The recent cryptocurrency mania — and spectacular crash — have highlighted the old maxim that slow and steady wins the race.
Please note that as with all investing your capital is at risk and returns may be lost.
When there is a lot of excitement and speculation in the market and everyone seems to be getting rich fast, it can be tempting to join them by pumping your money into the next get-rich-quick scheme.
Don’t do that. Instead, focus on accumulating wealth in a slow and steady fashion over the long term. Warren Buffett is the poster child of this movement, and legendary VC Fred Wilson has branded his approach to investing “slow capital”, which certainly has more allure than cliched talk of tortoises and hares.
Most people think of investing as the pursuit of returns, but this is the wrong way to go about acquiring wealth. It’s far more effective to focus on accumulating capital. Reinvesting returns and building resources you can put to work will enable you to exploit the awesome power of compounding in order to grow serious wealth.
Let’s take a closer look at the numbers. A 25 year old graduate who squirrels away $100 each month until retirement would end up with $200,000 at age 65, based on an average return of 6%. A 45 year old would need to invest approximately $435 a month to achieve the same amount.
The lesson here is simple, but not easy — the earlier you start investing, the more you will benefit from the wealth machine that is compound interest, enabling you to build wealth consistently over the long term. Think about it as putting your money to work for you.
Slow and steady wealth accumulation has a number of distinct advantages over betting big on outliers. First and foremost, success is as much about avoiding losses as it is about backing winners. Slowing down and really thinking about your overall investment strategy will help you to minimise losses. It’s about not getting wiped out with reckless punts, staying in the game long enough to succeed. This will lead to experience, perspective and perhaps even a little wisdom. It will also lead to financial security.
A slower approach to investing also reduces stress, making your journey as an investor less difficult and more sustainable. It helps to filter out the noise of the financial press, friends and colleagues who don’t really know what they’re doing, but act like they’re masters of the universe. If Jim Cramer really knew the secret to unfathomable wealth, would he really share it with millions of viewers every day?
Another thing to consider is time horizons. Most people earn the bulk of their money between the ages of 30 and 60. They acquire wealth to fund retirement, when income tends to fall dramatically additional financial resources are needed to lead a full and happy life. This requirement is compatible with slow and steady wealth accumulation. You don’t need to become a billionaire by the age of 35 in order to have a great life, full of incredible experiences. You just need a half-decent income, a handle on cost control and a clear plan for the future. Treat saving a small amount of money each month as paying yourself for tomorrow. Make it a habit, however small. You can even use an app like MoneyBox to round up your everyday purchases to the nearest pound and invest the change.
Long term wealth accumulation doesn’t have to be dull. In fact, commitment to this approach can free you up to take calculated bets on higher octane stuff. Just make sure you only allocate a small amount of capital to the high risk prospects, preferably an amount you can afford to lose without an impact on your wellbeing.
Taking things slow can be psychologically tough. It’s far easier to join the crowd and chase after the next asset bubble. This can be a lot of fun in the short term. But in the long term, it will yield only stress and financial insecurity. Conversely, a slow and steady approach to investing might seem boring right now, but in the fullness of time, it’s anything but. Acquiring wealth steadily over the course of a lifetime will create great opportunities for you and your family.
Please remember that bonds are investments not savings or deposit protected products and your capital and interest is at risk.
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As with all investments your capital is at risk.