Are you searching for ways to invest intelligently? Are you looking for an actual proven framework so that when you invest you get greater results?
Regardless of your investment experience or how you invest, this article will share a proven investing model that helps you grow your portfolio and net worth. Personal finance is the key to wealth creation.
So, there’s a billionaire named Ray Dalio and he developed the All-weather portfolio method or formula.
This personal money formula is designed to help you be able to consistently create more wealth, maximize individual financial returns, and minimize risk over a long period of time.
Who better to give advice on best personal money habits and the formation of wealth than Ray since he has mastered it himself with a net worth of over 19 billion dollars.
Before we discuss the all-weather formula for building an abundance of money assets here are a couple of studies and data points.
A case study by Bank of America showed that wealthy people allocated about 50% of their savings and investment dollars into stocks.
Wealthy people, even before becoming wealthy tend to take more calculated risks for higher returns so they maximize how much their saved cash can make them more money.
You will notice as you read further down the article the all-weather formula only puts about 30% of savings in Stock.
Here, we assume the total savings being used to grow personal wealth doesn’t include cash sitting in a checking or basic savings account all of which are used for bills and other expenses.
The difference between using 30% or 50% of your savings is your personal preference. This means if you are conservative and don’t want to place 50% of your investment dollars into stock then you can stick with 30%.
If you can handle higher risk and desire to for possible greater returns, then aiming for 50% of your investment dollars invested in stock may work for you. This article is meant to give you a proven investment formula and also show you other options people have used to grow their wealth.
You must take into consideration all of this as you continue on in your investment journey.
The Federal Reserve released data showing that the higher the income a person makes the greater the likelihood of them investing or owning stocks.
Our society greatly values wealthy people, and this is a sure way to succeed if wealth is a measure you use. Success doesn’t have to be related to wealth, but it often is used. As the data shows, having the correlation of higher incomes and more probability of having some in stock makes sense because you must have money left over, a disposable income, to invest.
Hope is not lost, and success is still in range because there are ways to still invest with a low income if a person is a low-wage earner.
Many firms now allow as low as a dollar to start investing in stocks and other investment vehicles as well.
As a professional, you have to make personal success and wealth-building a priority for your safety and future security along with making sure you and your family are taken care of. As you work it is your responsibility to place your money into investments that will in the future serve you as you more freedom.
For financial investing non-experts as we work if we don’t want to do advanced research, we can apply basic investing techniques like this all-weather formula to guide our investment strategy and actions.
Owning stock is a wealth-building tool so it is wise that we leverage this to grow our personal wealth.
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As for the all-weather formula, it is meant to help your investments and portfolio withstand turbulent times.
When the economy undergoes struggles, distress, even times of war, or anything that might cause a temporary disruption of the economy, this formula if applied correctly is supposed to protect your net worth so it doesn’t drop significantly.
I’m just going to go over what the assets are in the allocation and the distribution of it. In all, it’s 30% US stocks, 40% long-term Treasuries, 15% intermediate-term Treasuries, 7.5% commodities diversified, and 7.5 gold.
So if you’re starting and you don’t really know what to do, you don’t really have a template or framework. This is something that was created by the best. It’s been tested, it’s been proven, and it’s definitely worth investing with this asset allocation.
Investing doesn’t have to be complicated. There are reasons why much of the financial investing world wants you to believe investing is complicated or they want you to hand your money over to them to manage it.
Ultimately the answer to what you should do is relative to many questions you should ask yourself. Here are a few questions to think about as you’re starting or continuing your investment journey.
What is my end goal? What credible resources are out there for me? What investment vehicle options are available to me and align with my investment goals? Should I consult certified financial advisors and if so, how should I approach them? How should I create my financial plan?
As an individual or a business, you have to do research and look for trends and opportunities that will position you in a better place.
Common places to start are investing guides and best-selling books on investing. Take notes and review them often until you have mastered and memorized the concepts.
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Here is an insight into how I organized my investment journey before starting around the year of 2016. My framework will be listed below but you don’t have to use it but it can get you going.
This is a 5-question framework that helped me organize my thoughts and actions to start investing.
Martize’s Framework For Starting or Continuing To Invest
1) What is the end goal for the investment journey?
2) What credible resources are available to me to guide me?
3) What investment vehicle options are available to me?
4) Should I consult a certified investment advisor & if so how to approach them?
5) How to design and write out a written financial plan?
My answers were as follows using this framework.
1) To retire earlier than the regular age of retirement and to buy cash flow assets, like real estate, while in the process of retiring early (This doesn’t have to be your goal, but it was mines)
2) The resources available are endless so I chose a few that I will list but you can mines are find your own.
Resources include but not limited to beginner investment guides, investment pdfs, investment strategy techniques from proven investors “Who has got the result I’m looking to get myself”, bestselling investment books, investment communities in person or online but only listening to people who are only certified or if they were uncertified they could show proof of investment results, Investment companies like Fidelity and Charles Schwab free investment information, etc.
3) My investment vehicle options were a lot but here are just a few common ones: 401k, Roth IRA, and Traditional IRA.
I choose a Roth IRA because money invested into the Roth IRA is after-tax dollars so later in life if I wanted to pull money out to invest in real estate, I wouldn’t be taxed on it versus if I tried that with a traditional IRA I would be taxed for withdrawing money because cash invested in a traditional IRA is with pre-tax dollars.
This is why knowing the end goal is important so you can better choose your investment vehicle.
4) I chose not to contact a certified investment advisor because I wanted to learn investing for myself and would take better care of my money than anyone else would. This doesn’t mean you have to do the same if you want to contact certified investment advisors feel free to.
I would like to add if you do make sure you understand at least the basics of investing so you can judge them and their performance to know if in the future you should stay with them or switch to another advisor.
5) I designed my financial plan quickly and is explained in one sentence. Save and invest at least 20% or more of annual income while also having 6 months of expenses in cash reserves.
The rule of thumb is to save a minimum of 10% of annual income but I recommend aiming for 15% or more.
My financial plan was not structured but it has got me incredible results because I just set a percentage of money to saved and stuck with it and keep increasing it over time as I earn more money.
There are other and better ways to structure our financial plan but you do need one.
If you don’t do anything else from reading this article you need at least to create a financial plan and act on it.
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Conclusion
The purpose of this article was to provide a proven framework for investing regardless of investor experience.
The method explained in the beginning of article is known as the all-weather formula, meaning an investment allocation strategy that can withstand most if not all economic storms or fluctuations in the stock market.
You can rest assured that if you use this formula that over time you will have reasonable solid investment returns even if you’re not a expert in investing in markets. Lastly, here are some action steps.
First, decide on your end goal for investing. Second, identify the resources available to you. Third, list the investment vehicle options available to you.
Fourth, decide if you should contact a certified investor advisor or not for guidance. Finally, create and use your financial plan. Good luck!
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