Thirty ways we destroy wealth
On Monday one man lost US$6 billion (NZ$8.36b). That’s a bad old start to the week, but Mark Zuckerberg, the founder of Facebook, will survive.
In the financial industry we spend our careers watching people make great decisions and poor decisions with money.
Most of us give the Russian sharemarket and margin trading a wide berth, but the more fascinating errors are the everyday financial choices.
They accumulate and create vast money gaps.
Here are 30 destroyers of wealth:
❚ 1. Stashing cash: ❚ 2. Keeping inherited assets: Here’s the test. If you woke up one morning and the asset you’d just inherited had morphed into a pile of $20 notes of the same value, would you rush out and buy the asset back?
❚ 3. Spending an inheritance: It’s a chance in life to shore up your retirement. Keep it in your own name and don’t mingle it with other assets. It will remain yours in the case of a divorce.
❚ 4. Divorce: One US study shows wealth falls four years before divorce and average wealth drops 77 per cent – marriage is more efficient.
❚ 5. Lack of home ownership:
❚ 6. Too much house: ❚ 7. Failure to ask for a pay rise and promotion every year:
JANINE STARKS
❚ 8. Failing to invest 10 per cent of your salary in a retirement fund:
❚ 9. Waiting to invest:
❚ 10. Conservatism:
❚ 11. Timing the market: If you have fear, break a lump sum into parts and invest monthly. It’s not proven to make much difference, but it’ll help your head.
❚ 12. DIY investing: How do you know a DIY investor? Oh, they’ll tell you. Generally a know-it-all with rental property, a bunch of Kiwi shares and a technical background in something far cleverer than money. They’re overly exposed to risk – both concentration and themselves.
❚ 13. Investing heavily in New Zealand: The value of shares on the main board of the NZ exchange is $129 billion (US$92b). We’re about 20 per cent of Facebook’s value after a bad week.
❚ 14. High fees: ❚ 15. Concentration of risk in one asset class:
❚ 16. Employer shares: Only valuable if there’s a plan to build and sell the business in a set timeframe. Don’t bank your retirement on it.
❚ 17. Peer-to-peer platforms: bank or didn’t approach one.
❚ 18. Crowdfunding: It’s a plaything and a very-long term plaything. Don’t expect to see any action for 10 years.
❚ 19. Using borrowed money to invest:
❚ 20. Kippers. Kids In Parents’ Pockets Eroding Retirement Savings: You’re over 50 and these are your turbo years of saving. Don’t underestimate the damage you do by funding kids’ lifestyles. ❚ 21. Retirees giving money to adult children: ❚ 22. Businesses owned by friends or family: If you can’t decipher a balance sheet, filter a business plan, and compare it to a range of other opportunities, don’t do it.
❚ 23. Not having a goal to sell a business:
❚ 24. Starting a business when your mortgage isn’t paid off:
A fatal error is to have the stress of home loan payments. Assume you won’t make money for several years.
❚ 25. Starting a business without a double income: If your partner isn’t in a position to have their own career and fully support a period of zero income, you’re not cut out for it as a couple.
❚ 26. Starting a business in a field you didn’t train in:
❚ 27. Stuck with a widow: isn’t ideal in a business. It’s not gallant to keep them invested and it’s not fair for them to remain. Buy life insurance policies on your key people to assist with a buy-out.
❚ 28. Starting a part-time business:
Don’t underestimate the damage you do by funding kids’ lifestyles.
❚ 29. Viewing tax as a burden rather than a reward for investing:
❚ 30. Not spending it: ❚ Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.