As we said on Tuesday, it’s almost impossible to build wealth unless you develop the habit of saving. And to do that, you have to “pay yourself first.” That’s what David Bach’s book “The Automatic Millionaire” is all about — and it is the lesson Bansir and Kobbi learned from Akard in the second chapter of “The Richest Man in Babylon”.
But then Akard goes on to explain to them why, though it is important, saving is not, by itself, enough to make you rich.
He continues with his story:
“I thought about what [Algamish] had said to me, and it seemed reasonable. So I decided that I would try it. Each time I was paid, I took one from each ten pieces of copper and hid it away. And strange as it may seem, I was no shorter of funds than before. I noticed little difference as I managed to get along without it. But often I was tempted, as my hoard began to grow, to spend it for some of the good things the merchants had displayed, brought by camels and ships from the land of the Phoenicians. But I wisely refrained.
“A twelfth month after Algamish had gone, he again returned and said to me, ‘Son, have you paid to yourself not less than one-tenth of all you have earned this past year?”
Akard answered proudly, “Yes, master. I have.”
“That is good,” said Algamish. “And what have you done with it?”
“I have given it to Azmur, the brick maker, who told me he was traveling over the far seas and in Tyre he would buy for me the rare jewels of the Phoenicians. When he returns, we shall sell these at high prices and divide the earnings.”
“Every fool must learn,” Algamish growled. “But why trust the knowledge of a brick maker about jewels? Would you go to the bread maker to inquire about the stars? No, you would go to the astrologer, if you had the power to think. Your savings are gone, youth. You have jerked your wealth tree up by the roots. But plant another. Try again. And next time if you would have the advice about jewels, go to the jewel merchant. If you would know the truth about sheep, go to the herdsman. Advice is one thing that is freely given away, but watch that you take only what is worth having. He who takes advice about his savings from one who is inexperienced in such matters shall pay with his savings.”
So saying, Algamish went away.
I’ve witnessed Akard’s sad story more times than I’d like to admit. In the more than 30 years that I’ve been marketing investment and wealth-building conferences, I’ve seen dozens of overeager investors lose fortunes. Some of them were separated from their money as the result of falling victim to cheating, lying, and other sorts of knavery. But all were guilty themselves of making some form of the stupid mistake Akard made during his early attempt to become wealthy: taking moneymaking advice from someone who didn’t actually know anything about it. It’s astounding how many people do that.
Some time ago, I told you a story about a nice lady I know — how she invested all her money with a broker because he was the son of a nice lady who did her nails. Other friends and family members lost thousands because they listened to the well-intentioned advice of a relative of mine who became enamored with the idea of Internet stocks and began pushing everyone he knew to do what he was doing — to follow his lead and invest in the stocks he had been investing in.
He didn’t actually know anything about the stocks, but he had made some profits on them and that was enough to convince others. All told, this single source of well-meaning financial advice must have accounted for more than a million dollars’ worth of eventual losses in addition to his own. So much for good intentions.
Many self-proclaimed investment experts . . . and even state-authorized financial experts, for that matter . . . don’t necessarily know what they are talking about. Brokers must pass a battery of tests before they can start selling stock, but none of those exams can predict how seriously they will study the stocks they recommend or how well those stocks will perform in the free market.
Although some investment experts do have substantial and impressive track records (and we identify who those are for you regularly in ETR), most do not. Countless studies have shown that, over the long run, 80% of the experts out there can’t beat market averages.
That’s an important fact to consider when it comes time to decide how you are going to invest your savings. Because you can’t expect to get wealthy today unless you find a way to earn a moderately high, yet very conservative, ROI on your invested funds.
As Arkad learned, you need expert advice . . . but how do you get it?
First, recognize the difference between investing and wealth building. As Porter Stansberry said in a recent e-letter to his readers, “Investing is only one part of the formula for becoming independently wealthy. The other part is developing substantial streams of income to support your lifestyle and to provide capital to fund investments.” If making wealth building your goal is the first secret to becoming independently wealthy and if developing the habit of saving (“paying yourself first”) is the second secret, getting good advice about how to invest your savings is secret No. 3.
Akard loses his savings by entering into a gem deal with a brick maker. The result was a disaster, as Algamish had predicted: “It was as he said. For the Phoenicians are scoundrels and sold to [my friend] worthless bits of glass that looked like gems.”
The good advice Akard gets from Algamish is simple: Get your financial advice not from someone who has simply heard about an investment but from someone who understands it, has personally profited from it, and is willing to share his knowledge and experience with you.
The interesting thing about the world of financial advice is that the more valuable the advice is, the less you are usually asked to pay for it.
This is an irony that I have talked about with many of the smartest financial experts I know. The really heady (see “Word to the Wise,” below) knowledge — the profoundest truths and most powerful secrets — are available free and freely to all who want them.
These are the time-tested, experience-proven truths that great books from Aristotle’s “Poetics” to Ben Franklin’s “Poor Richard’s Almanac” to “The Richest Man in Babylon” have in common.
The same secrets we talk about in ETR:
- Make wealth building your goal and develop a detailed plan to achieve it.
- Keep a part of what you earn.
- Get advice from people who truly know what they’re talking about.
This sort of advice is what you get when you speak to people who have a lifetime of financial success behind them. Ask them a question about how they became so successful and they will usually give you an answer that sounds rather ordinary.
I remember talking to a real-estate mogul — a guy who had about a billion dollars’ worth of apartment complexes and other rental properties. “You have to begin by buying cheap,” I suggested. “And then you have to consider the tax implications . . . and then . . .” I rattled off the half-dozen little secrets I had read about.
“I don’t know about any of that,” he said modestly. “I’ve had only one rule in my career: “To buy . . . and then keep buying.”
So his advice . . . his very good advice . . . is so simple that you couldn’t possibly charge money for dispensing it. The same is true in the world of stocks and bonds. The best advice that you can get in that area can probably be summarized in a single chapter of a single book. (And, with some help from a few friends, that’s exactly what I’m doing in a new book on wealth-building that I’m writing.)
The less-important advice — what particular stock to buy . . . what bond gives you a quarter-point better yield . . . how to get 10% better financing on a rental property — is the stuff of all the courses that are sold to wealth seekers. (And I include ETR’s and Agora Publishing’s programs in this group.) It’s not that this more-specific advice is worthless . . . far from it, it can be very valuable. But it will never be nearly as useful as the simple stuff.