Over half of Americans have investments, but few know how to invest. What’s the difference, you ask? They entrust other people to invest their finances but don’t know how to make money themselves. Without financial literacy, you’ll believe a number of money myths.
For example, many people entrust a portion of their income to a financial advisor or tuck away funds in a retirement account. These are wise options, but investing shouldn’t stop there. A wise wealth builder combines professional investing and personal investing. That way, they know how money works and can make informed investment decisions.
The state of retirement in America is a lens into how critical financial literacy is. The consulting company McKinsey recently reported that nearly half of Americans nearing retirement say they lack financial sufficiency for retirement, and only 13% are “retirement ready” in both financial sufficiency and confidence. Forty-six percent of Americans think they’ll still have debt by the time they retire.
Your story can be different. By God’s grace, you can gain financial knowledge, understanding, and wisdom. The following four money myths will show you just how important it is to put that ability into practice.
4 Money Myths That Can Keep You From Building Wealth
1. People who have money know how to invest it.
Consider the following prominent people and organizations: Steven Spielberg, The Philadelphia Eagles, Larry King, The New York Mets, Mark Zuckerman, and The Royal Bank of Scotland. They all have one thing in common: thanks to Bernie Madoff, they lost a significant amount of money in the largest Ponzi scheme in history that defrauded thousands of investors out of tens of billions of dollars.
All six of the people mentioned had money, but they didn’t know how to invest it. Think about it. Steven Spielberg made his fortune from movies, not investing. Larry King made his fortune on television, and the Eagles and Mets held their value in sports. When an investment opportunity came around, they didn’t know how to determine whether or not it was legit.
Investing in your financial education as early as possible is the key here. Prepare yourself by gaining knowledge, understanding, and wisdom. Then, you’ll be ready to handle the money when it comes to you.
2. People who have built successful businesses know how to invest money.
Anyone who has built a successful business deserves the credit–it’s difficult work. However, that still doesn’t mean they know how to maximize the profits! Even if they are experts in conducting their particular business, they may not know how to invest.
I had a friend who owned a large group of fast-food franchises. He got out of his comfort zone and invested in real estate. However, the investment went south. So, he called me and asked if I could fly out and help. I assured him I could on one condition. I wanted him to have his attorney and accountant in the same room when we conducted the meeting.
I gave them one piece of advice; the attorney wanted to do it, and the accountant did not. The owner sided with the attorney, made the adjustment, and made quite a bit of money on that investment.
The franchisee owner asked me, “How did you learn to do that?” I replied, “Because I made a lot of mistakes!” Here’s the point. You must get in the game and take a risk to understand investing. You’ll make mistakes and lose money along the way, but hopefully, you’ll earn a little more than you lose!
3. People in the Financial Services Industry Know How to Invest Your Money
Many people hand off their money to financial experts with little thought. History tells us that can be a dire mistake. In the early 2000s, Lehman Brothers was the fourth-largest investment bank in the United States. They had 25,000 employees around the world. However, they ended up filing the largest bankruptcy in the history of America and playing a significant role in the 2008 housing crisis.
Here’s another story. I once knew two brothers who sold their business for $1 billion cash, so they got that massive chunk of change all at once. They told the financial firm Merrill Lynch that they wanted to invest their fortune safely at 3% a year. In the first six months, Merrill Lynch lost 250 million dollars!
So, just because someone is in the financial services industry does not mean they know how to invest. Of course, nobody is perfect. And I’m not saying that you should distrust every financial firm. However, it is essential to understand what financial professionals are doing with your money. You cannot afford to be passive when it comes to your money. Don’t rely on someone else to manage everything for you.
Before you invest in anything, do your due diligence to understand:
- What your investment is
- Why you’re investing in it
- How and when you’re going to make a return.
4. The Richest Americans Primarily Invest in Stocks and Mutual Funds
Industrialist and philanthropist Andrew Carnegie once said, “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”
His statement reigns true today. While stocks and mutual funds are great components to include in any investment portfolio, they aren’t the biggest cash cows. In fact, the wealthiest Americans are primarily invested in their own businesses and have real estate holdings related to or around their organizations.
For now, that may seem like a lofty goal. That’s why WealthBuilders is committed to helping you start businesses and invest in real estate for the first time with events and free blogs, podcasts, and webinars.
Knowing how to make money will empower you to reach financial freedom. Not so you can retire, sit on the couch, and play golf like I did for several years. Instead, building wealth is powerful because it gives you more time and treasure to devote toward God’s will for your life.
Did this blog debunk any money myths for you? Can you think of any other traditional finance wisdom that can be detrimental? We’d love to hear from you in the comments!