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Wednesday, 16 December 2009

How to ruin your chances of prosperity?

Sheyna Steiner
On 6:00 am EST, Tuesday December 15, 2009

Prosperity and financial freedom are burdens. Where's the excitement in knowing you'll always have enough money to cover any contingency and pay all your bills? All that free time and security would be enough to bore anyone to tears.

To avoid that fate, most people can ruin their chances of prosperity simply by doing as little as possible: Show up at work, do just enough to stay employed and strive for mediocrity.

But for those who just can't seem to beat prosperity off with a stick, there are overt ways to foil long-term financial success.

4 ways to thwart prosperity
  • Don't set goals. 
  • Dillydally. 
  • Think inside the cubicle. 
  • Invest in the hottest sectors.
Don't set goals

As they say, you can't reach your destination if you don't know where you're going.
The mantra preached by self-help gurus in every field, from weight loss to dog training, is to set clearly defined goals. The same is true for finance.
Whether your money goal is to pay down debts or become a billionaire, write it down and then figure out how to reach that milestone.

"First we need to define what prosperity means to each of us, meaning are we financially free? Or do we have no mortgage? Do we have money in the bank?" says Justin Krane, Certified Financial Planner and president of Krane Financial Solutions in Los Angeles.
"If someone says they want to retire, that is not as clear and vivid as, 'I want to be able to travel and gift money to my kids,'" he says.
Before you make wealth-building a priority in your life, set your goals.

Saving and investing is a mandatory part of building wealth. It may not make you a Maserati-driving, champagne-swilling magnate, but it plays a vital role in fostering good financial habits.
Think of it like establishing good grooming habits. Heidi Klum probably has a great skin care routine, and though you won't become a supermodel by following her example, you may end up with nice skin.
Saving and investing work best in the long run if you start early. To gum up your prosperity plans, take a few years off between 18 and 40.
Blame it on math and compounding interest.
"One of the lessons we try to teach young people is that the savings curve is not linear; it's geometric," says Jack Reutemann, Certified Financial Planner and president of Research Financial Strategies in Rockville, Md.
"To save for retirement, if you wait until 35, you have to double the money you would have had to save if you started at 25," he says.For instance, a 25-year-old would need to save $167 a month for 45 years to amass about $881,000, assuming an annualized 8 percent return.
Sadly, saving the same amount with an identical return for 35 years will get you just about $383,000.
Think inside the cubicle

Keeping your head down and your nose clean is a good way to stay employed, but it's not the best way to get rich.
While company executives rake in the dough, the rank and file often get the short end of the stick -- they're subject to layoffs and pay freezes while CEOs make millions. Even for star employees, there are no guarantees of ongoing employment, hence, very little control and security.
The big money is in entrepreneurship. The big losses are also there. Some people who may be inclined to start their own business may never actually do it because of the perceived risk.
"When you talk to the average person about starting a business, they find the idea very risky. When you talk to people who have started a business, they didn't find it very risky because they had special gifts or talents or skills and never thought that it would fail," says Dan Danford, chief executive officer of the Family Investment Center in St. Joseph, Mo.

"Most people perceive a higher level of risk than is actually there," he says.

Invest in the hottest sectors

Everyone has heard of someone who's made a mint in the market -- the guy who bought Apple when it went public or Caterpillar in the 1990s.
But for just a little more luck and investing savvy, any of us could have a pot of gold in our brokerage account. More likely than not, the average investor is not doubling or tripling her money in a year. Instead, he or she is likely earning less than the market return.
"The average investor return is two-thirds of the S&P," says Reutemann.
Kelly Campbell, a Certified Financial Planner at Campbell Wealth Management in Washington, D.C., has also found that to be true.
"When the S&P lost 38 percent in 2008, most investors lost 30 (percent) to 60 percent of their portfolio. Why someone would lose more than the market did is a mystery to me," he says.

Once a sector or a stock is hot, it's a fool's bet to jump on the bandwagon. But it can be hard to resist the siren song of massive returns in a short period of time.

Investing is difficult -- people devote their lives and careers to studying markets and finance. There's no shame in admitting that despite skimming a book and some online articles about investing, you still don't know everything there is to know.

"People have to educate themselves and find their way to a competent adviser who will help them buy low-cost index funds," Reutemann says.

If you're not up to doing it yourself, an ethical adviser can shape your investing strategy and also help you see the big picture and attain your financial goals.

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