In our last post we talked about the fable of the tortoise and the hare and how slow and steady always wins the race.
What we didn’t discuss was the very nature of the race itself. What kind of race are we running? Is it a sprint? Or a marathon? According to Cadinha’s CEO, Kalei Cadinha-Pua‘a, it’s neither.
It’s a relay.
Simply put, your investment horizon doesn’t end with you. It’s much longer than that and it’s more than just you who’s involved. It’s your kids. And their kids. So, your investment strategy should take into account that, at some point along the way, you’re going to hand the baton off to the next runner.
Which brings us to Kalei’s three immutable rules for growing wealth for the long term:
- 1. Invest in good companies that are well run. In general, they should be worth more than you paid in the long run. Except, every once in a while, when they’re not – like when things change, such as technology, competition, government regulations, etc. So, it’s always good to keep an eye on things.
- 2. Make your investment period as long as you possibly can. The end point is fixed, so the only way you can lengthen your investment horizon is to start saving as early as possible. The longer you’re in, the more you benefit from the tremendous power of compounding.
- 3. Avoid the downdrafts. Being on the wrong side of risk is devastating. If you’ve got $100 and you lose half of it, you have to double what’s left just to get back to even. That’s hard to do and it cuts into the time you have left.
Finally, find a wealth manager who can help you achieve these objectives. One who understands the trends, has a history of above average performance, and knows how to find and invest in the high-quality companies. (We know one of these if you’d like a recommendation.)
Okay. You’ve got a plan. You know the rules for growing wealth. Now you need to make it sustainable so that you can maintain the lifestyle you’ve created for your family in perpetuity.
Again, that depends on three things:
- 1. The income you earn while you’re working. It’s pretty simple; the more you make, the more you can save.
- 2. Your consumption. Every dollar you spend today is a dollar that’s not working for you tomorrow.
- 3. The rate of return on your investments. That’s where a great wealth manager comes in.
A good wealth manager will help you:
- 1. Preserve what you’ve saved.
- 2. Grow your savings at a rate of return that outpaces inflation (and hopefully your spending).
- 3. Repeat this process year in and year out to take advantage of the incredible power of compounding.
Cadinha has been preserving and growing client wealth through every kind of market since 1979. We’ll work with you to create a forward-looking portfolio — one that’s poised to take advantage of the opportunities ahead and protect you during market downturns.
Give us a call and we’ll walk you through the specifics. Your kids will thank you for it.
Click here for more information about the power of compounding.