Slow and Steady Beats Get Rich Quick

I’m going to let you in on a secret…

Good financial planning is actually rather boring.

There are no get rich quick secrets. Short of coming up with a brilliant business idea and combining it with great execution, everything that can make you a lot of money in a short space of time can also financially decimate you just as quickly. For example, one of the fastest ways to make money on the financial markets is to trade derivatives (e.g. options, futures and swaps). The thing about these instruments however, is that they are an agreement between two parties and there is a winner and a loser on either end of the trade. For you to make money, someone else has to take the opposite bet and lose their money. Unless someone else – who presumably, is not a moron – thinks the exact opposite about an investment call as you do, there is no trade.

Furthermore, derivatives are highly leveraged – only a little money is required upfront to reap either a potentially huge return or loss in percentage terms. So really, unless you are an expert or a professional trader (and even then you’re far from safe) dabbling in this area isn’t a lot better than visiting the casino.

I’ve seen a lot of clients in my 18 years in the industry and apart from the lucky ones who inherited their cash, the ones who end up financially secure in retirement (and sometimes sooner), generally have the following in common:

– A good and reliable income (not necessarily huge, but usually above average).
– A consistent history of spending less than they earn. (Read this one again – it’s BY FAR the most important).
– Aggressive repayment of their mortgage – or if renting, an aggressive savings plan (more than 10% of their net income).
– Smart tax structuring – i.e. splitting income where possible and taking advantage of salary sacrifice to superannuation (if appropriate).
– Sensible and consistent investment into a well-diversified share portfolio or well-situated real estate.
– They do not overpay for assets. i.e. they don’t buy into something that doesn’t make sense just because everyone else is talking about it – e.g. tech stocks in 1999 or…arguably… residential real estate where yields have dipped below 4%.
– The ability (both mentally and financially) to hold the course and not sell down investments in adverse market conditions.
– They protect themselves from the unexpected – either by consciously self-insuring or using external insurers.

While I’ve seen a couple of clients who made a fast fortune off freakishly lucky or aggressive investments, these are definitely the minority and of these very few clients, one that I know of blew everything because he couldn’t calm down and protect his profits.

So short of luck, or great entrepreneurial vision and skill, so best way to go about things is to get rich slowly. Sorry about that!


Now for the boring bit…

GENERAL ADVICE WARNING: All information in the above post is general in nature and is NOT intended to be personal advice. You should be aware before acting on any of the above that I have not taken your personal needs or financial situation into account and therefore any advice provided, implied or otherwise, may not be appropriate to your personal situation.


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