Planting The Seeds Of Wealth
Building wealth can feel overwhelming, especially at the beginning. But similar to planting seeds in a garden, financial growth takes time. A thoughtful plan, attention, consistency, and patience can help you work toward lasting financial security.
1: Plan Your Garden
Step one is to define your goals. Determine what you’re saving for, how much it will cost, and when you need to fund this goal. These answers will help you determine how much you need to save, how often to contribute, and how much you need to earn on your savings or investments to reach your goal.
Saving vs. Investing
In the planning phase, you’ll need to decide if you want to save or invest. Saving focuses on accumulating and preserving assets, while investing aims to grow it over time. Investing carries the risk of market volatility and potential loss of capital, while relying solely on savings may expose you to inflation and may not keep pace with longer-term financial goals. Only you can decide which approach is best for you. And if you’re unsure, I recommend speaking with a Financial Advisor.
2: Plant The Seeds And Water The Garden
Pay Yourself First
Once you’ve determined your goal and planted the seeds, you’ll need to water your garden. A powerful way to stay consistent is to pay yourself first. This involves automatically directing a regular percentage of your income into your savings or investments before spending funds on anything else. Putting this on autopilot keeps your plan on track and helps reduce emotion from the process. If you’re investing, it also results in dollar-cost-averaging and the potential to save or to invest pre-tax income, and to re-invest dividends.
Dollar-Cost Averaging
Dollar cost-averaging involves investing a fixed amount at regular intervals, such as every time you get paid. Automation helps eliminate the pressure of trying to time the market, a strategy that carries the risk of being wrong. When prices dip, you buy more investments, and when prices rise, you buy less. This strategy smooths the impact of short-term volatility. Like tending a garden through changing weather, steady contributions create the conditions for long-term growth while compounding does the heavy lifting.
3: Fertilize The Garden
Save Or Invest Pre-Tax Income
When you pay yourself first, you might be able to direct pre-tax dollars to a Registered Retirement Savings Plan (RRSP) through your employer's payroll. This enables you to save or invest more money, accelerating compounding. Some employers even match pre-tax RRSP contributions, acting like a fertilizer for your financial goals at no extra cost to you. Look into what is possible with your employer, and what types of accounts are most appropriate for your individual situation and your personal goals.
Reinvest Dividends
If you’re investing in equities, you might receive cash dividend payments as a shareholder from the companies you invest in. Dividend Reinvestment Plans (DRIPs) automatically direct these dividend payments to buy additional shares, which can support compounding over time, and may create another layer of dollar-cost-averaging. This can help nurture your garden with minimal effort.
Diversify
Just as a healthy garden contains a variety of plants, a strong investment portfolio includes a mix of investments. Diversifying your portfolio across geographies, industries, companies and types of investments can help reduce the risk. Diversification ensures no single investment dominates returns and helps your portfolio remain resilient across various market conditions, the same way a well-balanced garden thrives even if one crop struggles.
4: Adjust As Needed
Adjust For Inflation
While set-it-and-forget-it strategies will do the bulk of the work, it’s important to review your plan to ensure it continues to align with your goals and risk tolerance. As your financial situation changes, you may consider adjusting your contributions accordingly.
Rebalance
If certain investments outperform, rebalance your portfolio to bring you back in line with your original plan. Make sure your portfolio continues to reflect your goals, your investment time horizon, and your tolerance for risk.
Let The Garden Grow
Once you’ve planned your garden, planted the seeds, and have set up automatic savings and fertilizer strategies, let your garden grow. Growth doesn’t happen overnight and neither does building wealth. With time, consistency, and discipline, compounding can contribute to meaningful progress and may help you work toward long-term financial goals, allowing you to eventually enjoy the fruits of your labour.
Julie Petrera, MBA, CFP, CIM is a certified financial planner. X (Twitter): @petrerajulie
This content is provided as general information only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.