According to The Business Insider.
Schematic diagram. (Photo credit: Pixabay/Public Domain CC0)
I have many wealthy financial planning clients, and they all enjoy four habits.
They watch their finances over time and don’t worry about market fluctuations.
They plan and always do, and they invest automatically regardless of timing.
Those of us in wealth management can quickly notice certain commonalities among our clients. How our clients use their time, their priorities, things to avoid, etc.
Regardless of background or age, my millionaire clients almost always have four things they do that I believe are responsible for their ability to build wealth (a difficult thing) and keep it (an even more difficult sounding thing)
- They maintain a long-term focus on their finances
People are easily drawn to daily market fluctuations and financial temptations. The financial media can be a noisy venue for advocating short-term concerns, whether the focus is on quarterly earnings, the latest technical chart forecast or market concerns or comments from the U.S. Federal Reserve chairman.
While some of these may have a meaningful systemic impact on the market or an individual investor’s portfolio, most millionaires know they need to ignore the short-term chatter and focus on their individualized long-term investment assumptions and allocations. This prevents them from making emotionally charged mistakes such as market timing, herding behavior, etc. that could cost them thousands of dollars in the long run.
In short, they have a long-term plan to keep in mind when making day-to-day decisions.
- They make a plan and save and invest accordingly
Before anything else, some of the least sexy aspects of wealth building are saving, investing and paying off debt. As boring as these things are, they are the surest way to achieve financial abundance. They’re not magic. They are simply ways to make sure you are doing what you can to continue to build wealth and make progress toward your financial goals through monthly contributions.
I have consistently found that successful clients decide what they want to achieve, how much they need to save and invest to achieve their goals within a desired timeline, and then build their lifestyle around those goals. It also has the benefit of being super invisible, which means you have to save less money for retirement because you have a smaller percentage of your income.
Welch also noticed that people spend too much money paying off debt.
When you find yourself with extra money, you may try to pay off as much debt as possible, but sometimes that’s not the best use of all the available cash. If you want to use more money to pay off your debt, consider the following: If the interest rate on the debt is lower than the interest you might earn by investing that extra money, then invest that extra money,” Welch says. That way, if you are willing to take some risk, the extra income you may earn from your investments, while not guaranteed, may exceed the low interest rate generated by the debt. “
- They automatically invest in good times and bad times
One of the best secrets of millionaires is that they tend to ignore temporary market fluctuations and instead commit to investing at good times and bad times. They determine the amount of money they need to save and invest each month or quarter and set up automated bank transfers and purchase schedules in their investment accounts to execute the plans.
By automating these transactions, they ensured that they were able to separate their investment decisions from their momentary emotions. There was less temptation to suspend contributions because they “wanted to see what the market was doing. They determine in advance what needs to be done and execute that well-thought-out plan. This has the major benefit of average cost, which suggests that excellent results can be achieved for market timing.
- They are indifferent to market volatility
Omaha legend Warren Buffett made the following comment about Berkshire Hathaway’s investment style in a 1990 shareholder letter: “The old borders with laziness The legal person is still the cornerstone of our investment style. “
We inherently know that stock market investing is risky in the short term, but in the long term, stocks outperform most other asset classes. However, it is difficult for us to escape the effects of daily market volatility and maintain a long-term focus. A recent example is the February/March 2020 market crash, which proved that it is more difficult to stay invested when you are focused on the short term.
Most of my millionaire clients are clear about what focusing on their personal money should do for them and know they will invest accordingly, which means that while they may be concerned, they usually don’t panic and don’t make any changes that would hinder their long-term portfolio growth.
The reality is that there should be very little reason to check your portfolio during a volatile market or correction because it should be invested appropriately based on your investment time horizon and risk tolerance. Most of the frenetic energy that goes into checking your portfolio comes from the fact that these two boundaries/basic rules have not been addressed. My millionaire clients exemplify this to the fullest and have shown them the results of this pre-planning and compounding.
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