image of financial maturity the awakening

Financial Maturity – The Awakening

The Awakening – Financial Maturity

As information technology has advanced, so has Financial Maturity in developed countries. The ability of individuals to learn and have the tools to take control of their financial futures has grown exponentially over the last decade.

I’m not talking about, like some, the ability to have a “healthy relationship with money” with a capability to budget, save and accumulate assets.  I’m talking about the want and need to assume responsibility for one’s future income and retirement planning.  Not just that, but the ability to plan around our beliefs and values. So, whether we have deeply personal ideas around Socially responsible, Environmentally responsible or even Religious responsible investing.  The information is out there to help customize our investment portfolio.

The Dangers as Financial Maturity grows

The danger to this over the last decade has been information overload! So many self-proclaimed guru’s spending BIG advertising budgets on Google, Facebook, Twitter and more.  “Selling the Dream” of Financial Security and Financial Independence has made these guru’s rich without doing any investing or portfolio building themselves! 

The internet has proven to be “The Place to go” to investigate and learn BUT also the place to go to Dream of what we could achieve in life.  We are only human after all! Therefore, the source of our Financial Awakening could also be the source of our Financial ruin if we are not careful.

But I believe part of our growing Financial Maturity comes from the ability to filter out the crap on the internet.

Essential Investment in Financial Maturity

The most important investment in our Financial Awakening must be “To Learn”!

That is an obvious statement, but what do we need to learn and understand, apart from filtering out the Bull…t guru’s and media hype from News outlets like CNBC?

It would be great for me right now to put down a list of the best books, websites, Investing software, newsletters etc. But I’m not going to do that because although I have great success, I will never class myself as a “Guru” because I am continually learning.

Instead I want to briefly discuss what’s happened over the last decade and what the next decade has in store for the awakened.  I want to help give you that first step in learning how to take control of your financial future and move towards Financial Maturity. In other words, taking responsibility and becoming your own fund manager.

The Last Decade

Keeping the risk of losing our money as low as possible, has always been the driving force with us humans. All the way back when we hid money in our straw mattress’. Mutual funds provided that safety and we were sold the idea of large fee’s because they had professional traders looking after your money.

You got to imagine the average Mom-and-Pop investor getting mediocre returns whilst paying high fee’s causing frustration. Not forgetting the Collapse of Lehman Brothers in September 2008, the so-called professionals. Then as these same investors were able to access more information on the internet, their frustration boiled over with these mutual funds and they started to leave in droves.

But where did they go?

Well the majority sat on cash for a while whilst trying to figure out for themselves what would be best for their cash and financial future.  This is most probably the starting point of real Financial Awakening in our society. The time at which people wanted to take control and the information was available for them to start that journey. Timing is everything:

Massive financial crash + Massive growth of information highway = Financial Awakening

Remember our primal instinct to keep the risk low? Well ETFs (Exchange Trade Funds) that were first released in 1990 suddenly became much more popular in the last decade, as they were low cost. In 2010, approximately $1 Trillion was invested in ETFs and as we approach 2020 it is now close to $4 Trillion.

Over the last decade the ETF industry has matured, and the diversity of offerings has become immense and includes passive and actively managed ETFs.  This maturity, I believe, has been led by the retail investor’s thirst for more control and better products.

The Next Decade

I believe by the end of the next decade mutual funds will be for the super-rich who are lazy and just want someone to look after their wealth, so a small percentage! This will make them less effective and they may even be extinct if the super-rich start their financial awakening.

I am pretty sure that ETF assets will surpass Mutual Fund Assets in the United States in the next decade.  Furthermore, as the ETF market matures even more, they will be allowed inclusion in 401k’s across the board. I already know many US citizens wanting to take control of their 401k and this will be the next stage in their financial awakening.  Financial Maturity doesn’t stop there, as not everyone has a 401k but they still want to build their own pension pot and will have access to the same information and desire to take control.  What will those financial vehicles look like for these self-invested fund managers I wonder?  The Self Invested Personal Pension (SIPP) from the United Kingdom model could be the way to go!

My Thoughts for the Next Decade

Over the last few years I have not just built my investment portfolio around ETFs.  I have taken it one step further.  I have looked at high growth stocks within these ETFs for different sectors and invested in them individually.  So, I have gone from Passive to Actively managing my portfolio more aggressively.  What do I mean?

For Example:

I have three positions in AAPL at $149.26, $165.15 and $167.59 – giving an average holding price of $160.24.  At the time of writing this article the closing price of AAPL was $300.35!  So, for instance, if I invested $1000 each time on 3 occasions, my $3000 would be now worth $5623. A great 87.24% return in the last 2 years.

image of AAPL chart for investing with financial maturity

AAPL is a constituent of the XLK tech sector ETF which is near the all-time highs and is the driver, in my opinion, of this ETF.  I have 2 positions in XLK at $66.50 and $70.55. So, using the same analogy as above, $2000 invested would now be worth $2728. An impressive 36.4% Growth.

image of XLK chart for investing with financial maturity

Therefore, the ETF Element, XLK, reduces my risk by investing in lots of tech sector stocks but still has great returns, whist the Stocks element, AAPL, has higher risk but more than twice the return.

Take this up a notch and say for each purchase of the stock and ETF element was $10,000.  Then $50,000 invested 2 years ago would now be worth $83.510!

This a simple view as I have 14 ETFS and 24 Stocks in my Blend portfolio across many sectors, whilst actively managing them a couple of times a week. But I see this as the next level of Financial Maturity for Individual investors. Why am I confident this is achievable?  Because I have 10 individual investors in my closed inner circle group, who do this with me and have had found this next level of Financial awakening achievable.

Last Thoughts

The ability for Individual investors to build their own portfolio with a mixture of growth stocks and ETFs will see better wealth creation amongst a larger percentage of the population in developed countries. Taking time to learn and build a foundation of experience and knowledge will be the first and important part of this investment strategy. Financial Maturity, like any other maturity in life, is continuous. As investors we must be open to, and strive for, the next level of Financial Awakening.

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Paul Bratby is the CEO and founder of Trade The Fifth, an Elliott Wave program designed to educate traders and investors on the financial markets so they can take responsibility for their own portfolios and trading accounts by learning how to ride the profitable Fifth Wave setup. Paul started in the business over 14 years ago, and combined his career as an Engineer along with his Military Mindset to develop a repeatable trading and investing strategy that he has used to manage 8-figure accounts.