10 Wealth Building Principles
Why Use These Principles?
Avoid Financial Mistakes
A solid understanding of budgeting, saving, and key investing principles can help you reach your financial goals and financial freedom faster.
Reduce Financial Stress
Money-related stress is one of the most common sources of anxiety. A strong financial plan can provide peace of mind and confidence
Make Informed Investment Decisions
Being able to evaluate stocks, ETFs, fixed income, and other assets enables you to build a diversified portfolio that aligns with your goals.
Pass on Financial Knowledge to Others
Become financially educated and confident so you can share valuable lessons and common pitfalls with others to help them grow their wealth too.
1. Live Within Your Means
• This is the most important principle because wealth isn’t determined by how much money you make; it is how much money you keep.
• For example, if Joe makes 100K/yr but spends 110K/yr, then he is building less wealth than someone who makes 50k/yr but only spends 45k/yr.
• Living within your means = ‘spend less than you make’.
• The BEST way to accomplish this is to make a budget and stick to it by tracking your income and your expenses.
• Tracking your spending is a great way to avoid this – so you can save more.
2. Avoid High Interest Debt
• High-interest debt (like credit cards, line of credit/ loans, etc.) can be your biggest enemy if you don’t pay them off promptly.
• The high interest costs also reduce the money you have each month to live on.
• This debt also lowers your credit score, which then limits your future buying power and can drive up your future interest rates.
• Pay off this debt as quickly as possible before starting your investing journey, as the high-interest costs (often over 20% per year on credit cards) are much higher than what you are ever likely to make on your investments.
3. Pay Your Future Self First
• Your financial future is determined by the financial decisions you make now.
• So, ‘pay yourself first ’ (every week or month).
• You need money to live on in the future, which means you will either need to continue working or, by paying your future self now, you’re investing in your future.
• Pay your future self by ‘saving at least 10% of everything you earn’.
• Then put this money to work for you by investing it in the market.
• This can help you grow your wealth substantially, so your future self can retire wealthier.
4. Maximize Your Returns
• “Compound interest (returns) is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.” – Albert Einstein
• By earning a higher rate of return through investments (vs. just saving), you can compound your wealth dramatically.
• For example, if you saved $5,000 per year for 30 years and earned 2% each year by putting it in a savings account, that would become $202,840 after 30 years.
• However, if you invested the same amount in the market over those 30 years and made a 10% return, you would have over $900,000 after 30 years.
• That’s 4x more money due to the powerful effect of compounding growth and higher returns.
5. Avoid Paying High Fees On Your Investments Or Savings
• When you invest, it’s important to understand the negative effect high fees can have.
• Many financial institutions and managed funds charge unnecessarily high fees (often 2% or higher on equity-type mutual funds).
• As a result, most of these high-fee investments provide worse returns than the market or market-tracking ETFs (exchange-traded fund) due to the effect of their high fees.
• In the last 10 years, 95.5% of managed funds in Canada had worse returns than just investing in the S&P/TSX Composite.
• If you earn a 9.8% return by investing in the market vs. an 8% return (investing through a high-fee fund), the difference might seem small in the short term, but it’s massive over 30 years.
• So, maximize your returns to maximize your wealth by avoiding high fees.
6. Maximize Your Tax Protected Investments First
• Leverage investing accounts that you can use to either lower your taxable income now or make tax-free withdrawals in the future. (For Canadians, that means maximizing your contributions and investments in your RRSP, TFSA or an FHSA.)
• Once you have topped out all your tax-protected accounts, open regular investment accounts because the more you invest, the more opportunity you have to benefit from the power of compounding positive investment returns.
7. Invest With A Long-Term Approach
• Investing is a long-term strategy where you let your money grow for you over your ‘investment horizon’ (how long you will let your investments grow and compound over time).
• Start by determining your investment horizon to ‘retirement.’ Determine this by subtracting your planned retirement age from your current age. This allows you to calculate what contributions you need to make to hit your financial goals for retirement.
• Want to determine the steps you need to take to hit your financial goals? Click the button below:
8. Prioritize Market Tracking ETFs
• Reducing your fees can have a profound effect on your long-term returns, and most managed funds or mutual funds, which tend to have substantially higher fees than ETFs, have underperformed the market in the last 10 years (95.5% of Canadian equity funds underperformed the S&P/TSX Composite in the last 10 years).
• Consider investing in index ETFs. These allow you to invest in one low-cost equity that tracks the performance of a benchmark index like the S&P 500 or the S&P/TSX. The S&P 500 is a stock market index that tracks the performance of 500 of the largest companies listed on the US stock exchanges, like Apple, Amazon, Nvidia, Meta, etc, while the S&P/TSX tracks the Canadian stock market performance.
• Over the last 30 years, through 2024, the average yearly return of the U.S. S&P 500 is 10.3% and the Canadian S&P/TSX is 9.7%.
• Index-tracking ETFs can help you realize these types of returns for very low fees, usually 0.2% or less.
• If you are currently invested in managed or mutual funds, you should look at your fees and consider moving to lower-fee ETFs that may significantly improve your returns.
9. Diversify Your Investments
• Putting all of your wealth into one investment isn’t a smart move because if something happens to that investment, you risk losing the majority or all of your wealth. By diversifying, you are lowering your risk.
• Investing in ETFs that track market indexes provides a diversified investment. SPY, IVV or VOO are the three largest ETFs which track the S&P 500, and represent the 500 of the largest public companies in the United States. If one company or a handful of companies do badly, there are hundreds more to balance things out. In Canada, XIC, VCN or ZCN are all ETFs that track the S&P/TSX performance, providing broad diversification through a low-fee investment vehicle.
• The S&P 500 also rebalances quarterly, removing poor performers and adding better-performing companies.
• In Canada, XIC, VCN or ZCN are all ETFs that track the S&P/TSX performance, and can provide another broadly diversified low-fee investment option.
• If you are also going to invest in individual stocks, it is often considered smart to invest 20% or less of your total portfolio in individual stocks, with the balance 80% in longer-term, more diversified investments like market-tracking ETFs.
10. Use A Low Fee Digital Investment Platform
• Today, self-directed accounts and low-fee or no-fee digital investment platforms allow you to easily manage your investments online with much lower fees, helping you to maximize your returns and grow your wealth much faster and easier.
• New lower-cost products like ETFs, that can be bought for free on some digital platforms, and for many have become the savvy investor’s lower-fee, higher-return replacement for mutual funds.
• Some of these self-directed platforms make it easy to buy, manage and access your investments online (with zero commission on both ETFs and stocks) so you can maximize your returns and be in control of your investments, no matter where you are.
• Many Canadians looking for ways to avoid the high fees of traditional financial institutions have moved their investments to these self-directed platforms to keep more of their returns for themselves.
• Whether you invest through ETFs or a combination of ETFs and other investments, a low-fee digital investment platform that offers zero commission can make a huge difference over time to help you Retire Wealthier.
How You Can Make This A Reality:
Invest Early & Often
Open A Low Fee Account
Use our vetted low-fee investment partner to start growing your wealth (click the button below to get $50 free when you open a Questrade account and deposit $250 or more).
Fund Your Account
Invest in low-fee ETFs like ones that track the:
- S&P 500 like SPY, IVV or VOO – and/or
- S&P/TSX like XIC, VCN or ZCN
Make Regular Contributions
Remember you want to pay your future self here so if you can keep investing and let your money grow.
Sit Back And Let It Grow
Let the market do the work for you and grow your money over time. Don’t panic if there are bumps in the road. If you invested $100,000 at the top of the market right before the 2009 financial crisis you still have over $450,000 today!
By Using These Principles You Can
%
Of North Americans (US & Canadians) are currently comfortable in retirement with the money that they have.
This can be you too whether you are in retirement, near retirement or far away from it. By making better decisions with your money you can be more secure in the future.
%
Over the last 30 years, the S&P 500 is up about 1,055% meaning if you invested $10,000, then it would be worth about $105,500 today, which is more than a 10x return.
Invest early and often, let the market help your money grow over time.
This is how much you would have if you contributed $500/month for 30 years into a low fee (0.25%) S&P 500 tracking ETF with an average yearly return of 10.3%*.
*the average return for the S&P 500 for the last 30 years.
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