When most of us think about building wealth, we generally start with the investment.
“Should I invest in this property, or that property? I’ve heard about this great managed fund, etc.”
But this is actually the wrong way around, we should in fact be looking at what our goals are.
As in, what we are trying to achieve, and then deciding what investment options would be most appropriate for that particular goal.
As an example, each different type of investment, lets focus on cash, shares and property, have as a general rule an optimal time frame.
Investment Time Frames
Cash should be used for short term investing, things that are between immediate and maybe just a couple of years away.
Shares are a great medium to long term investment, so for things that are maybe 3 – 10 years away or longer.
Property is generally quite a long term investment – consider the fact the most mortgages are 25 – 30 years and that gives you an idea of how long you need to invest in property for it to reach it’s full potential as an investment.
Bearing this in mind, a great strategy is to align your investment decisions with the things you are wanting to achieve in your life.
Aligning With Your Goals
Spend some time setting your goals (things like saving for a special holiday, having children, starting a business, it could be anything), and then think about the time-frame you’d like to put on each of those goals. For example, you might want to go on holiday next year, which means saving for this in cash is probably going to make the most sense.
But you may wish to start a business later in life, perhaps post having children in 15-20 years so considering building wealth in the meantime through property would really work, and more than likely you’ll have a bunch of stuff that falls over the next 3 – 10 years that using shares to accumulate wealth for, will be a very good option.
The best thing about cash and shares is that you can withdraw part of your wealth without having to sell the whole lot. In order to realise funds from a property on the other hand, will require you selling the asset, or borrowing against it.
Personally, I always feel a lot better when I invest toward a goal, because every time I look at the balance, or make a contribution, I know I am getting closer to whatever it is that I’m working toward.
Hopefully this gives you a little additional perspective on what else to consider when you’re thinking about your investments, and until next time… get rich slow!