1) Money is not boring
The only boring thing about money is not having enough of it. If you never want to have money problems, then set aside a reasonable period of time on a regular basis (I do it once a month) to review your financial position. A money plan – both immediate and long term – is essential. Just as you would a long-distance journey...planning is needed.
Remember, too, that investment can be fun. I believe in putting spare cash into things that bring pleasure, such as property abroad, fine wine or even Rockn'Roll memorabilia (I have one of 25 Jerry Lee Lewis jackets made for his biopic!).
2) Put your house in order before you begin
You won’t get very far if you have one hand tied behind your back. Before you set off on your quest for profits, pay off any expensive debt and make sure that you aren’t wasting money unnecessarily.
More planning – do a household budget. Balancing the books is easy, really, whether you are a country, business or an individual. If expenditure exceeds income, you have two choices – earn more or cut costs. But you must know what your outgoings are and you must know what your income is.
Depending on your circumstances, protecting your income in the event of being unable to work – and protecting your dependents if you die – may be one of your first priorities. Did you know this type of insurance is the only type that attracts tax relief on the premiums paid at your marginal rate? It pays 75% of your annual income on a monthly basis after 6 months when your employer stops paying you.
3) Every euro counts
You can turn €10 a day into €1,180,253 by the time you are 60 if you start on your 18th birthday (assuming a growth rate of 8% per year). Yes, it helps if you have money to start with, but it is possible to make yourself rich by saving on a regular basis. There are some great deposit rates – up to 4½% – for the regular saver.
4) Don’t be greedy
In the autumn of 1955, a former social worker from New York called Bernard Cornfeld arrived in Paris with the goal of making money. He ended up launching a mutual fund group called Investors Overseas Services, which at its peak, employed 25,000 door-to-door salesmen. Its winning one-line pitch was “Do you sincerely want to be rich?” and hundreds of thousands of investors piled in. The initial gains were fabulous but, of course, it all ended in tears.
The very wealthy all tend to share a single trait - their priority is not to achieve spectacular returns, but to preserve and grow their wealth steadily. Therefore, the two maxims for sound investing are: 1) if it is too good to be true, walk away and 2) if you don’t understand it, invest in something you do understand.
5) Diversify, diversify, diversify
I am a firm believer in the old adage: never put all your eggs in one basket. When planning your investment strategy, divide your money between different classes of investment (the differing stock markets, the bond markets, property, cash terms and so on). Within each category of investment you should also be diversified. For example, you shouldn’t put all your money into a single share or even a single market. Bear in mind that the most lucrative, long-term investment has historically been the stock market. Whether you invest directly, in a basket of shares (such as a unit trust or managed funds) or through a pension plan – it should make up a large part of your wealth.
The second most profitable, long-term investment tends to be property – so you should have money in this, as well and principally your home. Only then should you look at alternative investments. Also, while tax savings are important (especially via pension plans) you should never let the tax tail wag the money-making dog. Finally, don’t be shy about getting expert help. A good fee-based financial adviser is worth his or her weight in gold, if I do say so myself!
John Lowe is managing director of Providence Finance Services Limited trading as Money Doctor and based in Stillorgan Co Dublin. He is the author of Money Doctor 2015 (Gill & MacMillan €12.99). For consultations and seminars, T: +353 1 278 5555, e: jlowe@moneydoctor.ie or visit here www.moneydoctor.ie
