I just finished reading a fascinating excerpt from the book “The Psychology of Money.” In the article, the author, Morgan Housel, lays out the argument that the skills needed to gain vast sums of money are very different than the skills needed to retain and protect wealth. Specifically, Housel says:
Capitalism is hard. But part of the reason this happens is because getting money and keeping money are two different skills.
Getting money requires taking risks, being optimistic, and putting yourself out there.
But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.
For some clients, they are naturally on the risk averse side of the spectrum. For these clients to move forward in wealth building, they may need to be nudged a bit toward taking healthy risks (ie nobody ever got wildly rich investing in bank C.D.s). For others (business owners and entrepreneurs) who are more natural risk takers, they need to be reminded that future success isn’t guaranteed, liquidity is important, and diversification is your best friend.
What side of the spectrum do you fall on? Do you need help in taking risk to accelerate your wealth building? Or do you need help in reducing risk to make sure you don’t lose your wealth?
The article details a few people who have earned huge sums of money only to lose the wealth later. The article/excerpt can be found here: https://collabfund.com/blog/getting-wealthy-vs-staying-wealthy/
And Housel’s book, The Psychology of Money, is here: https://www.goodreads.com/book/show/41881472-the-psychology-of-money