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If you want to make easy money, do something hard

Trying to gamble your way to riches is barking mad

The lure of making a killing and escaping the rat race runs deep. It doesn’t matter what gender, postcode, or social class – people of all sorts want a quick fix to their problems.

But fast fortunes don’t tend to come to those who seek them – or at least not the way they’re advertised.

The success of the National Lottery, for instance, is not founded on the great returns on investment you get from lottery tickets.

It could be you, sure. But then it could also be you who discovers you’re fatally allergic to bee stings or that you attract lighting like a church spire.

Vastly more likely, you’ll get two numbers right and be “so close” on a third.

All your life.

What about traditional gambling? Everyone knows the odds suck, and pretty much nobody knows a long-term winner. People don’t walk past betting shops saying to themselves: “Ah, there’s a bunch of fine fellows making their way in the world”. Yet people still gamble.

The list goes on. Day trading and spread betting, daydreaming of being a glamour model or a professional footballer, metal detecting, bank robbing – young or old, man or woman, Northern grump or Southern ponce, somewhere out there is a dubious money making scheme with your name on it.

If you think there isn’t, you probably just haven’t come across it yet.

Aim high, hit low

Indeed, investing can be a sucker’s game, if you let it.

Much of the poor reputation of the financial services industry is well-earned, but we should carry some of the blame for ourselves.

People expect too much – returns without risk – and they expect it too soon. Bad things happen when you confuse getting financially secure with getting rich quick.

  • A sensible approach is to read up on passive investing, know the long-term real return from a balanced portfolio is likely to be between 3-6%, plan your future, and then execute for 30 years.
  • A bad approach is to read on a bulletin board about an ex-SAS commando who has got the ear of an African dictator and the keys to a shoe-in of a gold mine, and then remortgage your house and pile in.

Few of us are that bonkers. But most people can be seduced by the idea of superior returns from star fund managers, or from tips in newspapers.

Or else we see that our shares have gone up 30% and our bonds have fallen by 5%, and we think “great, I’ll have some more of that”, shift the whole lot to equities, and then sell out in a panic when the stock market crashes because we’ve no longer got a safety buffer.

I don’t think there’s anything wrong with having 5-10% of your money in a speculative ‘fun’ portfolio if it keeps you from tinkering with your main strategy.

Heck, I don’t think there’s anything wrong with purely active investing in individual shares if you’re realistic about why you’re doing it and what you are likely to achieve.

But trying to make lottery winnings money on a school dinners budget – by gambling with your hard-earned savings and putting your pension at risk in the pursuit of an extra 5% here and 5% there – that’s a recipe for missing your target, and so for excessive beans on toast in your old age.

Fact is, diversified balanced portfolios are not going to turn you into Richard Branson or Steve Jobs. They’re not meant to.

Passive investing is straightforward, easy, and I recommend it.

But if you want to be the next Richard Branson or Steve Jobs, you’re going to have to do something hard, not something easy.

Easy and hard ways to get rich

I know there are a few crooks, flukes, and bankers who have made fortunate or ill-gotten gains from long odds.

But if you look at the vast majority of people who started with nothing and achieve great or early wealth in life – as opposed to modest and meaningful financial freedom – they usually did something difficult, rather than chase easy money.

Here are a few examples.

Investing

“Easy” money: Day trading, blindly following tips from strangers on bulletin boards, reading about Kondratiev waves and market timing, insider dealing.

Hard but achievable money: Saving vastly more than you spend from an early age into a diversified portfolio, spending your days looking for illiquid micro-cap value investments, setting up your own hedge fund and profiting from other people’s money. (Hey, it worked for Warren Buffett!)

Property

Easy money: Flipping off-plan properties at the top of a bubble, buying into hot property funds at the top of a bubble, using your credit card to secure a buy-to-let that you claim is your own home.

Hard money: Hunting down genuine development opportunities, renovating rundown houses using “sweat equity”, building a solid portfolio of investment property over 5-15 years as a part- to full-time job.

Business

Easy money: Knock up an affiliate website touting cheap life insurance products, spam marketing, anything advertised that claims you’ll make 40-100% a year with no effort.

Hard money: Buying into a proven franchise with a six-figure initial fee, launching a start-up business that serves a genuine need, becoming a contractor or a consultant in your own industry after years of experience and networking.

Creative

Easy money: Ripping off 50 Shades of Grey with a Kindle novel about a female banker who likes to step on her underlings in high heels, being an angel investor in a theatre production, blogging about investing.

Hard money: Devote 10-20 years to honing your creative passion to the point where you don’t care whether you get paid you love it so much, and then finding a niche audience that is happy to pay you for your talent.

Career

Easy money: Boiler room tout, porn star, drug dealer, as well as deluded ambitions for most of us like celebrity photographer, music producer, or sports star.

Hard money: Corporate lawyer, veterinarian, accountant, amazing plumber, own the boiler room.

If getting rich through investing, punting, or peddling tat was easy, we’d all be in the 99% and the 1% would have Primark to themselves.

The money shot

There will be exceptions. Some porn stars make millions, but most are literally one-shot wonders. There will always be a few people who put their net worth into a single growth stock and make a fortune. And I’m sure we haven’t seen the last multi-million selling DIY Kindle novel.

But the odds in all these areas are immense.

A clue is in how easy it is to get going – how simple it is to place your bet.

It’s very easy to buy a share. It’s very easy to start a blog. It’s very easy to take all your clothes off for a man who promises to introduce you to Hugh Hefner.

But none of those things are very likely to make you rich.

In contrast, hard things are usually rewarded – if you put the hard work in, or do the hard mental work, or both.

If you cannily buy a rundown property in a great part of town and show up every weekend to renovate it, you might make 20-30% profit. If you do that 10 times, working your way up the chain as you go, you could make a real difference to your life. At the cost of far fewer free weekends!

Is it worth it? Maybe, or maybe not – money isn’t everything, and they’re not selling extra time.

It’s for you to decide how much you care about being wealthy.

Just don’t expect your sensible savings plan to make you rich quick – because such an attitude is only likely to make you poorer.

Filed under: Monevation

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{ 20 comments… add one and remember nothing here is personal advice }
  • 1 david stuart September 10, 2013, 4:13 am

    great article

    Being a royal is easy money,your born to it,but I wouldn’t want it for all the money in the kingdom,press intrusion,your life planned for you.

    I like the idea of comfortable wealth,no mortgage,eating out not worrying about bill,cafes,restaurants.short/long winter breaks,decent 2nd hand car,your heating on full blast winter ect,

  • 2 Dan September 10, 2013, 1:19 pm

    Should that be “Saving vastly more than you *spend*”?

  • 3 The Investor September 10, 2013, 1:23 pm

    Darn, of course it should. 🙁 Thanks @Dan. Fixed now.

  • 4 rjack (Mr. Asset Allocation) September 10, 2013, 1:41 pm

    Nicely done! You may want to write a future article called Dumb Money/Smart Money. For example…

    Transportation
    Dumb Money – Buy a brand-new luxury vehicle on credit.
    Smart Money – Buy a bike or use public transportation.

  • 5 Alex September 10, 2013, 5:55 pm

    1. As ever, good stuff. Thank you.

    2. “The easiest way to make money is to take it from other people: that is what the financial services industry does…” Excellent article in print FT today by Pauline Skypala; also available online. Title: “Hidden fund costs are hurting investors.” Did you see it?

    3. She shows how investing via Hargreaves Lansdown has proved very profitable – for its founders.

  • 6 Tronader September 10, 2013, 6:42 pm

    Just read your link to the micro-caps article.

    Do you know of any stock screener where one can research small caps in the UK where you can filter by fundamental data? Most of the screeners I’ve seen so far mainly cover the US market…

  • 7 dearieme September 10, 2013, 10:06 pm

    @Alex; years ago Pauline Skypala wrote a valedictory column when she left a Personal Finance job at the FT. She said that the “financial services industry” was so lousy that she recommended that instead people should buy property. If they thought property too expensive they should buy Index-Linked Savings Certificates.

  • 8 The Investor September 11, 2013, 10:59 am

    @Alex — And it’s shareholders… I held for a very nice run after it first wobbled on RDR in late 2011. Often pays to bet on the financial services industry, even while urging others about its rapacious and murky ways! The public is a very slow and forgetful learner.

    Hard to see how it can keep its crazy margins up in the (welcome) new era though.

    @dearieme — That’s a bit of a shame; cheap trackers as well as decent longstanding ITs for those who must have some excitement have been around for many years.

    Yet another reason a better property price crash would have been helpful in the UK is to reset the ‘property is always best’ clock, IMHO.

  • 9 The Investor September 11, 2013, 11:03 am

    @Tronader — Unfortunately the data I use is industry strength and well beyond the reach of most (say £3k a month…)

    You could try Stockopedia, Company Refs, or Sharelock Holmes though (if later is still going?) Data with all those should just be a starting point.

    Personally I very rarely run screens myself, and then more usually for a first pass for new growth shares. The value shares present themselves — but then you have to start digging!

  • 10 Neverland September 12, 2013, 10:25 am

    I dunno

    I think its pretty easy to accidentally become wealthy

    if you do become accidentally wealthy though hanging on to it is quite difficult

  • 11 Robert Harrison September 12, 2013, 6:53 pm

    Tronader,

    The “Experienced Users Build your own screen” section of the webpage below allows users to do fundamental screening of small UK company shares. You will have to sign up for the free membership if you want to use it.

    http://www.digitallook.com/cgi-bin/dlmedia/investing/screening_tools/screener?&username=&ac=

    The “sign up” page is here –

    http://www.digitallook.com/registration?url=my_home%3F

    Please note that this service does not back-test any screens that you may create unless you pay the £20 per month Research Plus membership.

    Bob. 🙂

  • 12 Tronader September 12, 2013, 9:21 pm

    @The Investor, thanks for the links. I’ll have a look around to see how I could use them to start finding other investments…

    Cheers!

  • 13 Evan September 16, 2013, 8:26 pm

    LOVE THE ARTICLE! I have a buddy who is the worst…every 6 months I get a phone call about the next cheesy MLM that he is trying sell. So frustrating.

    Only thing I have to disagree with – I would say while really fun I bet being a pornstar is pretty tough if you are a guy. No money due to how many people are willing to do it, a certain skill set that a bunch of us don’t have and not to mention genetics LOL

  • 14 The Investor September 17, 2013, 1:14 am

    @Evan — Yes, male pornstars seem generally more like how women say they’re treated by Hollywood and advertising — disposable stand-ins etc. Porn is a curious industry with a history full of contradictions. There was even an interesting impact on the world of investing the other week, too, when US employment figures were lower than expected for the month partly because of a big temporary drop in “actors” caused by a shutdown of porn studios in California due to an AIDS scare… Big business, even in the amateurs-on-the-Net era.

    Perhaps setting up a porn studio and distribution network counts as “hard” money (no smutty pun intended!) but for either gender, making real money as a participant might seem easy but it really has lottery odds — and a vast amount of potential downside. (Whatever your morals — and not least how to explain the evidence to some future boyfriend / girlfriend!)

  • 15 Stefanie @ The Broke and Beautiful Life October 1, 2013, 12:58 am

    Have to disagree with the creative here. As a professional actor, one of the reasons I’m able to make a career of it is that I work incredibly hard and DON’T do it for free. I turn down jobs that don’t pay enough, I joined a union which prevents me from accepting certain jobs because I believe in earning a fair wage for an honest days work. Hard work.

  • 16 kristian October 6, 2013, 6:56 am

    So many people expect the easy money to just come to them one day. The real rewards come to those that chase the hard money. Great post. Thanks.

  • 17 VANE KITROZOSKI November 5, 2013, 6:21 pm

    So many people expect the easy money to just come to them one day. The real rewards come to those that chase the hard money. Great post. Thanks.

  • 18 frankr January 16, 2014, 5:02 am

    Little late to the party, but one of the hardest ways to make money is to hang around waiting for an inheritance (typically, from parents but could be someone else). You have to stay on good terms with the person you hope to inherit from, but at the same time you have to want them to die soon, not blow all their money on end-of-life medical bills, not fall in love and get married, not spend the money enjoying themselves, etc. And this awkward state can go on for much longer than you expected. And one little slip-up, or maybe the old coot goes senile and paranoid, and poof, you’re written out of the will and get nothing.

  • 19 Curious Sarah November 16, 2014, 3:49 pm

    I love this article — I’ve actually read it more than once. 🙂 🙂

    Thank you!

  • 20 DealForALiving December 10, 2014, 8:49 pm

    Your article really made me think and ask myself if I want to be rich or wealthy. My answer is no, not really.
    I don’t care enough about being rich to do the really hard things that take a long time to learn, and yet I’ve done all the little things I can so that I’m probably now at the national average.
    But regardless of that, I think you’re right, and I think making easy money should be risky, and it should be really hard.

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