you invest. Then you diversify your investments. And you base that diversification on what your risk tolerance is,” says Williams. “If you can’t tolerate much risk, you want to have a lot more bonds in your portfolio. If you’re younger and can tolerate more risk, you should lean more toward equities.” The key, say the Board of Economists members, is to buy and hold. “You hear about day trading now and how everybody thinks they can beat the stock market, but we know there is a whole wealth of financial research that says you can’t do that. You buy and hold and look at the long term,” says Williams.
Brimmer says that whether it’s an investment club or a mutual fund, those who do commit to saving must find a vehicle to put those funds to work. “You don’t want to stop simply at making a declaration. You want to commit to implementation.”
And follow-up is critical. Several board members suggested some type of annual review of your personal wealth-building strategy. “This gives you an opportunity to survey how you carried out this pledge. Annual audits of wealth building are not unusual. There ought to be a vehicle so they can give an accounting of themselves,” adds Brimmer.
Once you do make the commitment, be consistent in your savings and investment pattern, the board advises. Do it over and over again until it becomes second nature. If you can convert your payroll deductions so that that your money is automatically removed before you even get it, then do it.
But if you truly want to garner larger returns, one board member summed up the next step with a single word: risk. “You need to have some risk capital in addition to your pension savings,” says Williams, “whatever
you can afford. If you’re talking about really trying to build up your wealth, you can’t just save at 6%. If you are 30 years old, you should be able to take $2,000 and put it in a company that you think is very good. It has a higher risk, but you can get a very high expected return from it. The younger you are, the easier it should be for you to do this. Just recognize that if it’s something that you put in a high-risk environment, you can make a lot of money, but there is a risk you might lose it. But that’s how you start to accumulate wealth.”
Other recommendations run the gamut from the importance of leaving wills and estate planning to more everyday items, such as monitoring the cost of your credit cards and revolving debt. “It’s these often basic kinds of decisions that we can’t afford to overlook,” says Boston.
Slightly more advanced is the concept of value-added leveraging, says Nemhard. “The other component of wealth creation also comes from adding value to something or simply leveraging what you already have-somehow making more out of it.”
Lastly, those who commit to the DOFE tenets should commit to spending a set number of hours