Bulletproof Investing

CHAPTER 10Work smart, not hard

Late in 2011, I was sitting in Uncle John's office chatting, as we did at our monthly meeting, about how things were going and what was going on in the world when, without warning, he pitched me another curve ball.

‘James, you should be buying an investment property,’ he said.

The suggestion caught me completely off-guard. At that point, a big step like investing (let alone purchasing property) was just a good idea — something I would do at some stage in the future — but John had deliberately dumped the idea on the table and seemed to be waiting for a positive reaction. I brushed him off, advising my mentor that, yes, investing and buying property was the plan, but not until I'd paid off the student loan.

‘You could do that,’ John responded, ‘but that would be working hard, not smart.’

I wasn't sure what he meant, but I was curious to find out. He started by asking me what I would define as being ‘financially independent’. I hadn't given it much thought but figured it probably meant that I'd replaced my after-tax income, which at the time was around $1200 per week.

‘If that's the case, I'd say you'll need about $1.2 million in cash or savings, which, at 5 per cent per annum, would give you a return of $60 000 per annum to live on,’ he explained. ‘You could get 3 per cent from the bank or you could get 8 per cent as an investment return or by lending the money out — but that's a bit risky. Five per cent is a nice, relatively risk-free return based ...