Benevolent Sexism

In my free time, I often read old blog posts to remind myself how much I hated my job in the past, but things have changed now. When you endure the pain of work, often things change. Workers around you change. People move on. Suddenly I am surrounded by better workers and suddenly I enjoy my job. However, just as things can change for the better at work so too things can change for the worse, which is why I live off dividends and minimise obligations. I live as if employment termination is imminent.

Something I have noticed is that there are many powerful women in my organisation and that the line between me and the man in charge of the organisation is mostly filled with women. I may have had an issue with this earlier, but I’ve had a change of heart, and I don’t mind women occupying positions of power in society. I find I don’t mind treating women better than men. I open doors for them and even walk with them through dark alleys to protect them. I wouldn’t call myself a feminist because feminism implies equality. I now believe in benevolent sexism. Of course, when I behave like this around women, I’ve had men tell me that women won’t love me because I am nice to them. These men are typically married and feel as if they can teach me a thing or two because I am single and therefore must be desperate to do whatever I can to attract women. Their great value-add is that women do not love nice guys. They tell me this as if it were such a huge revelation, a secret that only the smartest men know. According to these people, I need to display more dominance if I want to be loved. I need to rough women up and put them in their place. They are begging to be dominated by powerful men. To be honest, it is annoying when people impart this advice on me because clearly they look down upon me as if I am inferior, and the solution to my problem, according to them, is to spend more time trying to conform or do whatever is necessary to impress others. What ever happened to just being yourself?

Nevertheless, I do want a girlfriend. However, I am content being single, and I am prepared to be single forever. I suppose I am selfish because I do want a girlfriend but I don’t want the commitment. I don’t want the obligation. I believe in antiobligationism, i.e. do whatever you can to minimise obligation whether it is financial obligation (e.g. debt), legal obligation (e.g. marriage), or social obligation (e.g. customs, norms, or tradition). The minimisation of obligation and control over the “direction of flow of obligation” is central to freedom and autonomy (see The End of Slavery: Why I Live Off Dividends).

When I had a girlfriend in the past, I complained about how expensive it was to take her out all the time, but it’s been a long time I’ve been single and I find I am losing passion in my life. I don’t look at travel or going out as something enjoyable anymore. If there is no one to go out with or travel with, I feel I am wasting my time. I am saving a lot of money, but now that I have more passive income and therefore more money budgeted for spending, there is little I can do other than make the routine of work more comfortable or luxurious.

I notice that many people at work go to incredible lengths to save money. During lunch they bring their disgusting smelly food to work, and they wash their plates after they’re done eating. They drink instant coffee at work. They wear old clothes. They do whatever it takes at work to slave away and save money, but then outside of work these people splash out and go on consumerist binges. They have multiple children, they go on lavish vacations, and they send their children to private schools. This is the work-life balance that people talk about. People work to live, but work is not living. Work is something to be endured, something to slave away at so that you can live your real life, which is outside work, mostly on the weekends.

However, I don’t have a typical life: I don’t have children, I don’t have a family (or at least, I have a dysfunctional family), I don’t have a partner, and I have few obligations. My spare time mostly consists of work or passive electronic entertainment (Netflix, YouTube, Kindle, etc). When I am not working, I barely spend anything. Netflix is only $14 per month, YouTube is free, and Kindle books cost maybe $15 and I spend many months finishing a whole book. Because I don’t have a “life,” then work is life, and life is work. If I don’t spend money at work, there is a risk I will never spend any money ever, so I allow myself, while I am at work, to indulge in a coffee at a proper cafe, or I eat out at a restaurant during lunch. I like to get out of the office, breath in the fresh air, chat to the barista, and indulge in that warm $5 coffee.

To be honest, I would love to be a “normal” guy i.e. I would love to have a girlfriend so I could have someone to travel with, and I do value female intimacy, but at the same time I am skeptical of marriage and I never want children, so if I do have a girlfriend she needs to have similar values. But I just can’t find such a girl and there is no way I can meet such a girl. I cannot use Tinder because I don’t want people to see me on Tinder. I used Tinder before and found out that there were rumours around the office that I was using it, so I completely shut down the account and vowed never to use it again. My friends and family have tried to arrange relationships for me, but these relationships failed. Finding female intimacy at work is very dangerous, so I am extremely cautious. There is no way I am going to a bar or a nightclub. I do not like these places. Therefore, there is nowhere I can go and nothing I can do. It is as if modern society has conspired to make it impossible to find love. I just need to find happiness in being single.

Betashares Active Australian Hybrids Fund (ASX: HBRD)

I have always been interested in the latest ETFs in Australia. Most people are collectors e.g. they collect stamps, coins, antiques, wine, or wristwatches. I personally like to collect investments. As such I has bought and continue to hold countless investments across many different asset classes. The problem with a passion in e.g. wine or wristwatches is that it may not be profitable (unless the wine or watch is so rare it goes up in value) but an obsession or passion in investments is one you can indulge in without any guilt.

The latest ETF I have researched and purchased is the Betashares Active Australian Hybrids Fund (HBRD). The reason why I have purchased HBRD is because I feel at this stage I have an overweight exposure to stocks, so I want to reduce the risk of my portfolio. However, reducing risk usually involves investing in cash, bonds, or gold. However, these asset classes (with the exception of corporate bonds) pay low passive income thanks to the current low interest rate environment. Investing in HBRD allows me to reduce risk while at the same time getting about 4% or 5% passive income paid monthly.

For a few years now I have been worried about the valuations of stocks and property, but I have been surprised that these assets continue to go up, so the derisking of my portfolio over the last few years has certainly cost me money as I have missed out on large price appreciation. (I also missed out on the cryptocurrency boom as well.) Nevertheless, I have little regrets because I believe in diversification i.e. spreading money across everything. My plan is to gain freedom by slowly building passive income through steady and consistent investment fueled by a minimalist lifestyle. I also believe it is better to be safe than sorry. I’d rather walk steadily towards my goal rather than run there in order to save some time and potentially slip and fall. As they say, everything looks good in hindsight.

What is a hybrid?

All investments have a risk-reward trade-off. The more risk you take, the more potential reward you have. For example, cash or government bonds are safe investments. Government bonds are guaranteed by government. In Australia, cash deposits are mostly government guaranteed as well. However, if you invest in government bonds or cash, you will earn little interest, perhaps 1% or 2% if you’re lucky. Bonds are merely IOUs. If you buy a bond, you are effectively lending money and in return you receive regular interest payments (called a coupon) as well as your money back after a certain period.

In contrast to bonds, stocks are risky investments. Buying stocks allows the stockholder to vote (e.g. for who becomes a director) and allows the stockholder to earn dividends, which are simply payments made by the company to stockholders from profits. Stocks are risker than bonds because bondholders are paid before stockholders. If there is profit made by the company, bondholders are paid first and remaining profit is paid to stockholders. This also applies in the event of bankruptcy. Because stocks are riskier, companies need to pay higher dividends in order to compensate investors for taking on more risk. Dividends from Australian bank stocks such as CBA pay dividends of about 8% currently, but stock prices are volitile and can fluctuate wildly. Although bank stocks pay higher passive income, you are risking capital loss and dividend cuts should the banks become unprofitable.

Hybrids are assets that are a hybrid of bonds and stocks. When you buy a hybrid, you receive regular income as you would a bond. However, under certain circumstances within the hybrid contract, the asset may be converted into equity. All hybrids are different, so it is difficult to generalise. Some hybrids have characteristics that make them more like bonds whereas others have characteristics that make them more like stocks. Regardless, hybrids sit between bonds and stocks on the risk-reward continuum and so can be expected to be less risky than stocks while still paying reasonably high income.

Why buy a hybrid ETF

As explained earlier, every hybrid is different. In order to understand whether a particular hybrid is more bond-like or stock-like, a careful study of the terms and conditions is required. Hybrids are complex investments and as such is suited to active management and oversight by experts, which is what HBRD provides.

Conclusion

Although a good case can be made for active management in hybrids, active management has its issues. You are putting your trust in people, which is generally not a good idea. Nevertheless, I do not intend to put everything into HBRD but will instead spread money across lower risk investments with high passive income. There are another ETF also issued by Betashares that invests in corporate bonds (ASX: CRED). Corporate bonds are higher risk than government bonds thereby allowing higher yields. CRED also pays monthly income, which is very attractive for people who live off passive income (such as myself).

One of the frustrations with hybrids is that there is very little information about it. For example, if you research cryptocurrencies such as bitcoin on the internet, you will find a neverending flood of information, YouTube videos, etc. Bitcoin is a global investment that everyone can access. Hybrids, on the other hand, have few exchanges and are mostly purchased by institutional investors off exchanges. There is little information on the internet about hybrids.

Another consideration is that HBRD purchases hybrids from Australian banks, which are heavily exposed to the Australian housing market. There are currently fears of a slowdown in the property market. Nevertheless, Australian banks do not hold the property itself but rather the mortgages used to buy the property. So long as borrowers keep making their interest payments and paying their fees, revenue should be unharmed. Hybrids are issued all around the world, so the returns on hybrids should correlate with global interest rates. In the recent rising interest rate environment, this should mean higher returns from hybrids but more interest cost for Australian banks as wholesale credit becomes more expensive. Nevertheless, Australian banks do have considerable market power allowing them to respond to rising cost of global wholesale credit by raising interest rates or fees.

 

How Much Passive Income Do You Need?

Most people I speak to, when they want to measure someone’s wealth, measure wealth by referring to how many houses they have. For example, “John owns 14 houses. He is rich.” However, someone may own 14 houses, but each house may only be worth $200k, which gives total assets of $2.8 million. However, what if he also had $2.7 million worth of debt? His net worth would be $100k whereas someone who owns one house worth $1 million that is fully paid off would be 10 times wealthier even though he owns 14 times fewer houses. This example clearly demonstrates how misleading a count of houses is. A more sensible approach is to calculate net worth.

However, net worth can be misleading as well. For example, suppose you inherited a house from your parents that was worth $500k and you live in this house. Suppose suddenly this house went up in value to $1 million. Are you better off? Your net worth has increased by $500k, but because the extra wealth is within the house, you cannot unlock it unless you sell the house. If you sell the house, you’d still need a place to live, so you’d buy another place. The problem is that if you buy another place, that home will have risen in value as well, so the net effect is that you have paid taxes, real estate agent fees, conveyancing fees, etc but there is no difference in your living standards. You are worse off. If you downsize and buy a cheaper place, you’d be able to unlock your extra wealth, but then your living standards drop (e.g. extra commute time).

This point highlights that net worth, although better than a count of houses, has its flaws. An alternative metric, in my opinion, is passive income. Passive income (e.g. from dividend income but also from rent, interest, etc) is income you receive by not working. Passive income should subtract any debt as debt is negative passive income. Debt is the opposite of passive income because you must work to pay off debt. This applies if you hold debt as a liability. If you hold debt as an asset (e.g. you own bonds) then this is passive income. The bonds generate interest for you that you can live off without any work.

Passive income is more useful because it directly measures your standard of living. If your net worth goes up by $500k, that may have zero impact on your standard of living. However, if your passive income goes up by e.g. $1000 per month, that is actual cash in your hands. It directly impacts how much you spend and directly impacts your standard of living.

So how much passive income is enough? It all depends on the person. Everyone is different. It also depends on the city you live in. Some cities are expensive while others are cheap.

However, using Melbourne, Australia for this example, in my opinion, to cover the basic necessities of life, passive income of about A$2000 per month (US$1500 per month) at a minimum is needed, in my opinion.

Currently I work, and I do like my job at the moment, but loving my job is a recent experience. For a long time I have hated my job mainly because I have had bad managers. Something I have learned is that things change all the time at work, so you need to have an exit plan at all times. Too many people get a job, expect they will always love the job and always make good money, so they go into debt to get a mortage, have children, inflate their lifestyle, etc and then suddenly they find they hate their job, but by then they are trapped. I made this realization early on in my career because, when I started working, I went through a restructure in the organisation. I learned quickly how risky it was to have debt and obligations, and I realised the value of structuring your life so that you have the ability to walk away from anything, not just your job but from any person or any organisation. There is great power in being able to disappear at the drop of a hat, and this is achieved with passive income coupled with minimum or no obligation (including financial obligation i.e. debt).

Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner.

~ Neil McCauley

Even if there were a restructure at work or a tyrannical manager took over and started legally abusing staff, with passive income of $2000 per month, it is easy to stop work and live an urban hermit lifestyle e.g. renting a one-bedroom unit on the outskirts of the city (e.g. this place in Frankston), living off Aussielent, and surfing the internet all day. The only costs are rent ($1000 per month), Aussielent ($320 per month), wifi ($50 per month), electricity ($100 per month), and water ($100 per month), which comes to a total of $1570 per month. I round that up to $2k per month just to give a little buffer. Nevertheless, this is quite a spartan minimalist lifestyle. Doubling it makes $4k per month passive income, which I feel is enough to really enjoy a comfortable and luxurious lifestyle e.g. travelling, living in the city, eating out, etc. Nevertheless, $2000 to $4000 per month in passive income is a good range to aim for.