Many people believe that the rich have a secret blueprint to investing but in truth these high net worth individuals understand how money works, take calculated risks and avoid simple investing mistakes. Here are five mistakes to avoid:
1. Only investing in developed markets
Investors typically gravitate towards developed countries as they seem to offer investment security but as Brexit and the US elections have shown us in recent times is that this is not necessarily the case. The rich on the other hand know that there is money to be made in developing/emerging markets. Countries like China, Singapore and Jamaica, have been outperforming many developed markets.
2. Investing in the typical securities
When you think investments, I guarantee your thoughts went straight to stocks and bonds, right? These are great investment options, but many people forget that stocks and bonds are not the only options. Have you ever wondered why the rich have so many properties? Of course, having multiple properties illustrates wealth but real estate is one of the fastest growing assets that stabilise portfolios during volatility. If you want to build a savvy investment portfolio alternative asset classes are something you should consider.
3. Keeping up appearance
No, not the 90s tv show, but rather living above your current means to impress others. This behaviour is detrimental to your financial success! Establishing goals and strategies are critical when making investment decisions not chasing the competition and knee jerk reactions to volatility. Don’t fall into the trap of purchasing things that are unnecessary because your neighbour pulled up in the latest Range Rover; the focus is the long run.
4. Unbalanced portfolio
It is essential for every investor to review their portfolio on a consistent basis, whether annual, quarterly or monthly. Rebalancing ensures your portfolio is still in line with your goals, diversified and is protected from avoidable risk. You may not have the time to rebalance your portfolio consistently so consider a portfolio manager – your investment firm typically provides this service.
This is a necessity and not something you should take lightly, at least if you are serious about your wealth.
5. No savings plan
Don’t get me wrong, investing is the number one way to achieve financial wealth, but do not neglect the saving strategy. The best approach incorporates both saving and investing. This way you are increasing your value via investing while simultaneously reducing your spending via saving, thus increasing your overall wealth.
There is a misconception that the wealthy do not save. I am here to tell you that it’s not true. Some of the richest people are the most frugal, example Warren Buffet. As one of the world’s richest men, Warren Buffet still lives in the same house he brought in 1958 for $31,500. In fact, of his total worth, his home is worth less than 1%.
Becoming efficient in investing puts you in a better position. The real difference between the high net worth individuals and low net worth individuals is the strategy.