Forget “Get Rich Quick.” Grow Your Wealth PATIENTLY.

Promises of getting rich quick are more rampant than ever these days and especially during rising markets. Any of us with a Facebook account probably see at least a dozen invitations a week to some sort of multi-level marketing company that will get you wealthy in no time (“from the comfort of your own cell phone!”). The implication with any sort of “get rich quick” promise or advertisement is that, with little effort or investment, you can become wealthy overnight.

 

Not so fast. That’s just not how it works!

 

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 2 percent per year to lousy timing decisions, by buying high and selling low! That’s a wealth destroyer you’ll want to avoid.

 

Bear in mind that a key component in the investment process is TIME, and that’s why I tell people you can never be too young to start! 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. If you’re entirely new to the concept of investing, the stock market, and growing your wealth, I’ll give you some straight forward facts so you can understand the basics:

 

  • 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 (even if you’re still in college if you can!). Many large mutual fund companies offer global balanced funds at relatively low fees and minimums. They can arrange for monthly investments from your bank account so it’s a user friendly process.
  • 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. Don’t let your emotions get in the way of your wealth. Think and act long term.
  • 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 percent of your assets. That way, if things don’t pan out, you’ll still have the other 85-90 percent working for you. (Tip: Although it may seem tempting to go for what seems popular or successful at the time, that’s not always wisest.)
  • Remember to diversify across different asset classes (the three main asset classes are stocks, bonds, and cash equivalents, and others include real estate and commodities) to reduce your risk and beat inflation. Too many people put all (or none) of their assets in stocks and live to regret it during market downturns they can’t handle.

 

After taking the above tips into consideration, remember, above all, that patience is key. Very few “get rich quick” schemes—even if they work—are sustainable for the long term. Save and invest with your END GOALS in mind.

 

Do you see the value in building your wealth patiently? Have you had some experiences with this (investing or otherwise) you’d like to share?

 

Know Your Net Worth

We’ve seen it many times, especially in the sports world and entertainment industry. Stars become famous and amass substantial wealth in short order. They live lavish lifestyles, complete with palatial estates, luxury cars, private jets, and yachts. Their stories are seen on reality shows about the rich and famous. Everything seems to be going their way. And, we are ENVIOUS!

Then, one day we’re shocked to learn that the star that once had it all just declared bankruptcy! How on earth could this happen?

Whether it’s a famous star or a “wealthy” family in an exclusive neighborhood, it’s surprisingly common for the apparently rich to be in tough financial straits. You wouldn’t know it by their outward appearance, but people with substantial assets can be just as likely to head into financial ruin as those with more modest assets and income. It all has to do with whether their assets (what they own) exceed their liabilities or debts (what they owe). This difference is called “net worth.” If it’s positive and growing they’re in good shape. If it’s negative, they’re an accident waiting to happen.

Do you know YOUR net worth … and why it matters?

 

Simply stated, people who run into serious financial difficulty have negative and deteriorating net worth. It’s usually the result of living a lifestyle too extravagant for the income they earn or from financing expensive purchases. For example, if someone buys an expensive home and finances virtually all of it with debt, they’re no better off, in terms of net worth, than one who purchased a modest home with a modest down payment. It may not seem that way to the casual observer, but it’s a fact.

Most people get into financial trouble when they try to “keep up with the Joneses.” Their neighbors build a fancier home or purchase a new luxury car, and it’s tempting to follow suit. Suddenly, their debt levels soar even though their income remains the same.

You should calculate your net worth at least annually. To do this, simply compare the value of your assets (financial and property) with your liabilities (debts including loans and credit card balances). The difference should bepositive and risingthroughout your lifetime.

If your net worth is either negative or deteriorating, determine the cause and adjust your lifestyle and spending to get back on track. Most of the time, negative net worth situations occur when people spend too much on their home or car (usually requiring debt) or take on too much credit card debt relative to what their income can support. That’s why it’s essential to carefully evaluate what you can afford before making significant purchases.

Be sure you fully understand the difference between assets and worth. Too many people feel wealthy when they own a lot of things, but if they’re purchased on credit or with debt, it’s a myth. Do you have the self-discipline necessary to maintain a lifestyle that your income can support? Remember, if you don’t—like those ill-fated celebrities that had it all and then lost it—the consequences can be catastrophic. 

Have you learned to live within your means and been able to see a rising net-worth over your lifetime?  If you are just starting out, how do you plan to accomplish this? Share your ideas and questions with us; we’d love to hear from you!

Grow Your Wealth Patiently

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!