The journey to financial independence comes with many things to learn along the way.

To help simplify tricky questions and clear away confusion, we’re running an ongoing Q&A series.

We hope these provide you with insights to further your thinking as you progress towards your goals :)

Just so you know, in many cases there’s often not a “right” answer, so be sure to think carefully how to adapt any information to your own circumstances.

If you have a question you’d like answered, feel free to leave it in the comments below, or post it on the Pearler Exchange.

In this Q&A session, we’re tackling:

• Investing vs Lifestyle
• Can I stop working at 59?
• Should I stop investing and pay down my loan?
• Low-cost active ETFs
• Why shares go up if the market is closed
• Are you ever tempted to sell?
• Making money online
• Capital gains payouts from ETFs

Investing vs Lifestyle

Q: How did you decide whether to put extra money into your investments (instead of a weekend away/toys for kids) or whether to do things like save for a holiday and eat out/relax and enjoy life a little more? I’m grappling with weighing up the enjoyment of life now and being wise for the future.

A: Great question.There are multiple ways to approach it:

1) Pick a minimum investment amount you can manage and then happily enjoy the rest of your income. You’ll generally find a way to manage if you automatically remove a portion of your pay before you can spend it. Try to start small and then keep increasing the amount over time as you get used to it.

2) Do a balance of both. Set aside a strict portion of ‘fun’ money and a portion of investment money from each pay. This ensures you don’t overspend and helps you balance both desires.

3) Prioritise what expenses are really worth it and what aren’t. Which of the things you do bring you the most absolute enjoyment and pleasure? Try to focus on these and optimise the rest of your spending so that you’re able to get the most benefits while still investing.

4) Think about the kind of life you want to have in 5-10 years, not just now. Do you want to be semi-retired? Fully retired by a certain age? How much will you need to make that happen? Be honest about how much ‘fun’ you can afford now and the tradeoff that comes with that.

Generally, the more you can set aside for investing now, the more you’ll improve the quality of your life in the future, many times over. Because of investment returns and compounding, one trip away foregone now could mean three trips later.

The following podcast might also help; it’s about balancing current desires and future goals .

Of course, you can also focus more on enjoying family time in less expensive ways. Or just do more of those things than the more costly options. I wrote a list of 50 enjoyable low cost things to do in this article. As a couple/family, that will likely include picnics at beaches/parks, and trips more oriented towards camping than distant trips with hotels.

Can I stop working at 59?

Q: I’m going through a divorce and it looks like I’ll end up with my own unit outright, $250k in super and $25k cash.

I’m 59 and haven't worked for 2.5 years since my separation. I’m on Jobseeker and surviving, since I’m living in the family home rent/mortgage free. My mum has also helped me financially during that time.

I would prefer not to work again if possible and wondering if my $25k savings could help me grow wealth at this age. I will probably eat into some of that money but I do live frugally. Any ideas to improve my finances?

A: Given this situation and the desire not to work anymore, I would approach it as follows.

• Keep the cash savings as is. This is a crucial safety net and can be used in emergencies. Try not to dip into it if you can help it.
• Keep living off Jobseeker if possible. Ask Centrelink if starting a transition to retirement pension at 60 will affect your payment (as it may not).
• If the above is all good, speak to your super fund about starting a transition to retirement (TTR) pension from age 60. This may help you get an extra (say) $10k per year on top of your Jobseeker.
• Income of $30k per year (jobseeker + super) should then be enough to live off. You are technically still obliged to look for work until pension age, and if you do, that would help your finances too. So if you can find something suitable part-time that boost things further until you reach pension age.
• At 67, you'll then get a pension which itself is almost $30k, and super will continue to give an extra $10k yearly. With a paid off home, given you’re (just) managing already on less, this may be more comfortable.
  
  

Pay off my property or keep investing?

Q: Massive fan of your book. Got a copy of it on Audible when I was 19. I’m now 21 and have $45k invested in ETFs. My goal is to semi-retire in about 15 years. As I’m starting to look into purchasing my own property, I’m trying to decide what to do with my ETF portfolio. Do I leave it and pay off my property first, then continue investing afterwards? Any thoughts would be much appreciated.

A: Nice work so far. You have multiple options. I spoke about this in the 'mortgage strategies' section of the book. Here's some thoughts...

• Since your timeframe is 15 years, that's a pretty long time to benefit from compounding. Given shares are likely to provide long-term returns higher than the average mortgage rate over that time (say, a a hypothetical, 8% vs 5%), mathematically, it may make sense to keep investing.
• You could do a combination of both. Use an 'extra repayment' calculator, to see how much extra you'd have to pay to get your mortgage gone in 15 years. Any surplus after that can be put into shares.
• Ultimately, if you're like most people, you'll probably want to have no mortgage when you semi-retire. This would mean with the first option, you'd need to sell some of your portfolio later to pay off the rest of the home loan.
  

I also wrote an article not long ago – Mortgage Strategies For A Debt Free Retirement – which goes into this further. But to be clear, there's nothing that says you need to be debt free – I'm not – it's just that most people prefer it.

Very low cost Active ETFs?

Q: What's your opinion of the 'new breed' active/index ETFs like MQAE? With a management fee of only 0.03% they are cheaper than A200 and VAS. They also charge an outperformance fee of 20%, but only if they beat the ASX300 (including a high watermark). They must be confident in their abilities!

A: Interesting concept; I haven’t really seen these before. In short, these could work, but even aside from fees, it comes with the probabilities of stock picking (not great, in my opinion).

The main reason indexing wins over time – and the main reason I moved to it – wasn’t fees. It was after learning that market returns tend to be driven by a small (and hard-to-predict) group of huge long-term outperformers. By missing any of them, you typically lag the index. And It's incredibly difficult to know in advance which companies they're going to be.

So that's my general thoughts. This option is a lot better than a high fee active fund, that's for sure! But I'd also want to be mindful of turnover. If they buy/sell a lot and change the portfolio, it will lead to large taxable distributions. This means that performance might look great on paper, but the after-tax result for the investor could be much less.

Why do shares go up if the market is closed?

Q: Why do share values like IVV and NDQ go up when the ASX is open, when actually the US markets may have opened about 10hrs before the ASX (different day though) and closed about 4am Sydney time?

A: I’m no expert in the mechanics of such things. But my understanding is that because the ETF units trade here, they can only be traded when the ASX is open (even though they reflect the US market).

Many times it also reflects not only the share price of the ETF/companies, but also the value of those shares in Aussie dollars. So because of AUD/USD currency movements, those shares will still fluctuate when they trade on the ASX, even if they represent US shares.

In addition, you’ll often see these types of funds ‘open’ with a big jump, to account for what happened overnight in the US. As far as I know, you can’t really get ahead of this as a regular investor, but that’s my view on how it works.

Ever tempted to sell?

Q: When you see a big paper profit in your index fund, does it test your resolve to never sell?

A: No. For multiple reasons.

1) If I sell, my dividend income stops.

2) If I sell, that money then needs to be reinvested elsewhere.
3) If I sell, I need to find a more attractive investment than what I’ve sold (otherwise why did I sell?).

4) If I sell, there will be hefty capital gains tax to pay.

5) I expect my index funds to be worth a lot more over the next 50 years.

Making money online

Q: If you had to try and make money online with something other than blogging, what would you do?

A: Damn, that's a good question – and actually not something I've thought about much before. It's tricky because I honestly don't have that many skills!

The cynical (and humorous) answer is that the best way to make money online is to teach others how to make money online. There’s definitely some truth to that.

The first thing most people think of is trying to make viral video content. But that's also the most competitive, and difficult to break into these days. Plus, with short-form video, you're dealing with tiny attention spans, and it may be hard to make a sustainable business off that, despite the small percentage of people who become massively successful. But you asked about me specifically, so here’s what I would do.

For long-term earnings: I would perhaps focus exclusively on podcasting or maybe even a livestream of some sort. Both take a while to build up, but the audience is more loyal and genuine and you can actually deliver meaningful information in long-form content (I dislike short-form for this reason).

Coaching or consulting could be another option, but in my case, I'd struggle with that unless I got a financial license. I'd also consider mortgage broking, and although that's more like a regular job, it can basically all be done from a laptop and phone, so you’re essentially working online (plus I’ve always found mortgage strategies interesting).

For faster earnings: I would try to get paid to write articles for other companies/outlets on a 'per article' basis. This might be the fastest way to get paid since there's no need to build an audience – just prove you know what you're talking about and write something interesting.

Another option is reaching out to tons of small businesses who might need someone to do their social media (posting/promotion/etc). And although that's not my idea of fun, it wouldn't be that hard to do and build a portfolio of clients one at a time.

In general, I reckon the fastest way for someone to use the internet to make money is to either have a real-life business that they can make content around to get more customers/clients, or be intelligent enough on a subject to be able to do coaching/teaching/mentorship around that area of knowledge.

Simply making standalone content like I’ve done and then trying to monetise it is probably the hardest and slowest way to make money online. I’m sure with time I could think of more ideas I might try (faceless YouTube channel perhaps), but those are my initial thoughts.

Capital gains payouts

Q: I just received my annual tax statement for my NDQ shares and there's a large component called "Total current year capital gains.” Do I have to pay tax on this amount? I haven't sold any shares, just accumulated. I'm confused by this and it makes me question my investment in NDQ if I'm going to have to pay multiple thousands in CGT each year just for holding these shares.

A: Without seeing the statement and your returns it's hard for me to say exactly what that means. Basically, the total amount you have to pay tax on will be the total distributions that were paid out by NDQ. This may include dividends as well as capital gains, if there was turnover inside the fund (buying/selling of stocks).

From Betashares website it looks like NDQ paid out around $0.94 per unit in distributions for the year. That's relatively low (around 2%), so certainly nothing to worry about.

That's what you'll need to pay tax on, and it may be at a discounted rate if it's classed as long-term gains, which the statement will account for. Tax is simply part of the game as an investor, and in this case, the outcome seems quite favourable.

Final thoughts

I hope you enjoyed this Q&A session, and these answers gave you food for thought.

Remember, if you have a question on a topic you’d like some more information on, feel free to post it on the Pearler Exchange. They’ll be answered by fellow investors in the community – like myself, someone more knowledgeable, or one of the Pearler team.

You can also post a question down in the comments selection and we’ll cover it in a future Q&A article.

Until next time, happy long-term investing!

Dave