5 wealth-building habits you can start today
Real, inflation-adjusted incomes continue to stagnate. Interest rates for savers are at rock-bottom levels – with most bank and building society accounts offering returns that, when adjusted for inflation, are actually negative. And generous so-called ‘final salary’ defined benefit pensions are going the way of the dodo.
So if you’re thinking that a decent nest egg is a smart move, you’re not alone. I’ve encountered several people in recent weeks who have been thinking hard about taking control of their own financial destinies.
And for them, the good news is that the government’s tax-free ISA wrapper regime has never been more generous.
This tax year, the allowance is £20,000 – a far cry from the £3,000 or so of not so many years back.
The contrast with pensions – where the tax breaks get more miserly with every Budget – couldn’t be more stark. For building serious wealth, and doing so in a tax-advantaged manner, ISAs are the way to go.
But not cash ISAs, of course. Not with interest rates at derisory levels, and likely to remain so for years. For serious wealth accumulation, stuffing your ISA full of stocks and shares is the way to go.
Nor need this be complex, or technically challenging.
In fact, to my mind, wealth accumulation is more of a mind set and an attitude – a willingness to take a long-term view, a willingness to take a calculated amount of risk, and a willingness to see living a little more frugally as an opportunity to save and invest more.
And in the years that I have been investing, and writing about investing, I have been fortunate enough to meet and talk to many people with a decent track record in wealth accumulation, from all walks of life. I have learned lessons from them, and they – I hope – have been able to learn lessons from me.
So here’s my take on what really works when it comes to wealth accumulation.
But better still, it avoids the ‘investing at the peak’ trap. When stock market euphoria is at its highest, you’ll see people dive into the market, only to lose their shirts when the bubble pops. Buying regularly gets you in at the market’s lows, as well.
The discipline of investing only in businesses with well-understood business models may cause you to pass up on some stellar gains, but you’ll also duck a good-sized pack of dogs.
And then hold for the long term, and let those businesses – and those managers – work for you, and send a growing stream of dividends your way.
So forget ‘chasing alpha’: you’re likely to have more success driving down costs with a judicious choice of brokerage, and an avoidance of costly trading in and out of poorly chosen stock picks.
By not leaping on board, I’ve certainly missed out on potential gains, without a doubt. But I’ve also sidestepped potential losses.
Boring? Perhaps. Nothing too esoteric or abstract there. But then, why should there be? No one ever said that wealth creation had to be complex and complicated.
In my view, for the average investor, wealth accumulation amounts to little more than staying the course, investing regularly, keeping your costs down, and not doing too many daft things along the way.
Looking for capital gains?
One of our top analysts has put together a free report called A Top Growth Share From The Motley Fool, featuring a mid-cap firm enjoying strong growth that looks set to continue. To find out its name and why we like it for free and without any obligations, click here now!