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Ben Kingsley Blog post by Ben Kingsley

Defence: The Secret to Protect Your Portfolio and Prevent The Worst From Ever Happening

Hi, Ben Kingsley here. In our best-selling book The Armchair Guide To Property Investing – How to retire in $2,000 a week we talk about the Property Investment Formula. This includes Asset Selection, Borrowing Power, Cash Flow Management and Defence. In this how-to video I’m going to take a deeper dive into Defence.

When you think about defence, what am I actually talking about?

As human creatures we are interesting to say the least! And a lot of the time we act irrationally. Why is that? Well, I thought I’d introduce you to our brain…

Now, I am no hero scientist or medical professor here so please forgive me — I’m not necessarily one to know all the pieces. But I’ve been doing some interesting investigations into why are we so illogical sometimes when it comes to our money design and also when it comes to making financial decisions? It’s these financial decisions that people struggle with… so why is that the case? Well, let me just introduce you to our human brain.

I’ll start by going clockwise. This area here looks after our touch and pressure and how we understand it. Taste comes from this area through here, and body awareness through here. Now, where we learn to read and our language comes from this section of our brain. Our vision from the back area here; coordination and balance through the bottom area here. Through our brain stem, it’s all about our breathing and body temperature — swallowing and those things. Interesting if you didn’t know this — our facial recognition comes from this area of the brain. Our hearing; it sort of makes sense as it comes from the side here — from where the ears are located. So we get our hearing through here; smell comes from the frontal part and then speech comes from this area here. Motor control from this area here —that’s basically all of our motor controls.


But when it comes to financial decisions, there’s an area here, in what’s called the frontal lobe, where we do our higher thinking.

When it comes to “higher thinking”, we’re talking about things like making decisions and judgment calls — you know; processing further information, thinking about short medium and longer-term objectives, etc. That’s all done in this area here called the frontal lobe. Inside that frontal lobe is the neocortex. In here we’re talking about some areas that help us with our decision-making. And when it comes to financial decisions, we have an area in here called the nucleus accumbens. Now, I know it’s a fancy name, but what that means basically is that it’s our pleasure area. So we get pleasure when we make financial gain, and that’s understandable; we invest and make that financial gain. But sometimes there’s also fear — or what we call risk/reward. Now, where our money fears come from, in terms of understanding the fear some people have of investing, comes from an area called — hopefully I’ll get the pronunciation right — the amygdala. And that area — the amygdala, I’m struggling to pronounce it correctly  I know — is basically where that fear comes from. Now, inside that, there’s things like the hippocampus and some other things… but effectively what’s happening inside this area, which is in this prefrontal cortex area, this neocortex, is its trying to help us make decisions on what’s right, what’s wrong … is it right to do? Is it not right to do? And for some of us, we really struggling with making a decision? So we have more concern. We all know, in our own human behavior, when someone takes money of us, we feel a little bit angrier. If we get some money, then that feeling passes.

Okay, so there is also an area in there that we talk about in terms of the insula. And the insula is like the control mechanism that slows us down. It say, “Okay, get calm.We might have just put a bet on, we’ve had a big win, but calm down, calm down.” And for some people, they’re able to calm down easier than others. For other people, in terms of the amygdala, that is obviously telling them to be careful and to be careful of the risks.


The question is… what has all this got to do with Defence?

Well, if you think about it… we actually can make informed decision when it comes to insuring our car, insuring our house and basically putting these insurance policies in place. When it comes to the most valuable thing — which is the human being — we focus on income protection, trauma, life, TPD — these types of insurances.

For the major breadwinners, ultimately our health is going to be our wealth. So if something does happen to us — and on occasion one in three of us, at around fifty to sixty years of age, is going to experience some medical diagnosis that could put our health at risk. So why aren’t we being logical about that? We’re happy to protect the car, but not necessarily protect our future income.

If we come back to the Property Investment Formula — we talk about cash flow management and also borrowing. So if we’re going into debt, we want to buy a good investment property. What actually happens here is we need to make sure that, inside the cash flow modeling we do, we provision. We need to make sure we provision for these things — income protection, life, trauma, Total and Permanent Disability. Because if we’ve got debt, we want to be able to call on that money so that we don’t have to rush and sell that property, which means we won’t get any investment return.

So it is absolutely fascinating; in terms of where we make these decisions. Here, you know at the front part of our mind, and being able to do that. But what we ultimately want to make sure is we’re making those decisions — the other part of defence — that are also important.


When we talk about the asset, it’s all about mitigating risk. So when we understand that there might be high risk — which we do understand when it comes to cars and the cost of repairing cars, yet we may not be an accident for 20 or 30 years — we still pay our insurance policy. But when it comes to the property, we potentially have higher risk from tenant damage, from damage to the property through water leaks and those types of things.

So it’s really important that we have house and content insurance as an investor, but we also have tenancy risk insurances —for tenant damage, for them not paying their rent and those types of things as well. So when you’re building out your property portfolio to retire off the passive it’s really important that you factor in those costs into your cash flow management, and then you’ll start to think that defence is actually an asset. Yes, that’s right!

Defence is an asset because you’re paying something and you’re protecting yourself.

Hopefully you never have to call on that asset, because if something’s gone wrong with your health or something’s gone wrong with a property, we have to call on those insurance policies. Touch wood that we’d never have to call on them, but if we do, then they’re there and available for us and that reduces our risk. And in theory that makes sense. That means our decisions we’re making here, in the frontal lobe — the neocortex area— are smart decisions about money, smart decisions about money design; insuring that your brain is working for you and you are making really clever financial decisions.

Thanks very much for watching this How-To session. If you want to check out any of our other How-To Sessions, they’re all available on the Empower Wealth website just search for our How To sessions. We’ve got sessions for beginners, intermediate and advanced when it comes to investing in property and also managing your money.

Again, thanks for watching and until next time… see you later.

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