The Highway to Financial Success

There are many potential ways to get to most destinations, but usually just one reliable major highway. Side roads and unmapped paths are interesting, but these rarely help to reach your goals better and faster.

During my successful career in banking and as a corporate executive, I met a bunch of people who achieved amazing financial success. Many became millionaires. Others created fortunes of $10 million, $100 million, $1 billion, and one man I know is worth over $5 billion.

But even the much larger number of people who never made big fortunes nonetheless became happy and successful if they followed the highway to financial success that I describe below. But first a brief detour.
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Millions of people last month bought tickets for the Lotto 6/49 Jackpot in Canada which had a grand prize of $49,851,871. While the lucky winners in Alberta obviously did well on their investment, the other 99.9% lost money and will continue losing money as long as they gamble. In British Columbia where I live, the Government lottery system pays out 27.5% of it revenues in prizes. That means if you had bought every single ticket, you would have lost 72.5% of your money. Regrettably, you would you would also likely have lost money if you purchased stocks or real estate during the past five years.

What many people fail to realize is that more than 95% of wealth is created in your own job or in your self-owned business. The stock market has indeed created many multi-millionaires; regrettably, most of these are the brokers, investment bankers and other professionals who sell investments to the general public. Only a very few investors make big dollars by investing – the rest of us live perpetually on hopes of winning in the investment lottery, but rarely collecting on a big win.

The same is true of the real estate industry; the fortunes created there are mostly for real estate professionals. Obviously, in times of rapid asset inflation such as we experienced in the past decade, a few lucky people got in on the inflation bubble early on and sold out before it burst. But those people are statistically few in number. In the recent downturn, many people including some of my smartest friends and relatives lost fortunes in real estate – it is a very risky business, particularly when you use borrowed money.

Forty years ago I analyzed the performance of the stock portfolios held by a number of successful business people, all whom had made significant money in their own businesses. Shockingly, almost none gained as much in their stock investments as if they had just held bank deposits. Over half of these successful business people actually lost money on their financial investments.

I have seen this pattern repeated many times again in the past three decades, in both good economic times as well as in recessions – ordinary investors rarely do well in financial investments. Certainly not well enough to risk so much of their money and time betting on the stock market!

I understand the counter arguments offered by those who use the Dow Jones index, the S & P, or other stock indexes to show high financial returns historically. But those indexes are badly flawed. Worse still, most investors do not buy these stock indexes. If they buy mutual funds, up to half of their gains go to the sales commissions and investment management fees, particularly if they hold the mutual funds less than 5 years. Few people realize how much of their investment income goes back in fees and hidden charges to the financial industry and how little gain remains to reward investors.

There is a sound investment strategy for people who have already made their wealth to earn 6 – 8% returns in the long run, but few people ever create their original wealth through their investments alone. Even Warren Buffet made most of his original money by handling investments for other people who paid him handsomely for doing such a good job.

So back to my main conclusion: virtually all wealth is originally created in your own job or in your self-owned business. Investing your hard-earned wealth wisely is a different challenge.

I will have more to say later about how to build a successful career or start your own business. But for now, please remember that the highway to financial success starts with your own job; nowhere else. Whatever you can do to build up technical skills in an area where you have a keen interest will facilitate your longer term career advancement.

Highways are very long – it can take decades to build up a great career and to reap the financial success arising from this endeavor. Pick a career direction and stick to it for the long term. There will be obstacles and detours ahead, but keep building around your core knowledge, interests and strengths. People who change career direction frequently almost never succeed financially.

Even humble careers based on trades and very basic services can ultimately lead to surprising satisfaction and success. Most people who start successful businesses do it with knowledge gained while working for someone else.

So get on the career highway and keep on this highway until you reach your desired destination. But please enjoy every mile (or kilometer) of the journey, because enthusiasm is hugely important to your success.

Bon voyage!