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By: Costas Bocelli — September 5, 2019

Here's 3 Investing Rules That'll Make You Rich

Editor's Note: Because of Hurricane Dorian, we are unable to publish a new True Market Insiders column today. So please enjoy this very popular educational article by Costas.

Here’s a chilling statistic…

Costas

Almost half of all Americans die nearly broke!

That's what A study by the National Bureau of Economic Research found not long ago.

In another recent study, 69% of adults admitted to having less than $1,000 in the bank while 34% said they actually don’t have any savings at all.

Those are indeed scary statistics.  It’s even scarier if you’ve just realized that you too may be heading down a similar path.

But here’s some good news…

You don’t have to wind up broke or find yourself struggling in retirement.  In fact, if you simply follow these three simple investing rules, you’ll be well on your way to securing financial independence.

Build Your Savings Now!

If you’re not setting money aside for your retirement, then you need to start right now!

It's true that most folks have regular bills to pay.  Believe me, I get that.  A mortgage, car payment, utility bill, student loan payment, health insurance -- all of these are routine monthly obligations that most of us pay.

But you need to make room for another bill, a very special bill.  One that's payable to you.

And just like you pay the power company... this bill also needs to be paid every single month.

Whatever it takes, you need to have a mindset of incorporating this bill with all the rest of your monthly obligations.  And if it’s a struggle, then start small, any amount will do at first.  The point is to just get the process started right now.

The goal is to try and get that monthly check, the one you're writing to yourself, up to $450 per month or about $5,500 annually.  If you can do that, then believe me when I tell you that you’re well on your way to a million dollar retirement.

Open up a Tax Advantaged Retirement Account

It’s fast.  It’s easy.  And best of all it’s free!

Whether you visit your local community bank or you set it up using an online broker, you need to open an Individual Retirement Account (IRA).

An IRA is more than a great way to help you build wealth.  It also provides a huge tax shelter.

Currently, you can invest up to $5,500 per tax year into an IRA which is 100% tax deductible no matter your annual income, so long as you do not have access to a qualified account (such as an employed sponsored 401k).  If you do, you may still open an IRA but your tax deduction may be limited.  (Keep in mind I'm not here to give anyone personalized financial advice.  It’s always best to consult an tax attorney or accountant to discuss your individual situation.)

Nevertheless, an IRA has another major benefit.  All capital gains are tax deferred until you take distributions.  Even if you sell securities and invest the proceeds into other investments within the IRA, all the gains are deferred.  Under current tax law, the distributions are taxed as ordinary income.

Now, if you’ve taken the first two steps, then you’re well on your way to securing your financial independence.

Now comes what is probably the most important of our three investing rules.

This rule is so important it can mean the difference between a modest and a lavish retirement.  In other words, if you can follow this third rule with success, it could lead to a much more comfortable lifestyle in the years ahead.

Relative Strength Investing is the Most Important Factor in Building Wealth

We’ve set aside money to invest on a monthly basis?  Check!

We've opened up a tax deferred retirement account and making the periodic contributions?  Check!

But...

Which securities should we be invested in?  That is indeed the "million dollar question."

The right investing decisions are so important they could literally add hundreds of thousands and or even millions of dollars to a portfolio.

You see, one of the most powerful ways to build wealth is to compound your gains over time.  How earlier you start and the size of the returns you generate will ultimately dictate the size of your nest egg.

And at True Market Insider, we found that by focusing on the strongest sectors, and on the strongest securities within those sectors (that meet certain relative strength criteria) is the best way to generating superior performance over time.

As you've heard me say before, you can think of relative strength as momentum investing.  The odds are good that securities possessing high levels of relative strength will continue to outperform.

These are the types of investments that help you achieve or exceed your investment goals at a quicker pace.  Simply avoiding the weaker segments of the market and focusing on the stronger ones can have a profound impact on your account.

Take a look at the accompanying performance chart based on a research study by Dorsey Wright & Associates.

(Click any image to enlarge)

relative strength

Between 1929 and 2014, the broad stock market (Wilshire 5000) generated a 9.5% annual return.  But if you would have stripped out the weaker segments and invested in the stronger segments, you would have generated a 14.1% return.

And because of the power of compounding, the extra return generated by the relative strength approach over time increased the value of the portfolio 66 times over!

That’s what is possible when you combine compounding with Relative Strength investing.

Imagine that the stock market universe is one gigantic pizza pie that can be split into 45 slices.  Now imagine that, at any given time, some of those slices are hotter or colder than others... and some of more or less cheese than others...

The slice you'd choose to "invest in" (eat) will depend on how it measures up against its peers.

That is essentially how we look at the market.  We break it down into 45 smaller  markets.  This top-down approach is crucial to uncovering the most attractive investment opportunities.

Now that you’re a regular True Market Insider reader, you’ll have the opportunity to learn more about our investing approach and to discover how you can identify the strongest and weakest segments of the market.

So the choice is yours...

Become dead broke and suffer the fate of nearly half of all Americans?  Or, take control of your future and become filthy rich?

At True Market Insider, we choose the "filthy" option.

We’re glad you decided to join us!

Until next time.

Costas

Costas

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