Debt, Sex and Investing

Sex has become so casually spoken of, and engaged in by many, so that it is almost as familiar as swiping your credit card. And one of the reasons behind this trend is that sex doesn’t require any real commitment like marriage does. Acquiring debt doesn’t require any commitment either, not like solid money management and building lasting wealth requires. Interestingly, neither sex outside marriage nor debt without solid financial planning, provide any long-term value to those who blithely engage in them. Undoubtedly, both might provide a cheap thrill, but neither one can ever provide the security, fulfillment, happiness or sustainability that you ultimately desire.

Take a recent real estate investor who called McFie Insuranceand owes over $50,000, all in credit card debt. At the rate he is paying his credit cards, it will take him over 45 years to reduce his balance to zero. And even though he is paying more on his credit card debt than what he is earning on his real estate “investments”, he was thrilled to let us know that his real estate is cash positive.

But no matter how “cash positive” his real estate becomes, until the outflow on his credit card debt is less than what his real estate investments are producing, he will never find the security, fulfillment, happiness or the sustainability that he believes his real estate investments will provide for him. And that is because you can’t build wealth when you are paying more to others than what you are bringing in. You can’t spend your way to wealth even though you can manage other people’s money to create wealth for you.

Investing certainly can be a profitable act. But assuming the risk of earning the average historical rates of returns might not give you the results that you are expecting. Imagine that you have diligently saved $100,000 and you are approached with an investment opportunity that will provide you a 10% average rate of return (based on historical averages) over the next 2 years. Your interest is piqued. You decide to go for it, not knowing that this could end up much like it does for the young bucks who decide to have sex instead of building a solid relationship based on commitment. Which means, you could be left emotionally (and financially) unfulfilled but eagerly seeking your next encounter.

The first year in, your investment tanks 50%, much like many investments did in 1976, 2000 and 2008. With only $50,000 left, you again check the historical average market returns and have great hopes that what goes down, eventually goes up. And so, you are still fairly optimistic, though somewhat guarded, about what a year or two might hold in store for you.

Year two comes and goes. Your annual statement shows that returns were up by 60% over the past 12 months! Moreover, you can see that you’ve matched the historical 10% average rate of return. But you find no security, fulfillment, happiness or sustainability in the fact that you now only have $80,000 of the $100,000 you started with 2 years ago. And that might leave you emotionally unfulfilled but eager to get back into another investment.

The truth is, historical averages can never predict the actual returns you will earn or lose in any investment. In fact, getting excited over historical average returns can be likened to getting excited about watching pornography. They both have the potential to leave you in a worse condition than before you encountered them.

Financial health and well-being is developed like a good relationship. They are both developed by strong desire, determination and discipline. Without these 3D’s nothing that is built will last long enough to provide you with the security, fulfillment, happiness or sustainability that you are looking for. There are no short-cuts.

Your take-home message is:

  • Debt without the determination and discipline to make it work for you will destroy you, and
  • Investing based on historical averages is much like watching porn. You can fantasize about the things that are performed but they will never become your reality. Both are addictive and have destroyed many lives.

Understanding the facts about Debt, Sex and Investing can help you avoid a lot of pain and suffering. Humbly remember to always get guarantees on your money, don’t get hoodwinked by promises based on historical returns and never entertain debt without a solid plan on how you will make that debt work for you and not against you.