What you will learn
- When to save money in your business
- When to reinvest in your business
- When to take money out and spend it on yourself
- When to take money out and invest it personally
Saving money in your business
It is safe for businesses to save around 6 months of fixed expenses to ensure they can keep running during tough times. The first profit you make should be allocated to that to ensure you can keep on making money.
Also make sure you save for tax bills. Way too many people get caught with that and end up going bankrupt because they largely underestimate their tax bill.
Reinvest in your business
Reinvesting is essential if you want to grow your revenue. But one common mistake people make is spending on things that don’t move the needle for their business.
Things you should consider investing in should be:
- Content
- Growing your audience (PPC)
- Improving CRO
- Growing your team to get more done
Things you should avoid investing in:
- Unnecessary hardware
- Unnecessary hires
- Anything that involves showing off
Also remember. $1 saved is the equivalent of $2 earned.
Spending on your personal life
Make sure your lifestyle is comfortable and you are happy to keep going with what you have for a long time. If you burn out, this is the worst thing that can happen to your business.
Do things like
- Get your own place with nice work area
- Hire a cleaner
- Invest in yourself and learning
- Be smart with your vacations (go to south east asia and central europe etc)
- Buy a few things you’d never buy on a “normal” salary job to feel good about the work you do.
- Just because you can afford expensive watches and cars doesn’t mean it’s a smart thing to buy them.
Invest your personal income
Your business model will likely not exist in 20 – 30 years. Essentially what you do now should support you now and when you will be old.
We recommend you read the wealthy barber, listen to the Investors Podcast and Street Smarts by Jim Roger.
Also consider buying your own home to save money going down the drain on rent. You can usually get a mortgage if you put 20-30% down payment.
Full Transcript
Welcome to the Authority Hacker podcast, the place to learn field tested, no BS tactics to grow hack your online business, and finally, live life on your own terms. Now, your hosts, Gael and Mark.
Gael: Hey guys, welcome to the Authority Hacker podcast, Mark is with me today- how is it going Mark?
Mark: Hey, it’s going good, thanks.
Gael: I just wanted to take a second before we get started to just thank everyone that has been following the relaunch of the podcasts. This is actually the first podcast we record after the relaunch of the new podcast, and so far, we already have more downloads in 2016 than we had in 2014, for the whole year. And, at the time we are recording this, it’s the very early February, so in one month we blew up one full year of podcast downloads. Thank you everyone that reviewed us on iTunes, thank you guys for keeping listening, and we are going to keep that going, although the frequency is probably going to go down a little bit starting next month, you still have a little bit of fast paced podcast coming your way, for now. Today’s topic is going to be investing and reinvesting profits, what risk to take, and that is definitely a Mark’s topic, so I’ll be taking the back seat and asking questions. He is the guy that handles a lot of the money in the business for us, I am kind of like trying to find ways to make more money, and he finds ways to handle it. I’ll let you get started Mark, so let’s just talk about- you have an online business, you make some profit there, some money that is coming in and most people would just take it and bathe themselves in it, essentially replace their salaries, but like is that what you should do?
Mark: Ok, well there is many different options here, and I’ll go through this four basic ways to think about this at least, I am not going to tell you- each person listening to this has to decide what’s best in their situation, there is many things to consider, but I’ll go through the four main things here. The first thing to do is, first of all you need to start making money, which, hopefully if you are an Authority Hacker pro member and you’ve been listening to us, you’ve been working hard for a while, you are already doing that. If not, then start listening to this podcast now, and go listen to other ones about how to make money. You don’t need to waste your time learning what to do with it, until you’ve actually made it or you are starting to make some money.
Gael: And there goes our amazing download count for the podcast. [laugh]
Mark: Ok, so if you are still with us, you are making some money and you want to know what to do with it. The first thing to consider, I know it sounds a bit sort of like something your mother would say, because it actually is something my mother told me, is save it. And I am talking about your company, saves it. I assume most people doing this will be operating a corporate entity, limited company, something like that. So once you start making some money, you want to build up a bit of cash reserves. Call this a rainy day fund or something, but an ideal situation is that you have enough cash to support your business for six months, when you are making, if for the next six months you make zero profit.
Gael: Does that include paying yourself?
Mark: Yes. If you are paying yourself, then include that. And the reason for this is because in many industries, including this one, things can change a lot, Google can roll out some update or one of your big advertisers can go out business or something like that can easily happen. Make sure that you have some six months running costs saved up. Now, this is one of the reasons why you- and I’ll get into this in a little bit later, but why you want to be careful about wracking up too many costs, especially too many recurring costs, in your business, because this figure can then quickly sky rocket. As soon as you start adding expensive offices, and full time staff and all that to it, you’ll really start having quite high sort of monthly run rate.
Gael: When we had the agency like how much was that six months figure?
Mark: Ok, so I never actually told you this-
Gael: That’s why I am asking.
Mark: But in the end, there was maybe- we never had six months, for most of it, we had about between one and two months of cash. [laugh] Which is pretty bad. Now, the situation is a lot better though, so we are good on that front. But, this is, it wasn’t really a mistake, it was just we never really, we had too high costs for what we were making. Ok, six months it’s still quite a lot of time and just to elaborate on what we were just talking about, is that we ran an agency for four years, without doing that, so it’s possible, you don’t need to do this, it’s just a good sort of principle to have in the back of your mind that you don’t really need to, you shouldn’t really worry too much about what to do until you’ve built this up. Or, at least, it’s something you should always be sort of trying over the first couple of years, build up this sort of fund, and also with that make sure you take into account any future tax bills you have to pay and keep that all separate. It’s just basic sort of accounting practice there. So let’s assume you have that, and you are still making some more money, then what do you do with that? So, the three options are basically reinvest it in the business, withdraw it and invest it personally or spend the money, personally. So I’ll go through each of those now. And the first one, it would be reinvesting in the business. So, you make a profit and then you spend that profit as a business on something. The idea here is that you grow future revenue and you also grow the value of your company in the long run, so you spend money to make money, really.
Gael: Yeah, so if you resell it, like you get this money back, it’s like investing in real estate or something.
Mark: Everything you do with money what you make is an investment of sorts, even if you spend it, that’s investment also.
Gael: It’s a shitty investment usually.
Mark: Not always, but.
Gael: If you buy a bag of sweets it’s a pretty shitty investment.
Mark: Sure, I actually cover the good and bad ways to spend money.
Gael: I feel terrible.
Mark: Any money you make, as a business or as a person, anything you spend, think o fit as an investment, what it’s going to get you, for that, and when you reinvest in your business, it can rally lead to a lot more money further down the line, either in valuation or in future profit. Good examples of this are if you are running an authority site, and why not like hire people to automate it, and then start another authority site, or start two more. Or indeed, reinvest all the money in your current site and just grow it to be ten times a size.
Gael: Yeah, more content.
Mark: Yeah. The key thing here is you need to be quite careful about whether or not something is going to move the needle, and by that I mean, is it really going to make a big difference to what you are doing. And, something I’ve noticed with a lot of people in this industry is they spend a lot of time on doing things which don’t really move the needle, so when you just start a website and you have 500 visitors a month and you are making $20 a month, that’s not moving the needle, that’s going to make-
Gael: Zero money. It’s something that we see a lot, with a lot of people, like I see so many people in the Facebook groups and so on, they are like, “Oh my God, my site’s speed is only 84 on the Google thing,” it’s not like, it’s good by the way. And they just like spend two weeks improving the site’s speed buy expensive tools and pay monthly which increases their six months running costs and so on. While, all the while making like $50 a month is like what the hell are you thinking, like only worry about these kinds of things when you are in the five figures per month, don’t worry about this stuff.
Mark: Yeah, I think the reason why people do this, is because it’s quite easy, anything that’s very easily measurable and provides like a quick response to any action taken, seems to be preferred, so if you spend a week working on your site speeds, investing all these tools or whatever to do it, then you can, at the end of that week, you can measure your site speed immediately and say, “Ok, that’s improved, cool.” And that feels like you’ve made progress. Whereas if you invest in, if you spend 10,000 dollars on new content, then it’s a lot of work, but it’s not likely- it depends on your site, but it’s not likely that that’s going to provide you with the return, for maybe even like one or two or even three years.
Gael: Yeah, I am blaming online marketing blogs for that as well, it makes such a nice case study to show how you increase your site speed. And first of all you can make good at affiliate commissions and second of all, you can show all these fancy graphs and stuff and you can put these case studies really quickly together. Whereas, this kind of content investment stuff is really what brings the money, it takes forever, and usually when you do it you don’t really want to tell people, because you don’t want them to copy you, and so because of that, there are way more site speed and these kind of like quick wins and, you know, the stuff. People share it more, and talk about it more, and they are like, “Oh my god, why can’t I just do something in two hours and do better,” etc. And I really feel that all the stuff that makes money in this business is actually pretty boring, like formatting content and editing it and fixing the way you angle the presentation of your product is which is really not glamorous, and I tried to write a little bit about that on Authority Hacker but what we do, we definitely get like five times less shares than when we write about ten ways to speed up your site. And basically, this is the trap that most people fall in. Especially most people that don’t make money, fall in actually.
Mark: Ok, so when you are going to spend money on content, and this is a good example is if you look back, any content you’ve done over the last year or something, how do you attribute how much money one piece of content has made? There are some metrics you can look at, if you are running ads on the page you can see how much that’s made, but unless you have the world’s most sophisticated tracking system, which nobody does, it’s very unlikely that you are going to know exactly how much that one piece of content has generated when it comes to all the email subscribers, or getting to more sort of theoretical like, the brands, branding and how people are exposed to your name and that kind of stuff, you can’t measure all that. It’s just this thing that you sort of do it enough, and all these factors sort of start to multiply, and have a strong effect. When you look at one single piece of content, it’s very hard to say, but it’s very easy for us, when we look back at Health Ambition, there would be like three months when we were just doing a lot of content and some of it wasn’t even that good, or it wasn’t that keyword focused, or we made mistakes, but we did a lot, and there is definite sort of trends you can see further down the line and like- we had this sort of like peak of traffic or suddenly, like our Amazon revenue went all up that kind of thing. Think about what you are going to do to move the needle. The main things are contents, producing more content, growing your audience somehow, so that’s marketing your content, spending money on advertising or doing things like guest posting, if you are the guest posting blueprint that’s pretty good way to go about it. Improving your conversion optimization- again, you’ve got to be very careful with this one though, if you are making like five sales a week, you probably don’t want to be doing CRO analyses. But if you are making like a 1,000 sales a week, then improving that 10% is going to make a big difference. And also growing your team, so this is not like growing it so that you can sit and drink cocktails on the beach, it’s growing it so you, who I would think the you as a business owner, are like the most valuable person, your time is the most valuable person in the business, you have more time to actually spend on your business or on growing your site or launch other sites, that kind of stuff. So, that’s where you want to focus reinvestment. Where you don’t want to focus reinvestment, and I see this all the time, as soon as people start making good amount of money, they suddenly think that it’s Christmas, especially if they’ve never had much money before, they suddenly think it’s Christmas and they can just go crazy.
Gael: We’ve done that before.
Mark: Yeah, absolutely. And, I think most people who have run a business will kind of know what I am talking about here, so the thing to avoid here are unnecessary hardware; I remember back when we had our agency, we had I think it was about 10 or 15 people in the office at this point, and we needed to buy a lot of computers, so we bought desktop computers which had- we were like, “Oh, let’s get them all with graphics cards so we could play games after work.”
Gael: And nobody played games, like one person did.
Mark: And we bought like you know, these Logitec G series keyboards with the macro keys on the left hand side, as like people can be more efficient with those, I actually used them myself. Nobody else did. We were like, “Oh, let’s get gaming mice because we are more comfortable,” like again- these things- do not really matter so much. What I would say does make a difference, is getting some 24 inch monitor versus- yeah, or two monitors, that’s actually been proven pretty conclusive to that screen space and proves efficiency or productivity. So, focus, focus your efforts there. Unnecessary hires- so hiring people you don’t need at the moment, or hiring people in expectation of needing them in the future.
Gael: I think we can talk about this growth prediction, just before Google template actually.
Mark: Yes, so we had, we were making, I can’t even remember how much, it was like, it was really high five figures at one point, and we had almost a hundred clients doing SEO, and then this Google was it a penguin or a panda?
Gael: It was penguin that really killed us.
Mark: Yeah, you are right. So the first penguin update came along and we are doing this gray hat SEO for all our clients, and just almost every client just got like all the rankings tanked and it was just like ooooh.
Gael: Yeah, just before.
Mark: Yeah, we had just moved into this huge office, very expensive, signed a two year lease, spend all this money on some fancy business internet line and new computers, hired a bunch of new staff and suddenly, we didn’t really need most of that, and it was like, “oh, shit, this is very annoying.” But yeah, be careful about that, and this is another reason why if you listen to our podcast about hiring and outsourcing, you will hear that we are very much in favor of this sort of freelance model, these days. Because it just gives you a lot of flexibility in those situations, not that we haven’t experienced any sort of dramatic downshift, and things, since we started the Authority site model, I think that’s a lot more stable the way we are approaching it now, but yeah, something to be aware of. And the final thing here is, just because you have money, it doesn’t mean you need to show off, and like buy things which don’t contribute towards like the value, the proposition of your company or the ability to make money. There is dozens of examples, but just think of it like do you really need to buy that $2,000 couch in your office, or you know, the $5,000 coffee machine has wi-fi, probably not. So, yeah, just bare those things in mind.
Gael: Yeah, keep costs low, and you’re better off just giving cash to your employees they would be happier even if the office is shitty. Like, you know what I mean, it’s like if all this crazy stuff, I am thinking works because the startups have a lot of funding usually and that’s what we see on TV right?
Mark: Yeah, like you see Google office in Zurich Switzerland, they have meeting rooms in like gondola cars, which are a new office. You don’t need to do that, as a startup; Google do that because they make billions of dollars a year and it’s like, it makes into the news and it’s PR, you don’t need to do PR, right now. Unless you are working for a billion dollar startup, as you are listening to this in which case go ahead, and send us some photos, we’ll be happy to come and check them out. Ok, so the key thing is find the sweet spot between getting value for the money you spend, and that contributing towards you being able to make more money or grow the value of your company, and it can be in a long term, so you don’t need to make a return on this investment within like a year, or even two years, sometimes it can be further down the line. But just keep in mind that you need to- everything you are doing needs reinvesting to be moving the needle, and if it’s not it’s probably a waste of money. You will probably- if you are running a business for the first time you definitely make mistakes here, but that’s fine, just try and learn from those when you can and come back and listen to this in two or three years time, and you will probably say, “oh shit, I did all those things wrong.”
Gael: I was actually thinking about it, it’s like education in Europe is much cheaper than in US, right?
Mark: Yes.
Gael: And I was thinking that essentially, the cost of these mistakes is the cost of the student loan for most people, you know. It’s just a different way of learning, but you should compare the cost of these mistakes because they are like thousands of dollars every time especially when you mishire and etc. It’s like a student loan that you would pay for business school, you know.
Mark: Yeah, sure, I mean, when we just on the hiring point, I mean, Gael and I sat down once and actually kind of worked out how much money we wasted on hiring people that didn’t work out, and was it like a 150,000 dollars?
Gael: I think it was more than that, it was like 250,000 or something.
Mark: Right. It was a ludicrous figure, insane. So it was a very expensive lesson. Ok, cool, so we talked about reinvesting in your business, what to do, what not to do. Let’s talk about taking money out of your business and then what to do with it there. So, first of all, when you take money out of your business, you are going to get tax on it, so you are going to have to pay it depends on the country, but you probably already paid corporation tax in your profit, in most cases, and then you are going to have to pay some kind of personal income tax on any dividends or salary you are taking out of the company. So after you’ve done that, you then have two options: spend it, or invest it yourself. If you are spending it yourself, and bear in mind, just because I said in the previous section like you need to only spend money if you are in the “move the needle stuff”. Like, you can spend money on yourself, like you can and you should have a nice life and have a good time, like don’t feel you need to live in your Mum’s basement, for six years or anything like that-
Gael: So I can get out now?
Mark: Yeah. It’s absolutely ok to spend money on yourself, you just need to be, apply some similar logic to it and like think about what you are actually doing here, not just spend money because you have it. So, you know, a lot of this comes down to personal budgeting, like figure out what you need to live comfortably on, like how much money a month you need and you know, don’t be too conservative with that, like if you are the type of person that likes to go out and party at the weekends or go on some city breaks and this kind of stuff-
Gael: I have a question- how much was your partying budget monthly?
Mark: Actually not that much because we live in Budapest, yeah. I mean, let’s just work this out, so if I say the mot would be three nights a week times four, it’s twelve nights a month times what do you spend like, maybe 15,000?
Gael: Yeah, forints, not dollars guys.
Mark: 180,000 forints in US dollars, what’s that? It’s like 648 dollars.
Gael: OK. For most people it’s all right, yeah.
Mark: We live somewhere very cheap, so it’s cool.
Gael: I see it as just an example like, “Hey, if you want to enjoy your life, you can”, and that’s why I asked the question.
Mark: Oh yeah, for sure.
Gael: It’s like, that shows like even though we are quite conservative on business spends, you only have one life, at least I think and you should definitely enjoy it, you know.
Mark: With spending, you want to get the basics like the thing of Maslow’s Hierarchy of Needs, you know, you want to get your own place, somewhere nice to work, and your whole sort of surrounding set up quite nicely, so if you don’t have that much money, rent an apartment, obviously make sure you have somewhere nice to work, co-working space is quite affordable, and get a two bedroom apartment and work in a second room, that’s what I do. Things like hiring a cleaner, a lot of people I know are a bit aversed to this, it’s more for like a psychological reasons than anything, but again, this depends how much it costs to hire a cleaner where you are, if you are living in Asia or you are living in Eastern Europe, it’s like a few dollars an hour to hire someone, and my time is certainly worth way more than that, so like why would I bother cleaning.
Gael: Yeah, I think it’s also keeping your life kind of like motivating, all these things, all these kinds of services that you can pay for, it’s like fully motivated to wake up and know you won’t have to clean that also, and kind of like keeping these little pains of daily life away, is a motivation to keep things going and making money. So I think it’s cool actually, it’s like I mean personally, I spend all my cook and private trainer, and it’s like I would hate to lose that, so that kind of motivates me to keep working and also just like it feels awesome to like be taken care of, you know.
Mark: Yeah. So I mean, these are the very good examples of things that are worth investing in, because they save you a lot of time, where in the case of a personal trainer, they actually, when you are fit and healthy, you are actually able to work better and you know, you are more focused, you can sleep better at night, there is so many benefits to staying healthy, so you know, it’s totally worth it. And gym memberships are not that expensive where we live. Even when I was a poor student, I always had a gym membership, so I would always go for that. But the thing is like, don’t waste your money for a start, remember like your profits can go up and down so when times are good, that’s not an inclination that, “Oh, you should be spending lots of money,” that’s the point when you should be saving lots of money. And this is a classic, I think like New York lawyer situation at least from what I’ve heard, is that like when things are going up and up, lawyers can make really like a lot of money, and that’s when they move into the super expensive apartments, on the upper east side and all this stuff. And then, when things go down, suddenly they have all these expensive bills and things to maintain and they can’t afford it. So, that’s not really the way to think about it. I am not a multi billionaire, but any means- I am not even a millionaire-
Gael: What?!
Mark: Yet. But I’d like to think that even when that happens, I am not going to be an idiot with my money. And I see so many people doing stupid things, and it’s-
Gael: Give us an example.
Mark: All right, so a mate of ours, he spent $50,000 on a domain name, which is its surname, .com, and he is doing something with the site, sure, but I mean he could literally have just bought a $10 domain name and achieve the same thing. There is no reason to do it. So, I don’t know.
Gael: It’s like things that you could do for a lot cheaper but you kind of want to make it perfect and going from 90% perfect to 100% perfect, like move to place that is closer to 100, you know.
Mark: Most people who are rich, of course they need to make a lot of money, but they are rich because they use their money wisely, and they invest that money to make more money, not because they make so much money and then they can spend whatever they like kind of thing.
Gael: Really, that’s what I believed listening to Donald Trump the other day was.
[laugh]
Mark: I mean guys like Warren Buffet stuff, they are the richest people in the world, they sure they make a lot of money, but they are also smart with it and they don’t lose that much money. They don’t waste that much money, so consider that as well. And like, if you got examples of this, or like things that people often associate with like doing reasonably well, like going on expensive vacations-
Gael: Flying first class?
Mark: Yeah, flying business class, first class, like honestly, like you really don’t need to do that, premium economy, long haul is great. I am 6’4”, and it’s absolutely fine for me, there is not really much need to fly first class or business class use your frequent flyer miles to do that, by all means, but, like paying for it, sure, if you are making a million dollars a year, personally, then it may be worth it if you take a couple of trips, but you don’t need to spend money on that kind of thing, early on, and using AirBnB instead of hotels, going to cheaper places like go have a vacation on Thailand or Vietnam, rather than Maldives or Seychelles or Bora Bora, or something like that. And just think, if you had a normal salary job and you are making three, four, five thousand dollars a month, assuming you are living in Western Europe or US then would you really spend the money on this, or would you be a bit smarter with it? And just ask yourself that, whenever you are doing something, and you’ll probably get the right answer. Just to be clear, I am not saying like be a cheapskate by any means, I am just saying like be smart with your money. One more travel tip actually, in most airports you can actually pay like $20, or $30 to actually get in the first class lounge, and like drink as many free drinks as you want, use the wi-fi, do business, whatever you are doing. So, like a lot of these perks are not actually that amazing, you know.
Gael: Ok, let’s talk about investing the money, because we talked about lifestyle, etc.
Mark: Ok, last thing on spending money though is cars and watches, you don’t need those, sorry but like you don’t need the Lamborghini or Ferrari and you don’t need the Rolex watch. That’s just a way is in life.
Gael: But you need a bookshelf, like this guy on YouTube, you know. [laugh]
Mark: All right, so final point, investing money yourself. And, this could be a whole episode and so on, but just at a principle, like think o fit this way- your business model as it is now will likely not exist in 20 to 30 years time. So if you look back 20 to 30 years like what happened in 1986- how many authority sites were there in 1986- none. So, what do you think, how many authority sites will be in 2046? I mean, who knows, maybe it’s not that bad of an industry-
Gael: It’s a bit of a weird analogy, because if you look at how many phones there were and how many phones there is now, it’s like-
Mark: Sure, I’m just sort of illustrating the point, the things can and do change, business models can and do change, jobs, roles, everything is up for change, so don’t assume that you are just going to build the business in a few years and just do that exact same thing for the rest of your life, you can and there are companies that are hundreds of years old, and you can adapt and all that, but just bear in mind that you should diversify your income sources or your assets.
Gael: I think a good example for this is McDonald’s actually, so McDonald’s sales are dropping dramatically right now, and they are making- McDonald’s was a business case for like 30 years, it was like look at McDonald’s, and it’s like my business management teacher was like, “Yeah, if you want to write any essay just quote McDonald’s and you would be ok,” you know. And actually now, because of the healthy food consciousness and people understanding that eating crap will really destroy the end of their lives and so on. McDonald’s has to completely reshape what they are doing, and their sales are dropping a lot right now, and that is a good example of something that was a sure value not very long ago, and now it’s something that I would probably not put money on.
Mark: Yeah, so the things to consider here are that you need to, when you take money out of your business, don’t just put it into your current account, like do something with that that is going to generate you a return, and that you can then use that leverages and those assets in the in the future. So, there is a few good resources I want to recommend, one is a book called “The Wealthy Barber”-
Gael: We talked about it in the previous podcast.
Mark: Yeah. In the favorite books podcast we talked about that. There is another. there is a podcast, it’s called The Investor’s Podcast, it’s about value investing and investing in the stock market, and then there is a book called “Street Smarts” by one of my favorite authors Jim Rogers, it’s about sort of how to think about life and money and all these kind of stuff. So yeah, three very good resources.
Gael: What if you don’t read these books, what do I get out of it?
Mark: The main principles are when you are investing, you want to try and aim for something like a 6- 10% annual rate of return. 10% is quite high, 6% is quite achievable. Somewhere in the middle is probably about normal. And the things to look at- there is many ways to invest your money, you can invest in the stock market, you can invest in property, in real estate, you can invest in sort of alternative means like startups or kind of like micro loans, big coin, these new kind of things, although they are a lot more risky. But stick to what is true and tested, and the thing with investing, is that most people think of it as like you have to be a day trader, you have to know what you are doing, all that kind of stuff, you don’t really. If you take a long term view in things, I am not going to say it’s going to go up, but like if invest in the right thing, you are going to do ok. Investing is not about finding the next Apple before it’s the next Apple, I am talking about the computer company, you know. But it’s about finding thins which are under-priced, and you know, you think are worth more. So, good example is oil- right now, the oil price is really low, oil company shares, Shell, they are really low, and I think they are under-valued, because the oil price is going to go back up again, it’ like a boom bust cycle that it goes through every sort of few years. It wasn’t just a few years ago, people were talking about, “Oh, oil is going to hit $200 a barrel,” now people are like, “Oh it’s going to go as low as $20 a barrel.” As soon as you start hearing like all these people complaining or like hype things up in CNBC or in newspapers and stuff, that’s probably when the bubble is about to burst or when things are about to turn around, so that’s a really like quick example, and don’t go out there and buy a bunch of oil stocks right now.
Gael: How do you know it’s risk though, like this is like, I am busy building my authority sites, like I don’t really have time to follow all that stuff.
Mark: So there is two different ways, first you want to diversify your portfolio as much as possible, so if you invest 10% of it in oil, then invest 10% of it in like something completely different, so that if one industry tanks then you know, ok, it’s a loss but overall, things should balance out and you should generate like a nice return. So diversification is a key, you can also use like a mutual funds, so rather than investing in one company, which could you know, company can go bankrupt because of like some bad stuff is going on, invest in a fund and a fund is basically you will buy a share of that fund, and that fund will then invest the money and hundreds or dozens of different companies so they spread the risk that way, and you know, funds can be mismanaged and stuff, but that’s much rare that that happens, it’s a good way to diversify really. A lot of this is covered in the “Wealthy Barber” by the way and in The Investor’s Podcast, so if it’s something you are looking at, relate to it. Think long term, hold on to your money for a five, ten years in these things, you don’t need to get out in six months. Don’t invest in startups, so Silicon Valley, once you have a billion dollars, then by all means go invest in some startups but it’s not the way to make money, very few people got rich off of investing in startups. Of course, you will hear stories about people who put, a thousand dollars in and made millions, but that’s lie one in a million.
Gael: Yeah, we keep hearing the same stories, there is a reason for that..
Mark: Yeah. And don’t worry about getting in on the next big thing either, because that’s again, you need to be a very active investor to do that and being a passive investor, and sort of like thinking long term, living off of dividends and small gains is where is that really. But do your research properly before you get involved in this, but it’s not actually that difficult, once you have- I mean, most banks will have a share dealing interface. Once you sort of get verified in there, it’s really easy to trade just like buying something on Amazon. Simple. The next thing is real estate- a lot of people think it costs hundreds of thousands of dollars to invest in real estate, that’s true in most places, but you can normally quite easily get mortgage if you put down a sizable deposit, if you are going in there with the 20, 30% deposit, and you’ve been running your business for 3 years, then it should be very easy to get a mortgage on a property like so easy, if you can only front 10% deposit, then it may be a bit more difficult. But buying your own home is huge because basically every, all the money you pay o rent, you are just paying off someone else’s mortgage, like I’ve lived in this apartment for four and a half years, and I think I paid something like 30% of the guy’s mortgage-
Gael: Good job.
Mark: Yeah, so I could have-
Gael: And you are now giving financial advice.
Mark: Don’t do what I say. But it’s crazy, I’m looking to buy a place, right now actually, but it’s like it’s crazy to think if you are, just how much money you are just throwing away, whereas if you are paying off your mortgage each month, which would be roughly the same as your rent, then you are ok, sure you have that monthly expenditure, but you then own the place at the end and you can sell it.
Gael: Yeah, and even if you can’t finish you can just resell it before you, like if you want to get out, you just resell it and then still basically get the money back for the rents you paid.
Mark: Exactly, so you are much better off in a vast majority of cases buying. There are some situations with rents that are better, again, this is covered quite well in the Wealthy Barber. And the final thing is there is a lot of sort of weird and wonderful and new investment options, things at bitcoin, I know a lot of people that got in on that, just because it became popular, and again, it’s one of these things, as soon as it starts appearing in all the newspapers that are, oh yeah bitcoin is going up, bitcoin, bitcoin, bitcoin, that’s when you know there is a bubble, stay clear of it then, all these people that bought it for $700 a bitcoin, like I am sorry but you are an idiot.
Gael: And there goes our download curve.
Mark: Yeah. I hold some bitcoin right now, I bought them in like $200 or something, and I think the, I am planning on keeping them for five or ten years, and see what happens. It’s not like a short term investment for me. Not very much by the way, I think I have like 3 bitcoins or something. And then, there is another one which I’ve been exploring quite a lot lately, and this is peer to peer landing, this is a concept which is good because it’s quite tried and tested already. The premise is basically it’s like a peer to peer system where a bunch of people who have money lend small amounts to bunch of people who want money for stuff. And it’s not as if you are lending- like let’s say you invest $1,000, you are not going give that all to one person, you can split it up among 100 people, so each loan, you are diversifying your risk, some of the loans will go bad but you can make like 7, 8 % on these quite easily, and they have especially in the US there is a lot of sites that do this, I use funding circle, which is a UK based one.
Gael: Is that basically a way for individuals to offer payday loans?
Mark: No. So it’s not a payday loan, it’s usually there has to be like a business case so it’s usually you lend it to a business, and they’ll maybe like have been running a successful business for four years and want to like open a new restaurant or open a new shop or whatever, like it’s usually an expansion or it’s something to do with property investment. And a good thing about property investment is when you take a loan you can often, people will often secure the loan against the property, so that you know if the default and the loan you can still get some recovery out of the property, the platforms which handle all of this, they deal with all of that, so I’ve had like three loans go bad in the last year, which was like a very small percentage of the number, and there has been like I think you got like half of that back in recovery so… And the estimated return after all the bad debts and stuff was 7% for last year, which is pretty good. So, you it’s sure keeping your money in the bank anyway. Which isn’t doing anyone any favors.
Gael: I can agree with that.
Mark: Ok, so that’s pretty much it, that’s quite a long one-
Gael: Yeah, it was a very long one, it’s like it’s not directly related to Authority sites because essentially it can be as any profit, but a lot of people start making money with their sites and they don’t know what to do with it, and how to split it up etc, which is something that Mark and I have been thinking about a lot lately, because we are doing pretty well lately, and that’s basically it, so I hope this was helpful to you guys and I will see you guys in the next episode, have a good day. Bye!
