My old man has a few sayings. My favourite is ‘If you ask stupid questions, you get stupid answers’.
A week ago, a client of mine in her mid-30s – let’s call her Helen – asked a rather simple question that I initially categorised as stupid. It wasn’t until I took a moment to reflect that I concluded a legitimate answer was warranted.
“Sam, I have $5,000, how do I turn it into a million dollars?” she asked.
Ambitious yes, stupid no.
Replying with “sorry, I’m afraid that is not possible!” was not only a cop-out, but technically false. She was inspired by the founder and creator of Spanx, Sara Blakely, who turned her $5,000 into a billion dollar international company in 13 years. For those uninitiated, Spanx is a manufacturer of pantyhose and other undergarments for woman, specialising in body shaping. I contemplated my response and emailed her my answers after categorising them into two sections: Stupid and Sensible.
Marry Rich (Stupid)
Reward – Divorce and get half (disgusting, I know) or eternal happiness
Risk – Lose 100% of your capital; stuck with a mother-in-law from hell
Time Frame – Medium to long term
Females have a distinct advantage when it comes to this option. The strategy is simple enough; spend the whole $5,000 on outfits and then go on the lookout for a few single rich blokes. Assessing their financial position is more of an art than a science, so try not to give the game away. Depending on luck and suitability, your assets can inflate exponentially in 6-12 months. As my late grandmother used to say “Ehi Prika?”.
Gamble (Stupid)
Reward – $1.28 million after 8 successful bets
Risk – Lose 100% of your capital
Time Frame – Short term
Not a path I would personally go down, but an option nonetheless. Choose a few sports to gamble on and hope that Lady Luck gives you a few kisses. Let’s assume each bet has odds of 2-to-1, that is, every $1 you gamble, you get $2 in return, if successful. Her initial $5,000 can turn into $10,000 after one successful bet, then $20,000 after two, $40,000 after three and so on. She ends up with $1.28m after 8 successful all-in bets and here’s the best part, no mother-in-law. However, if one bet goes the other way, it’s all gone, including her initial $5,000. Alternatively, $5,000 can get you 418 Lottery Quick Picks. I won’t go into the odds.
Start a Business (Sensible)
Reward – Limitless, depending on success of the business
Risk – Lose capital and time
Time Frame – Long term
Try to replicate Sara Blakely’s success. Each and every day, ordinary people do extraordinary things because they are passionate about what they do, get their hands dirty and believe in themselves. It won’t make you a millionaire overnight, or in 12 months, but if you work hard enough, and your good or service is worth its salt, you will be well on your way. Building an asset for yourself while doing what you love is the way to go.
Invest in the
Stock Market
(Sensible…and my favourite!)
Reward – $1 million plus
Risk – Lose part or all of your capital
Time Frame – Medium to long term
It can happen and it has happened. When you buy shares, you become a part owner of a company. So instead of starting your own business, you can invest in somebody else’s idea.
Identifying the opportunity is difficult, refraining from selling after you have doubled, tripled or quadrupled your money is even more so. In order for $5,000 to turn into $1 million, a return of 2000 per cent is required.
Fortescue Metals, an iron ore company, has increased 20,489 per cent since 2003. $5,000 invested then translates to $102.4 million today. Not bad at all. Had she invested the $5,000 in uranium player Paladin Energy between 2003 and 2007, it would have ballooned to $7.25 million.
The answer to her question is finding the 13th stock belonging to that list…and that is what I’m here for.
Sam Fimis is a private client adviser with Patersons Securities and author of Premiership Portfolio: 6 Step Guide to Investing in the Stock Market. For more information, visit www.premiershipportfolio.com