Saturday, July 21, 2007

10 laws to building wealth

The Summer issue of 'MoneySense' magazine contains this piece, written by Barbara Hawkins. I would like to provide a brief summary of the article:

Getting rich has always been a dream, but not it's a science too. Over the past two decades, researchers in the burgeoning field of behavioural finance have studied how we think about money, while business professors have probed the surprising ways in which wealthy people amass their wealth, and finance professors have expanded their knowledge of how markets work. Want to know the secrets of how to increase your own net worth? We've compiled the best of this recent research (as well as some time-honoured wisdom) into 10 laws of building wealth.
  1. Understand your Psychology when investing. Chasing what's hot, and overconfidence are common examples of what not to do.
  2. Learn from your mistakes by monitoring yourself and being open to scrutiny. Keep a trading journal, understand why you took certain actions, and ask for others opinions.
  3. Paying yourself first and automatically are the keys to saving well.
  4. Concentrate on managing spending habits. Building wealth is more about your bottom line than your top line.
  5. Take some risk. Admit defeat and don't hang on to bad ideas.
  6. Know your edge, and know your limitations. This is likened to an amateur tennis player that sabotages himself by trying to hit winning shots. The best weekend players win simply by hitting the ball over the net consistently.
  7. Diversify, insure yourself, and play defense.
  8. Keep fees down.
  9. Use the couch potato portfolio technique.
  10. Always remember what's really important in life. True wealth consists of ignoring other people's opinions and seeking out what makes you happy.

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