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Money

3 Ways to Building Real Wealth

June 16, 2019

Words by Tom Chanter

Some professionals are just getting by. Others are getting ahead. Our culture tells us that if we’re not where we want to be, it’s because we’re not working hard enough. We’re told to work harder, grind, and hustle. But the most ambitious know it takes more than hard work to reach your goals.

You have to invest your time, energy, and money in the right place. So these three tips have nothing to do with grinding, scrimping, and saving. They’re three ways you can make smarter investments.

Avoiding Financial Advisors

Financial advisors typically charge you 2% to invest your money for you. It doesn’t sound like much, but over time it adds up. Historically, financial advisors only achieve the average market return

of 7%. But after their fees, your return is only 5%. On a $500k investment over 30 years, using a financial advisor will leave you with $2,233,872.

Exchange Traded Funds like Vanguard provide you with the same returns as financial advisors, but with fees of only 0.25%. After 30 years, you end up with $3,766,623. You keep an extra $1,532,751.

Banking On The Up & Up

The Banking Royal Commission showed us how untrustworthy the big-four banks are. Now digital banks are giving us an alternative. They have lower fees, give you higher interest rates, and are easier to use. While they won’t make a big difference to your bottom line, digital banks like Up are moving in the right direction. Ambitious professionals are moving with them.

Smarter Leverage

Our parents tell us to take out a mortgage and buy a house. It’s sound advice, but ambitious professionals are making it better. Taking a loan is a good financial move because it gives you leverage. When you’re paying 4% interest on an asset that’s earning 7%, you’re making 3% without breaking a sweat. On a $500k loan, that’s $15k per year.

But why do we need a house? Many professionals are choosing to keep renting an apartment using their loan to invest in funds (like Vanguard’s ETFs). It keeps their real consumption lower and makes their investment higher.

If you want to invest more, scrimping and saving will help. But investing smarter is the difference between building a nest egg and building real wealth.

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