The ART of Investing

PAUL ATHERTON
08-07-2021
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There are three levers you can pull to improve your investment strategy. What are they, and how do they work? Find out here.

Many of my clients are doing something very exciting.

They are taking advantage of ONE of the three levers available to improve and outperform  their long term returns on the stock market

There are three (3) levers that you can pull. What are they?

  1. Amount of money invested in the stock market
  2. Return on the stock market
  3. Time spent invested on the stock market

I call this the ART of investing.

But the good news?

You don’t have to be perfect at all three. Even doing moderately well with one of these levers can have a massive positive impact on your long-term wealth.

Of course, you can max each lever, but the standard investor can rarely do so. Warren Buffet has done it, but then again, he is worth $109 billion.

Being aware of these levers is vitally essential to your long-term wealth.

How important?

Let me explain.

How does ART impact your future wealth?

If you do one of the three levers well, and I mean A-grade level well, and just average (C-grade) with the other two, you will be well off. No question.

Do well on two of these levers (A-grade) and average on the last (C-grade)? You will almost certainly be rich.

Do well on ALL three levers, you might just be Warren Buffet rich.

It is, as you can imagine, difficult to do well on all three.

And remember, there is a continuum of doing well.

How much time are you in the market? 10 years is good—I’d say this is about a C-grade. But 50 years is even better—I would call that an A-grade.

What about returns? 8% is good (C-grade), 10% is great. 15% is even better (A-grade).

What about the amount you place in the market? Again, it is a spectrum.

Let’s say $10,000 is good (C-grade), $50,000 is great, but $200,000 is even better (A-grade).

Let’s run some numbers.

Say you place $10,000 down on the S&P, and you leave it there for 50 years.

Lever 1 – Amount Invested—$10,000 is a nice start (that’s a C-grade).

Lever 1 – Return—S&P traditionally has come in with about 12% returns per annum (B-Grade).

Lever 3 – Time—50 years (A-grade)

So, we have one A grade, a B-grade and a C. Not fantastic, but good.

What would be the result if we had a $10,000 investment that returned 12% per annum for 50 years?

That initial investment would be worth over $2.5 million today.

I would say that comfortably places you in the wealthy category.

But you could do any combination. Let’s try another:

What if you had an A-grade for Return and an A-grade for Amount Invested but a C-grade for Time?

So, that would be A = $200,000, R = 15%, and T = 15 years.

That is $1.4 million.

That’s pretty good too.

And what if you had all three?

A = $200k, R = 15% and T = 50 years?

That would result in a return of $188 million!

The point is, try and do as well as possible at ALL levers.

Which lever should you pull?

Now, back at the start, I said that my clients were all taking advantage of one lever. So, which of the three levers are my clients taking advantage of?

Time.

But not for themselves; for their children. Many are building a portfolio of investments and starting investments for their children when they are born.

Day 0 investing.

That is massive.

Most 50-year-olds haven’t got 50 years of Time in their investments. A lot of them don’t even have 30. But my client’s children are going to have 50 years in their investments at that age.

And what’s so great about it is they have pulled one main lever, TIME, very, very hard. I would say they are almost guaranteeing a B or A-grade for that lever. Additionally, they keep adding to the pot every year.

Not massive amounts, but enough to make a difference however small.

As I have demonstrated with the numbers above. Time is such significant leverage for investing that even small amounts, invested consistently, add substantial value to the overall wealth.

Another group of people that I encourage to use time as leverage are grandparents. This may sound counterintuitive but what your grandparents do with their money can be very important.

Why?

Because traditional investing would have retired individuals investing predominantly in cash, bonds and other safe and defensive assets. Assets that pretty much don’t grow or grow very little over time.

This is a common approach for individuals in their retirement age.

The problem?

Most grandparents have earmarked a certain amount of that money, sometimes a large amount, for their grandchildren. But they are approaching their investments as if it is for them.

It would be much better to earmark a certain amount that they intend to pass onto a future generation and invest it as appropriate for that generation.

In other words, if grandparents want to leave $100k to their grandchildren, they should invest as if their grandchildren were investing today, which would be in a pure growth strategy.

If you placed $100,000 in stocks from day 1, that investment might have a 30-year (or more) investment horizon, and the result would be a significant wealth gain.

In 30 years’ time, that $100,000 invested with a pure growth strategy, growing at 12% per annum, would grow to over $2.5 million—an amazing amount of growth.

But a traditional strategy of investing for your retirement might only receive a return of 4%, and that in 30 years would grow to $300,000. Not terrible, but nothing compared to $2.5m.

So, start investing as early as you can, and if you’re investing for a future generation, use a growth strategy to really pull that Time lever.

When it comes to the ART of investing, remember…

  1. The Amount you invest, the Return rate, and the Time spent in the market all impact your success.
  2. Start by focusing on just one part of the ART.
  3. If you can, increase the Amount you invest, the Return rate, and the Time you spend in the market.
  4. Increase the Time spent in the market by investing NOW.
  5. Start investing on behalf of your kids or grandkids with a growth strategy to set them up for future success.

When it comes to the ART of investing, remember…

  1. The Amount you invest, the Return rate, and the Time spent in the market all impact your success.
  2. Start by focusing on just one part of the ART.
  3. If you can, increase the Amount you invest, the Return rate, and the Time you spend in the market.
  4. Increase the Time spent in the market by investing NOW.
  5. Start investing on behalf of your kids or grandkids with a growth strategy to set them up for future success.

Want personal advice on the ART? Talk to the Wall Street Guy team today.

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.

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Who is Paul Atherton, That Wall Street Guy?

An ex-Wall Street advisor who worked with major players in the global financial industry for over 30 years, Paul’s mission is to help regular people reclaim their wealth and financial security.

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