Here's a bulletproof strategy for getting wealthier
What if there was a guaranteed way of building wealth, following a tried and tested investment formula that's turned many ordinary Australians into millionaires?
Another week, another lost opportunity to get rich quick from a huge mid-week lottery pay-out.
That’s not to take anything away from the family that did win the mega-millions up for grabs. Good for them, but the sad reality is that the chances of doing that are, well, millions to one.
But what if there was a guaranteed way of building wealth, following a tried and tested investment formula that’s turned many ordinary Australians into millionaires? There is, but there’s one catch though. It’s definitely not a get rich quick scheme. It’s a scheme for getting wealthier, slowly.
What’s required is patience, a lot patience in fact, and a long-term commitment. By long term, we’re talking about decades. But that wouldn’t be a bad thing, would it, if you knew you were going to get richer in the process?
What we’re talking about, of course, is a well-structured investments strategy. Some of us will do the bulk of our investing through superannuation, which has unique tax advantages. Others will invest outside of super as well, with the advantage of being able to draw down on the returns at will without being subject to meeting a condition of release.
That being said, the longer one’s funds are locked away the better, because that enables returns to compound over time. A report recently released by Vanguard, one of the largest asset managers in the world, shows that patience does pay off when it comes to investing.
Against a backdrop of economic, social and political events which influence volatility and shape markets on a daily basis, Vanguard has tracked the growth of $10,000 invested in major asset classes over the course of 30 years.
It shows that since 1988, an investment in the broad Australian share market would have yielded 9.1 per cent per annum and grown to $136,435, while an investment in Australian bonds would have returned 8.0 per cent, growing the $10,000 initial investment to $99,412.
The 30-year returns are an important reminder that while markets fluctuate from year to year, a long-term diversified approach in a range of broad asset classes gives all investors a great chance of significantly building wealth.
Remember that market returns vary from year to year across different asset classes. Chasing last year’s returns is a losing game, because markets change all the time. You only have to think about Australian residential property to recognise that, but the same applies to other asset classes as well.
So, while it may be tempting to focus on recent performances, the secret is to have a well-balanced approach over time.
When you compare the growth in individual asset classes to a long-term investment in a balanced diversified fund (50/50 growth/income split) over a 20-year period, investors can expect a smoother ride thanks to a much more diversified portfolio, while maintaining a good return on investment in the portfolio.
In the end, owning a portfolio with at least some exposure to many or all major asset classes ensures you of some participation in stronger performing assets while mitigating the impact of weaker assets.
Building wealth needn’t be a lottery. It’s all about having dedication, patience, and by taking a well-diversified approach.