This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 23 April 2016.
Recent years have seen a veritable flood of self-help books about making money, whether it’s through property speculation or stock market investing. They tend to have catchy titles like “The Property Gazillionaire: How I went from 1 to 20,000 Properties in Six Months!” or “Get Rich, Stay Rich: The Money-Making Guide for Impatient People”. I’m sure the books make for great reading, however I’m always a little curious as to why you would sell the apparent secret to untold wealth for just $12.99, but perhaps I’m simply being too cynical. Nevertheless, in the spirit of all this wonderful advice-giving, let me give you some free advice; it’s almost all you need to know when it comes to your finances. Here are the rules, in no particular order:
1. If it sounds too good to be true, it really is.
Everyone knows this one, yet it’s probably the most frequently ignored law of investing. When the rest of the world thinks 5% is a good return, how likely is it that someone else has stumbled upon a way to make 25%? With no risk? Exactly.
2. If you can’t understand it, don’t do it.
Or at the very least keep asking questions until you can understand it. Many investment losses can be avoided if you are fully aware of and understand the risks involved. If you don’t know the risks, don’t part with your money.
3. There are no shortcuts (that don’t come with the risk of losing everything).
Making money in a hurry requires a level of luck only experienced by lottery winners. Slow and steady accumulation of wealth may not sound very exciting, but it’s one of the few options open to you if you don’t have rich parents or a knack for picking lottery numbers.
4. Fear of missing out (FOMO) can be hazardous to your wealth.
Everyone wants to invest in gold after the gold price has gone up, buy property as the market reaches its peak or sell their shares just as the stock market bottoms. Falling victim to FOMO results in you joining the herd and unfortunately history has shown that the herd is often wrong.
5. Don’t put all your eggs into one basket.
Again, everyone knows this one, yet it’s sad how many times you hear of a hard-working retiree who lost it all because they had all their money in one investment, be it a managed fund or individual company. “Diversify or despair” should be the motto of every investor.
Not as exciting as building a property empire in 6 months, but these rules actually work (and best of all, they’re free!).