Investment Newsletter - August 2023
August Newsletter – Utilising markets to accumulate wealth
Good Morning,
As we continue to navigate the dynamic landscape of global capital markets, we wanted to share some insights from a recent article that sheds light on the various approaches to accumulating wealth.
Money makes the world go round. In 2022, the total value of the global share markets exceeds $100 trillion NZD – around 400 times the GDP of New Zealand or 3.9 times the GDP of the United States. What better way to make money than to go where the money is?
While there's no one-size-fits-all strategy for financial success, understanding the different strategies available to us can help us make informed decisions aligned with our goals. But a lot of people go about it wrong, or they get there too late. Therefore, it is important to seek advice from your financial adviser before stepping into something new.
The article highlights ten ways to potentially accumulate wealth, ranging from challenging to more straightforward strategies. We have summarised them below, taking into consideration factors such as degree of difficulty, likelihood of success, and time required:
1. Find the next big thing! (Tesla/Amazon): This involves identifying cheap, innovative companies and holding on to their stocks until they make it big.
Degree of difficulty: 10/10, Likelihood of success: 1/10, Time required: 5-20 years.
2. Create your own ‘next big thing’: Creating new investment vehicles or technologies can offer substantial rewards for the founders, but building and profiting from such innovations may take time.
Degree of difficulty: 9/10, Likelihood of success: 2/10, Time required: on average 2-7 years.
3. Identify and jump on the next bubble (tulips/gold/cryptocurrency/personalised number plates): Profiting from market bubbles requires timing – buying in early and selling before the bubble bursts.
Degree of difficulty: 8/10, Likelihood of success: 3/10, Time required: 1-5 years.
4. Short stocks/markets: Betting against overvalued companies or markets can be profitable if timed correctly. This strategy demands strong nerves and a keen understanding of market sentiment (the attitude of investors in the market).
Degree of difficulty: 7/10, Likelihood of success: 4/10, Time required: 6 months to 3 years.
5. Time the market: Attempting to predict share market trends can lead to success, though it's challenging to consistently get the timing right (just look at the long-term performance of most fund managers who actively manage money).
Degree of difficulty: 6/10, Likelihood of success: 5/10, Time required: Whenever the next market correction occurs.
6. Provide a valuable service: Offering research, asset management, or unique insights to others can be lucrative if you can monetise your expertise.
Degree of difficulty: 8/10, Likelihood of success: 7/10, Time Required: 7-12 years.
7. Become a stockbroker: Skillful salesmanship, coupled with confidence and trust-building, can lead to substantial commissions.
Degree of difficulty: 5/10, Likelihood of success: 9/10, Time Required: However long it takes you to successfully and regularly close trades.
8. Index investing: Investing in the entire share market and holding long-term can yield reliable returns, but managing your behaviour can be challenging.
Degree of difficulty: 5/10, Likelihood of success: 10/10, Time Required: 20-50 years.
9. Dollar Cost Average (DCA): Regularly investing a fixed amount over time can lead to steady growth, particularly with diversified assets.
Degree of difficulty: 3/10, Likelihood of success: 9/10, Time Required: 10-50 years.
10. Compound forever (aka rarely sell): Allowing investments to compound over time, especially when reinvesting dividends or interest, can be a reliable path to wealth.
Degree of difficulty: 2/10, Likelihood of success: 10/10, Time Required: Forever.
At FoxPlan, we are advocates of asset class investing strategies i.e. using index-based funds and dollar cost averaging, therefore compounding your investments forever. Remember, the key to financial success lies in patience and a well-informed strategy tailored to your goals and risk tolerance. We are here to discuss these options in more detail and help you make decisions that align with your financial aspirations. Feel free to reach out to us to explore these strategies further.
Source: Research Quarterly: Equities - SIFMA - Research Quarterly: Equities - SIFMA
Source: GDP (current US$) | Data (worldbank.org)
Source: How to Get Rich in the Markets - The Big Picture (ritholtz.com)
We are only a phone call or an email away should you wish to discuss anything. Please get in contact with your adviser or contact us on 0800 NO STRESS (0800 667 873) or email at info@foxplan.nz if you have any questions or would like your adviser to talk through your current investment plan.
Kind Regards,
The FoxPlan Team