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We all need money management advice, whether you’re an experienced investor or a young adult trying to purchase your first home. MassMutual’s team is here to help.
For those looking to bolster their net worth, wealth management advisor Andrew Klein with LWS Financial in New York, New York, offers the following professional insights.
Q: What is the best way to build wealth over time?
A: The honest answer is less exciting than most people want to hear. You build wealth by:
The part that trips people up isn't the strategy, it's the psychology. Systematic investing works because it helps reduce the impact of your emotions on investment decisions. Markets go down, everything feels scary, and your gut tells you to stop. But if you've committed to putting the same amount of money in every month, no matter what, you just keep going. You end up buying more shares when prices are low without even trying to time anything. That's actually a huge edge most people never take advantage of.
I also think people seriously underestimate how much starting age matters. Starting early matters more than starting smart. A 25-year-old investing $500 a month will generally be better positioned to accumulate more over time than a 40-year-old investing $1,500 a month, even if the 40-year-old picks better funds. Time is the one variable you can't buy back, and lost compound growth can negatively impact long-term growth potential for those who wait until they feel ready. (Learn more: Why is it important to start saving for retirement early?)
Living within your means isn't a financial concept; it's a behavioral one. I have sat across from people making $600,000 a year who were not building wealth. Income does not create wealth. The gap between what you earn and what you spend does. Most people expand their lifestyle in proportion to their income and wonder why they're not further ahead.
The clients I have watched build real wealth over time were not necessarily the highest earners or those focused on timing the market. They were consistent, they kept their fixed costs manageable, and they didn't panic. The strategy is simple. Following it for 30 years is the hard part.
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Frequently asked questions about building wealth
Q: What is systematic investing, and how does it help manage market volatility?
A: Systematic investing, often referred to as dollar-cost averaging, is a strategy where you commit to investing a fixed amount of money at regular intervals, regardless of market conditions. This approach can be effective because it helps remove emotion and gut-level panic from your financial decisions, but it also requires discipline to continue investing through changing market conditions and fluctuating prices. By maintaining a consistent, automated contribution, you could potentially buy more investment shares when prices are low and fewer shares when prices are high. This systematic approach helps reduce the need to try and “time the market,” which can be difficult, if not impossible, to do. Systematic investing does not assure a profit or protect against loss in declining markets.
Q: Why is building wealth described as a behavioral challenge rather than a financial one?
A: Building wealth is rarely about complex mathematical formulas or picking the perfect stock; it is about managing your own behavior and emotions. Income alone does not create wealth — the gap between what you earn and what you spend does. Pursuing financial security requires the discipline to keep your fixed costs manageable and the emotional resilience to resist the urge to spend every dollar you earn.
Q: How does starting to save early impact my long-term financial security?
A: When it comes to growing your net worth, starting early is far more critical than saving smart. Time is the one variable in financial planning that you cannot buy back, and delaying your savings journey can significantly reduce your potential for long-term compound growth.
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Discover more from MassMutual…
What is dollar cost averaging?
How money affects your mental health
How to start building wealth at a young age
How to build wealth in your 40s and 50s
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