Financial success is a path, not a goal - May 06, 2018

Financial success is a path, not a goal

People tend to believe that wealth is just a goal and when someone has enough money, their work is done. But that is far from true: people who earn fortunes too fast often blow it all and go bankrupt, because money without knowledge and proper investments can lead to serious problems.

Lottery is not a bless

Lottery winners, for example, are more likely to go bankrupt in 3 to 5 years after winning than the average American. According to the National Endowment for Financial Education, the rate of people who win the lottery and end up broke is 70%. The reason is that they usually don’t take the advice of financial experts and just simply quit their job and start spending money or make bad investments.

Jay L. Zagorsky, economist and research scientist even calculated that an average winner around 30 “would have to spend more than $10 million a year, roughly $30,000 per day (ignoring any interest accrued)” even if they won $500 million. This may happen through traditional spending and bad investment decisions just as well.

Other fortunes may go too

There are other ways for people to earn a fortune fast, but that usually isn’t better than winning the lottery. According to Zagorsky’s research, “the average person in their 20’s, 30’s and 40’s who was given an inheritance or large financial gift quickly lost half the money through spending or poor investments”.

We also wrote about how former sport stars can lose their money. As we put it: “they either did bad investments or didn’t realize that their incomes shrank dramatically after not being a professional anymore”. According to Sports Illustrated 78% of former NFL players go bankrupt in 2 years after retirement, and within 5 years the same happens to 60% of NBA players.

Building up slowly works

For the most successful people, it took time to be really wealthy. The most successful investor of the world, Warren Buffet, works since the 1950s and his wealth is built ever since then. Billionaire George Soros established his own fund back in 1970 and before that he worked for others.

We also tend to believe that IT billionaires became rich fast, but that’s not true. Bill Gates started Microsoft in 1975 and it took him decades to be where he is now. His main competitor for being the wealthiest, Jeff Bezos created Amazon in 1995. Even his company was troubled during the dot-com bubble, so his path was far from straight to be the wealthiest. Google made its creators Sergey Brin and Larry Page billionaires just as well, but it all started back in 1998. Mark Zuckerberg’s success wasn’t instant either: Facebook was launched in 2004.

All in all, becoming rich fast may be possible with luck, but staying wealthy is almost always based on hard work and clever investments. The same is true with regular investments: it’s not a sprint, it’s more like a marathon. Making long-term decisions and thinking forward helps in successful investing.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.