Wealth creation is a game of inches
- Global, South Africa
- Intu Properties, Investing, Sasol, Speculating, Total return index, Wealth creation, Wirecard
- June 27, 2020
Stock market investing / trading / speculating – all these concepts involve the purchase of shares, but the intentions and strategies vary enormously.
The stock market has become appealing to thousands of new investors over the lockdown period. This is great news, because it means more people are recognizing the value of taking control of their financial futures.
My worry is that people have tasted the incredible feeling of a 500% run in a share price (like Sasol). It’s easy to see those success stories and assume a couple of things:
- Returns like this are often achievable (they aren’t)
- All corporate turnaround stories end happily (they don’t)
News broke on Friday of Intu Properties collapsing into insolvency. In Germany, Wirecard has filed for insolvency after an immense corporate fraud, becoming the first company in the history of Germany’s premier index (the DAX 30) to do so.
Things can go wrong. It’s not all 500% returns and champagne.
My hope is that this newfound passion of so many turns into a strategy of wealth creation, rather than fizzles out into poor saving habits and limited interest in long-term thinking.
Wealth creation requires two things: patience and consistency
In a normal world, whatever that means, the JSE All Share Index is good for a return of 10% – 15%, with another 2.5% or so of dividend yield. For interest’s sake, a total return index is the combination of share price growth and dividends.
Based on that, you’ll realise that the crazy returns offered by the likes of Sasol recently were truly once-in-a-lifetime gains. Even a bounce of 30% – 50% would otherwise take a few years to achieve. Those who climbed into the market in March have accelerated their wealth creation journeys.
Whether you participated in that gain or not actually doesn’t matter though. It’s about what happens from here onwards.
A game of inches
Like that famous scene in Any Given Sunday, wealth creation is a game of inches. Small gains and consistent work pay off in the end.
I personally believe that it is far better to consistently save every month than to drop chunks of money into the market from time to time and hope for the best. It forces you to introduce financial discipline into your life, making sure you have enough money left over after expenses to keep your investment account ticking over.
Whether you elect to pick your own stocks, or work with a financial advisor, or a combination of the two, the most important thing to do is to just do something. Take that step towards wealth creation.
Put in place a strategy (no matter how modest) and stick to it. The best thing about my favourite investment platform, Easy Equities, is that you can invest small amounts of money on a regular basis without your returns being eaten up by fees. They’ve built something special and it opens up the stock market to anyone and everyone.
Be patient, be consistent and be cautious. You’ll thank yourself 20 years from now.