Do you procrastinate? Investing mistake #1 is waiting too long to 
begin. The wealth building formula needs time to work. 

Do you invest too little? Investing mistake #2 is putting too 
little money into your investments. Living beneath your means 
is not easy, but it is essential to building wealth. 

Do you accept too low a compound interest rate? Investing mistake 
#3 is accepting too low a return on your investment. Rate of 
return, compound interest rate, is a key determinant for growing 
wealth. Compound interest is powerful in both directions. 
Positive compound interest builds wealth. Negative compound 
interest shrinks wealth.  Bank savings accounts may eliminate 
negative compounding, but are not a good place for investing 
because of low returns.

These 3 mistakes link in the wealth formula:

   Wealth = ($ invested)*(1+(compound interest rate))(time $ 
               invested)

Wealth is a function of the amount of money invested, the 
interest rate it grows at, and the amount of time it is left 
to grow.

Okay the wealth formula is really just the compound interest 
formula with new labels.  You know the compound interest formula 
and how it works.  You know what to do to increase your wealth. 
Save more, defer consumption longer and get a better return on 
your investment.

It is one thing to know the wealth formula; it is another to live 
it.  

What are you going to do to increase the amount you are saving 
and the time you are letting your investment work?  Saving is 
synonymous with amount of money going into investments, not 
amount going into a bank savings account.  Get rich slow gurus 
pitch tips like: “save 10% of your income” or “pay yourself 
first.”  There are books aimed at helping you save, about 
changing your lifestyle.  I recommend: 

 * How To Live Without A Salary is by Charles Long, he promotes 
   what he calls a Conserver Lifestyle 

 * The Tightwad Gazette is by Amy Dacyczyn, she promotes thrift 
   as a viable alternative lifestyle 

Both books, give tips about saving money and pitch living 
frugally as a superior, or at least acceptable, lifestyle.  Amy 
Dacyczyn points out there is a difference between being wealthy 
and looking wealthy.  In the short term, an affluent lifestyle 
can be financed by debt.  What are you about substance or image?

What are you doing to improve your rate of return?  How are you 
balancing return and risk?  Generally to improve your rate of 
return you will have to accept more risk.  The textbooks 
calculate risk as variability.  A bank savings account has low 
calculated risk because it grows but never shrinks below the 
starting point.  However, if inflation is 2% and your bank is 
paying .5% your buying power is falling.  The inflation adjusted 
return is -1.5%.  The probability that you will lose buying power 
is 100%.  Equity investments have variability, calculated risk. 
Their prices go up and down.  Given an S&P 500 return of 7%, 
standard deviation of 10%, and inflation of 2% there is 31% 
chance that buying power will go down.  This 31% compares to 100% 
chance that buying power of bank savings will go down.  Think 
about risk.

There are lots of books about increasing your rate of return. 
Please, stay away from strategies that “sound too good to be 
true.”  Read up on some of the strategies that promise a 
conservative get rich slow approach.  I recommend High-Return 
Low-Risk Investment by Thomas J. Herzfeld and Robert F. Drach or 
DIY Portfolio Management.  I’ve read other books, but my money is 
in Drach strategies and Trend Regression Portfolio Strategies 
now.  These are the only ones that made it thru back-testing and 
paper-trading to funded accounts.

Individuals can and should manage their own stock portfolios. 
They gain more control over their investment results by doing it 
themselves.  They reduce investing expense by eliminating 
management fees and reducing commissions. Recent mutual fund 
scandals and other Wall Street news is making it harder to accept 
that pros treat small clients fairly.  Besides, there is no 
empirical evidence that professionals deliver better returns than 
individuals can attain for themselves. 

Remember to grow wealth save more, defer consumption longer and 
get a better return on your investment.  It sounds easy, but many 
can’t live the wealth formula.  It takes desire and discipline to 
defer consumption and embrace risk. 

Lyle Wilkinson, investor, trader, author, MBA
Helps individuals learn to self direct their stock portfolios.
Book, e-book, PowerPoint "DIY Portfolio Management”
http://www.diyportfoliomanagement.com
mailto:joe@diyportfoliomanagement.com