By Bob Barber, CWS®, CKA®
I find many people actually believing that high investment returns are one of the only ways to wealth, and for a very small minority, it is. but for the majority, high investment returns have little to do with obtaining wealth. Over my 37 years, I have studied the traits of wealthy people and it has little or nothing to do with investment returns. Here are the 15 traits I have observed.
1. They have a strong foundation in God, their families, and long-term relationships. I believe these strong foundations keep them from swaying with which way the wind is blowing at the time. (Matthew 7:24-25 Therefore, everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. The rain came down, the streams rose, and the winds blew and beat against that house, yet it did not fall, because it had its foundation on the rock.)
2. They live a disciplined lifestyle. (2 Timothy 1:7 For the Spirit God gave us does not make us timid, but gives us power, love, and self-discipline. – AND – Proverbs 12:1 Whoever loves discipline loves knowledge, but whoever hates correction is stupid.)
3. They are hard workers & not lazy. (Genesis 2:15 The Lord God took the man and put him in the Garden of Eden to work it and take care of it.)
4. They are consistent savers and grow their wealth over time by investing wisely. (Ecclesiastes 11:2 Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.)
5. They are frugal and careful with how they spend money. (Luke 14:28-29 Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it? For if you lay the foundation and are not able to finish it, everyone who sees it will ridicule you.)
6. They believe in giving back a portion of their income to charities and helping others. (2 Corinthians 9:6-7 Remember this: Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously. Each man should give what he has decided in his heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.)
7. They have a good reputation in their communities. (Proverbs 22:1 A good name is more desirable than great riches; to be esteemed is better than silver or gold.)
8. They have been married to the same spouse for many years, and very few have ever been divorced. Note: At Christian Financial Advisors®, we have compassion for those that have experienced a divorce. (Ephesians 5:31 For this reason a man will leave his father and mother and be united to his wife, and the two will become one flesh.)
9. They have strong roots in their communities and local churches. (Hebrews 10:24-25 And let us consider how we may spur one another on toward love and good deeds, not giving up meeting together, as some are in the habit of doing, but encouraging one another—and all the more as you see the day approaching.)
10. They do not chase foolish fantasies trying to find perfection and utopia. (Ecclesiastes 4:4-6 And I saw that all toil and all achievement spring from one person’s envy of another. This too is meaningless, a chasing after the wind. Fools fold their hands and ruin themselves. Better one handful with tranquility than two handfuls with toil and chasing after the wind.)
11. They are very honest and trustworthy in their dealings with others. (Luke 16:10 Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.)
12. They are careful about getting into too much debt and many I know are completely debt-free and have been for years. (Proverbs 22:7 The rich rule over the poor, and the borrower is a slave to the lender.)
13. Their Identity and self-worth are not based on “things” like what kind of car or truck they drive or how large their home is. While many do drive nice vehicles and live in nice homes, it’s NOT what they emphasize in life. Many millionaires I know drive older cars and live in average neighborhoods. (Luke 12:15 Then Jesus said to them all, ‘Watch yourselves! Keep from wanting all kinds of things you should not have. A man’s life is not made up of things, even if he has many riches.’)
14. They strive to do things right and are good people (Psalm 34:12-14 Whoever of you loves life and desires to see many good days, keep your tongue from evil and your lips from telling lies. Turn from evil and do good; seek peace and pursue it. – AND – Isaiah 1:17 Learn to do right; seek justice. Defend the oppressed. Take up the cause of the fatherless; plead the case of the widow.)
15. They make wealth slowly and systematically over many years, not quickly and recklessly over just a few. (Proverbs 13:11 Dishonest money dwindles away, but whoever gathers money little by little makes it grow.)
In all these 15 traits did you see high “Investment Returns”?
So, what about high investment returns? While they are important, there is a flawed logic behind chasing investment returns and obtaining wealth. That’s because there will always be someone who did better than you did and someone who did worse when it comes to investment returns. Chasing investment returns from year to year and moving from advisor to advisor is like getting stuck in a traffic jam believing you’re going to beat everyone else by switching lanes or even exiting the freeway onto the feeder road only to find it didn’t get you to your destination any faster.
I’ve seen 6 traits that lead to chasing investment returns, they are:
1. Gambling-type Habits And Behaviors. It starts with online brokerage firms and their persuasive, manipulative, advertising tactics convincing novice investors that they can beat experienced, well-known money managers and professionals of Wall Street that have been in the financial business for decades. That would be like me believing I could get on the same field with the Houston Texans or Dallas Cowboys and compete against them. It just cannot be done 99% of the time over the long run (by long run, I mean a 5-15 year period). You may win for a season (like a chimpanzee experiment in the 1990s during a major bull market that even beat some advisors temporarily), but when the bear came to town, it was all over.
2. Emotions. This can lead to an emotional rollercoaster tied to only how well the markets are doing today. Emotions are great as long as things are going up and doing well, but when the markets turn, you start doubting yourself, get panicky, lose sleep, and even sell good investments at a low point that may not be good for the long term. Never ever allow emotions to guide investment decisions.
3. Chasing Investment Returns. This can lead to reduced, long-term performance trying to “time the markets”. I have seen this over and over. The old phrase is, “Buy low and sell high.” However, many investors chasing returns end up, “Buying high and selling low,” instead.
4. Risk And Reward. Many misunderstand risk and reward and how they are tied to each other. Greater risk does not always lead to greater reward and vice versa.
5. Sudden Wealth Syndrome Or SWS. This is a mindset where you feel you’re smarter than everyone else because you just received a large amount of money from a large inheritance, lucky stock trade, lottery ticket, or getting a large check from oil on your land.
6. The Grass Is Greener On The Other Side. This could be the case, but most of the time it’s not. Advisors, mutual funds, ETF’s, and even stocks – contrary to popular opinion – do not control the economy and normal economic cycles. They merely reflect it, and, at times, react in seeming opposition to the economy.
Conclusion: Lasting wealth is obtained slowly and systematically over a long period of time using a disciplined approach, not quickly and recklessly.
High investment returns are always hindsight. Just because you made a good “bet” 3-4 times in the past doesn’t mean you can do the same thing over and over in the future.
Beware when you only hear about the good investments that people make in the news or at a social event. Very seldom does anyone talk about an investment that they lost money on.
Higher Returns normally equal a greater risk of losing part, or all, of your principal and a long term commitment to ride out the volatility.
Don’t believe the lie of, “It’s so easy a baby could do it.” The majority of people do not invest their way to wealth. They save their way to it. Lottery winners, oil strikes, and inheritances are far and few between. This is not to say in any way whatsoever that good investment returns do not play a part in creating wealth, but for 99% or more of us, it’s only a part in creating lasting wealth.