Investing as a lifestyle
Most people aim to be wealthier, but only a handful are willing to start investing. We all know, to be wealthier, we need to start investing. On one hand, most people believe that they need to have more money before they can start investing. On the other hand, in order to be wealthier, we need to start investing first. Therefore, we need to break the circle and understand that we need to treat investing as part of a lifestyle, just like spending.
We tend to think that we will start investing when we have more money. Actually, it needs to be the other way around. Just illustrating some extreme cases, 44% of lottery winners go broke within 5 years (Fortunes, 15 Jan 2016) and 70% go broke within 7 years (Time, 12 Jan 2016). Actually, a 10 million lottery winner went back to live from paycheck to paycheck and back to catching the bus to her part-time job and struggles to pay rent just 9 years after cashing her winning ticket (Business Insider, 19 May 2013). It may sound extreme. But, these example illustrate how most people who receive a sudden lump of money do not end up investing it well either.
The experience of lottery winners imply that even once we have tons of money, if we fail to manage it well, it will disappear as quickly as it comes. Others may highlight the fact that lottery winners may often be placed in awkward situations as friends and families demand them to share some of the winning which eventuated on over committing and leading these lottery winners to end up in financial distress. However, the experiences of lottery winners are shared by most wealth families as 70% of rich families lose their wealth by the second generation (Time, 17 Jun 2015). Interestingly, most of these individuals were living accordingly before they win lottery or receive inheritances. As a matter of fact, it is the additional cash windfall that sends them to bankruptcy eventually. These experiences suggest that at the end, it is how we manage and invest our existing income that matters and that having additional spare cash to invest do not improve our probability of amassing more wealth in the future.
On the other hand, the life of Ronald Read is the testament of that properly investing even on modest income, may result in sizeable wealth. Ronald was a gas station attendant and janitor who amassed $8 million fortune throughout his life benefitting of compounded growth of his holding in equity market (CNBC, 9 Feb 2015). Ronald accumulated the wealth without getting any cash windfall from inheritances or winning any lotteries. Sure, $8 million is not a staggering figure. But if we take into account that Ronald was earning a relatively modest income, being a gas station attendant and janitor, it begs the question on how he amassed such wealth. In the end, to grow wealth, we need to make investing as part of our lifestyle.
What does it mean by having investing as part of our lifestyle? We need to ensure that there is a portion of our income that we put aside for investment. At first glance, this requirement sounds very tough as it requires, seemingly, an extreme discipline to do so. But this is what we mean by having investment as part of our lifestyle. Taking one simple example, if we have running as part of our lifestyle, every runner knows that there are days where it feels like a drag to do that 10 km training. However, for most people who has running as part of their lifestyle, we all know that there are times where we have to be discipline and undertake the exercise, even on the days that we are simply not feeling like doing it at all.
Potentially, most people do not have exercise as part of their lifestyle. It may be closer to our heart to talk about spending as part of our lifestyle. For those that has travelling as part of their lifestyle, more often than not, we may have to be discipline and refrain from buying that handbag or shoes, so we can accumulate enough money to have that holiday trip that we have been dreaming about. Thus, we have many components in our lifestyle and we are often asked to refrain and prioritize one over the others. At the end, the question then is simply how seriously we take investment as part of our lifestyle.
When having investment as part of a lifestyle, we also need to spend the time to investigate, research and study about investment and the investment products. This is a continuous efforts not a one of thing. Going back to our example, those that have running as part of their lifestyle will often find themselves reading about the new running shoes and the benefits of such shoes. Others may find themselves reading health magazine to learn about the right running posture.
Similarly, people that have travelling as part of their lifestyle, will often glance through holiday and travel magazines to learn about the new holiday destinations. Those that are into handbag and even shoes will do the same, checking out stores for the new up and coming and most hype brand and models. Without realizing it, we put a lot of efforts to learn about things that we include as part of our lifestyles and we enjoy doing it!
Therefore, when we have investing as part of our lifestyle, we will be discipline in putting part of our income aside for investment. We will also spend efforts to learn about our investment products and outlook. It has to become part of our lifestyle and we enjoy the process of doing so because we are trying to grow our wealth for our future. After all, investing does not require massive initial capital. In Indonesia, the minimum requirement to invest in some financial instruments such as mutual funds, remain very modest, at Rp100,000 (or less than USD10).
The views and opinions contained herein are those of Teddy Oetomo, Head of Intermediary, and may not necessarily represent views expressed or reflected by PT Schroder Investment Management Indonesia (“Schroders Indonesia”) view. For professional investors and advisers only. This document is not suitable for retail clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders Indonesia does not warrant its completeness or accuracy. This does not exclude or restrict any duty or liability that Schroders Indonesia has to its customers under Indonesian laws and regulations.” PT Schroder Investment Management Indonesia (PTSIMI) had received an investment manager license from, and is supervised by the Indonesian Financial Services Authority (OJK).