13 Investment Rules Only the Wealthy Seem To Know
This is a writing sample from Scripted writer Curtis Fease
There was a time when if you wanted to start investing, you’d have to hire a broker to manage your portfolio. Nowadays, you can handle it on your own, right from your phone. There are countless financial resources available online, but it still seems that wealthy people follow a different set of investment rules.
Fortunately, these rules are not exclusive to the rich. With 62% of Americans currently buying and selling on the stock market, now is a better time than ever to learn the investing rules of the wealthy.
Here are some of the investment strategies that separate the rich from everyone else.
Automate your investments
People who don't have extreme wealth often like to exercise a high level of control over their money. Because of this, automated investing scares them. However, statistics show that automated investments could lower the cost of investing.
Rich people like to automate everything, and in the end, they typically profit handsomely because of it.
Focus on long-term compound growth
The wealthy do not obsess over daily returns. Yes, watching a stock fluctuate suddenly can cause some panic. However, investing is about the long haul. Wealthy people invest with decades in mind.
This allows compounding growth to multiply their wealth. A $500 monthly investment at a 10% return could become more than $100,000 in just 10 years.
Avoid emotional decisions
Rich investors do not panic when the market crashes or chase hype when things are going well. They have a plan, and they stick to it. They trust their process. Sadly, emotional investors often buy high and sell low.
Keeping fear and greed out of your investment plan is key. This can lead to long-term growth and help you make better decisions.
Use dollar-cost averaging
The richest investors don't wait for "the right time" to invest. They invest fixed amounts consistently. When an asset is down, this means they get more shares. When the asset is up, that fixed dollar amount buys less.
This strategy can lower an investor's average cost per share and mitigate the risk of investing large sums before a market downturn.
Rebalance regularly
Wealthy investors realign their portfolios every 6-12 months. If a certain asset class is outperforming, they'll sell some of it and buy underperformers. Rebalancing forces disciplined "buy low, sell high" behavior.
This keeps portfolios balanced and aligned with long-term risk tolerance. It also helps investors achieve their goals over time.
Keep investment fees low
Fees can quietly destroy wealth. They eat away at many people's gains without them even noticing. Rich investors often opt for low-cost index funds and ETFs. There are many options available with annual fees under 0.10%.
Depending on how much you're investing, a difference of 1% vs. 0.10% could be hundreds of thousands in profit over 30 years. Small savings now can translate to huge portfolio gains later in life.
Prioritize tax efficiency
Many novice investors only focus on gains and losses. They completely overlook the potential impacts of taxes. For instance, did you know you can be taxed up to 37% for short-term capital gains?
To protect their wealth, the rich reduce tax drag with accounts like Roth IRAs, 401(k)s, and HSAs. They hold assets for a longer period to lower capital gains taxes. Put simply, they take tax planning seriously.
Focus on asset allocation
A major novice mistake is failing to hold positions in various types of assets. Wealthy investors diversify across asset classes, investing in stocks, bonds, real estate, and other investment vehicles.
They choose where to invest their money based on their risk tolerance and goals. A strategic mix of assets can cushion you against market downturns and capture gains from multiple sources. Seek out stable investments across multiple asset classes to round out your portfolio.
Invest in index funds over individual stocks
The average person loves betting on individual companies. This is particularly true if they share the company's mission or values. However, the wealthy typically avoid individual stock picking.
They recognize that most active investors underperform the market. Index funds offer diversification, low fees, and proven long-term performance. Research available index funds to see which provide consistent returns.
Take contrarian opportunities seriously
Rich investors do not follow the crowds. They buy during market downturns and sell when assets become overpriced. It's a scary strategy, but buying when others are fearful and selling when they're greedy usually pays off.
For instance, wealthy investors who bought into the 2009 market crash reaped returns of 300% or more over the following decade. Monitoring the Fear and Greed Index can help you make better decisions.
Stay fully invested
Wealthy investors do not usually wait on the sidelines. Instead, they keep their money working in diversified portfolios. Holding large cash positions out of fear can result in missed opportunities.
Rich individuals would rather invest through uncertainty than miss out on the benefits of compound growth. Because if history tells us anything, it's that markets reward patience rather than perfection.
Ignore financial media hype
Clickbait headlines and talking heads make the average investor reactive. Wealthy investors are able to tune out such noise. They don't care what commentators are yelling about or what happens to be trending on Reddit.
Strategic investors focus on fundamentals, time in the market, and strategies that support their long-term goals.
Build a system, then trust it
It's been mentioned already, but following a system is key to many of the other strategies that make wealthy people successful investors. The rich do not chase perfection. They have a system and stick to it.
This tactic involves automated investing, rebalancing, low fees, tax optimization, and disregarding short-term noise. Wealth building is a process, not a matter of choosing the perfect investment.
Bottom line
Investing can be scary. This is particularly true for those who feel they can’t build wealth because they lack sufficient funds to take advantage of the best strategies. However, never forget that consistency and patience are far more important than income level.
These learnable traits are what drive long-term wealth building. Smart investing could yield millions of dollars in returns, even with moderate monthly investments. Take these lessons from the rich and start working your way up.
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