Just stick to these three basic rules and you’ll get rich slowly

I was at a conference last week and the guest speaker was a well published author on the topic of Behavioural Science. Wait! Don’t swipe me away just yet – this is an extremely interesting topic that effects all of us and I’ve no doubt will save you money if you’re a saver or investor. 
Behavioural Finance or Behavioural Economics is defined as “a method of economic analysis that applies psychological insights into human behaviour to explain economic decision-making”. Stay with me. You’ve probably come across the terms “herd mentality” or “peer pressure”. This became evident and probably peaked all around us in Irish society about 10 years ago just before the financial crisis.

Remember the pub stories back then where it seemed like everyone around you had just updated their car, had a second property rented out and were taking about 3 holidays each year? The size of your mortgage became a badge of honour and you had decided to buy heaps more bank shares because your bank manager told you nothing could go wrong. This was the Irish version of herd mentality and in basic terms it’s when people feel no fear, stop doing their homework on anything they invest in and believe just about everything they hear. Believe me it does take a very strong-willed person to go against the herd and you will usually look like a fool in the middle of the madness until eventually you may be proved right.
Apologies if I brought back any painful memories there while I painted that picture but following the crowd is never a sound investment or saving strategy. Just because everyone else is doing something doesn’t make it the correct course of action. Actually, without a shadow of a doubt one of the most opportune times to invest in my generation was just after March 2009 when Lehman’s and Bear Sterns banks had collapsed in the US and the financial crisis was at it’s worst. Most global stock markets have more than doubled since then and so too have many other assets such as property. Yet back in mid-2009 if you’d suggested to most people that now was an ideal time to put your money to work you would have been marched off to the asylum. 
So, I listened closely to my behavioural economist last week closely as he stated the 3 basic rules to follow to long term wealth, while making sure you completely ignore what the herd are up to. 
 

Rule 1 – Realise that you must put your money to work to generate a return. Leaving your money on deposit or in a low yield environment will not generate a return in the long run. There are various levels of risk so you just choose the one that most suits you and then put your money to work.
 

Rule 2 – Realise that any single asset or investment that you put your money into can go to zero and stay there! The lesson here is simply to diversify and not invest your pot in only one thing, i.e. not all your eggs in one basket.
 

Rule 3 – Once you’ve made your investments (with professional advice of course) then just leave it alone and don’t tinker with it. In other words, stop trying to think you know better than compound interest and can predict what will happen next, just look away and let your money go to work.
The rules seem simple but over the long term they absolutely work, regardless of the size of the pot of money. Investing is simpler than you may think but you do need to start out with a plan and, more importantly, stick to it.