Leverage the power of compounding
From Galloway’s perspective, part of being rich means you’re bringing in more income from your investments than you spend. And building that passive income is easier when you start at a younger age since you’ll benefit from the power of compounding.
For example, thanks to compound interest, if you invest $500 each month for 40 years, assuming an 8% annual return, you will end up with over $1.5 million. You may want to sit down with a reputable financial adviser or use retirement planning tools to figure out how much you’ll need to save, accounting for inflation, to meet your retirement goals.
Galloway also recommends diversifying your investment portfolio, which means investing in different types of investments. This helps to spread your risk across different asset classes, from more traditional stocks and bonds to alternative assets such as commodities and real estate.
“I don’t put more than 3% of my net worth in any one investment,” Galloway said.
It’s a lesson he claims to have learned the hard way, losing his wealth twice.
“For your own financial well-being, much less your own mental well-being, embrace diversification.”
That way, he says, if the market is down, “nothing’s ever critical, much less fatal.”
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Learn MoreBe disciplined with your spending
By Galloway’s own admission, getting rich — losing it — and getting rich again didn’t have a lot to do with him. For better and worse, it had to do with the market. And, in hindsight, it’s not a strategy he would recommend. Rather, he says that while you can’t control fluctuations in the market, you can control how much you spend and how much you save.
When Galloway was younger and worked for Morgan Stanley, he got his first bonus — to the tune of $28,000. He used this money to buy a $35,000 BMW. (He also hung a pair of swimming goggles from the rearview mirror, even though he didn’t swim, thinking it would impress women).
But, he admits, had he bought a significantly less expensive car instead and invested the rest of the money in the market, he would have generated substantial savings.
“Be disciplined about putting some money in low-cost ETFs and index funds,” he said
According to Galloway, building wealth takes time and diversified investments — along with the power of compounding.
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