It’s early Saturday morning and I’m in my favourite café when the couple next meet to me ask what I’m doing?
“I’m drawing a cowtoon for my Moowsletter”
“You’re what?!” The lady asks.
After I explained to her that I was a financial planner and not a farmer (even though I probably looked like it), her eyes lit up.
“Oh wow! Can we ask you a question please?”
Short story goes like this.
They’re in their mid-sixties and they’d like to retire in two years. They have ‘X’ amount sitting in super and they’ve have also worked out they will probably live for another twenty years when they retire.
So, what they thought they’d do is divide their super up by the number of years they have to live and fund their retirement that way.
“That’s our plan. What do you think?” she asks
“Hmmm…if you feel comfortable doing that, then go ahead. But it’s not the approach I would take”. I said.
Keen to understand what I meant, I told them their strategy is what I call…
The Zero Cows Theory
It goes like this.
Let’s assume your super is made up of 100 cows and you believe you will live another twenty years. This means you will sell off 5 cows a year to fund your retirement and eventually finish up with zero cows.
The Zero Cows approach has two disadvantages
I. What happens if you outlive your cows?
II. What happens if the price of cows drops when you want/need to sell them?
At that point, the wife said they were going to leave all their money in the bank where it’s ‘safe’.
I asked her what interest rate she thought she would get, and she said, “Around 2%”.
I explained to both of them that cash is the worst investment right now.
Meaning, if term deposit rates are 2% and inflation is at 2.5%, that means you’ve got growth of -0.5% pa. I.e. you’re going backwards.
Understandably, they didn’t like what I was saying. And then they asked if we would get another interest rate cut or two.
“Most likely”, I said
The Solution
With a disappointed look on their faces, they wanted to know what I thought they should do.
“In my opinion, you need a retirement strategy made up of cows you can milk so you can live off the income. Don’t eat your cows!”
That seemed to resonate with them.
The reality is, interest rates will remain low for some time. And because of that, asset prices are being pushed up again, but it won’t last.
Asset process will correct and with that will come the chance to buy some very good cows at lower prices with excellent yields (income).
If you want proof, just have a look at the price of gold recently. During the week, gold reached its highest levels in 6 years.
Gold generally has an ‘inverse relationship’ with the stock market. Meaning, when a market correction is imminent, gold usually goes up.
That said, gold has also had a few false starts in the last 5 years as well. But, this time I thinks its different.
As discussed in my last Moowsletter, ‘What If Your Child Looked Like The Economy’, another interest rate cut is not a healthy sign. And I think the recent run in gold is testament to that.
Don’t eat your cows. Leave you money in cash for the time being because as sure as god made little pink pigs, the chance will come very soon to buy a herd (portfolio) of great milkers that will serve you for life.
The cowtoon I was drawing in the café will be out very shortly. It’s not this one!
Warning: This Moowsletter may not be for you. If you get a little starry-eyed every time you glance at that gold band wrapped around your finger…look away now. I’m about to wipe the lust out of your peepers. (No hard feelings.) Here’s the unpolished truth about gold… If you bought $1 worth of gold 100 years …
Retirement should be a time to enjoy life, not stress over finances. A well-thought-out retirement plan ensures you can live comfortably, pursue your passions, and handle unexpected expenses without worry. The earlier you start planning, the smoother the journey will be. Let’s break it down into simple, actionable steps to help you create a retirement …
Continue reading “How to Plan for Retirement: Your Roadmap to Financial Freedom”
It’s Tuesday lunch, and all morning the markets have been drowning in a sea of red thanks to Trump’s tariffs. Investors are freaking out. But as my RM’s hit the pavement for my midday walk, I get this deep, unshakeable, hunch… “What if?” This is why my tummy turned… A month ago when Trump first …
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