Category Archives: Building Wealth

5 investing mistakes you may be making right now

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Fidelity Wealth Management

Key takeaways

  • Risk is an essential part of investing, and investors should have the appropriate amount of risk in their portfolio so they don’t feel compelled to flee the market when volatility arises.
  • Regular rebalancing and tax-management techniques may substantially impact a portfolio’s long-term performance.
  • Investors with neither the time nor inclination to maintain their portfolios actively may consider whether engaging with a professional manager might be worth it.
  • Investing can sometimes seem complex and confusing, and you may often be wondering whether or not you’re doing everything you can to help keep things on track—or whether something you’re doing may be hurting your ability to achieve your goals.

Here are 5 things you may be doing that might be having a detrimental effect on your portfolio, and some thoughts on how you might be able to turn things around.

1. Getting out when the going gets tough. When markets become volatile or experience significant declines, it’s natural to want to try to cut your losses and retreat to what seems like safe territory. But rather than preserving your wealth, you may actually be undermining the long-term growth potential of your portfolio.

In general, market declines have tended to be relatively shallow and short-lived compared to expansionary periods. Over the past 72 years, markets have risen an average of 15% per year during expansions—and even 1% per year during recessions.1 So even when things seem most dire, there’s still a chance for positive returns.

Furthermore, because it’s not possible to predict exactly when the market may shift from negative to positive, there’s a chance that you may end up missing out on a rally or recovery when it occurs if you were to take your money out of the market. Being uninvested for even a short time could have a profound impact: For instance, missing just the 5 best days in the market between 1980 and 2022 could have reduced portfolio returns by as much as 38%.2

2. Taking on too much (or too little) risk. Though the very idea of “risk” can be scary, it’s an essential part of investing. The amount of risk you decide to take on could determine how much growth you may be able to achieve in your portfolio and how much volatility you may need to endure to get there.

While there are no guarantees in investing, the key is to take on just enough risk to give your portfolio a chance of reaching your long-term goals, but not so much that it introduces enough volatility to scare you into withdrawing from the market. And one way to achieve that is by diversifying your portfolio, investing in a mix of different asset classes that may behave differently in different market conditions—that way, when some of your investments are down, others may be up, helping to smooth out the bumpiness in the market that can be so disconcerting.

Important information about performance returns. Performance cited represents past performance. Past performance, before and after taxes, does not guarantee future results and current performance may be lower or higher than the data quoted.

Investment returns and principal will fluctuate with market and economic conditions, and you may have a gain or loss when you sell your assets. Your return may differ significantly from those reported. The underlying investments held in a client’s account may differ from those of the accounts included in the composite. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

The above example (of various asset allocations) is for illustrative purposes only and does not reflect actual PAS data. Asset mix performance figures are based on the weighted average of annual return figures for certain benchmarks for each asset class represented. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various indexes from 1926 through 12/31/22 data available from Morningstar.

How your assets are allocated across these different asset classes can provide a solid foundation upon which your portfolio may be able to grow over time. It can be a major factor in long-term performance: In fact, up to 90% of the variability of a fund’s return over time can be explained by how its assets are allocated.3

3. Not rebalancing your portfolio regularly. Asset allocation is not a one-and-done exercise or something you can “set and forget.” Over time, the appreciation and depreciation of your investments may result in your portfolio drifting from your initial allocation. As this happens, the amount of risk you’re exposed to could change in ways you may not have expected.

For example, consider a hypothetical portfolio that begins with an asset allocation of 70% stocks and 30% bonds. If over the course of 6 months, stock values were to surge and bond values were to decline, that portfolio might end up closer to something like 80% stocks and 20% bonds—a much riskier allocation—just due to market activity. It can work the other way as well: Were stocks to dip to 60% and bonds to rise to 40%, the portfolio may end up being more conservative than the investor initially intended.

Historical standard deviation in conjunction with historical returns to decide whether an investment’s volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how an investment actually performed, but it does indicate the volatility of its returns over time. Standard deviation is annualized. The returns used for this calculation are not load adjusted.

Unless the investor proactively monitors and reallocates assets, perhaps by adding more funds to the account in the desired asset class or moving assets from one class to another, they could potentially experience more volatility than they are comfortable with or less growth than they need to help achieve their goals.

4. Paying too much in taxes
Taxes are a part of life, but nothing says you need to pay any more than is required of you. And yet, many investors may do just that because they don’t realize that there are techniques they can employ to help invest more efficiently and potentially reduce their overall tax burden.

“Most investors don’t realize how much they’re paying in taxes,” says Bullard. “Capital gains distributions from mutual funds, for example, can surprise investors when the tax bill arrives.”

Cutting your tax bill can have a big impact on your portfolio over the long term, by allowing you to keep more of your money and keep it invested, where it can potentially benefit from compounding growth in the market.

Techniques such as tax-loss harvesting or tax-efficient asset location, which places particular types of investments in the accounts most suitable for their tax treatment, can potentially pay off. In fact, the average client with a Portfolio Advisory Services professionally managed account using tax-smart strategies4 could save $3,900 per year in taxes.5

5. Going it alone. It’s not always easy to stay on top of these tasks and keep everything running smoothly on your own. And even when you know what you should be doing intellectually, it can be hard to stay the course and keep your emotions in check when markets become challenging. That’s why some investors are more comfortable engaging with a professional investment manager who, for a fee, can oversee many of these important investing duties and provide investors with a backstop of support and guidance that may be able to help them weather the difficulties they encounter on their path to their goal.

The truth is, mismanaging your portfolio has a cost. And whether the mismanagement is the result of an honest mistake, an understandable overreaction, or a simple oversight, ultimately the cost is coming out of your pocket.

Life is complicated enough as it is. There’s no need to make it any more complicated than it needs to be. With just a little more attention to these important portfolio practices and reaching out for professional help when you need it, you may be able to help ensure that these potential mistakes don’t keep you from reaching your important investing goals.

Value vs Growth Stocks

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Value investors want to buy stocks for less than they’re worth. If you could buy $100 bills for $80, wouldn’t you do so? ~ Motley Fool

Most public equity stocks are classified as either value stocks or growth stocks. Generally speaking:

  • A value stock trades for a cheaper price than its financial performance and fundamentals suggest it’s worth.
  • A growth stock is a stock in a company expected to deliver above-average returns compared to its industry peers or the overall stock market.

Value stocks generally have the following characteristics:

  • They typically are mature businesses.
  • They have steady (but not spectacular) growth rates.
  • They report relatively stable revenues and earnings.
  • Most value stocks pay dividends, although this isn’t a set-in-stone rule.

Growth stocks generally have the following characteristics:

  • They increase their revenue and earnings at a faster rate than the average business in their industry or the market as a whole.
  • They developed an innovative product or service that is gaining share in existing markets, entering new markets, or even creating entirely new industries.
  • They grow faster than average for long periods tend to be rewarded by the market, delivering handsome returns to shareholders in the process.

Regardless of the category of a stock, economic downturns present an opportunity for a value investor. The goal of value investing is to scoop up shares at a discount, and the best time to do so is when the entire stock market is on sale.

References:

  1. https://www.fool.com/investing/stock-market/types-of-stocks/value-stocks/
  2. https://www.fool.com/investing/stock-market/types-of-stocks/growth-stocks/

A Majority of American Workers are Living Paycheck to Paycheck

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According to a New CareerBuilder Survey, 78% of Americans live financially paycheck-to-paycheck. That means almost 8 out of 10 people probably can’t afford the home they’re living in and the car they’re driving. They might not even have the cash to cover the next emergency.

Study Highlights:

  • 78 percent of U.S. workers live paycheck to paycheck to make ends meet
  • Nearly one in 10 workers making $100,000+ live paycheck to paycheck
  • More than 1 in 4 workers do not set aside any savings each month
  • Almost 3 in 4 workers say they are in debt today – more than half think they will always be
  • More than half of minimum wage workers say they have to work more than one job to make ends meet

Americans want what they don’t have to impress people they probably don’t even like.

Today, a fancy car and a big house are perceived as the standards of financial success and wealth. But true success is about contentment and being in control of your time. If you’re content with what you have and control your time, you’ll likely not look for the next best thing to bring you “happiness.”

References:

  1. https://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey
  2. https://www.ramseysolutions.com/debt/tired-of-keeping-up-with-the-joneses

Unlocking Financial Freedom

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Morgan Housel, The Psychology of Money

Morgan Housel believes that building wealth is more about behavior than anything else. Here are highlights;

1. “Doing well with money has little to do with how smart you are and a lot to do with how you behave”

Think about it for a moment. How much do you spend on important things? How much do you spend on things you don’t really need? Are you living below your means? These questions can tell you how you behave with money, and it is far more important than your income in determining whether you will become rich. Fix it.

2. “A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioural skills that have nothing to do with formal measures of intelligence.”

Are you emotional with money? Emotions beat reason. The lesson was apparent: the most foolish way to make financial decisions is using your emotions.

3. “Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.”

What if your business plan doesn’t work? Planning for the plan not to work is an important part of the plan.

4. “Be nicer and less flashy. No one is impressed with your possessions as much as you are. You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration. And you’re more likely to gain those things through kindness and humility than horsepower and chrome.”

No one cares that you bought that car as much as you did, no one cares that you bought that shoe as much as you did, no one cares that you bought that phone as much as you did. What’s the implication? Only buy the things you genuinely need; no one is impressed with what you have as much as you are. They can never get the excitement that you get.

5. “Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time.”

Learn this lesson early. The ultimate value of money is that it should lead you to control your time. The financial decisions you make, especially work-related, are guided by this thought. If you can do work that will give you freedom over your time but pay less, you will take it compared to a job that will pay higher but steal all your time.

6. “Saving is the gap between your ego and your income.”

You could save more if you could cut down on the things to which you have attached your ego.

7. Compound Interest. Life is in compound interest. This excerpt on Warren Buffet does justice to this;

More than 2,000 books are dedicated to how Warren Buffett built his fortune. Many of them are wonderful. But few pay enough attention to the simplest fact: Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child.

Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s.

Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he’s been a phenomenal investor for three quarters of a century. Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him.

Consider a little thought experiment.

Buffett began serious investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million, or $9.3 million adjusted for inflation.¹⁶

What if he was a more normal person, spending his teens and 20s exploring the world and finding his passion, and by age 30 his net worth was, say, $25,000?

And let’s say he still went on to earn the extraordinary annual investment returns he’s been able to generate (22% annually), but quit investing and retired at age 60 to play golf and spend time with his grandkids.

What would a rough estimate of his net worth be today?

Not $84.5 billion.

$11.9 million.

99.9% less than his actual net worth.

Effectively all of Warren Buffett’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years.

His skill is investing, but his secret is time.

That’s how compounding works.

Morgan Housel, The Psychology of Money

How to Build Wealth When You Don’t Come from Money

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by Anne-Lyse Wealth
March 17, 2022

Summary. The first step to building wealth involves your mindset and behaviors. To build wealth, you must first address the systemic and mental barriers faced by many Americans who grew up in families and environments without access to wealth. Changing your mindset and financial behaviors, or building a mindset and creating good financial habits conducive to building wealth, are the real and necessary first steps.

  • To start, let go of limiting beliefs. When you grow up lacking money or the resources to make enough of it, thinking there is a shortage of resources, or watching people around you live paycheck to paycheck, you may be more likely to believe that wealth is reserved for a select few.
  • To overcome this mindset and believe you deserve abundance, practice thought work daily. This is the act of consciously paying attention to your thoughts and then choosing to entertain different ones instead.
  • Next, accept that money can do as much good as evil. Don’t let fear stop you from pursuing wealth or the kind of paycheck you need to support you and what you want to accomplish in your lifetime.
  • Finally, understand that a high income is not enough. Building wealth requires intentionally managing your expenses — and, yes, investing. Investing is for everyone, and it can help even the playing field.

Do you want to be wealthy and financially free? Most people probably do — but it is not a leisurely pursuit. The widening wealth gap between the rich and the poor makes it seem impossible for most.

According to a recent Credit Suisse Global Wealth Report, millionaires represent less than 9% of the United States population. Even so, the same report notes that in 2020 alone, there were 1.7 new millionaires in the U.S. According to business theorist Thomas J. Stanley, who studied more than 1,000 millionaires for his book The Millionaire Next Door, 80% of U.S. millionaires are first-generation “rich.” That means they didn’t inherit their wealth but built it over time.

These statistics can make you wonder what it takes for a person to overcome humble beginnings and achieve the “American Dream.” What does it take to become a millionaire when you don’t come from wealth?

The first step to attaining wealth — at least for Americans not born into it — is much more personal than mimicking the habits of “The Millionaire Next Door” or investing wisely. Such approaches often fail to address the systemic and mental barriers faced by many Americans who grew up without access to wealth.

Changing your mindset, or building a mindset conducive to wealth, is the first step to attaining it. This means believing that wealth is accessible and you are worthy of wealth. Without that mental drive, the other strategies are moot.

To achieve this mindset, you must let go of limiting beliefs. For most people, developing an abundance mindset, or believing there are enough resources and opportunities for everyone, requires an intentional effort. This is even more true for those who grew up with limited resources and less access to wealth.

According to a study conducted at Purdue University, many of your financial habits are formed by age seven. That means your feelings about money are primarily influenced by how people around you talk about or behave around it.

When you grow up lacking money or the resources to make enough of it, thinking that there is a shortage of resources, or watching people around you live paycheck to paycheck — you may be more likely to believe that wealth is reserved for a select few. I suppose you might be wrong.

It takes more work to expect abundance when you don’t see it around you.

“Every day, many negative thoughts race through our minds. If we don’t learn to filter those thoughts, we start believing them. Eventually, they can lead to a scarcity mindset, which leads to scarcity actions or broke-ass decisions,” said Rachel Rodgers.

Rodgers doesn’t believe in ignoring our negative experiences. Instead, she suggests using them as fuel to help us build a better future. “For example, changing your thoughts is not going to make racism or violence against Black people end,” Rodgers said. “Racism presents many challenges and obstacles to our ability to build wealth. That said, we can work with our thoughts to choose a more effective and empowering response to the racism we experience. Our anger can be a powerful fuel for action.”

Rodgers believes in rewiring our brains to expect abundance and emphasizes the importance of making million-dollar decisions before becoming a millionaire. In Rodgers ‘ words, this involves doing some thought work, “the act of consciously paying attention to your thoughts and then choosing to entertain different ones instead.” She recommends practicing this daily.

“Even though I run an eight-figure business, I do thought work daily,” she said. “When you think more positively about yourself, your work, your intelligence, and your financial decisions, you will start taking more positive actions. Eventually, after some practice, it can improve your life.”

According to Rodgers, million-dollar decisions create time, energy, and options. When you apply for a job, receive an offer, and make a counteroffer because you know your worth, you make a million-dollar decision. When you are proactive about asking for a raise, researching industry rates, and making a case to your boss, you are making a million-dollar decision instead of growing overwhelmed and not acting at all.

Ultimately, your mindset can lead to significant missed opportunities if you don’t change it and believe you deserve abundance no matter where you start.

Accept that money is not always evil.
We’ve all heard the saying that “money is the root of all evil.” Many people — especially those with negative formative experiences with it — will stop desiring wealth because of that belief. But understanding that you can use your money to do good in the world can be a game-changer.

Realized there were other ways to give back to your community. Use money to help others access education and, in turn, have a greater chance of accessing financial freedom.

Similarly, Rodgers initially went to law school because she wanted to work for a nonprofit, advocating for marginalized communities. “The pressures from family members and my student loan debt eventually pushed me to give up on my dream for the sake of making money. I flew around the country, interviewing for jobs I didn’t want. I was offered an associate attorney position at a firm representing Big Oil companies.”

Ultimately, Rodgers’ belief that she could find a more outstanding balance between earning and giving drove her to turn down the position and launch her own business. She credits her decision to her Aunt Barbara, who paid the balance on her college tuition, and the parents of a girl she used to babysit for making her realize that all rich people were not evil. “Now, with my business, I help thousands of women and other members of underrepresented communities to increase their earning potential — and I make millions doing it.”

The big takeaway? Money can do as much good as it can evil. Don’t let fear stop you from pursuing wealth or the kind of paycheck you need to support you and what you want to accomplish in your lifetime. That would be akin to giving up before you even begin.

Understand that more than a high income is needed.
Another mind trap it’s easy to fall into is believing that a high salary will eventually lead to accumulated wealth. Realistically, it probably won’t. Building wealth requires intentionally managing your expenses — and, yes, investing.

With inflation, or the increase in goods and service prices over time, money loses value the longer it sits still. Building wealth, then, requires investing, whether it’s in the stock market, real estate, a business, or another wealth-building avenue.

Business manager Michelle Richburg shared that most of her clients, many of whom are first-generation millionaires, have had to learn the hard way that being intentional about budgeting and investing is essential to build wealth.

Schadeck similarly believes that investing provides an opportunity to level the playing field. “Most people who don’t come from a wealthy or financially literate family fall victim to this. However, the birth of online investment brokerage firms democratized the industry. Investing is for everyone.”

To get past this mental roadblock, Schadeck encourages her clients to imagine life if they didn’t have to work for money. She tells them to hold onto that vision and mirror it in their actions.

What does that look like?

Schadeck tells her clients to start investing as soon as they can afford it — even if that means putting forth a small dollar amount. “A mindset shift happens when you build financial discipline as an investor. You could start with $45,” she said, “and that small investment will build up over time with compound interest. Starting small is the secret, and being consistent is the key.”

Be willing to create your path.

There’s no one-size-fits-all for wealth building. No matter the path, what will make a difference is your consistency.

“You shouldn’t work yourself up trying to attain some made-up standard for how you create your wealth. My plan for building wealth was through entrepreneurship, and I still recommend it as the most sustainable and fastest path forward. However, that’s not what works for everyone. I know folks who’ve built wealth by investing in stocks, through real estate, or by saving,” Rodgers told me.

Whether you aspire to become a millionaire or not, no matter what path you choose, you can benefit from rethinking your relationship with money to increase your chances of making more. Money doesn’t mean happiness, but wealth gives access to options and, potentially, a better quality of life.

Changing your mindset and applying these tips may not make you a millionaire, but adopting them will benefit your wealth-building journey.

Source:
Anne-Lyse Wealth is a writer, personal finance educator, and certified public accountant. She is the founder of Dreamoflegacy.com, a platform

  1. https://hbr.org/2022/03/how-to-build-wealth-when-you-dont-come-from-money

Blogger’s Note: The opinions expressed here are for general informational purposes only. Doing your research and analysis before making any financial decisions is essential. We recommend speaking to an independent advisor if you are unsure how to proceed.

Long-term Investing Perspective

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Warren Buffett once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”

One tried and true investment philosophy is investing with a long-term perspective. In essence, the time-arbitrage approach gives long-term investors an edge. Most investors are focused on the short term, basing trading decisions on factors that may have little to do with business fundamentals, such as quarterly earnings beat or miss or overall market volatility.

Long-term investors often adopt a long-term perspective while taking advantage of the shortsightedness and noise of the market. They tend to conduct extensive research and conduct a deep dive into the fundamentals of every company in which they are considering an investment.

Their extensive research allows them to develop an informed and thorough understanding of the longer-term secular advantages of these companies. Ultimately, they are more interested in the duration of a company’s growth opportunity rather than being overly focused on its timing.

They like to invest early before a company is on the market’s radar because they believe it’s impossible to pinpoint precisely when the market will notice and start trading the stock up to reflect its growth opportunity properly. This is a vital part of the engine that drives alpha for us.

Low turnover is an outgrowth of this investment process rather than a goal in and of itself. If they find and invest in the right companies, they believe that it makes little sense to replace these companies with new and relatively untested ones. Wsupported remain invested throughout the duration of the growth trajectory of our highest conviction companies. We also believe this is a more tax efficient approach to managing a portfolio and one that is often attractive to company management who are aware of our reputation as long-term holders of stock.

Your primary goal must be capital appreciation, and you should stay involved as companies grow and flourish as long as your investment thesis holds true.

The best risk management starts with knowing the companies in which you invest. By conducting extensive research prior to initiating a position in a company and continuing to conduct due diligence will keep you apprised of the company’s growth story.

Tesla – Electric Vehicles

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Tesla is planning to build another factory overseas, There is a demand across the globe by several nations wanting the plant to built.

Tayyip Erdogan, the president of Turkey, would like the next Tesla factory to be built in his country. Erdogan asked the Tesla CEO to put the eighth factory for its electric vehicles in Turkey.

Musk mentioned India as a possible place to make a low-cost electric vehicle. Tesla is currently building a factory in Mexico.

Saudi Arabia is also vying for the new plant. Attracting Tesla would be part of a push by Saudi Arabia to secure metals needed for EVs in Africa as the country tries to diversify its economy away from oil, reports Barron’s.

The Cockroach Theory

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At a restaurant, a cockroach suddenly flew from somewhere and sat on a lady.

She started screaming out of fear.

With a panic-stricken face and trembling voice, she started jumping, with both her hands desperately trying to get rid of the cockroach.

Her reaction was contagious, as everyone in her group also got panicky.

The lady finally managed to push the cockroach away but …it landed on another lady in the group.

Now, it was the turn of the other lady in the group to continue the drama.

The waiter rushed forward to their rescue.

In the relay of throwing, the cockroach next fell upon the waiter.

The waiter stood firm, composed himself and observed the behaviour of the cockroach on his shirt.

When he was confident enough, he grabbed it with his fingers and threw it out of the restaurant.

Sipping my coffee and watching the amusement, the antenna of my mind picked up a few thoughts and started wondering, was the cockroach responsible for their histrionic behaviour?

If so, then why was the waiter not disturbed?

He handled it near to perfection, without any chaos.

It is not the cockroach, but the inability of those people to handle the disturbance caused by the cockroach, that disturbed the ladies.

I realized that it is not the shouting of my father or my boss or my wife that disturbs me, but it’s my inability to handle the disturbances caused by their shouting that disturbs me.

It’s not the traffic jams on the road that disturbs me, but my inability to handle the disturbance caused by the traffic jam that disturbs me.

More than the problem, it’s my reaction to the problem that creates chaos in my life.

Lessons learnt from the story:

I understood I should not react in life.

I should always respond.

The women reacted, whereas the waiter responded.

Reactions are always instinctive whereas responses are always well thought of.

Always attempt to respond to situations and never just react !

Be HAPPY not because Everything is RIGHT in your Life.

Be HAPPY because your Attitude and Mindset towards Everything in your Life is Right!