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« Money and Peace | Main | Inflation or Deflation – What’s Next? »
Thursday
Sep202012

Investing Won’t Make you Wealthy

This may be hard to hear, but it is not likely that you will become wealthy by investing, especially in our 21st century investment climate. It is easier to lose money investing than it is to earn money investing. Consider what happens when you lose money.

Imagine that you invested $10,000 and by the end of a year you lost 20%. You would be left with $8,000. To grow your money back to your original $10,000 you would need to invest your $8,000 in something that earned at least 25% the next year. People lose 20% in one year all the time, but few make 25% in one year. Add to that experience broker and transaction fees and this negative investment cycle gets worse. This is why we say to only invest money you can afford to lose, the money we call dynamic money. Now imagine you find a good investment strategy.

Having found a good investment strategy you invest $50,000 and things go well. Over a 10-year period you earn an average of 10% per year. If you started on January 1, 2012, by December 31, 2021, your $50,000 would have increased to $129,687. That is still not enough to be considered wealthy. So, let's say you extend your investment horizon to 20 years. By December 31, 2031, you would have accumulated $336,375. That's not bad. So let’s extend to 30 years. By December 31, 2041, you would have $872,470.

That would give you, at most, $87,200 of yearly income. After taxes, you'd take home about $65,000 a year. That's OK, but it's hardly wealthy, and that's after investing for 30 years getting a consistent rate of return with no losses! What are the chances of that in our 21st century investment environment?

So how do you build wealth?

Building wealth involves much more than just investing in stocks and bonds. Most rich people get that way by consistently doing five things:

  1. Manage debt - they understand and manage their debt. They don't let debt manage them.
  2. Control Spending - they control their spending and they spend wisely, getting maximum value for every dollar.
  3. Increase Income - they continuously work to increase both their active and their passive incomes.
  4. Build Core Money - they build up their core money by being aggressive savers using safe money instruments.
  5. Invest Dynamic Money - they invest their dynamic money only when they find a good investment strategy, then they stick with it.

As you can see, investing is only one of five strategies you must follow to become rich. And of the five, it is arguably the least important.

If you want to get wealthy in fewer than 30 years, you should only devote a couple of hours a week to strategy 5 - Invest Dynamic Money and managing your investments. Spend the rest of your working time on the other four wealth-building strategies listed above.

The focus of The CORE Financial Group is to provide you the ideas and tools you need to master the first four wealth-building strategies listed above.

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