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| Guess which one is me? |
So who is Patrick? Well, he is a pretty Stealthy and rather remarkable bloke, who not only made his own wedding ring, but also owns an 85km/h bicycle! He also runs a blog all about investing, which you should definitely check out (go ahead, I will wait for you to get back - I highly recommend it). He also runs the Investor Challenge where you can try your hand at some risk free stock picking. After that you should head over to his forum where you can engage in some friendly banter with the other contestants while your brilliant stock picks shoot the lights out.
So over a couple of weeks we sat down email-to-email and I asked Patrick a lot of questions. He was nice enough to not only answer them, but answer them comprehensively, and with lots of interesting anecdotes and personal experiences. Below is the result.
1. Lets hear a little bit more about yourself. Where you from, your family, and where are you now?
My brother and I grew up in Pretoria, my dad is one of the best sales people I know, and my mom is a professor at UNISA. I spent my childhood tearing up the sidewalks on my BMX with the kids that lived in my street.
My mom also did a lot of consultancy work in the development world, and it was something I really thought I'd love to do one day.
I remember a day in high school where I saw a UN vehicle on my bike ride home. I waited for over an hour to speak to whoever was driving, to ask them how I could get a job there, but they never appeared and I had to leave.
Fortunately fate stepped in and I ended up on a flight home from Cape Town sitting next to a UN employee. We got to chat and she said they could really use someone with my skill set.
After volunteering for quite some time, they decided they liked the way I work so much that they offered me a full time post. It was for a 25% pay cut, but I wasn't concerned at all. It's been 12 years already, and I've been involved in so many amazing projects and feel like I actually make a difference in the world.
I currently live in Johannesburg and have a 9 year old son.
2. Where did you pick up your financial acumen from? Was there an influential family member, or did you just pick up lessons from the internet as you went along?
My mother taught me to work hard and earn money for it. She always had a side gig! Early on it was marking matric papers or teaching English to foreigners, later on she moved into consulting and writing. Unfortunately she has never been a great investor. It was my grandmother who taught me to save and on some level invest. She was the main earner in the family, but being a music teacher, never made much. In spite of that, she managed to build up a property rental portfolio of around 6 properties, and has lived off that since retiring.
I tried the same, but as I've written about it twice now1, I don't believe property is a great investment at the moment, unless you have some edge over everyone else. I don't have that edge, so I spent a lot of time online researching investments, and especially the stock market.
I've made all the classic mistakes, picking shares, timing the market, switching too often, before I joined the John Bogle school of thought: Buy a passive globally diversified low cost ETF offering without any market timing or dollar cost averaging, and then hold it forever. It's hardly rocket science, the only skill you need is to be able to avoid all the sharks trying to get their bite out of your money.
3. From your forum it seems you are very close to your early retirement. How long do you have to go?
I always have a few cases running. My absolute worst case scenario is to work to 55, pick up the early retirement pension and call it a day. My best case scenario is to stop today. I'm well past 25 x annual spend, or as I prefer to judge, 300 x monthly spend, and I have a side gig that I built to bring in some money with little to no effort, plus on top of that a pension that arrives at 62 which would also likely cover things. It's a good feeling to know you're going to be okay in retirement, and that you won't be a burden on your family or government.
My goal was always to retire by 40. Financially as the above should tell you, I'm ahead of my target, but work wise, I'd still like a job posting in Europe, the US or the far east. Hopefully something like that comes up soon. If it doesn't, I'll have to see how life unfolds. Realistically, I'll probably work another couple of years and still end up retiring around 40.
4. Was there a distinct turning point where like a switch flipped and you knew you didn't want to go down the same road everybody else was going? Or was it more like a number of events that made you realise you wanted to do the early retirement thing?
As far back as I can remember, I've always wanted to be in a situation where I don't need a job, but work because I want to. Most people I know seem to fit the three months to bankruptcy scenario. I don't know how they do it, the stress living paycheck to paycheck, and the feeling of being tied to a job must be terrible.
I've also never really felt much of a need to accumulate things, apart from ETFs of course! My mother has often told me the story of how she would offer me a toy as a kid, a ball or a car, and I'd tell her I've already got a ball and a car. Now I feel even more strongly about that. I want to live light, and be free to do or go wherever I like. I feel that stuff owns us rather than us owning stuff.
5. How did you calculate how much you would need to retire? (Please don't say you used a calculator)
Haha, I just looked at my monthly expenses and then multiplied by 300. It's a lot easier to do in your head than the 4% rule!2 It also works both ways. If you decide you want to keep a R500 gym membership post retirement, you just multiply by 300 and you know you need to save R150 000 to pay for the membership.
6. As an estimate, what percentage of your income are you currently investing each month, and where are you putting it?
For a while now my living expenses have been covered by my dividends and my side gig, with an almost exactly 50/50 split. Due to that I currently have a 100% savings rate. If I take the dividends and the side gig out of the equation I'd be on a 75% savings rate.
My goal since I started working was always the 50% savings rate, but my salary kept increasing and I thought my standard of living was more than comfortable enough so I didn't feel any need to upgrade my lifestyle just for the sake of it.
7. You are a big fan of ETF's. Lets say the ETF police came around and said, "Okay Patrick, these ETF's are getting out of hand, we are going to shut them all down except for one. Pick which one gets to stay" (Sorry I could have just said, which is your favourite ETF, but the ETF police sounded way cooler).
It's an easy choice for me, and I actually only own 1 ETF at the moment. Okay two if I count my tax free account in SA. In my regular investing account, I own the world. The Vanguard FTSE all world index (VWRD) to be precise. You can take a look at my last blog (http://investorchallenge.co.za/what-percentage-of-your-investments-should-be-offshore/) to see my rationale.
Locally I went for the next closest thing, DBXWD, but due to the completely unfair capital gains indexing, I'll only hold that in my tax free accounts, the rest of my money will get transferred out of SA and invested in VWRD.
8. So out of the locally available options you would pick DBXWD?
Yes, it well enough diversified and would protect you in case we do have some shocks to the economy in the future. I just wish it was cheaper, and $ denominated, or even better, that SA would index capital gains tax to cater for inflation.
9. Do you invest directly in shares and are there any in particular you like at the moment?
No! I've written about this many times now and it's an undeniable fact. The game has ended and the results are out. There is no way you will be able to beat an index fund for a long period of time. If the world's most educated fund managers, who spend every waking hour of every day trying still fail miserably, what chance does an individual investor have? None, the answer is zero. You might find someone who got lucky for a while, but eventually the house (or the index in this case) always wins.
This is compounded by the fact that to qualify for capital gains tax you need to hold a company for 3 years, and with individual companies, there's no guarantee you can do that.
I was once on the other side of the fence. The last share I held directly was Coronation Fund Managers, CML. I began buying at R45, kept buying as it climbed, feeling very smart of course. I bought my last batch at R101 before watching it fall while I waited for it to return to it's upward path. I eventually sold out at R68, exactly my average cost price :(
10. Investing is only one part of the journey to early retirement. I am sure you have had to sacrifice some expenses and reduce your cost of living? So people can understand that this is not an easy thing to do, and it takes some sacrifice and discipline can you name some of the things you do without?
Hmm, I'll have to think a little as I think I live a pretty comfortable life, and don't feel like I'm doing without things at all, but let me try make a list:
-I drive a cheap but reliable car.
-I've never owned (or rented) more house than I need.
-I don't fill my house with things which will just gather dust.
It sounds like very little, and it is actually. I live a pretty luxurious life!
11. What would you say has been your biggest mistake? Or put another way, if you could go back to when you were 21 again, what would you do differently (excluding the clothing choice and haircut of course :-P)?
I spent the first 8 years of my working life accumulating cash in my bank account, many hundreds of thousands. Not a single investment, and barely any interest. Imagine the head start I could have had if I invested it in the market from the word go instead.
12. What are your top three saving tips?
1. Get rid of your hideously expensive car. My most popular article ever has been about how a pretty run of the mill German sedan could end up costing you a million dollars over 20 years when compared to something like a still incredibly luxurious Toyota Corolla:http://investorchallenge.co.za/your-car-doesnt-cost-you-r5800-pm-it-costs-you-a-million-dollars-you-fool/.
Do the AA calculation. If your 3 series BMW is rated at R7 per km and you drive 2000km a month, you really are spending R14 000 a month on transport. And that's before you consider insurance!
2. Don't buy more house than you need. If you need to buy at all. Renting isn't actually throwing money down the drain, contrary to popular belief.
3. Invest the difference. People who understand compound interest earn it, those that don't pay it. Be the former. Once you get onto the right side of compound interest, your financial well being will begin to improve faster and faster.
13. I think I know the answer to this, but I want more people to realise their foolishness - do you have DSTV?
Take the current monthly cost and multiply it by 1000. That gives you an estimate of what you'd lose out on over a 20 year period if you'd invested the money instead. DSTV might be nice, but I'd rather have R759 000 in 20 years time.
14. What is the single one thing that people waste their money on?
We're South Africans and we have a car problem. If you consider how much less we earn on average than most of the first world, our spending on cars is an order of magnitude higher than it should be.
15. How do you balance experiences with saving - e.g. travelling, concerts etc? I mean I went on a very nice honeymoon, and it did set my savings back a bit. You have those that say experiences last forever and you should never miss out, and then you get those that say you can never get the money you spent back so don't waste it.
Apparently studies have shown that people who spend money on things don't improve their happiness while people who spend on experiences do. I completely agree.
My wife and I love to travel. We got engaged in the Seychelles, Eloped to Paris to get married, and are leaving on Sunday to go on a plane/train/bicycle tour of England, Belgium, Germany, Austria and Hungary, I can't wait!3
I've built one foreign and one local holiday a year into my budget, and unless there is a market crash in which case I'll use every cent I can scrape together to invest more, the holidays will stay.
Having said that though, on our overseas holidays we stay at budget accommodation, we don't 5 star travel. It's often cheap airBNBs, otherwise private rooms in hostels, on rare occasions a cheap hotel, but never anything luxurious, we'd rather use the savings to do things during the day. Also, part of the way we fund the oversees trips, is that we don't do anniversary presents, the trip is our present to each other.
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| No one suspected that Optimus Prime was now a bicycle |
I like to rationalise bikes as an investment, and in the cases of both my electrics, they've paid for themselves already through the 25000km of riding that has replaced driving over the last 6 years.
The Bromptons might take a little longer to cover their costs, but I plan to take mine on all my business trips so I can save on airport transfers and taxis while still having a mode of transport at my destination.
Oh and I've listed the racing bike as for sale under my new three bikes are enough policy.
16. Where do you plan to retire?
Everywhere! Our plans are to be nomadic for the majority of our non-working life. Depending on when that happens, and how big my investments end up, that could be anything from touring Europe or the far east by bicycles, or our ultimate plan of buying a 38 foot catamaran and sailing around the world! If the market crashes just after we stop working the 38 foot cat might have to become a 26 foot monohull!
Eventually we'll likely live in Europe, mostly for the high standards of living, the safety factor, and the state sponsored medical.
17. What are your hobbies and interests? And I guess at the same time this is probably also going to be the answer to what you plan to do with your time once you no longer need to work.
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| One ring wife to rule. This is a picture of the wedding ring which Patrick DIY'ed. Most impressive! |
I also like building things in the virtual world, so I have a few websites and apps I've put together, and I'd like to blog more, as I love writing, and the feedback you get from people who say you're helping them turn their finances around is very rewarding too.
I also believe in the cause my agency is working for, to end world hunger, so I'll let my office know that I'm available to help out at short notice should there be another emergency somewhere in the world like the 2004 Tsunami or the Haiti or Nepal earthquakes in the future.
18. For anyone else looking to start a journey to early retirement - what's the first thing they should do?
Take your current monthly expenses and multiply by 300. that's the number you need to retire comfortably. Scary isn't it? Now you've got two options, either save enough to hit that number, or and this is a far easier option, find ways to reduce the number. If you're spending R40k a month, you need R12 million to retire. If you can find a way to live on half that, you'll also find you only need half that, or R6 million to retire comfortably.
Most people know how much they spend every month, because it's everything that hit's their bank account, but what they don't know is where it's being spent. This is going to be one of those do as I say and not as I do things, but keep track of your finances. Make sure you know where every rand is going. Once you've done that, if you're like most people you'll find that the majority is going to service debt in the form of card payments, car payments and overdraft fees. Do whatever it takes to get rid of that as quickly as possible, and then begin investing all the savings you make.
You'll probably find that watching your wealth grow is so motivating that you'll look at ways to make it grow faster by cutting other non essentials from your budget.
19. Looking a little bit ahead, what are your plans for the next 1-3 years?
If all goes according to plan I'll end up working in Europe, earning a foreign currency while being able to travel in Europe a lot more at a much lower cost. If that doesn't happen it will be pretty much the same as now. Work in JHB, invest globally, and take a great holiday every year.
20. Do you have a Twitter account? How can people get hold of you?
My twitter handle is @TravelBugBitten, but I'm a terrible tweeter. I'm most active on ShareForum, and I try to respond to every comment on my blog.
20. Do you have a Twitter account? How can people get hold of you?
My twitter handle is @TravelBugBitten, but I'm a terrible tweeter. I'm most active on ShareForum, and I try to respond to every comment on my blog.
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BTW it was just a coincidence that there were 20 questions - it was never planned to be a 20 Questions with X type article :)
So that is Patrick ladies and gentlemen - quite an inspiration! Lots of lessons packed into this interview and I think we can all take something away from it. If you have any questions you would like to ask Patrick, feel free to drop them into the comment area below - he said he will try get back to you once he returns from holiday. Now if you will excuse me, I am off to build a 90km/h bicycle :-P
So that is Patrick ladies and gentlemen - quite an inspiration! Lots of lessons packed into this interview and I think we can all take something away from it. If you have any questions you would like to ask Patrick, feel free to drop them into the comment area below - he said he will try get back to you once he returns from holiday. Now if you will excuse me, I am off to build a 90km/h bicycle :-P
Till next time, Stay Stealthy!
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1 You can find the articles here and here.
2 For the 4% rule you multiply your annual expenses by 25. So if you using your monthly expenses you need to multiply by (25x12) = 300. Also interesting to note that Patrick keeps the 300 times table in his head :)
3 I only got Patrick's answers late last week, so by the time you read this, him and Mrs. Patrick are already busy cycling through Europe. (I put that last bit in bright green to blend in with all our envy)
4 Holy crap, imagine that thing overtaking you while you are cruising along at 80km/h in your car! For the record this is also apparently the fastest bicycle in Africa, and you can read more about it here
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