How the BRW Rich 200 list invest

Every year I look forward to reading the BRW Rich 200.  I just cannot help myself and doubt it’s not a surprise to many of you that I love reading how the BRW Rich 200 list invest.  Whilst I don’t anticipate finding my way into this exclusive club anytime soon, I do believe there are some wonderful lessons that we can all learn about how wealth is accumulated and preserved.

Consider your investment choices.  There has really only ever been, and if history is any guide there will only ever be, four main choices available to us;

  1. Business
  2. Property
  3. Loans
  4. Stuff

Business:  By definition a business could be your business or someone else’s. If it’s someone elses it could be privately or publicly held like the Commonwealth Bank or Woolworths.  The purpose of any business is to provide it’s customers with a great product or service that in turn allows profits to be returned to shareholders via way of a dividend.

If we step back to the BRW Rich 200 list by far the most common form of wealth creation is that of owning and building a business, whether it be privately held or public.  What separates most small business owners and those on the BRW Rich 200 list is that those on the list have identified a niche and seek to dominate that market.

Property:  Property as we would typically define it is a little different to that which dominates the BRW Rich 200.  You won’t make the BRW Rich 200 list by buying a couple of negatively geared properties and holding on for twenty years.

Those that stated that property as the source of their wealth, have usually treated property as a business, and not a buy and hold asset.  You might however make the list if you can replicate what Frank Lowy has done in the world of retailing with Westfield, or Harry Triguboff with property investment courtesy of Meriton Apartments.   Frank and Harry have decades of time in the market, and nary a mention of the phrase time out of the market.

Loans:  A loan is what happens when we lend money to someone with the expectation it will be repaid along with a rate of interest.  Sound familiar? If not, it’s what happens every day when we deposit money in a day to day savings account or an online savings account.  That’s right, you are lending your money to that bank or financial institution! When you open a term deposit, you are lending your money to that same institution.

I have read the BRW Rich 200 List cover to cover for the past ten years and am yet to see someone that has made the list as a result of investing in cash, bonds or term deposits. Some have made the list because they were in the business of providing loans, however they have not made the list by investing in cash.

It is imperative that we all have access to enough capital to provide for our day to day living and personal needs, but too much cash will only erode your purchasing power.

Stuff:  Everything else falls into the highly technical category of stuff. Art, wine, jewellery, gold, silver, rare coins, concentrated orange juice and pork bellies are all examples of an investment choice that create little or no income, are speculative and overly exposed to fraud. Whilst I anticipate that many of those on the BRW Rich 200 list will have several cars that would make my mind boggle and extensive wine collections, they would not consider this an investment. It’s something they do for fun.

What can you do?

We all want to create wealth but where do we start?  For most of us, it starts with focusing on what you can have the most direct influence on, your career.  Invest in yourself through education and mentoring, identify your talents and find a way to turn them into an income stream.  It might not get you to the BRW Rich 200 but it is the best way to leverage your career into an “engine of your wealth”, as Paul Clitheroe once stated.

Once you have the engine of your wealth idling, you then need to spend less than you earn. This is the cornerstone for all that we discuss with our clients, and it’s the first step in our 8 step plan to financial success.

It’s my job to work as my client’s financial ‘lifesaver’ to ensure that they swim between the flags and that they don’t get in over their heads.