Interview with Pete Wargent: Part One – Financially Free at 33

Pete Wargent wears an impressive number of different hats.  Top-selling author.  Market analyst and economic expert.  Property buyers agent.  Personal coach.  And blogger!

But there’s another notch in Pete’s belt that readers might not be aware of.  He’s one of the earliest published examples of an Aussie reaching Financial Independence at a young age!  (well, he’s originally from the UK, but that’s okay) 😉

I’ve followed Pete since the very beginning back in 2012, through his daily blog and various books.  In fact, I very much looked at Pete as a role model during my own journey to Financial Independence (and still do today).

So it’s with great pleasure I bring you a two-part interview with Pete.  Part One is about his journey, investing experience and how he now enjoys spending his time, after reaching FI at age 33.  And in Part Two, we’ll get Pete’s insights into the future of the Australian economy and long term investing.

Lots to cover, so let’s get started!

Introduction to Financial Independence & Investing

When did you first discover the concept of Financial Independence?  Or when did you decide the traditional lifelong career thing was not for you?

Pete Wargent:  Good question.  I don’t believe I thought it was a realistic goal until I was in my mid-twenties.  At least, not for me.

But I guess as an accountant I saw that some of my clients had achieved huge things, so that planted the seed with me.  And then when I began investing in earnest jointly with my then girlfriend (now wife), I realised that there was potential to get there.

Was your wife completely on board from day one?  Or was there some debate around it?

Pete Wargent:  100%.  In fact, when we first met that was a wake-up call for me, because she was absolutely miles ahead of me.  She has a couple of years on me age-wise and bought her first house in Cambridge (near London) at 21.  And when we met she had already paid down a huge chunk of the mortgage, plus she had already been averaging into a couple of index funds for years.  And I was nowhere by comparison.

I think we helped each other: in some ways I was more self-confident, while she was more established, and had a more senior role at work.  We were both higher rate taxpayers by the age of about 25 (her) and 26 (me), so that helped quite a lot, obviously.

The Road to Financial Independence

Can you share what your journey to FI looked like?  

Pete Wargent:  That’s where it started for me.  Initially I was most interested in the stock market and fundamental analysis, because my job involved auditing listed company financials, and then later when I became a Group Financial Controller preparing listed company financials and ASX releases.  So I felt that I should be best suited to a value style of investing.

In time, however, I learned that you can spend an awful lot of time analysing companies and still get it wrong.  And also, it is a bit trickier to time the market than it first appears – bull and bear markets can run for much longer than you might think, and the market can also tread water for years.  So I moved towards a much more diversified approach in time, to let the wider market and dividend growth do the heavy lifting with more peace of mind.

When I was 28 I realised that if we were going to get out of the rat race sooner rather than later we were going to need to use more leverage (not just margin loans and CFDs – which I did use a lot – but also more mortgage debt).  So we went pretty hard into real estate in Sydney with 3 properties there, as well as properties in London, and Essex in the UK, to add to the house in Cambridge.

All those markets have basically exploded, and that was where we got the bulk of our results in the first ten years, with our first six properties performing hugely.  I’m not saying it’s right for everyone to use so much leverage, but that was our journey and our experience.

The stock market performed just fine and has kept ticking along ever since.  But it’s been a steadier journey for us, as we missed the US stock market boom, being mainly invested in UK index funds.

How long did it take you to reach FI, after you started working towards this goal?  

Pete Wargent:  I was 33 when I quit my full-time job, and I suppose it was a lifelong journey.  But as alluded to above, most of the big spike in results really came in the five or so years leading up to that point, and then over the years that followed too.

What were your work roles along the way?  And did you enjoy the work?

Pete Wargent:  I was a Chartered Accountant in London, and then later in Sydney.  It’s a tough qualification with years of exams and three years of experience to become time qualified.  Both my wife and I were ultimately Directors at Deloitte, which is one of the big 4 accountancy firms.  I enjoyed some of the work, and it was great having a ‘year group’ of mates to move through the system with.

But it could also be quite stressful, and the hours were long, while the regulation and compliance are heavy going these days.  I probably enjoyed 80% of it, and there was some great fun along the way.  But I found some of the meetings very dull, and having to be in one place for days on end didn’t suit someone like me at all.

A bit like most things in life, it wasn’t all good or all bad.  I liked the actual work.  I didn’t like the office politics all that much.

Saving and Investing

Do you remember how much you were saving?  And did your attitude towards spending change once you had a goal?

Pete Wargent:  Not much to start with.  But then it was massive for a few years, when we decided to target financial independence.  Compared to our peers, I mean, really huge.  We stopped going out completely and trained for the Sydney Marathon for 6 months, and that period was almost a total spending freeze!

We were never too obsessive about it.  But towards the end of our full time work we made a very conscious effort to save as much as possible.

I was a bit resentful some of the time, when I’d rather have been out on Friday and Saturday nights, and it was a big lifestyle change for us.  I found it hard initially, and I started going straight to the gym after work on Friday nights for a couple of hours.  That was the toughest time of the week – at the end of the fifth day of work – not to go out to the pub.  

But I figured that it would benefit us in the long run.  And we saved the deposit to buy two properties in Sydney, largely by foregoing expensive forms of socialising for quite a long time.

Can you share what your investment strategy was?  And has it changed over the years?

Pete Wargent:  It’s been varied.  At the beginning there was more value investing in individual companies and share trading, including with margin loans, options, and other leverage.  Throughout the entire period we’ve dollar cost averaged into the FTSE index, which we’re still doing even today.

And the property strategy we’ve used has just been to buy, renovate, and hold property in the biggest capital cities we could afford at any given point in time.  And we’ve never sold a property ever since the first one Heather bought all the way back in the in mid-1990s.  

What does your portfolio look like now?  And what are your investment plans for the future?

Pete Wargent:  Our goal when we started out was to own ten properties in ten years, evenly split between Australia and the UK.  Because we wanted to focus on quality rather than quantity, it took us a bit longer than ten years, but we got there in the end.

We’ll still add some more properties opportunistically over time – and we do plan to build on some land that we have at some point – but we don’t use much leverage these days.  The last two UK properties we bought for cash, so they pay us income.  And the last property we bought in Australia was in New Farm in Brisbane, which was a renovation project.

The shares are much simpler these days.  We invest in a couple of different UK index tracker funds, and a few LICs in Australia.  Not many individual stocks at all, just the odd one when it takes our fancy.  So I bought Commonwealth Bank in the mid $60s during the Royal Commission.  But mostly its ultra-low-cost funds and LICs when we have spare cash.

You hold shares and property in both Australia and the UK.  Do you feel international diversification is a must?  Or does it just suit your circumstances?

Pete Wargent:  The latter for us.  But I don’t know if that’s essential for most people.  I really like Aussie shares because the dividend yields can be double the MSCI global average, and the tax benefits are comparatively attractive.  But if someone said they wanted to get exposure to international shares too for the diversification, I’d find it hard to disagree with them.  It’s horses for courses.

Portfolio Allocation

Do you target an allocation between asset classes and countries?  Or do you simply invest where you see attractive opportunities at the time?

Pete Wargent:  Ideally it would be great to have a balance of everything split across countries.  But for us there’s been a bit of following the opportunities as well.  So we don’t obsess over it.  For me, I just want to keep moving forward in whichever way seems best at the time.

So the essence of your strategy is investing in prime location property for capital growth and diversified shares like LICs and index funds for growing income, is that correct?  And what has influenced your thinking on this?

Pete Wargent:  Absolutely.  People seem to become quite tribal on the property or shares debate.  But I think there are advantages to both, provided you are sensible. 

If you want to use leverage and find opportunities to add value, then property can do that for you.  But if you want passive income, shares are far more efficient, with far fewer headaches.

If someone says to me they just want to do shares and never own a rental and that’s good for them, then I wouldn’t disagree.  Whatever works best for you.

What’s influenced my thinking?  I hate the idea of paying CGT (Capital Gains Tax).  And I’m an accountant, so my spreadsheets told me to buy good quality assets that you never have to sell.

Do you think it’s better to hold both property and shares in an investment portfolio?  Or should it be tailored to one’s own goals and which asset class appeals to them?  

Pete Wargent:  I personally do, because all asset classes have summer and winter seasons.  During the Sydney or London property booms I’d have hated to be not owning any property at all, because I was in a hurry to get to my financial goals.  But some people are more patient and have a nailed-on preference for the stock market, and that’s fine too.  

Do you add to your portfolio on a regular basis or wait for opportunities? 

Pete Wargent:  Whenever we can afford to.  It’s never the perfect time to buy, so we tend to just get on with it and take the best opportunities on offer at the time.  And that’s the case for shares or property.

Life Lessons

If you were starting from scratch today, what would you do differently? 

Pete Wargent:  Wow, that is a really good question.

Honest answer?  I would stop partying earlier, and invest more sooner.  Both financially and in myself (in terms of learning life and business skills).  The single biggest hurdle for me was boozing (and smoking), which I did way too much of in my teens and early twenties.  Once I quit all that, I moved forward at lightning speed, and ideally I should’ve done it sooner.  But I look forward, not back!

Interestingly, I do plenty of personal coaching with my business Next Level Wealth these days, and one thing that invariably comes up with my clients is a regret of some sort.  A stock or property they should or shouldn’t have bought, or a business that didn’t work out as hoped.

But hindsight is 20/20 and if life was easy we’d all be heroes.  So all you can do is take the lessons from the mistakes and resolve to look forward, not back.

In terms of investing, I think we’ve been quite lucky and ridden some massive bull markets.  So while I could always say that I’d have done something or other sooner or better, I’m not going to complain.

Did you struggle with anything along the way?  Peer pressure, self-doubt or patience?

Pete Wargent:  Partying and the peer pressure to join in with it when I was younger.  It’s very hard to save when you eat out at hotels and restaurants, and go to the pub regularly.

Peer pressure was also hard when I went out on my own to write books and start a business.  And there was a level of negativity from some friends and associates.  It doesn’t bother me now, but it did for a while.

My advice to anyone in the same boat: don’t be that person that doesn’t go for it because you’re worried about what friends might say.  It’s not their fault – they only know you as the old you.  And they probably aren’t your target audience, so just take a deep breath go for it.

And anxiety.  I had a chronic anxiety disorder when I was younger.  In hindsight it’s easy to see why – I had a change of country to Australia, I moved to a new house, had a change of girlfriend, change of job, change of career.

There was an awful lot of disruption in my life in a short space of time.  But I didn’t get that at the time and thought I should cope with it all easily.  Burning the candle at both ends – ‘work hard, play hard’ – certainly didn’t help.

Escaping the Rat Race

When you left work, was your portfolio income paying the bills?  Or did you just take the leap once you reached a certain net worth?  And if you’re okay sharing, what was that net worth roughly?

Pete Wargent:  Not at that time.  Our combined net worth was about $3 million Aussie (if you’re reading this in the future that felt like a huge sum at the time, though today it wouldn’t go as far). 

The thought process was to assume a comfortable 5% potential income return on equity, so a $150,000 passive income would require about $3 million of equity.  But we still had some real estate costs, so, no, it wasn’t all about passive income for us at that time.

Did you always plan to get into business and/or write books?  Or did you quit work with no plan but to simply follow your interests?

Pete Wargent:  Not at all!  We went travelling for 15 months, and I just decided to write a book after a few weeks of travelling, when I was at a loose end.  And it all just kind of led on from there.

When I quit my role as Group Financial Controller I had absolutely no idea where life would take us.  We drove the ‘Big Lap’ of Australia in a camper van, lived in Darwin for a bit, and then East Timor.  And then went on a world cruise for a few months.

We just thought we’d let life take us wherever.  It was brilliant, actually.  Sounds very idyllic to me now that we have two kids!  I doubt I’d have done many things that I have if we hadn’t taken the plunge to go travelling, so I’m very glad we did.

After reaching FI, you now spend quite a bit of time in the UK, to see family and sometimes work.  Was that always the idea?  

Pete Wargent:  Yes that was a big driver for us.  The ultimate goal for us was to spend 6 months of the year here in Queensland, and 6 months in England.  It’s never quite worked out like that, and for the past decade the split has tended to be more like 7-8 months in Australia, and the rest overseas in the Old Dart.

We’re not always in Britain for the summer time, which hasn’t been quite what we planned…but that’s life.

New Challenges

Can you tell us about the work you do now?  And what made you want to dive in and become a business owner?

Pete Wargent:  I have a property buying business, and I do personal and business coaching.  Originally our property work was in London, which was mainly for businesses and funds, but now we’re mainly active in Australia and buy for individuals.

And then I also have an advisory business for fund managers and hedge funds.  But when I say ‘business’, that’s really just me that does that.  Some of it is selling reports, some is conference calls to groups of, say, a dozen fund managers, and some of it is on a consulting basis.  But it’s just me, so it’s not really a business, per se.

In terms of why to start out with all that – I’m quite ambitious, and I found when travelling that I got quite agitated about having no purpose to my day.  And I was doing all the reading and research anyway. Perhaps like a lot of blokes, I’m not very good at relaxing.  I almost never take a full day off, even when we go on holiday.  I just love working for myself.

Do you think it makes more sense to wait until you’re financially independent before starting your own business? 

Pete Wargent:  For me, yes, because I don’t think I’m really a natural entrepreneur.  Or I certainly wasn’t when I was younger, as I lacked knowledge and confidence.  But I have friends that have been self-employed or business owners since the age of 21, so it takes all sorts.

Has anything surprised you about life after reaching FI?

Pete Wargent:  Definitely!  When I was 23 or 24 and stressed out in the early part of my career, I literally day-dreamed about not having to work. 

I couldn’t imagine anything better than not having to go into the office.  I had this fantasy of having a home with a great lawn, and how I’d just spend the day mowing the lawn and chilling out in the sun.  And I’d have given almost anything at that time to be in the position I am today.

But now I could easily spend my days mowing the lawn, and I’ve learned that the grass is not always greener on the other side…literally so, in this case.  Now I’d find it pretty difficult not to work.

So I’ve learned that your problems never go away, as such, you just get a new set of challenges.

What’s the best part of Financial Independence?

Pete Wargent:  The confidence to follow my passion without having to worry about idiot bosses.  I absolutely love waking up in Noosa and ripping into the day with a run at the beach with some music on my i-Pod, and then a swim.

You couldn’t pay me a million bucks to go back and work full time in professional practice.  Or two million.  No chance!

What’s not so good?  Anything?

Pete Wargent:  Sometimes I miss office banter a little bit when I work from home.  I’m taking on board a new guy on 1 July, and he’s a really good lad.  So I’m looking forward to sharing a bit more fun and working together with him.

Working as I do on my own sometimes can get a little bit lonely.  But it’s a minor gripe compared to working with some of the people I had to in my full-time career.  You can’t choose your family or work colleagues as they say!

How do you most enjoy spending your time these days?  What balance between free time, family and work feels right for you?

Pete Wargent:  We have two kids now.  When they are at pre-school or school, I go the beach twice per day for a walk or run, plus have a coffee, and work the rest of the time.  And spend some time with my wife, of course.

When they aren’t at school, we go to spend time at the Buderim Ginger Factory at Yandina (the kids’ favourite place, and I love having a coffee there too), or to Mooloolaba Aquarium and beach.  Or we go to Australia Zoo at Beerwah, where we have annual membership.

I’m a massive convert to Noosa and the Sunshine Coast lifestyle and have no interest in moving back to Sydney any time soon.

Other Thoughts

What do you think helped you the most in terms of reaching FI? Leverage?  High incomes?  Strong savings habit?

Pete Wargent:  All of those.  But for us it was two good salaries (with bonuses), plus saving and investing hard with leverage.  I know some people don’t like the idea, but nevertheless it’s true we could never have achieved the same results without the leverage.

You’ve often advocated renting rather than owning a home earlier in life, in order to save more and build investments faster.  Is that still the case?  You now own a house – was that choice essentially because it has no effect on your freedom these days, having built further wealth and income streams?

Pete Wargent:  That’s almost correct.  What happened was a house was passed down from a deceased family member a few years ago.  So that was renovated a couple of years back and we live in that courtesy of the enormous generosity of my in-laws. 

This might make it sound like we’re from a trust fund baby background – but really it’s nothing like that, just a modest 4-bedroom house, on a quarter-acre block.  Though we do have a very nice lawn, actually.

On ‘rent-vesting’: this can certainly make sense because it’s cheaper than ownership from a cashflow perspective, and because young people can tend to move around much more than previous generations. But it only works if you do save the difference and invest it!  It’s no good if you spend everything you earn…then you’d be better off owning, to be honest.

What’s your chosen approach to living off a portfolio?  Purely rent and dividend income steams?

Pete Wargent:  Bit of both.  We still buy properties.  Although the last couple have been cash purchases that generate a nice rental income cashflow.  So our portfolio LVR has been falling away quite rapidly to about 30 per cent.  And we still buy shares.  I see the end game as being mainly Australian equities, but in saying that we’re still accumulating on all fronts for now.

Words of Advice

What do you see as the main hurdles or financial traps for the average Aussie in terms of being able to reach financial independence?

Pete Wargent:  Consumer debt and spending all they earn.  It’s Parkinson’s Law #2 (spending expands to meet income).  And the consumer economy demands a certain lifestyle, or at least the perception of one.

Any last words of advice for readers who are on the journey right now, from what you’ve learned along the way?

Pete Wargent:  It takes courage to tread your own path.  But if it’s right for you, go for it with everything you’ve got, and never give up.  Learn about the ‘hedgehog concept’ of how to choose how to earn a living.  I reckon life’s too short to do something you don’t enjoy for too long.

You have a new book aimed at young people and financial education, called ‘Wealth Ways for the Young’ .  What are the key lessons for young people to get them thinking about their future earlier?

Pete Wargent:  Definitely start instilling good financial habits at a young age.  In fact, in the first chapter of my new book I listed the 20 simple things that young people need to do.  And they are simple steps.

Not taking on credit cards and consumer debt is key.  Use cash to pay for stuff.  Learn to cook.  Get a part time job at a young age.  Spend less than you earn.  Get an ultra-low-cost, and high growth super fund, with a proven track record.

It’s mainly very simple stuff.

The motivation part is different for different people.  But the programming is built in from a young age, so instilling good financial habits as early as possible is important.

My Thoughts

Well, I hope you enjoyed Part One!

It’s certainly great to hear about Pete’s journey, life lessons and investments in a little more detail.  As I said, I’ve been a fan of his for a long time and have gained huge value from his writings.

There’s no doubt, he’s become a perpetual high achiever, and he loves it that way!  But I found it fascinating that, like me, he fantasized about doing nothing after reaching FI.  Only to later realise, it’s important to have something meaningful to work on each day to give you a sense of purpose.

The great part about FI is, the ‘work’ can be anything you want – tailored to your interests, skills, personality, and amount of time you want to spend on it.

If you have any comments or questions about Pete’s journey, drop them in the comments section below.  With any luck, he might even pop by to answer a couple…

Next up, we’ll do a deep dive into the Australian economy and what the future looks like for Aussie investors.  Pete will share his view on all the big issues.  Household debt.  Recessions.  Asia.  Population growth.  And many other things, including the sharemarket and real estate.  Stay tuned!

In the meantime, check out his daily blog here (a must read for economic news), and you can also contact Pete through his personal website or his coaching website.