Shifting Quadrants & Mastering Personal Investment

Everyones money situation is different but one thing we all share is a desire for financial independence and not relying on our paycheck.

'Financial Independence' is certainly an achievable goal given hard work, savings and a sound investment strategy. Here are some thoughts about making it happen with some hit and miss examples of some personal acquaintances.

One of the more paradigm shifting strategies I have come across is Robert Kiyosaki's explanation of 'Cashflow Quadrants' in his 'Rich Dad, Poor Dad' book series where he grouped most of us into the Employee quadrant of the following table:

Employee Business Owner
Self Employed Investor

and then went on to suggest that the quadrants to the right were a lot more desirable.

Shifting between these quadrants isn't easy but it is worth thinking about. Starting a business is hard and being an investor requires unallocated capital (which is tricky if you have a mortgage and have a family to feed).

That said, when you do find yourself in the position of being able to invest, it makes sense to put a lot of effort into doing a good job of it. Do you shop around a lot when buying a car/phone/house? Do you interview different employers when seeking work? When investing a sum of your own money (eg. your 401k in the US or your superannuation in Australia), do you put that same due diligence towards your financial education? Are you logical and unemotional in your investment decision making procss?

These are questions we should probably all be asking ourselves. Here are some interesting examples of personal acquaintances who have differing levels of commitment to investment:

Interesting Index Fund Blog Post:

My retired uncle Mark invests his Australian Superannuation with Colonial First State's managed fund because they 'have great returns'. Burton Malkiel's A Random Walk Down Wall Street suggests that managed funds have *never* outperformed relevant stock market indexes (eg. the Vanguard ASX 300 index) over time. And yet, people still like to put their hard-earned money into a well-marketed managed fund product like this. My uncle Mark justifies to himself that he was recommended that this is the best option for him. Did Mark ask himself whether commission was involved in that recommendation? Mark chooses not to go to the effort of tracking how his nest-egg is performing in comparison to other options because it's 'too hard' and yet, he spent his whole life working to put these savings togethe...

Heres another interesting example. My colleague Jeff likes to value-invest on the australian stock market using a buffet-ish technique of choosing companies with business models he understands, management he trusts and under-valued stockprices (he subscribes to for his valuations). Jeff is very happy with this strategy. That said, Jeff is unable to pinpoint what his overall performance return on an annual basis is. This begs the question 'Is Jeff picking stocks that are helping him outperform other options?'

To close things out, here's one last example. My friend Belinda has read up on Benjamin Graham and knows how to value invest like Jeff. Belinda however, chooses to put all of her savings and superannuation into an index fund because she believes her time is better spent in a higher-return activity: namely expanding her importing business. Would a small time investment in learning to value invest improve Michelle's ongoing portfolio?

These are the sorts of questions we should all be asking ourselves. At the end of the day, diligent (Benjamin Franklin-style) saving and sound investment strategy will undoubtedly speed up the process of financial independence.

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This article referenced the following books:



Cashflow Quadrant: Rich Dad's Guide to Financial Freedom

by Robert T. Kiyosaki (link)




A Random Walk Down Wall Street

by Burton G. Malkiel (link)




The Intelligent Investor: A Book of Practical Counsel

by Benjamin Graham (link)




The Autobiography of Benjamin Franklin

by Benjamin Franklin (link)