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Lessons for the average New Zealander from the very wealthy
Susan Edmunds
05:00, Nov 23 2019
Sometimes it can seem like the wealthiest people in New Zealand are a different species.
Amazon founder Jeff Bezos made more than $2 billion in one day. Tse Ping and Cheng Cheung Ling gave their son $5.9 billion as a gift, making him one of Asia's richest people overnight.
It's hard to relate to if you're budgeting the last $100 in your bank account.
But financial advisers and other financial commentators say there are still lessons that can be learnt from the uber-wealthy, even if you have fewer zeroes in your bank account.
READ MORE:
* Getting rich boils down to three steps, according to 150 millionaires
* Study of millionaries shows the six 'wealth factors' to get rich
* Most millionaires get rich the old-fashioned way - and that's not inheritance
Don't expect a day job to get you there
The chances are that, unless you're a top-level executive, you won't ever earn enough in salary or wages to get you to mega-wealthy status. And even if you do score a big job, it's probably the incentives, such as share options, that will really make you rich.
Financial commentator Janine Starks said really wealthy people generally would not accept a wage-only job after about the age of 35.
"There needs to be prospects for share ownership, employee share schemes or performance related bonuses. Be an employer not an employee is the golden rule."
Related to that, she said they would usually have something to sell in the run-up to retirement - their share of a business or a project with a payout.
"They will undertake a sale process with professional advisers, not the local accountant doing a valuation."
LEON HALIP/GETTY IMAGES
US investment guru Warren Buffett referred to Bitcoin as "probably rat poison squared".
Take risks - but calculated ones
Often, people make large sums of money by putting themselves on the line when other people wouldn't. That might be in buying property, investing in an existing growth company or starting a new business.
But if you're risking everything, you are very vulnerable.
Starks said the super-rich would usually have one stable income in the family to provide a baseline income. The other person could then indulge in riskier business ventures around that.
"Don't let your partner quit work and join you in the firm. One person has to act as the anchor. Or, have several sources of income."
New Zealand's richest man, Graeme Hart, is an example of someone who diversified income streams to grow his wealth.
His strategy has been leveraged buyouts - borrowing against other successful businesses to buy a company that produces enough money to service the debt. As the debt is repaid the value of the new business investment increases.
Starks said super-wealthy people would ensure they understood their risks.
"They'll never skimp on lawyers, check every contract and check again. Becoming wealthy involves taking risk, so do that in the most risk averse way possible. Cutting corners just adds another layer of unnecessary risk."
Take advice
Starks said successful people were usually not afraid to ask for help.
"They make time for mentors. These don't have to be personal, they can be a general company mentor, who interacts with your management team. I recall starting a business where the product was unusual in the New Zealand market. We convinced a big offshore player to share ideas with us every few months on an evening conference call. It gave us a finger on the pulse for what was happening in bigger markets and they enjoyed seeing the development and responses of a small market. It also helped develop an international network through introductions."
Earn compound interest, don't pay it
David Boyle, of Mint Asset Management said many people who were really well-off had harnessed the "eighth wonder of the world" - compound interest.
This refers to the process by which interest earned then attracts more interest - snowballing an amount to a much larger sum. The same happens with compounding investment returns.
Tom Hartmann, managing editor of Sorted, agreed it was a powerful tool. "For the young KiwiSavers of today there's no reason they couldn't retire with over $1 million if they just let time do its thing. Similarly, millionaires will invest their money and leave it to gather compound interest and reinvest their earnings to keep it growing."
It's a big help for people who are accumulating wealth, but it's also what can make debt really painful.
Think long-term and set goals
Super-investor Warren Buffett has reportedly said the ideal holding period for any of his investments is forever.
If you invest well, and for solid reasons, you won't be worried about what markets are doing or what everyone else in interested in, you can just stick firmly to your own path.
If you have a long-term strategy, you can spot chances to invest in assets that fit in with it, as they come up - not just jump in to the latest trendy thing that could have fallen out of favour by next month.
New Zealand entrepreneur Cecilia Robinson has talked about how a market dip can crate opportunities.
"A lot of people are waiting and monitoring what's going on. If there's a downturn it would be a good opportunity to buy," she said.
Boyle said people should have a plan with goals, a budget and an indication of where they can get good, long-term returns.
PHIL CARRICK/AFR
Graeme Hart has become successful through a series of leveraged buyouts.
"I don't think anyone because a millionaire by growing their savings in a bank deposit."
Live within your means
Buffett urges people to spend what is left after saving, not save what is left after spending.
Hartmann said millionaires usually had their spending under control.
"Not everyone who wins Lotto stays a millionaire, but those who don't go crazy on flash cars and holidays, but invest their winnings for future growth, will.
"Many of us gather liabilities – boats, cars, other 'toys' that decrease in value. Millionaires might buy a few of those things, but invest most of their money in assets – property, shares, that grow in value."
Starks said people who were very well-off would save rather than suffer "lifestyle creep".
"The new car might be tempting but making big lumpy payments into an investment portfolio is going to pay back in spades. There's a period of time where being a bit invisible with success is a benefit. Then there's a point where that success doesn't need invisibility and actually provides reassurance to those watching and waiting to approach with opportunities. They ride that line carefully and with thought."
Susan Edmunds
05:00, Nov 23 2019
Sometimes it can seem like the wealthiest people in New Zealand are a different species.
Amazon founder Jeff Bezos made more than $2 billion in one day. Tse Ping and Cheng Cheung Ling gave their son $5.9 billion as a gift, making him one of Asia's richest people overnight.
It's hard to relate to if you're budgeting the last $100 in your bank account.
But financial advisers and other financial commentators say there are still lessons that can be learnt from the uber-wealthy, even if you have fewer zeroes in your bank account.
READ MORE:
* Getting rich boils down to three steps, according to 150 millionaires
* Study of millionaries shows the six 'wealth factors' to get rich
* Most millionaires get rich the old-fashioned way - and that's not inheritance
Don't expect a day job to get you there
The chances are that, unless you're a top-level executive, you won't ever earn enough in salary or wages to get you to mega-wealthy status. And even if you do score a big job, it's probably the incentives, such as share options, that will really make you rich.
Financial commentator Janine Starks said really wealthy people generally would not accept a wage-only job after about the age of 35.
"There needs to be prospects for share ownership, employee share schemes or performance related bonuses. Be an employer not an employee is the golden rule."
Related to that, she said they would usually have something to sell in the run-up to retirement - their share of a business or a project with a payout.
"They will undertake a sale process with professional advisers, not the local accountant doing a valuation."
LEON HALIP/GETTY IMAGES
US investment guru Warren Buffett referred to Bitcoin as "probably rat poison squared".
Take risks - but calculated ones
Often, people make large sums of money by putting themselves on the line when other people wouldn't. That might be in buying property, investing in an existing growth company or starting a new business.
But if you're risking everything, you are very vulnerable.
Starks said the super-rich would usually have one stable income in the family to provide a baseline income. The other person could then indulge in riskier business ventures around that.
"Don't let your partner quit work and join you in the firm. One person has to act as the anchor. Or, have several sources of income."
New Zealand's richest man, Graeme Hart, is an example of someone who diversified income streams to grow his wealth.
His strategy has been leveraged buyouts - borrowing against other successful businesses to buy a company that produces enough money to service the debt. As the debt is repaid the value of the new business investment increases.
Starks said super-wealthy people would ensure they understood their risks.
"They'll never skimp on lawyers, check every contract and check again. Becoming wealthy involves taking risk, so do that in the most risk averse way possible. Cutting corners just adds another layer of unnecessary risk."
Take advice
Starks said successful people were usually not afraid to ask for help.
"They make time for mentors. These don't have to be personal, they can be a general company mentor, who interacts with your management team. I recall starting a business where the product was unusual in the New Zealand market. We convinced a big offshore player to share ideas with us every few months on an evening conference call. It gave us a finger on the pulse for what was happening in bigger markets and they enjoyed seeing the development and responses of a small market. It also helped develop an international network through introductions."
Earn compound interest, don't pay it
David Boyle, of Mint Asset Management said many people who were really well-off had harnessed the "eighth wonder of the world" - compound interest.
This refers to the process by which interest earned then attracts more interest - snowballing an amount to a much larger sum. The same happens with compounding investment returns.
Tom Hartmann, managing editor of Sorted, agreed it was a powerful tool. "For the young KiwiSavers of today there's no reason they couldn't retire with over $1 million if they just let time do its thing. Similarly, millionaires will invest their money and leave it to gather compound interest and reinvest their earnings to keep it growing."
It's a big help for people who are accumulating wealth, but it's also what can make debt really painful.
Think long-term and set goals
Super-investor Warren Buffett has reportedly said the ideal holding period for any of his investments is forever.
If you invest well, and for solid reasons, you won't be worried about what markets are doing or what everyone else in interested in, you can just stick firmly to your own path.
If you have a long-term strategy, you can spot chances to invest in assets that fit in with it, as they come up - not just jump in to the latest trendy thing that could have fallen out of favour by next month.
New Zealand entrepreneur Cecilia Robinson has talked about how a market dip can crate opportunities.
"A lot of people are waiting and monitoring what's going on. If there's a downturn it would be a good opportunity to buy," she said.
Boyle said people should have a plan with goals, a budget and an indication of where they can get good, long-term returns.
PHIL CARRICK/AFR
Graeme Hart has become successful through a series of leveraged buyouts.
"I don't think anyone because a millionaire by growing their savings in a bank deposit."
Live within your means
Buffett urges people to spend what is left after saving, not save what is left after spending.
Hartmann said millionaires usually had their spending under control.
"Not everyone who wins Lotto stays a millionaire, but those who don't go crazy on flash cars and holidays, but invest their winnings for future growth, will.
"Many of us gather liabilities – boats, cars, other 'toys' that decrease in value. Millionaires might buy a few of those things, but invest most of their money in assets – property, shares, that grow in value."
Starks said people who were very well-off would save rather than suffer "lifestyle creep".
"The new car might be tempting but making big lumpy payments into an investment portfolio is going to pay back in spades. There's a period of time where being a bit invisible with success is a benefit. Then there's a point where that success doesn't need invisibility and actually provides reassurance to those watching and waiting to approach with opportunities. They ride that line carefully and with thought."
