Preserving Wealth


As stated previously, the main goal of this blog is to communicate how to invest to grow wealth quickly and beat the average mutual fund.  This strategy is for those who don’t have a great deal of wealth, such that the threat of losing at some positions is less important than being too conservative and settling for a low return. 

But what about those who do have enough wealth to worry about its preservation.  What if you have a million dollars in the bank and are looking to retire in a few years?  While a portion could still be invested in individuals stocks to obtain growth, say $100,ooo of the million, it would be unwise to put such a large portfolio at risk since the money will be needed soon.  Today I wanted to talk a bit about wealth preservation, instead of growth.

One might figure the best thing to do would be to put the money in a CD, or maybe under the mattress, since protecting the nest egg is the goal here.  (This is in fact exactly what should be done with funds needed within the next five years since investments in the stock market can be underwater for several years at a time.)  The trouble is, unless wealth is stored in a hard asset like gold, inflation will be eating away at the value all the time.  It is therefore necessary to make about 3-4% per year to prevent loss of purchasing power – and more at higher inflationary times.  Even investing in gold is not a sure thing because gold is subject to bubbles and falls (we may be in a bubble now).  If you’d  bought gold during the height of the bubble of the 1980’s it would have taken 20 years to get back to the same price.

Wealth preservation is all about diversification.  Because all industries do not tend to go down at the same time, one wanting to preserve wealth should buy mutual funds that purchase stocks in a wide variety of industries.  Also, buy funds that invest in different sized companies (small, mid, and large caps) and also international funds, since the stock markets at other parts of the world may be doing well even when the US market is not, and stocks in foreign countries will also increase when inflation increases here.  Putting some money into non-stock investments, such as REITs, bonds funds, and preferred convertible stocks and bonds would be wise since the relatively large interest/dividends that these types of investments pay help reduce the size of the fluctuations they experience.

Refer a friend – link to this page: https://smallivy.wordpress.com

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security.  Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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