Investing is not the path to wealth

H

handyandy

A controversial heading to a post to get you thinking.

With the 'Help to reduce tax' going the attached article came across my desk and it struck a cord.

What we do here is all about being disciplined about how we spend our money and make sure that a portion of the income we get is recycled into investments.

Obviously, these investments have grown over time but have they really made you wealthy rather than just comfortable?

http://ircflorida.com/blogs/dyches-boddiford

To become wealthy, you need to consistently do the following:

1. Work to increase your active income -- income you earn through your time and efforts, such as wages, salaries, commissions, etc.
2. Put aside a portion of earnings for saving and investment FIRST. (Start with 10%, then increase over time)
3. Spend money wisely, get maximum value from every dollar.
4. Understand and manage your debt, don’t let debt manage you -- eventually eliminating debt altogether.
5. Become a disciplined investor -- find a good strategy and stick with it.

Notice that investing is simply the last piece in this approach and arguably NOT the most important. Investing is simply a way to grow your accumulated savings. By itself, investing will not make you wealthy. Sure, you have read about those who grew small amounts in the stock market to large sums, compounding at 40 to 50% a year. But these guys were speculators and more than a few might be stretching the truth just to sell you something...
​
Cheers
 
He's right, and it ain't rocket surgery! If it DID work, all you would need to do was to front up to work and rely on your super.

We can all get lucky for a few years. Many here have done that with property and I did OK there too. I also looked like a genius share investor during the bull market but the most immutable law I know is that everything reverts to the mean. We are all arrogant enough to think we have what it takes to do better than the 5 - 7% considered good [less recently, and for the foreseeable future] so we run our SMSFs, but are we having ourselves on?

A few hours, or days, with a Guru is not going to set you apart from the pack. I have read macro-economics [or at least listened to what what the brainiacs say] for years and all that has achieved is to make me more pessimistic. I hope this translates to "losing least" when the fertilizer hits the cooling device.

In case anyone is curious what they tell me, it can be summed up in two words : Get gold!
 
I strongly disagree. People spend what they earn in salary. A pay rise is just an excuse for a larger house, new car etc.

The only path to wealth for the majority of people is investing well.
 
Had I not invested in property for all those years I would now be on the pension, instead of living very comfortably off rents and travelling the world whenever I want, which is currently around 4 times a year.....:D

Chris
 
I've seen plenty of (older) people who have a lot of cash put away in term deposits without investing in anything else. This would imply a savings disipline.

My own parents have owned a few rental properties (never more than 2 at any given time). Each of their IPs was purchased for a lifestyle reason - the Gold Coast appartment was because Mum liked having holidays there, the Geelong appartment is where they're planning to retire. They've never accessed equity or leveraged existing assets to buy more.

Whenever they've borrowed money, they've worked very hard to pay off the debt and have done this within 5 years.

They have a number of assets that they've picked up over the last 40 years, but in the last 20 years, they've saved more than enough cash to perpetually fund their retirement.

Along the way they also put 4 kids through private school and partically funded university. My sisters were still partically dependant on my parents until they were married (in their late 20s).

They've never set out to invest, their goal has always been to simply save money. First to pay off any debt, then to raise their children and finally to save for retirement. At this point their net wealth would be envied by most forum members.

They followed steps 1-4 their whole lives and only did step 5 by chance.

Mum was a swimming teacher and ran classes for the last 20 years for their pool (which was owner build and they paid cash for it).

Dad's a self employed bee keeper who left school at 14.
 
chrispy said:
Had I not invested in property for all those years I would now be on the pension, instead of living very comfortably off rents and travelling the world whenever I want, which is currently around 4 times a year.....:D

Chris
Click to expand...
But isn't that the point.

You and your husband were disciplined your whole live and you chose to work hard building, first your initial property, and then so on to end with a portfolio of properties.

If you hadn't been disciplined in managing your money then the investing would never have happened.

You are now reaping the reward of the past financial sacrifices which were financed from other earnings.

Cheers
 
Pretty much agree with him 100%.
Well, it's what we have found has worked for us.
We didn't make our millions with investments.
In fact, we've hardly made any money from property investments in the past 5 years since buying our 1st IP.

However, it was the burning desire to want to invest in property which forced us to look for ways of increasing income to be able to put towards investment properties.
Previously we were on low wages and it was going to be a slow and long process to try and invest that way, didn't seem fair that high income earners could do it so easy.
So, we started part time business on the side of working full time, and the rest is history.

During the first couple years of business, we were so busy making money that I totally forgot about investing, which was the purpose of the business in the first place.

Anyway, we've started to accumulate properties just recently and after our current development is complete, we will have 13 brand new IP's in capital cities above median price.

My thinking is that most people should stop to sharpen their axes.
The road is long and hard if you're trying to hack away with a blunt axe.
 
handyandy said:
But isn't that the point.

You and your husband were disciplined your whole live and you chose to work hard building, first your initial property, and then so on to end with a portfolio of properties.

If you hadn't been disciplined in managing your money then the investing would never have happened.

You are now reaping the reward of the past financial sacrifices which were financed from other earnings.

Cheers
Click to expand...

I agree. The greatest determinant of financial success is not how much you earn or how much your money earns, but how much you don't spend. Someone else said that, but can't remember who to attribute it to.
 
Surely the use of investing and leverage has got to be one of the key premises underlying building wealth.

Each to his or her own. Many ways to skin a cat.
 
handyandy said:


5. Become a disciplined investor -- find a good strategy and stick with it.

Investing is simply a way to grow your accumulated savings. By itself, investing will not make you wealthy.
​
Cheers
Click to expand...


Interesting thread. Many characteristics of 'the millionaire next door.'

Savings and investing go hand in hand.

Many wealthy people also own a successful business which generates significant cashflow that they then invest. (often in property) (eg see Ace in the Hole's post above - I wrote mine before I read his!! Congratulations, Ace in the Hole....)
 
Last edited:
matto_ said:
Surely the use of investing and leverage has got to be one of the key premises underlying building wealth.
Click to expand...

Sure, but the exponential growth curve is slow and low at the start.
Generally, it's those who have been investing long term who have the most impressive results.
Enough time can make bad investments look good.

The only way of fast tracking it that I see, is to consistently out perform the market, or, work on increasing your income to give that exponential curve a turbo boost which will cut decades off your financial freedom journey, if that's your goal.
 
handyandy said:
To become wealthy, you need to consistently do the following:

1. Work to increase your active income -- income you earn through your time and efforts, such as wages, salaries, commissions, etc.
2. Put aside a portion of earnings for saving and investment FIRST. (Start with 10%, then increase over time)
3. Spend money wisely, get maximum value from every dollar.
4. Understand and manage your debt, don’t let debt manage you -- eventually eliminating debt altogether.
5. Become a disciplined investor -- find a good strategy and stick with it.

Notice that investing is simply the last piece in this approach and arguably NOT the most important. Investing is simply a way to grow your accumulated savings. By itself, investing will not make you wealthy. Sure, you have read about those who grew small amounts in the stock market to large sums, compounding at 40 to 50% a year. But these guys were speculators and more than a few might be stretching the truth just to sell you something...
Cheers
Click to expand...

This is exactly what I have done, and it has worked well. It takes a few years to build up momentum, but once you're on the way, it really does work.
 
handyandy said:
http://ircflorida.com/blogs/dyches-boddiford

To become wealthy, you need to consistently do the following:

1. Work to increase your active income -- income you earn through your time and efforts, such as wages, salaries, commissions, etc.
2. Put aside a portion of earnings for saving and investment FIRST. (Start with 10%, then increase over time)
3. Spend money wisely, get maximum value from every dollar.
4. Understand and manage your debt, don’t let debt manage you -- eventually eliminating debt altogether.
5. Become a disciplined investor -- find a good strategy and stick with it.

​
Click to expand...


Above is good but too slow.

Some minor tweaks to 3, putting 5 before 4 and rewriting 4 would speed progress, ie:

3. Spend money wisely, get maximum value from every dollar, never borrow for depreciating items.

4. Become a disciplined investor -- find a good strategy and stick with it.

5. Understand and manage your debt, don’t let debt manage you -- Borrow to accelerate your investing but not too much to be risky - especially if circumstances change.​
 
I think this approach is right overall but has some fundamental perspective issues..... IE. accepting the rat race J.O.B. as the start point.

My thoughts:

1. Don't agree. The focus should primarily be on passive rather than active income. This can be done from day 1, progressing from savings, to dividend stocks, to property, to business ownership, as an example. The earlier and better you do this, the less you need to focus on the J.O.B.
2. Agree.
3. Agree.
4. Not really. How about an emphasis on NOT getting into bad debt AND using good debt wisely.
5. Agree but it could be expanded to include business ownership etc...
 
Agree with most points.

Although, one more thing that is worth mentioning is start as early as possible. The more time you give to compounding the more wonders it can produce.

Cheers,
Oracle.
 
Hoffy said:
I agree. The greatest determinant of financial success is not how much you earn or how much your money earns, but how much you don't spend. Someone else said that, but can't remember who to attribute it to.
Click to expand...

If you don't spend your money, what is the point of earning it? You can't take money to heaven.
 
one problem is we do not know when are going to die, so plan to live a good life with money until we do.

a plan is required unless inherited wealth is expected and confirmed.
 
handyandy said:
Notice that investing is simply the last piece in this approach and arguably NOT the most important. Investing is simply a way to grow your accumulated savings. By itself, investing will not make you wealthy. Sure, you have read about those who grew small amounts in the stock market to large sums, compounding at 40 to 50% a year. But these guys were speculators and more than a few might be stretching the truth just to sell you something...
Cheers
Click to expand...

Maybe the title should be, Investing (alone), will not make you wealthy? :D

If Investing is not the path to wealth, then saving your way to wealth would surely be arduous also?

A combination of the two ties in with something I read recently where it pointed out that the primary generator of wealth is your earnings, and the earnings that really count, are those you don't spend but invest?

The study but the Putnam Institute highlighted the power of higher contributions to the end result in comparison to various funds alone and even changing funds regularly to the higher performing funds.

"For decades, the defined contribution industry has focused on the performance of individual funds at the expense of other plan metrics. In this paper, we analyze a series of variables — fund selection, asset allocation, portfolio rebalancing, and increasing deferral rates — to determine which factors may have the greatest potential impact on an individual’s portfolio. Our analysis suggests that putting fund performance front and center in terms of the plan sponsor’s priorities is an error with far-reaching implications. That is not to say that fund performance does not matter, but our analysis suggests it is a much less powerful variable compared with asset allocation and, most of all, higher deferral rates." W. Van Harlow, director of research at the Putnam Institute
Click to expand...

"Interestingly, even a 4 percent deferral - which represents a 1 percent increase that does not take advantage of the plan's full matching contribution - would have had a wealth accumulation impact 30 percent larger than the crystal ball fund selection strategy, nearly 100 percent larger than the growth allocation strategy, and approximately 2,000 percent larger than rebalancing," according to Van Harlow.
Click to expand...

Defined contribution plans: Missing the forest for the trees?
 
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