We're all familiar with get-rich-quick opportunities: the promise of a quick fortune often sounds too good to be true, but many people buy into it anyway.
Ponzi schemes, pyramid schemes; Whatever the description, these investment programs carry significant risks, even if they are not readily apparent.
The term “get rich quick” dates back more than 130 years according to Oxford English Dictionary. A little more recent is a century ago Ponzi schemepromoted the assumed high rate of return based on so-called low-risk investing.
Finally, you may be aware of the proliferation of schemes declaring that anyone can build a property portfolio, and obtain a certificate to do so in double speed time.
Understandably, overzealous investors can fall into this trap. Younger clients in particular often take a short-term view. This is driven by the seemingly distant idea of retirement; General deficiency in Financial education; The boom in cryptocurrencies is also attracting this audience by generating significant, albeit volatile, returns; And the need to access capital quickly when getting onto the property ladder is harder than ever.
Against this backdrop, getting advice from a wealth management expert who will align a long-term financial plan with your personal goals is vital. And experts will almost always tell you that slow and steady wins the race.
If advice is not possible, building financial literacy skills – one of our main tasks – can help people manage their finances more effectively.
Align goals with long-term investing
In most conversations I have had with investors, it is clear that they understand the volatility and potentially significant losses associated with a short-term wealth management strategy.
There is also a widespread understanding of the counterpoint that when wealth grows carefully and steadily over a longer period, the returns are worth the wait.
Recognizing an investor's unique goals from the beginning is imperative. If that involves wanting to get rich quick, we'll teach them what good investing looks like. It may seem boring – but it will prevent them from experiencing the roller coaster ride of a short-term investment strategy.
All of this requires a great deal of patience and a long-term mindset.
Any wealth management plan is likely to last for several decades. Putting this into practice means focusing first on the end goals, and then working backwards, to ensure your money performs well over time.
Get your wealth management plan right
Reasonable investing is vital to successful wealth management. This involves looking closely at how risks are distributed. While a get-rich-quick scheme may focus on one investment opportunity, which can go badly wrong and lead to huge losses, long-term wealth management thrives through diversification.
By this I mean a financial plan that allocates one's money into a global portfolio, covering a range of sectors, geographies and asset classes. Unlike investing in a single stock or instrument, if one element of a diversified portfolio comes under stress, losses will be minimized – rather than wiping out the entire investment in one go.
There are a lot of tax wrappers that allow someone to hold a variety of mutual funds in the market, which provide the opportunity for a continuous stream of income over time:
- It's like
- Pension (55+)
- Investment bonds
- General investment accounts
The underlying investment can often be stocks; Or fixed income. Or a combination of both. It largely depends on the individual's attitude to risk and when he intends to withdraw the money – something else a well-prepared financial plan will indicate.
Put your finances on a stable footing
Starting at the end also means paying close attention to the wealth you are expected to have when you die.
When building cash flow models, we assume that someone will die when they are 100 years old (currently 12 years above average life expectancy). We also take into account 5% growth per year on investments, interest rates of 2% per year and inflation of 2.5% per year for modeling purposes. This helps determine whether a person will run out of money and exhaust all liquid assets before reaching 100, or die with assets remaining.
Ideally, when someone dies they will leave a legacy. This brings inheritance tax considerations into the equation; But the client's needs are the first priority and tax planning can follow.
Of course, personal needs and goals always change over time. The plan therefore needs to provide a level of flexibility, with regular financial reviews.
Follow all the steps I mentioned above and you will remain on solid financial footing in the long term, rather than risking your wealth in pursuit of short-term gains that may never materialize.
Just as a passionate gardener plants seeds and patiently waits for them to bloom, you can step back and see your long-term wealth management plan begin to reap the rewards.