Investing Will Not Make You Financially Secure
Behavioral Finance | Blog | Budgeting | Planning Perspectives | Portfolio Management
Investing will not make you financially secure. Investing will help you stay financially secure. Investing allows you to outpace inflation and optimize your assets. It’s not a secret path that lets you skip the line to financial freedom.
For some, there is this idea that they can make up their savings shortfall by selecting the right investments. They think if their investment portfolio worked harder for them, they wouldn’t have to make tough budgeting decisions.
Unfortunately, this type of thinking only leads to long-term financial disappointment, regret and sometimes bitterness.
Most of the financially secure clients we work with did not derive their wealth from a perfectly built portfolio, but generally from one of the following scenarios:
- Diligent long-term savings habits, investing excess cash from salaries, bonuses or equity compensation overtime, while also ensuring their lifestyle expenses don’t increase faster than their savings rates.
- Targeted, high-risk projects that include a significant upfront investment with significant upside and downside risk (bankruptcy). These could be real estate development projects or a founding investment in a small company that they owned or helped run.
- Family wealth or inheritance. (Many people find wealth this way, but unfortunately this type of wealth rarely lasts, as the habits that built and maintained the wealth were those of a prior generation.)
Outside of inheritance, wealth is a by-product of a diligent long-term focus on something bigger than yourself. It means you’ve sacrificed your desire to have more fun or nice things now, to have more in the future. This is not a one-time decision, it is many, many decisions over many, many years.
It’s very difficult to find the balance between living now and sacrificing for the future. But, the sooner we become aware of the trade-offs, the better chance we have at being financially secure.