Seven steps to building wealth: first things first: make a plan and don't procrastinate

Money Digest, April, 2001 by Ted Canning

What are the guidelines for being a successful investor? It certainly isn't to start out with a lot of money. As with anything in life, success is being the best you can be, using the resources you have available.

Perhaps the following items can help you make the business of wealth accumulation a bit easier.

Have a plan. If you don't have a plan, how do you know where you are going, and how will you know when you arrive? Your plan will help you set realistic goals, order your long-term priorities and show you what you need to do. Moreover, it will help you maintain perspective and avoid panic when the inevitable market or economic gyrations occur. Make it as simple or complex as you want, but make a plan.

Get started. Don't procrastinate After you make your plan, do something with it. Not getting started is the downfall of too many people. No amount of planning will remove all uncertainty.

Let time do its work. Don't be impatient. Remember, your plan is a long-term one. Let time and the power of compound growth be your greatest allies. Don't be afraid of starting small. You will be surprised how fast your capital can build.

Always take taxes into account. Always consider the effects of taxes on your returns. Some investments are more advantageous than others from a tax point of view, and taxes and inflation can make some returns completely illusory.

Understand Risk. Manage it, don't avoid it. Investing is the art of earning a superior return at an acceptable risk level. What is acceptable? That depends on your circumstances. But totally avoiding risk is a losing game. Concentrate on quality and long-term returns. Try to keep short-term fluctuations in perspective. Stocks, for example, may be volatile but, as a group, have always gone on to new highs.

Try to ignore the crowd. Don't buy a stock or certain class of mutual fund because it doubled last year and everyone else is buying it; do it because it's good value and offers excellent upside potential. Watch out for fads. They usually fizzle fast.

Don't be greedy. "Bears make money, bulls make money, pigs get slaughtered." Don't be angry because you sold your investment when it tripled and watched it double again. Join the millionaires who sold their holdings early, but were content to sell while someone else was eager to buy their shares. Avoid the "sure thing." Don't over-reach for yield. High returns sometimes are a sign of trouble. Know what you're buying.

Work with experts. You don't need to "do-it-yourself." Rely on the advice of specialists you trust on law, tax, investments, and more. You use the expertise of others in your business -- do the same with your investments. Make sure your advisor understands your objectives and your circumstances, then let him/her do the job right.