It pays to think big

Size matters when it comes to investing, writes Anthony Keane

THINKING big is a key reason why rich people get richer in the world of investing.

However, most investors “don’t think big enough”, according to financial advisers, who say size matters more than whether the return on your money is three, five or 10 per cent.

Omniwealth senior financial planner Andrew Zbik says Australians have been chasing investment returns for years “but not too many people have achieved what they thought they would with their investments”.

“They have been focusing on the wrong thing. It’s not the perfor-mance return that makes you wealthy but how much capital you have working for you,” he says. For example, a 10 per cent gain on a $50,000 investment is $5000, but a 5 per cent gain on a $500,000 investment is $25,000.

Patrick Canion, an ipac certified financial planner, says most people don’t really know how much money is enough, so they relate to what they already know or what their parents did.

Canion says the first step is to work out how much you need “to live the life you want”, and then plan how to get there.

“Money is all about scale. You get economies of scale when you invest more – you can usually negotiate lower interest rates and lower fees. If you have a lot of money to invest, you have a lot more opportunities, options and choices. That’s why more money matters.”

Seeking professional advice can help. “Part of our job is to shock people out of their thinking and say ‘is there more you can do?’,” Canion says.

You can become an investor at any age.

“Colonel Sanders didn’t discover his secret recipe until 65. Ray Kroc didn’t start McDonald’s until his mid-50s,” Canion says.

Low interest rates have reduced the risk of borrowing to invest compared with past decades when rates were around 10 per cent, he says. Zbik says investors should always have a financial buffer that allows them to fund six months of living expenses. Successful investors use leverage – such as equity in their home or an existing investment property – to buy more assets, and shun the common mindset of investing only what’s left after you pay for everything else you want.

“You need money to make money,” Zbik says.

He says he sees many clients who have shares, an investment property, and are making extra super contributions, but still won’t have enough to support the lifestyle they want.

“They simply do not have enough investments working for them,” he says.