How to Grow Rich Slowly


Everyone has seen the late night advertisements.   There is a guy standing in a large backyard by a sky-blue pool with tropical flowers and a large stucco-roofed house in the background.  Perhaps he has a woman 10-20 years younger than him lounging next to him in a bikini, enjoying the sunny day.  They are both probably wearing sun glasses – wealthy people are always wearing sunglasses.  He says that he is ready to share the secrets to building great wealth and obtaining economic freedom.

He then proceeds to tell you that you can make a fortune while you keep your day job using his system.  It may be a real estate trading scheme.  You may be buying and selling penny stocks.  Perhaps you are doing multi-level marketing — a technique only a hair different from a pyramid scheme.  Maybe you are selling products over the internet for them.  All you need to do is set up an account and then check each day to see how much cash you made.  Just sign up for their seminar, which conveniently is coming to the Holiday Inn near you.  The price is never mentioned.

Unfortunately, wealth will not come to you from some scheme.  If there really were a scheme that could create untold wealth, why would they share it with you?  Why not just sell the real estate themselves?  Why wouldn’t they set up their own websites to sell their products?  If the individuals in the commercials actually are wealthy (and they didn’t just rent out a house for the commercial), you can bet that they got that way off of the fees for their seminars and classes, not from the scheme they are presenting.

 

The Compound Effect

Getting wealthy through starting a business, which is the fastest way, requires time, risk taking,  hard work and long hours.  Getting rich through investing luckily doesn’t require as much hard work, but it requires sacrifice,  prudent risk taking,  time, and discipline.

Sacrifice is required.  You don’t buy a new car every few years; you buy a 3-4 year-old car every 5-8 years.  You don’t buy a boat; you rent one during the few occasions you actually go boating during the year.  You don’t eat out every night; you learn to cook and eat out perhaps once a week.  You set a budget and stick to it, and that budget has less money going out each month than is coming in from your job.  You understand that by waiting and buying the toys later for cash and from the gains from your assets, you can have both the money and the toys.  Buy them now, on credit, and you’ll end up spending twice as much for them as the sticker price.  Plus in five years, they’ll be old and broken and you’ll still be making the payments!

You take prudent risks.  This does not mean going to Vegas and betting on red.  It means investing your money in places where the odds are in your favor, but that grow faster than the rate of inflation.  Things like stocks, real estate, ETFs, mutual funds, and bonds.  These investments allow your money to earn money and compound, growing as you work so that eventually your portfolio is providing more income than your job.  This is when things really start to happen.

 

For more information on why you can have too much diversification, try one of these great books:

        

Growing wealthy requires time.  Do some calculations on compound interest and you will find that very little interest is made in the first few periods, but huge amounts are made during the last few.  Try this experiment: start by placing a penny in a jar.  The next day place two pennies, the next day four pennies, and so on, doubling the amount each day.  See how much you will be putting in the jar by the end of thirty days.  (If anyone does this, please write a comment telling everyone what happened).  Be patient and let your money compound.

Finally, discipline is required.  Money needs to be put away every month into investments.  It doesn’t matter if the market is up or down, put some money away.  If the market falls through the floor, buy all you can.  If the market seems really pricey, perhaps hold back a bit on the side in a money market account, but put some in anyway in case you are wrong.  In any case save some money each month from you earnings.  Consistency is the key.

Learn how to use mutual funds from the founder of Vanguard:

 

 

 

 

 

 

 

Join the conversation and help make this blog more exciting!  Please leave a comment.  Also, if you have an investing question, email  vtsioriginal@yahoo.com or leave the question in a comment.

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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