SHANI JAYAMANNE | from Morningstar Australia

In the world of investing, success often hinges on more than just numbers and market trends. Too much financial commentary focuses on investments rather than the people investing. There are way too many aspirational messages that lack the practical steps to put a plan in action. In the latest podcast episode, we delve deep into the behavioural aspects of investing with Shani Jayamanne, co-author of the book "Invest Your Way: How to Grow Your Wealth on Your Terms."

Shani shares her background in a migrant family who ony invested in cash and property to becoming an investment specialist who understands the power of financial independence through share market investing. She discovered that investing isn't about picking stocks or chasing the latest market trends, it's about creating a personalised strategy that aligns with your life goals.

We also explore the distinction between risk tolerance and risk capacity. Understanding these concepts is crucial for building a portfolio that not only meets your financial goals but also aligns with your comfort level. Shani stresses the need for a clear financial plan, one that considers your goals, time horizon, and risk appetite, before diving into the world of investments.

The "investment industrial complex" can often complicate the investing process and add costs. The democratisation of investing has made it accessible to all, and with the right mindset and tools, anyone can achieve their financial goals.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

When you've thought through your goals, your time frame, how much risk you can really take. You don't have to make those emotional decisions that we see a lot of investors making. Um, you can just follow your plan and make small adjustments along the way and keep moving forward. And I think, you know, success in investing doesn't come from chasing perfection. It comes from building something that really works for you and sticking with it long enough.

Shani Jayamanne joins Phil to talk about new book

Phil Muscatello: G' day and welcome back to Shares for Beginners. I'm Phil Muscatello. How does bad behaviour lead to poor investing behaviour? Why is an investing strategy not one size fits all? I'm joined today by Shani Jayamanne about a new book that she co authored with Mark Lamonica. Hello Shani.

Shani Jayamanne: Hi Phil. Thanks so much for having me. It's always a pleasure talking with you.

Phil Muscatello: Invest your way how to Grow your wealth on your Terms is an authentic down to earth conversation about financial independence designed to help you develop and invest investing strategy that works for you. In this practical, comprehensive guide, two highly experienced finance experts show you how to create long term financial success. And I just forgot to mention in the introduction that you're also co hosts of the Investing Compass podcast and we like to co promote each other, don't we?

Shani Jayamanne: We do, yes.

Phil Muscatello: Yeah.

So tell us about the process of writing the book and what you felt was most important to share.

Shani Jayamanne: Yeah, great question, Phil. So Mark and I have been working together for a number of years. We've been doing the podcast for five or so years together. Um, and the book is really a culmination of factors. So it was insights that we've gotten from investors over that period that we've been doing the podcast. And it's also, uh, the first is really that it's a lot of the investment and investing information out there, it really focuses on investments or securities and nothing really on the process of investing, um, which we believe is far more important. And when I speak about the process of investing, it really is a process of understanding your financial goals, your circumstances, mapping a plan towards, uh, getting there instead of trying to figure out what investment is going to be the best one at a particular time. And the second is you would be familiar with this as well, Phil. When you release your podcast, it isn't always in the order that makes sense. Um, and what I mean by that is that the way information is released isn't always in sequential order of the investing process. Um, so it deep dives and explores here and there. And we thought that a lot of investors would benefit from the process being laid out in a really logical manner for them. And I think the last major point was that we're really lucky to work for Morningstar and have the support of Morningstar. And we're in a really unique position in the financial services industry because we are asset class investment product and region agnostics. So what I mean by that is that we don't have to pitch a certain product or asset class. We're truly able to deliver investing information with investors first in mind. And I think that's something that Mark and I are both really passionate about. Um, so the idea actually came when we were sitting in a pub in Redfern and thought that it would be a really useful tool for investors because of those reasons to sort of have that process logically laid out, to focus on the process of investing and to do it from a place of independence as well.

Phil Muscatello: Uh, Redfern, my favorite dive bars in Redfern.

Shani Jayamanne: I probably live close to it.

Phil Muscatello: Was it the dock? The dock and they have their sea shed.

Shani Jayamanne: Uh, unfortunately that's gone now. So. Yeah, yeah.

Phil Muscatello: Nice part of the world.

Now look, in the book's introduction you talk about that when you were growing up, you didn't see anyone you could relate to in the finance space. And I mean, I can really relate to this. When I was growing up in the, um, western suburbs of Sydney, I didn't really look at people who were investing or knew anything about it to university. Of course I'm suddenly meeting people from Vauclus and Mosman and you can. And there was something different going on there, but I didn't, it took me years to realize what that was. What was that experience like for you personally?

Shani Jayamanne: Yeah, it sounds like we came from a really similar place, Phil, because I grew up in the west as well. Um, did the same thing, went to University of Sydney and Australian National University, had that exact same experience. But I think, you know, the underlying premise of the book is that Mark and I come from very different backgrounds. Um, Mark was gifted shares at the age of 10 and grew up in a household that encour him to invest. And he held investments from the age of 10. And I didn't start investing until I had, um, full time work. And I grew up in a household where the only real investments that I had exposure to were residential property and cash. Um, I'M a first gen migrant. There was a large focus on saving and financial security, something that I still focus on today. But the process of using investments to grow wealth was really foreign to me. And I had this idea in my head that was so far removed from the world that I was in. And it was investing was the Wolf of Wall street and the classic stock images of traders

00:05:00

Shani Jayamanne: on the trading floor. It was tailored suits and it was ticker tapes and it was having a broker that you called up on the phone. And um, obviously this is not the case. Investing has been democratized and you can invest in the market through a few buttons on your phone and a couple of dollars to the broker. But it was so far removed for me that I didn't even consider that it was something for me. And it was only after I started a full time job at an asset manager where I realized that it might be something for me. I worked in client services and I came across of different types of clients. And there were clients that invested in really large lump sums. There were clients that had come into money through business sales or inheritances. Um, but there was also clients that were able to invest with 50 to $100 over decades and they built significant balances. And I had the benefit of being able to see these transaction histories and being able to see how it was actually done. I like to call it sort of like the blueprint for wealth because you're able to see exactly how they've built this large sum, um, with really minimal, um, additional investment. And they didn't have those large additional investments, but they use that time and compounding to their advantage to let compounding do most of the heavy lifting. And you know, I think I'm a naturally introverted person. But what really drove me to get into the line of work I'm in was the thought that it was really important that more people realize the power of investing. And by more people, I'm particularly passionate about contributing, uh, to the change in perception that investing is only for the wealthy, the Wolf of Wall street types, or, you know, the people that have a lot of money. And it's only for those who have a really strong analytical backgr. It's only for those that enjoy investing. I think investing is a tool and I use it as a tool and it can transform lives. And you know, my job, I'm an investment specialist, but I really have no interest in investments. And researching investments is a hobby. And I talk about this in the book, but I am using investing as a tool and it's something I use to increase my quality of life and reach my financial goals. So really, for me, it's about framing it in a way for people who might not consider it in that way, similar to how I did or you did when you were younger. Philosophical.

Phil Muscatello: It's compounding, isn't it? It's really everything. I saw a fantastic meme the other day and it was, checking your portfolio every day is like setting up a webcam in a forest to watch the trees grow.

Shani Jayamanne: Yeah, that's a good one. Yeah.

Phil Muscatello: Ah. And was there a light bulb moment for you when you realized that as well? Did you see that or. I mean, I guess that was that, uh, flip from the Wolf of Wall street kind of image of the stock market compared to your sensible investing.

Shani Jayamanne: Yeah, definitely. And I think that light bulb moment was what I spoke about before, which was, you know, seeing the 50, $100 investments that were going in and realizing that I could do it. I was earning $54,000 a year at that time, living at a home in a share house in Sydney City. I had no money, I was very tight with my budget. But $50 was doable. It was something that I could do. Um, and, you know, the ETF industry was relatively nascent at that time, so managed funds were really the option for me. They had very minimal additional investments and luckily I was working at an asset manager that had managed funds and m. I was able to start investing there.

Phil Muscatello: And of course the funds these days and because of ETFs, the costs have come down as well, so it does make much more sense and much easier than I'd say, you know, you're much younger than me, but, you know, when I first started, there was. I think There was only one ETF from the early 90s. And managed funds were really, you know, we're talking about 2% management fees and stuff like that. Uh, yeah, the democratisation is fantastic, isn't it?

Shani Jayamanne: Exactly.

Phil Muscatello: Tell us about the investment industrial complex and why is it a warning for investors?

Shani Jayamanne: Yeah. So, uh, it might be helpful to explain what the investment industrial complex is. So it's basically everyone who's had a hand in helping you invest. We're talking about fund managers. So the people that were managing those Managed funds are ETFs, the brokers, financial advisors, analysts, accountants, and anyone who creates investment products or gives you advice on them or helps you deal with things like tax and. Look, Mark and I both work in this industry. We've spent our entire careers inside of it. So this isn't about pointing fingers or saying that these people are bad actors. Most of them are just trying to make an honest living charging fees for the services that they provide. The important thing for investors to understand is that everyone in this system does take a cut of the money that you save and invest. And those cuts, whether it's management fees, brokerage costs, or advice fees, they're all really detracting from your. Your ultimate goal, which is building wealth for yourself. And a lot of these fees are based on how much money you have invested. So what's called basis points, or a percentage of your portfolio. So naturally, the industry is going to focus on those more wealthier clients or investors, because that's where the biggest fees come from. And others charge based on activity. So the more you trade, the more they make. So that creates a subtle incentive for more trading, even though trading more often rarely helps investors in the long run. So, like any business, the investment industry does have to justify

00:10:00

Shani Jayamanne: its cut. And the difference here is that the cut can be huge. Um, so in our book, we speak about Howard Pollock, who is a professor from the University of Chicago, and he's the one who famously said that everything you need to know about money fits on an index card. And he estimated that the global financial advice fees add up to more than a trillion US Dollars a year. So it is massive. So to justify those fees, the industry sometimes leans into making investing sound a little more complex than it has to. And you'll see jargon everywhere. Endless new products, constant talk of timing and trading and rebalancing. And, you know, all this activity that investors need to take part in. And the underlying message is always the same. You can't do this on your own. It's too complicated. You don't have the time, you don't have the knowledge. You don't have the technology. And then conveniently, there's a solution, and that's a professional who can do it for you, often for a big fee. But the truth is, you don't really need a fancy degree or, you know, decades of experience or expensive tools to invest successfully. You know, we spoke about how it's been democratized, Phil, and I think it's really a case that anyone can invest quite easily today. You don't need to be glued to the markets every day to do it either successfully. What you do need is a bit of knowledge, a plan, and that's built around your personal circumstances and the patience to stick to it over time. So it does require a little bit of work. It's not just, you know, a one size fits all uh, solution where you can go out and pay for a model portfolio, and that's going to work for you. Um, the, you know, the combination of knowledge, planning and consistency is really what you need and what drives success. So a healthy dose of informed scepticism about the industry does go a long way for investors, in my opinion. Um, so understand what you're paying for. Make sure any advice or product genuinely aligns with the goals that you're trying to achieve and not someone else's bottom line.

Phil Muscatello: Track your investments like a pro. Sharesite is Investopedia's number one portfolio tracker for DIY investors. Simplifying your finances. Get four months free on an annual premium plan at sharesite.com sharesforbeginners.

Let's talk about those goals that you're trying to achieve. It can be very difficult to work them out, especially if you're in a relationship as well, because, you know, sometimes you've got different points of views in a relationship or, you know, the situation that you might be in. What are some of the things that you really start to consider about what you particularly need for yourself and what you want to plan for your future?

Shani Jayamanne: Yeah. Not going to pretend to be a relationship counselor, Phil. So I'll start with maybe how an individual should think about goals. You know, I think, uh, I thought.

Phil Muscatello: We could talk relationships today. Shani. Always the most fun.

Shani Jayamanne: Yeah, definitely. We'll, um, we'll probably get more views than talking about shares, uh, in personal finance. But, yeah, I mean, I think in terms of goals, Morningstar's done a lot of research on this, and we have a behavioral research team that sits in the US and they work purely on how to improve, uh, outcomes for investors. And, you know, I think there's a lot of societal perceptions about what success looks like, and people do tend to focus on that and think those are financial goals. And these are really surface level goals that a lot of people are trying to achieve. And what we try to encourage at Morningstar is to run through. And there are some exercises that we have on Morningstar.com today you, that can help you with this. It's called digging deeper for goals. Um, it is a process that a lot of financial advisors use to actually find out what you want from life. And that's the starting point. And, um, we ran this exercise with a bunch of clients that have financial advisors, and we found that a lot of the time, once they ran through this exercise, they really dug into what they wanted from life, and it was markedly different from what they first came up with. So I think it's really a lot about self reflection, about what you're trying to achieve and what you want. And there's a really good example in uh, the research that our behavioral research team came up with, which is there was someone that wanted a holiday house in a really expensive part of the US and you know, it would be our equivalent of wanting a holiday house in Watson's Bay and going through the exercise. What they really found out was they just want somewhere where they're able to spend time with their family and they want somewhere where they can gather with their family and have enough space for their family. And that can be achieved from more achievable goal of getting a holiday house maybe down in the south coast or you know, know, up, uh, in the central coast. And you know, it's not about the location, it's not about where you're trying to buy, it's more about the deeper goal of spending time with family. So I think, you know, it's making sure that you're clear on your goals because it can actually impact your happiness and whether you actually achieve it.

Phil Muscatello: Getting back to migrant families and uh, the emphasis on cash and property, I mean we're both from migrant families and we both know it very well. A lot of people do have a fear of the share market. How would you address that

00:15:00

Phil Muscatello: fear?

Shani Jayamanne: Yeah, I mean, you know, I think that there's this big misconception that to be a good investor you have to be really into it. You have to be reading the AFI every morning, you have to be tracking company announcements, you need to be analyzing charts, that kind of thing. And look, if you enjoy it, that's really great. A lot of the people that are on Morningstar.com today, you will listen to our podcast. If you're listening to a weekly podcast about investing, you probably enjoy it. Um, you don't have to love investing, um, you just have to respect the process and understand its purpose. And I think, you know, for most people the goal isn't to make investing their full time hobby, it's to build wealth so you can live the life that you want. And you can absolutely do that without making it your passion project. And the beauty of investing today is that you can automate so much of it. You can set up regular contributions into a diversified ETF or managed fund and just let time and compounding do the heavy lifting. You don't have to be glued to the news cycle or feel pressure to have an opinion on every market move. And you know, in fact might sound counterintuitive but not being obsessed with investing can be a really huge advantage. Um, when you're constantly checking your portfolio or reacting to headlines, you're more likely to make impulsive decisions. So you might sell when markets fall or chase whatever's doing well right now. But you know, I think when you take a step back and focus on your long term plan and not let short term noise get to you, you tend to do so much better. And we've seen so many studies to show this. The investors who check their portfolios less often, or even forget they have one, often end up with better returns simply because they're not trying outsmart the market, they're not tinkering and they're not timing. Um, so we've seen a lot of studies that show this. Investors who check their portfolios less often really do a lot better. So I think, you know, the best investors aren't necessarily the most enthusiastic or the most informed. They're the ones who build a plan and make sense for their lives, something that they can stick to and then they stay out of their own way. And that's what consistency looks like in practice. It's not about loving investing every day, it's about trusting the process enough to give it time to work.

Phil Muscatello: So, Shani, why should people invest? Let's go back to the very basics.

Shani Jayamanne: Yeah, good question, Great question. So there is a simple answer to this question. There's no practical way to achieve financial freedom without investing and you simply can't save your way to financial freedom. And you know, making more money won't get you there at these days. And if you don't save and invest some of it, you'll be forever dependent on others. And you know, Australians, especially women, love to keep savings in cash. Research shows that women tend to stick to cash and fixed income options for their savings. And this is often not the best option for our future. And we're really trying to stretch our savings further and further. Our life expectancy is rising. Um, what this means is that our retirement is almost as long as our working life. And effectively, for every year that we're earning our salaries, we need to provide for two years of savings. And then of course, adding to this issue is inflation as well. So keeping your savings in cash means it's not going to be able to purchase the same amount of goods to goods in a year, it'll be even less than five years, it'll be less than 20 years. And if inflation is 2 1/2% and your transaction account is giving you 0.05%, you're losing the purchasing power of your money every day. And if you are in a savings account paying you a high interest rate, the situation is really not much better. So investing is not just about achieving financial goals. It's about maintaining your quality of life as well and ensuring that you're able to adequately provide for yourself over a really long time period. And we spoke about cash, but when we look across asset classes, you need to invest in growth assets like shares to keep up with inflation and grow, uh, your money so you're able to achieve financial freedom. So it's not a choice, in my opinion. It's a necessity. And I think, you know, the second part, which I think is a really great part of investing in what gets people excited, is what comes after necessity. It is that, you know, achieving the life that you want to live. It's investing in building wealth because it opens choice and you're able to achieve, uh, multiple financial goals.

Phil Muscatello: On this podcast, Sharna, we love to break down investing jargon. What's the one investing term that you find often confuses new investors the most?

Shani Jayamanne: Yeah, ah, it's a really good question, Phil, because there's so many terms out there that can sound really simple, that have layers of meaning. And the one I think trips up people the most is risk. And it's one of those words that gets thrown around constantly. You know, uh, you need to understand your risk tolerance. Higher risk, higher return. You know, if you've ever gone to a Robo Advisors website and you've done that little questionnaire, ah, that's a risk tolerance. Um, but most people aren't really taught what that actually means. And, you know, what makes it tricky is there's actually two types of risk that we need to think about as investors. So there's risk tolerance and there's risk capacity. And they sound similar, but they're completely different. And understanding the difference can really change your outcomes as an investor. Um, so risk tolerance is about how you feel about risk. It's emotional, it's how comfortable you are with seeing

00:20:00

Shani Jayamanne: your portfolio go up and down. You know, there's some people that can shrug off, uh, 20% drop and say, you know, I'm in, uh, it for the long term, it's all good, while others lose sleep over it and feel the urge to sell everything. But of course, you have no idea how you're going to react when you're in that situation. And I think a lot of new investors, especially who have been in the market and have never experienced a prolonged Bear market have absolutely no idea how they're going to react to that situation. Um, so those sorts of questionnaires, um, can give you a little insight into the type of investor that you are, but it's not something that, that we at Morningstar believe that you should base your, uh, portfolio decisions on. And risk capacity, on the other hand, it's intrinsically linked with the goals that you're trying to achieve. It looks at what the return that you need to take on to achieve your financial goals is and looks at financial, uh, ability and your take on risk. And it's more holistic view that encapsulates more than what you might feel during certain markets, market events. And, you know, I think that's the key difference. It's risk tolerance, doesn't take into account what you actually need to get to your goals and only considers your reaction if markets fall and ultimately if you're only taking risk tolerance into account, where whether you reach your goals or not is entirely left up to chance. So I've done a little bit of homework in terms of taking a risk tolerance questionnaire. And, um, so those are, uh, given to you if you ever go to a financial advisor or again, as I said, if you go to a robo advisor. And it said I should be in a balanced fund with a 50% split between growth and defensive assets. Now, if I apply that to my retirement goals, I'm 32 at the moment, and, um, that's over 30 years that I'm spending in a retirement that's 50% defensive. And it is extremely unlikely, I would say almost impossible, that I'd reach my financial goals for retirement. So, you know, understanding your risk capacity involves going through the portfolio construction process. Process. So the first step is really defining your goals. If you don't know your destination, there is no way to design a portfolio to get there. Um, then you can calculate your required rate of return. So this is the alternative to the output that you would get from a risk tolerance questionnaire. The return you need to achieve your goals will really guide the asset allocation in your portfolio and the mix of defensive and aggressive assets to get you to your financial goals. So when I went through this process for my retirement portfolio, it said that I needed a 9010 split. So that is a very, very large difference in the split of assets, assets for my asset allocation that I need for my retirement goal. And I have a much larger chance of, uh, reaching my retirement goals, uh, by going through this process. And I think, you know, knowing and understanding your goals and what it takes to accomplish it can provide ballast when markets turn volatile. And going through the process of portfolio construction really just provides you a level of understanding about the relationship between risk and reward that a, uh, risk tolerance questionnaire really just won't provide you.

Phil Muscatello: Yes, again, it's about time, isn't it? Because when you've got a lot of time on your hands, you can ride out those ups and downs.

Because the other side of risk as well is the volatility. It's how markets move up and down. Something that I always like to encourage people to do is to look at their superannuation portfolio as well, just to understand these terms of growth and defensive. Can you just give us a general overview of what constitutes a growth asset and what constitutes a defensive asset?

Shani Jayamanne: Yeah, definitely. I mean, so when we're talking about growth and defensive assets, growth assets are those, it's actually quite self explanatory. It's ones that you think will grow. And as investors we're really just um, exchanging risk for return. Um, in our portfolios, growth assets are the ones that you do take on more volatility, but you do have a higher expected return for them. And defensive assets are the opposite. So those that have less volatility in your portfolio, but you do have a lower return that you should expect from them. So classic examples are growth, you really leaning on, um, equities is a really good example. And then defensive is cash is a really good example. Bonds are a really good example.

Phil Muscatello: And um, fixed income products as well.

Shani Jayamanne: Exactly, yes.

Phil Muscatello: Yeah. What is a fixed income product?

Shani Jayamanne: Yeah, so fixed income products are ah, those that provide you with a regular stream of income. And so term deposits are a really good one. Bonds are a good one. Um, so those are a, ah, fixed amount, um, that you're receiving from a particular investment product.

Phil Muscatello: Um, I love putting you on the spot. Explain some of these terms now.

I love the chapter title. Investors Behaving Badly. What's that all about?

Shani Jayamanne: Yeah, Investors Behaving Badly was actually one of our favorite chapters to write. Partly because it's where we all have to admit that the hardest part of investing really isn't the markets, it's us as people. So you can have all the data, the research and analysis in the world, but at the end of the day we're all human and we're all really emotional creatures. And whether we like to admit it or not, and when money's involved, something that represents our security, our freedom, our future, it's really hard to stay rational

00:25:00

Shani Jayamanne: at all times. Um, so that's what that chapter is about. All the little ways our behavior can get in the way of good investing decisions. And we tend to think investing success comes down to picking the right shares or timing the market perfectly. But really it comes down to managing our own psychology. And there are so many classic examples of this. So, you know, when markets fall, our entire instinct is to really protect ourselves. So we sell. When markets rise, we feel like we're missing out, so we buy. And it's the exact opposite of what we should be doing. We all know this, that it feels really right in the M moment. And the data shows it as well. So Morningstar has this study. We quote it all the time. It comes out every six months. It's called Mind the Gap. And the research finds that investor returns are often lower than the fund's actual return. So the return that an investor gets into their account is lower than the headline fund return. And that's simply because people move in and out at the wrong times. They let fear and greed drive their decisions. And we fall into these cognitive traps, like confirmation bias, where we're only looking for information that agrees with what we already believe. Recency bias, where we assume whatever's happening now, good or bad, will continue to happen forever. I think that's a really important point, especially for investors that have gotten into the market even in the last 15 years, where they haven't really had a prolonged bear market to experience. And they think that this outrun is just going to continue on forever. Um, so, you know, that's something that I think is really front of mind for a lot of investors at the moment. And I think it's completely normal, but it's incredibly destructive if you're not aware of it. So that's why we call the chapter investors, uh, behaving badly. Not to shame anyone, but to show that these are sort of universal tendencies. So everyone from beginners to professionals, they struggle with them. And the key is learning how to recognize when your emotions are, are steering the wheel instead of your head. And, um, that's where having a plan really helps. So if you've taken the time to work out your goals, your time horizon, your strategy, then when markets wobble, you've got something to fall back on. And it stops you from making those knee jerk reactions that are the ones that cause investors to have a lower return than investments. And, you know, I think this is another reason why we say you don't have to love investing to be a good investor. Sometimes the best thing that investors can do is do nothing. Um, Set your investments up in a way that doesn't rely on you reacting to every headline. Um, investors behaving badly is really just a reminder that investing isn't just about money. Um, it's also about behavior. If you can manage your own impulses and stick with your plan through ups and downs, you're already ahead of most people. I think the main lesson here is it's not about being perfect. None of us are. And as investors, we're always going to make mistakes, but it's about being consistent. Are you confused about how to invest? LifeSherpa can ease the burden of having to decide for yourself. Head to lifesherpa.com au to find out more. Lifesherpa, uh, Australia's most affordable online financial advice.

Phil Muscatello: I think it's okay to shame investors just a little bit, just to make them realise about. This is such an important point. And I think it's really shown at the moment the greed side of things. If you look at the queues outside ABC Bullion in Martin Place, where people are lining up to buy gold and silver, that something is happening there. There's this greed mania that's getting into people's psyches. So one side of that equation is the fear side. What do you think that says about people's greed and that part of their emotional armoury?

Shani Jayamanne: M yeah. So I think, you know, when we're talking about investors, one of the biggest things that I would say is that having a understanding your financial goals really gets you to stop focusing on that mindset of wealth maximization and the poor behavior that does come with that. So when we look at the ways that investors, um, really detract from their returns, poor behavior is a large one, but it is transaction costs and fees as well. So, you know, typical behavior of day trading or trying to find the best investment at a particular time, um, trying to time the market, trying to, you know, invest in speculative investments, um, it's really just a recipe to, to not achieve your goals. So I think, you know, that mentality of wealth maximization and trying to get as much money as possible doesn't really help many investors. I think it's really about focusing on ensuring that you maximize your own outcomes. So taking your particular circumstances into account, making sure that you focus on what you can do with your additional investments, your initial contributions, and also having realistic goals and being able to achieve them.

Phil Muscatello: So what's the biggest money mistake you've seen people make?

Shani Jayamanne: Yeah, I mean, it's a tough one because there's so many ways that I think we can trip ourselves up with money. But if I had to pick the biggest mistake I've seen, and honestly, it's one that cuts across all income levels.

00:30:00

Shani Jayamanne: It's not having a plan. And I know that sounds really simple, but so many people start investing or just managing their money day to day without a clear sense of what they're trying to achieve. And they might have that vague goal that I mentioned, which is, I want as much money as possible, or, you know, I want to build wealth, um, but there's really no structure behind it. And the problem with that is when you don't have a plan, you tend to react to everything. And, you know, you're reacting to the news every day, the markets, what your friends are doing, what you see on social media, you're lining up at ABC bullion, It becomes the, uh, cycle of chasing the next thing that sounds really good instead of building something that's right for you. And, you know, that's why having a plan is understanding your risk capacity like we talked about earlier. And it's so powerful. It allows you to take action confidently in a way that's really sustainable. And, you know, I think when you've thought through your goals, your time frame, how much risk you can really take, you don't have to make those emotional decisions that we see a lot of investors making. You can just follow your plan and make small adjustments along the way and keep moving forward. And I think, you know, that's a really key theme in our book. And, you know, it's that success in investing doesn't come from chasing perfection. It comes from building something that really works for you and sticking with it long enough.

Phil Muscatello: What's the one habit you'd suggest viewers or listeners to take control of their wealth? Because we're talking about mindset here and, uh, doing it, but there, it's also the behaviors and the habits that you need to develop as well, isn't it?

Shani Jayamanne: Completely. And, you know, I think we, as investors and people, we have this action bias that we need to do more to achieve the goals that we want to achieve. So I think, you know, if I had to, uh, pick just one habit, I'd say check in with your money regularly, but don't obsess over it. You mentioned that the webcam analogy where you're sort of watching the trees grow. Exactly that, Phil. So, you know, it sounds really simple, but it's one of the most powerful things you can do because, you know, taking control of your wealth does start with awareness. It's about what's Coming into your account. It's about what's going out. It's about what your money's actually doing for you. But a lot of people either ignore their finances completely because it feels overwhelming, or they go to the other extreme and they check that webcam every day and they're checking their portfolio portfolio, which, you know, it just feeds anxiety. And, uh, what I found works best is something in between setting aside a little bit of time, maybe once a month or once a quarter, to really check in with deeper reviews every half year or yearly. And use that time in your review to see how your investments are tracking against your goals and make small adjustments if you need to. But then I think, you know, this is the key. Once you've done that, just step away. You don't need to let money take up constant mental space space. Because the truth is that, you know, managing your money well isn't about micromanaging it. It's about building a system that really works quietly in the background. And, you know, you can automate your savings and investing as much as you like, but, you know, good decisions can happen automatically. And I think, you know, that's something that I really relied on in my portfolio. So just having regular investment contributions going out, every pay, and you really just remove that temptation to skip or delay them, um, for something else. And, you know, I think that's where real control comes from and discipline comes from. To be a good and successful investor, you do need discipline. And it's not about, you know, trying to predict markets or returns and chasing them, but, you know, it's about putting structure around your financial life so that, uh, the right things happen consistently. And, you know, over time, what we really want for investors is we want that consistency to compound not just financially, but emotionally, so you start to feel more confident, more capable and less reactive. And you don't think about dealing with it later. And so, you know, our behavioral research team has also done some work on this, and what they found is that the more work that you put into your financial life, the easier it becomes to make the next decision. So you make a really good financial decision. They found that that tends to compound. You want to make another really good financial decision and you want to keep going that way. And, you know, all that good work just compounds. So, yeah, I think definitely that's. That's the one that I would pick.

Phil Muscatello: So compounding it does take a long time. In your view, how long does it take before you actually see some results that start to feel life changing?

Shani Jayamanne: Yeah, I mean, that is A good question, but I'm going to say that it depends. So it depends on, uh, initial, you.

Phil Muscatello: Work in the financial industrial complex.

Shani Jayamanne: Your additional investments. You know, I think I can talk about my own experiences here. There's a couple of things that I think are compounding. So, you know, I can speak about my super first. So when I first started at Morningstar, we did a, uh, portfolio construction episode for Investing Compass. And I was. Earlier on in my career, I hadn't really had, you know, a lot going into my super. Uh, even though I did have salary sacrifice and I had a $60,000 balance and you know, I have multiple times that and, you know, it hasn't been that long. I mean, you know, markets have done really well. But I think I can really see the efforts of compounding come to work in my superannuation

00:35:00

Shani Jayamanne: account. What I don't see is the efforts of compounding in a good way in my mortgage. So I have a house and, uh, recently purchased one. You see reverse compounding there. So that's the interest rate continuing to compound, and it feels like a never ending loan. I think a lot of people feel that way. But what really helps me is looking at a mortgage amortization schedule. And I think you can do the same as an investor. When you look at your investment accounts, you can see the work into the future and you know, that mental understanding of how your account is going to compound where you're going to be. And seeing that trajectory really helps because at the beginning you really can't see it work. But if you lay it out in an Excel spreadsheet or there's plenty of calculators online that help you do it, you can see how it will compound. And you know, it is in those later years when you have those larger balances where you will see it more. You, uh, have heard the saying, you know, the first million is the hardest to make, but it is really about that. It is about making sure that you have a plan, you understand your trajectory, and if it helps you lay it out, it helps me to see my mortgage amortization schedule. I'm really looking Forward to year 14 where it starts to drop drastically. So I think, yeah, that does help investors understand that their hard work is actually hard work and it's going to create something large.

Phil Muscatello: Okay, so circling back to goal setting, what is the importance of organizing and writing down and understanding your goals before you even start investing?

Shani Jayamanne: Yeah, I think, you know, this is one of the most important and maybe overlooked parts of investing before, you know, you invest a Single dollar. You really need to know why you're investing in the first place. And I think because investing really isn't about chasing returns, it's about building a life. And I think we tend to separate that a little too much as investors. Um, we see the numbers in our accounts, but we don't realize what it's contributing to. And, you know, it's about using your money as a tool to create options, flexibility, and security for yourself and the people that you care about. And that's what it's really about. And when you take the time to think about your goals, you start to see what you actually want your money to do do for you. So, you know, maybe it's a lot of people really want their first home. Maybe it's, um, taking a career break or it's starting your own business, moving into a different line of work. Maybe it's retiring early, which I know is a really common goal for a lot of people. So maybe it's those goals, but maybe it's also just being able to sleep better at night, knowing that you're financially secure. And I think, you know, each of these goals have different timelines and a different level of risk that may makes sense. And that's where your investment strategy comes from. And your goal should always drive that plan, not the other way around. So what tends to happen is that people start to invest without that clarity. So they open a brokerage account, they'll buy a few ETFs or shares. They might go on, you know, investing forums on either Facebook or Reddit and pick out the ones that people are mentioning. They might be investing in a company that one of their mates mentioned at a barbecue, and they start to react to whatever happening in the market. And that's when investing becomes really stressful because there's no anchor and, you know, you just don't have a clear sense of purpose. And every dip in the market feels like a setback instead of just part of the journey. And, you know, absolutely, uh, nothing against the barefoot investor, but I think, you know, he's laid out a really good plan for people to take on debt. But he's also asked people to consider one particular type of superannuation fund that's, you know, a 7 70, 30 split. And, you know, there's a lot of danger to this for investors who might be earlier on in their journey. They're not taking enough risk in their portfolios. They might have a marked difference in their outcomes if they choose a different investment. So it's really important to consider what your goals are and what you're actually doing instead of just jumping into investments because they've been mentioned somewhere or someone's telling you to get into them. So, you know, I think having goals really changes your mindset on investing. Um, if you know why you're investing, volatility becomes really easy, not really easy, easier to live with. Uh, but you can remind yourself, I'm investing for 20 something years. The short term noise doesn't really matter and it gives you perspective and patience. And you know, I think goals also help you make trade offs. We can't all have everything at once and we can't have everything that we want to. So it's really about understanding what's right for you. So, you know, for example, example, you know, someone who wants to buy a house in three years probably shouldn't take a lot of risk in their, in the share market because the timeline is too short. But someone investing for a time in 30 years has that time to ride out volatility, so it makes sense to take more risk. And you know, your goals also help you align your money with your values. So a lot of people find that once they actually sit down and they think about what they want out of life, it changes. And um, the approach altogether, you know, it's not just about how much can I make, it becomes, you know, what kind of life do I want to build, what do I want to actually achieve at the end of the day? Um, so nailing down your goals gives you investing direction, but it turns something abstract like the money in your investment

00:40:00

Shani Jayamanne: account, just saving and hoping it works out into something really personal and meaningful. Which has really helped me with a lot of my financial goals as well. And I think it really helps you stop from drifting and it makes you a more deliberate investor. And you know, I think the beautiful thing is when your investments are aligned with your life goals, you're more likely to stick to your plan because you know exactly what you're doing. And it's not just numbers on a screen anymore. It's really about your future quality of life and achieving the things that you want as well.

Phil Muscatello: So, Shani, tell us the title of the book again.

Shani Jayamanne: It's Invest yout Way. And you can get it at all good bookstores. You can get it online on Amazon and Booktopia. And we also have an audiobook, um, that you can get and you can also request it from your library if you'd like to.

Phil Muscatello: Did you read the audiobook? Who did the voiceover for it?

Shani Jayamanne: I did, yeah. I was actually really ill. So when I did the audiobook, it was an experience. I don't know if you listen to audiobooks, Phil, but I didn't notice until I had to record one that there are absolutely no mistakes in them. And people don't, um. And, ah. And they don't pause anytime. That is much harder to do than you think it is. So, yeah, it was. It was an experience.

Phil Muscatello: So, uh, that's the Beauty of Take 2. What's been edited out. Okay. And also the Investing Compass podcast again as well, that we mentioned, which is a great podcast to listen to, and it's, uh, a great dynamic that you and Mark enjoy with each other.

Shani Jayamanne: Thank you, Phil. That's very nice.

Phil Muscatello: Thanks, Shani. Thank you very much for joining me today and coming on the podcast again.

Shani Jayamanne: Thanks so much for having me, Phil. Thanks for listening to Shares for Beginners. You can find more@sharesforbeginners.com if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

00:41:45

Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.