Meet Jackson: the 25-year-old generating over 17% pa in compound returns

Picture this. You're sitting in a high school economics class and your classmate turns to you to show you his new purchase. It's not the latest iPhone or Xbox or every P-plater's dream - a car. It's a stock, and he's even making money off it. 

It's heady stuff for any 18-year-old (or even older adults, realistically), the idea of owning something that can turn around money for you. 

"It was just some non-descript miner but owning something and earning dividends grabbed me," he said.

It was also the start of a new passion for Jackson, though it took him a few more years to finally dip his toes in the water.

He started off dabbling in managed index portfolios, before moving on to do it himself. While he's modest about his success, I think Livewire readers would agree that generating 17.3% in compounded annual returns over the past five years, while only in his mid-20s, is hardly to be sniffed at.

He argues it's less about intelligence and more about being calm and measured.

"In my opinion, intelligence is a lousy predictor of investor success. What I believe most important, is the ability to regulate our emotions and stay calm - letting the investment strategy we set for ourselves play out, without getting in our own way," Jackson says. 

In the following Q&A, Jackson shares the strategy he uses for his investments, his latest pick and why he's an advocate of the FIRE movement (with an emphasis on Financial Independence rather than Retire Early).

Livewire investor profile

• Name: Jackson
• Age: 25
• Employment status: Associate in financial planning
• Years investing: 5
• Investment goals: Freedom and flexibility
• Products used: US and Australian equities, cash and index funds
• Biggest portfolio holding: 30% in iShares S&P 500 ETF (ASX: IVV)

*Please note that the views expressed within are Jackson's own, and do not necessarily represent the views of his employer.

What is your objective from investing?

When I first started investing in 2018, it was about understanding a world that I knew nothing about. I enjoy being challenged intellectually, with investing being a great outlet for this.

Once I dove deeper into the investing world, I discovered the Financial Independence Retire Early (FIRE) movement. One advocate of this movement I really like is Aussie Firebug.

This discovery really changed my mindset and largely shapes my reason for investing today - which is to accumulate sufficient assets to eventually draw an income to do what I want, when I want, how I want, and with whom I want. Simply put, freedom and flexibility. 

It's less about the "retire early" side. I don't think I'll stop working. Work gives you purpose. I'd like to semi-retire at 35 but keep working part-time. 

In order to achieve this, beyond an emergency cash buffer, I like to be fully invested in High Growth assets with a high-risk tolerance to match - as I’d like my investments to do the heavy lifting to achieve my goals over the long term.

There's research that only 55% of Australians are financially literate (HILDA data). There's also a range of studies that show financial literacy is strongly correlated to overall life satisfaction. This suggests to me there's a lot more work to do in Australia to raise the bar higher and that's another reason I invest - to pass on the knowledge I learn as widely as possible.

What products do you use to execute your strategy?

How would you describe your strategy?

Even though I actively pick my direct equities, I opt for passive index funds as the core of my portfolio, since the research is clear that around 80% of actively managed funds fail to beat their comparable market index over the long-term. 

Sure, we may think we’ve found a fund in the top 20% that will shoot the lights out consistently, but like many other long tail events such as the lotto, they rarely fall in our favour. 

For balance, I will note that active management can have benefits for portfolio construction and as a way to act on short-term themes, alongside other rationales. However, over the long term and for the majority of investors in Australia, simply doing the average thing over a long enough timeframe, can have extraordinary benefits.

Could you please share your top five holdings in percentage terms and tell me a bit about why you hold each of these positions?

Over the last five years of my investment journey, I’ve managed to achieve a compound annual return of 17.3%. Whilst I’m sure there are many investors I commend that have eclipsed this, there are likely many investors far smarter than I, who have underperformed their benchmark, or simply the market over the same period. 

In my opinion, intelligence is a lousy predictor of investor success. What I believe most important, is the ability to regulate our emotions and stay calm - letting the investment strategy we set for ourselves play out, without getting in our own way. 

I think our investor deity Mr Buffett said it best: “The most important quality for an investor is temperament, not intellect”.

iShares S&P 500 ETF (ASX: IVV) - 30%

This fund isn’t anything special, but it does what it says on the tin. For 0.04%, it provides access to a broad array of mega-cap businesses, which are quite diversified internationally beyond just the U.S. I think that the U.S will be the steward of the global economy for some time to come and believe this fund will provide long-term capital growth.

Vanguard Australian Shares ETF (ASX: VAS) - 30%

Like the above fund, this ETF is pretty simple and for 0.10%, provides access to a cross-section of the largest public companies in Australia. As part of my strategy, I also like the strong income focus that the Australian market provides.

Microsoft (NASDAQ: MSFT) - 17%

I think Microsoft is one of the strongest businesses in the world. With strong network effects from their product portfolio, innovative culture, deep competitive moats, and large cash balance to make prospective investments, I think the company is well-placed for the future.

Dicker Data (ASX: DDR) - 9%

The first direct equity I ever bought, I found this company owing to work I used to do within the IT channel, getting close exposure to understand how the business operated. I grew to understand that Dicker Data was a fantastic business, with a strong brand, executing well in an industry segment that has high barriers to entry - which the company has capitalised on to increase market share. I don't like the debt load but the underlying business is strong.

Accenture (NYSE: ACN) - 6%

I acquired these shares whilst working for the company and believe this is a strong business, with a dominant industry position. The business is at the forefront of important industry tailwinds, such as cloud and AI, and has a tremendous track record of organic and inorganic growth, which will serve it well moving forward.

Could you tell me about your worst investment?

Do you have a favourite contributor you recommend other investors follow?

I enjoy the content that Christopher Joye puts out regarding capital markets and the broader economic landscape. I find his content well-researched, analytical and clearly explained.

Is there a lesson you’ve learnt as an investor that could potentially help others?

So many, but if I could boil it down to one of the most important I’ve learned, it’d be to tune out the noise. 

There are few things that matter more in investing than making a reasonable judgement and backing yourself - no matter what scary news story or ‘expert’ prediction threatens armageddon. 

In my opinion, investing is one of those fields where more hours of analysis and research don’t necessarily result in better outcomes. Learn to tune out the noise and focus on doing the most reasonable thing, because that often results in a pretty good outcome, and we’ll never get everything right.

If there was one thing I'd also like investors to understand, it's that sometimes it's riskier not to invest than to invest.

Can you share a personal passion or ambition you have for your future? 

I’d love to help educate all kinds of Australians on personal finance topics, from seminars in schools, to online content, and face-to-face for the clients I serve daily. The more comfortable and confident I can make people feel about their financial futures, the happier that will make me.

Next on the list is anywhere with a mountain. Hiking in Tibet, Chile or somewhere in the Middle East.

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