Are These 4 Wealth Building Strategies Truly Effective?
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A quick search will generate hundreds of articles that all promise they have the secret to building wealth, no matter what you’re starting out with or what your experience has been like so far. While these strategies are, in many cases, effective, they also come with downsides, caveats, and special considerations that most people miss. If you dive headfirst into a tactic you read about briefly on the internet, you might end up stagnating–or worse, actively losing money instead of gaining it.
So what are these popular strategies, and can they build as much wealth as they promise?
Scrutinizing Top Strategies
Let’s take a look at four of the most popular and frequently touted wealth building strategies out there:
1. Rental properties
Rental properties seem like an easy way to build extra income, and they’re responsible for 90 percent of self-made millionaires’ wealth. The idea is to buy one or several properties at a fair price, charge an amount of rent to your tenants slightly more than what you’d pay for mortgage payments, taxes, insurance, and repairs, and eventually forge a steady stream of income while earning equity in an asset you can sell for profit at a later time.
So what’s the problem? For starters, most new property investors greatly underestimate their costs. Sure, you might charge rent higher than your mortgage payment, but have you thought about emergency repairs? Ongoing maintenance? Long gaps between tenants? Second, managing a property takes more time than you might think. According to Green Residential, landlords are legally responsible for code compliance, utility availability, repairs, safety inspections, and more. Consider if the time investment will be worth it.
2. Trading stocks
Trading stocks is another popular way to build wealth, and with an average return adjusted for inflation at about 7 percent, it’s apparently a darn good one. The idea is to purchase small stakes in big or promising companies, and benefit when the prices of those shares increase.
There are a couple of problems with this strategy. If you don’t know much about the stocks you’re trading, you’re bound to end up on the losing side of the deal–you can’t just pick randomly and hope for a positive return. Besides, as Investopedia points out, trading too frequently will cost you a ton of fees and could reduce your overall potential return. Of course, there’s also the possibility of a stock market crash or correction, which could temporarily set you back.
3. Starting a business from a hobby
For millions of people, this is living the dream. You love what you do, so it’s only natural to think about making money doing it. For example, you might make crafts and consider selling them on a service like Etsy, or you might start a personal blog and build an audience that will pay for your content. It seems like an ideal way to establish a stream of passive revenue.
However, starting a business is more difficult than most people realize. It’s not enough to start selling what you’re already making–you need to know your target audience, study your competition, and find a way to make your efforts profitable. Beyond that, if you get too sucked into your “hobby” as a business, you may lose interest when it becomes a chore.
4. Reselling goods and services
There are plenty of companies and individuals out there producing goods and selling services, so why not simply buy them up and resell them at a slightly higher cost? You won’t have to do much work, and you’ll make money doing it.
This strategy can work (like every strategy here), but it’s not as straightforward as it seems. If you charge too much, nobody will buy from you, and if you charge too little, you won’t make enough money to justify your efforts–and unfortunately, the reseller market in most areas is so tight with competition that there isn’t much wiggle room for prices–especially for newcomers.
Best Paths Forward
All of these strategies have their problems, but at the same time, they can be effective under the right circumstances. Moving forward, no matter what strategies you choose, these approaches will help you:
- Research. First, do your research before getting into anything. Exhaust your resources to learn more about the pros, cons, and quirks of whichever method you choose. Knowing, as they say, is half the battle.
- Diversification. Don’t pour all your assets or all your time into one strategy, or you could suffer catastrophic losses when things go wrong. Instead, diversify your portfolio with multiple approaches.
- Personal investment. No matter what, investing in yourself is a good idea. Get more experience. Learn new things. Meet a wider range of people. These personal developments will make you a more valuable person, regardless of how you invest otherwise.
As long as you know what you’re getting into and don’t put all your eggs in one basket, these strategies can work for you. The most important part of building wealth is knowing that there are no shortcuts and no get-rich-quick-schemes that can get you there. Every path demands hard work in its own way.