“Someone is sitting in the shade today because someone else planted a tree a long time ago.”
Warren Buffett
Eating an elephant feels like an impossible task! And so is building and maintaining your wealth! This BHAG (Big Hairy Audacious Goal) may look like an elephant and it may make you feel defeated before you even start.
I know I am not alone in this feeling. Let us look for a “win.” Let us keep moving in the right direction. Baby steps is also movement. Working with people and their money and helping them reach their goals I found these simple steps come in handy:
Step 1: Start with the End in mind.
Take a holistic view. Take a deep breath, quiet yourself and ask yourself these questions.
- How will I know that I have succeeded?
- How will I feel when I have succeeded?
- When do I want to hit this goal? 1 year, 5 Years, 10 years?
Step 2: Take the First Bite
You’ve heard it said, “How do you eat an elephant? One bite at a time.” This also true for building wealth
- What is the first step I can take?
- What capital do I have at my disposal: monthly and as a lumpsum?
- Who can I ask for help?
- What is the timeframe I need to be successful in this first step? 1 year, 5 Years, 10 years?
Step 3: Celebrate your success.
It is easy to get so caught up in the plan of getting to our goal, that we often forget to look at our “wins.” Clarify what a “win” looks like… don’t assume you know it. Write it down.
- How will my celebration speak to my heart?
- How will this celebration make me feel?
- Research now, where can I go or what can I do.
- Would I bring someone else along to share in my celebration? Who? Why?
Eating an Elephant one bite at a time might take a while, but with wins along the way and celebrations to enjoy, the goals you make are almost accomplished! All that is left is to start! Ready…set…go!
Some good pointers when deciding to take your investment serious.
Protect your capital
Rule No. 1 : Never lose money. Rule No. 2 : Never forget Rule No. 1.
Warren Buffett
These simple rules form the cornerstone of building lasting wealth. How do we achieve this?
1. Diversification – Spreading your risk
A primary principle of the modern portfolio theory (MPT) is the practice of diversification.Supporters of MPT assert that during market lows, a well-diversified portfolio stands a better chance against a portfolio concentrated in fewer areas. By incorporating a large array of investments across multiple asset classes, investors can mitigate unsystematic risk. This particular risk is tied to investments in specific companies. Financial gurus suggest that stock portfolios consisting of 12, 18, or even 30 different stocks can effectively neutralize most, if not all, unsystematic risk.
2. Non-Correlating Assets
On the other end of the spectrum from unsystematic risk is systematic risk – the inherent risk tied to general market investments. This form of risk is perpetually present. Yet, there is a strategy to counteract it by integrating non-correlating asset classes like bonds, commodities, currencies, and real estate into your stock portfolio. These non-correlating assets have different responses to market changes compared to stocks—frequently, they even show opposing trends. Thus, when one asset depreciates, another appreciates, thereby stabilizing your portfolio’s overall value despite market volatility.
3. Contain costs
When you’re investing, the costs you have to pay may seem tiny at first, but over time they grow, and they grow along with the money you’re making from your investments. So, not only do you lose the small amount you’re paying in fees, you also miss out on the extra money that those fees could have earned if they were part of your investments.
Let’s imagine you invest R100,000. If that investment grows by 6% each year for 25 years and you don’t have to pay any fees, you’d end up with about R430,000.
But, if you had to pay 2% every year in fees, after 25 years you’d only have around R260,000.
So, this means the small 2% you pay each year can actually take away nearly 40% of your total money in the end. So, that 2% fee doesn’t seem so small anymore, does it?
