In this week’s edition I will break down the process of long term wealth creation. Not in a wordy post, but concisely. Why? Because in an abundant world, less is more.
The Big Picture
When boiled down to its fundamentals, substantial wealth can be accumulated by:
Living below your means.
Investing early and often.
Being disciplined and patient.
The more you save, the more you can invest, and the more wealth you can create. Hence, a high savings rate is crucial. But how can you become more frugal?
Lifestyle tip: Apply more selective criteria for what is essential. Minimize wants and focus on quality when buying things you need. The disciplined pursuit of less leads to a life of meaning filled with what really matters.
“The greatest wealth is to live content with little.” — Plato
Practical tip: Pay yourself first by automatically transferring a fixed portion of your earnings to your savings account. This helps combat lifestyle inflation because you learn to live with what you have.
What to Invest in?
Because we cannot consistently beat the market, the core of every portfolio should consist of low-cost, tax-efficient, broad-based ETFs (exchange-traded funds). Not only is it simple, but it is likely to give you the best outcome as an individual investor.
An ETF is a passively managed fund that can be traded on an exchange like a stock. It tracks the value of an underlying asset or index and thereby gives you a way to buy and sell a basket of assets without having to buy all the components individually.
In the previous edition of the newsletter, I listed all the ETFs I invest in.
Patience Pays Off
The last step of building wealth is the hardest: being disciplined and patient.
All the big returns in life, whether in wealth, relationships, or knowledge, come from compound interest. Thus, to succeed in any given field, the key is to play iterated games and remain consistent with what matters.
This is easy in theory but hard in practice. The chief reason, I believe, is that we have been conditioned to receive immediate gratification by our modern lifestyles.
“The compound effect only kicks in once most people have given up” — J. Butcher
The solution? Understand that all that is to last is slow to grow. Trust the process!
That is all for today,
To wanting less,