The Five Golden Rules

We live in an impatient age, and when it comes to money we want more of it now, today, not tomorrow. Whether it’s a deposit for a mortgage or cleaning up credit cards that drain our energy long after we stop enjoying what we bought with them, the sooner the better. When it comes to investing, we want quick picks and quick returns. Hence the current mania for crypto-currencies. Why invest in nanotechnology or machine learning when Ethereum is locked in an endless upward spiral and Bitcoin is the gift that keeps on giving?

A century ago, the American writer George S Clason took a different approach. In The Richest Man in Babylon he gave the world wealth – literally – in financial principles based on things that seem old-fashioned today: caution, wisdom and prudence. Clason used the wise men of the ancient city of Babylon as spokesmen for his financial advice, but that advice is as relevant today as it was a century ago, when the Wall Street Crash and the Great Depression were looming.

Take for example, the five rules of gold. If you’re looking to put your personal finances on a good footing, no matter where you are in life, this is for you:

Law No1: Gold is happy and in increasing numbers to anyone who puts at least a tenth of their income to create land for their future and their family. In other words, save 10% of your income. Minimum. Save more than that if you can. And that 10% isn’t for next year’s holiday or a new car. This is for the long-term. Your 10% can include your pension contributions, ISA, premium bonds or any type of high interest/restricted access savings account. OK, interest rates for savers are at historic lows now, but who knows where they’ll be in five or ten years? And compound interest means your savings will grow faster than you think.

Law No2: Gold works diligently and contentedly for the wise owner who finds a profitable job for it. So, if you are looking to invest rather than save, do it wisely. No crypto-currencies or pyramid schemes. We focus on the words “profitable” and “employment”. Make your money work for you but remember the best you can hope for on this side of the rainbow is consistent returns over the long term, not lottery wins. In practice this probably means shares in established companies that offer a regular dividend and a steady increase in share price. You can invest directly, or through a fund manager in the form of unit trusts, but before parting with a penny, see Laws 3, 4 and 5…

Law No3: Gold clings to the protection of the prudent owner who invests in it under the advice of the wise to manage it. Before you do anything else, talk to a qualified, experienced financial advisor. If you don’t know, do some research. Check them out on the internet. What are their skills? What kind of clients? Read the reviews. Call them first and hear what they can offer you, then decide if a face-to-face meeting will work. Check out their commission arrangements. Are they independent or tied to a particular company, under contract to push the company’s financial products? A decent financial advisor will encourage you to get the basics in place: pension, life insurance, a place to live, before guiding you to invest in new markets and space travel. When you’re satisfied that you’ve found a counselor you can trust, listen to them. Trust their advice. But review your relationship with them at regular intervals, say annually, and if you’re not happy, look elsewhere. Chances are, if you make a good decision in the first place, you’ll stick with the same advisor for years to come.

Law No4: Gold will disappear from one who invests it in businesses or purposes that they are not familiar with or do not approve of those skilled in its storage. If you have deep knowledge of food marketing, by all means invest in a supermarket chain that increases market share. Likewise, if you work in a company with an employee share ownership scheme, it makes sense to take advantage of it, if you are sure that your company has good prospects. However, you should never invest in any market or financial product that you do not understand (remember the Crash!) or cannot fully research. If you are tempted to try your hand at currency dealing or options trading and you have a financial adviser, talk to them first. If they are not fast, ask them to refer you to someone who is. Above all, avoid anything you’re not sure about, no matter how big the potential return.

Law No5: Gold flees from one who seeks impossible earnings or who follows the tempting advice of frauds and deceivers or who relies on his own inexperience. Again, the fifth law follows on the heels of the fourth. If you start scouring the internet for financial advice and wealth building ideas, your inbox will soon be full of “swindlers and scammers” promising you the land if you invest £999 in their “system” for turning £1 into £1XXXXXX on the Chicago Mercantile Exchange. Remember, the only one who makes money in a gold rush is the one who sells shovels. Buy the wrong shovel and you can quickly dig yourself into debt. Not only are you paying through the nose for a system that has no proven value; by following it you will probably lose more than the price you paid for it. At the very least you should check for genuine product reviews. And never buy any system, investment vehicle or financial product from any company that is not registered with a national watchdog, such as the Financial Conduct Authority for the UK.