Investing For Growth Vs. Investing For Safety
For many Americans, the last decade made a mess of their finances as your debt rose and your net worth fell. But regardless of your financial state — whether your finances have been wrecked by plummeting home prices or your income has remained stagnant — you can still develop strategies to actually create wealth.
Investing To Build Wealth
Opening an investment account is one way to compile assets in a way that either produces growth or generates income. It is important to remember that wealth building is a long-term process that has to be actively engaged in and has the potential to affect future generations. That is why it is critical to apply all of your resources, goals and interests to the wealth building process.
Growth stocks are great for long term wealth building. Building wealth requires that you capitalize on great opportunities whenever they are presented to you. Diversification matters but riches can often be created easier through one great capitalistic endeavor. That means your primary energies should be focused on and applied to the ventures that have the greatest opportunity to create and maintain wealth. This could mean investing in an asset class or business venture that has growth potential.
Investing For Safety
In the book the Intelligent Investor, Benjamin graham does a masterful job of explaining the difference between the enterprising investor and the defensive investor. Enterprising investors are willing to take on higher risks in order to get greater returns. Meanwhile defensive investors are investors that look for safety as a primary concern.
Defensive investors find a simple low cost high return approach to building wealth is often a better solution than investing in complex financial instruments which promise results that they are unable to deliver upon. The average investor would be better served by investing in low cost mutual funds and index funds that seek growth while keeping expenses to a minimum. Many of these funds offer low cost diversification.
Dividend stocks and bonds are a central holding of the defensive investor. Many of these assets may produce lower returns but they produce an investor’s portfolio from extreme volatility.
Which Strategy Is Right For You?
The strategy that you apply to your portfolio has a lot to do with the number of years that you have until retirement and the amount of money that you have invested. Individuals with higher net worths should have a strategy that focuses on safety and protecting their portfolio assets. Individuals with smaller amounts of money will need to adopt a more aggressive strategy if they hope to grow their portfolios to the level of serious wealth.
*******Warren Buffett is the perfect example of this. Younger Warren Buffett was a much more aggressive investor than older Warren Buffett. Read more about the investing habits of Young Buffett.