I finally got around to reading Simple Wealth, Inevitable Wealth by Nick Murray after seeing it mentioned several times online. You might be able to find a used past edition on Amazon, but your best bet is to buy it new from Nick Murray’s site (the book deserves a much broader reach).
For non-finance folks, the book should be refreshing. Murray dispenses with the financial-ese and puts things into simple, common sense terms that anyone can understand and focuses on the timeless ideas that matter.
I dug through all my notes and picked out ten lessons from the book.
10. Most people misunderstand risk.
Murray defines risk for what it really is, not volatility, but permanent loss and outliving your money.
Volatility is a temporary concept that passes with time. Most people see it as an excuse to act.
Those actions lead to real risks, self-imposed risks, like being forced to take a pay cut in retirement because you made a temporary loss into a permanent one when you sold after the market fell, you changed investments out of fear, and your money couldn’t keep up with inflation.
9. Businesses, not bonds, produce real wealth.
History backs this up. Stocks beat bonds in every category that matters – 2x the return before inflation, 3x the return after inflation (while bonds barely beat inflation), and taxes make the beating look worse.
Simply, bonds don’t offer any wiggle room when it comes to what really matters – making sure your dollars can buy the same stuff in the next decade(s) as you buy today.
Once you understand the real risks, stocks don’t seem so risky. But it’s not all bad news for bonds. Bonds have one redeeming quality – to help relieve the pain and stress from volatility.
8. Stocks won’t make you wealthy. Your behavior around stocks makes you wealthy.
Stocks need your help. The only thing you control – your behavior – is the biggest factor in your success.
This is a recurring theme repeated by all great investors – 90% of investing involves managing yourself, not your money. A simple investment plan helps manage that 90% so the other 10% can be left alone to grow your money.
7. If you can’t see a positive future outcome, you’ll never stick with your investments long enough to achieve one.
One thing we can take away from history is the U.S. is nothing if not resilient. The US economy has seen it all and came back from the brink every time. It’s seen wars, crises, recessions, depressions, stagflation, and burst bubbles.
And if you believe the news, there’s always another crisis right around the corner.
The relentless end of the world claims is proved wrong every time. The US economy is like no other. The capitalist machine is constantly self-correcting, creating, innovating, and driving forward stronger than ever and the market follows. Each generation is better off than the last. How anyone can lose faith in that track record is beyond me.
6. Everything moves in cycles.
The economy, the markets, sectors, investing styles, strategies, and even investor sentiment go through cycles. What’s hot today eventually goes cold. Fads come and go. And you should be ready for it.
Collectively, the cycles – high and lows, peaks and troughs, fear and greed, good years and bad years – produce average returns. You can’t get one without eventually seeing the other. You must be prepared for both.
5. Speculation is hoping a trend or cycle won’t end.
The best performing asset of the last five years is rarely the best performer of the next five. Whatever you do, don’t be that person who always chases returns because you’ll end up a step or two below average.
Investing is about recognizing the value in a cycle that ends.
4. Investors with time should root for bear markets.
The stock market rises about four out of every five years or about 80% of the time. Said another way, the market only falls 20% of the time. You can fear that 20% or cheer for it.
No one ever got wealthy paying top dollar; most seriously monied people got that way buying things that were distressed, out of favor, and therefore on sale.
Unfortunately, few people see it that way. You need to take advantage of the sale when it arrives. Your money literally goes further because you can buy more share at lower prices that lead to market-beating returns later on.
3. Mistakes are an anchor on returns.
Mistakes are inevitable. Compounding mistakes grind away returns, then your money and your goals suffer. Murray covers eight big mistakes from poor behavior to bad investment choices and finally the misuse of debt, that all lead to one outcome:
People don’t get investment returns, they get investor returns, which are much, much worse.
Failing to accept your role in the process means you’re bound and determined to perform poorly at best or fail miserably at worse.
2. Have a coach in your corner.
There are two paths to reaching your goals. You do it yourself or you can ask for help. Murray makes the argument simply: will an advisor add more to your long-term return (minus the costs) than you could get on your own?
Think of an advisor as a coach that talks you out of mistakes, improves your behavior, and keeps you focused on the plan ahead. Now factor in the time, energy, and stress of going it alone. Which path do you think produces the best results?
The answer won’t be the same for everyone, but the question needs to be asked none the less.
Of course, none of this accounts for setting up a financial plan for your goals, building an investment plan to achieve them, and an estate plan to pass on what’s left to the next generation because that comes with the advisor.
1. “Wealth is freedom.”
Financial freedom should be everyone’s primary goal. Call it what you will – retirement savings or screw you money – it means having enough money saved up to know you can do whatever you want without ever having to worry about what happens next.