Joe is a 22yo student working in private equity

About MoneySecrets: MoneySecrets offers a peek into the financial lives of our fellow Kiwis. The story below was written using pseudonyms to remain anonymous. When commenting, please remember that the writer has laid bare their financial life, which can be a scary thing to do. Please be kind, and enjoy!

INTRODUCTION

Hey there! I’m Joe - a 22 year old single kiwi living in Auckland. I work full time alongside full time study and am in my last year of university. I study a double degree in Law and Finance, while working in finance (private equity). I’ve been living in NZ for all my life and for as long as I can remember, I’ve been heavily focused on investing & personal finance.

Whether it was counting, saving or investing - I’d do it. There’s something about the long-term focus you need to adopt when investing that appeals to me - almost as if we grow at the same time our money does. My approach to money is significantly less hands-on these days. I really try to focus on learning and enjoying my passions (skiing, running, reading etc). I’m extremely grateful to not have to worry too much about my financial situation right now, and have been really lucky with the opportunities presented to me.

I’ve been working since I was 18 - working 20-30 hours a week during university at the big four accounting firms and worked full time at law firms over the summers. I ended up going into full time work this year as the world transitioned to online learning (which hasn’t been too stressful to date).

FINANCIAL GOALS

Mindset

While I'm technically Gen Z and not a millennial, I got into the FIRE (Financial Independence, Retire Early) /minimalism mindset quite early. I’ve eased off on it these days, but still have quite clear goals that I'm passively tracking. Realistically, $4,000,000 is the magic number for me to stop working full time and focus on what i’d like to do (that could involve some “work”, but it would be at my own pace).

I’ve calculated this using the 4% rule (i.e. accumulate assets equal to 25 times my estimated annual living expenses), and realistically I could “retire” a lot earlier. However I find my work incredibly stimulating, I get to interact with incredible people in my job and really don’t work that hard (to be completely honest I can do the work required in less than 10 hours for a full 40 hour week). I don’t think I’d ever just retire in the typical sense and sit on a beach drinking wine until I die - I definitely enjoy staying engaged and up to date with the latest trends and industry moves. Business really excites me so I know I’ll stay in that sector in some capacity.

My Purpose

To me life is about learning, loving and enjoying. Underpinning all these is good health. The first three things realistically matter, but you can’t do that if you’ve got health problems - so health inevitably comes first. My ideal “retirement” is spending time reading and learning new things, spending time with family and friends and pursuing the hobbies and passions that I’ve accumulated over my life (and will continue to accumulate as I age). Currently, that’s skiing, traveling and connecting with others.

Spending

I’m typically very frugal when it comes to unnecessary expenditure. I don’t really buy new gadgets or expensive meals. I don’t drink (only socially when necessary) and almost have an innate tendency to save all my money. I still spend when I know it’s worth it (education, travel, skiing, friends etc) but realistically I don’t spend a lot.

Anxieties

I’m currently single. The biggest issue for me is wondering how I approach dating and relationships with my current mindset. There are a lot of people not like me - so that makes it quite difficult. To me, a relationship is built on passion, values and your approach to money. Without similar spending mentalities, a relationship can have huge issues.

Money itself isn’t really the issue and it doesn’t matter how much either person makes - the most important thing is the way people view money and whether spending patterns align with the wider purpose of what each person wants. As an example, I had a past relationship where her money management wasn’t that great and she’d spend it on highly materialistic things (flash watches, expensive gadgets, etc). To me - money is just the means, never the end. I stay frugal and spend basically on food + experiences. We had very different goals and were driven by different things - so for that reason it didn’t really work out. It’s just something I’m gonna have to figure out I guess.

Money Friends

Being 22 is fun but also a lot of my peer group can be on a different level in terms of thinking about money (or not really into investing). I’m fortunate to be a part of a few groups with people like me (focused on their career, and highly driven, and / or study finance / business). It helps to have these people around that typically earn higher salaries and have similar mindsets around values, spending and investments.

I have a few friends that are into it, but to be honest, nobody has as much money as I do. This sounds arrogant I know, but it can be difficult having conversations with people when the scale of their investments are significantly different. I’m extremely lucky with how much cash I’ve got right now, and I know it’s not "normal" to have this much at this age. The only people that have money at this age are people who (1) work their asses off, (2) have a trust fund or (3) win the lottery. I don’t know many (2) or (3) people, and (1) are too busy working to socialise with me haha. Every now and then you find people who can somewhat relate, but I’m still looking for the right people similar to me I guess.

Assets

Habits

I’m incredibly lucky that my dad set up an account for me when I was born and taught me to consistently put money away to invest in my future. He would do this “two for one” deal where any cash I got from birthdays or work, he would double it and put it into the bank account (obviously you can’t see the cash as there weren’t apps back in 2007 but that’s the point). I’m grateful for the habits my parents instilled in me.

Building Cash

I had about $40k (20k since inception) when I was in high school - and hit $100k at 20 from working various jobs alongside uni (I remember very clearly hitting this milestone as I thought starting my “20’s” with a nice round number would give me better luck lol).

Obviously in the last 2 years things have been quite crazy - the stock markets have been relatively volatile and i’ve been spending quite a lot on travel (went to New York/London/Singapore/Tokyo/Sydney/Melbourne). I haven’t saved as much as I would have liked in the last few years but then again - I couldn’t not spend on memories. I know uni will be the best time of my life and the memories I create, the people I meet and the things I do now will shape who I am. I wasn’t going to skimp on these experiences just to eek out another 10%. I’m just lucky I was able to take these opportunities where so many can’t.

Current Cash

I currently have ~130k accumulated, and I'm likely to fully invest this soon. I know market timing is basically gambling but it's my ego talking I guess. I should probably just put it in and chill.

Portfolio Allocation

I always try to transfer whatever money I have into my brokerage account and spend on credit on Amex for day-to-day things.

I use Interactive Brokers (IBKR) as a share trading platform. It’s the most popular platform in the world and has the best brokerage fees (If you’re under 25 years old, it’s $3 per month but $0 if you make 3 trades - commissions per trade are $1-3 so it’s incredibly cheap). IBKR doesn’t allow you to buy NZ stocks but you can basically buy anything else, anytime, anywhere (think US, UK, Australia, China even). It’s a no-brainer for me - and foreign exchange rates are significantly better than some other brokerage platforms.

The only downside is I have to take some currency exposure. I currently hold ~$130k NZD in US currency and have been +20% in gains post-Covid crash, which has since dropped to about breakeven for currency (although I’m guessing NZD will come down a little - don’t quote me on that haha). The reason I don’t mind USD is personally I think that the NZ economy is in a lot worse shape than the US - our GDP relies heavily on education, tourism and exports and all 3 are taking a hit due to Covid (and a strong NZD is not good for exporters). If we go into hard lockdown every time we find community transmission, it’ll decimate our economy. For that reason I'm happy to hold USD (also USD is a haven currency and 75% of all transactions take place in USD).

I currently have ~$50k NZD sitting in cash (US currency), ~$55k in the S&P 500, $15k in EMEA (UK), and 10k in US small caps (all of which are with Vanguard). I don’t really spend too much time thinking about active management or trying to figure out which sectors will do the best (although I used to do that in the past) - Small cap premiums have basically disappeared so I should probably have sold out of those but still hold them. EMEA is a hedge (but a small allocation). I’m happy with my equity holdings and have basically been hoarding cash waiting for crash v2 (which seems relatively imminent in the next 3 weeks).

Are the markets overheated?

US equities are trading at PE ratios of >25. Every second week a US tech IPO doubles on opening day. There are significant milestones ahead for the global economy (think Covid, election year, trade wars, etc) - all this culminates in the conclusion that markets are likely overvalued (or if undervalued, not enough to warrant trying to buy in just to make 5%). For that reason, I’m happy to sit with a large pile of cash and wait. If I’m wrong, I still get exposure through the 60% long equities I have.

I think Damodaran (the king of corporate finance and valuations) did an S&P500 valuation exercise a while back, trying to find the appropriate value for the S&P on an earnings basis (what companies generate in profit) rather than what people were paying (PE ratios). They crowdsourced it among other investment banks’ estimates and got a rough valuation of ~3,300 ish. Things have changed since then but my gut tells me that’s the right ballpark - if it drops below 3,100-3,200 I’m likely to do a massive block trade and fully invest then forget about it. Life is much more than tracking stocks and markets + people seem to forget the main reason why you invest - to be able to live a more full life filled with less (less problems, less financial constraints, etc). This is what I personally believe in and have learned that my time is better spent with people I love, learning new skills and living new experiences over drooling the market’s day-in-day-out.

Kiwisaver

Since I started working, I was always told to not to start a kiwisaver if I was going to leave the country (because once you start you effectively can’t stop - you can pause contributions but at some point you’ll have to restart) and the money in there wouldn’t be accessible to deploy offshore. While that rationale is correct, the 100% gain you’re effectively getting from the employee match is just too good to pass up (most fund managers won’t reach >20% return YoY).

Since the current job I’m in was my first technical full time role with an 8% match (other places have been 3%) I decided to start it. I’ve only got ~2k in at the moment but that’ll grow over time. I’m contributing the max at the moment. My kiwisaver is with Simplicity (which is passively maneged).

Debt

I’ve got ~70k of student debt. About 45-50k from 5 years of law school at university @ 10k a year, and 20k of course-related costs and me voluntarily drawing down on interest-free living costs (about $240 a week). The way I viewed it, it was effectively a free form of leverage for me to put into equities and allow my money to grow. It’s probably done less well given I keep trying to time the markets but it definitely has paid off. Ideally I’d look to buy an apartment (houses are outside my price bracket but apartments are feasible - but given Covid and higher city vacancies I’ll wait) - so the cash drawdown was pretty crucial.

Income

I currently make $65k at my current role as an analyst. There is also a new employee incentive scheme that was put in place this year, that is likely to deliver another 10-15% of base salary.

I got lucky in the fact that a full time job opened up when I was working part time at another finance role - they didn’t have the option for part time so I just bit the bullet and went full time work and full time uni. It’s definitely busy but at this point I've almost given up on university (obviously passing all my papers but minimum effort possible as it isn’t a priority).

I’m currently getting underpaid for being young (I know - ugh) and my other peers are on ~$100k. I’m not happy with this and am currently interviewing with other firms that would pay in line with my peers. If I get a $100k offer, I'll jump ship. Otherwise, i’m happy to relax until I finish university. It’s pretty awful of me to be complaining when so many people are unemployed and have much less, but issues around pay-parity and transparency still suck.

[Edit: the firm I’m interviewing at has indicated they’re likely to offer me the job - base of $100k & bonus of 30-40% depending on performance.]

Expenses

I live at home, which was maybe the best financial decision I’ve made in my life to date. Had I moved out, I would have incurred ~$20k each year in housing + food for 5 years (so more than $100k). I’m lucky that my parents don’t want to kick me out just yet (even though I hate commuting - I deal with it because the financial benefits clearly outweigh the costs - also Covid sucks and I can’t imagine paying $300 a week just to sit in a shoebox lol).

I still spend unnecessarily at home (mainly on eating out) but the bulk of typical expenses don’t exist for me (housing, food, utilities). I was initially going to move out and try to get a job in London/NYC/Sydney, but it looks like I’m staying in Auckland for a while given Covid.

I probably spend $50 a week eating out when seeing friends, networking or doing activities. I have a car I can use (which I pay gas for) or Uber if in the city. I live quite far out (1-1.5 hour commute) so it means I typically need to drive.

Work pays for my phone bill and insurance. Parents pay for netflix. Youtube is free :)

My spend on travel is probably overstated this year due to Covid, but I typically travel a fair bit during breaks / leave, and go skiing in the winter often.

Financially, the best thing for me would be to live at home after graduating for a year or two - buy an apartment as an investment and rent it out (around the time negative wholesale interest rates kick in and mortgage rates fall through the floor) - then move abroad.

Remaining income

I invest every cent I have. When money comes into my account every two weeks from work (or every week from studylink) I pay off any outstanding debt on credit cards (never pay interest team) or money I owe friends, then transfer the rest straight into my brokerage account and convert to USD (which hasn’t been that great lately - went from 20% up on USD currency to about flat). I’ve been hoarding cash on the side since March’s bear market but probably should have put it in regardless. Will still hold out as I think the market’s still overheated though.

It’s almost become a habit for me - having all my money in one easy place I can see (an app on my phone) is easier for me but also more aesthetically pleasing. I weirdly enjoy knowing everything is centralised haha.

Inviting feedback from readers

I would love some advice around what I should do post-uni. Do I move out? Do I invest in property? Should I just bite the bullet and put my $50k+ into stocks? These are the questions I think about a lot but also I do full time uni and full time work so I don’t really have a lot of time to think about this stuff! :)

Any feedback is greatly appreciated. Thanks again for letting me share my story!