Have you ever considered the possibility of one day being completely financially independent? It may sound like a fantasy to some but the good news is that building wealth is not out of reach. Even with modest resources you can achieve surprising results just by following a few simple rules.
Time Is Your Biggest Ally
No one has ever been disadvantaged by starting their investment plan too early, but plenty have started too late. There will never be an ‘ideal time’ to invest so starting as soon as possible, even if you can only afford a modest regular amount, is a powerful factor in your favour. The key advantage of starting early is that you can access the formidable effects of compound interest. Earning returns on top of returns can make a dramatic impact on your wealth creation over time, as the example opposite demonstrates.
Don’t Try To Time Your Entry
Many people think that the best way to invest in growth markets such as shares is to hold back on investing until it is ‘just the right time’. This approach can seriously limit growth because of the day to day fluctuation in markets. A far more effective strategy is to keep a regular deposit going into your investment plan to take advantage of a concept known as ‘dollar cost averaging’. By making regular contributions you know that at least part of your investment will be buying into an investment market when prices are low, thereby gaining a lot more if markets rise. Of course it also means you will sometimes be buying in when markets are high, but the ‘averaging effect’ you achieve could mean you will generally be better off than if you try to make a single deposit at ‘just the right time’.
Diversify To Manage Risk And Seek Performance
Once your risk profile and timeframe are established, you can then decide on a spread of assets that will best suit that profile to optimise a balance of security and performance potential. Diversification is a key strategy in wealth building. It enables you to seek the opportunities for greater performance, while helping to mitigate the risk of downturns in any one market. This helps to smooth out performance over time. Diversification can take place at several levels.
- use a variety of asset classes
- invest in international markets as well as domestically to seek a wider range of opportunities
- use the convenience of managed funds to pool together with other investors for more efficient diversification, compared to investing in shares or property directly
- use a range of managers with differing styles and emphases
If you want to take a closer look at how you can build wealth, talk to us today on 02 9979 2001.