As we approach the first weeks of the new year, here is the Money Doctor’s New Year present to you as a thank you for sticking with this feature throughout the year with my column on RTE’s LifeStyle and to give you something to think about over the next few months….the five secrets to a sound financial philosophy and a wealthy life….
Secret one: money is not boring
The only boring thing about money is not having enough of it. If you never, ever 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. Remember, too, that investment can be fun. I believe in putting spare cash into things that bring pleasure such as overseas property, fine wine, even rock and roll memorabilia !
Secret two: 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 you aren’t wasting money. Depending on your circumstances, protecting your income in the event of being unable to work – and protecting your dependents if you die – may be your first priorities.
Secret three: every euro counts
You can turn € 10 a day into € 1,180,253 by the time you are age 60 if you start on your eighteenth birthday ( assuming a growth rate of 8% pa). Yes, if you have money to start with it helps – but it is possible to make yourself rich by saving on a regular basis. There are still some decent deposit rates – up to 1.75% – for the regular saver. Email me for details. Don’t be afraid however to invest in alternative options – remember if you want any kind of growth you have to take a little risk… but it can a measured risk. Sadly you will not find much growth today in the humble deposit account ( 0.3% best demand account – net 0.189% after DIRT tax of 37% ).
Secret four: don’t be greedy
In the autumn of 1955, a former social worker from New York called Bernard Cornfeld arrived in Paris with a yen to make money and ended up launching a mutual fund group called Investors Overseas Services which, at its peak, employed 25,000 door-to-door salesmen. The firm’s 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. If something seems too good to be true – if the promoters are trying to pressure you in to investing – walk away. Also if you don’t understand it, walk away. Bear in mind that the very wealthy tend to share a single trait between them : their priority is not to achieve spectacular returns but to preserve and grow their wealth.
Secret five: 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 stock market, the bond market, property and so forth). Within each category of investment you should also be diversified. For example, you shouldn’t put all your money into a single stock or even a single market. Bear in mind that the most lucrative, long-term investment of any asset class is the stock market and 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. Currently we are in the 9th year of the 2nd longest BULL market ( rising ) and with deposit interest rates still on the floor, the likelihood of a 20% drop for the matching 26th BEAR market ( falling ) is slim.The second most profitable, long-term investment tends to be property – so you should have money in this, as well. Remember all markets, including property, are cyclical. Property has come back over recent years. Andrew Carnegie once commented that 90% of all millionaires made their money through real estate. 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 financial adviser is worth his or her weight in gold.