Investing

What is Investing?

Investing is putting money into assets – stocks, bonds, property, funds – with the expectation that they will grow in value over time. It is how you turn earned income into wealth that works for you while you sleep.

Why Investing matters

Compounding is the most powerful wealth-building force available to ordinary people – even modest contributions, left to grow for decades, produce outsized results i
Most investors systematically underperform – the average equity fund investor trails the S&P 500 by 3 - 5% annually due to poor timing and behavioural biases, meaning basic discipline puts you ahead of the majority i
Financial literacy is surprisingly rare – only 43% of adults can correctly answer three basic questions on compound interest, inflation, and diversification, so even foundational knowledge is a genuine edge i
Professional management rarely adds value – 94.1% of domestic funds underperform their benchmark over 20 years, making simple, low-cost strategies hard to beat i
Patience is the scarcest edge – the average NYSE holding period has fallen to roughly 8.3 months, and missing just the 10 best market days over 30 years halves total returns i

Investing Values

Your approach to investing depends on what aspects you value most. This guide balances three core values, with percentages indicating the relative weight given to each in our recommendations.

For personalised recommendations based on your unique priorities, visit Investing Personalised, where you can adjust these value weightings to see which interventions work best for your specific goals and preferences.

Growth (40%)

Maximising the long-term increase in invested wealth through appropriate asset allocation, compounding, and consistent contributions.
Selecting growth-oriented investments, reinvesting returns, and maintaining the patience to let compounding work over decades.
People who prioritise this value focus on net wealth trajectory rather than short-term fluctuations.

Safety (35%)

Protecting invested capital from catastrophic loss through diversification, appropriate risk sizing, and conservative positioning during uncertainty.
Understanding your true risk tolerance, avoiding concentrated bets, and ensuring drawdowns remain within limits you can tolerate psychologically and financially.
People who prioritise this value accept lower expected returns in exchange for predictability and downside protection.

Simplicity (25%)

Keeping your investment approach as straightforward and low-maintenance as possible.
Using index funds over active strategies, minimising the number of accounts and holdings, automating contributions, and resisting the urge to optimise beyond what evidence supports.
People who prioritise this value believe the best investment strategy is one you can sustain for decades without tinkering.

Benchmarks by Level

Research reveals a stark gap between investment participation and investment competence. Most investors lack basic financial literacy, trade too frequently, chase recent performance, and panic during downturns. The average investor’s behaviour gap - the difference between fund returns and investor returns - costs 3 - 5% annually. Even among professionals, 94% of active funds underperform their benchmark over 20 years. These patterns mean that even modest discipline and knowledge represent significantly higher capability than the norm.

Level 1: Awareness

Growth: Holds some investments; returns unexamined; underperforms market by 3 - 5%/yr i

Safety: No awareness of portfolio risk; no diversification strategy; fully exposed to drawdowns i

Simplicity: No FI target; investing without reference to a freedom number or milestone i

Level 2: Foundation (80th percentile capability)

Growth: Matches broad market indices (~8 - 10% nominal); behaviour gap <1% i

Safety: Diversified across asset classes; understands own risk tolerance; portfolio drawdown within planned limits i

Simplicity: Knows FI number; tracks progress; investment allocation reflects FI timeline i

Level 3: Proficiency (95th percentile capability)

Growth: Market + tax alpha; 9 - 12% net; Sharpe >0.5 over 10yr i

Safety: Quantified risk budget; tail-risk hedging; portfolio survived 30%+ drawdown within planned parameters i

Simplicity: Achieved Coast FI; allocation strategy shifts as FI milestones approach; glide path planned i

Level 4: Excellence (99th percentile capability)

Growth: 2 - 5% above market over 10yr; Sharpe >1.0 i

Safety: Stress-tested portfolio against historical crises; options overlays or hedging strategies; maximum drawdown consistently below market i

Simplicity: Lean FI achieved; portfolio structured for sustainable withdrawal; sequence-of-returns risk mitigated i

Level 5: Mastery (99.9th percentile capability)

Growth: 10%+ above market over 15yr; Sharpe >2.0 i

Safety: Proprietary risk models; portfolio resilient across all historical regimes; anti-fragile positioning that profits from volatility i

Simplicity: Full FI achieved and sustained; portfolio generates reliable income across market regimes; work is entirely optional i

Levels

Level 1: Awareness (under development)
Level 2: Foundation (under development)
Level 3: Proficiency (under development)
Level 4: Excellence (under development)
Level 5: Mastery (under development)
Investing Personalised (under development)

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