Three Strategies to Build Wealth and Secure Your Future

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For those looking to attain financial freedom by investing, it’s rarely a get-rich-quick affair. Sure, there are those who have made a fortune from one massive cryptocurrency sale, but that’s not the norm. Most successful investors create a long-term plan and make adjustments as the years go by and opportunities arise.

When you start investing for your future, the possibilities can seem overwhelming. While it’s important to maintain diversity in your investments, some options are going to work better for your individual needs. Here are three strategies to keep in mind as you embark on your path to wealth accumulation and financial security.

1. Start small

It’s pretty common knowledge that the earlier you can start investing, the longer your assets have to grow or provide income. The Catch-22 comes into play from the fact that many people in their 20s don’t have a lot of expendable cash available for investing. They want to start building wealth but don’t see a way they can afford to do so.

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If that sounds familiar, it’s time to look into investments that are minimal or creative. Buying a $2 million apartment complex might be a fanciful notion. But most working people can find a way to defer at least 3% of their income into an IRA or 401(k). If their employer is matching that deferral, it’s a no-brainer.

But what if someone in their 20s or early 30s wants to pursue their wealth-building activities beyond a retirement account? If limited capital is available, one option is real estate syndication. This process involves a central firm that pools together outside investors.

There are a variety of online platforms out there that allow individuals to invest as little as $5,000 in a property. Of course, it’s essential to do thorough research to ensure the platform is reputable and has reasonable fees and returns.

If you don’t want to risk an anonymous online company, you could form a partnership with several trusted individuals instead. Pooling your resources together could allow access to a higher tier of property and provide better returns. The bottom line is to focus on what you can do with your cash vs what you can’t.

2. Use your knowledge base to your advantage

With enough time and dedication, you can probably learn enough to effectively navigate any investment category. However, if your life experience has led to in-depth knowledge of a certain industry, it would be foolish not to take advantage of it.

For example, not very many people would dip their toes into investing by speculating in grain futures. This asset class involves agreeing to sell grains such as wheat or soybeans for a set price at a later date. It’s a volatile process that requires the speculator to account for global climate trends, pests and other agricultural, economic and political factors. The war between Russia and Ukraine caused a spike in wheat prices globally, just as an example. Compared to the relatively simple process of buying a single-family home and renting it out, the intricacies can be daunting.

But what if you grew up in a large-operation family farm partnership? Even if you don’t end up working in agriculture, you’re still likely to possess a solid grain production knowledge base. Compared to someone whose knowledge of soybeans ends at identifying edamame in a stir-fry, grain futures speculation might be a viable investment option.

You can always branch into other areas later to diversify your portfolio. When it comes to building an investment foundation that will provide long-term income and wealth, however, look to your personal history. Industry knowledge and contacts can give you a big head start vs learning a new investment strategy from scratch.

3. Don’t neglect tax considerations

Acquiring wealth is one thing; keeping as much of it as possible is another. If you’re truly investing for the long haul, you should consider how to retain what you’ve earned.

For those who invest heavily in the stock market, it’s tempting to adopt a trade-heavy, wheeler-dealer approach. Besides the fact that frequent traders tend to have lower success due to emotional factors, there are tax ramifications to frequent trades.

If you’re chasing the quick profit on volatile stocks, chances are you aren’t holding on to many assets for at least a year. If you trade a stock after holding it for less than a year, any gains will be taxed at your regular income tax rate. Depending on your income level, that can be as high as 37%. Holding on to stocks for at least a year means your earnings will be taxed at a long-term capital gains rate, which maxes out at 20%.

Choosing where to put your money is another instance in which you need to consider taxes. If you have a few thousand dollars that you are considering putting into an IRA, have you considered a health savings account instead?

If you’re eligible to contribute to an HSA, you can invest those funds just as you would with an IRA. The benefit is that HSAs are tax-free on contributions, growth and qualified distributions. With an IRA, you will be taxed either when you contribute or when you take out funds later. It’s the same process of contributing money to be invested, but the tax differences between the HSA and IRA make all the difference.

Create an individual but diversified plan

Two of the biggest rules for investing are to invest according to your goals and not to put all your eggs in one basket. Those sentiments might sound obvious and trite, but keeping them at the core of your investment strategies will serve you well in the long run.

Disclaimer

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.