This book, Motivated Money, written and published by the financial adviser and speaker Peter Thornhill. He is well recognised in the investing and financial independence movement in Australia for his approach to dividends focused investing. I strongly recommend this book for those who are working on designing their financial future and goals.

He uses a lot of wit in his written words and speaking style, which I find very entertaining, particularly in his seminar. Some of the ideas he presents can be perceived as radical, but he undoubtedly has the ability to reach his audience and expand their thinking by simplifying complex concepts and making them easy to understand for those with no financial background. I suggest reading the book before attending the seminar.

The book provided me with some great insights, I’ve summarised some of them.

The book starts with the question What benchmark are you measuring your success against, and he explains that when investing in the stock market (and other markets) some investors can have a very deceiving notion of “doing well” simply because their investments are worth more than what they invested. However, there are other considerations to be made, such as, taxes, some of the metrics commonly used don’t include after tax results. The other point he makes is to consider what is the market composed of and explains what the various indices are, All Ordinaries, Industrials and Resources. Once we understand this we can compare the performance of our investment with the market. Some investors use other people’s investments to gauge their success, Peter’s benchmark is the Industrial Index.

He also talks about the confusion between Value and Price. The price of an asset (shares, real estate) is constantly fluctuating in the market but what ultimately determines its value is the income stream it can generate for the investor in the long term. The information we find in the media can be overwhelming and despite of this some people spend a lot of time tracking if prices are going up or down. Some investors perceive real estate to be a more “solid” type of investment, but its price changes every day as well, the difference is that it’s not made public by the media as doing valuations to all real estate daily would be impractical.

An invaluable piece of advice Peter Thornhill gives is to treat yourself as a business, he says “what is true for business is true for individuals”. He proposes to do as an exercise an assessment of your own Value (or net tangible asset value) then work out how much you earn per year, how is that money spent (assets or liabilities) and how do you compare against the best companies in Australia?

This is very useful for us to reflect on what value we are bringing to the market and how much money and time we invest in developing ourselves. I’d add that this applies not only to the financial area of life but also to other areas, such as: relationships, health, etc.

One of the points where he makes strong emphasis on is what he calls The Yield Trap. It’s very common to see investors focusing only on yields from investments without really understating what yield is. He explains that the yield in an abstract value that has no clear dollar value. Unlike yield, income has a dollar value that can be spent. We can go to a shop and pay with income, not with yield.

The yield is an equation that divides the price of the share by the divided paid and multiplies it by 100, this gives a percentage value.

When we see a change in the yield of an investment in isolation we don’t know if it’s due to a change in the price or the dividend paid, therefore, it is important to understand the nature of the change in dollars!

I’d like to add that often we find on internet standard charts and tables that show the performance of shares in the stock market, but the numbers presented can be deceiving so if these tools don’t provide enough information develop your own metrics!

Residential Property is a topic where Peter Thornhill finds some people to have too much emotional baggage in. He doesn’t discourage people from buying their own home however he argues that buying property doesn’t always make sense financially if we have expanded our benchmark and compare that investment with the share market. He emphasises at the seminar that people invest in property in Australia only because culturally people became used to it and don’t always question whether other forms of investment could provide higher returns long term.

One point he makes is that if owing property were such a great investment the largest construction companies of residential property in Australia would not sell their properties, they would keep them and rent them themselves. Also, large businesses would close down and would own residential properties instead of running their business. He mentions Woolworths , Coles and McDonald’s as examples of companies that don’t own real estate in Australia, they lease because is that’s what provides the best financial returns long term.

In one of the last chapters of the book he talks about retirement and he refers to an unpublished census conducted by the Australian Bureau of Statistics in 1996 regarding incomes of all age groups. The statistic was that in the age group 65 years and over, the incomes of 80% of people were less than $15,000 per annum! Another finding was that people over 65 spend 12 hours and 26 minutes of their day without any human contact. He then encourages readers to work on creating a secure financial future but also to develop and maintain relationships.

In summary, my biggest learning from this seminar and book was that it is fundamental to constantly educate ourselves regarding money and finances if we want to become financially independent and not rely on a pension or other people, not even the best financial advisers care more about our money than ourselves. Equally important is to avoid all the noise in the media because that can be stressful, distracting and what they are best at is using controversial language that sells. Lastly, before we start taking any action to change our financial circumstances we need to have a big WHY, reaching financial independence and having money from investments is probably not enough, it’s really important to define that picture very clear and understand if we want more time to spend with family, more time to travel, more time to do volunteer work , raise children, etc, and it is even more powerful to have an immortal purpose that goes beyond our existence.

Book & Seminar Review: Motivated Money