Long-term wealth accumulation & Trading Strategies
Photo by Eldines Hoo on Unsplash

Long-term wealth accumulation & Trading Strategies

How can I build a fortune? or How can I invest my money profitably?

These and similar questions probably concern every investor — for different reasons. One would like to be secure in old age or earn a passive income, the other would like to own a home, finance travel, or retire earlier.

With this wealth accumulation guide, I want to show you which options are available to you for creating financial wealth so that you can achieve your financial goals.

What does wealth accumulation mean?

If you want to build up wealth, it means that you invest your saved capital or part of your income and let this money work for you for a longer period of time.

The capital that you invest once or in several tranches grows and ultimately results in a larger amount of money — a fortune — through interest, compound interest, dividends, or rental income.

But what actually is a fortune, or rather, with what amount are you wealthy?

While for one or the other an amount of $ 50,000 may sound like a lot of money, for the other, $ 500,000 or $ 1 million are worth striving for.

As an investor, you must determine for yourself what you understand by “fortune”.

As a rule, it is an amount that seems relatively “far away” from the current perspective, a financial goal that requires greater and, above all, sustained effort to be achieved.

In the best-case scenario, you can earn a living from the regular income that your investments generate — what is known as passive income.

At what age should you start?

If you build up wealth at a young age, you of course have an advantage, because compound interest effects allow you to generate significantly higher returns over a longer period of time.

However, you also have to take into account that assets can move downwards for a few years, for this reason alone, building wealth is not a 100-meter sprint, but at least a half marathon.

So you should think in the long term and look at a period of 8 to 15 years instead of 3 to 5 years.

It does not matter whether you are 18 or 50: wealth accumulation works at any age.

Of course, it’s best when you are young, but it’s better to invest late than never.

Wealth accumulation has enjoyed increasing popularity in recent years, especially among younger people.

So-called frugalism, for example, describes a trend that has gained great popularity in recent years.

“Frugal” means something like simple or modest.

People who describe themselves as frugal usually live very frugally in order to be able to save a very large part of their income.

This money is invested in stocks, ETFs, or real estate, for example — classic wealth accumulation. Interest income, dividends, and rents should ensure a passive income and thus later enable a worry-free life with financial independence, true to the motto

“FIRE”: Financial Independence Retire Early.

As soon as the goal has been achieved, for example, to have 25 to 40 times the annual expenditure on the “high edge”, the job can ideally be quit and the financial freedom can be enjoyed.

This philosophy is particularly popular with young people who are reluctant to imagine being trapped in a “hamster wheel” until they retire. Even if one does not see it as extreme as the frugal-movement, its basic idea of ​​being less and less dependent on earned income through growing wealth is certainly a worthwhile goal.

Photo by Domenico Loia on Unsplash

How much money and time do you need to build up your wealth?

If the definition of wealth differs from investor to investor, there is of course no fixed amount that should be available to you as start-up capital for creating wealth.

Wealth formation without equity also works: Because even if you are completely blank, you can build up a fortune with a savings plan with monthly payments, for example.

However, if you are in debt, it may make sense for you to first service your debts, especially if it is relatively high-interest consumer debt.

Because the return on your investment is lower than the interest on loans, an investment would be a negative deal for you. A long-term real estate loan with low-interest rates, on the other hand, is not an obstacle to additional wealth accumulation.

The higher your start-up capital or your regular payments, the sooner you will achieve your wealth target.

For example, in order to achieve a target asset of $ 100,000 with $ 10,000 of start-up capital, you will probably also have to make regular payments in order to achieve your investment goal in the foreseeable future, for example in 8 to 10 years.

How fast your asset accumulation progresses naturally also depends on the total return that you achieve with your investment. It is better to calculate a little more conservatively here, because the stock markets, for example, can sometimes develop negatively at times.

How much do you own after 15 years?

The following example shows how $ 10,000 in seed capital will develop over time as you achieve the stated average returns:

6%:

1st year: $ 10600

3rd year: $ 11910

5th year: $ 13382

10th year: $ 17908

15th year: $ 23966

15%:

1st year: $ 11500

3rd year: $ 15209

5th year: $ 20114

10th year: $ 40456

15th year: $ 81371

Evolution of € 10,000 over 30 years.(14%)

compound graph

The image above shows the evolution of your assets over 30 years.

By investing $ 10,000 at 14% you will end up with $ 510,000 after 30 years. Therefore if you are in your 20’s and 30’s, it is the perfect time to invest a bit of your money to create a big capital over the years.

Inflation eats up returns: consider a loss of purchasing power?

Let’s be honest, a low-interest rate of up to 4% doesn’t really sound like wealth accumulation if you haven’t even doubled your capital after 15 years.

You have to keep in mind that the inflation rate, which in the past was mostly between 2% and 3%, is simply eating away a good part of your income.

In 15 years, the purchasing power of $ 10,000 will ultimately not be the same as it is today. In order to build up wealth, you should therefore achieve returns that, on balance, are well above the annual loss of purchasing power.

What forms of investment are available to private investors for wealth accumulation?

If you leave your money in your bank account without interest or even with negative interest, your financial assets or your purchasing power will rather decrease than increase.

So, to build a fortune, you need to invest.

But which forms of investment are actually suitable for building up wealth?

There are so many opportunities like sand in the ocean.

When it comes to wealth creation, most of you think of stocks, funds, and ETFs, as well as bonds, real estate, or precious metals.

There are also other segments of financial investment

In addition to raw materials, currencies, futures, options, and other leverage products such as certificates and CFDs, this also includes new segments such as crowd investing, crowdlending, or cryptocurrencies such as Bitcoin, Ethereum and other Altcoins, Artworks or expensive clocks primarily serve to maintain their value.

However, one thing is important: if you want to build up sustainable wealth, you should never put all your eggs in one basket. This means that in the interests of diversification you should, if possible, focus on several asset classes, for example, a mix of stocks, crypto, real estate, and some precious metal.

Avoid the gray capital market!

In any case, you should beware of the so-called gray capital market.

This means private investment offers that are not regulated by the financial supervisory authority, for example, ship funds or containers, wood plantations, solar or wind parks, profit participation rights, new unknown cryptocurrencies.

Most of the time, the providers advertise on the Internet, by phone, or with glossy brochures with promises such as above-average returns and convincing-sounding securities, which, however, usually turn out to be soap bubbles.

Many of the offers are given an ethical, green, or otherwise positive coating — but only for marketing purposes. Much of it is pure fraud or at least bordering on it.

The German Federal Criminal Police Office estimates the annual damage caused by fraudulent investment offers at 20 to 25 billion euros for Germany alone. Even dubious virtual forex, crypto or CFD trading platforms with “automatic trading systems” that fraudulently trick investors into account movements and high profits often only have the purpose of pulling as much money as possible out of investors pockets.

Investors usually never see paid-in money again.

Therefore, ask yourself the question:

If there was an above-average attractive and safe investment, would a provider actually go to the trouble of attracting relatively small amounts of money from private investors with a lot of marketing and support? In the vast majority of cases, something is fishy — even if the provider has a seemingly coherent answer to this question.

So please do not be fooled by promises of high returns, but limit your investments to proven online brokers, regulated markets, and investment products from renowned banks and fund companies.

You will then save yourself the anger and frustration that arises when a planned increase in wealth turns into the destruction of wealth for the reasons mentioned.

How much should I invest in stocks, ETF’s, cryptos, real estate, and precious metals?

One thing is beyond the question: if you want to achieve an attractive return, you cannot avoid stocks, ETFs, cryptos, or funds in times of low-interest rates.

But how high should the shares be?

The rule that most financial advisors give:

The number 100 minus the age of the investor gives the equity quota. A 30-year-old can therefore invest 70% of his financial assets in stocks, ETFs, cryptos, or funds, a 70-year-old should invest a maximum of 30%.

The rest of the money should be allocated to less volatile, safer forms of investment.

Of course, this rule does not take into account the personal circumstances or financial circumstances of the investor. For a 28-year-old couple about to start a family, stock market investments of 72% of their balance are likely to be too high, while one or the other well-off retirees may have enough time to dig a little deeper into the stock market.

So it always depends on your own plans and the specific life situation.

As an aid, you can orientate yourself on the wealth pyramid, which is — similar to the well-known food pyramid — a schematic model that represents a sensible asset allocation. The height of the three segments will vary for each investor, but the structure and basis should always be based on this scheme:

wealth pyramid

Level 1 Risk Protection & Liquidity:

If you want to build up a fortune, you should first lay the foundation and ensure your basic protection. Because only if the cost of living can be covered and loans can be serviced, wealth creation makes sense.

In addition, a financial reserve should be kept in order to be able to meet financial obligations in the future.

In addition to predictable expenses such as for larger purchases, this also includes unforeseen costs such as Car repairs for which an iron reserve can be planned. For level 1, the investor can use cash, daily or fixed-term accounts, for example. Insurance can be taken out for greater or incalculable risks (e.g. liability, incapacity for work, residential buildings).

Level 2: Asset accumulation:

With the additional funds that are probably not needed for a longer period of time, more targeted and sustainable asset accumulation can be pursued.

For this purpose, the investor can invest in stocks, cryptos, funds, bonds, real estate, or precious metals, for example.

The following applies: the more risk a type of investment entails, the lower the capital share should be. A healthy mix increases returns in the long term and ensures sufficient risk diversification.

Level 3: Speculation:

With a sufficient capital base, private investors with the aim of increasing the total return can also invest a small portion (usually less than 10% of their assets) in somewhat more speculative investments.

These include, for example, volatile cryptos or stocks of smaller companies, leveraged investments, commodities, futures, and options.

However, this level is optional and is only recommended for investors with sufficient financial education and corresponding mental strength.

A golden rule is that possible losses in a segment should never negatively affect the level below. Capital market losses must never have existential consequences or jeopardize liquidity, while speculative investments such as options and futures must not jeopardize the entire accumulation of assets.

What is Essential?

Stamina and the right mental strength and attitude

If you want to build a fortune, you will only get there with the right mental attitude.

After all, wealth accumulation is not a matter of months, but of several years. And during this time a lot can change in your life and also in the financial markets.

For example, a 5-digit account balance can tempt one or the other ambitiously started investor, true to the motto “After all, you only live once” to buy a fancy new car instead of continuing to save and invest.

Another may be thrown off course by an intermittent stock market slump, as from a certain capital level he can no longer cope with the price and value fluctuations. Such and similar hurdles mean that many investors give up on wealth accumulation — usually not even halfway — and thus fail.

So please make one thing clear to yourself:

Wealth accumulation only works if you give the topic a high priority and commit yourself!

Tips to start building wealth: Set goals!

When you’re ready and ready to start building wealth, the first thing you should do is make a cash drop.

You determine how much investment capital you actually have available and whether or which monthly payments you can make. If you are planning a major purchase such as a new car, then you should consider this in your planning.

You should define a clear financial target for yourself — preferably in writing — and a period in which you want to achieve the target, let's say $500,000 within 10 years. You can of course also set intermediate goals for your investment goals, for example, interim goals for the next 3 or 5 years. You should also think about your risk appetite.

If you are in no great hurry to build up your wealth and are satisfied with manageable returns, then you can reduce your risk e.g. with a low equity allocation relatively low.

The more ambitious your return expectations are, the more risk-taking investments you will need in order to reach your goal and build up a fortune.

Nevertheless, the following applies: Of course, your investments must not ruin your sleep. Not even if the stock or crypto market is showing their unpleasant side every now and then.

A combination of different forms of investment is the best, for example, 40% stocks & ETFs, 30% real estate, or funds and REITs, 20% crypto, a small 5% share of gold, and 5% play money for leverage trades, options or certificates.

For my short term Crypto leverage trades I use Kraken sometimes Binance if I feel the need for more leverage.
['Crypto Einfach']
['Money', 'Wealth', 'Trading', 'Cryptocurrency', 'Investing']