Sunday Herald Sun - - News - SCOTT PAPE

LET me tell you about the most dev­as­tat­ing day of my life.

It hap­pened “BC” (be­fore chil­dren), when Liz and I vis­ited the “The Hap­pi­est Place On Earth” — Dis­ney World, Florida.

It was hot as hell, yet we du­ti­fully joined a line for the roller­coaster that was only marginally shorter than the Great Wall of China. As we waited, and waited, and waited, ev­ery so of­ten Liz would say to me: “I’m not sure about this”.

I was hav­ing none of it. Be­sides, I was too jit­tery with ex­cite­ment, partly be­cause I love scary rides, but mostly be­cause of the gi­ant bucket of Coke I was slurp­ing (two handed) as I waited in line.

And when it fi­nally came our turn, we stepped up and slid into our seats. The at­ten­dant locked down the safety har­ness with a click: “You’re ready to go!” he beamed.

And that’s when the crazi­ness started.

My wife started hy­per­ven­ti­lat­ing:

“GET ME OFF — NOW!” she screamed.

She was flail­ing, try­ing to wrench her­self out of the safety har­ness (which was do­ing its job).

That made her freak out even more.

“I CAN’T GET OUT — I’M TRAPPED!” she screamed at the top of her lungs.

Mean­while, in the car­riage in front of us, a lit­tle girl, not more than five, turned around and stared. In the car­riage be­hind us, a loved-up teenage cou­ple snig­gered: “O. M. G, like what’s with that Ossy lady, she’s freak­ing out!” And that was that. The alarmed at­ten­dant unclicked the har­ness. We did our “walk of shame”. My wife sob­bing. Me with sun­stroke.


Here’s the thing: my wife is one of the most grounded, sen­si­ble peo­ple I know. How­ever, on that day she let her fear get the bet­ter of her, and she pan­icked.

And af­ter this week on the share mar­ket (“The blood­bath con­tin­ues” was my favourite front-page head­line), you may be feel­ing like you’ve been on a fi­nan­cial roller­coaster. So here’s the ob­vi­ous anal­ogy:

The share mar­ket is like a roller­coaster ride: there are breath­tak­ing climbs, gen­tle dips, and at least a cou­ple of stom­ach-churn­ing plunges along the way. And what hap­pened last week was com­pletely nor­mal. The share mar­ket has many dips each year, and has a huge plunge about once ev­ery decade, be­fore climb­ing to a new peak. You should ex­pect it to hap­pen. It al­ways does.

Here’s you: “Who needs the stress? I’m not an adren­a­line junkie! I just don’t like the stock mar­ket. It’s too scary.”

Here’s me: “Well, you need to work out if you want to travel to places like Dis­ney World in re­tire­ment, or Wob­bly World in Wan­garatta. If you want fi­nan­cial se­cu­rity you’ll need to take the ride to higher re­turns — and his­tor­i­cally the high­est re­turns come from the stock mar­ket.”

Here’s the se­cond ob­vi­ous anal­ogy:

When you look at the past 30 years on a chart, it looks like a gi­ant fer­ris wheel mov­ing up, up, up: A $10,000 in­vest­ment in Aussie shares in 1988 would be worth $136,000 to­day — an an­nual re­turn of 9.1 per cent.

How­ever, in­vestors who lived through it would say it felt more like a roller­coaster: over the past 30 years we’ve seen a re­ces­sion, the tech wreck, the Asian cur­rency cri­sis and then the big­gest down­turn in liv­ing mem­ory, the Global Fi­nan­cial Cri­sis.

Here’s the third ob­vi­ous anal­ogy:

If you know how roller­coast­ers work, you close your eyes, grit your teeth and get through it.

Re­ally, the only way you can get hurt (in the share­mar­ket or on a roller­coaster) is if you do some­thing stupid, and jump off at the wrong time.

In other words, don’t freak out and sell at the bot­tom of the Big Dip­per.

Plenty of re­tirees did this in the GFC, and they ru­ined their re­tire­ments for­ever by lock­ing in their losses.

Here’s what clos­ing your eyes and grit­ting your teeth looks like in real life.

Let’s say there’s an old bloke who re­tired in 2007. His only in­vest­ment is Aus­tralian Foun­da­tion In­vest­ment Com­pany (AFIC) shares … which is re­ally a barom­e­ter for the broader share mar­ket, given it holds more than 90 Aussie stocks.

He de­cides he wants a stress-free re­tire­ment, and the daily up­dates of the share mar­ket are too nerve-rack­ing, and be­sides, he knows he can’t do any­thing about it any­way. So he never checks the busi­ness pa­pers, or watches the news. Which means he never hears about the great­est stock mar­ket crash in liv­ing mem­ory. All he knows is that, twice a year, AFIC posts him a nice fat div­i­dend cheque.

Through­out the tur­moil of the GFC — when share prices crashed by nearly 50 per cent — AFIC con­tin­ued to send him the same div­i­dend cheque, reg­u­lar as clock­work. Yes, AFIC’s share price dropped (and then re­cov­ered)

but its div­i­dend didn’t change one cent.

This leads us to two im­por­tant points:

First, while share prices are er­ratic, div­i­dends are much more sta­ble.

Se­cond — and this is very im­por­tant — stud­ies show that more than 70 per cent of in­vestors’ long-term re­turns come from div­i­dends, not share price in­creases.


OK, so we’re nearly done. Yet please al­low me just one last tor­tu­ous roller­coaster anal­ogy: it’s your re­spon­si­bil­ity to fit your own safety har­ness. No one is go­ing to do it for you. Here’s how to do it.


Don’t in­vest your short-term home de­posit sav­ings in the share mar­ket. It’s too risky. Use an on­line saver in­stead.

Other than that, you should be right up the front of the roller­coaster, lap­ping it all up. And, as you’re about to plunge into the Big Dip­per, you should be pump­ing the air with your fists and cel­e­brat­ing the mar­kets crash­ing.

Rea­son be­ing, shares will be on sale, and you’ll be buy­ing them cheap. That’s how you get rich.


You prob­a­bly don’t have the stom­ach for the big drops. Well, bor­row­ing to in­vest in the share mar­ket is like have a gi­ant bowl of spaghetti car­bonara be­fore you jump on the ride: you’re in­creas­ing the risk you’re go­ing to puke.

Now if you’re in your 40s or 50s and you plan to be around for an­other 30 years (or more!), you should be cheer­ing the op­por­tu­nity to buy shares at a dis­count.

How­ever, now is the time to re­view your in­vest­ments and make sure you’re not giv­ing a fi­nan­cial sales­per­son a free ride by pay­ing too much in fees. Re­mem­ber, ev­ery­one is on the same ride; some peo­ple just pay higher ticket prices.


Hold on to your false teeth! Bet­ter yet, stick them in your pock­ets be­cause your jowls are go­ing to be flap­ping in the wind as you go.

In the three years be­fore you re­tire (what­ever age that is for you), I’d rec­om­mend you get your em­ployer to put your su­per con­tri­bu­tions into cash. The aim is for you to build up a buf­fer of a min­i­mum two years of liv­ing ex­penses in cash (less any pen­sion pay­ments). And if you’re al­ready re­tired, build up the cash buf­fer now.

Make an ap­point­ment to see a fi­nan­cial ad­viser and get a plan to en­sure you have enough money in­vested to pre­vent the real risk: spend­ing your re­tire­ment at Wob­bly World.

Tread Your Own Path!

The Bare­foot In­vestor holds an Aus­tralian Fi­nan­cial Ser­vices Li­cence (302081). This is gen­eral ad­vice only. It should not re­place in­di­vid­ual, in­de­pen­dent, per­sonal fi­nan­cial ad­vice.

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