My Step by Step Investment Strategy for Building Wealth
I’ve been working on this post for weeks, no more like years, well actually my entire adult life.
Allow me to explain…
Becoming wealthy is not that hard really. Think about it, if you earn more than you spend you are on the right path. The trick is, to produce all of your earnings from assets, then one is truly, infinitely wealthy.
So how do you get there from here?
The following principles are not taught in school, so unless you are fortunate enough to learn them from a wise parent, teacher, or mentor, it’s likely that you fall into a similar situation as most.
As a reader of EminiMind it’s very possible you’ve heard some of these principles before, but haven’t taken action. Let today be the day you take action and move forward.
Getting rich and building wealth starts with the concept of paying yourself first. Any soul that regularly saves at least a tenth of his or her income, putting that money to work earning interest will become wealthy.”
Living on 9/10th of one’s income however requires living within your means, not borrowing for things you cannot afford, and not becoming buried in debt.
I recommend reading these books in the following order.
And if you’re currently in debt I recommend starting with Dave Ramey’s The Total Money Makeover .
Work Hard, because if it’s worth doing, it’s worth doing well
Your work is an extension of your character, so work with integrity and purpose. Nothing meaningful comes easy, so chances are if the road to a goal you seek appears challenging, the reward will be high.
Success starts with discipline. Having the drive and focus to get up each morning and keep pushing forward is what makes an overnight success.
Ideas for Cutting Your Expenses
Live on no more than 70% of what you make. If you’re borrowing and living beyond your means, cut back and start living within your means. New cars, boats, and toys are much more fun when you don’t have a massive monthly payment.
Owning your stuff outright is a great feeling. First earn, then invest, then you can spend a portion of your investment income on toys.
Sell some s***. Less stuff, means you can get a smaller place, closer to work which leads to less travel expenses.
If just getting your expenses down to 9/10ths of your income seems like a giant feat, look for ways to grow your income, even by a few hundred dollars a month.
Where Should I Invest My Money?
The worst thing you can do is invest your money in an asset that you know nothing about. Focus your investments on things you know, and if you don’t know of any good investments, start reading (or sit down with a trusted financial planner who can educate you on sound investments).
Mutual Funds are a great starting point to amas wealth. I would not recommend Real Estate or other less liquid investments until you have built a sizeable Mutual Fund investment portfolio. The reason is, life happens, and investments such as Mutual Funds and ETFs are liquid enough that you can “liquidate” or sell a portion of them for cash and have it deposited in your account within a few days.
I have several accounts with TDAmeritrade, the most valuable in the long run being a Roth IRA (Individual Retirement Account). Money inside the Roth IRA grows tax free, thus any investments within the account accrue at great value over time. You can get started with as little as $3500, so even if you already have a 401(k) or similar work pension, starting your own IRA is another way to build great wealth. Just run some numbers in a compound interest calculator.
Two Accounts You Must Have in Addition to Your Day Trading Account
I talk a lot about the importance of having a well put together portfolio in addition to your trading account. 401(k)s, IRAs, brokerage accounts, real estate, BitCoin, gold, they all make up our net worth and it’s that bigger picture that keeps us on course during the long term.
My brokerage account strategy is that of a long term savings with the purpose of growing your earnings while still having access to funds prior to traditional retirement years. I like the Vanguard ETF of VUG.
Individual Retirement Account (IRA)
Similar to the brokerage account, a Roth IRA strategy of buy and hold serves the purpose of delivering an income in your later years. If you’re over 40, try and max out your Roth IRA each year, it’s only $5500 if you’re under 50, and $6500 if you’re over 50 as of 2016.
The advantage of a Roth IRA is that your earnings grow tax free, thus the cap on yearly contributions. The traditional IRA does not grow tax free, but can have other advantages that I won’t get into here.
No more than 20% of your total assets should be allocated towards trading. This serves two main purposes, to protect you from your emotions get the best of you and blowing up your entire retirement and because of this, eases the psychological stress that trading can bring.
By allocating only a small portion of your total assets to trading, not only is your risk kept small, but mentally, it helps with the fear of losing money because I know that even if I lost all of my trading money I wouldn’t have to change my lifestyle, I’d still have 80% of my assets still intact.
How you divvy up the risk in your trading accounts is up to you. I have different trading accounts for different strategies such as day trading future, trading options, and swing trading stocks. You can do all 3 within TDAmeritrade to keep things simple.
Always Continue Learning
Remember the days long ago where your ambition was high? Maybe that motivation is still there, but if not, pickup a book, any book and start reading. Learning is the best way to ensure that we continue growing.
Examples of Assets
- Long term investments
- Brokerage account
- 401(k)s, pensions, etc.
- Trading accounts (stocks, options, futures forex)
- Day trading
- Swing trading
- Real Estate rental income
- Owning a business
- Collectibles, Artwork
- Cryptocurrency such as BitCoin or Ethereum, Foreign Currency
This is just a small list, but gives a nice overview of various ways to build assets that return earnings.
Takeaways from this article:
- Save 10% of all you earn & invest it in secure assets
- Cut your expenses
- Get out of debt ASAP
- Pay cash and live within your means
- Work hard, continue learning
Resources from this article:
- Compound Interest Calculator
- thinkorswim® powered by TDAmeritrade
- Rich Dad, Poor Dad by Robert Kiyosaki
- Richest Man in Babylon by George Clason
- Think & Grow Rich by Napoleon Hill
- The Total Money Makeover by Dave Ramsey
- Mr. Money Mustache blog
- How to Setup Your Trading Business article