(03) 9020 2905When it comes to making money, there’s no such thing as luck. I don’t know anyone who has made their money through being lucky.
I don’t have lucky numbers. I don’t pray for good financial fortune. Though I do hope that markets continue to do what they’ve done for centuries.
I don’t read financial horoscopes. I occasionally have a tiny flutter at my once-a-year trip to the ponies, but only if I’m truly bored. And that’s rare, because people-watching during the Spring Racing Carnival season is usually awesome.
Any money that I’ve made has had nothing to do with luck. (Neither has anything that I’ve lost been bad luck.) None of the people I know that have built wealth owe it to a four-leaf clover, or being Irish, or rainbows and mystical pots of gold.
But the following is absolutely correct.
Legendary golfer Arnold Palmer said, “It’s a funny thing, the more I practice, the luckier I get.”
That is how wealth is created. Through practice. Loads and loads and loads of “beating balls”.
You want to build your fortune? First, ban from your noggin any idea that luck, such as winning lotto, will play any part in you achieving that goal. It won’t.
Financial fortunes are made from three ingredients. It is always a combination of “sacrifice”, “hard work” and “understanding risk”.
Apart from winning lotto – your chances are somewhere way south of 0.001 per cent – or being a “trustafarian” (born into a massive trust fund), this will not happen to you. Accept it.
Practice for golfers and investors, like Arnold Palmer’s success, covers those three areas. Sacrificing your time and hard work are both part of practice.
Understanding risk comes with practice also – a golfer understands what’s likely to happen under a given set of circumstances and makes adjustments.
Sacrifice
Also known as “delayed gratification”. If you had $1000, sure, you could spend it now. New shoes, new clubs, long weekend away …
But if you delay spending and instead (a) save it, (b) put it into the mortgage, or (c) invest it in shares/property, then you’re more likely to have $2000 or $3000 later.
Hard work
Also, pretty straight forward. The harder you work, the more money you’ll earn or the sooner you’ll get that pay rise or higher-paying job. Then you can pay off your home faster, or invest more, or put more into super.
But understand that earning big bucks is no guarantee of financial success. It helps. Plenty of people on average incomes achieve extraordinary success. And an equal number earning mega-MEGA-bucks scrape through, with nothing to show for huge earnings over decades.
Understanding risk
This is trickier. Understanding risk? Whazzat?
Investment risk is about understanding how much pain you’re prepared to wear. And understanding that the closer you’re prepared to put your hand to the flame, the more LIKELY you are to benefit over longer periods.
That said, some investment risks are, truly, moronic. Practice here will, also, “make luck” in the Palmer sort of way. Fewer screw-ups.
Investment risk is a huge topic. But, essentially, the younger you are, the more risk you can arguably take on. For Gen Xers – roughly, those born in the 60s and 70s – the more you can bear investing in shares and property, for as long as possible, the better.
This is taking higher than average risks that reward you later.
Why?
Here’s the best way of outlining it. What did your parents pay for their first home? What’s it worth now? If they paid $20,000 for it in the early 70s and it’s now worth $500,000, would you be happy with that return? It depends on a few things, but … yes, you’d probably have done okay out of that transaction.
What were BHP, or Coles, or the All Ordinaries index worth in the 70s? And now?
Here, then, is how to beat investment risk at it’s simplest. Diversify into loads of quality investments. Load up. This will occasionally cause some financial pain (sacrifice).
Buy as many quality assets as you can and hold on to them for as long as you can. Add to them as often as you can. And resist the urge to sell them as strongly as you can.
And play some golf. It’s a good sport for learning about your strengths and weaknesses.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.