Accumulating wealth doesn’t always have to be a mystery. Many times, following proven strategies or having the commitment and discipline to follow investment trends can produce results over time. The following are five trends to a wealthier future:
1. Invest in overseas markets The past five years of unpredictability in the U.S. stock markets have highlighted the importance of having some exposure to overseas investments. China’s emergence on the world stage and trends, such as the outsourcing of U.S. jobs to foreign countries, are indicators that overseas markets are expanding. It’s important to give yourself an opportunity to build wealth by tapping into that growth.
As part of last October’s BLACK ENTERPRISE investment roundtable, Ron Holt, managing director of research at Hansberger Global Investors, explained, “It’s important to use a diversified approach to international investing. You should consider using mutual funds or at least a professional money manager as a way to help you manage risks. Look for a strategy that gives you access to a range of markets outside of the U.S. I would not exclude emerging markets.” Holt says investors should consider allocating 5% to 25% of their portfolio to international investments.
2 Start a home-based business or consultancy Since job security is not guaranteed in the current economy, it makes sense to establish a business. Another key to building wealth is establishing additional streams of income, and working as a consultant or freelancer can do just that. It doesn’t have to be a full-time commitment. Maybe you have an expertise and can earn additional money over time. Just a few thousand dollars in extra income invested over the long haul can turn into hundreds of thousands of dollars.
Once you’ve established your small business, you could be eligible for tax breaks such as the home office deduction or deductions for purchasing business equipment. With proper consultation from an accountant, it may make sense for you to establish a SEP-IRA account, which will allow you to save additional income tax-deferred at higher levels than an ordinary IRA (up to 25% of an employee’s compensation, providing the contribution does not exceed $40,000).
3 Contribute to an IRA With an ailing Social Security program and fears that corporations such as United Airlines have underfunded pensions, opening an IRA account is a necessity for most investors. It is particularly important to open one if you have a job that does not provide a pension upon retirement.
“An IRA gives you the ability to grow your investments tax-deferred, and this saves you money because taxes are the biggest destroyer of wealth in America,” says David Hinson, principal of the Wealth Management Network in New York. Since most people are expected to live 20 years or more beyond 65, a well-managed IRA with diversified investments can provide the additional money you’ll need for retirement outside of a 401(k) account or other company-sponsored retirement plan. It can also provide a potential tax break for each year you make a contribution.
4 Buy a home Buying a home is the foundation