Some questions I get are short: “What do you think about XYZ?”
Others are more like people’s life stories, with several questions which are the financial equivalent of “How long is a piece of string?”
In this article, I’ve put together a couple of mini case studies along the lines of “What would Dave do?”
I’ve also grouped two crypto questions together - one is frankly pretty ‘out there’ and the other is one which many of you are probably facing.
As always, the idea here is to simply share how I think about different options and scenarios. In many cases there’s often not a “right” answer, so think carefully how to adapt any information to your own circumstances and seek professional financial advice when needed.
If you have a question you’d like answered, feel free to leave it in the comments below, or post it on the Pearler Exchange. OK, let’s get started with the first one - and just so you know, I try to leave these questions mostly unedited.
“What’s your view on Bitcoin?”
I am sure you have been asked this before but I'm going to ask again (if I may) as to what your view on Bitcoin is?
I have around $20k in Bitcoin and I am always up and down on if I should sell and put it in my VAS and VGS portfolio. I'm speculative on it but it just keeps going up. Please let me know your thoughts.
I actually plan to write an article on it later this year with some detailed thoughts of how I look at Bitcoin, even though I know very little about the technical side of things.
My thoughts have always been: it'll go as high as people want it to go, and will stay around as long as it's popular.
So even though I’ve never been a ‘fan’ in terms of having it in my portfolio (or speculative assets in general) that doesn’t mean I think it’s a giant ponzi and everyone is going to get creamed.
The reality is, the longer Bitcoin survives, the more 'real' it becomes. At this stage, the idea of it disappearing or going to zero seems stupid to me. In fact, I think it seems more likely to go to $1m than zero.
It's definitely a speculative asset and there are plenty of arguments against it, but it can obviously be a part of a portfolio without being reliant on it for your goals.
In terms of keeping it or not, if you'd rather have the shares and the certainty of just owning a massive basket of profitable businesses, then it might make sense to offload. But think of it this way: which would you regret more? Keeping your Bitcoin and watching it lose 80% of its value, or selling your Bitcoin and watching it go up 10x over the next 15 years?
In one case you lose $16,000. In another you ‘lose’ $180,000.
“Is my partner a crypto trading genius?”
I’m turning 40 this year and have 2 kids aged 4 and 6. I’m a big fan of FIRE (started a year ago) and I have a mortgage of $230,000, paying extra every week.
My partner, however, decided to go into crypto trading recently. He said he made a lot of money in 2 weeks and if it keeps going like this he said he’ll make $2.9m after a year.
It looks too good to be true. He’s asking me to join. It’s really not my thing. What’s your opinion on cryptocurrency?
Sounds like you're on the right track so far - well done!
Your partner on the other hand, I'm not so sure. He's either a genius and has found some trading system to exploit (wildly unlikely), or he's just had a few good trades go his way over a 2 week period (most likely).
Think about it: if he can make $2.9m in a year with a small amount of capital (I’m sure he didn’t put in a massive six figure sum starting out), then next year, starting with $2.9m he could turn that into $100m or more, and the following year you'll be billionaires!
Even ignoring compounding, he’s saying he can make $55,769 per week trading crypto after two weeks experience. How realistic do you think that is?
A lot of people can make big money in a few weeks if they get lucky. Damn near none of them have a process they can repeat over and over like a magic money machine. Given he's been winning, you'll have a tough time convincing him it's a bad idea. I would just stick with what you're doing because it's a more reliable approach. :)
I don't have a problem with crypto markets, but it often makes people think they're smarter than they are. Being a long term owner as part of a portfolio is reasonable, but daily trading is stupid. Just like stocks, where almost everyone burns money and wastes time versus a more boring long term strategy. So unless he truly knows what he's doing, my money is on it backfiring sooner or later.
Also, tell him to test the platform he's using and see if he can take the money out or not. Not just a little bit - all of it. There are numerous stories of people being 'shown' high returns on their dashboard, then tipping more money in and not being able to withdraw.
Sometimes they’ll even let you withdraw a little bit so you believe it’s legit, only for you to then dump in a whole bunch more money and lose access to your account. That’s the other possibility here, which I would flag as ‘somewhat likely’. But the most likely explanation is that he simply got lucky.
Okay, let’s move onto the “What would Dave do?” mini case studies…
Leverage home equity or keep it simple?
My wife and I have been chipping away on our FIRE journey, we've now hit a $500k portfolio! We've currently got $80k leveraged as an interest-only loan at 5.79% against our home (PPOR).
This achievement wouldn't have been possible without your incredible content. Seriously, listening to and reading what you put out has been instrumental in getting us this far. Thank you so much for everything you share!
Now, for a "what would you do?" question. We have another $320k available to invest at 5.79%. If we put this to work, it would take our PPOR loan-to-value ratio to 60%, and also make us 50% leveraged in the market.
Between our dividends and employment income, we're confident we can comfortably cover the loan repayments and still have room to invest. Plus, we'd be able to claim the interest as a tax deduction. We are both in the 30c tax bracket.
My main question is, would you leverage this additional amount and put the money to work, considering the added tax benefit? And how do you view 50% leverage – do you see it as risky to you personally? I recently saw a post where you mentioned you'd consider leveraging your PPOR which is why I'm keen to get your thoughts.
We're currently investing in VAS, VTS, and VEU. We're both 32 and aiming to retire before 40!
I'm really glad you put that last line in there about your timeframe - because everything else hinges on that.
The reality is that leveraging will likely build more wealth over time. But because you're looking at retiring you'll probably want to optimise your cashflow and get rid of the loan. You can't stay on interest-only (IO) forever, and it'll revert back to expensive principal and interest payments which will start eating into your passive income by quite a lot.
That's because payments may be about 5% interest + principal = 7% of the loan balance (P&I repayments are more aggressive after an interest-only period because you’re essentially ‘catching up’ and paying the loan off over 25 years instead of 30).
If the income generated from debt-funded shares is 4% then it actually becomes a cash drain and the tax savings likely won’t be all that helpful in retirement in this situation.
One option is to leverage up now and then pay it back over the next 8 years so that you're zero debt by 40. This will require some fine tuning but could work well. It'd be ideal if you could also invest each month after that, otherwise you're left taking the risk that now is a good time to invest.
I wrote an article on strategies to ensure you’re mortgage-free by retirement here.
And no I don't view that leverage as risky since it's a stable home loan where you can easily make the payments and still save. You’re right, I did say I would look at leveraging our home further. That’s basically because we have surplus cashflow now and doing so will not affect our freedom.
But if I was about to retire, it just wouldn't work as well and would actually make it more difficult to live off the portfolio.
Start thinking less about your overall net worth, total portfolio size and tax benefits, and more about your passive income versus expenses. That’s what’s going to seal your freedom.
For example, if you eliminated your home loan completely, how would your situation look? Could you get your passive income high enough over the next 5-8 yrs to live off? That's the question. I'd bet you probably could!
“We save heaps and we’re focused on shares - should we still buy a property?”
My partner and I have really enjoyed and appreciated all of your content, which we’ve been listening to over the past 12 months through Spotify. The way you explain things and share your story has been a huge help and motivation as we’re also based in Perth with similar goals.
We’ve been together for six years and are committed to building our future together. I’m a 22-year-old electrician and my partner works as a medical receptionist (currently studying Psychology).
Between us, we earn around $200k gross annually. Currently we have $50k in a high-interest savings account (earning over 5%), and around $60k invested in VAS and VGS through Pearler (combined).
Our goal is to reach $1 million in shares between us by age 30, which is also when we hope to start a family. Right now, we’re on track to invest around $70k per year. We’d like this portfolio to generate around $40k annually to help cover the mortgage on our future family home and ultimately give us long-term flexibility and the freedom to pursue more meaningful work without needing a high paycheck to get by.
At the moment, we’re trying to decide whether to continue focusing purely on ETFs, or to buy/build a property in Perth as an investment. Our thinking is that it could help us enter the property market, grow our wealth, and potentially reduce taxable income along the way to us reaching FIRE.
Knowing you started out with property and have since shifted toward shares, we'd appreciate your unbiased perspective. Knowing what you know now, would you still recommend entering the property market to support the accumulation phase or would you go all-in on shares, especially in a situation like ours?
We have no debts, no fancy cars or holiday habits, and we’re keeping our annual expenses around $45k all-inclusive while we build our foundation. Would love to hear any thoughts or guidance you’re willing to share, especially around property vs shares at this stage, and any traps to avoid.
Thanks again for showing us that working toward freedom, while not always easy, is absolutely possible, and for all the great content you create.
It really excites me that the content is resonating and you’re so focused at this age. You’re already in an excellent position and you're off to a flying start!
As for property in this situation, it's a great question. Here's a few thoughts...
- If the end goal is to have a home you live in at 30 for having a family, then I'd say it does make sense to buy sooner rather than later, and have it as a rental in the meantime (for tax benefits + to keep your own expenses low by renting)
- If the goal is to be semi-retired by about 30 and pull back from work a bit and you're simply thinking of a rental property to boost returns in the meantime, you'd likely want to offload the property by then. Which leads to my next point…
- If it's purely for investment, 8 years is a decent timeframe to work with. But property can have long periods of no/low growth. Perth was basically flat from 2010-2020, and basically every state will experience a solid 5 years of going nowhere at various times. So it’s a bit of a risk. It may work out great, or it might not - we really can't know.
- If your spending is less than $50k (very impressive by the way), then your surplus yearly cashflow for investing should be closer to $100k, meaning you can comfortably hit your $1m target without adding any extra risk.
- Whether you have more shares and a higher mortgage, or less shares and a lower mortgage, there's not a great deal of difference. So I wouldn't get too hung up on the idea of specifically having your shares cover the mortgage. You'll be putting money into either one of those - or both - and most likely end up in an excellent position over the next 5-10 years, giving you more flexibility and freedom over your work and time.
Overall, I would definitely buy a property if you were sure it would be your future home. And obviously you'll want to resist the urge of maxing out your borrowing power and getting something expensive. Judging by your situation so far, I'd say you're already very savvy and well equipped to think through the tradeoffs.
Things can change too, so the property and location you like today might be different in 8 years time. That makes it a little tricky. Just take your time and discuss it together and figure out what's going to align with your ideal future life as best as possible. Only you know the answer to this.
Final thoughts
I hope you enjoyed the case studies and crypto questions.
Remember, if you have a question on a topic you’d like some more information on, feel free to post it in the comments below or on the Pearler Exchange.
I’m always collecting questions for future Q&A articles, so don’t be shy, ask away!
Until next time, happy long-term investing!
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