Money Strategies That Harm Your Long Term Wealth (and Health)

When it comes to how we manage our wealth, there are common strategies that are being used today that could really backfire in the long run. In this post, we aim to first, highlight these common mishaps and second, provide better, all-encompassing strategies that not only benefit the investor but society as a whole.

Common Money Strategies that Harm Long-Term Wealth (and Health)

1. Investing all of your money in quick-return opportunities
   

   Any investment you make that is not sustainable and driven by short-term gains will not enhance long-term wealth. Common examples of this are trading and real-estate development investments. You build a house and sell, or build a complex and sell it etc. You may make a quick profit, but all it does is reset your compounding clock and you are now encouraged to frequently buy and sell. It becomes essentially a constant grind that requires constant monitoring, depletes your emotional energy and amplifies decision fatigue. While all of this may seem attractive when you are younger and have more energy, as you get older this constant hustle strips away much needed time for yourself, for your family and for your overall personal and financial well-being.

   
   

2. Time-deposits
   

   Putting money in time deposits for a short period of time and gaining profits on it may seem attractive at first, but it comes with a few risks. The most prominent is, inflation risk, where inflation could outpace the profit rate on the deposit and this is highly likely in today's economy. Investors in such deposits commonly end up with less purchasing power over a very long period.

   
   

3. Stock market speculation and short-term trading
   

   Speculative stock markets, by nature, are highly volatile. For example, lets say an investor buys a large stock in a company. Speculation and market hype increases shortly thereafter, leading to a price hike. Shortly after this hike, the investor sells and everyone around him rushes to sell as well. The price of the stock now dips potentially to under-cost levels. What that means for those who didn't sell is that the investor wins while others lose. This leads to an overall decrease in the general wealth of an economy.

A More Promising Alternative: Long-Term Wealth Strategies that Build Personal and Societal Wealth

We understand that all of our wealth cannot be placed into long-term investments. We will need to keep some cash or bonds on hand. The key here is a healthy mix of cash and long-term investments:

(For clarity, we will divide investors into aggressive and conservative. Each one usually depends on the amount of wealth, their age, and appetite for risk.)

For an aggressive investor, this would optimally be 20% in cash or bonds and 80% in long-term stocks.

For a conservative investor, this would optimally be 60% in cash or bonds and 40% in long-term stocks.

Since this post is focusing on long-term wealth, we will outline a few strategies that we believe are great foundations for building money long-term:

1. Long-Term Demand Projects
   

   Sustainable investments that are created by long-term demand can potentially give life-time income. Great examples of this today are mega infrastructure projects, factories, utilities, education and agriculture, which are essentially projects that build economies.

   
   

   Ripple Effect: When you invest in a factory, for example, you are also indirectly investing in the logistics and storage industries that supply with it with services. This creates great opportunities for you and others with returns far greater than short term investments. It is also important to mention that in the modern economy, with its accelerating growth and quick dynamic changes in technology, the investment exit should be much faster than in the past.

2. Venture Capital
   

   These are generally higher risk investments but the payoff could be huge. Out of 10 projects, one might succeed but its appreciation could cover the whole of the other 9 losses due to its expansion. Common examples of this today are technology start up firms.

3. Gold, Silver and other Precious Metals
   

   The long-term appreciation of these metals would be far greater than keeping money in the bank where it loses its value over time. Further, in today's geopolitical uncertainty and weakening of the US dollar, gold & other precious metals are showing even higher acceleration in prices than in day's past.

As a last and very important note: if the investor has a solid foundation of knowledge in finance, it will be sufficient to do their research and make the right decision about the mixture of their investments. However, if they don't, it is essential to consult a well-reputed financial advisor to avoid mishaps and build a foundation for generating solid returns.

- Dr. Nahed Taher, President of Seeds Consulting