What are the Options?
There are a few options to consider when it comes to building your personal wealth. All have pros and cons and before you start you need to consider your personal goals for wealth – how much do you want, when and most of all why?
Money by itself is worthless – it’s what you do with it which is important.
The next thing to consider is your ‘risk profile’. Are you ‘risk averse’ – don’t like ‘taking risks’, or are you happy with a medium or higher level of risk because whenever you invest your wealth with the intention of building or growing it, there is always a ‘risk’ that things may not go according to plan?
But then absolutely everything we do carries some level of risk. Nothing is ever ‘risk free’.
Next is your strategy. Do you plan to invest one big lump sum, a series of large amounts, or make smaller regular payments? In other words, one big 5 or 6 figure sum, a four or five figure sum every year or regular monthly payments of a few hundred or a thousand or so. It’s up to you and your cash flow.
Now please be aware that this is not ‘financial advice’ rather the benefit of practical experience over several decades and several ups and downs in the economy. Before you ‘start’ you need to gain some knowledge and the trouble with so called ‘financial advisors’ is they are usually only trained in one aspect of wealth building; property, stocks and shares, precious metals, pensions and sometimes fine art and antiques. They all promote their area as expertise as the ‘best’ and very few indeed know anything about digital assets.
You’ll need to talk to several people and please don’t rely on the ubiquitous Google or anything you find on ‘social media’. What you find there is written by people who are not accountable to anyone or regulated in any way.
There are effectively five options to build wealth and of course you can always employ more than one; what you must decide is the proportion of your existing assets you will allocate to each.
A test you can use to evaluate this is “Howe long will it take to double the value of my portfolio?” 1 year, 2 years, 5 years, 10 years, more?
Here are some advantages and disadvantages of each main asset class. The average value of all assets goes up and down over time, sometimes quickly, sometimes slowly but there is always a general trend of growth which usually relates to time.
Positive: Stable but slow growth in value over the very long term, Potential rental income, The ‘stability’ of ‘bricks and mortar’ giving a feeling of confidence.
Negatives: Generally high entry threshold (5 figures usually), Ongoing maintenance costs, Generally low liquidity – difficult to recover as cash, Massive regulatory overheads if you’re a landlord, Risk of damage.
Positives: The ‘fallback’ in an unstable global economy, Mature market, Known as a ‘safe’ asset, Generally good liquidity – easy to turn into cash.
Negatives: Uncertain trend, goes up and down for lengthy periods, Slow growth potential, Infinite resources – there’s always more under the ground, Storage and security costs to alleviate risk of theft, Low usability other than store of value.
Fine Art, Antiques, Memorabilia etc.
Very similar to precious metals
Pension Plans and Managed Funds
Positives: Long term positive trend, No experience or involvement required, Easy to enter market. Low entry and contribution levels.
Negatives: Very slow growth, may remain flat for some time, Management fees can be quite high, No real control over funds chosen, Access to funds limited by regulations and terms.
Stocks and Shares
Positives: Short term positive trend, Mature market, Leverage trading
Negatives: Prone to manipulation, Unstable global economy, Company failures, Requires close involvement, Requires significant knowledge.
Digital Assets – Crypto
Positives: Start of long term growth cycle, Long term positive trend, Global trading, High usability, Easy, fast, cheap transfers, Mass adoption starting, The only really finite asset. Available 24/7, Mutual fund adoption, Payment provider (Visa etc.) adoption, Mass adoption starting, Decentralised finance and money
Negatives: High volatility – changes happen rapidly, Tightening regulatory policies, Prone to manipulation, Low investor confidence – contributes to volatility