From time to time I am asked if there are investment secrets that only the wealthy know about? When I walk through bookstores, I see titles of books that make me think so. Everyone wants to think there are short cuts, or secret ways to instant success or dramatic investment returns. I think that since we wonder about this, we are sometime tempted to invest in schemes that rip us off.
Despite the headlines of popular financial books that read something like, ‘Financial secrets that the rich don’t want you to know about,’ there is no conspiracy; there are no secrets that only the rich have access to that give them an edge over everyone else. It used to be that only the rich had access to the best professional money managers, but with the popularity of mutual funds, everyone has access to the best money managers. There are some investment firms that have minimums beyond the reach of the average person, sometimes referred to as SMA or separately managed accounts; however, although some do a great job, they have not proven as a group to outperform the top mutual funds.
What about secret information? Yes, some people have access to information that you and I don’t; however, if they act upon this “inside information” with their purchase of stocks and they are caught, they will face severe fines and jail time. The only exception to this law are those in the House and Senate.
If there are no investment secrets, are there other secrets that give wealthy people an advantage? Again, there are no secrets; no one has hidden the facts. Those that save and invest over a long period of time, minimize debt, spend less than they earn, are hard/dependable/honest workers, and are frugal and invest in education are usually better off financially. These ‘secrets’ are often related to habits and decisions (per Thomas Stanley and William Danko’s book The Millionaire Next Door) and shift away from cultural patterns (per Ruby Payne’s book Bridges Out of Poverty).
Lastly, a few overlooked things can make a big financial difference: financial education and having other sources of income. I encourage ongoing learning of financial fundamentals through reading books, receiving financial and money-saving newsletters, and attending evening courses taught about various financial matters. Also, I encourage having additional sources of income, perhaps from small businesses or other ventures in areas in which you have a passion – only be very careful of hyped real estate or any get-rich-quick scheme, since fraud is rampant.