Get on the property ladder, even if you have to start in the outer suburbs

Curious investor, Bruce Cleary started thinking about his retirement in the 80s when he secured his first property in Canberra. He then waded into the stock market with some early disasters, before he refined the approach that has set him up for retirement.

Now Bruce’s share portfolio consists of small and medium caps. His strategy: buy no more than six percent of any stock and try to have a maximum of two stocks in any one sector.

Financial literacy is a subject that Bruce is passionate about and he has some thoughts on downsizing as you age. And he advocates having a plan for how you want to live through retirement with consideration of end of life care.

Bruce Cleary tells James Brandis what he’s reading, how reverse mortgages could help retirees and the advice he would give to someone just starting out.


Bruce, you are retired, and you’re financing your retirement through a self-managed super fund. What sort of work did you do during your career?

A good part of 25 years I worked for a large English food company. And fifteen of those years I was a general manager of a number of large bakeries.

Oh, that sounds good.

Yes, I originally started as an accountant, and ended up as general manager running major bakeries in Australia. At the end of that period I went into a small business. Business training – training executives and business people how to be organised.

Did they behave like baked goods? Were the skills transferable?

It was very difficult. People had so many things in their head and changing habits and changing gears is extremely difficult unless they are a very willing participant.

Did you pick up any skills in changing views?

Only for myself mainly. I did this program, before I took it on. It was a franchise program. And I found that, leading a very busy life, having a lot of things on the go there is tendency to forget things. It helped answer: How do I get myself organised so that I’m bulletproof. I can have a dozen different things going and not let anything slip through the cracks. And it’s how I’ve been running my life since on that sort of program.

And in what stage of life did you start thinking about investing for retirement?

I had my first investment property in the late 80s. I was in Canberra at the time, working, and then moved back to Sydney and started my self-managed super fund in 2001.  I probably started share investing in about ’95, though. I went to the ASX and heard some talks and spoke to a broker after that and bought a few shares. That actually was a bit of a disaster. I think that we invested at the top of the market. Then, they sat there for about three years without moving.

That’s frustrating.

Yes, that taught some lessons that: How do you do it? What do you need to do to actually be able make money consistently? And that became the journey. How do you learn how to become an investor? From what I’ve read and what I’ve experienced myself – it’s quite a long journey. It’s about a ten year journey before you start. That’s if you work at it. That’s the hard part, you’ve got to keep developing those skills and research. And find your own particular way which you feel comfortable with that you can sleep at night when you invest your money.

What does your investment portfolio look like now?

The portfolio now consists of a lot of smaller and medium caps. I’ve got some large ones like CSL, REA. And then a lot of smaller ones like ARB, Blackmores, Nick Scali, Resmed, a few like that. I’ve got about sixteen stocks in my portfolio at the moment. I invest on a process that I buy no more than six percent for any one stock and really try to only have a maximum of two stocks in any one sector. That’s the process and I try, depending on the market. If you think of the way the market moves, you have a market that’s very exuberant and builds up and goes higher and higher, and then we have crashes and then it’ll build up again. So I focus on trying to invest in the market towards the bottom as a sort of contrarian investor.

You emailed Alan Kohler earlier this year to express your frustration with the sad lack of engagement in financial literacy amongst baby boomers. What do you think could be done to increase financial literacy?

That’s an extremely difficult one. I spent some time in Singapore. My wife had a job there, and I moved as a trailing spouse so I had plenty of time. I was part of the Australian/New Zealand expat group. I started a group called an Investor Interest Group.  And over three and a half years, had about 50 people cycle through that. We just talked about issues. That really brought it home to me that people, even people with a lot of money, don’t really think about it and they don’t work at it. Everyone wants easy solutions, they want to be able to tap into this magic formula and have it given to them. Not many people are willing to actually put a bit of work into it. That’s the sad part. How do you get around that? I don’t really know. Perhaps we need to start very early in somebody’s lives so that we do it, perhaps even from school days.

In your email, you also highlighted the complexity of the system for people entering retirement. Did you encounter some pitfalls as you transitioned into retirement?

Not really, because we planned our retirement. We’d been in Singapore and we were retiring and coming back to Australia, which we did at the end of 2014. We’d had a financial plan, which we’d drawn up over many years, so we didn’t really have any real issues in that way. I have a good accountant and I’m happy to pay for advice on the technical issues of superannuation and tax. We now model our plan out about five years at a time. We look at what our expenditure is, what our returns are estimated to be, how we’ll be looking. We’ve got plenty of challenges, I mean from this point of it, particularly looking forward. We need to be able to finance our life for the next – who knows. For longevity risk, we could live to our nineties, mid-nineties.

Then you’ve got to go through, perhaps, end of life and be able to finance it. You have things like nursing homes. I have a member of our family at the moment just looking like needing to go into a nursing home. I have been doing some research on that, and I’ve found that people need to put aside somewhere between $500,000 and $1 million to guarantee a reasonable place in a reasonable nursing home. That’s the bond. So how do you finance that?

Yeah, that’s hard.

It’s a tough question. That’s right. If you don’t want to leave things to chance, or leave it to your family to have to make decisions when perhaps you don’t have the capacity anymore, then you need to have some sort of security and peace of mind going forward. I believe that you need to think about these things and plan them out.

When you do plan them out, does it make you anxious about what could happen in the future, or does it make you feel empowered that you’re taking that time to do that planning?

Absolutely empowered. We’ve been making plans for 25 years. In the early days, it was, we’d plan holidays, on an A4 sheet of paper. Just write what holidays we want this year, what savings do we want, what else do we want to do in our life? Over the years, we’ve always found that you have such heightened awareness of opportunities during the year that we usually achieve the plan and mostly exceeded it. It seems to me that if you plan things and you look at as many outcomes as positive and negative as you can, then you’re as well-prepared as possible, and that gives security of mind I think.

And another issue you highlighted in your email to Alan was about releasing the equity in the family home to finance retirement. There was some change in the budget about downsizing opportunities which didn’t really amount to much, but you thought reverse mortgages could be the answer. Tell us more about that.

I see so many people retired and they think, “I’m going to go on the pension.” One of the accounting societies a couple of years ago did an investigation and saw that a lot of people just before retirement take out an additional mortgage, renovate their home, on retirement, cash out their superannuation and pay the mortgage off and then go on the pension. Now that’s fine. You have a lovely home then. I think the full pension is about $32,000, roughly. To me that seems pretty close to poverty level, whereas if you’ve got a home, even a modest home these days is probably worth $1.5 million.

If you took a reverse mortgage, which just means that you borrow money from a bank or a financial institution, based on the value of your home. They charge you interest, but eventually it’s got to be repaid from your estate. So if you’ve got a $1.5 million home, and you took $100,000 a year, you’d pay an interest rate I think currently it’s about seven and a half per cent. Say you’d use $100,000 a year. Can you imagine the lifestyle you could live with an extra $100,000 a year, instead of living on the pension at $32,000 a year. And that’s a full pension.

You’d have an enhanced lifestyle. So over a ten year period, you’d draw down ten years by $100,000. But the market value of the houses goes up on average by about 10% a year, so you’re picking up the equivalent of what you’re drawing down. So at the end of your life, the house is still going to cash out at $1.5 million. So your family and children can still get that inheritance that a lot of people see as a very important issue.

It just means that you can enhance your life. You don’t have the worry about the annual budget where the pension’s going to be squeezed and falling behind the cost of living, et cetera. You can have an enjoyable life, still have an inheritance for your children, and that’s got to be a better thing.

Bruce, I don’t know if it’s possible to summarise all of your thoughts, but what would your financial advice to young Australians who have 20, 30 or 40 years of working life ahead of them, how would you advise them to get their affairs in order and set up for a successful retirement?

I think first of all, first and foremost in your early years of life, just buy a home. If you look at superannuation, and I’ve done some studies of working out the numbers of investing in superannuation versus investing in a home, currently a home is tax free – so put money into your home, pay off a mortgage, and raise your children. In your mid-forties, early fifties, you then can focus more on putting some money aside for superannuation. Buy a home would be my advice. And most people would start with a really modest, further out than you’d like, but just get started. Then over the years, people just upgrade. Most people have two or three or four homes over your lifetime. I think that’s just the only way to go.

Sounds like good advice. And Bruce, in the TCI office, we’re always fascinated to find out how members are consuming the content on theconstantinvestor.com. In your email, you mentioned that you and your wife read Alan’s overview aloud as a bit of a conversation starter on Saturday morning. Is that right?

We do. That’s a key part of our Saturday morning. Alan’s very good at the macro view, I think, of the world. I think he summarises the situation in the world very, very well. And then we always ask the inevitable question, what does that mean for us? What does that mean for our life and our portfolio and is there anything we need to do about this?

I’ve been following Alan since his Business Spectator days and all the other businesses that he’s transitioned through to get to this stage.

That’s great. And Bruce, what else do you read to enhance your financial knowledge?

The two key things that have helped me in my investing is Roger Montgomery has a terrific book called Value.able. He’s an advocate of value investing, which is the principle that we follow. The other one setting up for really strong investment plan is the other key that you need so that you’ve thought about it and you have a very tight process for investing. There’s an Australian author, an investor of 40 years, called Colin Nicholson. The book’s called Building Wealth in the Stock Market. Colin also has a website, and he publishes his own personal portfolio each and every week. If you have a look online, you could even benchmark yourself against him. They’re the summarised core philosophies of how you put together a process to invest. We’ve modified it all to suit our own personality, and you’ve got to do that. But it’s a very good starting point.

Bruce, thank you very much. It’s been fascinating talking to you.

Good. Thanks very much.