If you want to build wealth, invest like the wealthy. We’ve compiled a list of seven commonalities among high-net-worth investors that “the rest of us” can learn from.
Granted, many HNW and UHNW investors work with family office advisory services for their financial management and advice. That said, we can learn from these trends as we explore our own financial opportunities.
1. Create a Financial Plan
A good financial plan lies at the heart of successful investment. This gives you a road map towards your financial future, including goals, risk tolerance, and an investment strategy. Defining your financial goals is actually the very first step in devising this roadmap. Are you saving for retirement?
Are you planning to buy a home? Maybe you are funding your children's education? After that, you can devise a personal investment plan suitable to your risk appetite and horizon.
2. Invest Systematically
Create an investment plan based on your financial plan, and stick with it. Try getting into this habit by signing up for automatic transfers from your checking account into your investment account.
3. Build Emergency Funds
One survey suggests that HNW investors keep 15% of their assets in cash accounts, while UHNW (ultra-high net worth) investors maintain 20% to 30% of their assets in cash (Yahoo Finance). For average investors, an emergency fund is the safety net against financial loss.
Cash available helps to protect financial strains from medical emergencies, job loss, or home repairs. Generally, experts suggest three to six months' worth of living expenses should be in a cash account (Investopedia)
4. Diversification of Risk
Diversification is one of the core investment principles that distribute your investments among different asset classes, industries, and geographies. This minimizes your risk exposure while maximizing your chances of long-term success.
You can begin to invest in a combination of stocks, bonds, mutual funds, and ETFs to achieve a diversified portfolio. Don’t forget real estate: 90% of millionaires include real estate in their investment portfolios (Yahoo Finance).
5. Avoid Flashy Investments
The wealthy tend to avoid buzz-worthy investment schemes, often amplified on Reddit and social media. Writing for LinkedIn, one real estate investment advisor said the wealthy see through fluff and flash and prefer productive assets.
6. Invest Wisely
Blind investing is the recipe for disappointment. Educate yourself about what's in your portfolio. Do your homework and learn about companies' financial histories, management teams, and industry trends. Informed decisions increase the likelihood of success.
Also, review and rebalance your portfolios from time to time so that they correspond with the changes in your financial goals and risk tolerances. This way, you will always maintain a well-diversified portfolio and optimize returns.
7. Prioritize Saving Over Spending
Wealthy, successful investors prioritize savings over spending. That may mean making a budget for yourself and your family and sticking to it. That doesn’t mean you can’t take vacations or have a nice holiday; it simply means setting a spending goal, sticking to it, and living within your means.
Building Wealth With a Wealthy Mindset
Remember, discipline, patience, and strategy are key to successful investing. So, make a complete financial plan that aligns with your goals and risk tolerance. Invest regularly, no matter how small the amounts might be; they add up over time.
Always diversify your portfolio to minimize risk and maximize return. And learn everything you can about those whom you invest in. Investments are not a set-and-forget wealth-building strategy.
To be a successful investor, you need to take a long-term approach and not make decisions based on short-term changes in the market. It is important to make informed investment decisions and to understand what you are investing in and its growth potential. Additionally, it is beneficial to start investing early to take advantage of compound interest.
