“If I were a wealthy man…”
By Alan Steel
How uncertain our lives would be if we had to deviate from tradition, from the norm, from doing what most everyone else around us does.
For most, that’s a daunting concept.
Think about Tevye in Fiddler on the Roof. His world is about to be turned upside down from the nice set path he’d been travelling.
And he has a choice; he can dance on the rooftop or worry about falling off.
“All day long I’d biddy biddy bum…”
Most folks are all steeped in the latter idea, the falling off the roof bit, particularly when it comes to investing and risk.
In the words of Ben Carlson from his blog A Wealth of Common Sense, there are three key misconceptions about investment risk:
1) That you have to figure out exactly what’s going to happen in the future,
2) That your appetite for risk will remain throughout your entire life, and
3) A risk model will somehow save you.
“Yubby dibby dibby dibby dibby dibby dibby dum…”
Ben writes: “At times, life events — a new job, a new baby, a higher salary, a lower salary, a new house — will require a change in your risk profile. Other times the market’s movements will make it feel like you should be making changes to your portfolio.
Often the feelings you get based on these factors will be the opposite of what you actually should do.”
Fiddler on the Roof syndrome is an all too common ailment; a conundrum of misconceptions driven by tradition and what’s considered the norm.
But there are a few stark realities about doing as your neighbour does, like:
- Nobody ever got rich by investing in a deposit account – read the Rule of 72 here
- When it come to investing, the crowd is always wrong. That’s why the vast majority of people in the world are not wealthy, and
- If successful wealth creation were a nice, easy path that did not challenge your instincts at the most basic level, everyone could do it.
“If I were a wealthy maaaan…”
Having been an IFA from early 1973 for over 40 years I can attest to two things:
- Contrarian investing works handsomely and
- It is the hardest thing imaginable, for you to keep your nerve at all times of euphoria and panic isn’t easy at all.
My advice to you, get someone to teach you how to dance!