The Three Great Destroyers of Wealth

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

- Warren Buffet

We hear the phrase wealth thrown around a lot at the moment and it seems to be associated with everything from property investing through to health.

I am talking in this instance about financial wealth and how the are 3 things that are out there to destroy it that most of us are not aware of.

Inflation

This is what I like to refer to as the silent killer or silent assassin. We don’t see this one creeping up on us but it is one of the biggest causes of wealth destruction.

In short inflation is the decline of the purchasing power of money over time.

This is easily depicted in the freddo chart from the Telegraph & vouchercloud

 What I am saying is we need to be aware of this with our wealth. Take this example if your £100,000 is sat in the bank making 0.1% interest and inflation is 5.5% in simple terms your money is losing 5.4% each year. To combat this you need to be investing in assets that will atleast keep pace with inflation but over the long run actually smash it out of the park.

You

Yes you the investor or customer.

What I mean here is you doing the wrong thing at the wrong time for the wrong reasons.

For example when markets are tumbling as the NEWS would say or as I will put it short term temporary declines you panic and pull your money out when in reality as long as you are invested in a retail based fund you should just leave it alone. As trying to time the entry back into the marlet is impossible.

Here is an example of the effects of just missing a few best days in the market by trying to time it. The clever investor plays the long game and sits on their hands during a downturn.

Cost

We cannot control what happens in the world or markets. We didn’t know covid was coming or the crash in 2008. Anyone who tells you they can predict this is lying.

These things are out of our control.

What we can control is cost and paying too much for your investment management can have a huge effect on your wealth.

This illustrates purely the effect of a 1% difference in charges over a 25 year period based on £100,000 lump sum and £250 a month investment.

Portfolio A is worse off by £59,367 over 25 years purely on charges.

 Lets inflate these number to £1,000,000 invested and this time no contributions so its just sat there.

 Same charges

As I said we can control the cost we cant control the what happens in the world.

There it is the great destroyers of wealth.

All of which we can control.