How Giving Affects Your Ability to Make Good Investment Decisions

I’ll begin this article with a little bit of Christmas in July. Some of the most popular stories told during the holiday season are various renditions of Charles Dickens’ tale, “A Christmas Story.” As you’re probably aware, the main character–Ebenezer Scrooge–begins the story by living his life and a very stingy manner. He usually makes money by cheating and exploiting his customers, and he vehemently refuses to give anything whatsoever to charity. He is a miser and, we are told, that is how he both becomes and remains so wealthy.

We tend to see many wealthy individuals in our society today as modern day Ebenezer Scrooges. We look at executives at successful companies and think that they must have cheated people to get where they are, and the last thing they would do now that they’re rich is give any of their money away. That is, after all, how the rich view their financial resources, isn’t it? As rare, precious gems are to be guarded and kept away from others.

The reality is that, as a general rule, the more wealthy people are the more money they tend to give away. As of 2012, Bill and Melinda Gates have a net worth of about $75 Billion–had given away $28 Billion. Likewise, Warren Buffett, has a net worth of roughly $60 Billion–had given away $25 Billion as of 2012. If you ask any non-profit or charitable organization, they’ll probably tell you the same thing. Whether the organization is global or local, the bulk of the contributions come from wealthy philanthropists who give on a regular basis. Without the rich, most non-profits wouldn’t even exist.

So, here is the takeaway: giving is a necessary ingredient to a healthy financial lifestyle. As an investor, you will be most successful if you incorporate an element of giving into your financial plan. If you just look at the raw numbers, you’ll see that it’s true. The most successful are, more often than not, the most generous. But, why is this the case? Wouldn’t a propensity toward giving money away make people less wealthy? Not exactly.

What we often fail to consider is what happens to our brains when we give. When we keep all of our money locked away, we send the signal to our brains that the world works on the principle of scarcity. There’s not enough to go around for everyone, so we’ve got to keep what we have and–if possible–take what others have as well. When we give, we send the opposite message to our brains. We tell ourselves that there’s plenty to go around. We tell ourselves that we live in world of abundance.  It is not only possible to take a bigger piece of the pie but it’s also possible to bake a bigger pie.

As investors, we want to have an abundant mindset. That’s what investing is all about: wealth creation. It’s not about taking from others, it’s about getting back a little more than you put in all the while making everyone else richer. Investing, in many ways, is at its core an act of giving. If you would like any help as to how you might go about incorporating investing into your financial plan, please reach out to us for a free consultation. We would love to help you see how becoming a better giver will ultimately make you a more successful investor.