5 Steps to Accumulate WealthSubmitted by Desmond Wealth Management, Inc. on May 24th, 2019
There are many reasons to engage the services of a financial advisor.
Some investors don’t understand the complexities and the array of choices, and they would prefer to have an expert deal with it for them. That’s understandable.
Others enjoy the DIY approach. They love to explore the various strategies of money management. Grasping and understanding new ideas and concepts creates that “Aha!” moment, but time has become a major impediment.
Then there are those who were comfortable managing their own finances, and having amassed a fair degree of wealth, can claim success. However, climbing to new financial heights can sometimes create a fear of heights. At this juncture in their life, they are more comfortable having a financial professional keeping an eye on their choices.
Retaining an advisor is akin to having a personal trainer coaching you as you go through your daily exercise regimen. The trainer keeps you on track, encourages you, and can suggest beneficial adjustments.
Once again, though, let me emphasize that each individual situation is unique, each client is unique, and we adapt our advice so that it matches your circumstances and financial goals. We are always here to answer your questions or address any concerns.
While each person’s plan has its unique qualities, there are fundamental principles that must be woven into every financial blueprint. These fundamentals are the building blocks for wealth accumulation over the long term, and it's important to keep them in mind, always.
Let’s take a look at the fundamentals:
1. Avoid get-rich-quick schemes.
We've been around the block many times. If it seems too good to be true, it probably is. After reading that common sense advice, many of you are probably thinking, “I know that. Why did you lead off with something this simple?” Well, we've seen too many smart folks fall for get-rich-quick schemes that leave them poorer - sometimes much poorer. It’s heartbreaking to hear the tales.
Maybe it’s simply greediness — we’re afraid of losing out on perceived riches. Maybe it’s fear — fear we’ll miss out on a once-in-a-lifetime opportunity. Maybe we’re too trusting. The best con-artist’s pitch is steeped in sincerity. Maybe our judgment gets clouded, as we’re dazzled by the flashing presentation or personal flattery.
If you ever come across something you believe might lead to quick riches, please let us review it with you. We promise we will provide you with an objective viewpoint.
2. Avoid trying to time the market.
It sounds so simple: buy low, sell high.
However, here’s another take: “Buy when there’s blood in the streets.” It’s still bounced around in financial circles. Forbes credited the saying to Baron Rothschild, an 18th Century British nobleman and member of the Rothschild banking family. Coincidently, or not, Forbes published the article two weeks prior to the market bottoming in 2009.
However, in both cases, these are platitudes that are best ignored, in my view. You see, we’re not wired to dive off a cliff and buy when everyone is selling. Instead, the temptation is to circle the wagons and play defense.
In reality, it’s much easier to buy when markets are heading higher. Euphoria can breed euphoria, which leads to a feeling of invincibility. It’s the “follow the crowd” mentality.
We eschew trying to pick a few winners, avoid trying to predict the future, (i.e., market timing) and preach diversification and a disciplined approach that strips the emotional component from the investment plan.
Longer term, stocks have historically been an excellent vehicle to accumulate wealth. Let us explain.
Crestmont Research produces a chart each year that reviews the annual 10-year total returns for the S&P 500 Index going back to 1909. These are rolling, 10-year periods; i.e., we are reviewing over one hundred 10-year periods.
Since 1909, there have been only four 10-year timeframes that have generated negative returns. Want to hazard a guess as to when they may have occurred?
That’s right--the late 1930s and the end of the last decade. That shouldn’t come as too much of a surprise given extreme valuations that occurred in the late 1920s and late 1990s and early 2000s.
Oh, and the average annual return? It can vary by a considerable amount, but it averages 10%.
3. You must start somewhere, but start.
Some share the story of working for a company that offers a 401k plan with a generous match. In their mind, a 401k is a euphemism for, “I get nothing today so I'll have something tomorrow.” It epitomizes the concept of delayed gratification.
Don’t try to climb Mt. Everest overnight. You can start withholding 2% of your paycheck, and increase it quarterly to 4%, then 7%, and finally 10%. As you bump it up in small increments, you may find you really don't miss the extra withholdings.
Guess what? You'll enjoy watching your small nest egg begin to grow! One more thing — you can’t start too young. Compounding and time is your friend.
We're thrilled when we have the opportunity to speak with people in their early 20s who are embarking on their careers. They truly have a once-in-a-lifetime chance to get a head-start on wealth accumulation.
Both Mark Twain and Andrew Carnegie allegedly said, “Put all your eggs in one basket, and watch that basket closely.” Twain and Carnegie didn’t live in an age where the dissemination of information is almost instantaneous. Bad news comes in like a WWE smackdown on a stock. It’s the defensive end leveling the quarterback, and it can happen in seconds.
Our team carefully screens investments in mutual funds, exchange-traded funds, and individual stocks. Our goal is to select the right mix of securities that leaves you exposed to the longer-term appreciation potential in all major sectors of the economy.
We don’t stop at the U.S. border, as we recognize the potential the global economy offers.
A fixed income component is critical for most folks. Being 100% diversified in a portfolio of stocks can leave you exposed to a market decline. It’s for someone with a very long-term time horizon. If you are nearing retirement, you may not have the time to recover in the event of a steep market decline.
Bonds, cash, and fixed income securities are not earning spectacular returns right now. However, they help anchor the portfolio. As the percentage of stocks decline in relation to cash/fixed income, the portfolio is likely to experience less volatility. You won’t see the peaks in a roaring bull market, but you’ll sleep better at night knowing that a sudden dip in the market is far less likely to take a big bite out of your investments.
5. Have a goal.
Why are you saving? What motivates you to contribute to your savings on a consistent basis? Dream big and keep the goal in front of you!
Please reach out to us if you have any questions about wealth accumulation, or any other matters. We'd be happy to talk with you. We're simply an email or phone call away, and can be reached at firstname.lastname@example.org or (925) 932 – 1994.
As always, we're honored and humbled that you have given us the opportunity to serve as your financial confidants and advisors.