Opinion
I completed the 7 Bridges Walk in Sydney over the weekend with a friend. As we crossed one of the bridges, we admired the views – the water, the boats, the mansions.
My friend joked: “How do I get one of those?” I said, “Well, learning to invest helps.” We had chatted about investing a few times before, so I knew it was an area of interest. This sparked an interesting conversation about wealth, some of which I’m sharing today:
Her: How do you know which ETFs to pick?
Me: Most people think you’re supposed to pick investments that will give you the “best return”, but it’s more about getting a good balance of return and risk.
There are different asset classes – like cash, bonds, real estate, stocks etc. Each asset class has different characteristics. Something like cash may have less risk, but it also has low returns.
Something like stocks may have higher potential returns, but also comes with greater risks. So, instead of trying to pick the best returning investment – it’s better to learn how to design a portfolio that balances the risk and return across different asset classes.
They say money doesn’t change you, it amplifies who you are.
If you just pick the investment you think will have the highest return, there’s a good chance you’ll be taking on more risk than you realise – and this is one reason why people lose money. But if you design the portfolio as a whole across different asset classes first, you balance out the risk.
Her: I have some ETFs, but their returns aren’t great?
Me: You can’t judge returns in the short term. Most of us are trained to think of growth linearly – so we see our investments grow by a few dollars, and we can’t imagine how that will add up to millions in the future. But it doesn’t “add up” the way we think it does. With investing, the gold isn’t in what you earn today, it’s in the exponential growth, long-term.
Eventually, you’re doubling, tripling, quadrupling your results. So, don’t think about returns today, think about returns 10 years from now if you start today.
Her: But you can lose money with investing, right?
Me: I got her to pull out her phone and searched for “ASX 200”. A graph popped up. “See this? This is how the ASX 200 has performed over the last five days. Numerous ups and downs right? Now let’s look at the ASX over the last five years. Less dramatic ups and downs. Now, let’s look at the ASX since 2006.
Now you’re starting to see that over time, the market trends upwards – yes, there are fluctuations in between, and the shorter the time-horizon, the more dramatic those fluctuations feel. But over a long period of time, those fluctuations smooth out.”
Her: It seems like it’s easier to get ahead if you have two incomes.
Me: On paper, yes. But I’ve had plenty of people who come to me in tough situations – maybe after a divorce, or a financial setback – and I find that they often progress faster than those who, on paper, are far more financially comfortable. They have a real motivation to make change. So, they take it more seriously, they take action, they do the work.
Sometimes, if you’re already financially comfortable, you don’t have that pain driving you. It can be easy to keep procrastinating. Even if you know you could be adding six figures to your bank balance at some point in the future, that might not be enough to move you out of inertia.
Her: I don’t like who you have to become to wind up wealthy. It seems like people end up becoming quite negative – or doing negative things to get there.
Me: I feel lucky that I’ve had the opportunity to work with and get to know people who are very wealthy, and are also wholesome people with good values. So, I know those two things can co-exist. Maybe if I hadn’t experienced that first-hand, I would think the way you do as well.
I’ve noticed one thing that makes a big difference is whether wealth is the goal or the byproduct. Some people chase wealth – wealth is the goal. Other people love the work they do – wealth is the byproduct of their passion, creativity, enjoyment of their work. Sure, they are savvy enough to turn their success into wealth, but they’re also in it for something more than just the money.
Her: So, it’s not really the money, it’s the people.
Me: They say money doesn’t change you, it amplifies who you are. There are poor people who are selfish and corrupt, and wealthy people who are generous and kind. You get to choose.
Paridhi Jain is a money and mindset coach who combines practical strategies with mindset transformation to help clients create more freedom and fulfilment in wealth, work and life. Find Paridhi at: skilledsmart.com.au.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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