The National - News

ILLUMINATI­NG ADVICE ON WAYS TO AVOID PITFALLS AND BUILD YOUR WEALTH

▶ Fear and greed are traps that novice investors all too often fall into. But a new investment guide from SimplyFI.org offers a simple strategy that can be learnt quickly, reports Harvey Jones

- Illustrati­on by Mathew Kurian

Many people are put off from investing for retirement because they find the whole thing too complex. While some fall into the hands of sharp-eyed financial salesmen, who lock their money away in high-charging bonds or savings plans that eat their wealth, others try to be too clever, and come unstuck trying to make fast money from high-risk stocks or hyped-up assets such as Bitcoin.

Investing can seem particular­ly complicate­d, at times of extreme volatility like today, when share prices could go anywhere.

Yet according to SimplyFI, a non-profit community of personal finance and investing enthusiast­s who help each other to achieve financial independen­ce, investing doesn’t have to be complex at all.

You can master the basics in just a couple of hours, and start building your long-term wealth in a safe and secure way. They have even produced a guide, telling you how to do it. Even better, that guide, published this month, is free.

Called the Index Investing & Financial Independen­ce for Expats, Getting Started Guide,

it can be downloaded online from SimplyFI.org or on the group’s Facebook page. The guide’s main author is Elie Irani, 45, from Lebanon, who has lived in Dubai since 2006 and says too many resident investors get led astray.

Mr Irani, who works for a cybersecur­ity company and became a board member of SimplyFI in April, says the biggest threats to building wealth are your own fear, greed and ignorance.

Fear persuades many people to shun the stock market or panic and sell up in a crash, afraid of making short-term losses, says Mr Irani. Greed leads them into get-rich-quick schemes, where they lose most or all of their money.

Ignorance makes easy prey for financial salesmen who earn massive commission by selling inappropri­ate products that combine sky-high charges with lousy performanc­e. Many lose hundreds of thousands of dollars as a result and retirement­s are ruined.

“Our group operates under the principle that successful investing can be accomplish­ed by anyone with a small amount of effort,” says Mr Irani.

“The guide is designed to be read in a couple of hours or less. It helps beginners make sense of terminolog­y and core concepts, to help them invest towards their own financial independen­ce.”

Founded by former UAE resident Sebastien Aguilar, who now lives in Poland, and Dubai resident Jen Lincoln, SimplyFI’s aim is to raise financial awareness in the UAE and promote the advantages of simple, passive investing.

The group holds regular talks and presentati­ons, both at events and online, and has more than 10,000 followers on Facebook. It believes the best way to generate wealth is to put your money in low-cost exchange traded funds, and leave it there for the long term. These “passive” investment funds dispense with expensive fund managers and simply track their chosen indexes up and down, wherever they go.

This means no expensive fund management fees, so you get to keep more of the capital growth and dividend income yourself. Fund managers are lamentably bad at beating the stock market. The Spiva scorecard of long-term fund performanc­e shows that in the longer run, more than eight out of 10 underperfo­rm.

By their nature, index funds never do.

SimplyFI members regularly describe themselves as “Bogleheads”, part of a movement of investors who follow the basic principles set out by

Jack Bogle, who championed low-cost, simple investing philosophi­es. In 1974, Bogle founded The Vanguard Group, now best known as a provider of low-cost ETFs, which managed almost $5 trillion (Dh18.36tn) in assets when he died last year, aged 89.

He noticed more clearly than most how the financial industry rips off its customers, saying: “The mutual fund industry has been built, in a sense, on witchcraft.” However, he believed there was a way out: “When there are multiple solutions to a problem, choose the simplest one,” he said.

As one of the world’s biggest ETF providers, Vanguard has a financial incentive to promote the Bogleheads philosophy. It is hard to complain given that its funds are so cheap.

FTSE All-World UCITS ETF gives you a spread of around 3,000 global stocks for a total

charge of just 0.22 per cent a year. Vanguard S&P 500 ETF charges 0.03 per cent. That is cheap, even by ETF standards.

By comparison, actively managed funds charge between 0.75 and 1.5 per cent a year. That money comes straight out of your returns. Some funds also still have initial setup charges of up to 5 per cent.

The SimplyFI guide provides an actionable step-by-step playbook for index investing and managing your portfolio, building a spread of funds, protecting your wealth with insurance and managing withdrawal­s in retirement.

Personal finance and investment writer Andrew

Hallam, author of Millionair­e Teacher and Millionair­e Expat,

says SimplyFI is sharing rules of wealth that people should have learnt at school. “Investing is a long-term endeavour. It rewards people who add money whenever they have it, and punishes those who seek perfect entry and exit points,” he says.

Mr Hallam says the best investors are like the fictional character Rip Van Winkle because “they set an investment course, go to sleep and wake up 20 years later”.

Some residents still want independen­t financial advice, especially if they face complex tax planning issues. A growing number of Dubai advisers offer this, such as AES Internatio­nal, while minimising fund charges by only recommendi­ng ETFs.

Alternativ­ely, robo-adviser Sarwa offers a choice of model portfolios that use ETFs to invest in globally diversifie­d portfolio of stocks, bonds and other asset classes, tailored to your risk tolerance.

Co-founder and chief executive Mark Chahwan says his site’s investment principles chime with the Bogleheads’ philosophy. He says once you have built six months of emergency cash, you should start investing as soon as you can. “That way you get the full benefit of compoundin­g dividends and growth.”

Next, diversify, he says: “We recommend a combinatio­n of fast-growing small companies in the US, Europe, Japan and emerging markets, combined with government and corporate bonds to provide steady income, low volatility and low correlatio­n with stocks.”

You also need to rebalance your portfolio over time, to avoid having too much money in your most successful assets, he says.

Lower your costs, Mr Chahwan adds: “The DIY community saves on advisory fees. They only pay for the ETF fees and a brokerage platform to trade on.”

Finally, control your emotions. “Good investors are patient and detach their emotions from market movements,” Mr Chahwan says.

Sounds simple? Well it is. As Bogle said: “Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game”.

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 ?? Reuters ?? Jack Bogle, who founded The Vanguard Group in 1975, championed low-cost, simple investing philosophi­es
Reuters Jack Bogle, who founded The Vanguard Group in 1975, championed low-cost, simple investing philosophi­es

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