Asking The Wrong Money Question?

At a recent event, I was sitting at a table with a gentleman, who offered me an opportunity to make a 300% return on a new system that was taking the world by storm.

'I don't invest in anything without a plan and without a proven LONG TERM track record', came my reply.

Intrigued, the gentleman asked why not. 

My reply 'I made a decision some years ago to only invest in things that have a proven long term track record and things that serve my objectives'.

Looking rather perplexed by the answer, the gentleman intervened, enquiring 'and what kind of returns do you get?'

My reply - just imagine there was two friends. Let's call one person John and the other Bill.

John has a plan that says that at the age of 50, he will have accumulated enough income producing assets (net of debt) to produce an annual income of $70,000 in way that the money never runs out and keeps up with the rising cost of living. 

To achieve this objective, John only needs an annualized return of between 7-10% on his investments.

Johns friend Bill has no plan. He has an investment that supposedly generates a 300% return in a haphazard way. Due to Bills unplanned and sporadic approach to his finances, Bill runs out of money at the age of 71. 

'Does it matter if John gets a 10% return??'

The topic of conversation was swiftly changed by the lovely gentleman.

Moral of the story: in the world of money the right question is NOT how much return can I get? 

Rather, the right question is what do I need to do to have enough money in a way that my money never runs out and keeps up with the cost of living?

When you ask the wrong questions, you get the wrong responses from the wrong people.

To your success,
- Ron Malhotra

 

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