The Richest Man in Babylon
George S. Clason edited a series of parables from the Mesopotamian Empire of 4,000 years ago in a book called The Richest Man in Babylon, it has been described as “the Most Inspiring Book on Wealth Ever”.
One parable explains how he created his wealth. It was simple. From his first week of work and for every week thereafter he took 10 % of his wages and saved them. He then invested this money carefully and it grew.
Any young person starting work today could do this, especially if they begin as soon as they start earning, as at that point they will not miss the 10%. But there is a catch!
Where and how do you do invest it safely?
Everyone has this dilemma, which is why we join a pension scheme. However, we then find that our money hasn’t grown much more than the money they put in, while at the same time we read that pension managers in the city are taking £millions in bonuses.
Well, if these guys were making so much for themselves, can we do it for ourselves?
Of course, we can.
The problem is that most of us don’t have the inclination, and if we’re honest, the ability.
Is there a solution?
Yes, there is.
Investment Funds or Trusts do the investment for you, more importantly, they invest in companies in different sections across all markets. The beauty is that the fund managers do all the work for you! The problem is that there are hundreds of them! Where do you invest your hard earned 10%?
Find funds that grow by 44% over 3 years
This must be your rule for the funds you choose. Fortunately, there is a lot of competition for your money between the different trusts and funds, therefore on each of their web sites they show their growth.
This is the only research you must do. It is essential that you put together a varied portfolio, with different funds covering different geographical and industrial sectors. This way you are covered should sector go down quickly or a country go into serious depression. Don’t have too much in any one sector or country. For example, it is always too easy to have too much the USA.
Yes, unfortunately you may need one. This is because not all platforms give you the growth month by month. Therefore, into the spreadsheet you put your funds, the date you bought them, the initial cost and the value today.
This is the only job you may have to do.
You will now be able to identify early those funds that are not meeting the three-year 44% rule.
When a fund stops growing or isn’t growing fast enough, don’t wait for it to start growing again, reallocate the money. At the same time, it is worth setting up a watch list so when you bin a fund you have one to replace it. There is an example of people who didn’t do this and then lost a lot of money when the Woodford Fund failed, so remember when a fund stops growing, get out of it!
Saving becomes fun
My suggestion is that a young man starting work today should invest 10% of his annual income into an ISA on pay day. If he does this regularly he benefits as he gets more shares if the price has gone down, and less if the price is rising, (cost price averaging). If you get it right it will take your ISA funds around five years to double, and you will find watching the growth fun. It is all happening without you!
As you see your money growing, you will find you can’t resist looking at the spread sheet, even in the weeks when they go down, which, unfortunately, they do. However, fortunately because there is continuous competition between funds managers, most of them quickly adjust and your funds start going up again. So don’t panic, let the fund managers do that.
Remember over the last 100 years the stock market in the end has always grown. As shown by the graphic.
Therefore, follow the rules that the Richest Man in Babylon made 4,000 years ago. Be sensible, watch it, and it is possible that the growth could make you an ISA millionaire well before you need to take your pension.
The beauty is that this ISA fund will be growing at the same time as you are building your career, and, this is important, its tax free!
Basically, it is your business, one that doesn’t employ staff, isn’t dependent on the number of hours you put into it, doesn’t require premises, your assets just grow. Finally, remember as it is an ISA there is no tax to pay when you take it out!
However, remember that funds go down as well as up. When they do, you stick with them, don’t sell anything because as shown in the graph above, eventually, they will start growing again. Remember the reason you went into that fund in the first place. Don’t sell on a falling market – this is the time to be brave and buy with your monthly 10%, when, of course, the funds you choose, only those that have grown by 40% over 3 years, will be lower.
All this leads to the question:
Is this the prefect business?
To find the book just click https://www.amazon.co.uk/Richest-Man-Babylon-George-Clason/dp/0451205367/ref=asc_df_0451205367/?tag=googshopuk-21&linkCode=df0&hvadid=310737150369&hvpos=&hvnetw=g&hvrand=4924469791447656538&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=1007201&hvtargid=pla-439294490092&psc=1&th=1&psc=1