Who wants to ‘Get rich quick?’
April 20, 2012
by Brian Wolf

In America today, there are many ways to “get rich quick.” Some are even legal.

Just recently, one way was national news when the lottery rolled over $600 million. Of course it’s a little hard to get excited with that plan because we all know that although it’s possible, it’s just not something you can count on.

So let’s improve our odds just a little. In hindsight, we could have put all our money into gold, which has climbed nearly five-fold since 2000. Google is up 530 percent since August of 2004, and Apple is up about 1,500 percent since January of 2000. I think all of these gains would qualify as getting rich quickly.

So why didn’t everybody get rich with these investments? The answer is simple – these are shining examples and not the norm. For every grand slam, you’re going to have a hundred or a thousand strike-outs. So who wants to gamble on the grand slam?

Back in the early 2000s I had a wealthy dentist client who wanted to take a big gamble so we picked out a nice bio-tech fund and it gained over 80 percent the next year. I suggested that we sell it and laugh all the way to the bank, but something very human happened. He wanted more! “Let it ride,” was his directive.

I suggested that the likelihood of another big gain was very unlikely, but he had a taste of the “get rick quick” and couldn’t stop. The following year, it lost over 40 percent of its value and then he was willing to sell it.

Many advisors like to say that historically, the stock market has provided returns that will beat inflation. Just don’t ask them about the last 10 years. This is a period where all bets are off and the “historical norm” is no longer the “historical norm.”

Getting rich quick in the stock market is no different than the lottery. You can do it, but your odds are very long.

Many people go another route and decide to “go broke safely.” This is a new and equally troubling investment strategy. “Going broke safely” means to keep most of your money safe in a money market, savings account, or bank CD. Right now, the best one year CD rates are one percent or less. While there is the safety of principal behind those cash investments, two factors could likely erode that buying power over time; taxes and inflation.

Taxes are very visible. They are a specific amount, whether it’s paying them every April, or seeing them regularly taken out of a paycheck. On the other hand, inflation is much more subtle. It can show up week to week, month to month, or year to year.

Think of the cost of gasoline, healthcare, food, education, or a car in the last decade. All have steadily marched higher over time. If you’re earning less than 1 percent after paying taxes on that interest earned, you are now sliding backwards with what that money will be able to purchase.

So, where is the middle ground? Where is the place a person can invest to get safety and not have to put up with low returns? For many, the answer is in the world of fixed indexed annuities.

Most people I meet with are very confused about annuities. This is normal. I’ve never met a financial product yet that was easy for everyone to understand. However, today, there really are some great annuity products that can bridge the gap of risk vs. returns.

So don’t miss next week’s column, where I’ll be writing about what many people call the greatest investment product of the last 10 years. In the meantime, think about your own investments. Are you trying to “get rich quickly” or are you just “going broke safely?”

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