Wealth creation methods can help the average investor achieve long-term financial stability. There are various methods and tools to create wealth, and anyone who wants to secure their financial future can use them. Each of the modern wealth creation methods below carries its own risks and rewards, which is why it’s important for investors to assess their own risk tolerance, conduct thorough research, and even seek out the advice of a financial advisor for guidance.
Budgeting and Saving
Budgeting and saving are the foundation of a modern wealth creation plan. After all, in order to start creating wealth, you need money to invest.
A budget can help you manage expenses efficiently, allowing you to direct more funds to savings, investment, or retirement accounts. And regularly setting aside that portion of your income is key in helping you accumulate wealth over time.
Maybe you put some funds into an emergency fund. Most experts recommend having between three and six months’ worth of expenses saved up in case of illness or injury, or loss of a job.
Perhaps you also direct some of your funds into an employer’s 401(k) or a personal investment or retirement account. If your employer matches your 401(k) contribution, consider contributing at least enough to take advantage of the full match. Not doing so is the equivalent of leaving free money on the table. Regular contributions to retirement accounts like IRAs and 401(k)s also leverage the power of compound interest, significantly boosting long-term wealth.
Stock Market Investments
A popular modern wealth creation method is investing in the stock market, which has the potential to generate substantial returns over the long term. For example, the S&P 500, a benchmark for the performance of large-cap American companies, has averaged an annual return of approximately 10% since its inception.
Diversification is also an important factor in building an investment portfolio. By diversifying your holdings, you can lower the impact of any single investment when it performs poorly. And in doing so, this investment strategy will also help you earn more stable returns. A portfolio comprising a mix of stocks from different industries – such as technology, healthcare and consumer goods – can weather market fluctuations more effectively than a portfolio concentrated in a single sector.
Real Estate Investments
Real estate investing is another opportunity for modern wealth creation. Property, whether residential or commercial, can appreciate over time as well as yield rental income.
For example, buying a rental property in a growing neighborhood can generate steady cash flow through rent while the property increases in value. This could provide the investor with both steady, immediate income and long-term financial benefits.
You could also consider real estate investment trusts (REITs) as a way to invest in real estate, too. This is a good option if you want to diversify into real estate, but don’t have the funds to invest. REITs also have the added benefit of providing you with exposure to growth in real estate prices without the need to go through with buying a physical property or managing any properties directly.
Alternative Investments
Alternative investments can include private equity, hedge funds, commodities, and collectibles, among others. Investors generally buy alternative investments to diversify their portfolios, potentially achieve higher returns and reduce risk through assets that typically have low correlation with traditional stocks and bonds.
Investing in a hedge fund that employs strategies to generate returns uncorrelated with the stock market is an example of an alternative investment. And buying rare art pieces with the expectation that their value will appreciate over time is another example of an alternative investment.
Bottom Line
With a variety of modern wealth creation methods available, individuals can tailor their wealth-building strategies to align with their current financial situation, future financial goals and tolerance for risk. Budgeting and saving serves as a strong foundation, while investing in the stock market, real estate, and alternative investments can provide investors with the opportunity to widely diversify and create wealth.
Modern Wealth Creation Method Tips
- A financial advisor can provide personalized strategies, risk assessments and investment planning tailored to your individual needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you find yourself inheriting or buying a second home, renting it out can also provide a source of income and help build long-term wealth.
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