The Great Wealth-Building Strategy
That’s Like An Olympic Wrestling Match
One of my wrestlers was desperate. Another middle school kid had him tied up on the mat and it was clear Chris was going to lose. Looking at me, his eyes pleaded, “Help! What do I need to do?” I wished I knew. Then the opposing coach screamed at his wrestler: “Don’t let him hook your leg!” At that point, I had nothing to lose. “Chris, hook his leg with your left foot!” I screamed. “Hook his leg! Hook his leg!”
This two-person pretzel rotated while Chris tried to hook his foot around the other boy’s leg. When he did, Chris pulled hard. They flipped over and somehow, against all odds, Chris pinned the other kid.
We hugged as he bounced off the mat, “You’re such a great coach,” he said.
But I just got lucky. I didn’t have a clue. It was time for me to learn from people who could really coach, so I went to a couple of workshops. At the beginning of one session, a fit-looking guy walked into the gym wearing blue spandex shorts. I leaned over to one of my fellow coaches and said, “I wonder if I could take that guy.”
My ego said I could. But once again, I was clueless.
The guy in the blue shorts was Daniel Igali. He won a wrestling bronze medal at the World Championships the previous year, and he soon added an Olympic Gold Medal to his tally.
Over the previous year, I studied various takedown strategies to pass on to my wrestlers, telling myself, “The more methods your wrestlers have under their belts, the better their odds of winning.” I wondered how many strategies Daniel Igali used, so I asked him.
I figured he analyzed his opponents based on their personal styles or the styles of their coaching systems. For example, I thought he might effectively draw from five or six takedown strategies when he fought Russians. He might use a few different moves that might work best on Iranians. Perhaps he had different methods, still, for short guys or tall guys.
But I was amazed by what he said: “I only ever use three.”
How could that be? This guy was one of the best in the world. My wrestlers used far more variety than Daniel Igali. But Igali perfected those moves. They were simple. They were effective. And he used them to win an Olympic Gold Medal.
In Anders Ericsson and Robert Pool’s book, Peak: Secrets From The New Science of Expertise, they described “purposeful practice.” Based on Ericsson’s research, they say practice doesn’t help much unless it’s a form of diligent perfect practice. In other words, someone could golf 365 days a year, but if they don’t spend enormous amounts of time practicing swings or putts, focusing on proven techniques, all the golf in the world might not make that person better.
Building wealth is much the same. Like Daniel Igali’s plans to take someone off their feet, a strong evidence-based strategy requires a three-part mastery:
1. Spend far less than you earn
2. Regularly add to a diversified low-cost portfolio of index funds or ETFs
3. Stay the course, and don’t be swayed by speculation
The first step is tough, and you’ll need to practice. After all, we live in a high-consumption world where the “acquire now, pay later” ethos is a cultural norm. Not falling for this trap requires constant practice. Every day, advertisements tempt us to spend money. But if you want to build wealth, practice frugality. That doesn’t mean you won’t have fun. Research suggests you won’t miss a thing. Material acquisitions don’t boost happiness at all. But debts (which are often used to buy these things) contribute to misery.
The second step is easy to start. Build a diversified portfolio of low-cost index funds or ETFs. Target allocation funds make the process simple. Reams of research suggest that doing so will help you spank the performance of most of the world’s hedge funds–even the most famous ones.
It’s easy to build a portfolio of low-cost index funds. But it requires tremendous discipline. Market crashes scare people into selling or ceasing to add fresh money. The market is like a mischievous Norse god that tries to mess with people’s heads. It takes practice to ignore market news, ignore market fluctuations, ignore market drops and ignore market all-time highs.
The third step requires strength to stay the course. It takes a master to ignore speculation. Plenty of people fail because they seek get-rich-quicker methods that might work for a while…before most of them crash and burn.
These three rules are simple. But they are tough to follow. Fear, greed and immediate gratification can derail almost anyone. That’s why investors need to focus on just three things.
I have no idea how Daniel Igali invests his money. But if he knew about this three-part plan, I believe he would have the mental strength to follow its course. He knows, after all, that simplicity isn’t always easy. It requires tremendous focus and it rewards the practiced master.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas
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Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.