Banjo Smyth

Hitler is informed that he has missed the ‘09 Bull Market.

Very Funny Stuff!

Today I would like to look at WHY everyday people think that the stock market is risky.

The simple answer is because most everyday investors lose money when they invest in the stock market. . . . . let’s have a look why?

The history of the stock market shows us that if you were to invest ‘long term’ you would have made a good profit. Why then do a large percentage of mum and dad investors lose money on the stock market?

Everyday investors have a ‘great’ habit of investing when the market is at its peak (or during the top 30% of the cycle). They tend to get caught up in the media hype and buy when the market is close to fully priced. Do you remember the media during the recent commodities boom? There were articles everywhere about how ‘this boom is different’ and it will ‘last forever’ or oil prices to top ‘300’ etc etc.

Unfortunately the media are terrible investors. By the time the media are reporting on investment trends or prices the chances are that the stock prices have already been affected and you have missed the boat. To make matters worse for mum and Dad investors not only do they generally buy at the peak of the market but they sell and the bottom as well. Why? Once again they believe the media hype and jump ship when their investments have halved in price. Notice how the same people that were convinced the commodities boom would last forever change their tune are write about how this stock market crash going to last forever.

Successful investors don’t make their investment decisions based on what the newspapers are saying. They look at internal market indicators that steer clear of media hype and make rational decisions based on value and facts. In recent time Warren Buffet has been criticized for his investment decisions. So called experts have said that ‘Buffet has finally lost his touch’ and that he must be crazy to invest so aggressively during these hard times. Let’s wait and see what happens – who’s side are you going to on?

The media

Vs

Warren Buffet

I know whose investment strategies I will be following

Surely everybody has felt this way at some stage?  So what IS the answer?

Whilst there might not be a ‘definitive’ answer to this question – there are definitely better and worse places to begin your quest towards financial freedom.

Robert Kiyosaki (the author of Rich Dad, Poor Dad) talks about the three main vehicles that the rich use to create wealth.  They are as follows

Stock Market

The stock market allows you to ‘buy in’ to a company and in turn receive a ‘share’ of the company’s profits or losses.  Professional Investors generally use the stock market to create cash flow.

Real Estate

Buying Real Estate can be less scary for the novice investor as you are buying a ‘physical thing’.  The ability to ‘leverage’ your money is one of the best features of Property Investing.  Professional Investors generally use Real Estate for long term capital gain

Business

Business can include everything from owning your own business to being employed by someone else.  If you think about it having a job is just like running a business but rather than selling a product you are selling ‘your time’.  Wealthy people use their ‘business’ to help fund their Stock Market & Real Estate investments.

I would like to add a fourth category 

Mindset/Education

Whilst you don’t physically ‘make money’ from this category, there is no way that you can create any amount of wealth without having a strong mindset and knowledge base.

So where should you start?

The first and most important thing you need to do is ask yourself “why do I want to be rich’?  Everyone ‘thinks’ they want to be rich but not many people take the time to explore what they would actually do if money wasn’t an obstacle.  Remember being Wealthy isn’t just about having lots of money.  There are plenty of people who earn millions of dollars a year but don’t have any spare time to see their family or who aren’t actually happy with their life.  To be truly wealthy I believe you need to have abundance and choice in four main areas

1. Financial – have enough money to do everything you dream of
2. Time – be able to spend your time how YOU want
3. Family/Love – have great relationships and a group of people you care about
4. Achievement/Contribution – be proud of who you are and what you have done

So when you ask yourself ‘why do I want to be rich’ make sure your answer includes all of these areas in some way. 

The next thing I would do is ‘Surround yourself with people who have what you want’.

Or in other words educate yourself.  There is plenty of great Wealth Creation information out there and the best part is that a great deal of it is Free.  A little Warning – once you begin learning new investment strategies and Wealth Creation ideas you will no doubt begin to feel liberated and excited.  DON’T let yourself be scared or put off by uniformed people who know less about the subject than you.  Jamie McIntyre talks about the ‘law of opposites’.  In short he is saying “If you want to succeed, you need to figure out what most Australians are doing and do the exact opposite”.  Remember, ‘Surround yourself with people who have what you want’ NOT ‘people who have what you already have’.

The next step is to decide what your first strategy is going to be.  Will you use the Share Market, Real Estate or your Business?  Always remember to start small, don’t try to ‘bite off more than you can chew’ and definitely don’t get too far ahead of yourself.  If you try and go too fast you can end up having a bad experience and it might turn you off Investing for life.  Once you find a strategy that works then repeat it and start looking for  a different strategy to learn.  As Robert Kiyosaki says the Stock market, Real Estate and Business will create the best results when they are employed in unison BUT you need to walk before you can run.  One strategy at a time is definitely the best option.

The final step and by far the hardest and most horrible part of this whole process is to reward yourself!  Celebrating your successes will encourage you to continue your good work and always remember there is much more to being wealthy than having lots of money.  So what are you waiting for?  Take action now, quite simply just  ‘Do Something’.  

Remember “A journey of a thousand miles must begin with a single step” – Lao Tsu

Does this sound familiar?  Isn’t it interesting that the common perception amongst the public is that investing is way too risky ?  What’s even more interesting is that if you asked any poor or middle class person how they thought the Rich made their money almost all of them would include ‘Investing’ in their answer.  So if poor people know that wealthy people are ‘Investors’ then why on earth do they believe that it is too risky for them to get involved?

The answer is simple

Humans are terrified of anything that they don’t know or understand.  In the immortal words of Garth from Wayne’s World “We fear change”.

So am I saying ‘Investing is not risky?’ Not at all, in fact if you don’t understand it or aren’t properly educated Investing is incredibly dangerous and risky.  But the same can be said about almost every daily activity that we undertake.  Whether it be swimming, crossing the road, riding a bike, driving a car or even eating a chicken wing – all of these activities would be highly dangerous if we hadn’t been taught or shown how to do them properly.  Luckily for us our parents took us to swimming lessons when we were children but unfortunately for us our parents never seemed to take us to Investment school.  Instead they taught us what their parents taught them about Money & Investing – and that was “to earn money you need to work hard”

Well I’ll tell you now that if you want to become financially successful and a master of wealth creation you will need to step out of your parents shadows and learn that ‘Rich people don’t work for money, they let their money work for them’.

I was first introduced to this concept in high school when I read ‘Rich Dad, Poor Dad’ but it wasn’t until a few years later that I truly understood the concept of having your money work for you. 

When I finished university I decided I wanted to travel the world for 6 months so I began working my backside off to try and finance the trip.  Whilst I was confident of my saving ability in the back of my mind I knew that I could always fall back on some money that my granddad had given me in the previous year.  As an early inheritance he had invested $7k (plus $3k of my own savings) into some shares that I knew very little about (other than the fact that if my ‘overseas trip fund’ was running low I had a backup plan).

To cut a long story short I managed to have the most amazing trip without eating into my Granddads shares.  But more importantly when I was overseas I met a fellow Australian traveler who was funding his trip by trading the stock market in internet cafes all over Europe (earning between $5-$15k per month).  Needless to say my interest in the Stock market suddenly grew and as soon as I got home I decided to see how my own shares were going.

Well to my great surprise the $10,000 that had originally been invested had now grown to $16,000.  So whist I had been climbing the Eiffel Tower and watching the Aurora Borealis in Norway my money had been hard at work.  What an amazing and life changing feeling!

 So how can you learn to make your money work for you?

Well as I found out this question is harder to answer that you might expect.  After learning about my shares success I couldn’t help myself from telling everyone I knew but for some strange reason no one seemed to share my enthusiasm.  All everyone could say was “be careful, the stock market is very risky’ or they would tell me stories about how their ‘nephews, cousins, friend had once lost all their money on the stock exchange’.  At this stage my head was starting to hurt and I didn’t know who or what to believe.  Just recently I found a great quote by Kurek Ashley that summed up the position that I was in perfectly:

“The most expensive advice you will ever get, is free from poor people”

If you look at what this quote really means you will be able to understand why the average person believes that investing is too risky.  It is simply because your typical ‘poor to middle class’ person is receiving their advice from a fellow ‘poor to middle class’ person.  Surely this is a case of the blind leading the blind, or at best the blind leading the severely visually impaired. 

If your child wanted to be a professional gymnast and you knew nothing about gymnastics what would you do?  Obviously you would find the best Coach/School and you would let them teach your child.  Well the same principle applies if you want to be financially successful.  You need to find Mentors, books, DVD’s, Seminars anything or anyone that knows more about Wealth Creation than you do and gradually build up your knowledge.  Then eventually like a professional surfer glides over the waves you can successfully let your money work for you rather than drowning in an ocean of uncertainty and risk.  As Warren Buffet once said “Risk is not knowing what you’re doing”

So you are now faced with a few options

1. Not invest and spend the rest of your life ‘working for money’
2. Invest your hard earned money before you are educated enough, loose  your life savings and in turn become one of those people who tell everyone else that “Don’t invest, it’s too risky, the stock market stole everything I had”
3. Or you can dedicate yourself to learning about Investment strategies and techniques and gradually build up your confidence until  you become a successful Investor and let your money work for you.

So are there risks with Investing? YES of course there are, but like swimming, crossing the road, riding a bike and driving a car once you educate yourself you lower these risks and in turn get to enjoy the wonderful benefits.

Surely NOT investing is the biggest Risk of all.