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Wealth: Luck or Process?10/4/2023
After 3 years of talking about money, running the Rebel Finance School for thousands of people, and reflecting on our journey to financial independence, I can tell you that most people believe their only routes to wealth are:
Is wealth really a game of chance or can anyone do it? Do you believe you can become wealthy?
Do you believe you have a shot at being wealthy? Have you ever taken time to define what wealth means to you? Do you even want to be wealthy (lots of people believe wealthy people are evil and unscrupulous!)
Believing that you can't ever become wealthy or that wealthy people are unscrupulous (and lots of other beliefs) have a huge negative impact on your chances of getting to your goal. If you don't actually believe something is possible then how hard are you going to work to achieve it? Have you ever met someone who has a goal in life and then you ask them what they are doing about it and they give you excuses about it being difficult and hardly anyone succeeds? If you don't believe something is possible, are you going to go all in and give it EVERYTHING it takes to make it happen? Or will you try a few things and look for proof that you were right all along?
Confirmation bias
This is a fancy way of saying that we all look for proof that what we already believe was right all along. We as human beings seem to have developed a damaging need to be consistent. If I have said that "Chances are I will never be wealthy" once; then I will damn well make sure it is true otherwise I lied when I said it.
So we go out and we look for backup. The media love to give us proof that this is true. People love to say they are trapped and nothing can change: "misery loves company". If you can never be happy then you might as well spend what money you have now and have fun as saving a little doesn't make any difference, does it?! We all look for proof that what we already believe is true and refute evidence to the contrary, no matter how compelling that evidence is. Why does one person believe investing in the stock market is risky and another (me) believe it isn't at all? We both have access to the same data on the internet! Would you bet on these odds? Welcome to the Donegan Casino!
Imagine for a second you went to the casino. When you arrive, they tell you they have two new games in the casino for you to play. They are exciting new games and EVERYONE around the world is playing one of them, and you get to choose one to play. You can choose either but you must play one of them!
Game 1 The friendly casino staff explain to you that in this game if you put your money in there is a TINY chance that you will get mega-wealthy. Realistically you never will but there is an infinitesimally small chance that you will get super mega-wealthy. You can start right now with any amount and most likely you will lose every pound or dollar you put in, but you know there is a 1 in 14 million chance that you will get lucky. Game 2 The staff explain that in game 2 you put in a small amount of money each week and your chances of winning over the decades are almost 100%. You will get wealthy, but it will take time. You have amazing odds, but you need to get on with your life and allow the decades to pass for the results to come. You won't get any money this month, or next month or even this year or next year but in a decade or two, you will be wealthy. Would you play this game? Would you put your money in? Which game would you play? The lottery
In the UK a staggering 70% of adults over 18 play the lottery. Can you believe that? 70%?!!! In the USA over half of adults play the lottery. The numbers show that people would rather play game 1 EVERY SINGLE TIME!
In my 20s I played the lottery a few times. It was EXCITING. You put your money in, you buy a scratch card, you get an instant result and you might be worth millions! There was even one stage where I was thinking, Why don't I take a grand and put it on the lottery and increase my chances? I wonder if I could win!! Why do so few people pick game 2? Because they don't believe it is actually possible for them to get wealthy, so they go back to game 1 and throw away their money. We have been staying in Buenos Aires for the last few weeks and there are so many lottery shops always with people buying tickets. People in their droves around the world play game 1 as they don't believe they can win game 2! 
The Lottery shop in Buenos Aires near our Airbnb
Present bias
Aside from lacking the belief that they can get wealthy, the reason that people choose game 1 is present bias. This is a fancy way of saying that we focus on the present, not the future. We want immediate results, not to wait years or decades. We all know people who get paid then a few days later, it's all gone!
But unless you get that miracle lottery win, it takes time to build wealth. The classic example is the kids that are offered one sweet now or two later. Without fail the kids eat the sweet now and give up the chance to have too. We have such a focus on present pleasure and deferred pleasure (game 2) is a hard one to stomach! This is actually why people don't do it. They think Game 2 is deprivation. Actually game two is a chance to stop gambling, invest over the long term and then get on with spending time with your family, having fun or learning new things! Invest or gamble
Why would you EVER invest if you don't think you have a chance of ever getting wealthy? It's one thing to spend a couple of pounds a week on a lottery ticket, knowing that realistically you won't win and that you're gambling. But if you believe that the stock market is just a casino, or it's rigged, or that investing is only for rich, clever people, or for people who luckily invest in the right company at the right time, then you'll never take the steps you need to take to get wealthy.
Do you believe wealth is luck or a repeatable process? If I showed you how you could take a few hundred a month and invest and it was virtually inevitable that you would become a millionaire would you take those odds? Would you believe me? Would you follow the process? "Investing" in crypto is game 1
Do you think crypto will go "to the moon" and make you fabulously wealthy quickly? There are more than 19,000 different cryptocurrencies in existence and the chances are most will not succeed as investments. Which ones will succeed? No one knows, but many "experts" will be happy to tell you, and happier still to sell you a course on how to decide.
Picking 1 out of 19,000 crypto currencies and throwing in some money sure sounds like gambling to me. If you have fear of missing out with crypto then I previously wrote an article for you explaining 5 reasons why you shouldn't invest in crypto. Picking individual stocks is game 1
If crypto is gambling, what about the stock market? It can be, too, depending on how you do it. You might think, "I'll just invest in the good companies and avoid the bad ones." But how can you identify which is which?
Over the long-term, 96% of very highly paid fund managers fail to beat the market. They're well trained, they talk in a language most people don't understand, and they have teams of people performing extensive research on companies and the factors that influence their success or failure. They invest in companies they think will do well, they sell shares in companies they think will perform badly. They time the market, dancing in and out. After all this, they still don't succeed, and they'll charge you high fees for their failure, adding insult to injury. They get paid even if you lose. Do you think you can do better than highly paid fund managers and their teams of researchers? If you invest your money in an individual company, and that company goes bust, you lose all your money. Do you think there are companies too big to fail? People thought that about Enron, a company with assets of over $67 billion in assets. They thought that about Bear Stearns, an investment bank that failed in 2008. Before they failed, no one thought that was a possibility. Picking individual companies to invest in is gambling and not a process that can be repeated over time. This is game 1. Investing in index funds is game 2
If crypto is a gamble, if finding a professional fund manager who can beat the market is a gamble, if investing in individual companies is a gamble, then what can you invest in that's not gambling?
Come on Donegan, where is the proof that wealth is a repeatable process? Enter index funds. Instead of trying to beat the market, you buy the market. No one wants to aim for being average, but over the long-term, the average returns of the market will beat 96% of fund managers who actively try to beat the market. Ironically, by accepting average returns, you will beat almost all professionals who are trying to gain above average returns! This is the repeatable process to create wealth over the long run. You create a gap between your income and expenditure and you take that gap and invest it into broad based index funds over the years. You wait letting compounding do it's magic and you wake up years later fabulously wealthy. Take the FTSE Global All Cap Index Fund as an example. It's a simple broad-based index fund from Vanguard that's highly diversified, investing in over 7,000 companies spanning the globe. These are businesses with employees working hard at their jobs to make real profits. For you to lose all your money, all of those 7000+ businesses would have to go bust. If something ever happens to cause that, your money will be the least of your problems. Companies that perform poorly fall off the index and are sold automatically, replaced by growing, successful companies, again automatically. The success of these companies is what drives the market higher, not luck. The market has always gone up since it started. Over the long term it has always gone up. You invest your hard earned pounds or dollars over the years and you watch it grow. Jack Bogle the founder of Vanguard is famous for having said “When you get your retirement plan statement every month, don’t open it. Don’t peek. When you retire, open the statement and believe me if you’ve been putting money in there for 40 or 50 years, you’ll need a cardiologist standing by you when you open it. Time is your friend and impulse is your enemy. It’s the market return that’s going to be your best investment for a lifetime.” The founder of Vanguard recognised that if you saved and invested in a broad-based index fund over the years, it was a repeatable process. Follow the Recipe
When you're cooking a meal you can follow a recipe. It tells you what ingredients you need and it tells you the steps to follow. You can follow the same recipe as someone else and get the same result. You can reliably and repeatedly produce a tasty meal - not by luck, but by following a process.
Obviously there have been some times where I have messed it up first time and created a mess not a wonderful meal! But I practiced a few times and created a masterpiece meal for Katie and I!
However, you can follow successful business people's recipe for building a business without going into debt - and we help you do that at The Rebel Business School. You can follow a recipe for successful investing that many others have followed before you: create a nice big gap between expenditure and income and then take the difference and invest it into a global Vanguard index fund inside tax-advantaged accounts. It won't make you rich overnight. It is the opposite of a get rich quick scheme. Ger rich quick schemes only make one person reliably rich, and that is the person selling them, not you. This is get rich slowly and predictably over the years. It is boring, slow, wealth over time. It isn't exciting. And that is why most people who read this will say "What a load of crap" and move on. Warren Buffet, one of the greatest (and richest) investors of all time, said that "the stock market is a device for transferring money from the impatient to the patient". You have to invest as much as you can, as often as you can, and keep investing through the ups and downs of volatile markets until the day eventually comes when you have enough wealth never to have to work again if you don't want to. Trust the process, not luck. The Donegans believe wealth is a repeatable process. 
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