Yahoo Finance 6 Ways To Build Wealth Slowly but Efficiently
One of the major components of the American Dream is working hard and becoming wealthy some day. But growing your wealth isn’t something that happens overnight. Like Warren Buffett said, “It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”
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Building wealth is about taking a slow and steady approach. It might not sound too exciting, but when done right, it’s effective. And after years of painstaking progress, looking at a six-figure portfolio that you built from scratch probably will elicit some pretty great feelings.
So, if you’re interested in building your wealth slowly but efficiently, consider these expert tips.
Put Your Money in the Market
One great way to build your wealth is to start investing early and consistently — even with small amounts, according to Jeff Rose, a CFP and founder of Good Financial Cents.
“Thanks to compounding interest, your money grows over time as the interest earns its own interest,” he said.
For example, $100 invested every month, with a 7% annual return, can grow to over $100,000 in 30 years.
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Invest in Index Funds
Not sure how to invest your money? It doesn’t have to be complicated. Index funds track a market index and offer diversification, which reduces risk, according to Taylor Kovar, CFP and CEO at The Money Couple and Kovar Wealth Management.
Plus, they’re known for their lower fees compared to actively managed funds, which means more of your money stays invested and compounds over time.
“Regular, long-term investments in such funds … can lead to significant wealth accumulation due to the power of compounding interest,” Kovar said. “This method is particularly efficient for those who may not have the time or expertise to actively manage their investments.”
Think Long-Term
Growing wealth over time requires a strategic and disciplined approach to financial planning, according to Tyler Meyer, a CFP and founder at Retire to Abundance.
“One key tip I would recommend is to prioritize consistent, long-term investments over short-term gains,” he said. “Instead of trying to time the market, focus on a diversified portfolio that aligns with your financial goals and risk tolerance.”
This approach, Meyer said, allows for the compounding of returns over time, taking advantage of the power of exponential growth.
Automate Your Finances
Another way to efficiently build wealth over time is to leverage technology and automate your financial life.
“Setting up automatic contributions to investment accounts, savings and retirement funds ensures a consistent and disciplined approach to saving and investing,” Meyer said. “Automation not only removes the emotional element from financial decision making but also helps to cultivate a habit of regular saving, contributing to the overall efficiency of wealth-building strategies.”
Use Dollar-Cost Averaging
If you have a long time horizon to build your wealth, consider employing a strategy known as dollar cost averaging.
“Dollar cost averaging is an investment strategy that involves purchasing a fixed dollar amount of a particular investment on some sort of regular schedule, regardless of market conditions,” explained Robert R. Johnson, a professor of finance at Creighton University’s Heider College of Business. “In my opinion, the best way to build long-term wealth is to simply buy shares in a broadly diversified income fund on a regular schedule whether the market has recently gone up, down or sideways.”
In other words, dollar cost averaging is the antithesis of trying to time the market, according to Johnson. “It takes the emotion out of investing, basically putting your investment strategy on autopilot.”
Invest in Yourself
Whether it’s spending money on education or professional development courses that can increase your earning potential, investing in yourself is another effective way to grow wealth over time. “It’s not just about saving and investing money,” Rose said, “but also about boosting your ability to earn more.”
According to a Georgetown University study, people with bachelor’s degrees earn 84% more over a lifetime than those with just a high school diploma.
Rose said, “This investment in yourself can be a significant contributor to long-term wealth growth.”
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This article originally appeared on GOBankingRates.com: 6 Ways To Build Wealth Slowly but Efficiently
