You’ve all seen the ads, “Get rich quick!” The implication is that, with little effort or investment, you can become wealthy overnight.
Not so fast.
In life, patience is a virtue. In building wealth, it’s an absolute necessity! It means starting early (so time is on your side), investing as much as you can (so you have more money working for you), and adopting a globally diversified, long-term strategy (so you avoid the pitfalls of market timing). Most studies show that the average investor loses about two percent (2%) per year to lousy timing decisions! That’s a wealth destroyer you’ll want to avoid.
Bear in mind that a key component in this process is TIME. Inexperienced investors often succumb to get rich quick schemes and hot stock tips. They buy at the top, after the big gains have already occurred and just before the stock plunges. However, just because a stock or a mutual fund had a great run last year doesn’t mean it will have a repeat performance again this year. In fact, often last year’s biggest winners become this year’s biggest losers because they became overpriced.
Here are some smart tips for investing wisely and growing your wealth patiently:
- Regularly invest in a diversified, long-term strategy rather than chase yesterday’s winners or engage in market timing. Begin by establishing an automatic monthly investment program as soon as you receive your first paycheck.
- Resist taking more risk after strong market gains and taking less risk (panic selling) after major market losses. Remember, it’s “buy low, sell high” not the reverse! Understand that markets peak when the economy is great and they trough when the news is bleak.
- Avoid overly concentrating your investments in a few stocks or market segments (e.g., technology). The market has a ruthless way of humbling the overconfident investor!
- As a rule of thumb, no stock should represent more than 10-15% of your assets. That way, if things don’t pan out, you’ll still have the other 85-90% working for you.
- Remember to diversify across different asset classes to reduce your risk and beat inflation. Too many people put all (or none) of their assets in stocks and live to regret it.
Do you see the value in building your wealth patiently rather than turning to get rich quick schemes or trading and chasing investments? Have you had some experiences with this you can share with our online community? Questions you’d like to ask? We’d love to hear from you!