People have different interpretations of what wealth creation means. Some people view wealth creation as making money while others view wealth creation as accumulating assets.
How to Create Wealth
There are many ways to create wealth but looking at wealth creation contextually comes down to basic principles and rules.
In order to create wealth you need at least one of the following:
- Cashflow – money that you are able to save or divert to investment on a regular basis. For example $100 pw or $1,000 pm etc. If you need support with your cash flow go to Budgeting & Cashflow Management.
- Capital– a large sum of money. For example $5,000, $100,000 or $1,000,000.
- Leverage– where you use someone else’s money to invest for example a bank or a venture capitalist etc.
When you are ready to invest you then have to decide where to put your money. There are 5 core options available:
- Fixed Interest – Australian Bonds, Corporate bonds etc
- Australian Shares
- International Shares
Another option available includes:
- Having an Idea and/or Starting a business – for example Facebook. Mark Zuckerberg’s wealth as at December 2015 was estimated at $46 billion^.
Things to think about when making an investment decision
- Your risk tolerance – it is important that when investing you invest in a way in which you are comfortable.
- Risk reward relationship – when seeking a return on your investment it is important to understand that some investments can go down in value as well as up. As a general rule the more risk you take over the long term the greater likelihood of a higher return. The lower the risk, the more likely you will have a lower and more stable return over the long term.
- Liquidity – how quickly do you want or need your money back. Some investments can be bought or sold in a matter of days while others can take months.
- Capital Preservation – if protecting your capital is important. For example a self-funded retiree. We can support you with establishing a portfolio that protects the capital.
- Taxation implications – making money is generally described a wonderful thing. However the only problem with making money is paying tax on the profits. When making any investment you should always consider the tax implications.
- Inflation risk – which is measured by the consumer price index (CPI) records the movement of a general basket of goods and their price movements. For example $100 worth of apples today would likely in twelve month’s time cost $103. Therefore any investment decision made needs to consider the impact of inflation.
- Timeframe – how much time do you to invest.
- Diversification – one of the most famous sayings is “not all your eggs in one basket”.
We can support you with establishing an investment portfolio that takes into account your needs and objectives. This includes managing your superannuation fund.