Wealth management
Saving and investing are not the same thing with each requiring a different approach.
Saving is simply putting aside some of your disposable income for a short-term goal. Saving is a conservative approach with very little risk. A bank account, term deposit or cash management account are the usual ways of saving for your short term goals.
Investing however, means putting your money to a more profitable use. This usually requires a longer timeframe and a higher degree of risk. History shows that in the majority of cases simple savings have been inadequate for long-term goals such as funding your retirement or putting money aside for your children.
Wealth accumulation
The key to successful wealth accumulation is to set clearly defined and realistic goals and to then design a plan that will help you to achieve those goals.
Wealth accumulation strategies
Start with the two fundamental principles for a successful wealth accumulation program:
1. Save at least 10% of your earnings, consistently & throughout your earning years.
- Examine your spending. Write down every dollar you spend for one month and analyse where you may be able to cut back.
- Reduce your debt. You can potentially make large savings in interest every year by consolidating debt and paying off high-interest debt as soon as you can.
- Save or invest at least 10% of your earnings each month.
- Take advantage of tax-deferred products such as superannuation, margin loans etc
2. Develop an investment strategy and stick to it over the long term.
- Determine your long-term investment goals. Where do you want to be 10, 20, or even 30 years from now. Remember you still need income post retirement which could be 20 to 30 years.
- Determine your time horizon. How much time does your money have to grow before you will need it and don't forget to factor in the impact of inflation.
- Assess your risk tolerance. Are you willing to ride out fluctuations in the value of your investments in order to achieve higher long-term returns. Or do you need to see regular and steady growth, with perhaps less fluctuation in return.
- Diversify your money among different kinds of investments, a process known as asset diversification.
- Use Dollar Cost Averaging to invest regularly. The idea is to invest a constant dollar amount at regular intervals. By doing so, you even out the cost of your investments over time.
Dollar Cost Averaging
Dollar cost averaging can help you enhance the possibility of reducing the effects of market fluctuations. Instead of trying to guess the "right time" to invest, dollar cost averaging enables you to invest systematically over time.
This is a commitment to invest a set amount of money every month and sticking to it, regardless of market activity. While this doesn't guarantee a profit, or necessarily protect against loss in a declining market, it can help smooth out the peaks and troughs of volatile markets to help maintain your individual investment objectives and risk level.
If you believe you do require the service of a financial planner then please feel free to contact us at Growth Plus Wealth Management on 02 9264 6733 or drop us a line at info@growthpluswealth.com.au