By Doug Wroe

Over the years I have had an unusually high appetite for learning about financial investments. Some may say I am obsessed with it. I just find it interesting in the same way a gardener finds roses interesting. Over a number of years I actively sought out information that would help me to understand the “Drivers Of Wealth”.

I am always looking out for another trick or a better way to do things. I read magazines, go to information sessions and generally keep my ears open to what is happening in the financial and investment world.

There are so many opinions out there. It is so hard to filter out the noise and find what is really important and relevant to me and my family. Not only what is real and what is just a sales pitch but more importantly what the best path is for us to take.

Is it shares? If so, what shares? Is it fixed interest or bank deposits? Is property the way to go and again, what type and where? How do managed funds fit in and what about super? It is all so confusing because everyone who has an opinion will tell me that their strategy or their asset class is the best. If you read magazines focused on shares and managed funds they will show you statistics that support their argument, likewise with property magazines. Everybody has statistics to support what they are promoting.

Financial planners always talk about risk ratings and investor types and aggressive or defensive portfolios. While it is very technical and I am sure they have put a lot of effort into learning it all I sometimes wonder if they are getting lost in the detail and losing sight of the bigger picture.

In my opinion investing isn’t that hard. It is not rocket surgery!

Observe history, do the maths and place your bets.

Everything comes down to a focus on two measurements:

1. Return On Equity (ROE)
2. Return Of Equity

Return On Equity simply means if I invest a certain amount of my equity, be it in the form of available borrowings against property or cash how much do I expect that investment to increase my net wealth by. Note that net wealth is not how much you own or how much you owe but the difference between the two.

Return Of Equity is the certainty of my equity or capital returning to me and not being lost to market fluctuations.

Until 2007 the majority of people I talked to were focused on Return On Equity with little regard for Return Of Equity as markets boomed. As the Global Financial Crisis (GFC) took its toll people quickly reversed this and fixed their attention firmly on Return Of Equity as their superannuation balances dwindled.

Using a relatively simple strategy, my wife and I are currently running at 33% Return On Equity with, in our opinion, a negligible risk to our Return Of Equity.

This is the very same strategy that Nick promotes through the mrd “set ‘n’ forget… for busy people” ™ philosophy.

The key to building wealth is to increase the Return On Equity without compromising the Return Of Equity.

I think that is worth repeating…

The key to building wealth is to increase the Return On Equity without compromising the Return Of Equity.

Once you have a grasp of this basic fundamental you can move on to the building blocks of wealth:

• Leverage
• Compounding
• Inflation

Once you master these three factors you will then have a much greater understanding of which asset class and which product within that asset class is the right one for your particular circumstances. This should greatly reduce your likelihood of being bamboozled by jargon and following someone blindly down a road that may not take you to where you and your family want to be in the future.

Over the next few weeks I am going to continue this series, explore these building blocks in more depth and hopefully leave you with a clearer understanding of the Drivers Of Wealth.

Complimentary & No Obligation Offer

If you would like one of our property mentors to run through a Personalised Retirement Options Plan (PROP) and let you see for yourself the possibilities (knowing there will be no cost or pressure to do something) then let us know. If you have dreams and goals but are unsure of how to turn them into reality, I strongly recommend you speak with us.

YES PLEASE!

I would like an mrd property mentor to make contact with me to assist me in creating a plan for my financial future >>>more

I would like mrd to assess my borrowing capacity >>>more

I just want to know if it’s possible to reduce the amount my mortgage is currently costing me >>>more

Happy Investing,

Doug Wroe
mrd Customer Care Program… because investing is personal

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