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When it comes to financial uncertainty, the current list of possibilities can seem endless.
From high inflation to possible recessions and geopolitical turmoil, there are many curve balls that could change the US economy and financial markets.
But according to financial experts on CNBC’s Financial Advisor 100 list for 2022, individual investors who use some tried-and-true money strategies can get rich and stay that way.
“The biggest takeaway is just discipline,” said Kaleialoha “Kalei” Cadinha-Pua’a, Cadinha & Co. is president and CEO of Honolulu, Hawaii-based registered investment advisor, ranked #16 on this year’s FA 100 list.
“You see subtle changes that people can make in saving or accumulating wealth, and that changes the order of magnitude,” he said.
Living a simple lifestyle over time can help build large assets, which Mike Conner, managing partner of Kistler-Tiffany Advisors (No. 14 on the FA 100) in Berwyn, Pennsylvania, calls “the next door neighbor.” door philosophy”. This diligence, combined with entrepreneurial risk-taking, has the power to propel people to great wealth.
“You go to a house that’s out of the ordinary and they’re worth $15 million and you never know,” Conner said.
“Sooner is better” by investing.
When it comes to investing, the best way to achieve your goals is to start as soon as possible.
This is due to the power of compounding, where the income from the money you invest is reinvested and generates additional income.
“Getting started early is critical,” said Kenneth Ligon, vice president and portfolio manager at Professional Advisory Services, Vero Beach, Fla., the No. 15 investment management firm on the 2022 FA 100 list.
Take two investors, one who starts investing in his 20s and the other who doesn’t until his 30s, Ligon said. Even if the first investor stops investing when they reach 30, they will be ahead of another investor who starts later due to the ability to compound with annual returns of 7% to 8%.
By the way, it’s not bad to start working even at 30 years old. “It’s better sooner,” Ligon said.
Importantly, the power of consolidation also applies to debt, Kadinha-Pua’a noted.
It’s important to focus on this now because the Federal Reserve’s rate hikes will make interest on these debt balances more expensive than they have been in years, he said.
Live within your means
If you’re in debt, it’s a huge benefit from your savings, Kadinha-Pua’a said.
The best way to avoid this is to live within your means. Some “super savers” are proud to sock away as much as possible for retirement, regardless of their income, according to a recent study by Principal. To get there, they often forego expensive purchases. The survey found that 49% drive an old car, 40% do not travel as much as they would like, and 39% own a modest home.
“It’s a very simple concept that’s very difficult to implement,” he said. “It takes discipline.”
Perhaps the savings can be found by cutting back on the one lifestyle category where everyone spends money: food.
Visitors in Manhattan, New York City, USA, May 23, 2021.
Caitlin Oakes | Reuters
Due to historically high inflation, food prices in grocery stores and restaurants will inevitably increase.
But these costs can be avoided by thinking ahead, planning meals ahead of time, and choosing to cook at home instead of eating out and ordering out all the time.
“I’ve yet to meet anyone who can’t cut costs on that side a little bit,” Kadinha-Pua’a said.
Delaying gratification may be the hardest part of building wealth, Conner said. “It’s a long way for us,” he said.
Be prepared to fail and keep going
As wealth building is a long game, there are bound to be stumbling blocks along the way.
The key is to understand that mistakes happen and to review what you could have done differently and use that to plan for the future, Conner said.
“You’re unlikely to have a large upside without any downside,” Conner said.
It is important to take selective risks, he said.
When it comes to cryptocurrency, investors should play it safe and invest only the amount they’re willing to lose, Conner said.
But when it comes to stocks, investors can usually benefit from a diversified portfolio. The right allocation will depend on factors including timeline and risk tolerance, but Conner said people may benefit from keeping at least 50% in stocks. This is because the market has trended higher over time, and big market declines are often preceded by big gains.
“Sometimes you have to take risks to make meaningful money,” Conner said.