It’s not always easy to talk with your family about money. It’s important to do so, however, as the members of your household need to understand your financial picture. That can involve talking about goals, agreeing to mutual sacrifices to meet those goals, and allowing every member of the family input into how money gets spent.

Anirban Mahanti explained that his wife serves as his family’s CEO while he acts as CFO on the April 26 7investing Now. He also shares some of his long-range financial goals and how he plans to meet them.

A full transcript follows the video.

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Dan Kline: I sat down with our very own Anirban Mahanti about how he manages his family’s finances So Sam Bailey, if you want to tee that up now. We would love for you to stick around and watch that and feel free to share your questions during it. With me once again is our very own Anirban Mahanti. Anirban, welcome back to 7Investing Now.

Anirban Mahanti: Welcome to you as well. You want to keep talking with me so that’s great.

Dan Kline: I have a hard time keeping track of what show we’re doing. To give people a peek behind the curtain we taped the the 7Investing podcast that aired, the one on Apple, that came out on Thursday. And we’re taping this ostensibly for what I assume is Friday’s show, depending how that goes so if you’re seeing this on Friday. But we’re going to talk about how you invest your family’s money. Before we do that, we should probably talk about the makeup of your family. Do you have six wives? I don’t know what the rules are in Australia.

Anirban Mahanti: So I have even a relatively small family. It’s just my wife, and we just have one daughter. And so we’re just investing for that. I mean, the other thing is we want to invest, not just for our daughter, it’s not like you know, we have to leave her X amount of money, it’s more that we want to be financially independent. And the reason for being financially independent, is not that I want to stop working.

That’s not what it is. It’s to have the independence to do what I want to do and what my wife wants to do. You know, maybe it’s like, you know, going out and doing some non government NGO type work, you know, doing some social service helping the community. Those things are just stuff that you want to do without being beholden to working because you have to work so that’s sort of the context. Yes, we have a small family. Yeah, and we have some relatives that we want to help but our relatives are self sufficient mostly.

Dan Kline: Do you have any intermediate goals like paying for college or helping your child with a down payment on a house down the line? I mean, I know those are things I have a 17 year old so those are things I’ve thought about quite a bit.

Anirban Mahanti: Yeah, so my daughter is 12. We will pay for her college. It depends on where she lands up going that might cost from ‘a lot’ to ‘a lot lot.’ Because college these days are very expensive, right? It doesn’t matter where you are actually whether its in Australia or America or UK. I have a thing about giving the child exposure to an International Education. So, you know, I would like her to actually go somewhere for her education, like if she’s taking an undergraduate degree somewhere I’d like actually for it to be outside of Australia, largely get some exposure, learn some different things, be exposed to different colleges, different environments.

So you know, those things would cost money. So there’s a bit of that. And I would actually really like her to start investing on her own, at some point fairly quickly.

Dan Kline: That was going to be my next question. Because I know in my family, I handle the finances. My wife and I both work. But I pay the bills, which are almost all automated at this point, there’s just one or two that aren’t. But I do the investing. And it’s sort of based on how we grew up. I grew up in a family that had some money she didn’t.

So the fact that we have some money in the bank, and not full financial freedom, and that we could not work, but we’re not worried if the washing machine breaks. I often joke, when we first started living together, we had to ask the other person for permission to buy a CD or a book, because finances where she was a grad student, I was making like 28 grand a year, things were very tight.

And then we sort of got to the point where I bought our vacation home for cash without mentioning it. I mean, she knew I was buying a house, but I didn’t specifically show her the one I was buying. So as we’re working on buying a nicer vacation home, I have been sending her pictures, that is a mistake you don’t make but is your family involved? Are they aware of sort of what your finances look like?

Anirban Mahanti: Yes, so my wife is very busy. So my wife runs a business and she’s a doctor and has her own practice. So we managed that with it. So the way I look at our household finances, I say my wife is the CEO, and the CFO. So I would say that she’s aware, she knows what we have what are sort of at a higher level, just like the CEO would know this is how much cash we have. This is how much debt we have.

This is what our investments look like. And this is what we are hoping to achieve without going into too much details. If I’m doing some investing, she’s you know, she will not so yeah, so I take the day to day, actions, if required, the management of cash, paying the bills, I do exactly the same thing, I pay all the bills, whatever it is not automated has to be paid, you know, I deal with everything else, actually the household I deal with.

But when it comes to taking major decisions, we tend to take them together. Just because I find my wife’s opinion actually extremely, extremely valuable, because, you know, smart women can come for different problems in very, very different ways. And I find that actually extremely, extremely useful. I actually ask even about investment decisions, like, I’ll just present the pieces and then say, what do you think? And that, that works really well actually,

Dan Kline: We certainly discuss big decisions. I mean, obviously, selling our main home, moving to a rental, and buying an investment property that in theory could be someplace we retire to with very low expenses, not that we intend to do that, but you never know with health or what could go wrong. So we did discuss that. But I will say we’re going to talk about how you, allocate your portfolio, sorry, stuck on the word there. We’re going to be a little bit over allocated in real estate for a little while, because we’re spending a significant sum of money.

But I don’t think my wife would have any idea what’s in our stock portfolio. And I will say, I know she doesn’t know where our stock portfolio is because I have a folder, I made a ‘Oh my god, what if something happened to Dan, where is everything?’ kind of document and even things like I was aware of the fact that our life insurance expires when our son turns 20 and I needed more anyway. She now makes more money so she needed more. So I sat her in front of a computer, brought up Lemonade, and said hey, time to add a life insurance policy please fill this out.

So we do have those discussions, but on an investing point of view, it’s just not something she’s interested in. I don’t think she’s ever watched a show I’ve done or read an article. So it’s one of those where she has a PhD, she is an expert in many, many things. But this is the one thing I’m, this and maybe following the NHL are the areas where we don’t, which is the National Hockey League if you’re not familiar in Australia. That’s generally the areas where she seeds to me, but how do you decide how much is in stocks? How much is in gold doubloons under the bed or whatever you might be keeping cash in or keeping your money in?

Anirban Mahanti: Now so before I answer that, I’m going to double down on one of the things that you think is really, really important is having that folder so we have a box folder, which you know what my wife and I have access to which has actually all the information that she would need if, for example something happened event, something can happen to someone all the time. That, having wills and life insurance is really, really — we should have income protection as well. Because again, you can get into an accident, and that can have an impact on your income. So I think those things are really, really important.

Okay, so  housing in Australia – real estate in Australia is extremely expensive, right? in a place like Sydney, for example, your people are pushing probably something like 8x to 10x, maybe even more in terms of disposable income to debt loads. So a typical house, a median house price in Sydney is about a million plus. Right? So that’s a lot. So we don’t have real estate investment outside of one, which is we have got a commercial real estate investment.

And commercial real estate is large, because we have an office that we we use for business, and therefore that office is an investment that we have made, because we need it for investment. Otherwise, outside of that our our real estate investment is this house, and the commercial real estate that we have got. And I do not actually intend to have more than that. That’s plenty.

Most of our funds are actually in stocks. Largely because again, I think housing right now is super expensive, because housing is a function of interest rates, interest rates extremely low there for housing has gone up, almost to me it looks like this is the peak of that cycle here and I don’t know about the market there. And therefore, interest rates are going to go up. Unless interest rates go negative, which it can, I don’t know how housing prices can increase, because there’s only so much people can borrow. So that’s my view on Australian housing. It’s not pretty, and so most of my money is invested in stocks, in stocks, too. And I guess you’re asking me a question there, I’ll pause.

Dan Kline: No, no. Okay. Absolutely. Just continue, like, so most of your money is in stocks. And that’s the case with me as well. Well, my actual cash portfolio is probably bigger than my stock portfolio, because I, I believe in having a very significant emergency fund. Because I sleep better at night. So at some point between our retirement and our regular investing account, there’s probably actually more in stock and other investments.

But in our pure investing account, not counting our 401K’s. And in my wife’s case, whenever the nonprofit version of that is because she works at nonprofits, I think it’s a 50-something-B our regular investing account is actually slightly smaller than our cash balance, because I want to have a year on hand and we’re both lucky enough to do reasonably well. So yeah, how do you approach that sort of what’s your risk tolerance when you’re looking at stocks?

Anirban Mahanti: I’m actually just like you Dan in terms of I invest in risky stocks, but I’m actually not a very risky person. By nature, I’m actually really risk averse in that sense. So in Australia, we have something called an offset account, which is very interesting concept. Because we don’t get to write off interest that you have, for example, on your home, we can’t write it off, but what we can do is we can have an account that sits adjacent to our mortgage account, and that any cash in that basically offsets the interest there. So suppose I have borrowed 500k, and I’ve got 300k in cash, the interest I would accrue would be only on the 200k. So I tend to carry a significant offset account.

And the reason I do that is very simple, because I have our overall asset largely in stocks. But stocks are volatile, I look at the cash balance as an opportunity, you know, it’s dry, it’s basically dry powder, that if the market is down 30% I can just take some cash from there and invest in I will not feel a pinch, because market is down because I am investing I like to feel like I’m in control of the market, you know, is going down because, you know, feeling in control is actually one of the things that gives you empowers you to actually make better investing decisions. So that’s how I control my emotions, you know, that that it doesn’t bother me when the investing account is down 30% because I can invest at that time.

So I carry much larger cash balance that I would normally say is wise because we know that the market goes up over time. So you want to actually be fully invested. But being fully invested means you have to deal with that volatility which you might not be able to deal with, you know, and cash. So yeah, keeping a TC us cash balance is is absolutely normal in our household as well.

Dan Kline: And fully invested means different things for different people. So I’m not against If I see a major opportunity, I’ll take cash from my emergency fund and put it into that opportunity. And then over the next few months or whatever it is replenish that fund. So I’m not against doing that, but it really has to be a big opportunity because we have time like I I’m the oldest person on the team, I think you’re next and and we still have 20 something years until we start to break down and maybe can’t work as much as we want to.

And frankly with all the science we talked about on 7Investing Now, I’m fairly confident they’ll be able to prop us up and hold us together for longer than that. So let’s go rapid fire a little bit. How many stocks do you own? And are you more invested in the US markets or the rest of the world?

Anirban Mahanti: Okay, so probably I actually don’t know the exact count that should sound like a surprising answer coming from somebody who invests. So I think I’m somewhere between 35 and 38 stocks right now, most of my investments are actually outside Australia, I have less than about 1% of my total stock portfolio invested in on the ASX, about 99% is actually invested in the US markets. And I have a reason for that which I can explain if you’re interested.

Dan Kline: Oh, yeah, absolutely. Go ahead.

Anirban Mahanti: Yeah, so so one of the things that happens is most people that have huge home bias, right, this huge home bias, everybody invest in their home market. Now what that would do though, is just a couple of things, if I invested all my cash or 90% of my cash on the ASX, then I am actually going to ASX is going to hold a lot of those companies, the Australian stock market is going to hold on to those companies that are directly tied to the Australian economy.

So if something local happens, not only is my housing value going to go down, so is my stock value going to go down and it’s just all correlated and I’m probably not going to have a job and things like that, right? So there’s a lot of correlation. So I break the correlation by investing internationally. This does not take take away globally correlated events, but if when you have a globally correlated event like the GFC or the coronavirus pandemic, that affects every market.

Dan Kline: Sure, the upcoming zombie invasion, like whatever it is,

Anirban Mahanti: Yeah, if there’s a zombie invasion, all the markets are going to struggle, so it doesn’t matter. So that’s the other thing. The final thing that’s very interesting for me is what happens is, the U.S. dollar being the global currency. Often what happens is, you will notice that when some pandemic hits, the local currency is going to actually take a substantial hit because there is a flight for safety, which means flight to the US dollar, which means if I think of my asset value in Australian dollars, I’m actually not losing as much. So while my portfolio is down actually 30%. But in Australian dollar terms, it might actually be down only 10%. Because the rest of the difference is actually in currency I made up in currency. So it has weird ways in which it plays out.

But I think the biggest reason, in my mind is when I invest, so I have a thing that says, “invest like the best and invest in the best.” And if you want to find the best companies, they tend to be the global companies that ended up not necessarily don’t have to be US companies. You could have the best Indian companies likely to be listed in NASDAQ or NYSE the best Brazilian company, the top Australian software company, Atlassian is actually listed on NASDAQ right?

So the best of the best companies want to access the biggest market, the biggest market happens to the US equity market in about 55% of global equities. So and most of the International stock markets would have ADRs, which is basically, American depository receipts. If there’s a big company listed in Hong Kong, they likely have an ADR in the US just a one stop shop for basically buying the best equity. So that’s what I do. I still have a small local exposure.

Dan Kline: Final question. And it’s one we get asked all the time, when do you sell? And by extension, if a position gets to a certain point, do you trim it just for diversity sake?

Anirban Mahanti: Yeah, that’s a great question. So I tend to sell infrequently. And a lot largely for the reason that I would sell if a thesis is broken, so I have this thing I buy slowly. So it takes me a while to decide if I’m gonna buy that’s okay, I lose some upside on the way in, but when I buy that I tend to hold I guess I’d make it if I buy biotechs maybe biotechs have a higher chance of going bust than anything else, because there’s a lot of things about product pipeline that matters. So I make an exception for biotech, so I don’t invest that much in biotechs anyways so, I sell very, very infrequently.

Position sizing, this is a very personal thing. So my largest position is about 30% of or maybe 25 26% of my portfolio as Tesla. Most people would not have that much in Tesla. But that has done wonders for us as an investment over the long term. I have sold some you know, it can become like above 30% and reduce, actually, from when I sold the stock has gone up further. So it’s not that I can time exits I would say that anything that goes above 20% deserves a consideration whether or not you want to sell, maybe even 15%. For most people actually 10% is a pretty large holding. So you really have to decide whether or not you can take a 50% drop in the share price and how you would feel about it given the size because it’s not just percentage, right?

30% can mean different amounts of money for different people, right? If 30% means $5,000, for you, it probably means that you’re just building your portfolio, right? But if 30% means $2 million, and if 50% of that means $1 million is gone, then you might want to reconsider that. So it depends really on, there’s a lot of nuance here. But I think a general rule of thumb, I’d say is that, you know, I tend to be very, very selective in terms of trimming, I’m all for letting your winners run, I solved this by never adding to a position that has become big. Yeah, I would add to something else,

Dan Kline: I do the same thing. If something’s over 10% of my portfolio, I don’t add to it unless there’s a spectacular reason to do so. And I will say one of the things I’ve learned as a 7Investing lead advisor, and I’ve never really thought about this. I generally just bought stock when I had money in my account.

And unless something I wanted to buy was abnormally up for a reason i thought was stupid, I would generally just buy it. But because we release our picks to members on the first and we don’t buy until the next day, if we’re going to add to our position or create a position in a stock. Sometimes the point where I pick a stock, and the point where I’m able to buy it or add to my position, you might see 15% up 10% down because we track on a scorecard. The second we lock in a pick, we’re all go and boy, I hope that stock goes down, because then we get in at a at a more favorable position.

But as I’ve been here six months, as I look at the scorecard, you start to realize how little that matters. If you believe a company is going to exponentially grow who cares if you got it at 105 or 102, or 106? It just doesn’t matter. And obviously I build like most people do, I’m not buying my whole position in a company all at once so I might buy a share or two and then a month later buy another couple shares or whatever it is obviously depends on what the stock price is whether I’m buying 100 shares or two shares Anirban, any last advice on families and investing?

Anirban Mahanti: The number one advice I would give to people is invest. The sooner you get started, the better you are off, right? I mean if you’re investing is first five years, it seems like if you’re consistently at it first five years seems like nothing is happening. Right? Between the year five and year ten, you start seeing a difference. It’s only year 10 onwards that you start to, oh, this thing really works because compounding is just like that it takes you know, your 10 to 15 is going to be meaningfully different than 15 to 20 is going to be substantially meaningful because of the effect of compounding. So I’d say you know make time on your side. That’s number one.

Number two is exactly what you said. Just go slow right? Brokerages around $0 today, how good is that? I mean, you can slowly build your position, you don’t have to worry about commissions. You know, there’s so much information, I do exactly that. I buy a few shares now that I start a position. And I slowly add over time. So yeah, I think that’s that’s the way to go.

Dan Kline  53:30

And that is advice I share with my son all the time, he’s 17 and will probably get his first job at some point soon. And I’ve already told him he can spend half the money, half of what he makes is getting invested. And I’m going to hopefully teach him the long term play of if you start investing at 17 or 18, or wherever it is he starts working. What that can mean when you’re not even 50. Like when you’re 30 and are ready to buy that big, expensive house. They’re not quite as expensive here as they are in Australia. But they are expensive. And there’s obviously a lot of big lifetime things that come up. And if you’re invested early, you have the cash or frankly, you have the asset to back alone if that’s what you need to do. Anirban Mahanti, thank you for doing this. We will see you again next week on 7Investing Now.

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