If I have one rabbit, I could sell it for $5. But if I've got two,... well, that's a whole other story. My rabbits can now earn money for me because rabbits make more rabbits. That's the simple idea behind investing ` your money goes off and makes more money with other people's money, giving you much more than you started with. You don't have to do anything; it's money making money, and it's really important. In this episode, we'll look at what your money personality wants to do when it comes to money making money. Are you prepared to take huge risks and put it into something like Bitcoin or do you wanna take no risk at all, maybe just keeping your money hidden under your mattress? (UPBEAT MUSIC) Copyright Able 2018 We've used scientific studies and our own research and discovered four key money personalities. The Power Spender, who reacts to money in an emotional way and gets a dopamine hit from buying stuff. For the Security Saver, money can make them feel safe. They're more likely to have put something away for a rainy day. The Sociable Sharer uses money to have a good time with people. They're the kind of person you want as your best mate. And the Freedom Seeker sees money as a way to independence. For them, it's all about having new experiences. But all of our money personalities, at least in New Zealand, are pretty scared of risk. And the word investment itself scares some people. I want to find out exactly why we don't like investing. So, welcome to our little money-making investment game. Here's basically how it works. You invest $10 with me, which buys you into the scheme. So I'll take the 10. Nice. You then choose a box. There are five boxes. The five boxes all have different stuff in them. You could get slime. Non-toxic, very safe. That's the worse-case scenario. Cool! I love slime. OK, so you're happy either way. You could get $5, $10, $20, $50 or $100. OK. So for a small investment of $10, there is risk; you could lose it, or you could win big and pay out 10 times what you invested. I don't know which one to pick! You have doubled your money. That's pretty good. You came out even. You didn't lose any, you didn't win any. I wanna go with that. You wanna go with that one? I wanna go that one. I'm going in the middle. Whoo! Bad news. Oh, it's slime! For anyone else, this would've been a disaster, but you are thinking, 'This is the best thing ever. I've got a small bowl of slime.' Oh, mate. 100 bucks. There you go. That's a 10 times return on your investment. That's awesome. (GROANS) LAUGHS: I got the slime. Ohh! You know all those other investment kinda strategies that people talk about, does that feel like it's a bit like this, a bit like kinda gambling? Mm, yeah. No, it feels like gambling, cos you might not win, kind of thing. Do you invest in your own life? Not a great deal. Why is that, do you think? Safety, conservatism. I'm always looking and thinking I should do something that's getting a bit more money. Right. Not making much a year. We've invested money in land, obviously, when we bought our house. Yep. And that's so far paid off. Do you invest money in your everyday life? Uh, property. OK. And my husband's into doing Bitcoin. Oh, right. We negotiated only $500 that we would be prepared to lose. Right. So you do invest and you are quite happy with a fairly risky strategy because it could pay off? As long as you're comfortable to lose. That was my caveat. And that was a nice game. My husband said today, 'Don't spend any money while you're out.' Well, you didn't. You made money. Made money! You actually made money. Investing isn't actually like this game; it's not chance. But for a lot of New Zealanders, it does feel exactly like a lucky dip. People don't like talking about money, especially on television, so these are the words of a real person but delivered by an actor. And action. I have no investments at all. I just think it's too risky. When I was 15, I had $500 in savings. I've been a Security Saver my whole life. And my grandad told me that there was a better place to put that money than in the bank ` I should invest it in shares. He told me it was really safe and I would make tons of money if I put it in Blue Chip shares. So I did. I put all my savings into these shares. This was in 1987. One month later the share market crashed, and I think my $500 was now worth something like 50. It was pretty devastating, but I started saving again, and keeping my money safely in the bank. In my 30s, I was at a dinner party and I was talking to this really rich guy. I said to him, 'I've got the feeling that the share market is kind of like a flock of birds. 'And if someone claps their hands, everyone just flies away.' And he said to me, 'Yeah, it's a bit like that.' And I was like, 'I knew it!' I don't know if it is true, but it definitely didn't make me any keener to get into shares. Getting your money to make money can be scary for all the money personalities. But there may be some ways to make your particular money personality feel a little bit more relaxed about investing. A Power Spender might enjoy shares ` getting amongst the market, buying and selling, perhaps even enjoying buying some big-brand shares. A Sociable Sharer, who's motivated by love and generosity, might pick an ethical mutual fund that makes them feel like they're helping the world. A Security Saver would probably find it safer to put their money into property. If things went pear-shaped, they've still got somewhere to live. And a Freedom Seeker might go for a higher-risk option on the basis of bigger rewards. They might wanna invest in a start-up business or even start one up themselves. Or maybe, like Liesl, they go for high-risk, like Bitcoin. I'm definitely driven by freedom when it comes to money. I love to travel, and I want to be able to see the entire world and to work from where I choose to, or to choose not to work. My parents were always quite wise with money, especially when I was younger. So, I was taught that money is more about enabling yourself to have freedom and a lifestyle rather than something that you should be holding on to for dear life. For Liesl to achiever her freedom-seeking dream, she's prepared to take some big risks to get there. I lost a third of my money in the past 36 hours. (CHUCKLES) Liesl puts all of her money into cryptocurrencies like Bitcoin and Ether. $31.50 altogether. Can I pay with Bitcoin, please? Yeah, of course. But some of us still aren't sure what cryptocurrencies are. Cryptocurrencies are a new form of money that are issued by computer code instead of by governments. The philosophy started out as being all about peer-to-peer electronic cash. People have moved away from that and are now referring to Bitcoin as digital gold. Why did you become interested in cryptocurrency? Initially, I became interested in cryptocurrencies mostly because of the academic side. I was very interested in how they worked technically and how they worked under the hood. And as I got more involved in them, I decided I should put my money where my mouth is. To be honest, there aren't too many places where you can pay in bitcoin yet. Liesl thinks there's a future in cryptocurrencies, but she does have a few warnings for others. I started out about a year ago with a few thousand dollars to my name that I'd saved up from university. And I decided, well, I'm starting from basically zero anyway, so I'm going to go all in. And I'm prepared to lose everything because if I can start from zero a year ago, I can start from zero today. I've learnt that if you're expecting high returns, then you're going to have to take a lot of risks. And I've learnt that that is gonna backfire probably more than one might expect. If somebody's trying to create security for themselves, then something that's low-risk and low-return would be a lot more sensible. Making money isn't really what it's about. It's more about getting involved in something that could potentially change the world. Liesl's freedom-seeking ways might not be for other money personalities ` and it might be because some of us really focus on the negative. And we meet a guy who might have some of the answers when it comes to investing. * (RELAXED MUSIC) Are you into investing? (SIGHS) No, I'm not into investing at all. I've tried. I have my cranked up to 8%. I also have a share trading account. Had a mortgage once and felt like that was an investment. To be honest, I don't really understand how it works, so it more scares me than other things. I think I'm not... smart enough yet to spend money in investing. The reason I'm thinking is because I'm more, like, spending money towards myself. Humans can often focus on the negative. We ignore all the nice things that people say about us; instead, we think about the one mean comment from @madvlad83, who said, 'Latta's weird Kermit the Frog voice makes me want to cut off my ears.' From an evolutionary point of view, focusing on the negative makes sense because back in the day the negative things weren't tweets, they were tigers. And tigers don't call you names, they actually eat you. But what does this focus on negativity ` just thinking about the bad outcomes ` mean when it comes to investing money? Let me show you. In 1987 we had a share market crash, and in 2008 the Global Financial Crisis. People on the news and people we know always seem to be talking about how another crash is coming. So I've created three fake graphs to put alongside the real New Zealand share market graph to see whether people know how the share market actually behaves. These are four graphs of the performance of the New Zealand share market since 1930. So which one do you think is the real one? It's actually C. But if negativity bias is a real thing, then people should pick A, B or D. These are our four graphs. Three of them are fake; one of them's real. Each of them showing the performance of the New Zealand share market between 1930 and 2018. Which one do you think is the real graph? I'm really wishing I paid more attention in economics now. So you think D? It's actually C. Oh! I would think it would be D. Really? Yeah. Interesting. I'd say D. D? OK. Close. It's actually C. That one's a pretty straight upward graph, right? It's just going up. Whereas that one looks like there's a lot more ups and downs. So that one feels more right. Well, that's... Yeah. It felt like the big drop. Negativity bias is at work if we think a bad thing was a lot worse than it actually was. So you're completely right, there were big dips, but they weren't as big, and it kind of kept growing. Does the share market seem like it's very volatile and up-and-down? In the last 10 years, yes. I would not stay on the share market on a long-term basis. And the interesting thing is that's the actual graph. So in reality, it is volatile and it is risky, but over the longer term the trend is constant and upwards. If you've got plenty of time, I think you'd just stick it in there and leave it in there. Yeah, it's a long-term game. And over the long term, it does look like you win. A lot of people did choose the right graph. So looking at those four graphs, which one do you think is the correct one? I'd choose C. OK. I'm gonna go C is real. It is C. Oh! Don't really have a clue with financial side, but I think C looks the most standard. So it actually is C. It is C? It is C. For some it was just a guess. But others had inside knowledge. Do either of you invest in the share market? Yes. Ah, OK. So you do? I was an accountant. Ah. Would you invest in the share market? Depends on what I'm actually getting involved in. But even when they can see that the share market has continually grown over the years, negativity bias still kicks in for some. If you had some spare money, would you put it in the share market? No, I find it quite risky. Would you personally invest money in the share market? No. The actual data says that since the 1930s it's been growing steadily. Little dips here and there, but it's been growing steadily. Yeah. So what is it that makes you hesitant? I think there's always just that little bit of just hesitation in getting involved in the share market. Like, there's quite a bit of risk. I think everyone's still got that doubt in the back of their mind. Negativity bias is one of the strongest factors in our fears of investing. And there's only one solution ` we must value facts over feelings. Eric is a Freedom Seeker who's used the share market to get to the point where he no longer has to work. How did your childhood contribute to your thoughts and feelings about money? When I was young, I just felt very trapped. I'm guessing a lot of people feel trapped in the situation that they're in. There might be financial issues, there might be family issues. And you don't know how to get out. There's no road map, and you feel very scared, you feel very trapped, and it's suffocating. And so money or financial independence was a path out. He can now focus his energies on things he really wants to do, like playing the piano and working with charities. So, Eric, how did your journey to investing begin? I discovered early on that while money can't buy happiness, it can certainly expand your universe and allow you to do things that you couldn't do before. First thought I had was, 'I wanna buy a car.' And so I started mowing lawns and started saving up some money and bought a car. And once I had a car, I got a few other jobs and I was able to save up more money and continued that path towards starting a business. How did you learn to become an investor? Where did you learn all that stuff from? I bought 300 shares of a company that should not have been selling shares when I was very, very young. And so you could chalk it up to a really bad investment. And I don't see that as a failure. It failed as an investment, but it was a learning experience. And what it taught me was to do research. What about risk? What's the balance of risk to reward when you're investing? There are three times that I can remember where I lost over $10,000 in investments. And those were very, very good learning experiences for me because I wasn't able to sleep at night. And there were maybe 40 or 50 other times where I didn't lose money. But those three were more powerful than the 50. And so it's important to use those to learn about your risk tolerance, because even if you are madly successful and you make a ton of money, if you can't sleep at night, if you're not happy, if your family life goes down the tubes because you're out of your risk zone, it's not worth it. What would you say to someone who feels like they've literally just got enough to cover their bills? Maybe they're not even covering their bills. How do they begin to even start thinking about investment? You could start with $10. And even if you're only going to make $10 a year investing that in the bank or investing it in a stock, that's $10 more that you have to pay your bills. And that's what investing is. Eric has got the life that he dreamt of. But how do we get there? Is there a secret to becoming rich? And also, we put all our eggs in one basket. * How much risk is your money personality prepared to take on? If you want to invest, there's always an element of risk. We're gonna see what happens when people take on different levels of risk. All right, so, at one level, quite simple. We're gonna get you to transfer 50 eggs from one basket into another basket 20m away. But a little bit of a twist based on your money personalities. Our Security Saver, who's that? That's me. All right, so you get the very safe but dependable one-egg-at-a-time spoon device. That'll get you there. Thank you. Our Sociable Sharer? Me. Cool. So, you get the tongs. You could get as many eggs as you like in there. Could be a few. Slightly more risky. Here you are. Thank you. Who's our Freedom Seeker? Me. So, you get the biggest-risk egg-transferring tool, cos Freedom Seekers are into fun and good times. And so you carry it on your head but with no hands. OK. It's surely gonna end well (!) Which must make you our Power Spender. So, you get the large, flat oven tray. There's heaps of power in terms of egg transferring, but also a little bit of risk there as well. So I shall give you this and get you to head off to the start position. Thank you. And we'll sort the eggs out. All right. We've all got our egg-carrying instruments. Just remember, fastest time, most eggs, gets $100. And there is a three-second penalty for every dropped egg. I'm now gonna step back to a safe distance. Go. High risk can equal big losses, but it can also equal big rewards. Heather the Power Spender's big risks seem to be paying off. Allan the Freedom Seeker wins. He got a lot of penalties from all the broken eggs, but not enough to knock him out of first place. You lost a few eggs. It wasn't pretty. So, the theory is that Freedom Seekers are drawn to high-risk, high-return investment strategies. Do you invest in your everyday life? Uh, no. But if you did...? Probably something not as risky as eggs on the head. Something that has a decent return. Allan the Freedom Seeker had a high-risk operation going on. There was a good chance he was gonna lose everything, which he did ` several times. That's what can happen with high-risk-takers. They can go bankrupt, but they can also become millionaires. Heather the Power Spender comes in second. Yay, finished. Michela the Sociable Sharer is losing quite a few eggs. You came third. Right. So there was some risk involved in the strategy that you used. Do you invest in real life? Other than having a mortgage, house, no. How would you define your approach to risk? I take some risk, probably not high risk. Not entirely risk-averse. So how do you like to spend your money? Probably on my kids and going out with friends. Adam the Security Saver got all of his 50 eggs safely into the basket, although he was in last place. But your eggs were in the best state at the end. Yeah, slow and steady wins the race on that one. And so do you invest in your actual life? Uh, yes. And do you go for low- or high-risk investment strategies? Definitely low-risk. And why is that? Just on the safety side of things, basically. Just err on the side of caution. I won't draw too many conclusions from the results of the race; just the one simple fact ` big risk can equal big reward, and little risk often equals small rewards. But can you get rich without risk? Diane Foreman started off life with no money. Her parents weren't rich, and for a while she was a broke solo mum. Now she's a multimillionaire. So how did she do that? Is there a secret to getting rich? So, Diane, what does money mean to you? Choice. The ability to choose what I want to do with the rest of my life. You've travelled all around the world, talked to lots of wealthy and successful people. Do you think that people who are very wealthy and people who aren't think about money differently? No, I don't. I think it doesn't matter how much money you've got, it's what's in your soul, it's who you are. You're either a saver or a spender. Myself, I am definitely a saver. Despite being successful, I still agonise over buying a pair of shoes because I'm such a saver inside my soul. Do you think there is a secret to becoming wealthy? Look, it sounds really trite, but it is just hard work. The harder you work, the more successful you are. It's just being prepared to work the 20 hours a day, it's just being prepared, when all your friends are out having a great time, and you're sitting at home and you're just making it happen. I think it's always slightly disappointing for the rest of us` I wish I could make it easy for you! 'What's the real secret?' But it does seem like you're saying it's just hard work. Warren Buffet, a very rich man, once said that if you can't find a way to make money while you're asleep, then you'll be working until you die. Which means you have to find a way for your rabbit to make other rabbits. Now, if you try and avoid all risk, then you probably won't make a lot of money but you may not lose a lot of money. And if you go for high risk, then you might make loads of money, but you could also lose loads of money. So how many rabbits will you have when you wake up tomorrow morning ` just the one or the beginnings of a rabbit empire? Captions by Tracey Dawson. www.able.co.nz Captions were made with the support of NZ On Air. Copyright Able 2018