[Australia] My story and why I dont believe in the stock market

[lincolnlancaster]

I guess the best way to start is to tell you a little about myself. I'm 40 years old and currently live in town about 45mins north of Brisbane, Queensland Australia. Currently, I have about $300k saved in a deposit account earning around 3% interest, I own a modest home worth around $350k, $100k in super and currently work full time earning $65k a year.

I own a modest fuel efficient car worth maybe $5k https://en.wikipedia.org/wiki/Proton_Arena that I service myself and perform most of my own house maintenance. I am very fortunate to live in an area that is a short bike ride to train and major retail shops inc ALDI, Woolworths, Coles ETC. Though I don't need a whole lot of groceries these days as I grow most of my own food in a Aquaponic setup.....veggies, fish and yabbies and spend maybe $100pw on organic fruit, groceries and hydroponic maintenance items.

I have worked out, I can live comfortably on $25k a year and live well on 37k a year putting a little away for any emergencies and spendy-pants items on EBAY now and then, sometimes maybe a new shirt or clothing item so I can look neat and tidy if I go out on a date with a girl. 37k is the maximum I will aim for in FIRE as income tax in Australia over this amount is 32.5%+and I don't really need any more than that to be comfortable.

Previously, I worked in IT and earned a maximum of $75k a year. I left my last IT job quite a while ago as it was extremely stressful and I did not receive CPI pay rises but did receive excessive demands for unpaid work to be performed in my own time. After a break, I decided I wanted to go back to work part time and decided to work in the Disability field as I liked the idea of helping people. Unfortunately, I discovered most disability work is with behavior clients after I was threatened with a knife by a client and discovered the Management was demanding and horrible, I decided to quit. I did end up where I am now though in another organisation as management in a disability service, after believing my boss with promises of a work life balance etc..... I have decided to leave next year as I don't have a life and am still working 24x7 on contract with no holidays ! I have learnt the lesson, if you wish to RE don't work part time as your employer thinks they own you, employers have the attitude you will work when I say or don't work here at all. I have decided I will not have a job in FIRE !

I am only making $9k a year interest, 300k won't last me the rest of my life....no matter how frugal I am. I don't want to invest in the stock market as I believe it is over valued and will possibly correct/crash, I saw what happened in 1999 and 2009. The Australian stock market has huge exposure to banking stocks and I expect a property crash as a result of the stock market crash.... Luckily my money is Government backed as a deposit in the bank !. I also don't like stock market fluctuations and I don't like the idea of giving up my life amassing wealth and having it exposed to the markets wims. It seems silly and almost impossible to me to try and generate a huge enough deposit on my earning ability even with compounding then somehow generate a return, big enough to live on and negate inflation in the stock market, boomers will be retiring in future years and removing their funds, I doubt stock market returns will be that great in the future because of this. I also believe we will see higher interest rates in the future, not that it will matter as they are taxed anyway.

In an Index fund, I have little control and give money to companies that are not worth while, it seems totally stupid to me although I do like the idea of franked dividends. The reality to the matter is, my employment earning potential is too limited, I don't earn enough and never will paying 32.5% - 37% tax on money over 37k in a 'job' to develop a stash big enough in the share market even with compounding....It could crash tomorrow and take half my funds with it, then take 25years to recover !. It has happened before, it looks like a casino ! :(

Super, though tax effective is a waste of time, the Government has referred to super as 'A national asset' does that mean it is still mine ?, they keep changing the rules which leads me to believe they will either take it before I get it or tell me how many pension years it will last when the time comes so they don't have to pay me a pension, the boomers made the rules to suit themselves then close the door afterwards, the maximum deposit amounts are proof of this.

Over the last 5 years I have been studying currency trading, I am a swing trader. I have been trading live over six months now, I have $10k in my account and withdraw between 3k and 4k in profit each month. I have made a deal with myself that should I be able to do this until the end of the year, I will FIRE next year.....I still have my 300k earning interest and at little risk, I can draw on this if need be should something go wrong.

[Linea_Norway]

You are doing very well.

There are other options than index funds. You could invest in one or more rental properties and become a landlord. This will cost some of your time. You could also look into obligation funds, which are loans to governments. That should be more secure than the stock marked, although money in such a fund is not backed up by your government, like money on a bank account.

[happy]

Greetings lincolnlancaster.  Thanks for sharing your story.  Your investing style is unconventional compared to most here - many are heavy in shares and in index funds. I also feel bearish about the market at the moment and am heavy in cash ( but not100%!).
 Can you elaborate on currency trading a bit more? Not something I either know or hear about much.

[Linea_Norway]

Oh, I forgot to respond to currency trading. This is a way of earning or losing a lot of money. It is a bit risky. But indeed, currency fluctuates and there is money to make in it.

[Laura33]

In terms of keeping the money in the bank vs. investing it, it is not "safe" vs. "risky"; it is known risks vs. unknown ones.  You are scared of the market because of all of the bad horribles that *might* happen; and yet the alternative of keeping it in a low-interest savings account *guarantees* that you will lose purchasing power to inflation every year.  So you are trading the risk of an unpredictable short-term loss for a guaranteed long-term one. 

Of course that is your choice to make -- just make it with a clear understanding of the actual risk that choice entails.  There is no "safe" against all risks.

In terms of currency trading, well, that's beyond me, so I won't opine.  I suspect it "feels" safer because it feels like something you control, vs. the wild swings in the market.  But I suspect that feeling is sort of like how driving a car feels safer than flying in an airplane, even though the statistics are clearly the other way around.  And that's also an awful lot of eggs in one global macroeconomic basket.  But, hey, your money, you get to choose what you do to it; as long as you don't bet on margin and minimize your downside risk, the worst that happens is you go back to work.

[aceyou]

In an Index fund, I have little control and give money to companies that are not worth while, it seems totally stupid to me although I do like the idea of franked dividends. The reality to the matter is, my employment earning potential is too limited, I don't earn enough and never will paying 32.5% - 37% tax on money over 37k in a 'job' to develop a stash big enough in the share market even with compounding....It could crash tomorrow and take half my funds with it, then take 25years to recover !. It has happened before, it looks like a casino ! :(


Over the last 5 years I have been studying currency trading, I am a swing trader. I have been trading live over six months now, I have $10k in my account and withdraw between 3k and 4k in profit each month. I have made a deal with myself that should I be able to do this until the end of the year, I will FIRE next year.....I still have my 300k earning interest and at little risk, I can draw on this if need be should something go wrong.

I agree with your analogy completely, but reach a different conclusion. 

The market certainly does look like a casino, which I why I love investing in it...the house always wins.    Look at all those huge shiny casinos in vegas:)  When people buy things from stores they are like the sucker going into the casino...they are going to lose your money.  But when you buy index funds, you are becoming the casino.  The market looks crazy when you look at a graph of a week/month/year/couple years...I bet the casino's financials look similar on a daily basis...but zoom out and you see a relentlessly steady climb upwards. 

That said, there'a lots of ways to FIRE, and I'm sure you'll still do amazing.  With your aquaponics, frugal lifestyle, and willingness to save and be flexible, etc, I don't see any way you don't reach all your life goals.

[frugal_c]

The difference between investing in the stock market and currencies is that the market over time goes up.  Currencies just bounce around.  There are a few exceptions, maybe zimbabwe where the currency just continually loses value but generally they lose value and then gain it back again.  So to make money on it you have to outsmart someone.  With the stock market you just need to hold and you will gradually make money.  If you can make currency trading work then great but just be cautious with the whole thing, there is always somebody on the other side of the trade thinking they are getting the better deal.

[happy]

That said, there'a lots of ways to FIRE, and I'm sure you'll still do amazing.  With your aquaponics, frugal lifestyle, and willingness to save and be flexible, etc, I don't see any way you don't reach all your life goals.

+1. And I find it interesting when someone is doing something different.

[ChpBstrd]

You consider currency futures day trading to be less risky than index funds? That's certainly an interesting perspective.

Have you ever backtested your investment behavior against a low-cost index fund? Would you have come out better or worse in various portfolios?

Also, you might relate to the guy who writes velociraptor.cc . He's not market timing, as you are, but he's trying to earn a living on a small stache through frugality and investing at the very risky end of the market.

[lincolnlancaster]

I'm a swing trader not a day trader. I wouldn't necessarily say currency trading is less risky than index funds, however the benefit is in the fact you only have a small fraction of the money required to make a good return exposed to the market.

[ulrichw]

[...]
Over the last 5 years I have been studying currency trading, I am a swing trader. I have been trading live over six months now, I have $10k in my account and withdraw between 3k and 4k in profit each month. I have made a deal with myself that should I be able to do this until the end of the year, I will FIRE next year.....I still have my 300k earning interest and at little risk, I can draw on this if need be should something go wrong.[...]

Apologies if this comes across as harsh. It is not my intent to be insulting - just direct:

In my opinion, your fears about index investing are as misguided as your optimism in your trading skills. No, I'm not an expert on currency trading, but you're claiming 30-40% *monthly* returns and appear to think you can sustain this indefinitely.

In order to do this you would have to have an absolutely tremendous edge which I don't think you could have without a large amount of understanding of the markets and finance in general.

Your statement that you withdraw 30-40% per month contradicts an understanding of finance. Not just because of the extremely high return you believe you can earn, but because of the fact that you're actually withdrawing these gains.

If you really believe in your ability to generate these returns consistently, you should be withdrawing nothing and compounding your gains. Even if your returns are at the lower end of your range (30% per month), after a year of this performance your $10,000 should have turned into $232,000. After another year, you'll have $5,428,000. And after a third year, you'd end up at $126,462,185.53 - probably a good time to stop and retire.

The reality of it is that you're probably overstating the gains, and like many people who post of their trading experiences like you do, have experienced an initial run of luck. When the downswing hits, please have the discipline to leave the game - don't throw good money after bad (and by the way, despite my facetious analysis above, I think you're smart to have withdrawn some money - when you gamble and have outperformed your "edge", and are betting beyond the Kelly criterion, it's always a good idea to take some money off the table)

After that, I'd recommend revisiting index investing. Look at it from a perspective of the long run. Black Swan scenarios do happen, but fairly rarely. In most cases crashes are followed by quite quick recoveries. The S&P 500 was around 1,500 at the peak of the dot com boom in 2000 (possibly one of the worst times to buy in the past 40 years). It's now over 2,350 - and the price gain doesn't count the around 2% a year in dividends.

[sam]

10k trading account and 3-4k in monthly profit?

This sounds like you must be wagering a huge amount of your account per trade? I've heard 0.35-2% is the 'safe' range.

Sam

[Papa bear]

You're being irrational.  Simple as that.

There have been other topics similar to this on other ER boards and the cash only people get absolutely lambasted.  General consensus on those other sites basically say that you will work much longer and have to purchase SPIAs (single premium immediate annuities) that are inflation adjusted.

Or you can have a much smaller portion of your portfolio in equities, say less than 20%, to offset some of your inflation risk. That might help.  They also suggest vanguard Wellesley mutual fund which is 1/3 equity and 2/3 bond fund. 

Personally, I love rental real estate and that is something you can control. This was mentioned up thread.

Good luck. Go diversify your portfolio with something that grows.


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[surfhb]

Your lack of investing knowledge is scary at best.....for you anyway ;)

Good luck


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[surfhb]

Read the Boglehead Wiki



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