Timeless Financial Principles for Methodical Wealth Production
Winter mountaineering is considered by most, including life insurance underwriters, to be an extremely dangerous sport, but the fact is the vast majority of risks on the mountain are calculable, hence, when managed dutifully, the sport can be enjoyed with reasonable safety into a climber’s elder years, and often is. Accumulating wealth is in this respect analogous to winter mountaineering, also fraught with life-threatening, but mostly calculable risks, and when approached with the consistent application of time-tested financial principles, offers the diligent an extraordinarily high probability of success.
While climbing big winter mountains is never easy, it’s rarely complicated. Proper gear and supplies, conditioning, competence, navigation skills, and the poise to think, and not panic, in emergencies, together dependably subdue calculable risks. The principles for wealth production are similar:
Build on the foundation of adequate emergency savings (equivalent of 9 months expenses), a specific plan to become debt free (at least by retirement), and the right amount of the right type of life insurance.
Establish, and then maximize, a net positive monthly cash flow (net income exceeds gross expenses) by working hard and improving earning capacity with specialized education in your field, and by minimizing expenses with strict budgeting.
Allocate investable dollars appropriately, and separately, for each financial goal, in amounts consistent with your priorities. Have a formal and actionable financial plan.
Dollar cost average towards all long-term goals.
Diversify holdings in each investment account across multiple industries and sectors to mitigate the risk of a large loss scenario.
Major in income producing securities and funds.
Minor in non-income producing, speculative growth opportunities.
Invest in things you understand.
Diversify income sources, and again, put capital behind ventures you understand.
Enjoy the fruits of your labor and receive refreshment by periodically abstaining from work.
Bless others by sharing these principles with them, and by giving to those in need.
The goal of mountaineering should never be to summit; summiting is a gift, but enjoying the climb and being invigorated and inspired is essential. Enjoy the path these principles will place you on, and share your journey with others. Think about it, Shaun.
“Well done, good and faithful servant. You have been faithful over a little; I will set you over much” ~Matthew 25:23
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.
All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.
Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price.
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