Pete Wargent, author of ‘Get a Financial Grip’, kindly agreed to answer some questions for mypropertyjourney.com on his new book about achieving financial freedom.

If you haven’t already done so you can read my review here – ‘Get a Financial Grip’ – Must read book of 2012.

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1)  You wrote “Get a Financial Grip” whilst you were travelling around the world. Can you tell me what compelled you to do so? Was it on a whim or something you had been thinking about for some time?

Firstly, I have come to realise that we should do what we are passionate about, and for me, that means writing and investing.  I’m always writing anyway, be it letters, emails, postcards, my Blog, magazine articles…so it seemed a logical extension to write a book.

Secondly, I felt that there was a significant gap in the finance and investment market for a book like mine.  There are plenty of finance titles on the shelves but I felt that there was a genuine need for a comprehensive personal finance and investment book that is specific to Australia and to 2012 (and the current economic environment).

Thirdly, I was always saying to my wife that I could write a better book than the ones currently available, so I felt that I should put up or shut up.  Hopefully, I’ve achieved what I set out to do.  Writing a book was not something that I had necessarily planned to do, but I found that while travelling, I had plenty of spare time, so it seemed like a great opportunity.

2) I find it interesting that you poke fun at some of the more well-known wealth “gurus.” What do you think sets you (and this book in particular) apart from those that are as equally, if not more, successful than you are.

I should say that while I might be critical of some other writing, I never do so purely to undermine the viewpoints of others.  It’s a simple fact of life that we don’t all agree on the best strategies – it would be a very boring world if we all agreed on everything.  Writing a book myself has certainly given me a new insight into just how much work is involved in writing a text, finding a publisher, editing and re-editing an edition for release.

That said, I do have an issue with a number of books that are written in America for American investors but sold in Australia without any adaptation.  It’s a small wonder that many become confused over the best course of action when the advice out there is often conflicting.  Australia has different demographics, industries, economic trends and taxation law from the USA, yet we are frequently sold information that is written for another jurisdiction.  At best this is confusing; at worst, it is downright misleading.

Unlike a large percentage of finance authors, I have several top financial qualifications – plenty have none at all – and I’ve backed that up with a sound track record of investment.  Perhaps more importantly, having worked in the finance industry for nearly a decade-and-a-half, this has afforded me the experience to know which viewpoints to place a great deal of importance on, and which viewpoints to place less value on.  The internet has given a mouthpiece to the masses and if you believed everything you read you would probably believe that the sky was falling, and you would almost certainly never invest.

A good case in point was during the US debt crisis of the second half of 2011.  There was panic and a lot of scaremongering talk of a double dip recession and the coming stock market meltdown.  I stayed invested throughout because I placed more value on the views of some (e.g. Buffett) than others.

As to what sets the content of my book apart from others – my book is a comprehensive, Australia-specific financial plan that considers all asset classes and which of those are likely to take you to a goal of financial freedom.  While some asset classes are more suitable than others, I believe a balanced portfolio of shares, funds and property can get you to your goals quickly enough.

I’ve read plenty of investment strategy books that read like University theses covering every conceivable facet of investment theory – and it’s not uncommon to come away more confused than you were before picking up the book.  My book avoids this trap, instead being presented in a simple, direct and logical fashion, and concluding with a specific plan for achieving financial freedom in Australia.

I also accept that there are very few ‘new’ ideas in the investment arena – what I have done is bring together ideas from a very large range of sources (which I have referenced) to bring you just one book that can lead you on the path to financial success.

3) What was the turning point for you when you decided you were going to concentrate on accumulating wealth rather than labouring through the regular “9-5” that most Australians are accustomed too? Was there a particular light bulb moment?

The major turning point for me was when I first met and got to know my wife through work at the accounting firm, Deloitte.  Although we weren’t seeing each other at the time, we worked together a lot.  The hours were tough (if it was just ‘9-5’ that would have been OK!) and the work was intense, but we were well compensated, both being top-bracket taxpayers at the time.

The first ‘light-bulb’ moment for me was when Heather and I discussed our plans for the future.  I was focussed on my likely career path, while Heather had far less interest in the corporate ladder, instead planning to move on and follow her own interests.

When we talked about our own personal finances, the difference in what we had achieved was almost laughable.  Heather had bought her first house at 21 and paid off a huge chunk of the mortgage.  She’d also been very sensibly investing a balance in ISA’s, shares and index funds every month for years.  I, on the other hand, partied a lot, had a student debt and some cash in the bank.  I was absolutely nowhere by comparison.

The second ‘light-bulb’ moment for me came when Heather bought me a couple of finance books about the merits of investing in shares and property.  Looking back, she had obviously realised that I needed a nudge in the right direction.  From that very day forward I have read voraciously anything and everything related to wealth creation and investment I can get my hands on from the library, the bookstores and the internet.  All the information we need to take control of our finances is out there, we just need to go out and find it!

4) What was your very first investment? Why did you choose it? Was it successful?

Being brought up in England, many of us who had building society accounts were issued with shares so I had some shareholdings when I was very young, but, to be frank, I didn’t take an awful lot of interest in them.  I probably cashed them in for a holiday, most likely, as a lot of young people did!  I couldn’t even tell you if they had gone up or down in value post-issue.  Now I think about it, I also had a Post Office Savings account that probably ended up getting spent the same way.

I started out conservatively in ‘real’ share investing and the first shares I bought included a portfolio of blue chips like BHP Billiton and Commonwealth Bank, which performed solidly if not spectacularly.  I was rather green so I wanted to pick relatively safe stocks.  I also picked a portfolio of 12 stocks, which gives a fair indication of my level of confidence in the individual selections, which was fairly low.

With respect to properties, although my wife had invested before, my own first investment properties were in Sydney, where I bought several investment units in the Eastern Suburbs, the inner west and on the harbourside at Pyrmont.  They have performed very well over the years.

5) What is the biggest investing mistake you have made and what did you learn from it?

Without question, the biggest mistake I made in investing was not starting when I was 18, because, unlike my wife, I missed out on the longest UK property bull market imaginable!  I probably couldn’t have afforded to buy anything too expensive back then, but I wish I had at least tried.  Investing just was not on my radar then, I was only interested in playing sport, socialising and the other distractions of being a young bloke.

With regards to the investments I have made, having never sold a property and mainly being a buy-and-hold investor in shares and index funds, I’m glad to say that I haven’t to date made a significant financial loss.  At times, my dabbling in speculative shares has been a little too cavalier, but I’m glad to say I haven’t been badly burned by that.

6) Do you have a vision board? If so what is on it? How have your goals/desires changed since you first started investing?

I do actually!  Absolutely my goals have changed over time, too.  When I first did the exercise many years ago, two of the things I included on the list were a photo of a Ferrari and one of an enormous beach-side mansion.  The funny thing is that now I have a portfolio of shares and funds that I could cash in to spend on a flash car, I have absolutely no desire to do so!  I just couldn’t bring myself to part with that much cash, especially with the insurance and ongoing costs of owning another sports car (we have one convertible already, and we don’t even use that very much).  I’d far rather reinvest gains in other investments now.

More recently, I put together a new list of goals and I’m glad to say that there was no Ferrari on the list.  My attitude towards extravagant spending is very different to how it was in my early twenties.  My wife and I are really keen on buying a house in the north of England as a place to go and visit each year.  Although we’ve lived in Australia for years, our families still live in England and we want to spend more time with them.  So that is one thing on my list for the next few years.  We’d also like to buy a house as a place of residence in Sydney at some point.  Having been travelling for 18 months, we have nowhere to return to at the moment, so will probably be staying in a serviced apartment for a while yet!

From an investment perspective, our goals are fairly straightforward – to keep building our share/equities portfolio and keep acquiring investment properties in areas with strong population growth.

7) How much do you believe attitude plays a part in wealth creation? Do you think that ANYONE can become wealthy as long as they have the right attitude or does circumstance play a part in it as well?

I certainly believe that attitude is the most important aspect of wealth creation.  With the wrong attitude, failure is virtually guaranteed.  Investors with the right mindset, on the other hand, will almost always be successful.  Circumstance must surely play a part, but in wealth creation as in life, the way we respond to events is often far more important than the actual events themselves.

8) Warren Buffett has a buy and hold strategy when it comes to shares otherwise known as value investing. With properties you can use the equity to reinvest or create a line of credit to cover living expenses. How does this work when it comes to shares? Is it the same? How does it differ?

Using leverage to invest in property has been a very effective wealth creation strategy over the decades.   It is also possible to use leverage to invest in shares, either through the use of options, trading CFD’s or through the use of margin loans.

Taking on large loans to invest in shares can be, in my opinion, a dangerous strategy – as in recent years the collapse of some of the most renowned investment vehicles demonstrated.  Margin loans can help to magnify gains in shares during bull markets, but when values fall, leveraged investors may be subjected to margin calls whereby some of the shares may have to be sold or extra cash injected.  This can result in investors abandoning their strategy when prices are low, which obviously is not a great outcome.

Margin loans can be particularly troublesome in a sideways moving market too.  How long should a leveraged investor (who is being charged, say, 9% interest on the loan) hold on to a leveraged share investment that is not moving in value?  It becomes a very difficult choice.  The finest investors are often those with the clearest heads – margin loans can cloud the thought processes and the measurement of results becomes more difficult.

Over time, I have come to realise that margin loans can be as much a hindrance as they are a help.  Buffett himself said that if you are smart you shouldn’t need leverage to invest in shares…and if you are dumb, you definitely shouldn’t use it!  Another analogy Buffett used was that you only find out who is swimming naked when the tide goes out.

A better strategy for share investing might be to continue to build your share portfolio when values are relatively cheap, and to invest in companies that make healthy profits and pay strong dividends.  You can then opt to take the dividends as cash for living expenses or reinvest the dividends through a company’s dividend reinvestment plan (DRP).

9) Do you plan to sell any of your properties to pay down the debt on your portfolio and use rent as a form of passive income or are you content with continuing to invest and accumulate more properties?

At the moment, being in my mid-thirties, I am still accumulating properties.  I have a mixture of interest only loans and principal and interest loans, so I am reducing the debt on a number of my properties as I go along.  I may well look at selling properties down the track to repay some debt, but not just at the moment.

10) What attracts you to buying units? A lot of real estate experts state that the actual value of a property is in the dirt underneath it, not in the property itself and that the larger the lands content the more value there is in the property. Do you think this is still true in today’s market?

Good question.  The idea that land appreciates and that buildings depreciate is a neat one, and it does have some merit.  However, if you think about the replacement cost of a building, it is not necessarily true that the building depreciates (think of how may beautiful Federation homes were built for just a few thousand dollars, for example).

Another consideration is whether the small area of land under a prime location unit may appreciate more than a large block of land located in a more remote location.  There are many thousands of acres of land in Australia with almost no value attached at all, so all land is not created equal.

Ultimately, what drives property values is supply and demand.  Houses have been a superior investment in decades gone by, but the affordability of houses has become a major issue in our capital cities, and this has seen a move towards units for the younger generations.

Units tend to generate stronger rental yields – a plus for investors – and the average household size has decreased over recent years.  Personally, I believe that one and two bedroom units located in great suburbs and near to transport links will be outstanding performers over the next three decades, which is the time horizon I consider when buying an investment property.

Of course, houses are in strong demand in some areas too, and houses can also represent a great investment.  Other strategies that can be successful with houses include renovations, subdivision and land banking – or even obtaining approval to demolish and build blocks of units.  It’s not a case of “one size fits all” when it comes to property investment.

11) Negative gearing is often compared to a failing business i.e. Why would you invest in a property that takes money out of your pocket every week? Do you think it is wise to have some negative geared and some cash flow positive properties? Or do you focus purely on the expected capital growth? It’s often a double edged sword!

When I first started investing in Australia, my wife and I were both earning high salaries and paying heck of a lot in tax, so we didn’t consider the rental yield of the properties we bought to be the most important consideration.  Obviously losing money on an investment is never a good thing, but the tax we saved was welcome.  Our primary focus was on capital growth, for simple mathematics dictates that it is capital growth that creates wealth for property investors.

However, when we left our full time jobs, an interest shift did occur, and that was that we began to see our positive cash-flow properties as golden investments that needed little or no attention from us – whereas those that were negatively geared suddenly became more of a pain to service.

Now we consider the cash flow of a property to be of more importance to us.  As we also invest in England (where interest rates have been stuck at just 0.5% for three years now) the strong positive cash flow on our UK properties neatly offsets the outflow on our negatively geared properties in Australia.

Positive cash flow is a great thing and something that ultimately all property investors should aspire to.  However, I don’t mind taking some moderate cash-flow losses in the early years of property ownership as rents tend to increase over time with inflation.

My wife often cites the example of a property she bought in 1997 that was negatively geared at the time – today the rental income is well over double the mortgage and she has refinanced the property three times to date!  So do remember that a negatively geared property need not remain negatively geared forever.

12) Will you be buying property in 2012 and if so where will you be focusing your attention?

My plan for 2012 is to buy one property in Australia and one in England.  For Australia, I will be looking at Newcastle, NSW.  I don’t normally buy outside of Australian capital cities but I do really like Newcastle.  In England, the major property shortages are forecast to be most acute in the south-east so I will be looking at London, or the surrounds of London.

13) People often refer to investors as risk takers; however from all reports your accumulation of wealth to date, for the most part, has been through patience, diligence and resourcefulness. Would you say that the wealthy are often misconstrued? Do you think the media plays a large part in this misconception?

It is true that investing usually involves some risk.  However, if you take a look at the average superannuation balances in Australia, you might argue the biggest risk of all lies in not investing.  The majority of Aussies who live to retirement age end up drawing some or all of the Age Pension allowance.  If you live to be 65, you might expect to live for a further 20 years in retirement today, which is far too long for the average pension balance to cope with.

Personally, I have a long-term inflation bias, and I feel that it is important to invest in asset classes that represent an inflation hedge.  Piling up money in a bank account is not necessarily smart.  Inflation in Australia has until recently been hovering around the high end of the Reserve Bank’s target range of 2-3%, while inflation in the UK is tearing along at well above 4% (with more quantitative easing likely to be on the way).  This is particularly harsh on net savers and pensioners, who find that their funds are worth less with every passing year.

While investing does tend to involve risk, taking a longer term view reduces the risk of financial loss significantly.  I mentioned that I look on property as a 30 year investment.  The same principle applies to share investing.  If you buy a share with the intention of selling it tomorrow your odds are no better than a coin flip (in fact, they are worse if you take in to account transaction costs).  On the other hand, if you acquire shares in outstanding companies when they are trading at cheap values and plan to hold for the long term, the risk is reduced very significantly.

Are the wealthy misconstrued?  To some extent, yes.  Some wealthy people are greedy, but then, so are some poor people.  In Britain, there is an awful lot of media debate at the moment about the scrapping of the 50% income tax rate and a proposed ‘tycoon tax’.  I don’t think it’s easy to generalise, but it is worth nothing that for every greedy ‘tycoon’, there are others who donate generously to charities.

14) One thing I took away immediately from your book was to constantly keep investing as much as you can. As we know the value of cash is decreasing every year, however people seem to either forget this or are ignorant to the fact completely. Why do you think people are so averse to investing their money, even in safer options such as index funds?

A number of reasons spring to mind.  There are those who believe it is risky, but I think the prime reason is one of mindset.  Many of us are brought up to believe that getting the highest paid job we can is the route to wealth and success.  But while getting paid more is useful, if we don’t invest the money, half of it goes to the taxman and the other half is spent on lifestyle expenditure and consumer goods.  It is very, very difficult to save your way to wealth.

People give all kinds of reasons for not investing.  Here are some of them:

• Don’t have time
• Can’t afford it
• Too young – I’ll invest later
• Doing fine without investing
• Don’t understand investments
• Investing is too risky

For each of these points, though, there is a corresponding and obvious rebut.  Our financial education often starts with our parents’ attitude to money.  If you are from a family where your parents never invested, perhaps it will follow that you won’t too.  Unfortunately, while many of the Baby Boomer generation had defined benefit pension schemes, for most of us in Generation X and Generation Y we are responsible for our retirement balances, and therefore investment for the future is very important.

15) Why do you think the average Australian is so negative to the idea of a young person striving to be in a position to retire by 40? Is it jealousy or is there a genuine belief among people that wealth is unattainable?

Jealousy plays a very significant part, I think.  Human nature dictates that we often don’t like to see people taking a different path to our own, particularly if it proves to be a successful one, for this challenges our own beliefs.

An interesting statistic is that migrants to developed countries are significantly more likely to be millionaires than the average person.  Why is that?  We can’t be 100% sure, but I believe this is because migrants are less inclined to worry about what their peers say about them, are not daunted by taking a different path and are far more concerned with delivering results than how they will be perceived by others.  Taking the safe route is easy – no individual lemming receives a bad press for following the others off the cliff, as they say.

As previously noted, too, there is a common belief that a high-paying job is the one true route to success.  In Australia, we certainly seem to have a less entrepreneurial mindset than our American counterparts.  People relate status to their job titles and ‘what they do’.  There also appears to be an in-built mindset for most of us that dictates that we should be working in full-time employment until around the retirement age.

It can be quite confusing and disconcerting for young high-flyers who have all the conspicuous signs of ‘wealth’ – two new financed cars, a big house, expensive holidays – when those whom they felt were inferior to them from an earnings perspective proceed to grow a large portfolio of appreciating assets and are able to contemplate life away from the rat race of full-time employment.  They may have always felt that their high-paid jobs automatically made them successful, and yet, if it is not invested the salary gets spent on depreciating assets which ultimately destroy wealth.

16) What is next for Pete Wargent? If you could crystal ball the next 10 years what would you see?

I’ll definitely always continue writing, for that is what I love doing.  I’m currently working on a second book and I’d like to write more magazine and press articles going forward.  In terms of other income, I’m not exactly sure what I will do for the next 10 years.  I don’t plan on returning to full-time employment, but I also don’t think it is smart to sacrifice our peak earning years completely.

I’m currently studying for a Property Buyers Agent licence, which I hope to finish in the next month or so.  I don’t yet know if I will do much in the way of Buyers Agency work, but I definitely feel that I have a lot to offer as an educator in the personal finance and investment sphere.   Whether or not I’ll do more accounting work, I’m not sure about that – perhaps I’d consider doing some a short-term contract if the right role came along.  Overall, I will continue to build my network of contacts, raise my profile and assess what opportunities come along – it is exciting to me to not know exactly what the future holds.

As I mentioned before, my wife and I are keen to spend a bit more time in England going forward, something we haven’t done enough of for the last 7 years or so.  So we’d definitely like to split our time a bit more between the UK and Australia if we can manage that.  Travel is obviously something that is important to me too.  I’d like to spend some more time in India at some point.

Finally, I’m really keen on the idea of setting up a charitable foundation over the coming years.  Since I quit my job, I’ve become far more interested in charity work, my wife and I having spent some very rewarding time working for BlazeAid up in Queensland, clearing up the devastating effects of Cyclone Yasi.  Cancer research is a charity that is particularly important to me for personal reasons, and I’m donating 10% of my proceeds from the sale of my book to Glenn McGrath’s charity, The McGrath Foundation (for breast cancer research and support).

17) And last but not least, if you could offer one piece of advice to young investors starting out what would it be?

Start learning TODAY and never, ever, ever stop!

To pre-order your copy of “Get a Financial Grip” please visit Blue Sky Publishing otherwise you can find more information about Pete and his book at his blog Escape the Rat Race.

Emma