Grow Rich Slowly
“Don’t Change Because You Feel The Heat – Change Because You See The Light.”
Many people believe that one has to win the lottery or get "lucky" on a stock or business deal to join the ranks of the wealthy in America. Many people are wrong!
Most wealthy Americans became that way through hard work and practicing certain basic financial principles. What are those principles? Read on and find out.
Start Saving Early
The sooner you start saving, the longer your money has to grow. We’ve all heard the stories about the 22 year old who saves $2,000 a year for nine years and winds up with $400,000 by the time he’s 65 years old. It’s true, not many of us are 22 years old anymore, but the point here is to get started adding to your savings as soon as possible. The longer your dollars are allowed to grow and compound, the more you’ll accumulate. Put time on your side by starting now.
Invest in Equities
Over the past seventy years, stocks have outperformed bonds by 2 to 1 and inflation by 3.5 to 1. In fact stocks were the best performing asset class over the entire seventy year period.
The average return of stocks over this timeframe was 11 percent. Had you invested only $10,000 at the beginning of this period your investment would have grown to over $14,000,000! Of course most individuals have an investment time horizon of forty years, not seventy, and would have had to be content to have that original $10,000 grow to $650,000. Could you use an extra $650,000 when you retire?
Think Long Term
Obviously, starting to save early and investing in equities complements a long-term investment strategy. But there is more to thinking long-term. Warren Buffet, the fabled investor who at last count was the second richest man in America with a net worth of over $34 billion, says that his favorite holding period is “forever.”
You see, trying to time the market is not only foolish, but counter-productive. If you had missed only the best 40 days in the market over the past 30 years, your return would have dropped by 37 percent.
Live Below Your Means
Being frugal is the cornerstone of wealth-building. “Living below your means is the most important thing you can do to gain financial success,” say George & June Marotta. “In our 50 years together, we’ve bought only two new cars. One was a Plymouth Valiant that we purchased for $2,000 in 1969. It never ran well, and it broke down four years later. We figured a used clunker would be just as reliable. George and I have stuck with secondhand cars ever since, and paid cash. In fact, except for our house, we have never taken out a loan." The result—a net worth of $2.4 million.
Remember, conspicuous consumption is the enemy of wealth accumulation.
Take On Debt Sparingly
Americans spend $70 billion each and every year for interest payments on credit card debt alone. And obviously, every dollar you pay in interest is one less dollar you have to invest.
Credit cards in this modern society are a virtual necessity but the wise investor tries to never carry a balance on his/her cards.
That way they won’t be hit with onerous 17 percent or higher interest charges.
Wealthy individuals understand this and don’t like making payments to other people, they like other people making payments to them!
Wealth vs. Income
Finally, draw a distinction in your mind on the difference between income and wealth. Many people have a high income but little or no accumulated wealth. They have no wealth because they squander their high income on conspicuous consumption. It is more important to them to have the latest model car or TV set or club memberships than to invest their hard earned dollars.
True investors understand that wealth is not the same as income. Wealth is what you accumulate, not what you spend. To these people it is more important to create independence through wealth accumulation than it is to spend money on a lavish lifestyle.
Wealth Accumulation Principles
Start Saving Early
Invest in Equities
Think Long-Term
Live Below Your Means
Take on Debt Sparingly
Understand the Difference Between Wealth and Income
Invitation
If you’re not a client yet, and you’d like to explore the option of developing a professionally managed investment portfolio comprised of no-load mutual funds, please give me a call.
I’d be happy to sit down with you and explain how as a fee-only investment advisor I can assist you in meeting your financial goals.
Marshall Sitarik - CFP
Ph. 407-977-3800