Making hay on rainy days

We live in shaky economic times and, as recent events in Christchurch and Japan have shown, the very earth beneath our feet is unstable. Julia Proverbs explores the best ways to build wealth in an uncertain world.

Want to get rich quick?
Well, here's the bad news - it's not going to happen.
Not unless you win Lotto, inherit a castle from a long-lost relative or marry someone who's loaded (and even then a watertight pre-nuptial contract could put paid to your cunning plan).
Because most wealth doesn't come overnight. It's accumulated through lots of hard work.
The good news is, though, that if you are prepared to be frugal, put in the hours and take some calculated risks, you might just be able to make your millions.
There are three ways to get rich, says Andrew Davis, an investment adviser with Forsyth Barr in Tauranga: start your own business, earn a high salary or get lucky.
"When you own your own business, with no employer dictating to you, your earning power is unlimited," Davis says. "Your effort and ability to pick the right business dictates where you end up."
And if you want to earn a high salary, education is the key.
But even an "average Joe" can make it with prudence.
"If you are a salary-earner, don't go out and spend it all," advises Davis. "You have people even on modest salaries who end up becoming rich because they never spent, they saved.
"If you want to be rich one day, take your lunch to work, ride the bus, live at home and save, save, save."
Max Mason, chief executive of the Tauranga Chamber of Commerce, says the chamber fields 15 to 20 enquiries a month from business hopefuls.
"There has been an increase in start-up enquiries," Mason says. "When the economy is going through change, you get more start-ups. There's lots of change going on right now. Sometimes people are forced to start a business through redundancy. And some people just don't want to be employed."
However, not all see the light of day.
"Sometimes it's the best thing to persuade people not to do it," he says. "They are real dreamers and don't have the stickability and hard work."
Those who make it to the big time are those who have good judgment and are prepared to work hard.
"If someone doesn't have good judgment, they won't be successful in anything. I don't mean intelligence. Good practical, pragmatic decision-making based on facts. Knowledge of your sector. Being able to get things done through people. Good leadership.
"It's about knowing what you do well. A lot of people don't know what they do well. Bob Clarkson, for instance, knows industrial property really well. He has stuck to that and done extremely well."
Focus is the other key.
"In all human endeavour, there is one characteristic that is associated with success and that is incredible focus," Mason says.
"One of the things we really try to stress is to do a spreadsheet, get all the figures down, do all the costings. People overestimate what they are going to make and underestimate the costs."
It is also really important that aspiring entrepreneurs have a sound knowledge of their chosen industry.
"For those who ... just jump in without experience and planning, the failure rate is really high.
"Learn as much as is humanly possible about [your chosen industry]. You are much more likely to succeed. It's all about preparation and hard work."
Millionaire and former MP Bob Clarkson is definitely of the hard-working persuasion.
"Paper-shufflers are a blight on society," he says contemptuously.
"People who buy forward and bet on the exchange rate are paper-shufflers who get rich through someone else's misfortune. I'd rather get rich and leave a legacy."
His mantra for success is work, work, work. And save, save, save.
"I used to do 118 hours a week. If you're working, you're not spending. And have a dream," he advises.
"Even if you're only working 40 hours a week, put $20 away a week and at the end of three years you will have $3000 in the bank earning interest. Stick to it."
Clarkson accumulated his wealth through industrial property - in his words: "Building buildings and renting them out at affordable rates."
For those who want to follow in his footsteps, the blueprint he gives is this: save regularly, buy a small industrial building and plan to keep it long term. Once you've got on top of that, buy a second building. And so on.
Never buy a house first-off, unless you are unable to get a loan for an industrial building. In which case, pay it off as quickly as you can, then sell it and buy an industrial building.
"The return on a house is just 2-4 per cent, whereas the return on an industrial building is around 10 per cent," he says.
"Climb one step up the ladder at a time. Too many people take two to three steps at a time and fall back five. Plan and make sure it's going to work. That's more important than anything."
Clarkson says he sometimes gets high school students calling him and telling him how they are going to be millionaires by the time they are 25.
"You don't plan to become a millionaire, you plan to make money," he chides.
"Don't go into it trying to make millions of dollars, because you will fall on your nose. It will come because you work hard and keep to a timetable."
The belief that luck is born from hard work is a bit of an in-joke among those who have made it into the millionaires' club. Because even the man who comes up with the widget has to design it, market it and grow his business successfully. An idea remains just that - an idea - until it is put into practice.
"It's definitely not luck," says Cameron Watson, director of private wealth research at Craigs Investment Partners.
"Luck comes with it, but it comes to those who work at it."
High-rollers are risk-takers, but smart with it.
"They understand whatever it is ... when a price is good they take it," Watson says. "They don't just do what everyone else does. They are risk-takers, but they are a bit more astute than that. Anyone can be a risk-taker.
"[High-rollers] know how to manage risk. It's very difficult to step out of the square and buy a property or a business when no one else wants it and get it at a really good price and see the potential.
"Price and timing matters. It's the old adage 'buy in gloom, sell in bloom'. For example, Warren Buffett, during the global financial crisis in 2008, invested US$20 billion in shares. Everyone thought he was mad and that money eventually doubled.
"I'd argue it's riskier to do when things are going well. That's the irony of investing - when it feels wrong, it could be the right thing."
Most of those who have accumulated a "good amount" of capital have avoided financial disaster, says Watson.
"When you think about building wealth ... think about growth assets, real stuff. Farms and businesses, property. They are all risky, but they all have the potential to grow. Something that can grow with the economy as opposed to putting money into a savings account where inflation is your enemy. It's about using inflation, getting on the same side as inflation.
"And focus on cash flow, assets that generate cash, a business that generates a good profit, as opposed to land that's not doing anything. Businesses are riskier than property, but often have higher returns. Both are reasonable value. You can find some pretty good bargains out there."
However, in the current economy people are focused on protecting what they have, says Watson. The key is to diversify. Or, in layman's terms, don't put all your eggs in one basket.
"Boring's good sometimes when looking after money," Watson says. "You don't want excitement when things are going wrong in the world.
"Some people pooh-pooh diversification by saying it's for people who don't know what they're doing, people trying to cover their butts. Yep, it is.
"You don't know what will happen tomorrow. It's a very uncertain world out there. People are feeling that at the moment. It highlights the uncertainty we have as investors. Really bad stuff can happen - be protected against it."