in regards to your finances. There’s no need to make it too formal, or else you’re unlikely to actually do anything about it; rather, just ask yourself a few questions and be honest with yourself. Things like: did you make much progress in reducing your debts this year? Were you able to add extra money to your savings or superannuation? Were you able to control your spending this year? We all have the odd occasional unexpected expense, but spending more than you earn is a certain path to financial trouble. Are all your insurances in order and are the insured amounts appropriate? Many people vastly underestimate how much life, home and contents insurance they need. Make time to review your policies.

The end of the year is also a good time to make some plans for the year ahead. Are there ways you can save more next year? If you’re lucky enough to get a pay rise next year, why not commit right now to salary sacrificing it to superannuation, rather than taking it as extra pay? If you were living well enough without the extra money, you won’t miss it anyway. Can you pay more off your mortgage? Changing your phone or electricity company can save money – direct it to your mortgage instead. Most importantly of all, save some money for yourself. There’s no point having a fat bank account and living on bread and potatoes. Indulge yourself every now and then, but do it sensibly. Failing to keep your finances under control is a lot more serious than dealing with three toddlers on a hangover.

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 17 December 2016.

I read a book recently which told the story of a man who lived in Melbourne, working as a croupier at Crown Casino, and how he invested in the stock market. Spending that much time in a gambling den must have had an impact on his investment approach, which consisted solely of looking for a company with a share price close to $0.01 (a so-called ‘penny dreadful’), putting his entire life savings into the company and hoping for the best. On two occasions he managed to turn over a hundred thousand dollars into nearly a million, only to lose it all. On the third occasion (you’ve got to give him credit for being persistent) he tried the same approach, struck a winner and made nearly two million dollars in profit, enough to chuck in his croupier job and become a stay-at-home dad and fulltime investor.

Sounds great doesn’t it? A struggling everyday Joe strikes it rich through the share market and lives happily ever after. In reality however, this is the exception rather than the norm. As befitting his time spent in a casino, the hero of our rags-to-riches story was really doing nothing more than gambling. You could argue, statistically speaking at least, that he would have been better off to put his life savings on red at the roulette table and leave it there for a couple of spins. Certainly the odds of the roulette ball landing on red three times in a row are probably better than the likelihood of picking one company from the five thousand on offer on the stock market, and then watching it quadruple in value.

For most people, losing their entire life savings (twice!) is simply too much to bear, despite the allure of a potential massive payday. For every croupier-turned-millionaire there’s probably ten thousand ‘investors’ who’ve lost their shirt by mistaking the stock exchange for a casino. Undoubtedly there is a myriad of ways to make (and lose) money on the stock market. Betting your life savings on the roll of a dice may well be your thing; there’s also merger arbitrage, long/short pairs, rumourtrage, momentum investing and enhanced options trading strategies. It really is like one of those ‘Choose your own adventure’ books which made a brief appearance in the mid-nineties. For normal, sane and rational investors however, none of these methods are likely to leave you able to sleep at night. If a sound night’s sleep is important to you, an investment adviser can help; otherwise, I have a book I can lend you to help pass the hours.

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 3 December 2016.

My wife and I recently attended a parent teacher interview at our eldest son’s school. Jack is only nearing the end of kindergarten, so perhaps my expectations were set a little bit too high, but I came out of the meeting feeling underwhelmed. We were shown some of his drawings, his list of sight words, his level of reading ability and the extent of his numeracy skills – all interesting enough information, but I wanted more. Perhaps it’s my finance background, but I felt the relative performance aspects of his year in kindy were impossible to ascertain. In which percentile of his class for reading skills does he fall? What about compared to other kids in NSW? In Australia even? How does his ability to recognise shapes compare to everyone else in his class? Where would he rank nationally in terms of his drawing ability? Are his colouring-in skills in the top 1% of kindy kids in the country? And so on. When I raised these important questions with my wife, Liz, after the meeting, her reaction was simply to laugh at me, karate chop me in the solar plexus and tell me to stop being so stupid and relax. Clearly the issue of relative performance is not one which keeps her up at night.

When it comes to investing however, relative performance is about as serious a topic as one can get. If I told you that your investments generated an annual return of 10% in the past year, you would probably be quite happy. 10% per year is pretty good, at that rate it would only take around 7 years to double your investment. However, if I then told you that everybody else in the world made at least a 20% annual return, how would you feel? Not nearly as happy I suspect. It’s your performance, relative to an appropriate benchmark, which is most important. The appropriateness of the benchmark is critical too. There wouldn’t be much point for Jack’s teacher to tell me that Jack was in the top 1% for skipping when compared to children aged six months or less. That’s a useless comparison and provides no information on how he compares to other kids in kindy, which is the most relevant benchmark for him to be compared against. If you’re investing in shares and your performance is being compared to interest rates on a savings account, you’re also not learning anything useful. Relative performance may not matter when you’re a five year old and just embarking on a lifetime of learning and development, but when you’re talking about your life savings, it really is no laughing matter.