The Basics To DIY Wealth Building

 

An industry full of product salespeople and high fee services enjoys keeping investing complicated.

In reality, investing can be both simple and hands-off. In fact, the more complicated you try to make it, the more you incur fees and expenses, and the less money you make. The data is undeniable.

Keep it simple. Here’s how.

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Spend less than you make

 

Building wealth requires living within your means. It’s difficult to invest money without money.

Appreciate the power of compound growth

 

Patrick invested $190/mo from age 20 to 65, earning 8% per year. Patrick has accumulated $1 million. If Patrick got lucky and earned 10% per year, he’d have $2 million.

On the spectrum of real-world magic, compound growth falls somewhere between the water cycle and magnetism.

Automate your investing

 

Automatically contribute to your retirement portfolio by arranging periodic and automated transfers from a paycheck or bank account. Set it and forget about it.

Invest in index funds

 

The data is clear: even the pros fail to consistently beat the market. Your best bet is to buy and hold low-cost index funds.

“Don’t look for the needle in the haystack. Just buy the haystack.”
—John Bogle

Minimize investing costs

 

The power of compound interest applies to fees, too. Costs are everywhere, and they can devour your portfolio.

Remember, for Patrick, 2% was worth $1 million. So ask yourself:

  • How much are you paying your investment manager?

  • How much are you paying in mutual fund expenses?

  • How much are you paying in load fees and sales commissions?

If you’re like a lot of folks, these charges can amount to effective annual costs of 1% to 3%, or more.

Diversify and avoid excessive risk

 

Allocate your portfolio across a variety of asset types consistent with your willingness and ability to handle market downturns. Many funds do all of the work for you (e.g., target date funds). But it might also be helpful to speak with a professional advisor to ensure you’ve got a handle on your risk tolerance.

Find a trustworthy fiduciary

 

If you need professional advice, work with a fee-only planner or advisor serving as your fiduciary. Avoid product salespeople working for a bank or broker-dealer, and “experts” offering courses on social media.