Things I do and don't like from Barefoot Investor

I remember hating the book when I read it, as I felt like there was a lot of fluff with some good tips for things around the edges but the real meat of it was horribly wrong. Maria mentioned it so I thought I would read it again as maybe I was too harsh. I still hate it.

Here's things I like about it:
1. Going for date nights to chat about finances is a great idea. 
2. Having the bucket for "mojo" money is really important. You need that for peace of mind. However it was very simplistic. If you have a safe job you love you don't need anywhere near as much as someone whose job is not as secure. I understand this is a "cookie cutter" book aimed at the masses but this is a big issue. 

Here's things I hate about it:
1. A balanced index super account makes no sense for a young person. Statistically the odds of this being better than a globally diversified all shares account over a 30+ year time horizon are miniscule. I cannot understand why this is recommended other than that it is the safe option for older people and therefore he wants to minimise the risk of criticism. When you are young the odds indicate that you should go HARD at investing, particularly if the money is locked away for 30+ years. 

2. Paying off your house quickly has many major ramifications. On first principles it seems logical - this is a huge debt so we should pay it off quickly - but the 2nd order logic rules it out.
a) Why are you buying the house instead of renting it? You could argue security is a factor, but really the only reason to buy is under the assumption that it will be worth a lot more in 10,20,30+ years time than it is now in either real (after inflation) or nominal (not accounting for inflation) terms. If that is the case, and the payment you made for it is fixed to the amount you paid for it, then why would you want to pay the loan off? Inflation will gradually chip away at the mortgage for you anyway, as will the standard payments. You are likely to be far better off investing the leftover money into something that spreads your risk away from this single asset. If instead of paying extra on the mortgage you invest that into globally diversified shares - particularly if you debt recycle and therefore can claim the interest on the loan used for the shares as a tax deduction - you spread your risk away from the house. Then in 10, 20, 30+ years you have the house AND a share portfolio. 
b) if you ever intend on renting the house out any extra payments you made will reduce your tax deductions. This is MASSIVE and could cost you 10's of thousands a year in lost tax benefits. A mortgage offset account achieves the same as paying extra but does not have this impact. Seek specific tax advice on this, it's worth paying for.
c) he gives out random stats with no backup - for example "houses often costs up to 5% of the purchase price each year to maintain". Cheap or expensive house, a roof is a roof. Many of the houses which young people can afford are large and in the outer suburbs, so may cost more to fix than a smaller, more expensive house in the inner suburbs. $20k of repair to a $400K house renting for $300 a week wipes out more than a whole year of rental income, whereas for a $2 million house renting for $1500 a week it is only a few months. 
d) I don't understand the 20% deposit recommendation. Again, the main reason to buy is assuming prices will go up over time. Lenders mortgage insurance (LMI) is not a huge amount, so why wouldn't you buy with a smaller deposit so that you lock in the current price? If you have to save another 3 or 5 years to get to 20% versus 5% why would you do that? If the price goes up by 6% over that time, which is not a large or uncommon amount, than you have to save more to get to the 20% AND you have a much higher loan to pay anyway.

A quick example of this:
Let's say you were buying a basic apartment/townhouse in a reasonably low-cost area of Brisbane, Australia. The house costs $500K. LMI for a 95% loan (i.e. borrowing $475K, you have "only" a $25K deposit) costs around $15K. Adding that  LMI is the equivalent of paying $515K for it. That is a 3% increase on the price of it. Inverting this, that means by waiting to save the 20% deposit to not have LMI you would need to be able to save the remaining 15% of the purchase price (i.e. another $75K) in around 6 months JUST TO BREAK EVEN if the house prices rise 6% in a year (i.e. 3% in 6 months). If you can save $75K in less than 6 months to make this work - the equivalent of more than $150K of savings in a year - you don't need to worry about these miniscule amounts!

If you recommend buying a house why put that caveat on it? Recommending saving longer to get a 20% deposit over a 5% deposit with LMI right now is the equivalent of saying that house prices will not go up in the time it takes to save the extra 15%. To me this is completely illogical, as why would you buy an asset that you do not expect to go up in value? Unless you are good at market timing and are confident that over the next couple of years it won't go up, but then magically you will buy at the right time and it will shoot up from there?

3. Credit cards are one of the best financial investments you can make if you use them correctly. Frequent flyer sign up bonuses are spectacular investments. I cycle through credit cards regularly to get them, you're crazy if you don't. It is not uncommon to pay a fee of around $200 to sign up for a card, but then if you spend enough in the first X months you get 100k+ frequent flyer miles. These miles are often worth around 2 cents per mile in travel credit, which makes your $200 investment worth $2000 of flights. On top of that you get free travel insurance AND access to their business lounges. This is insanely good value for a 10 minute sign up process. Again - only if you never pay interest and pay them off on time. Once the period is over that you need to hold it to get your points, usually a few months, you cancel the card and move onto the next one. For aussies a good site is pointhacks.com.au to see what offers are out there.

4. His recommendations about shares annoy me. He says to buy AFIC and snub active stock pickers, which is a very good diversified listed investment company and a sound choice, but that is just Australian companies. Where is the global diversification? He then later brags about the real estate investment trust BWP he recommended people buy, and says people should subscribe to his newsletter to pick stocks with him. So should you buy an index fund or pay him more money to pick stocks with him.  This really annoyed me.....

You can probably tell I'm not much of a fan.....

​LMI calculator