I read a finance article last night with suggestions on paying down debt and growing your wealth that, on a scale of financial common sense, falls somewhere between 'extremely dangerous' and 'impending financial cataclysm'.
Here are some of the suggestions from the article:
- Save 10% of your income, no matter what
This is an account for the honouring of you. You can buy diamonds and pearls with it, silver tableware, or crystal goblets (it's better to drink champagne out of those instead of plastic ones).
- Carry around the amount of money that you think a rich person would carry
How different would you feel about your life if you saw a big wad of notes every time you opened your wallet?
- Buy things with intrinsic value
Gold, silver, and platinum are in, as are diamonds, pearls, antique furniture, and sterling silver flatware.
You are probably realising by now that these are not my suggestions. I personally believe that investors would find alternative strategies more rewarding. Here's why:
Save 10%
Saving 10% of your income is a great idea. Invest it responsibly in assets that make you money, like shares, bonds, or your superannuation fund. Foolish writer Owen Raskiewicz shows here how saving just $20 a week could turn into $117,815 over 30 years.
Feel rich; carry cash
Truly rich people do not carry loads of cash. They have platinum credit cards.
Also, carrying a lot of cash in your wallet is only placing you under more financial stress – because it's just sitting there. It's not paying down your debt or giving you some breathing room on a house repayment or for unexpected expenses.
Buy things with intrinsic value
Buying assets with intrinsic value is a great idea, and it's one of the primary things that Foolish analysts look for in an investment. Unfortunately, gold, silver, platinum, diamonds, or antiques have no intrinsic underlying value.
Precious metal prices are driven by supply and demand. They also lose their lustre as interest rates rise, because savings accounts become far more attractive. Diamonds plunged in value after the De Beers diamond cartel lost its market power in recent years. History is full of examples of paintings and antiques that have to be sold at cents on the dollar in tough economic times.
What's more, none of these things make you money. You can buy Australian Government 10-year bonds, earn ~2% per annum, and be virtually guaranteed of receiving your money back at the end of 10 years.
If you want to look at intrinsic value, consider companies like Westfield Corp Ltd (ASX: WFD), which owns a portfolio of top-notch shopping centres throughout the USA, UK, and Eurozone. Its properties ('net tangible assets') are worth approximately A$6 a share and they generate attractive, reliable rents for shareholders.
Wesfarmers Ltd (ASX: WES) has a collection of market-leading businesses in industrial chemicals, supermarkets, hardware stores, and office supplies. Just think, whenever somebody shops at Coles, Bunnings, or Officeworks, Wesfarmers and its shareholders turn a profit. Shareholders also benefit from dividends and get a tax bonus from franking credits.
Or how about Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), the Australian investment conglomerate that's been around for more than 100 years and never missed a dividend payment? These are all businesses that I think of when I think of intrinsic value.
