Real, inflation-adjusted incomes continue to stagnate. Interest rates for savers are at rock-bottom levels with most bank and building society accounts offering returns that, when adjusted for inflation, are actuallynegative. And generous so-called final salary defined benefit pensions are going the way of the dodo.
So if youre thinking that a decent nest egg is a smart move, youre not alone. Ive encountered several people in recent weeks who have been thinking hard about taking control of their own financial destinies.
And for them, the good news is that the governments tax-free ISA wrapper regime has never been more generous.
A 20,000 tax shelter
This tax year, the allowance is 20,000 a far cry from the 3,000 or so of not so many years back.
The contrast with pensions where the tax breaks get more miserly with every Budget couldnt be more stark. For building serious wealth, and doing so in a tax-advantaged manner, ISAs are the way to go.
But not cash ISAs, of course. Not with interest rates at derisory levels, and likely to remain so for years. For serious wealth accumulation, stuffing your ISA full of stocks and shares is the way to go.
The right stuff
Nor need this be complex, or technically challenging.
In fact, to my mind, wealth accumulation is more of a mind set and an attitude a willingness to take a long-term view, a willingness to take a calculated amount of risk, and a willingness to see living a little more frugally as an opportunity to save and invest more.
And in the years that I have been investing, and writing about investing, I have been fortunate enough to meet and talk to many people with a decent track record in wealth accumulation, from all walks of life. I have learned lessons from them, and they I hope have been able to learn lessons from me.
So heres my take on what really works when it comes to wealth accumulation.
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Save regularly. The discipline of regularly investing money does two things. First, it gets your money invested, and earning returns. No excuses; no things are a bit tight this month, Ill do it next month. Its done, and thats that.
But better still, it avoids the investing at the peak trap. When stock market euphoria is at its highest, youll see people dive into the market, only to lose their shirts when the bubble pops. Buying regularly gets you in at the marketslows, as well.
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Stick to what you know and understand.Over the years, Ive seen countless people seduced by shares they knew nothing about.
The discipline of investing only in businesses with well-understood business models may cause you to pass up on some stellar gains, but youll also duck a good-sized pack of dogs.
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Hold for the long term.As a shareholder, youre a part-owner of a business. Look for good businesses, with a business model that you understand, run by managers with decent track records, and a set of accounts not overburdened with debt or costly pension schemes.
And then hold for the long term, and let those businesses and those managers work for you, and send a growing stream of dividends your way.
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Costs matter.High costs sap returns whether those are the costs of trading, holding shares on a brokerage platform, or the spreads on thinly traded stocks.
So forget chasing alpha: youre likely to have more success driving down costs with a judicious choice of brokerage, and an avoidance of costly trading in and out of poorly chosen stock picks.
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Ignore investment fads.The dotcom boom, BRIC economies, oil shares, emerging markets, precipice bonds Ive seen every stock market mania since the Poseidon boom-and-bust of the 1960s.
By not leaping on board, Ive certainly missed out on potential gains, without a doubt. But Ive also sidestepped potential losses.
So is that it?
Boring? Perhaps. Nothing too esoteric or abstract there. But then, why should there be? No one ever said that wealth creation had to be complex and complicated.
In my view, for the average investor, wealth accumulation amounts to little more than staying the course, investing regularly, keeping your costs down, and not doing too many daft things along the way.
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