Book Review > Active Retirement

Firstly, a disclosure of interest - I first came across Alan Hull at an AIA Conference a few years ago and was so impressed with his presentation that I began subscribing to and using his Active Investing system and have done so for the past 2 ½ years. The newsletter’s system is outlined in his book Active Investing, which is also available from Wrightbooks. He also has another newsletter for day trading Active Trading.

This book is not just focussed on a share trading strategy like Active Investing is. Alan has also engaged other writers for the investment structures and property investment chapters. The book provides a plan for achieving financial independence and active retirement (defined as being ‘where you manage your own money in retirement’). The first few chapters define and explain what he considers is necessary to be financially independent and for anyone who has read Robert Kiyosaki, many of the concepts are similar. Alan points out that a person who is self-employed or works in their own business is not usually financially independent. You need to be able to step back and reap the rewards of the work of others by only being an owner (not a manager or worker) to claim independence.

Alan also wrote the introductory chapter on shares and property and explains the concept of risk and how to manage it in an easy to understand manner.

In the final chapters Alan outlines his share investing strategy. The system is quite transparent and not overly complicated. For those of you who are familiar with the Active Investing system, this is simpler as there are no charts to interpret. It is based on the methodology he used when he was in funds management. The aim is to have an investment portfolio which returns in excess of 20% growth per annum. If you are looking for a system which will get you in at the bottom or out at the top this is not it. The basic philosophy is to buy shares which:

• are in the ASX200;
• have an annual rate of return (growth only) of at least the RBA cash rate plus 25% using a simple moving average curve;
• have an average weekly turnover which is adequate for your purchase to be no more than 5% of this figure; and
• invest equally in 10 shares only, making sure that no more than 4 are from the same sector.

In addition, and just as importantly, are the sell criteria:

• the price falls more than 20% below the year’s high;
• the rate of annual return falls below 25%;
• if the moving average falls below the 52 week simple moving average;
• if the share falls outside the Top 40; and
• if a shares portfolio weighting exceeds 15%, sell down to 10%.

Alan recommends that you paper trade using his system for 6-12 months, so that you feel comfortable with it and can see the results.

Many software packages could be set up to provide the above details, however, in order to assist the investor with this a weekly newsletter can be obtain for $990 per annum (or $99 per month) plus $89 joining fee.

As mentioned above, Alan has also used the expertise of other authors to write chapters on business/investment structures (Barbara Smith & Ed Koken and property, Graham Airey). Unfortunately I think that these authors let this book down.

Much of the information provided by Barbara and Ed is appropriate and useful. However, some is confusing eg suggesting fixed trusts and units trusts are different but then saying ‘a fixed trust (that is, unit trust)’ and inconsistent eg family trusts being described as ‘a relatively low cost structure to use’ (p94) and ‘costly to set up and maintain’ (p96). No mention is made of the need to make a family trust election so that the franking credits can flow through to beneficiaries. In addition they suggest that receiving income with franking credits means that tax can be “saved”. This is simply not the case anymore now that franking credits are refundable as they simply alter the way in which tax is paid. The summary of the various investment structures and their relative advantages/disadvantages provides an easy to use comparative table.

I also found the information on property investing to be very basic and it glossed over many of the negatives eg finding reliable property managers. Graham suggests they charge the 5-7% which is not my experience. In addition, he makes some factually incorrect statements eg in relation to mortgage brokers he comments “… they actually pride themselves on being able to offer a totally impartial service ….”.

Other than these issues, this book is a worthy read even if you are not interested in actually using the share investing system.

Jenni Eason is a member of the AIA.