Ten Building Blocks to Building Wealth
By Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy
If you’re a new investor, you may be wondering how you can build wealth. It may seem a bit overwhelming at first, but if you take one building block at a time, you’ll find it can be a lot less intimidating. Even if you’re a seasoned investor, it’s important to never stop learning when it comes to investing for your future.
Consider these 10 building blocks and our “Building Wealth Over Time Through Saving and Investing” page as you create your own plan to build wealth.
Block 1: Start Early!
A great way to build wealth is to start early and create a saving and investing plan that meets your financial goals. Even if you start small, the power of compound growth can drive life-changing results over long periods of time. You can use Investor.gov's compound interest calculator to see how much your money can grow.
Block 2: Use the Free Financial Planning Tools on Investor.gov
Investor.gov has free unbiased financial planning tools and calculators to help you create a plan to meet your financial goals. There are other helpful resources as well, including information on how to protect your investments, Investor Alerts and Bulletins, investing quizzes, and more.
Block 3: Create a Saving and Investing Plan
First, create and stick to a budget that considers your monthly expenses, including necessities like living expenses and discretionary expenses like entertainment. It’s important to keep your “needs” versus “wants” in check and strive to live within your means. The difference between what you earn and what you spend can serve as the basis for building wealth through saving and investing.
Then, consider putting together a vision board to create a saving and investing plan that helps you meet your long-term financial goals, such as saving to buy a house, funding education, or planning for retirement. Consider how much money you need to save each month to achieve those goals. Understand your risk tolerance and consider diversifying your investments, which can help reduce the overall risk of your investment portfolio.
Block 4: Pay Off High-Interest Debt
An important part of your financial plan is paying off high-interest debt and making the changes needed to avoid building it up again. Know that the interest payments on consumer debt like credit cards will likely far outweigh the return you can earn on most investments.
Block 5: Conduct a Background Check on an Investment Professional
Take advantage of Investor.gov’s free search tool to conduct a background check on an investment professional where you can learn about their background, registration status, and more. It’s a great first step toward protecting your hard-earned money.
Block 6: Research All Investments
Always conduct your own independent research on every investment opportunity and make sure you understand exactly what you’re investing in. Don’t take unsolicited investment advice without first thoroughly researching the opportunity.
Block 7: Invest Regularly
Consistent and regular investing is a great long-term investment strategy. The earlier you start investing, the more your money can grow to build wealth over time. It’s also important to consider setting up automatic contributions if you are able. A set it and forget it approach cuts down on decision-making.
Block 8: Invest in a Retirement Plan
Invest in a retirement plan like your employer’s 401(k) plan and take full advantage of any matching funds. You can also contribute to an individual retirement account (IRA). Both options can have tax advantages, and you can usually automate these investments to help you stay the course whether the markets are up or down.
Block 9: Protect Your Investments From Scams
The best way to protect yourself from scammers is to ignore, block, or delete any communication from someone you don’t know. Stay away from unsolicited investment pitches and sign up to receive our Investor Alerts and Bulletins to stay current on the latest types of investment scams and how you can protect yourself.
Block 10: Avoid FOMO
It may be tempting to put your money into the latest investment trends. Keep in mind that a popular or trendy investment may not be the best one to help you meet your financial goals. A great way to build wealth is to avoid the fear of missing out or FOMO by sticking with your long-term plan.
Remember, block by block you can create your own investment plan to build wealth.
Note: Director’s Take articles are written in a short, non-legalese format intended to provide you with tips and information on timely investment topics that are important to you. You can subscribe to receive Director’s Take articles or find our latest article on the Director’s Take spotlight page.
This article is provided in the author’s official capacity as the Commission’s Director of the Office of Investor Education and Advocacy but does not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.
