5 Long-term Strategies To Create Wealth
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Wealth is not earned, it is created. The process of investing in assets is crucial in creating wealth. However, investing is not always straight forward, and an individual should therefore have a strong understanding of their investment choice. For beginners, investments should be influenced by reading and learning about the different investment options available, as well as using experts to help inform their decisions.
Warren Buffett, undoubtedly the greatest investor of all times, once said, “Do not save what is left after spending, but spend what is left after saving.” It is important to take such expert guidance to help align your investment strategy to your future goals. While there are many ways to achieve your financial goals, there are five key aspects of investment that are important to remember.
Patience and Discipline
To yield good returns on long-term assets such as mutual funds, gold and real estate, one needs to have patience, study the market and then take actions. There is no shortcut to success, similarly any appreciation in assets take time. Being impulsive and investing without adequate knowledge can lead to financial losses. Discipline when investing into equities can lead to superior returns, as ups and downs in equities is a normal phenomenon, staying invested in quality assets is key to value creation.
Have an Evolving Appetite for Risk
William Faulkner said: “You cannot swim for new horizons until you have courage to lose sight of the shore.” This is one of the best ways of expressing the inherent rewards in risk-taking. Investing is an art that is backed by logic. To master this, one needs to have an appetite to take calculated risk. Your willingness to take thoughtful and calculated risks is in disguise an opportunity to build wealth as you grow.
Diversify Your Funds
The best English proverb when it comes to investing is ‘don’t put all your eggs in one basket’. This is an old yet effective way to explain the importance of diversification when it comes to investments. Diversification, whilst not fully guaranteeing losses, helps spread the risk of investments to help reach long-term financial goals. Diversification can come across different asset classes as well as across the board. Through investing in different asset classes such as stocks, bonds, real estate and gold will provide a contingency to adverse effects in one asset class. Additionally, by investing in uncorrelated stocks in different industries will also help to spread the risk of your investments.
Top Asset Class for Investment
Investment should be made keeping in mind your risk appetite. This is influenced by many factors including; life stage, income, age and experience of investment. A younger individual with various existing revenue streams may have a higher risk appetite than a retired individual with one revenue stream. Based on the risk appetite and investment horizon one can invest in various asset classes such as equities, fixed deposits, government bonds, gold or real estate. While equity gives you the ease of instant investment through real-time updates of capital appreciation or depreciation, it is a more volatile investment compared to government bonds. Gold has been traditionally considered as a hedge against inflation and real estate investments are generally considered a longer-term investment. When making any investment, you must consider all the details including past successes of similar investments.
Focus on Financial Goals
It is important to start investing in opportunities that are aligned with your larger financial goals. One should be focused on staying on track to reaching these goals through remembering that long-term value creation takes time.