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Tom Momsen is to chinos and check shirts what a toaster is to bread in the morning. Fashion aside, Tom is an owner of Armcrest Financial Advice and a gun financial planner. We chat about income protection, goal setting, nasty direct debits and how to retire early.

Mike Mortlock: Welcome to Geared For Growth. This week we’re chatting with Tom Momsen, who’s one of the owners of Armcrest Financial. Tom’s a financial planner. We have a chat to him about how he helps to set goals for his clients, in achieving what they’re wanting to do financially. Whether it be retirement, savings, income and asset protection, and that sort of thing. Tom’s got some great tips on how to reign in our spending, and how to goal set for the sort of life that we want in retirement. Here’s Tom. All right, Tom Momsen, welcome to Geared For Growth.

Tom Momsen: Thank you, buddy.

Mike Mortlock: Excellent. I’m glad to have you on. Now, you travelled a long way for this interview. How far roughly, do you think?

Tom Momsen: About 15 steps, I believe.

Mike Mortlock: 15 steps.

Tom Momsen: Yes.

Mike Mortlock: It is quite handy for you to be so close to our office, here in Newcastle. I must admit, I have got you on because it is, well, of course, bloody convenient, but you’re also fairly good at what you do. Can you run through who you are and what it is you do, Tom?

Tom Momsen: Tom Momsen, background of being a Newcastle boy for the last 31 years, which is my whole life. Thoroughly love living here, working here, and really love being in the financial planning industry. Essentially just helping people go through life and take the stress out of their money.

Mike Mortlock: Excellent. We’re going to get right into how you actually do that. To get a bit of an insight into the real Tom, what sort of posters were on your bedroom wall as a youngster?

Tom Momsen: The old man wasn’t too willing to allow the good old Blu Tack on the wall.

Mike Mortlock: No Blu Tack, right.

Tom Momsen: There might’ve been one of Warnie.

Mike Mortlock: Warnie, right.

Tom Momsen: Yeah. Big cricket fan as a little kid growing up. Then also, probably the other one would’ve been a photo of a collection of all the Porsche 911s.

Mike Mortlock: Nice.

Tom Momsen: Yeah.

Mike Mortlock: Got some good taste there.

Tom Momsen: Yeah, one of Dad’s mates had one, and I was just a sucker for it ever since.

Mike Mortlock: Haven’t seen one in the garage as yet, so obviously-

Tom Momsen: No. No, there’s none around, unfortunately.

Mike Mortlock: You’re working on a financial plan of your own on that one. Tom, you specifically requested that the questions today be hard-hitting, so I’ll start you with this one. Given your LinkedIn profile says, “Ensuring couples aged 30 to 50 don’t have to stress about their money,” why do you hate the elderly and single?

Tom Momsen: There, that’s hard-hitting. I don’t, but you’ve got to really target in on one market. I find that a big, big percentage of my clients fit right into that. I’d say that’s my real niche, but I do deal with singles and the elderly.

Mike Mortlock: Well, that’s good. I’m glad we can continue this podcast, but we will get into exactly why you focus on that age group. Just to give us a bit of a background on financial planners. They’ve had a bit of dodgy press over the last decade. There was the legislation about insuring commissions were disclosed, the Commonwealth Bank scandals. A lot of people, I think, think of a financial planner as just someone that will recommend a managed fund, and take a clip along the way. Is that a perception that you’ve heard of, and how has the industry changed in the last little while?

Tom Momsen: Yeah, definitely. That’s exactly how it came about. The commissions were always there to actually be able to fund an ongoing service, it was used and abused. Yeah, that didn’t eventuate that way. Now, thankfully, on all insurance … Sorry, investments and superannuation, that commissions both upfront and ongoing have been completely banned and ripped out. Now, any fee that we receive, the client actually has to sign off on, on a two-yearly basis.

Mike Mortlock: Yeah, okay. I guess that’s brought the industry a little bit of a better reputation.

Tom Momsen: Yeah, certainly. There’s been a big change for education requirements as well. It’s no longer that you can just do a two week course, and go and hang a sign on the door and become a planner. They’re really going down the path of bringing it into a proper professional, which, yeah, it’s fantastic to see. Yeah, the numbers are dropping as a result of that, because people just can’t meet the requirements, so they’re leaving the industry.

Mike Mortlock: That’s a better thing for the industry as a whole, of course.

Tom Momsen: Yeah, definitely.

Mike Mortlock: Now, I wanted to start with a bit of a popular conception. That financial planners are for wealthy people or established people looking towards their retirement. At what point is it worthwhile engaging a financial planner, and do you need to have a stink load of cash to even consider talking to someone like yourself?

Tom Momsen: No. No, big misconception. Yeah, the majority of my clients are couples, early 30s. Most of the time they’ve got reasonable jobs, household incomes of 150 grand. Yeah, it’s not a low end, but a lot of clients are two teachers.

Mike Mortlock: Right.

Tom Momsen: They have very little to invest, and that’s perfectly fine. It’s setting people up for a 20, 30 year future. You don’t get a lot-

Mike Mortlock: Yeah, and I guess the results will compound over time. In a way, it makes sense to engage someone earlier rather than later. I suppose, even if you haven’t got enough income to justify a six digit managed fund portfolio or a couple of investment properties, there’s a lot of planning involved. In terms of what you want to achieve financially, when you want to retire and that sort of thing, I’m guessing.

Tom Momsen: Yeah. Yeah, definitely is, and also that it’s just getting started. That’s the biggest thing, of just get started. Don’t leave it until you’re 45 or 55. Get in there and get cracking early. Don’t just do what everyone else does, because then you stay at that same average level. If you want to get ahead, well you’ve got to get started before the average person does. That’s-

Mike Mortlock: The average person is drawing a retirement income from the government, I would say, still. That living standard is not what people would probably hope once they get to that golden end of the career.

Tom Momsen: No. The misconception is that, “Okay, yep, we’re all good because we’ve got superannuation.” When you actually run the projections, even when you’ve had super, paid your whole life at the 9.5%. It generally gets people about 30 to 40% to what they actually want. So there’s a lot of extra work at that point, unless you’re willing to take a major hit in lifestyle.

Mike Mortlock: So you focus on Gen X and Gen Y. Why is it that you prefer to work with these people, and what do you do for these people in their 20s and 30s? When is Gen Y, in late 30s?

Tom Momsen: Well, the Gen X goes into the, well into the 40s.

Mike Mortlock: Right.

Tom Momsen: Yeah, it’s just dealing with people my own age.

Mike Mortlock: Right.

Tom Momsen: That’s the biggest thing of every one of the main points of a client relationship, is that it’s a really strong relationship in there. It has to be a two-way street. Yeah, I just seem to have a better connection with that demographic. I’m personally in it, so I can understand what they’re going through. They can understand that, yeah, I’m going through those same problems, issues along the way.

Mike Mortlock: Let’s kick things off with what you actually do for people. So you start with a values alignment meeting. This is some nomenclature of financial planning that I don’t quite understand. What do you do when you bring a new client, a Gen Xer or a Gen Yer, on board?

Tom Momsen: Yeah. First thing to do is run a values alignment meeting. That’s a meet and greet. The clients have to like me, and I’ve got to get along with the client as well. If we don’t have a really good, open, trusting relationship, there’s no point in starting a relationship. Because if all the cards aren’t laid out on the table, well, yeah, my plan could be sending you in the wrong direction.

Mike Mortlock: Yeah, that’s a slightly unusual approach. A lot of people in business will work with whoever, because business is about cash flow and keeping the business profitable. That relationship’s pretty important to you.

Tom Momsen: Yep. Yep, it’s key, because otherwise I’m leading you down the garden path. That’s going to end up in a bad outcome for all involved. I prefer to stop it, or have it stopped by the client if they don’t like me. Yeah, that’s perfectly fine.

Mike Mortlock: So in this values alignment meeting, you might have someone that says, “Look, Tom, I’m really into investing in sweatshops.” You might say, “Look, I think I’ve got someone I can recommend you to.” I know that’s a bit silly, but is that the sort of thing you’re talking about?

Tom Momsen: Yeah. Yeah. Yeah, if my goals and, well, for … My values I should say, not goals, don’t really line up with what the client’s thinking, it’s not a good relationship to have. They’re plenty of people out there, plenty of other planners that that person might suit perfectly well. There’s plenty of other clients who I believe will prefer to work with me. Yeah.

Mike Mortlock: So how financially educated in general are people when they come to see you?

Tom Momsen: Not overly well, and that’s a big part of my process. I actually run a four meeting process. A lot of planners will do a two meeting, maybe three meeting for their new clients. I like to add in an additional fourth meeting, and that’s really based on giving some really good education. Education’s the key through, it breaks down the barriers of fear. Superannuation is the most misunderstood thing in Australia. Yeah, everyone’s got it. So yeah, it’s never been done by the government, hasn’t been done well by the super providers, because there’s too much self-interest in there.

Mike Mortlock: Well, they’ve made a lot of money for themselves.

Tom Momsen: Correct. Yeah. Yeah, they have. That is one of the big things, is I like to share that education, really explain things in detail. Not necessarily dictating what the client has to do, showing them the different options and then they choose the best one for them.

Mike Mortlock: Typically, why are they coming to you? It’s because they suspect that maybe they don’t know anything, or they’re saying, “I know this is a problem, that I should do something. Tom, can I pay you to make it go away?”

Tom Momsen: Not necessarily going away. A lot of the clients just go, “Look, yeah, we think we’re in a decent position, but we’re not really sure. We just want to make sure that we are. If we’re not, well, yeah, show us what we need to do, to get us to where we want to be.” Yeah, a lot of the times it’s not a massive wholesale change to do everything. It’s a tinkering a lot of the times. Sometimes it is a pure overhaul of everything out there. One of the biggest things is locking in some security and protection, generally, for the family. So that if something happens to either of the income earners, the family’s going to be able to survive financially.

Mike Mortlock: That’s something that I think all property investors should be listening about. We’ll certainly jump into that as well. Just getting back to the planning. How often do people have a clear financial goal when they come and see you? If they don’t, is that part of the steps? That you actually want to sit down with them and say, “Well, where do you actually want to be? We work backwards from that.”

Tom Momsen: Yeah, I’d be saying about one in 10 actually have that defined goal. That’s something that, it can be a bit of a challenge at times, to get people to think a bit further forward. It’s not necessary to actually have a really clear vision of that 30 year future, because it is pretty hard on that person, self-wise. Struggle to go, “Yeah, retirement, what does that look like?” “I don’t know, that’s three decades away.”

Mike Mortlock: I hope to have my own hips, that’s about as far as I’ve gone with it.

Tom Momsen: Yeah. It’s just, to me, it’s ensuring that in 12 months’ time I’m in a better position than where I am currently. I think that’s how a lot of clients are feeling as well, is just knowing that they are progressing forward, they are taking steps to improve. Yeah, the path will become clear, or the picture will become a lot clearer in the years to come. Just to know that they are actually forging forward. Yeah, it just, it gives a piece of mind that they’re moving in the right direction, and some confidence to keep going.

Mike Mortlock: What is a typical goal that people will set? Will that be, like when they retire, “I want an income of 80 grand a year,” or what does that generally look like?

Tom Momsen: Yeah, something like that. One of the big ones I find is actually people going, at the age of 45 or 50, to be able to only work three or four days a week, not have to work five days a week. I think that’s a fantastic goal. So you go, “Okay, all right. We need to work on a plan to get you in the next 15, 20 years, a way that can generate 20 to 40% of your current income. So that you can pull back a day or two a week and not have to take a hit in the lifestyle.” Just to have a bit more of a work, life balance. That’s one of the major goals that’s really started to kick in, in the last, probably three years. Hearing that more and more, and yeah, I can understand why people want that.

Mike Mortlock: Yeah. It does sound like being lazy or cheating though. I mean, my father especially brought me up that you’ve got to work your 70 hours a week. Then at the end of it you get to stop, and then you’re lucky if you’re alive three or four years later. So that’s not how it works anymore?

Tom Momsen: No, it’s about enjoying the journey.

Mike Mortlock: Right, excellent. Given this is a property podcast, we’ll squeeze that in at some point. Where does property sit within your wealth creation strategy? I know you’re an investor yourself, how do you use property as part of people’s goals? Is that normally a certain percentage, or does it depend on the experience and the appetite of the person?

Tom Momsen: Yeah, it all depends on the appetite. Property has to form part of the portfolio. Essentially, that’s investing 101, diversification. Yeah, you need property in there to have a diversified portfolio.

Mike Mortlock: How do you work with your clients with property? I’m guessing you have partnerships with people that can help give them the education. How does that work?

Tom Momsen: Yeah, got some really good contacts, including yourself, obviously. Convenient plug for MCG in there. Yeah, it’s a goal of so many people to have it. I do not see there any reason as to why I should try and stop that, if that’s a goal of the client. Yeah, there could be at times when they’re highly concentrated into, say, Newcastle residential property. You go, “Look, yeah, you need to start looking at diversification,” whether that’s property in other areas or whether it’s in two shares managed funds. That is then up for discussion, but that’s the main time when I interject and go, “Yeah, maybe you need to look elsewhere, because”-

Mike Mortlock: Put an egg in another basket.

Tom Momsen: Yeah, because you’re just really concentrated in one area. It’s the same as going out and buying just BHP shares. You go, if anything happens to BHP, well then it’s a hero or zero play, and that’s the same. Yeah, one of your absolute base principles of investing, diversification.

Mike Mortlock: Yep. It’s terribly exciting not to be diversified, and just throw all your money at BHP. There’s a reason why the Packers have got a fair bit of coin.

Tom Momsen: Yeah, or buffer.

Mike Mortlock: Yeah, exactly. Exactly. So have you seen property investors do a really good job, and gain some really solid wealth from a property? On the other hand, have you seen people getting it wrong as well?

Tom Momsen: Definitely. Yeah, there’s both sides of the coin. Plenty of people have made an absolutely bomb out of property, but I can name plenty of people who have lost an absolute fortune in it as well. To go in blindly and think that you can never lose in property is a very, very dangerous attitude. Yeah, people don’t realise that you can lose a lot of money in property, particularly because you are leveraged the majority of the time.

Mike Mortlock: Yep. These people that are getting it wrong with property investing, is there anything that they have in common? Is there a type of property, or an area that they’re buying that exposes them?

Tom Momsen: I think a lot of it comes down to the really slick sales jobs of, generally, new property places. Yeah, it’s a tough one. It’s really a case-by-case, but it comes down to, generally, it’s if you’re trying to segment it down. Yeah, it’s not existing properties, it’s brand new property developments. Typically more, I’d be saying, in the high rise apartment space.

Mike Mortlock: Yeah. Yeah. I guess you wouldn’t say that new properties is a bad investment?

Tom Momsen: Definitely not.

Mike Mortlock: It’s tied into the fact that, who’s marketing? Are the developers their own sales arm? Are you getting independent valuations, to say what you should be paying? I’m guessing that’s where it falls down on, especially with off the plan apartments. If you’re not doing your due diligence, you can be paying a huge premium. You may make money over time, but it might take you 30 years to get a profit.

Tom Momsen: Yeah. Yeah, that’s exactly right. Also, you’ve got to look at what else is happening in that community, suburb, city, as well. What’s actually going to drive it forward. Yeah, you look at both. Both housing prices are dropping and have dropped for the last two years. Then you look at Sydney, Melbourne, Brisbane, they’ve done the opposite. So you’ve got to look at what else is happening in that area. Yeah, you’ve just got to make sure that it’s not solely reliant on one thing happening, i.e., mining booms, something like that. That entire area is all based on, yeah, one driver. If it’s one driver, then it’s high-risk.

Mike Mortlock: Yeah. I mean, some people have timed those markets to perfection and made a fortune.

Tom Momsen: Correct, yep.

Mike Mortlock: I mean, you can buy a place for 300,000 and sell it two years later for 1,100, or 1.1, I should say. Getting that timing right, there’s quite a bit of luck in that, even for experienced people, isn’t it? It’s a dangerous sort of game.

Tom Momsen: Yep. Yeah, no, that’s exactly right. Everything can be a good buy, if you buy it low enough.

Mike Mortlock: Yeah.

Tom Momsen: Yeah, it’s just you’ve got to make sure that you’re not on the other end of the stick, and you’re buying from that person who is selling right at the peak.

Mike Mortlock: Yeah, exactly. The people that are getting it right, that are nailing it, they’re making a bomb, as you say, in property. Is there anything that they have in common, from your perspective?

Tom Momsen: Good advice from multiple sources.

Mike Mortlock: Yeah, okay.

Tom Momsen: Yep, that’s-

Mike Mortlock: They’re doing proper due diligence. They’re getting information from a few different people and joining the dots.

Tom Momsen: Yep. Yep, really lining up those ducks and knocking them off. Yeah, they’ve got their eyes and ears open to taking in opinions from the right people.

Mike Mortlock: Yeah. Getting back to financial planning, I know you’re a big advocate for minimising direct debits.

Tom Momsen: Yes.

Mike Mortlock: They’re Satan’s little tool of financial shackles, I’m guessing. That’s probably more my words than yours, and spending regrets. So can you talk to us about direct debits? I mean, spending regrets sound obvious, but exactly what’re you talking about there? How do people’s spending habits get them into trouble?

Tom Momsen: Yeah. Direct debits, they are so convenient, yet they’re so destroying as well. Have a look back through your credit card statements or your bank account statements, and have a look at the amount of direct debits in there. Have a look at the ones that are associated with things that you actually use, or things that you’ve bought three years ago. That you’re now going, “Don’t even use that, but I’ve still got to pay for it for the next year or two.” Yeah, really going in with the attitude, “If I don’t have the cash, I can’t afford it.”

Mike Mortlock: Credit cards. That’s free money though, right?

Tom Momsen: Yeah. Yeah, it certainly is. Yeah, credit cards are awesome if you pay it off every month. Otherwise, they dig you a very quick hole. 20% interest rate, that hurts.

Mike Mortlock: That’s solid.

Tom Momsen: Yeah, compared to a home loan at 4%.

Mike Mortlock: Yeah. Typically, do you see a lot of people with credit cards? Is your average person able to maintain a credit card adequately, or are people pretty much always getting into trouble with them?

Tom Momsen: Out of my client base, everyone would have one, but 95% would have it paid off in four monthly sort of thing. Yeah, that’s how I run mine as well. Everything hits the credit card, but it gets paid off monthly. Why not get the money in your pocket, earning the time value of money and some extra points as well?

Mike Mortlock: Yeah, there you go.

Tom Momsen: Yeah, it’s a powerful tool to be used correctly, and a very powerful tool in a bad way if it’s used incorrectly. Yeah, if you know you don’t have very much self-restraint, well it’s probably best off not having one.

Mike Mortlock: The banks, I guess, aren’t really making any money off the 95% of people, but those 5% of people, they’re enough, right? They get it wrong enough that the banks make the money out of them.

Tom Momsen: Yeah. Just have a look at the bottom of your credit card statement, when you actually pay the minimum payment. Have a look at how long it’ll take you to pay it off.

Mike Mortlock: Right.

Tom Momsen: I had one recently that was going to be 67 years to pay it off.

Mike Mortlock: Right, wow.

Tom Momsen: You’re like, that’s more than twice as long as a home loan.

Mike Mortlock: Yeah, that’s pacing yourself. What about spending regrets and people’s spending habits? What do you see? Do you dig into people’s spending habits, or do they have a bit of a confessional with you, and say, “Tom, it’s all getting out of control”?

Tom Momsen: From a client perspective, no, not so much. I probably see it a bit more when, yeah, sitting around personally with different people, talking about things. A lot of the time it’s emotional purchasing.

Mike Mortlock: Right.

Tom Momsen: Yeah. In there, something’s happened and they go out and, whether it’s a breakup or anything like that. Go out and buy a new car or put a 20, 30 grand overseas holiday with a personal loan, something like that. It could be just going, “No, I really want the newest and greatest TV.” Go out and sign up on a 50 months interest free. Then you’re paying that back over the next five years. Yeah, generally one to two years into it, people go, “Gees, I’ve still got to be paying all this.” You’ve committed your cash flow, which means that you’re paying for things that you bought 12 months ago.
That you’re no longer getting enjoyment out of, but your money’s already gone. You can’t enjoy today, because you spent it 12 months ago. To me, that’s one of the biggest keys, is having choice with your money, whether you get paid weekly, fortnightly, monthly. Having as much free cash flow as possible. The less commitments that you have, that gives you the more free cash flow to do what you want, when you want with your money. That’s one of my big hates of the direct debits.

Mike Mortlock: Yeah, right. Let’s say we’ve got a property investor that’s trying to save for a deposit, or even a first homeowner that’s trying to save, to buy their own property. Are there tips and strategies that you recommend, to claw back some savings and to monitor that cash flow, and make sure you’re ending in a positive?

Tom Momsen: Yeah, it just comes back to lifestyle choices, and how much you’re willing to forego. Yeah, you look back, and ask your parents or grandparents what their lifestyle was like just before they bought their first house.

Mike Mortlock: Yeah. Rubbish, I’m guessing, in comparison to today’s standards.

Tom Momsen: The majority of them would go, “We never went out for dinner. We didn’t go on holidays for two years. We didn’t do anything.” You go, well, yeah, maybe there’s a bit of … Yes, property prices have moved hugely in that time. Deposits are probably 20, 30 times what they needed, that we need to accumulate. Yeah, we’ve just got to face the facts, and go, well, we’re going to have to work harder to get that deposit. So we’re going to have to sacrifice more, or it will take us longer.

Mike Mortlock: I’m a little bit older than yourself, I’m not really old enough to know what that sacrifice really, actually looked like. It reminds me of an old blues song that went, “I grew up with nothing, I’ve still got most of it left.” Where do you think we’re going wrong? Social media is showing us pictures of Harvey Spectre in sharp suits, Of people driving Ferraris and Lamborghinis. Of YouTube stars chartering jets and all that sort of stuff. Obviously Tim Gurner and the likes of punish people over their smashed avocado and that sort of stuff. Is there a huge expectation problem with people? Are people just generally living above their means?

Tom Momsen: I think there’s a bit of that. It’s a lot of false realities being created through social media. Yeah, when you actually start to see the financial side of things, and once you scratch the surface, you can often find there’s not much behind it. What you see out there can often be a fair bit of BS too. I wouldn’t be surprised if a few of those cars are rented, and those sorts of things.

Mike Mortlock: Yeah. There was a study that came out, I think it was nearly 20 years ago. That said, one in six people that drive a BMW aren’t really in a position to afford it. I think possessions have turned into a bit of a status symbol for us as well. So how do you have your cake and eat it too? Obviously, you don’t want to be walking around in blown out thongs and a ripped pair of jeans. Unless it’s, of course, the ones that are the fashion labels that pre-rip them for you. How can we have our cake and eat it too there, Tom?

Tom Momsen: Finding a balance. It’s a whole thing, you’ve got to have a balance. That’s the same whether you’re talking about your finances, your diet, your lifestyle, everything like that. You’ve got to have a balance. Yeah, people who just Scrooge McDuck everything, you go, that lifestyle would be so boring. Then you go to the opposite end of the spectrum, and yeah, you’re going to be working forever, and you will have to be working. There’s a big difference between having to work, and wanting and willing to work. Yeah, that’s a very big change in psychology at that point in time. Going, “I’m only going to continue to work because I want to work, not because I have to work.” That’s something that a lot of people come out with. Like, “Yeah, I want to be at a point where I am only working because I want to work, not because I have to work.” Again, I like that goal.

Mike Mortlock: It’s a pleasure delayment strategy really, isn’t it?

Tom Momsen: Yeah.

Mike Mortlock: So you can minimise the extravagance of your lifestyle and maximise it towards the end. You either have it now or you have it later. Personally, I’d probably, I’d rather have it maybe later, when I need to be looked after and taken care of. I want someone to be pushing my wheelchair, and maybe mashing my caviar for me. That sounds a bit silly, but is that what it’s about? It’s about thinking, well, what does my future look like, the way I’m spending now? Am I happy with that, or do I need to make some changes, because it’s going to bite me on the backside later on?

Tom Momsen: Yeah. It’s also just understanding the ramifications of your choices now. If it’s spending too much, just go, that’s perfectly fine if that’s the way you want to live. There’s no right and no wrong. That is what it is, but understanding the consequences. If you understand those consequences, and you’re still happy to do so, well, so be it. Keep doing it.

Mike Mortlock: Good luck to you.

Tom Momsen: Yeah, that’s cool, but if you don’t understand the consequences or you don’t like what those consequences are, well, that change has to happen.

Mike Mortlock: Right. Now, I’m getting a little bit of a sniff of the fun police. We had an interview with Dimitri Taylor, who I was getting a little bit nervous on the same sort of line. You say you like to help people retire early. I want to know exactly how you achieve that? At the moment, it sounds like you’re taking all my toys and my fun away from me. How do you actually help people retire early?

Tom Momsen: Definitely not. As I said, it’s got to be a balance, otherwise I’d be the world’s biggest hypocrite.

Mike Mortlock: Right.

Tom Momsen: Yeah. No, definitely not that way. It might be just reducing the amount of fun, not eliminating fun, and then making your money work for you. So the power of compounding returns, and having additional income sources generated off investments. That you reinvest there, and start the snowball. Snowballs do nothing to start with, but then in 10, 20 years’ time, they’re an unstoppable force. Einstein, I think it was Einstein, talked about the power of compounding returns as one of the most brilliant things in the world. Yeah, you go, that is entirely correct.

Mike Mortlock: It’s the eighth wonder of the world, or something like that.

Tom Momsen: Yes, something along those lines.

Mike Mortlock: Yeah, I remember that quote.

Tom Momsen: Yes. Yep.

Mike Mortlock: So you’re talking about investments and income streams. Can we get some of the Colonel’s secret herbs and spices there? What’re we talking about? Obviously, property we sort of discussed. Is that a big part of it? Obviously we want to be diversified. What’re you recommending, in terms of share portfolios, managed funds, index funds. What’re we talking?

Tom Momsen: Yeah, property for the majority of people forms part of it. A lot of times it is managed funds in there, whether it’s index active or evidence based funds. Yeah, whatever. often clients will have strong opinions on one. Yeah, if people come and see me, I’ll explain those to them. Again, no right, no wrong. Yeah, it’s just getting started into one of those, or a few of those.
It will pay dividends greatly in the longer term, the 10, the 20 years. Yeah, I might be maybe the fun police now, but then people don’t turn around in 20 years’ time and go, “Yeah, that was a bad idea to give me an extra two income streams.”

Mike Mortlock: It’s one of those things that I mentioned the other day. That someone, or no one has ever said in their older life, “I wish I’d spent less time with my family.”

Tom Momsen: Exactly right.

Mike Mortlock: I guess there’s not a lot of people that say, “Look, I wish I didn’t put as much into my financial planning in my 30s as I actually did.”

Tom Momsen: When they’re 60.

Mike Mortlock: Yeah, exactly. So what’re we talking about with these managed funds? What do they look like? I’m sure there’s all different types, but for people that haven’t had exposure to share markets and that sort of thing. What’re they made up of typically, and how do they differ?

Tom Momsen: Yeah. Managed fund, quite simply, it’s a pull of, it could be tens of thousands of investors pull money into a big buying group, essentially. Then a portfolio manager will sit over the top of that. That portfolio manager will then buy different assets, typically it will be shares. That’s Australian shares, international shares in there. They can be different sector specific, or anything. Essentially it’s a big pool of investor money that the portfolio manager manages on behalf. Yeah, there’s a big difference in the styles of portfolio managers out there.

Mike Mortlock: I guess the makeup as well. So there’d be risk-adverse funds that maybe invest more in government bonds.

Tom Momsen: Yeah, correct.

Mike Mortlock: Maybe cash and that sort of thing?

Tom Momsen: Yep. Yeah, so across all asset classes.

Mike Mortlock: Yep. Typically over 10 years, what would the average percentage return be at the moment?

Tom Momsen: For which asset class?

Mike Mortlock: Well, I guess give me the higher risk area. What can people expect if they come to you and say, “Look, I’ve got a certain amount of money to throw into a managed fund. I’m risk-adverse,” or, “I’m 20 years old. I want to roll the dice.” What’re we talking?

Tom Momsen: You’re looking at, it’s never a hero or zero play. It’s a highly diversified portfolio that’ll track the different markets in there. So whether or not it’s the bond markets, which could be maybe 5% per annum, that are quite low in the volatility. Up to the share markets, which, over the longest time periods, you’re looking at over 80 to 100 years, they average somewhere around the 8 to 9% mark. Again, that’s over the long-term, and historical returns are just that, they’re historical. They’ve got nothing to do with what they’re going to do in the future. So to really give a strong indication of what it’s going to do is tying the rope around the neck and sending people up the creek.

Mike Mortlock: Yeah, I can see you’re slightly unwilling to do that. So, if we’re talking about these sort of returns, obviously they’re contingent on the global economy, the local economy and that sort of thing. I guess it just comes down to the strategy of the individual on what you choose. The fundamental of spending less than you earn, and investing the difference. So the returns themselves, obviously they’re important, but it’s the longer term play of actually making that commitment to invest in those funds. Reap the benefits over time, and the benefits of compounding. Is that right?

Tom Momsen: Yeah. Yeah, that’s it. That’s really the strategy of the plan, and the ultimate investment vehicle is the past piece of the puzzle.

Mike Mortlock: Yep. When we’re talking about these income streams that help people to maybe move to three days a week work rather than five, or retiring at 55 instead of 68. This is what we’re talking about, right? Property portfolios, managed funds, that sort of thing, generating new income to replace your salary.

Tom Momsen: Correct, yep.

Mike Mortlock: What’s the sort of retirement age at the moment? What do you think is realistic for your two teacher household, to be able to set a plan in and to retire at? Is that too difficult a hypothetical?

Tom Momsen: No. Again, it really comes down to how they handle their financial situation. At the moment, you can get access to your super at age 60. I think, for the people under the age of 45, I think it will jump up. Definitely for the under 35s, I can’t see it being 60. I think it’ll be 65, the access to super. One of the big misconceptions is that you can’t retire until that point. You can retire at any time, it’s just whether or not you can fund it or not. It’s when you can get access to your super, that’s currently age 60. If you’ve got assets elsewhere that can fund your lifestyle, well, you could retire today.

Mike Mortlock: Yeah, exactly.

Tom Momsen: Yeah, for those couples, say the two teachers, if they’re smart with their coin, 60 is very much well and truly achievable in there. Yeah, if you start when you’re 35, 40, you can make some big, big, differences, just by doing some little things now that compound hard down the track.

Mike Mortlock: Yeah. Are there penalties for early retirement? I understand that with tax laws, you can certainly avoid capital gains tax if you’re in pension mode, depending on what sort of method you’ve purchased property in. Are there things that people need to understand and be wary of, if they’re looking at retiring early?

Tom Momsen: I don’t think there’s any downsides, no.

Mike Mortlock: Right. I mean, it sounds fabulous, don’t get me wrong.

Tom Momsen: It does, yeah. It’s certainly not going to put you in a worse position. Yeah, there’s ways that, if you own it through super and you transfer it from accumulation into pension phase. That over the age of 60, you’re paying zero tax on income or capital gains.

Mike Mortlock: Awesome.

Tom Momsen: You’ve got to have the asset in there, too.

Mike Mortlock: Yeah, of course. Now, let’s talk about income protection and asset protection. Typically, property investors will go through phases where they’re highly leveraged. They would depend heavily on their salary, as I guess most people do. What should people be doing? How do we protect ourselves from exposure to those high amounts of debt, that property investors will normally accumulate as they’re building their portfolio?

Tom Momsen: Yeah. To me, I look at income protection the same as building a house. You build a house with a foundation. You always reinforce the foundation, because if you don’t have that foundation reinforced, one little thing happens and it all crumbles. To me, income protection is that foundation, so it’s the same as putting reo into your slab. If that slab doesn’t have the reinforcement, then you’re sitting on shaky ground. That could go south and go south very quick. To me, it’s just absolutely vital to that wealth accumulation plan, because everything is reliant on that income in there.

Mike Mortlock: Typically, how does it work? I mean, what sort of money would you get if you found yourself making a claim on these policies? What does it cost to hold a policy on the average income? Can you run us through some of those specifics?

Tom Momsen: Yep. Essentially, you can insure up to 75% of your income. That’s the maximum. Typically, you’re looking at about maybe 2 to 3% of your income. If you earned a hundred grand a year, it’ll cost you somewhere between two and three grand.

Mike Mortlock: Yep, per year.

Tom Momsen: Per year.

Mike Mortlock: In what circumstances would you be able to make a claim on your income protection?

Tom Momsen: If you can’t go to work, due to any illness or accident.

Mike Mortlock: Right.

Tom Momsen: Essentially, it’s like purchasing your own unlimited sick leave.

Mike Mortlock: Yeah, interesting way to put it.

Tom Momsen: Yeah, it’s the easiest way.

Mike Mortlock: Well yeah, it works. It works.

Tom Momsen: The thing about it is, yeah, if you can’t go to work because you’re sick or injured, and you’d normally use your sick leave. Well, if your sick leave runs out, well you start using your insurance policy.

Mike Mortlock: Yeah, right. Are there any other things that property investors should be aware of, in terms of protecting themselves? Such as life insurance, or are there any other things that they should be investigating?

Tom Momsen: Yeah, definitely. You’ve got to look at your life insurance, your total and permanent disability as well, some trauma cover as well. Yeah, it just, if anything happens there on a bit more of a permanent basis, well, there’s going to be, particularly if you’re heavily geared, there could be some quick, hard, some ramifications. That, yeah, do you really want to expose your family to those ramifications, at a time when something tragic has happened?

Mike Mortlock: Yeah. I certainly don’t want to get too grim, but I’m sure that you’ve had a few people that have needed to call on these policies. Have you got any examples of what’s happened to people, what the financial benefit of that insurance has been? Then obviously that highlights what problems there could’ve been if that wasn’t in place.

Tom Momsen: Yeah, definitely. I had a claim on income protection only last year, oesophageal cancer.

Mike Mortlock: Right.

Tom Momsen: The guy was diagnosed two days before Christmas. He had nine months off work, and it was quite simple. He just said to me, “If it wasn’t for you kicking my butt into taking this policy out, I’d have been stuffed. I couldn’t have paid the mortgage. I couldn’t have put food on the table as well.”

Mike Mortlock: So we’re talking a repossessed house, scraping by on some sort of government pension to try and feed themselves and pay rent. Their lifestyle would’ve changed absolutely dramatically, over and above the stress of having cancer itself.

Tom Momsen: Yep. Yeah, that’s exactly right. Yeah, it’s never a fun time to be able to process a claim. Yeah, the client definitely turns around and sincerely thanks you there. That’s nice to know that you’ve made a difference in someone’s life.

Mike Mortlock: Yeah. I guess we all tend to think that that happens to other people. It’s always someone that you know, or an acquaintance of someone that you know that these things happen to you. That’s not how it all works, is it?

Tom Momsen: No. No.

Mike Mortlock: It’s not something that happens to other people, it’s something that happens to people at random. Those people can and will include your family, if chance falls that way.

Tom Momsen: Yeah, that’s exactly right. Personally, I hope I waste every single cent of my insurance.

Mike Mortlock: Yeah.

Tom Momsen: Because it means I’m 65, and I’m fit and healthy.

Mike Mortlock: Exactly.

Tom Momsen: That, to me, is a fantastic outcome. If something does happen, yeah, I want to minimise the impact that it has on my life and my family’s life today.

Mike Mortlock: Yeah. I mean, obviously that’s a pretty bad example of what can happen, but I guess a fairly typical thing of how people can find themselves in those pretty shitty situations. That insurance can make a very hard situation a little bit easier, because you don’t want the stress of having to relocate and worry about how you’re going to pay the bills.

Tom Momsen: Yeah. It can be something as simple as, like one of the main ones are tradies either falling off a bike, or going down on the snow and breaking a leg. They can’t work for three months. Well yeah, no income, you can’t get out onto a work site with a broken leg.

Mike Mortlock: No, exactly.

Tom Momsen: It can just be silly little accidents like that, that can have big ramifications financially in there.

Mike Mortlock: Yeah, of course.

Tom Momsen: It doesn’t have to be the big, scary, grim reaper style stuff. It can be just that silly little accident, that might’ve even happened when you were out on the beers.

Mike Mortlock: Yeah. Anything that stops you from getting to work, I guess.

Tom Momsen: Yeah.

Mike Mortlock: So let’s talk about the plan itself. I read a Sydney Morning Herald article that used a garden analogy. We’re going to get a bit left field and esoteric here. So, talking about using a planner to get the right plants in the right places. Choosing the right plants to suit your environment, but you can’t neglect the plants when they’re planted. Can you decipher this, and shed some insight on what they might be talking about here?

Tom Momsen: Sort of. It’s not the easiest analogy to explain.

Mike Mortlock: What I’m guessing is they-

Tom Momsen: I won’t be using that one, but …

Mike Mortlock: What I’m guessing is, they’re saying that an ongoing relationship with a financial planner is important. So you might pick your managed funds, you might diversify with property as well. Then, you’ve got to order the bloody things.

Tom Momsen: Yes. You’ve got to pay attention to them, you’ve got to make sure they’re still winning and thriving. Yeah, reviewing those on a yearly basis I think, for all assets. Property shares, managed funds, whatever it is.

Mike Mortlock: That’s what you recommend with your clients?

Tom Momsen: Yep, definitely.

Mike Mortlock: Obviously you put the plan in place, and it’s a yearly review normally?

Tom Momsen: Yep. Yeah, well and truly. Yeah, if you’re under the age of 45 in particular, have a look at the changes that have happened in your life and the last 15 years. Kids, mortgages, marriages, they come rolling through thick and fast. Typically, every two to three years, a major change is going to happen between the ages of 30 to 50. Yeah, it needs to be reviewed, because you’re getting curve balls thrown at you all the time.

Mike Mortlock: Of course. Yeah. Typically, I’m guessing if there’s a child that comes into the mix. One partner maybe takes time off work. Is it that sort of lifestyle things, or do you often change your profile or your managed funds? What sort of things, typically?

Tom Momsen: Yeah, it’s just reassessing the different risks that are in there. They just change around, and what can we do to reduce the risks involved? Yeah.

Mike Mortlock: How do people find a good financial planner? Obviously we’ve talked about some of the dodginess in the industry of old. It’s obviously sharpened itself up quite a bit. What sort of questions should people be asking? So say someone’s interviewing you, what sort of questions do you think, “Actually that’s a really good one. That’s going to give me a chance to answer how I do things differently”?

Tom Momsen: Someone who asks a lot of questions gets to know you, wants to actually know exactly where you’re headed. That everything that they’re saying is actually going to help you achieve the goals that you want to achieve.

Mike Mortlock: Right, so questions like where do you work? How long do you plan on staying there? What’s your partner do? When are you thinking of retiring? Those sorts of questions?

Tom Momsen: Yeah. Also, just some other really simple, what are the 12 month goals? Do you want to be paying down your home? Do you want to be going on holidays? What do you want to be doing in life? Yeah, it’s a gut feel as well, that’ll be a big thing, so if it feels good in the gut. If it’s feeling like a really slick sales process, you’re going, “Yeah, hang on, I never knew I wanted to buy a property, but now I do.” Yeah, maybe get a second opinion there.

Mike Mortlock: Apparently they can arrange the whole thing and I get a free holiday.

Tom Momsen: Yeah, and it’s not going to cost you a cent.

Mike Mortlock: Yep, rental guarantee.

Tom Momsen: Yeah, those sort of things. So start to actually question that. Yeah, there I like to think that there’s 99.9% of the people out there have actually got their clients’ best interests at heart.

Mike Mortlock: I mean, it’s organising your own values alignment meeting really, isn’t it? You say, “This is who I am. This is what I’m doing.” The financial advisor should be asking you questions about your goals and that sort of thing. You can fairly quickly get an idea of the ethics and the interests and the expertise of the person, I’m guessing.

Tom Momsen: Yep. Yeah, very much so. Yeah, you’ve got to go in and see there’s a bit of an interview. Also ask yourself, is this someone who I feel as though that I could be working with in 20, 30 years’ time?

Mike Mortlock: Yep. Yeah, awesome. That’s something we think about with marriages, you would hope.

Tom Momsen: Yeah.

Mike Mortlock: Perhaps not with financial planners.

Tom Momsen: No, but if you go and you’re trying to find a new doctor. I think a lot of people would go, well, yeah, I like to see the same doctor for an extended period of time. So that they get to know me, my history. I think that’s a good place to start in there. You’ve got to have a good, comfortable rapport with the person. To be able to have that good, ongoing, trusting, professional relationship.

Mike Mortlock: Awesome. Speaking of getting in touch with you Tom, how do people do that if they want to?

Tom Momsen: Probably email,, or give the office a buzz on (02) 49 431 298.

Mike Mortlock: Of course, you’re eminently Googleable as well.

Tom Momsen: Yeah, and got the good old Facebook page too.

Mike Mortlock: Excellent. You share some pretty interesting things there, from personal growth, to business, to shits and giggles. So I recommend a follow of Tom Momsen on Facebook as well. Just to wrap things up, Tom, if you can impart one piece of advice, thinking of our general property investor listener, what would it be?

Tom Momsen: Get started.

Mike Mortlock: Right. That’s succinct. That’s one of the shortest ones we’ve had, but it works.

Tom Momsen: Yeah, it does, because it’s actually action.

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