Top 3 Wealth Strategies With Pros & Cons

Wealth strategies should build financial legacies that outlive future generations. In this write-up, we look at stock market investment, real estate, and entrepreneurship as wealth building strategies that can secure your financial future.

Introduction

The American dream holds the possibility of upward mobility and financial success for everyone. We wake up each day to pursue the American dream because we believe in it.

While optimism matters, having a solid plan or wealth strategies is even more important.

Wealth strategies are plans of action with clear financial goals and objectives. Comprehensive wealth strategies empower you to take control of your financial future. Wealth building strategies are all about reaching your financial targets and goals while mitigating risks.

Wealth strategies are built on the following foundation:

• Personal finance and budgeting-living within your means
• Debt elimination-raises your credit score
• Saving-generates funds for investments
• Emergency fund-Protects you from financial devastation

The good news is that there is no inopportune moment to start working on your wealth strategies. Even if you do not have the factors above sorted out, you can make them top priority goals in your wealth strategies.

The primary factor in wealth strategies is income generation. With just one income stream, you can save and use your savings to multiply your income streams through investments.

Comprehensive wealth building strategies include investment options because investments are the key to wealth generation. Productive investments generate income for your wealth strategies to yield wealth.

The types of income streams generated from investments in wealth strategies include:

• Profit Income: Gained from selling products or services
• Interest Income: Earned from saving schemes
• Dividend Income: Earned from owning stakes in a company
• Rental Income: Earned from property
• Capital Gains Income: Earned from selling capital assets e.g. property, stock, bonds
• Royalty Income: Also Earned from copyright

Some income streams are more accessible than others. Most American households incorporate the following income-generating investments in their wealth strategies:

• Stock market investment wealth strategies
• Real estate investment wealth strategies
• Starting a business/entrepreneurship wealth strategies

If you do not yet have wealth strategies, the wealth strategies above are viable options for Americans in all income brackets. Let us look at the pros and cons of each of the above wealth strategies. We will also look at how to get started on each of the three wealth strategies.

1. Stock Marketing Investment Wealth Strategies

The stock market is where the shares of publicly quoted companies are sold and bought. Companies sell shares to the public to raise capital. When you buy stocks you get equity which in turn earns you dividend income to facilitate your wealth strategies.

Dividends are cash payments made to a shareholder on a regular interval. They are also accrued from the profits gained by the company issuing the stocks.

Apart from cash dividends, stock market investment wealth building strategies can also earn you stock dividends, property dividend, scrip dividend/promissory note, and liquidating dividend.

Statistics suggest that approximately 55% of American households own stock. They also show disproportionate wealth gaps between households that employ stock wealth strategies over real estate and other wealth strategies.

Advantages of stock market investment wealth strategies

• It is among the best investment wealth strategies for long-term wealth generation
• It also grows your money and offers good returns approximately 10% annual returns
• May include regular income in the form of cash dividends
• Easily transferrable
• Easy to liquidate

Disadvantages of stock market investment wealth strategies

• Although it has high returns it also has a high risk because of the fluctuating market. Second, the value of the stock rests on the reputation and stability of the company; if either of these is upset then the stock value falls
• Stock market investment wealth building strategies require expert knowledge. You need to be well versed on how the market works and the characteristics of high-quality stock to make good investments; poor investments equal losses.

Stock market investment wealth strategies for beginners

As stated above, the stock market is a rather complex space. However, it is not impossible to crack. Below are some tips on how to get started on stock market investment wealth strategies.

1. Determine investment approach

The investment approach you select for your stock market wealth strategies is determine by your knowledge of the market, risk appetite, and the time and effort you are willing to put in.

• Individual stock

It is an active approach that involves investing in a limited number of stocks that you will be fully responsible for managing. It involves constantly studying earnings reports from companies.

All the trading decisions rest solely on you. You need to be adept and have time to dedicate to selecting stock and monitoring performance.

Individual stock wealth generation strategies include:

• a) Value investing: Entails buying stocks from companies whose stocks are undervalued based on an analysis of their financial statements. Note, however, that it is only value investing if the company is strong and established, not up-coming. It is among the best wealth strategies for long-term investments.
• b) Growth investing: Buying stock from a young and robust company based on factors like industry trends and consistent performance that project future growth. Growth investment stocks are not always low-priced but are believed to appreciate in the long run. One disadvantage with this is that there are no dividends paid since funds are tied in capital.
• c) Momentum investing: Buying stock whose shares are rising and selling them at their peak.
• Index Funds

It is a passive method of stock investment wealth strategies that tracks a stock index. And It constitutes a diversified portfolio made up of different stocks and bonds. It has low risk because fund managers ensure it performs similarly to the market index.

• Robo-advisors

It is also a passive investment style whereby a brokerage makes investments for you while factoring tax efficiency. It also factors in your investment goals, and risk tolerance according to your age.

2. Decide how much to invest

Note that stocks are truly viable in the long-term. Invest an amount that you will be comfortable not accessing in the short-medium term.

3. Open a brokerage account

These are specialized accounts for buying stocks. There are two types; a standard brokerage account and an IRA (individual retirement account).

The former is best if you want easy access to your funds or want to save more than the maximum limit on an IRA requirement. Choose an account according to your financial goals and wealth strategies.

4. Choose a stockbroker and select stock

Consider whether they charge trading commissions. Also, consider the features they offer such as educational tools and company performance insights. You can do this online.

Note that points 3 and 4 above apply if you opt for the individual stock route.

2. Real Estate Investment Wealth Strategies

Real estate investment wealth strategies involve investing in property. The Real estate wealth strategies are viable because real estate is a productive asset.

You can purchase, resell, own, manage, develop, or rent real estate. Real estate wealth strategies earn you either profit or rental income.

Advantages of real estate investing wealth strategies

1. 1. • Real estate wealth strategies create an alternative steady income stream with minimum effort
      • You can diversify your real estate portfolio by investing in more than one property at a go
      • Ideal long-term investment
      • Tax-efficient as it includes tax exemptions and breaks
      • It also appreciates in value
      • Functions as a hedge during inflation as the value rises with inflation

Disadvantages of real estate investing wealth strategies

1. 1. • It also requires a high initial investment and transaction costs causing financial and legal liability
      • Real estate wealth strategies have low liquidity
      • Maintenance and management costs eat up profit from real estate strategies
      • Changes in demographics can affect rental income hence overall wealth strategies

 

Getting started investing in real estate wealth strategies

1. 1. • 1. Conduct market research as part of your investment wealth strategies.
        2. Consider the location: Location considerations for residential property real estate strategies include accessible amenities, conducive outdoor spaces, and neighborhood state. For commercial properties wealth strategies, proximity to warehouses, business districts, and transport hubs matter.
        3. When pondering real estate investing wealth strategies consider the property valuation. The valuation is a detailed report on the property’s value and influences factors like insurance, listing, and taxation.
        4. Select a strategy: you can either invest in real estate actively or passively as seen below
           • Own rental property: You can purchase property to let tenants. Note that being a landlord requires effort and costs like advertising vacancies and maintenance respectively.
           • Flip it: Buy a piece of property, renovate it to raise market value then resell it.
           • REIG (Real Estate Investment Group): It is an entity that invests in real estate by buying, selling, or financing property. They have diversified portfolio wealth strategies. They sell units to investors but charge them a portion of the rent income to manage the unit. REIG investors pool money to cushion each other against vacancies hence regular income is guaranteed. They also have a flexible structure and can take any form.
           • REITs (Real Estate Investment Trust): It is a type of mutual fund that invests in income-producing real estate options. The real-estate is traded like stock so investors earn dividends. REITs  also allow the investor to enjoy passive income from real estate wealth strategies without getting involve in management. You can invest in REITs using 401(K) funds or other saving investments.
        5. Once you select your real estate strategy, decide on how to raise funds. REIGs and REITs require the least initial investment.
      • Entrepreneurship/Starting your business

You can start a business for self-employment or as a second income stream.

 

Advantages of entrepreneurship wealth strategies

• Independence and being your own boss
• Flexibility; you can structure your business to accommodate work-life balance
• Freedom in taking decisions
• Allows you to follow your passions
• Pursue clients and select employees that align with your core values
• No red tape

Cons

• May take a while before you break even and start making profit
• Limited cash flow
• Requires a lot of time and energy
• Entrepreneurship wealth strategies may require you to take up undesirable duties

 

Getting started on entrepreneurship wealth strategies

• Come up with a product or service
• Conduct thorough market research
• Establish a niche for and refine your product or service; however, be careful not to get lost in the details
• Write a comprehensive business plan
• Commit to the process-it is hard and daunting
• Fund your business but consider protecting your personal assets by registering it as an LLC
• Establish a business structure
• Get federal and tax state IDs and other licenses and permits
• Get a good accounting system
• Market the business like your life depends on it; digital marketing is an effective, low-cost option

 

Bottom Line

The three wealth strategies above have different pros, cons, and requirements. Consider there before choosing any of the wealth strategies. You can diversify your investment by investing in multiple wealth strategies. However, be certain that the wealth strategies are your vehicle to financial freedom.