Getting Wealthy vs. Staying Wealthy
Opposite ends of the spectrum require different approaches.
Good morning everybody,
There is a fine line between getting wealthy and staying that way. People who don’t have “enough” want to take more risks, and people who do take more of a preservative approach.
At the beginning of your investing career, you will have to make a lot of decisions. What stocks or bonds should you buy, how much you diversify, and whether ETFs or mutual funds are suitable for you.
But once you’ve let compound interest work and you are sitting on a lump of cash, how do you keep it? People tend to act irrationally with large amounts of money because losing 2% hurts a lot more than it did a couple of years ago.
But to answer these questions, we have to talk about the difference between getting wealthy and staying that way.
Getting Wealthy
Getting wealthy requires a certain amount of risk, but more than that, you need a strong mental fortitude. Your goal in the investing process is to be in the game for as long as possible. No one trade or investment should be able to take you out of the market altogether.
Whether you choose to buy mutual funds or individual stocks should be solely based on your ability to withstand the storm. ( Bear markets are only opportunities to get discounts on your favorite assets.)
Before the dot com bubble disaster, Amazon.com’s stock price peaked at $5,132.52 in March of 2000, and after, it fell almost 90% in two years.
Even if you made a one thousand dollar investment in Amazon in 1999 and held through the financial crisis, you would have about $15,500 today.
Getting wealthy is a game of patience and fortitude.
Staying wealthy
Wealth preservation is a different story. This comes at the point in your life when you feel you have enough. Enough in the sense that more money won’t impact the lifestyle you have chosen.
In my opinion,(because I am not a licensed financial advisor) It would be important to take a safer and more diverse approach than we did in the section on getting wealthy. Mainly because more pain is attached in our minds when dealing with bigger numbers, even if the percentages are the same as a smaller portfolio.
The part about being able to weather the storm no matter what still applies to staying wealthy. The only difference here is that smaller percentages will pay more. Such assets as bonds that are guaranteed interest but no growth might be a good option over stocks in a recessionary environment.
5% of $1,000,000 = $50,000 per year. It’s not super luxurious like owning Amazon stock in the tech bull run. The point is you should invest in whatever helps you sleep at night.
Risk makes the most significant difference in either getting or staying wealthy. So be sure to keep this in mind when choosing your goals in the investing world.
More risk equals bigger returns but also bigger losses.
I hope everyone liked today’s article. If you have any topics you would like us to cover, leave a comment, and we will be sure to get it.
As always have a great rest of your day, and remember to live in the moment.
