Episode Details

Episode 53 – Investment Power-Ups

I was binge watching a fictional Netflix series last week about a group of 4 guys who had made an app that had become a huge hit, Angry Birds style.

Each of the 4 guys had particular skills, and there was a scene where one of the guys was feeling pretty lost. He bemoaned to his friend how such and such was great at art, another coding, and the 3rd guy, the one he was speaking to, was great at game design. But he asked, what was he in the group for?

His friend considered this for a moment and said, "you know what you are in the team for? You're the power-ups. When we were just about to run out of money, you went out and found more. When Johnny went off the rails, you brought him back. You hired some key people without whom, none of this success would have happened. And you made us all rich when you found a buyer willing buy our business. So, yeah, you're the power-ups".

It was a great scene and it really stuck with me. It also made me think about what the power-ups are in the investment world. What are those things that really accelerate your investment plans? Well, I believe there are 3, and that's what we'll be exploring in today's episode.

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Wikipedia describes power-ups as "objects that instantly benefit or add extra abilities to the game character as a game mechanic."

If you're old enough to remember Pac-Man, the power-up of eating the power dots in the corners let you chase the ghosts, or in Sonic the Hedgehog, the most common power-up made you go much faster. From Super Mario Bros to modern day Clash of Clans, power-ups are an integral part of most video games.

Whilst all of these games can be played without the power-ups, the core objective of the game is either impossible or at least extremely difficult to achieve without using them.

And so when thinking about the achievement of your Financial Autonomy goal, whether that be a 6 month mini retirement at age 40, a career change next year, or a move to a regional town, what are the investment equivalents of a power-up, that can bring your goals within reach.

I have identified 3 investment power-ups. They are:

1. Regular savings and dollar cost averaging
2. Gearing
3. Dividend reinvestment and compounding

Let's take a look at each in some detail.

Regular savings and dollar cost averaging

If you want to build up wealth to gain the choices in life that you deserve, then you need to save. And there is no better way to save than to commit to a regular savings plan. By this, I mean you have an automated process whereby a certain amount of money is transferred out of your normal living bank account and into investments.

There are two reasons why this strategy brings success. For one, it bakes in discipline. The investment just happens. No chance for you to spend the money on some other non-essential item, or use the cash to book a flight to Hawaii. Part of the discipline benefit is also that it ensures you live to your budget – the mone