Do you want to get rich quick? Statistics say that only 1 in 4000 people will. Though the reality of that is dampening, don’t let it hold you back!

Getting rich the old fashioned way is much more likely (and safer in the long run). Here are a few clues on how to invest whilst avoiding financial investments that may lead to loss.

Show notes:

• [03.49] Whatever you invest in, you need to understand.

• [06.04] Be very careful who you accept advice from.

• [11.57] Be careful of the amount you invest.

• [15.24] If it’s too good to be true, it’s too good to be true!
  

Quotes

“There truly is NO investment that is well suited for every human being.  Because our context is totally different to our twin brother; our financial situation is completely different to our neighbour; and our financial behaviour is often even totally different to our life partner.“ – Lisa Linfield

“You need to be very clear about the investment credentials of the person who is advising you AND they need to know and understand your financial position.” – Lisa Linfield

“NEVER borrow money to invest in anything except the house you live in – where there is an asset that backs that investment that you can sell if things go pear-shaped.” – Lisa Linfield

“If it’s too good to be true, it’s too good to be true!” – Lisa Linfield

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TRANSCRIPT

Hello everybody and welcome to Working Women’s Wealth.  I’m Lisa Linfield, and I’m creating a community of women passionate about making sure that their money works for them to create the life they dream of for themselves and their family.

This is the first episode I’m recording from my new home in a new state or province.  My eldest daughter, Jess, decided to follow in my footsteps and come to boarding school here in KwaZulu-Natal.  It’s absolutely the right decision for her, and a school I think she will be happy in.  But, we were staring down the barrel of two different school systems with different vacations… meaning we would only have one holiday that overlapped – the southern hemisphere summer holiday over Christmas.  And, as we only have our 3 girls together for 5 more years before Jess goes to university, it seemed a shame to spend them torn between states and school priorities, and never together, unstressed, and enjoying each other on holiday.  So, we decided to leverage one of the positives of Covid – a shift in the corporates to remote working… and came to live in the same province as Jess.

Goodness, they don’t joke when they say moving is one of the most stressful things you can do!

Anyway, today we are going to look at something that’s been on my mind… how to recognise and protect yourself from financial schemes. 

Now, I need to say upfront that I myself am a mainstream investment manager.  I invest hundreds of millions of people’s money, but I invest them in unit trusts or Mutual Funds as they’re known offshore.  I don’t do shares, and I don’t do speculative investing.  The reason why is actually the first thing you need to know about investing…

1.      Whatever you invest in, you need to understand

I often get asked about whether Art is good to invest in, or should I rather invest in property, or a share, or something else.  The answer is always the same, if you are self-investing, you need to know a lot about it. 

So I don’t invest in shares directly for my clients because I don’t have the time to study every share in the country and world.  And, if I’m going to select shares for my clients, that’s what I need to do.

So, if someone comes to you with an amazing opportunity, make sure you study it in great detail.  And make sure you know something about whatever type of investment it is.

One I see often is around the latest tax shield investment.  So, if you know a lot about tax and your personal tax situation, then it may work for you.  But often the poor accountants get to only clean up the tax issues after the event – because whilst it may have been the right tax advice for your work colleague, it may not be the right one for you.

But, if you know a lot about property and someone comes to you with an amazing property deal, then you will be better equipped to assess whether this is the best thing ever.  But, if you know nothing about property, then this is not for you.

Which leads me to the response most people give me – but my [insert friend, boyfriend, boss, online chat buddy, social influencer] recommended I should do it…

2.      Be very careful who you accept advice from

The worst sentence for an investment manager starts with “I was at the barbecue and…”

Now I’m not saying your friends aren’t very knowledgeable investment people, and may be exceptionally successful with their money.

However, unless they know you, know your financial affairs and financial risk profile, know your family circumstances and understand your financial behaviour, then they may not be the correct person to accept advice from. 

Even if they do (which is highly unlikely), If they’re investing 100,000 – it may be a tiny fraction of a percentage for them, which they can afford to lose without it impacting their life at all.  However, it may be your entire kids education fund.

Whenever people ask me about an investment, I always start with “it totally depends on you”.  There truly is NO investment that is well suited for every human being.  Because our context is totally different to our twin brother; our financial situation is completely different to our neighbour, and our financial behaviour is often even totally different to our life partner.  All of these mean that what’s good for your friend at the barbecue may be a bad investment decision for you.

Financial advice is highly regulated, and for a very good reason.  So many people freely dole out their views, without needing to take accountability for the impact of the investment on your life if it goes pear shaped.

So when someone gives you free advice on the next best investment opportunity you need to ask yourself these three questions

·         Do they stand to gain from this (e.g. a referral commission)?

·         Are they regulated and qualified to give advice?

·         Do they have a full picture of your financial situation?  You need one person that can see your entire financial position.

Just recently I saw a client who asked me about a R2m investment.  They had different pots of money invested with different advisers, and had then got three of us to give an opinion on what they should invest in.  The problem is the others had just looked at the single pot of money, had a brief chat, and offered advice. 

When I had a deeper discussion, we uncovered a bigger problem.  The client was already 65, and had no where near enough money to retire – they had a third of what they needed.  Within that context, the advice he had received was incorrect.

So the second step to protecting yourself against a risky investment is that you need to be very clear about the investment credentials of the person who is advising you AND they need to know and understand your financial position.

I absolutely get that my clients may want to invest their money in investments I don’t manage such as shares – and most of my clients come to me in later life with portfolio’s invested in many other places.  But because I know their holistic position, I answer them on two fronts

·         Whether the investment is ok or not (reputable company, maths makes sense for the returns of the asset class, lock in clauses etc)

·         Whether the investment is good for their holistic personal circumstances.

That way, they can make an informed decision.

The other day a client of mine who I deeply respect contacted me about investing a small amount of money in a new investment.  I love the mental gym he and I have around investment decisions – he sharpens my outlook, and keeps me on my toes.

As I looked into the investment, it was from a reputable company, and was a solid investment.  The amount relative to his wealth was a tiny fraction, so I had no problem at all with the investment.  The problem was, he wanted to ‘take a punt’ – invest with the opportunity of winning big returns.  Which is exactly what the marketing material made out would happen.  The problem was when I looked into the investment, it was in fact an investment that was LOW risk compared to his natural risk tolerance… and was far too safe for him.  With that information, he decided not to go ahead with the investment – because he had deeper knowledge of what he would be investing in (our first criteria), and he understood how it applied to his personal circumstance – as advised by a professional who could put the two together (our second criteria)

Which leads me to my third point for you to take note of:

3.      Be careful of the amount you invest

I believe in an anchored approach to investing.  This means that around 90% of your money should be wisely invested in a diversified basket of assets that reflects your personal risk appetite.

And I also understand our human desire to ‘beat the market’ or beat the experts.  We all want to be one of those success stories of an investment that just shot the lights out.

So if you are considering investing in a high risk investment, even if you know a lot about it, make sure that you are able to lose the investment, and it make no material difference to yourself.  And limit it to no more than 10% of your investable money. 

NOTE, that’s money you have to invest – and potentially lose.  NEVER borrow money to invest in anything except a house – where there is an asset that backs that investment that you can sell.  To borrow money to invest if it’s a high risk investment, can lead to you losing whatever you put in and paying off debt.

A client of mine once was offered the opportunity to invest in an amazing opportunity in an offshore business.  A friend who she knew for a year or two, and had become very close to, was apparently from a very wealthy family, and had come across this business opportunity via one of her advisers.

When I looked at the opportunity, it seemed as the old expression says ‘too good to be true’.  The information and person advising it, seemed solid to my client.  But to me, returns over 40% promised from a private company with no information available besides a fireside chat felt risky to me.

But my client was convinced.  So withdrew her money with me and borrowed more from family. 

In the end, the friend was a scam artist, who disappeared as the whole thing unravelled.  And my client lost not only her invested money, but was now laden with debt.

She went against the three rules

·         She didn’t research extensively the technical of the investment, in order to hold a deep knowledge if she was going to invest directly

·         The opportunity came from a ‘trusted friend’ who didn’t have a full understanding of her situation and wasn’t regulated or advising her in her best interests.

·         She didn’t stick to 10% of her invested assets.  She took everything, and borrowed more money, to invest in this ‘opportunity’.

And when it went pear-shaped, she ended up losing a whole bunch of money and owing a lot.  And the stress was huge.

That leads me to the last point –

4.      If it’s too good to be true, it’s too good to be true!

So, if you’ve done your homework, and you’re convinced it’s a good opportunity – and the person recommending the investment is reputable, and you’re not investing more than 10% of your money in it, then you may think you’re good to go. 

But there’s one last thing you need to do – you need to double check the returns promised – against your knowledge of the industry returns.