3 tips from investors on building long-term wealth

If you’re not sure where to start on your investing journey, you’re not alone. In fact, recent data shows that 41% of U.S. adults don’t have any money invested in the stock market.

The problem: investing has been shown to be a key wealth-builder over time, and the earlier you start investing, the more time your money has to grow. 

How investing can translate to greater wealth  

U.S. stocks, as represented by the S&P 500 index, have returned a historic annualized average return of around 11.88% between 1957 and 2021, according to experts. It’s important to note that this figure doesn’t tell the whole story of how inflation and stock market swings can impact your returns and reduce that number, but it does give new investors an idea of just how much they stand to gain.

Over time, a strategic and consistent investment strategy can give you the capital you need to buy a home, create a passive income stream, retire and pay down debt to reduce your liabilities. 

Pros give their advice on setting yourself up to thrive

There’s no one formula for investing success, but we asked a few high net-worth individuals for their tips on what worked for them as they worked to build their wealth and what they’d recommend investors consider when embarking on their investing journey. Here’s what they said: 

  1. Don’t be afraid of alternative asset classes. While you shouldn’t invest solely in alternative investments like crypto or NFTs, some exposure can be a good thing and help you avoid losing big by putting all of your eggs in one basket. “Due to market conditions, I have significantly increased my allocation in Alternatives,” says Shahed Khan, co-founder of Loom, a video messaging platform for businesses. “As we are currently in a volatile interest rate environment, I’ve turned to alternative investment platforms like Equi that focus on investments with little or no correlation to the S&P 500.” 
  2. Be consistent and have an investment strategy in place. When your investments respond to swings in the market, it can be easy to want to cut your losses and stop investing altogether. Experts say that staying the course is always the way to go.

    “The people who struggle with investing often make mistakes when they chase returns, jump from one investment to another based on the performance of the year before, don’t segment their portfolios, and lack a systematic investment strategy. It’s really about being disciplined and continuing to invest in all different types of markets, not trying to time the market but investing in things you understand and use,” says Faron Daugs, Certified Financial Planner™, Wealth Advisor, Founder & CEO at Harrison Wallace Financial Group.

    Daugs shared that his strategy involves changes to his overall allocation.

    “I’ve always been a believer in diversification, and I still divide my portfolio into segments; however, the segments have changed in terms of overall allocation. I’ve included a greater portion to “sector” investments and rotate those more frequently. My core holdings remain solid in all size capitalization stocks and are rebalanced regularly, and a percentage of that core is now hedged for downside risk protection,” says Daugs.

  3. Take investing adages with a grain of salt. Investing “rules of thumb” can set helpful guidelines, but there are instances when it can make sense to switch things up. “The common and antiquated wisdom provided to new investors is generally to allocate a 60/40 stock/bond portfolio; we believe this allocation is broken,” says Michael Weisz, Founder, Chief Investment Officer & President at Yieldstreet. “Investors need not look further than 2022 to see the downside in this passive approach to investing with double-digit losses exhibited in both the S&P 500 and US Agg. Corporate Index. Investors should maintain a long-term view with respect to investing, reducing the urge to fall victim to short-term bouts of volatility.” 

How to start investing  

If you’ve never invested, the prospect of forking over your money so that it may or may not multiply could make you feel like running in the opposite direction. It’s true—investing will always involve some level of risk, but it can also potentially help you grow your money with little effort and provide you with extra income to hit your financial goals. 

You can spend hours reading about the “best” ways to invest or asking your group chats what they’re put their money into, but here’s where to start: 

  1. Determine how much you feel comfortable investing. Your budget will be a huge deciding factor in how much you’ll invest to start. Take a close look at your spending categories to see if you have any wiggle room after you’ve covered your non-negotiable expenses. Then decide how much of that income you feel comfortable allocating toward your brokerage account. Remember: this amount can be adjusted over time if you find that you’re over-investing or feel you could be investing a bit more. There also isn’t an exact amount needed to get started. In fact, many brokerages leave it up to you to determine how much you want to deposit into your account–in many cases, you can get started with as little as $1. 
  2. Set goals and figure out what you want to invest in. Know what you’re investing for and choose a mix of assets that align with that goal and timeline. Not all assets are created equally, even though risk is present across the board, some investments are considered riskier than others. If you’re investing for the long-term, you may have the flexibility to invest in newer or alternative investments—because you have extra time to recoup any potential losses. However, if you’re investing for retirement, for example, and you only have a few years until you leave the workforce forever, you might consider less volatile assets. 
  3. Choose a vehicle for your investments. There are several mediums you can use to start investing. The easiest way to start investing is likely through a brokerage account or investment apps, many offer mobile apps that allow you to start investing in stocks, bonds, cryptocurrency, and even art and collectibles, right from your phone. 

The takeaway 

Investing can provide a means of affording some of your larger, more costly, financial goals and set yourself up for a more financially stable future. Take the time to review your budget to determine how much you can afford to invest and think carefully about your timeline and risk tolerance when deciding what to invest in to ensure that your portfolio aligns with the goals that matter most to you. 

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