Last month I was invited to speak at a Young Jewish Care event in the City of London. They represent the young professionals associated with the excellent Jewish Care charity, who are the largest provider of health and social care services for the Jewish community in the UK.
It’s truly encouraging to see that the younger generation are embracing their social responsibilities so early and so keenly. I was delighted to accept their invitation to speak about wealth and financial success and encouraged that they understood implicitly that engaging early is the best way to achieve their goals.
After I’d explained why defining #WhatMattersMost and clarifying their own individual Life Goals® are more important than the urge to amass money for the sake of it, I told them a story about a lady called Grace Groner and a man called Richard Fuscone1. Two investors, who didn’t know each other but whose lives, when put side by side, tell an interesting tale.
Grace Groner was orphaned at age 12. She never married, had kids or drove a car. She lived most of her life alone in a one-bedroom house and worked her whole career as a secretary. She was, by all accounts, a lovely lady. She lived a humble and quiet life. But, when she died in 2010 at age 100, she left $7 million to charity. How? Well, for Grace there was no magic formula or secret past. She had simply taken the humble savings from her modest salary and enjoyed 80 years of hands-off compounding in the stock market. That was it.
Weeks after Grace died, a different investing story hit the news. Richard Fuscone, former vice chairman of Merrill Lynch’s Latin America division, declared personal bankruptcy, fighting off foreclosure on two homes, one of which had a $66,000-a-month mortgage. Fuscone was the opposite of Grace Groner; educated at Harvard and University of Chicago, he became so successful in the investment industry that he retired in his 40s to “pursue personal and charitable interests”. But heavy borrowing and illiquid investments were his downfall. The same year that Grace Groner left a fortune to charity, Richard stood before a bankruptcy judge and declared:
“I have been devastated by the financial crisis… The only source of liquidity is whatever my wife is able to sell in terms of personal furnishings”.
My purpose in telling the audience these stories was not to say that they should be like Grace or avoid being like Richard, but to point out that there is no field outside of investment where stories like this are even possible. Where else would someone with no education, relevant experience, resources or connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections? There will never be a story of a Grace Groner of this world performing heart surgery better than an Oxford trained cardiologist. Everywhere else it’s unthinkable, but these instances occur in investing.
Successful investing is not the study of finance, it’s the study of how people behave with money.
The reason for that? It’s because successful investing is not the study of finance, it’s the study of how people behave with money. Behaviour is hard to teach, even to really smart people. You can’t sum it up with formulas or spreadsheet models. It is often inborn, idiosyncratic, changeable and hard to measure. However, managing money through behaviour is not how finance is typically taught or discussed. The finance industry talks too much about what to do, and not enough about what happens in your head when you try to do it.
The Power of Patience
So we need to learn from the behaviour examples set by people like Grace. Being consistent, creating a plan and sticking to it is all that she did. She invested in standard stocks and shares and left them alone. She didn’t fall for the latest fads, she just invested in things that have always worked.
What’s lacking in so many areas of our lives these days is patience.
What Grace also had that’s lacking in so many areas of our lives these days is patience. As Warren Buffett, one of the richest men in the world and most successful investors of all time shrewdly pointed out, ‘no one wants to get rich slow’. But Buffett has built the majority of his wealth by holding stocks in high quality companies for a very, very long time. At 56 he was worth $1.4 billion. By 66, his wealth had grown to $17 billion and again to $58.5 billion by the time he was 83. The vast majority of his wealth was acquired later in life, as the compound interest on his investments exploded.
We are constantly hearing about hot new stock tips, ways to make thousands of pounds from your couch, alternative investments like Bitcoin and many other get-rich-quick schemes. However, when it comes to building true wealth, the fact is that there is no shortcut. The investors who are comfortable with creating wealth slowly are the ones who come out on top in the end. Building over time is the only viable way for most people to amass and retain wealth.
Paying your Future Self
Controlling and being mindful of what you’re spending is also a part of this. Seeking instant gratification from the latest money-making scheme or the urge to buy something you later come to regret both spring from the same impulse (for more information and advice about controlling these impulses, see our Behavioural Finance series). I told my young audience that recent figures show how 80% of younger shoppers in the US have made a split-second buying decision while shopping online2. We’re all probably guilty of impulse buying, especially when we’re younger. I’m not here to tell people not to do these things – only to invite them to think consciously about the money that they choose to spend, which is money they’re choosing not to save or invest. If I want you to nurture any impulse, it’s the impulse to pay yourself first.
If I want you to nurture any impulse, it’s the impulse to pay yourself first.
Certain payments in life are fixed and non-negotiable: tax, mortgage or rent, council tax, food and utilities. These things ultimately have to be paid, but the same should be true of your savings. They should form part of your fixed expenditure where possible and not be an optional extra if you have money left over. Get into the habit of paying yourself first, because your future self will thank you for it. That’s what Grace Groner did, and the results are undeniable.
Great financial planning and wealth building is about much more than money. The advice I gave to the audience at Young Jewish Care applies whatever stage you’re at in life.
- Work out #WhatMattersMost to you and structure your financial planning around these principles
- Create your own Life Goals® to understand why you’re investing and what wealth means to you
- Create a simple and clear investment plan and stick to it; be patient
- Invest in things which have always worked and avoid gimmicks
- Cultivate good behaviour, be conscious of your spending and pay yourself first
Few investors ask themselves why they invest, and even fewer have a clear answer to it. For me, it’s not about creating wealth for the sake of it, but instead understanding how your investment plans will help you to achieve what you want to in life. When you understand this, everything else falls into place.
If you would benefit from great financial planning, please get in touch.