Peter Thornhill: Motivated Money Monster Ultimate Guide to Wealth Creation

Peter Thornhill created the ultimate template for financial independence. Buy a home, build a dividend-generating portfolio, destroy your mortgage and live a fantastic life. Investing in shares or paying off your home loan is not a binary choice anymore.

Peter Thornhill has achieved this dream by being a financial contrarian with sometimes unpopular advice. But this contrarian retired at 53, has a portfolio worth over $11 million and brings in 400k in annual dividends. And he believes that “Financial Independence is easy to attain”. Anyone can do it too.

In this ultimate Peter Thornhill guide, learn the investing philosophies, rules, and strategies of Peter Thornhill. They are fantastic and can be applied to achieve financial independence.

Here are a few highlights.

  • Buy companies that are productive and produce a growing income stream
  • Spend less than you earn – Borrow less than you can afford
  • Negatively gear shares to pay off your non-tax deductible home loan debt
  • Start small, build slow, and make money your slave
  • Focus on your family, your career, and your friends while your portfolio grows in the background.

Feel free to read through or jump ahead.

Peter Thornhill and His Investing Rules & Philosophy

Peter Thornhill keeps it simple with two rules to investing, wrapped up in a philosophy and guided by a definition of investing. Peter’s story is interesting and his ideas are born out of his interesting but humble life.

Who is Peter Thornhill?

Peter Thornhill is an unlikely hero in this story. He failed his last year in high school, claims he’s “as thick as two short planks” and on his first attempt at investing, he lost his money. But his life changed when he went to Europe for an 18-month working holiday that turned into 18 years. This was the best thing that ever happened to him.

His journey overseas, and particularly his time in the UK working in financial services and funds management companies changed his perspective on finance. He eventually came back to Australia preaching everything he learned in England. He was told he was wrong but the experience and knowledge he brought back to Australia helped create the “monster” he is today.

Peter Thornhill’s Definition of Investing

Peter is very specific about what he considers investing and what he believes is speculation.

  • To invest: the use of money productively, so that a regular income is obtained.
  • To Speculate: buying and selling in an attempt to benefit from a fluctuation in the price, sometimes in an anti-social way.

Buying and selling shares for a profit can be fun if you are successful. But Peter doesn’t see this as investing. It’s speculation because you need a greater fool who is willing to pay a higher price than you did. And it drives Peter “nuts” when the media call everything investing.

“…the media insists if someone buys something, it doesn’t matter what it is, whether it’s a piece of art, jewelry, a yacht, a house, that apparently is investing. It’s not”

With definitions defined, we move to Peter’s investing philosophy.

Peter Thornhill’s Investing Philosophy

The investing philosophy of Peter Thornhill is relatively simple. It’s all about income-producing assets, which is the opposite of purely speculative or growth assets.

“My investing philosophy is to buy companies that are productive and produce a growing income stream.”

this philosophy leads directly into Peter’s two rules for wealth creation and investing.

Peter Thornhill’s Two Rules for Wealth Creation

Peter’s two rules for wealth creation and investing are simple and align with his investing philosophy.

  • Spend less than you earn
  • Borrow less than you can afford.

Peter believes that if you can just do this alone” you’re already on your way to financial security.”

These two rules are crucial to undertake Peter’s path to financial independence. This is how we use leverage to invest, using debt and negatively geared shares to destroy a mortgage. More commonly known as Debt Recycling.

Peter Thornhill & Debt Recycling

Investing in shares or paying off your home loan is not a binary choice anymore. Most people focus on paying off their family home to reduce their monthly interest payments. And other investments are put on the back burner.

Peter Thornhill may have been the first person to coin the phrase “debt recycling” and he has paid off homes in record time using this method. Read on to understand the concept and how Peter used it.

What is Debt Recycling?

Debt recycling is a way to pay down your home loan quicker while building an income-producing asset in shares. Essentially, that choice of home loan or share portfolio is removed and you can have both. This process was made famous by Peter Thornhill, let’s take a look at a definition of debt recycling.

“Debt recycling is the process of replacing mortgage debt (non-tax deductible), with investment debt (tax deductible). This strategy may enable you to start building wealth while you are still paying off your home mortgage.”

But why would you borrow money to invest in shares because the dividends wouldn’t cover the interest to be paid? Well, Peter is negatively gearing shares. Exactly like many people do with properties, their loan is tax deductible. Peter uses the same method or principle when buying shares with a loan. He gears modestly into the share market and receives dividends.

Peter Thornhill - Debt Recycling your share portfolio
Negatively Gear your Share Portfolio with Debt Recycling

Negative Gearing with Shares

Using leverage to invest in shares has always been seen as risky. Debt recycling utilizes debt from a home loan, where it is split and used to buy shares as an investment. The income generated is paid into your offset account. As your home loan is reduced, you borrow more against your loan and invest more. Essentially, converting your non-tax deductible home loan into a tax-deductible investment loan.

With time and compound interest on your side, you can demolish your home loan and build a healthy portfolio of income-producing shares. This sounds risky, but that is when you defer to Peter’s two rules:

  • Spend less than you earn
  • Borrow less than you can afford.

The rest should flow pretty easily and you can work towards your financial independence and security. Slowly. By borrowing to invest, you are negatively gearing shares. But how does Peter debt recycle exactly? Let’s take a look.

How Does Debt Recycling Work?

When Peter bought his home he had a reasonable deposit. He borrowed part of the margin that was left there and invested in shares. The dividends from the shares were used as additional capital repayments on his mortgage, which is not tax deductible.

Peter’s investment loan was fully tax deductible. So the dividends were additional capital repayments over and above his mortgage repayments. Peter’s mortgage was going down a little bit faster. This meant he could increase his investment loan which was fully tax-deductible to buy more shares. This paid for even more dividends.

Peter had a “double whammy”. The dividends themselves were growing organically. And because he was buying more shares, his dividend income was accelerating. The result was his mortgage was disappearing very, very rapidly. This was due to a compounding effect. Effectively, he bought shares and he was reinvesting the dividends. But he recycled them through the mortgage to get rid of the mortgage and to increase the fully tax deductible loan.

The double whammy means he paid off his non-deductible debt (his mortgage) and transferred that debt to an investment loan, making it tax deductible. All while building a share portfolio that will continue to pay him an income for years to come.

Peter Thornhill LIC Vs ETF

Peter Thornhill discovered the power of LICs while working in England, and his experience working with managed funds informs his dislike for ETFs.

How Peter Thornhill Discovered LICs

Peter discovered in England that when investing, you invest for income. You are a custodian of your capital and you live on the income to pass the capital to the next generation who live on the income. The custodians pass it on to the next generation.

This is where Peter discovered 160-year-old LICs with 55 consecutive years of dividend increases. This is amazing considering the turbulence and market failures during that time. When Peter came back to Australia, stocks and LICs were top of mind and he found a vehicle to build wealth over time.

Why Peter Thornhill Invests in LICs

Peter Thornhill is a huge advocate for LICs. Where the modern, hip investor is piling into ETFs, Peter wouldn’t touch them “with a barge pole”. Interesting that investors look up to Peter for his investing achievements. But they take his advice selectively as ETFs gain popularity. Let’s take a look at LICs and why they are Peters income producing weapon of choice,

A listed investment company is like any other company listed on the stock exchange. Peter explains where Coles and Woolworths front supermarkets. A listed investment company simply goes and buys shares in Coles, Woolworths, the banks, and various other shares. An LIC is a company and therefore has all the benefits associated with being a listed public company.

LICs take away all the effort in picking and managing individual stocks. LICs keep investing simple and Peter wants to “set and forget because anything else sounds exhausting.”

The most important reason why Peter invests in LICs is because he’s invested in multiple companies that pay him dividends. He doesn’t have to do anything or think about it. Peter’s approach to LIC investing is fantastic.

“…As an investor, I’ve invested in I don’t know 350 Australian companies. As a result of the underlying exposure of the listed investment companies, they do all the hard work. And I enjoy my beautiful wife, my five gorgeous granddaughters and we have better things to do.”

Peter Thornhill worked in managed funds and financial investment companies for decades. His negative opinion of ETFs comes from his experience working with them over the years. But why does Peter prefer LICs to ETFs?

Why Does Peter Thornhill Like Listed Invested Companies (LICs)

Peter trusts LICs because they have been around for centuries. They use a proven model for income generation and they essentially run a business. Like any other company, they provide a dividend stream. There is a management team and they all work and deliver results for the investors in the company.

The payout ratio for LICs is 60-70% so they can retain part of their profits. And if there is a realized capital gain because they sell some of the shares, they can reinvest it for existing shareholders. And there are absolutely zero tax consequences.

Other advantages of LICs include:

  • LICs operate as a “company” and the stocks selected are actively managed.
  • Most LICs have a proven history of paying dividends
  • The dividends are consistent year after year
  • The dividends are mostly fully- franked
  • The payout ratio is 60-70% and the remaining balance is used for acquisitions, and new technology amongst other activities. This will raise the value of your holding.

Why ETFs are “Old Fashioned Crap”

Peter believes that ETFs are like the old managed funds that he worked with for decades. Where a fund manager would manage funds or trusts. He is aware that ETFs sound different to old managed funds. But Peter still believes “they are dressed up as being super sexy and blah blah, blah. They are old-fashioned crap.”

Why Peter Thornhill doesn’t like ETFs

  • ETFs don’t always distribute a Franked dividend
  • A Trust must return 100% of the gains which has huge implications.
  • The value of your portfolio is diminished as all of your gains are returned to you.
  • The instability of the dividends paid is not great.

Peter recounts a time in 2001 when he invested 50,000 in a managed fund, like an ETF. After 10 years, he sold the “damn things” and in that time, he received $51,469. His capital growth was $1469. His payment in that time totaled $90,000. And “Most of it was my capital coming back and every bit of it was taxable. I wouldn’t touch an ETF with a barge pole.”

Despite Peter’s opinion on ETFs, they are still hugely popular but the Thornhill faithful do follow his advice and stay away from ETFs.

The Best LIC Dividend Payers to “Get the Lead Out of the Saddlebags”

When investing, Peter prefers active portfolio management. He doesn’t want resources (like the mining industry) dragging his result backward. Peter likes to point out that the three primary market indexes all perform differently. The three indexes are:

  • The All ordinaries
  • The Industrial index
  • The Resources index

Peter gives an example that if he invested back in 1980, in the industrials, the all ordinaries index, and the resources index, and he reinvested all the dividends. The end result would be pretty interesting. If Peter:

  • Invested in resources with dividends – the result is 43 times his money
  • Invested in the all ordinaries index with dividends – the result is 85 times his money
  • invested in industrials only – the result is 168 times his money
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For this reason, Peter does not invest in resource companies. Peter gets “the lead out of the saddlebags” and only buys industrials. The astonishing results speak for themselves and aren’t widely known or advertised. And for the property lovers, Peter wouldn’t even invest in a listed property trust (the result is 67 times your money). It’s Industrials all the way.

What LICs Does Peter Thornhill Buy?

Peter Thornhill famously buys the following LICs, which are based on Industrials for maximum results:

  • Argo, Milton, BKI, Whitfield

Peter Thornhill’s Approach to Life and Investing

Peter’s approach to life and investing is simple. You need to get on with life, focus on your family, your career, and your friends. Meanwhile, your investment portfolio should be sitting in the background, quietly chugging along.

Peter doesn’t care about market predictions or the next share market crash. He knows the market will go up, go down, crash, then go up again. He has better things to do than worry about the market. This is great advice. Focus on your family, friends and career. The market (and your share portfolio) will do what it wants to do. And if you are worried, Peter suggests that…

“Fear is based on ignorance. Knowledge is power. If you’re scared of something examine why”

Peter Thornhill’s Advice to Young Investors

Peter Thornhill often downplays his intelligence and lightly touches on his career and lifetime of success. His lessons on financial independence are presented as something anyone can achieve, and maybe they can. And that is what most people focus on. Specifically, Peter’s debt recycling strategy and the LICs he invests in.

Beyond debt recycling, I really enjoy Peter’s money mindset and advice to young investors. His ideas on starting small, working hard, being humble, and succeeding over time are fantastic. And this insight tells you Peter didn’t accidentally become successful. He was a monster in whatever he did.

Start Small and Build Slow

Peter has spoken about his humble beginnings, starting small, buying a home with no furniture and sheets up on the windows for curtains. Humble beginnings can be romanticized, but they illustrate a mindset that Peter has taken through his life and informs the way he invests. Start small and build slowly.

Peter encourages new investors and young people with specific advice:

“Start small, build slowly to get a feel for it, to increase your knowledge and your understanding. To also take a few hits. Allow the bruises to heal. And just toughen up princess. Everybody wants to get rich quickly. And unfortunately that’s going to increase the risk element tremendously.”

Transcend to Be the Best

Peter Thornhill isn’t successful by luck. After his “apprenticeship” in England, where he was “nurtured by far wiser heads” he was headhunted to come back to Australia. He came back preaching everything he learned in England to be told he was wrong. That he didn’t know what he was talking about. And he was forced to re-examine everything he took for granted in England.

Peter has always been ambitious. He transcended his limited education and became ultra-successful in his career. And his advice for people, working in large organizations that hate their jobs and their bosses? You have to transcend that and stand out.

“…Whatever you do, if you do it to the best of your ability, you will be noticed.”

Peter believes that we need to be absolutely brilliant at one thing in our life. And that one thing is working hard, progressing and being positive. If you do this, it will work out for you. This is the secret of success in your life. And Peter makes another great point.

Sell Yourself Like a Product

People that stay in jobs they don’t like, come home disappointed and complain. They are never going to ever reach their true potential. They put a lid on themselves. That is why you have to sell yourself.

Peter believes that everyone is a salesman and you have to present yourself in the best possible way. Positive, effective. It doesn’t matter what level you are at.

“We’re all salespeople. It doesn’t matter what it is whether you are selling yourself or whether you are selling a product, you have to get up there and be out there being able to pitch.”

Peter believes that you have to think of yourself as a product. It sounds silly, but the way you present yourself is going to have a huge impact on your potential career. The stock market is something you can’t control. But you can control your career by being noticed and selling yourself.

Make Money Your Slave

Financial independence is easy to attain. Work hard, build your career, and invest wisely. Peter makes a point about people that try to make more money. Slowly, they become a slave to their money. They spend more money and their expenses increase. So they need to make more. They are watching it, reading about it, thinking about it. This becomes counter-productive.

Peter makes money his slave. It does all the hard work for him as he sits back and enjoys his time with his family. He knows his investments and the thousands of people working in those invested companies are working hard. They generate income for Peter and his family. All he has to do is sit back and enjoy the fruits of their labor. He has better things to do with his time.

There Are No Shortcuts to Wealth

In Peter Thornhill’s 50 years of experience, he knows there is no shortcut to wealth. His conservative approach of spend less than you earn and borrow less than you can afford doesn’t work for most people. There is a generation of people that expect to have everything today. They want what Peter and his wife took a lifetime to achieve. This is not realistic and can be fraught with risk and disaster.

Any shortcut to wealth is a statistical outlier. Peter grew his wealth slow and took advantage of compound interest. There is no shortcut and no magic – all you need is time. Peter lays it out in simple terms.

“This is the difficulty people don’t seem to understand that time will do the hard work for you through compounding. Everyone thinks they have to do lots of this, that and the other. You don’t. All you have to do is invest in good businesses, other people’s businesses. Have them working for you.”

And over that time, as your investments compound over time, you have other things to focus on.

“You get on with your life becoming absolutely brilliant. But one thing making damn sure your family is rock solid and looking after all your close friends.”

Rent Your Lifestyle

Peter Thornhill’s rule of spending less than you earn is difficult to achieve if you own everything you need. Lifestyle expenses increase with changing life stages. Better jobs means more money. More money flows into nicer things. Nicer things cost more money. And the cycle of spending goes around and around.

Peter thought he was supposed to own everything. But he doesn’t need a mansion, holiday house or flashy cars to show people he’s wealthy. He can afford it. But he doesn’t want it. And if he wants it, he just rents it.

When he’s spending money, Peter travels the world and drives a Ferrari or any famous gas guzzler when he wants. He’s renting the lifestyle. But when he’s at home, he lives in a modest apartment, driving his 2005 Toyota Corolla that gets him from point A to B. He is the Millionaire next door…

“That’s the lifestyle you know the day-to-day bit hasn’t changed. I still shower. I still wear jeans and a t-shirt. The fundamentals haven’t changed, but it’s all the wonderful bits of life that you can rent.”

It’s usually the lifestyle spending that costs you in the end. And that lifestyle spending usually incurs interest and takes away any ability to focus on building your wealth. A famous fictional character once said, “The things you own end up owning you”. Peter’s idea is valid, you don’t need to own everything. Rent your lifestyle.

How to Keep in Touch With Peter Thornhill

There is so much to learn from Peter Thornhill. His book Motivated Money is fantastic, and it is a book worth reading if you are new to financial independence. As your knowledge grows, sections of the book make more sense and click over time.

To keep up with Peter, go to his Motivated Money website and subscribe to his mailing list and buy his book. He still writes articles occasionally and he does still do the occasional “wealth inspiration” event. I’m a huge fan of Peter Thornhill and his tough love advice and financial contrarian views.

Final Thoughts

I hope you enjoyed this post. It’s a living document that brings together the best ideas and advice from Peter. I have re-read and re-listened to various books, articles and podcasts with Peter over the years. And the intention was to put together a cohesive reference for myself, and other like-minded investors, of Peter’s greatest hits.

M. Moneyman

Reference List:


Financial Failure to Financially Free

As a lifelong financial failure with a young family and deep in debt, I was made redundant 3 times in 2 years and in serious trouble. I had a “Financial Awakening”, I learned about personal finance and gained a financial education to accumulate 7 figures in assets.

My personal goal is to invest in myself, compound my knowledge and build wealth using three simple strategies. Save more money. Make more money. Learn about money. I’m living proof, that through the power of financial education, anyone can achieve financial independence. My sincere hope is that you will be able to learn from my journey and my blog.

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