The Secret to Wealth

The Secret to Wealth

Whether you want to invest in shares or across a broad range of asset classes, mutual funds provide you with one benefit that can be very hard for individual investors to achieve - diversification. 

Many people invest but only some become wealthy. Why?

The mistake many people make when investing is that they treat their investment as saving. 

Saving Versus Investing

So what is the difference between saving and investing? Saving is what you do to build up funds for something, like a holiday, and when you have the amount saved you withdraw your capital from your investment and spend it on the holiday. After the holiday you have nothing left, and start the process all over again.

But building wealth is different. People who want to build wealth invest their money for the long term in 'growth assets' such as shares and property.

Their strategy is to spend the income that the investment produces, but to leave the capital invested. They don't withdraw the capital, so it stays there growing and compounding, and producing more and more income each year. 

If you do this it will take you quite a while longer initially to get to your investment goal, but in the long run you will find that the extra wait has been worth it. As the years go by, you will have an increasing additional income stream from your investments and your standard of living can rise accordingly! 

Should I continue to retain capital in retirement?

Retaining your capital is a good strategy to use for wealth accumulation. Of course when you stop working later in life, your strategy may change. At that point it can often be beneficial to start drawing on some of your capital as well, whilst still ensuring that it will last for as long as you need it.