Are you trying to ‘get rich quick’?

September 16, 2013 by ’Nimi Akinkugbe (nakinkugbe@punchng.com)

’Nimi Akinkugbe
| credits: File copy

The prospect of accumulating substantial wealth quickly can be quite appealing.Indeed there are legitimate ways to accumulate substantial amounts of money in a relatively short period of time, but these usually come with substantial risks and a lotof luck. Every day there are people who suddenly get rich by winning the lottery, hitting the jackpot on a gambling machine, or betting on a particular stock that skyrocketed. They were lucky.

Greed can be defined as “an excessive desire to acquire or possess more,” especially more material wealth; greed is about excessive want.When it comes to investing, far too many people tend to follow the crowd and invest in the latest fad; this can prove to be disastrous, as such investments usually carry an extremely high degree of risk and are unsuitable for most of us.Adverts and rhetoric will show people making huge amounts of money to entice the “greedy” onlooker who then jumps on the band wagon and loses his or her shirt.

Greed strikes most investors during a raging bull market. You feel that you can’t bear to ignore the golden opportunity, in case you might miss out. Following the crowd, however, especially if it has already done very well, can have a disastrous effect on your finances. When the marketis in the middle of a bull run it is easy to be overwhelmed by greed. Even the most carefully articulated financial plans have been known to be set aside. Many investors are lured into the promise of quick gains and expect to turn hundreds into thousands in just a few months.

In 2007, who could have known that stock prices would rise so high and so quickly and then fall just as fast? Naturally, it would seem ridiculous to get out when it appeared that you could make so much more money by hanging in there for just a few more weeks. You can almost visualise the new car parked in the garage and your mortgage paid off in one fell swoop! And then suddenly, even quicker than it went up, it comes crashing down. It is amazing how fast “paper profits” can disappear. This has been a reality for thousands of investors across the world.

Greedy and uninformed investors tend to be impatient and unrealistic. They throw caution to the wind and ”invest” based on vague, subjective information, tips, hype, and rumor with the hope of a quick windfall rather than with informed due diligence in pursuing a carefully crafted plan. This usually means the investor often doesn’t understand the nature of his or her investments and tends to assume only the best for that investment, often failing to spot any sign of trouble.The investor has usually spent the paper profit before it becomes real.

Seek professional advice, particularly where you don’t have the time or expertise to manage your own investments and an appropriate investment plan can be structured for you.If your goals are long term and you can accommodate a degree of risk in your investing, the stock market would be an appropriate option. However, if you need your money fairly soon, you should limit the risk you take and increase your exposure to cash and other fixed income securities.

Get-rich-quick schemes tend to be suspect investment methods in which you can “supposedly” make a lot of money in a relatively short amount of time with very little knowledge. Many anxious investors seek opportunities to recover quickly from the catastrophic losses in their portfolios. This makes them particularly vulnerable to get-rich-quick schemes. In many of these schemes, only a few people make money, and everyone else loses their entire investment. Sadly those who fall for scams such as pyramid and other schemes or scams can hardly afford to. In most cases it is greed that is taken advantage of and this rarely brings long-term success.Most schemes promise that participants can obtain a very high rate of return with very little risk, very little skill, and with minimal effort or time.

Be careful. There is no magic formula for investing. Successful investing requires a well-thought-out-plan, focus, patience, and discipline. Successful investors aren’t looking for a miracle; they are more realistic and seek steady ways to improve their performance over time in a rational manner rather than latching onto a get-rich-quick opportunity. It is almost impossible to guarantee a consistently high rate of return. Markets are unpredictable and so are returns.

Understanding the relationship between risk and reward is an important part of investing. Generally, “the higher the risk, the higher the potential return.” If you are unwilling to take at least some investment risk, then you must be prepared to accept low returns. Your goal should be to maximise returns without taking on more risk than you can bear.

The concept of risk tolerance, assumes that your ability to endure risk is a reflection of your personality and feelings about taking chances. Your investment style to a large extent depends on your age, your life stage, your personality, your time horizon, and your financial position; it determines the types of investments that may be suited to you. If you can’t sleep at night because you are worrying about your investments, you have probably assumed too much risk.

Are you a conservative or risk-averse investor? Are you a moderate investor, who wants to protect your principle while achieving modest growth? Or are you an aggressive investor who will confront risk head-on with the expectation of greater returns?

It is tempting to try to get rich quickly, but the process of getting rich slowly and steadily via saving and long-term investing is tested and reliable. Don’t let wishful thinking cloud your better judgment; if something sounds too good to be true, it probably is too good to be true.