Quietly Building Wealth

In the blog Investing for your Life, we introduced the concept of consistently investing into the stock market every month, regardless of global econoic and geopolitical circumstances. Essentially, if you invest for long enough, the compounding effect of your investments will eventually take over, giving you more gains than you put into the investment each year. Your investments will grow exponentially and there will come a point - sooner than you realise - when you can quit your job and live on the income generated by your investments.

My previous blog, A Millionnaire is Made £3.50 at a Time, describes how small financial decisions made every week to save money, can lead to fantastic results in the long-term, when invested in the stock market. It is much less difficult than most people think to become extremely wealthy, with only a few small money-saving habits used every week potentially accruing into hundreds of thousands of pounds in the long-term.

"Okay", I hear you ask. "If this is so easy, why aren't many more people millionaires and multi-millionaires."

Well that's precisely the thing - it isn't easy. Far from it. It takes several unique habits, deployed over decades (or just a few years if you are a high earner), for financial success to arise. Individually, these aren't necessarily difficult habits, but deployed together, and over a long period of time, is challenging. However, they are certainly within reach of the average person.

1. Knowledge - of course you need some understanding of how the stock market and fund management works. But not as much knowledge as you may think. Thinking you know more than everybody else is actually a curse that will probably lead to lower gains over the long-term.

2. Earning ability - the greater your income, the more money you have to invest and the quicker you can become extremely wealthy. Focussing on building your career and earning more will help you to rise up the ladder of (financial) success faster.

3. Discipline - constantly making sure you are living below your means and are financially efficient (i.e. not spending money unnecessarily on things you don't need or want).

4. Consistency - ensuring that you are investing into the stock market every month, regardless of the market conditions or what the media is saying might happen.

5. Patience - there is no such thing as a 'get rich quick' scheme. Real wealth building takes time. A lot of time. Be prepared to stay invested for many decades if you want to see your wealth really snowball.

6. Remember Vanguard's principles for successful investing.

Let's consider each of these habits individually.

Knowledge

While you could, in theory, simply start investing without any real understanding of what you are doing, it's strongly advisable not to. You need to understand how the stock market works, and that picking individual stocks generally underperforms the market.

Fees also eat into your gains. Understanding this is of key importance when deciding which broker to invest with. Choosing a broker with low fees could save you hundreds of thousands of pounds during a lifetime of investing.

Deciding where to invest takes time and research, too. This is a personal preference, and you must decide how much risk you are willing to take with your money.

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Earning Ability

By focussing on your career - working your ass off and getting promotions - while making sure to negotiate your salary at every appriasal, your work-generated income will skyrocket. Ensure you always turn up early at work, are proactive and helpful where you can be. Get to know the senior members of staff and become someone who they can rely on. Be assertive with your appraisal discussions - employers will always try their best to keep on good staff - and try to negotiate a pay rise every year. Do not let your boss dictate your salary.

The more money you earn, the more you'll be able to invest each month. As Elon Musk says, it is much easier to earn an extra $10,000 than it is to save an extra $10,000.

Discipline

Reduce your expenses where possible - financially streamline your life. This process encourages you to respect even small amounts of money, and boosts the spare cash you have for investing. Have the discipline and vision to build a life where you can become financially free, while sacrificing a few things (that you will hardly notice) in the present.

Consistency

This is perhaps the most difficult - making sure you are consistently investing into the stock market every month, avoiding the temptation to sell your investments after a drop in the market, and ensuring you are investing every month regardless of the market conditions. Allow your investments the time to grow and compound properly.

In The Intelligent Investor by Benjamin Graham, he advocates how 'Mr Market' comes knocking at your door every day, asking if you want to buy or sell (or multiple times per day in today's interconnected society). Learn to ignore him and make your investments on your own terms.

Mr Market comes knocking, according to ChatGPT.

Patience

Your investment journey is something that will take ten plus years to achieve major success, and something you should be prepared to stick with for the rest of your life. Stock markets (sometimes) behave unpredictably, and they do occasionally crash. Be aware that this is a possibility in the short to medium-term, and let the incredible effect of compounding grow your portfolio over the long-term.

Finally...

Remember Vanguard's recommendations for successful investing

1. Set clear goals. Clear goals help you to stay focussed, particularly when markets are in turmoil.

2. Stay balanced. Make sure you're comfortable with your investment risk, and make sure your portfolio is diversified.

3. Keep costs low. Fees eat into your gains.

4. Maintain discipline. Markets regularly fall. It is part of what investing is about and is perfectly normal. In our experience, maintaining discipline, sticking to the plan and rebalancing your portfolio, works.