A simple guide to growing your wealth

The sooner you start growing your wealth, the greater the benefits could be in the long run.

Growing your wealth takes time, planning and consistency. Luckily, you can start immediately - here’s how.

Consider investments

It’s often thought that building wealth is something to put off until later in life. But the sooner you start, the more time your money has to work harder for you.

If you’re thinking about medium to long-term goals, investing your money is one option that can help you to grow your wealth over time.

Investments benefit from compounding, which is the phenomenon of your returns earning returns. Over time, compounding can have a huge impact on your investments. But remember, the value of investments can go down as well as up.

When you invest your money, one key consideration which can reduce your risk is how diverse your investments are.

Investors aim to diversify their assets, which means spreading your money across different types of investment, like stocks, bonds and property, as well as different locations and industries. Each type of investment provides varying opportunities and risks for investors.

Be prepared to tie up your money for at least three to five years - but the longer the better. This gives you more time to ride out the ups and downs of the stock market.

Where should you invest your money?

Understanding different assets can help you manage your investment risk. There are all sorts of asset classes that you can invest in, but many investors focus on three main types.

Cash

This is the asset with the least risk, as the value of your cash doesn’t fluctuate on a day-to-day basis.

The downside to cash is that it is most vulnerable to inflation, which erodes our buying power. Inflation is basically the price of goods and services rising over time.

If you have longer-term financial goals, it may be worth looking at other asset classes which are higher risk, yet offer more potential for growth such as bonds and stocks.

Bonds

Both governments and companies often need to raise funds, and one method of raising the money required is through issuing bonds.

Bonds are a type of government or corporate IOU, which allow you to hand over your money to the bond issuer for a number of years, and receive your money back with interest paid.

When you buy a bond, the details of the payout and the amount are already clear, which is why bonds are generally considered low-risk investments.

Stocks and Shares

Of the asset classes mentioned, these come with the highest risk. Shares are pieces of company ownership, so their value generally depends on how well the company is doing at any one time. Shares can be affected by a whole range of external factors like politics, global conflict and scandals.

These investments are riskier than cash or bonds, as the company value and the value of your investments can really fluctuate. However, despite this risk, they also have the greatest potential for reward.

Focus your investment portfolio on including a range of assets to maximise the opportunity to grow your wealth and manage your risk exposure. For example, a typical medium risk allocation would be a 60/40 split, stocks to bonds.

How to create wealth-building habits

1. Check your bank balance regularly

The more familiar you are with your income and expenses, the sooner you can spot any areas for improvement. Set a reminder to check your accounts and it’ll soon become a subconscious routine.

2. Create an effective spending plan

The most important part of creating a budget is ensuring that it’s effective and sustainable. Reaching your financial goals doesn’t have to mean sacrificing everything else. Work out a plan that allows you to enjoy yourself at the same time as making financial progress.

3. Get organised

Staying organised with your finances is one of the easiest ways you can maximise your financial position right now. Every few months, review all of your bills and direct debits to ensure you’re paying the right amount, or whether you can switch to a cheaper rate.

So, there you have it, some tips to help you start growing your wealth. Remember, it’s never too late to start. Good luck!

Remember, your investments can go up and down and you could end up with less than you started with. Past performance does not guarantee future results. The information provided is financial guidance and should not be considered financial advice.