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When it comes to financial uncertainties, the list of current possibilities can seem endless.
From high inflation to a possible impending recession and geopolitical unrest, there are many curve balls that could alter the US economy and financial markets.
But for individual investors who use proven money strategies, getting rich and staying rich is within their grasp, according to financial experts who landed on CNBC’s Financial Advisors 100 list for 2022.
“The biggest takeaway is just discipline,” said Kaleialoha “Kalei” Cadinha-Pua’a, President and CEO of Cadinha & Co., a registered investment adviser based in Honolulu, Hawaii, who ranked 16th on this year’s FA 100 list.
“You see subtle changes that people can make by retaining or accumulating wealth, and that just changes the discipline a bit,” she said.
Over time, living a humble lifestyle can help build tremendous assets, according to Mike Conner, chartered financial analyst and managing partner in Berwyn, Pennsylvania. Kistler-Tiffany Advisors (#14 on the FA 100 list) calls it the “next-door neighbor philosophy.” This diligence, combined with taking risks by being entrepreneurial, has the power to propel people to high levels of wealth.
“You go to some house and they’re worth $15 million and you’d never know it,” Conner said.
“The sooner the better” with investment
When it comes to investing, the best way to prepare yourself to achieve your goals is to start as early as possible.
This is due to the power of compounding, where the income from the money you invest is reinvested and generates additional income.
“It’s extremely important to start early,” said Kenneth Ligon, vice president and portfolio manager at Professional advisory servicesa Vero Beach, Florida investment management firm that is No. 15 on the 2022 FA 100 list.
Take two investors, one who starts investing in their early 20s and one who doesn’t start until they’re 30, Ligon said. Even if the first investor stops investing when he reaches 30, he will always stay ahead of the other investor who starts later, due to the power of compounding with an estimated annual return of 7 to 8 %.
That said, even starting in your thirties isn’t bad. “Just, the sooner the better,” Ligon said.
Importantly, the power of capitalization also applies to debt, Cadinha-Pua’a noted.
It’s especially important to pay attention to this now, because the Federal Reserve’s rate hikes will make interest on those debt balances more expensive than it has been in years, she said.
Live within your means
If you’re over-indebted, it will eat up a huge chunk of your savings, Cadinha-Pua’a said.
The best way to avoid this is to live within your means. Some “super savers” pride themselves on saving as much as they can for retirement, regardless of the size of their income, a Principal’s recent study found. To achieve this, they often forego expensive purchases. The survey revealed that 49% drive an older car, 40% do not travel as much as they would like and 39% own a modest home.
“It’s such a simple concept to say; it’s such a difficult concept to execute,” she said. “It takes discipline.”
Chances are savings can be made by cutting back on a lifestyle category that everyone spends money on: food.
Guests enjoy al fresco dining in the Manhattan borough of New York, U.S., May 23, 2021.
Caitlin Och | Reuters
Certainly, rising food prices in grocery stores and restaurants are now inevitable, due to historically high inflation.
But cutting those expenses can be done by thinking ahead and planning meals in advance, and choosing to cook at home instead of regularly dining out and ordering takeout.
“I haven’t met anyone yet who can’t limit spending a bit on this side,” Cadinha-Pua’a said.
Delaying gratification can be the hardest part of building wealth, Conner said. “For most of us, it’s a very long road,” he said.
Be prepared to fail – and keep going
Because building wealth is a long game, there will definitely be stumbling blocks along the way.
The key is realizing mistakes are going to happen and all you can do is review what you could have done differently and use that to plan for the future, Conner said.
“It’s very, very unlikely that you’ll have a huge amount of upside without any downside,” Conner said.
To that end, it’s also important to take selective risks, he said.
When it comes to cryptocurrencies, investors should play it safe and only invest an amount of money they are willing to lose, Conner said.
But when it comes to stocks, investors can generally benefit from a diversified portfolio. The right allocation will depend on things like your timeframe and risk tolerance, but Conner said people could benefit from keeping at least 50% in stocks. This is because the market has generally had an upward trend over time and the sharp declines in the market tend to precede big gains.
“Sometimes you have to take risks to make meaningful amounts of money,” Conner said.