Money Lessons From The Melbourne Cup

It’s Melbourne Cup time again, which means millions of Aussies will be putting their betting skills to the test next Tuesday hoping to win big.

Unfortunately, the average punter isn’t going to walk away with anything close to the $3.6 million the winning horse will take away. In fact, chances are most people will be waking up to an empty wallet on Wednesday (and probably a sore head, too).

Now, we’re not saying don’t have a flutter next week; it’s one day, once a year, and in most cases it’s a bit of harmless fun. But when it comes to more important financial decisions, taking the same cavalier attitude could land you in a bit of strife.

Win or lose, here are three real-life money lessons you can learn from gambling on the Melbourne Cup.

1. Live within your means

It’s easy to get caught up in the excitement of Cup day. It’s the race that stops a nation and there’s something in the air: specifically, a chance to get off work early, have a drink or two and maybe even strike it rich.

But if you get carried away and the tealeaves don’t fall favourably for you at 3:00pm, then you could lose a lot more than you bargained for, and more than you can really afford. Hello, regret.

It’s the same when it comes to other money decisions. Racking up massive credit card debts, borrowing too much to invest in the next big thing, or just generally not being smart about how you spend is an accident waiting to happen.

Luckily, there’s a simple solution: have a budget, spend less than you earn, and always pay your savings first.

Need help saving on a salary? Here’s the Golden Rule.

 

2. Diversify

It’s so tempting to bet it all on one horse.

You know, the horse with the great name that you read a glowing report about in the paper on the weekend, and the bookies have priced at surprisingly long 15-1 odds.

But really, those odds are stacked heavily against you. 24 horses will start next Tuesday, and how a horse performs on the day is impacted by everything from their training regime to how they felt when they woke up in the morning. Picking a winner in the Cup is notoriously difficult.

It’s the same in investing, too. Just like putting all your money on one horse is a huge risk, so is investing everything in one company, industry or market.

Diversifying investments across a variety of low correlated assets is one way to spread risk, so if one company falls over and doesn’t cross the finish line (so to speak), it won’t bring your entire portfolio down with it.

3. Do your research before investing

For most people in this country, the Melbourne Cup is one of the only times of year they pay attention to the world of horse racing.

Unfortunately for them, it’s also one of the only times of year they decide to bet their money on the outcome of a horse race.

However, a select few have an inside edge. They do their research, scour the form guides and understand how things like the condition of the track or the temperature on the day could affect the outcome.

While no one has a crystal ball, these professional punters have an informational advantage and make more informed betting decisions than your average Joe. The best Joe can hope for is to get lucky, have a free night out and have a great story to tell his mates.

It’s the same when choosing investments, or buying assets like property, too. Sure, it’s possible to pick a winner on luck and luck alone.

But in the long-run, investors who make a considered investment decision, look at an asset’s long-term prospects and weigh up the associated risks, will win out in the end.

Pic: Henry Ruuskanen via flickr.com