Principles for Creating Wealth – Stock Market

Investing in stock(s) is a viable option for charting the path to financial freedom. Applying simple principles such as; being patient, and strategic, while exercising the suitable methods of discipline and consistency can contribute to your efforts in improving your financial well-being.

First, identifying your objectives will provide guidance towards your financial success. Not having a goal means you don’t care where you end up, so any road will get you to your destination. It’s the same with your investments. You should at least have an idea of where you want to end up financially before you can make prudent decisions about the proper investment to achieve that end.

Patience

Time plays an important role when it comes to investing – Investing for the long-term usually yields greater performances over time. Adopting this principle provides an opportunity for you to take on considerable risk, and to avoid the psychology associated with short term volatility – (panic).  The ideal approach is to invest in blue chip, dividend-paying companies (stocks). These tend to grow steadily over a long-term period, with smaller margins of fluctuations during market swings and/or poor economic performance, while at the same time providing a steady stream of cash flow over the years – (dividends). This principle is vital because a lack of patience can negatively impact your financial goals and erode initial investment principals.

Strategic

Investing in the stock market requires skills and commitment. Using the fundamental approach is a key factor for wealth creation as it is very time consuming and timing the market can be very difficult especially over a short-term period. Attempting to examine market trends and other mitigating factors as a means of determining the outcome of the market is a very risky practice. These actions involve a lot of speculation and require constant monitoring of the market as losses are easily incurred, especially if you do not know much about the company. For the average investor, the strategic and recommended principle is to ensure that your investment practices mirror your investment goals and objectives.  Funds intended for short-term use should not be used to speculate unless you are comfortable with the potential outcome of losing. A strategic approach to achieve maximum benefits and safeguard your interest is to set aside a large portion, (maybe 80%) of your funds for long term investments. The objective of this principle for creating wealth is to invest in diverse sectors, comprised of select companies that are dominant players and bear a proven track record of providing shareholders with consistent profits and returns.

Discipline and Consistency

These are two good habits to acquire in achieving financial success. Determining your objectives serves as a guide towards being disciplined to achieve the required goal. This will assist you to live within your means by creating a method that works best for you along with how often these practices are applied.  Recommendation – It is wise to consistently retain a portion of your monthly income. If this is applied consistently for a period of time, you will accumulate a lump sum which can be set aside for investing. This can be; monthly, quarterly, semi-annually, etc. Investment growth is attained through the power of compounding. If this principle is applied consistently along with the reinvestments of your dividend payments, it provides a greater investment performance over time as it increases your shareholdings, which will result in a higher dividend payment in the future.

“Your financial future is not something that happens to you, it is something that you own”. — Charles Schwab. The principles outlined can guide you towards the pathway of creating wealth. Of course it is going to require some level of creativity as one size doesn’t fit all, so you have to find what works best for you and how best you can tailor each principle to align with your financial goals/objectives. At Ideal Portfolio Services, we understand the requirements for wealth creation and possess the tools to take you on that journey.