What is the best way for an individual to grow wealth in today’s markets? With the rise of digital platforms there have never been so many options. YouTube and other young, often inexperienced social media “fin-fluencers” offer their own advice about what to buy and sell. Yet few understand how investments and markets really work. In his book, “Simple Wealth, Inevitable Wealth”, Nick Murray – a professional with over 50 years’ experience in financial services – offers some valuable thoughts that will help you grow wealth more wisely.
Murray’s main point is that most of us tend to learn about investing the same as we learn other important life lessons – the hard way! His book, however, is a great help to individuals in identifying and side stepping more of these pitfalls ahead of time. His emphasis on “pound cost averaging”, in particular, is a strong reminder that investing gradually in markets, over time, is the best way for most people to build long lasting wealth (rather than trying to “time the market” with lump sums).
An important point in Simple Wealth, Inevitable Wealth is sticking to a “safe withdrawal rate” in retirement. This should typically be 4% per annum, to make sure you do not run out of money! However, individuals should be prepared to alter this based on markets.
Murray reminds us that the principles of good investing are the same regardless of the markets we are looking at. First of all, active trading is usually a bad idea. It racks up fees and leads to costly behavioural mistakes – such as selling an investment when it suddenly falls, dramatically. Secondly, working with the wrong financial adviser. The best adviser isn’t the one who claims he can “beat the market”, but the one who cares, who can “tell it as it is” and who puts your interests first. Thirdly, an appropriate level of diversification is needed to spread risk. Murray likes diversification, but not asset allocation. He stresses that a well-diversified, low cost 100% equity portfolio is the way to go and that one should generally not holds bonds as they are fixed income assets. Be an ‘owner, not a loaner’ is one of Nick’s slogans. He fundamentally believes in only holding equities to give you the best chance of an inflation beating return over time, so own stock, don’t loan to companies or governments. You do not “lose money” on equity investing until you sell, and the potential returns are higher. Young people, in particular, have a huge advantage due to the extra time they have. This lets them benefit more from the monstrous power of compound interest on their investments.
Remember, you can change your mind when it comes to your risk profile. Hold 2 years’ spending worth of cash to combat volatility he says.
Overall, Simple Wealth, Inevitable Wealth is a powerful guide on how to get the most from a financial adviser when building an equity-based portfolio. It provides useful insights on behavioural biases to avoid, and provides memorable words of wisdom that will stand you in good stead (e.g. “risk is not knowing what you are doing”). We commend this book to you. It is difficult to obtain in the UK, but you can find copies of the book via this website: https://www.phynancial.co.uk/
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