Do you know what wealthy people do to get and stay wealthy? They simply invest first, and spend later, and they do it over and over again. They understand the power of the correct sequence of money, and they think people who don’t are mad, and they are right. Wealth can be created by changing the order of how you use your money.
Investing sensibly is essential if you want a secure financial future. You can’t get rich saving money in a bank, but people have been known to get rich owning shares in the bank. Poor people save their money, rich people invest their money. Investing is not speculating or gambling, or trying to time the market, or buying the latest hot tip share.
In fact investing is not sexy, at all. Successful investing is a long drawn out process and you need patience and discipline to reap the rewards. Remember Aesop’s Fable the Tortoise and the Hare? You want to be the Tortoise. Slow and Steady Wins The Race.
There are so many different investments out there, with different risk profiles, and investment time frames, and tax implications. My job is to find the best investment that is right for you, that suits you, your values, your lifestyle and your personality. We need to sit down and talk about what you really want out of life, what means the most to you, and work out a way to get you from where you are now, to where you want to go.
“The future belongs to those who believe in the beauty of their dreams.” – Eleanor Roosevelt
So how do you become a confident investor?
Confidence comes from making a plan and sticking to it.
Being a confident investor, requires knowledge and experience. The more you understand how money and the markets work, the more confident you can be. My job is to explain that in plain English for you. How can you be confident until you really understand what you are doing?
Let me explain it in the most simple terms, to give you some understanding of how investing works.
The market is us, everyone who is buying and selling and eating and drinking and driving and taking public transport etc. What we do every day is the market. What we do affects the market. And what we do with our wealth creation strategies, affects us.
And just like the weather, the market has seasons. There are summers, which follows spring, and autumn and deadly cold winters. They always follow each other in the same order, they always have and they always will. It’s just the degrees of temperatures in the season that change. It’s exactly the same as the market, whether it’s the share market, the property market, the money market, the gold or oil market. Markets are always moving, up, down or sideways. They do not stand still.
Let’s talk about Melbourne’s weather. You can’t predict the weather from day to day, and some days from morning to afternoon. It’s volatile, but you live here. You deal with it.
The daily reports of the share market is the market’s daily weather report. Would you decide to stay indoors the entire winter, just because of one particularly cold and windy day? Of course not! So you need to stop thinking about the share market updates as anything other the daily weather. It’s always changing, some days are good, and some days are bad, but in the end what the weather looked like last Wednesday it totally irrelevant to what the rest of the year is going to look like, let alone the next 20 or 30 years.
The property market only appears to be less volatile because it is not reported daily. It’s reported more like the seasons. In fact in Australia the property market has definite seasons. Spring seems to be the best time to sell a property, and conversely the worst time to buy one. Yin and Yang.
Nothing is guaranteed and everything is fluid.
So let’s talk about the Elephant in the Room – the Global Financial Crisis – it was UGLY, probably even a lot uglier than you can even imagine. I remember wondering whether the entire financial world was going to collapse. It came very close, and it was extremely stressful.
We all saw plenty of screaming headlines like “$40 billion wiped off Australian share market in one day!” “Markets brace as crisis in Europe flares up again.” These headlines are great for selling newspapers, but they’re not much use to us as investors and can seriously mislead us.
Don’t panic, it’s organic!
Investor behavior is where fortunes are won and lost. The markets will do what they always do, you need to learn to ignore the short term noise, and keep your focus on your long term goals. Until you get your head around that, investing is not going to work for you.
A lot of professional investors use the adage: ‘It’s time in the market, not timing the market that matters’.
Timing the market means second-guessing; choosing the best time to buy and sell investments.
There are only three things wrong with this strategy, choosing the right time to get in, choosing the right time to get out, and dealing with the capital gains tax consequences of both decisions. The risks of trying to second guess market movements outweigh the benefits. It’s a mug’s game.
You need to maintain your composure and keep your end goal in sight.
Simple rules for Long-Term Success
- Invest – the biggest risk is not putting your money to work at a generous return
- Invest small amounts regularly and consistently
- Time is your friend – begin early and never stop. Compound interest is a miracle
- Impulse is your enemy – Eliminate emotions from your investments
- Ignore the media headlines – it’s a sales pitch at best and propaganda at worst
- Remember – cold dark winters will give way to bright, beautiful springs
- Basic maths works – keep your investment expenses under control
- Stick to Simplicity – don’t complicate the process
- Stay the course – no matter what happens, stick to your program
So what makes a confident investor?
A confident investor is one who can stand back while the markets rise and fall and simply ignore it all; an investor who resists the temptation to panic and intervene when it seems like the whole world is collapsing; an investor who remains focused solely on their long term and, if and when we have surplus money to invest, invests a little at a time and avoids any attempt to choose the ‘right’ day.