Wealth Creation Strategy
Smart investors have a wealth creation strategy; They plan ahead and think about what they want to achieve. Some people want to use their wealth for specific things, like sending their kids to college, traveling, or retirement. Other people want to make their money work for them so they can help other people.
When building a wealth creation strategy, you need to consider your goals as well as where you currently sit financially. From there you need to set short, medium, and long-term goals. As always, when creating goals, make them measurable by applying a timeframe and milestones.
Review Your Finances
Before you enter any investment, you need to have an understanding of your current finances. You should look at your assets and liabilities in order to get an idea of how much you can invest without financial strain. Don’t invest any money that is needed to cover expenses, it’s also a good idea to keep some money aside for emergencies.
For these reasons, the Futures markets are the most accessible for traders with small accounts
Set Your Financial Goals
Write down your financial goals and where they sit on your investment timeline. Set goals for short term (under 2 years), medium term (3 to 5 years), and long term (5+ years). When writing your goals you should keep in mind the funds required to achieve these goals and whether they are realistic. Not all investments need to fall in all 3 categories, some may be purely short term, others may be purely long term.
Risk vs Return
You’ll need to understand the balance between risk and reward for each investment. How much risk are you placing in this investment and is that risk worth the projected reward. In researching your investments you should look for each type of risk for that investment.
Know Your Risk Tolerance
Any investor should know their risk tolerance before entering an investment. You can look online for a risk tolerance questionnaire or seek advice from a financial planner to find your tolerance.
Your risk tolerance is based partly on how you view money and risk on a psychological level, as well as your age and capacity to recover from losses.
If an investment is high risk and you aren’t comfortable with seeing large drawdowns then this is not an investment that fits your risk tolerance.
Build Your Portfolio
You can begin to build your portfolio of investments once you know your goals, timeframes, and risk tolerance.
If your risk tolerance allows it, a short-term investment could be something slightly speculative that has an impending catalyst. If you’re conservative when it comes to risk then you might consider bonds, or term deposits.
Since medium, and long-term investments have the time to mature it’s good to look for something that has a stable track record.
When building your portfolio try to stay diversified and don’t put all of your money into one investment, or even on type of investment.
Monitor Your Investments
You don’t need to stare at your investments every day, but it’s a good idea to keep an eye on them from time to time. You should review whether your investments are achieving their goals, and whether you need to rebalance the investment. Rebalancing could mean moving funds out of an investment or adding funds to an investment.
Investing For Wealth Creation
When it comes to investing for wealth creation you should first and foremost follow your plan. You should also make sure that you have investments across various assets. Here are 6 basic rules for investing for wealth creation: