Introducing: my brand new “idiot grandson” share portfolio

I'm on the Scott Pape weekly email list (I like reading the stories) and as already posted else where he is closing down the "Barefoot Blueprint".
I just received an email and the context is very interesting as he is proposing a dividend paying share portfolio that lasts forever. It ill be interesting what that portfolio strategy is made up of in 12 months time:

To summarise the email:

• He will be investing $100,000 of his own money in a portfolio of shares with the goal of generating dividends to help fund his financial counselling services
• The portfolio has to be risk-proof enough to last for generations
• It has to survive his fictional "idiot grandson" - ie his future heirs who will inevitably want to mess with his investments
• He wants a lifetime of dividends from his investment now

 

4% return on $100,000 would be $4,000 pa. would this be enough for "juicy dividends to fund my financial counselling outfit every single year"?

 

Quote..

"My idiot grandson.

Okay, so I don’t have a grandson right now, obviously. But I’m sure I will have many. And odds on one will be the black sheep. He’ll be an ‘instagram influencer’. He’ll be like, “Screw that old-man Barefoot, he’s been dead for years … I’m going to take control of this money!”​

Could also go the other way without a stop--loss and a predetermined exit point....

 

I am curious to know how he can control his investments if he's been dead for years.

Ghoulish implications aside, setting up structures robust enough to be unchangeable probably isn't going to be worth the $4k/yr return.

 

Thanks @Burgs.

Big call there by Mr Barefoot.

 

Allowing for dividend reinvestment to remain higher than inflation so that the principle grows faster ...........

By the time the grandson is 50 that will be a nice little weekly allowance

Surely this method could be set up as a perpetual trust ?

Having worked hard and gone without to built my little empire (sand castle ) I have no desire for it to be split up between all those with their hands out, only to have it fritted away on new cars and holidays (because it isn't like winning bloody Lotto )

 

I don't know his family situation but assuming 2 kids who go on to have 2 kids of their own then the grandson would only be on line for 25% of the portfolio anyway?

 

I think Bare-foot grandfather’s legacy will be Bare-arse grandchildren .

Typically takes no more two generations to wipe out someone’s financial legacy .

 

Nice PR from a curious name. Got lots more attention than just calling it another set and forget portfolio. Or just buy an index fund.

Im just going to train my successors well and hope for the best.

 

Why doesn't he just whack the money in now?

 

One of my colleagues was raving about his book and how much it helped change her life so I read it. I think his buckets idea is great for people who aren't good with savings, but so much of his other advice was either questionable or downright bad. She'd been following his advice about paying down the mortgage on her PPOR ASAP, but then revealed that it was a townhouse and they intended to move out and rent it out in a few years when most of the mortgage was paid off. So I explained some of the strategies that @Terry_w has graciously provided with debt recycling and you could see when it clicked that she'd made some serious mistakes. It really annoys me when "experts" give financial advice that amounts to "everyone's trying to swindle you except me", then give broadbrush advice that's not suitable for most peoples situation. One of his recent (2017 I think) books suggested to go into the cheapest fees super - which was a balanced fund. In my opinion there's no way someone in their 20's should be in a conservative fund like that. Now that I see he has been recommending individual stock picking I'm even more sceptical. I hope he truly has peoples best interests at heart given how much impact he is having.

 

Agree 110%, that my friend is why we on this forum “do our own research”

 

Will be interesting the stocks he picks in this “forever” portfolio, I get the feeling he is turning into the motley fool gradually with stock tips like this

 

Cognitive dissonance refers to a situation involving conflicting attitudes, beliefs or behaviors. This produces a feeling of mental discomfort leading to an alteration in one of the attitudes, beliefs or behaviors to reduce the discomfort and restore balance.

From a quick flick through of his 2017 update book. Not sure I saw him recommending buying an investment property. He actually recommends buying a PPOR forever home. Some other advice (from others) I have read is to stay away from residential property completely. Possibly paying cash for one in old age for home security.

Page 27 he explains his thinking on choice of Superannuation fund choice. Lowest fees in an Indexed balanced fund.

Go back 10 years. I bet the people that followed his advice would be better off than all the "property investors" in Perth that followed good "financial advice" and brought property with interest only loans.

To be fair the $100k portfolio in his paid advice section. Is introducing people to the concept of investing in shares. I assume he will discuss and justify each of of choices. Hopefully so in the future you have the tools to make some of your own choices or the skills to question advice given.

So just like seeing a money adviser/mortgage broker or perhaps reading his Blueprint. It is for people taking investing to a higher level.

For a large section of the community I think Barefoot does a great job educating people. It's up to them if they don't do further research. It may not be perfect but it's a good safe start. Not like buying an investment property in a crap location with an interest only loan.

I see posts on here where the poster might have a vested interest in the outcome, I sometimes wonder if it is good advice but ymmv

 

I think this is the key thing. I don't try and help my second grade daughter learn about reading a clock or telling the time by launching into a spiel about Einstein's theory of general relativity.

Barefoot is a good launch pad for further learning or basic advice for the kind of folk who like to max out the credit card then switch to Afterpay.

 

Which is fine, but how many people can buy a home and then never have to move? The colleague thought they'd retire there but after nearly a decade realised that they needed to move. A simple statement in the book, where it tells you to plow your money into paying off the PPOR, that maybe it's a bad idea if you think you may ever want to rent it out in the future would be good.

For whom does this make sense though? Again this might be great for someone who is approaching retirement and short-term risk adverse, but for the majority of people this is way too long-term risky as you are leaving too much potential gains on the table.

I suppose I struggle with the "only money advice you'll ever need" angle when for so many people it could cost them millions long term. Sounds like exaggeration but if a 20 year old did this method vs. a high growth super fund with slightly higher fees I'd be confident they'd be millions worse off by preservation age.

 

For those who stop at the beginner stage, a balanced fund for 40 years and a paid off ppor isnt a bad result.

 

And they'll be OK with the result. But here is the rub. Only if they don't start comparing their circumstances with that of others where some may be better off. They will most likely dismiss any who may be worse off when doing the comparison.

Envy and "Oh I wish I had..." works in strange ways.

 

Except by ticking the wrong box they've probably missed out on >1% per annum compounded over 40 years. I'm all for helping beginners with simple and easy strategies, but it doesn't get much simpler than choose high growth if you have 20+ years of investing ahead of you. The paid off PPOR is great to, but for a young person the odds they'll stay in a house for 40+ years are slim. At least by offestting instead of paying into the loan if you do move you have the option to rent it out in a tax advantaged way. He advises heaps of different buckets and spread over multiple different banks, how is an offset any more difficult?

I don't like the "buy your forever home" for young people, I'd much rather them buy a house they like that also makes sense as an investment. Too many friends of mine have hit major troubles when they've had to sell their dream/forever homes because of work relocation etc.

 

This is the problem isnt it. Do you give people more freedom to succeed and fail, or do you protect them from failure by limiting their success? Problem is most people dont realise theyre making a choice, even though everyone ends up making it one way or the other.