The Motley Fool encourages you to take control of your own money and make better financial decisions.
Only you have your own best financial interests at heart, and…
* Not some financial salesperson, otherwise known as your friendly financial 'advisor'.
* Not the fund management industry, much of which under-performs the sharemarket.
* Not the shonky operators, like Storm Financial, Opes Prime, Sonray Capital, and some others that haven't (yet) collapsed.
As former Australian Securities and Investments Commission (ASIC) chairman Tony D'Aloisio told a 2010 Parliamentary Joint Committee on Corporations and Financial Services…
1) If you don't understand it, don't buy it.
2) Understand what you are investing in.
We're frankly shocked and astounded by some of the "get rich quick" schemes seemingly legally marketed to the Australian public. Whether it be Become An Instant Property Magnate, Forex Trading, Sharemarket Penny Stocks or How To Become Commodities Millionaire, if it sounds too good to be true, it usually is.
The bottom line is becoming truly wealthy takes time. That may sound boring to some people, but it's the truth. Investing is a lifetime pursuit. The earlier you start, the wealthier you should become. But you need a strategy, and you need to stick at it through thick and thin.
Just Tell Me What To Do
All that theory sounds great, you might be thinking, but you want to just be told exactly what, and how, to generate long-term wealth.
So, without further ado, introducing…The Motley Fool's Simple 4 Step Wealth Creation Plan
Step #1: Clear all your non-mortgage debts
If you have any credit card or other high-interest debt, pay that off before you even think about saving or investing. Credit cards routinely charge around 20% or more per annum, far more than you'll ever consistently earn by investing in the sharemarket.
As for your mortgage, it comes with a significantly lower rate of interest. You should of course aim to pay that off quickly, overpaying each month if possible, but even with mortgage-debt you can start investing.
Step #2: Build your savings
Once your non-mortgage debt is cleared, kick-start the saving habit.
Compare rates and open a high interest savings account. Set up a fortnightly or monthly direct debit or BPAY into your savings account on the same day you receive your regular salary.
Once you've got between 3 months and 12 months worth of living expenses built up, you know, enough to pay the mortgage, electricity, rates, food, the unexpected car service, school fees etc. you can move on to step 3, remembering any money you need in the next one to five years should also be in cash.
Step #3: Invest regularly in a low-cost index tracking fund
For many investors, saving regularly into an index tracking fund or index tracking ETF is the only investing you'll ever need to do.
Like saving into a high interest savings account, set up a fortnightly direct debit or BPAY. You'll hardly miss the money, and in 20, 30 or 40 years, you'll be eternally grateful for the wonderful large nest egg your saving and investing will have turned into.
When it comes to index tracking funds, Vanguard Investments has few peers. The US giant, the largest mutual fund in the world, has been operating here in Australian since 1996.
Their Vanguard Index Australian Shares Fund tracks the S&P/ASX 300 index, investing in around the largest 300 Australian companies and property trusts listed on the Australian Securities Exchange (ASX).
For many people, especially those looking to invest regularly, this is the only fund they'll ever need.
The minimum initial investment is $5,000, and additional investments made via BPAY are only $100. Management costs up to the first $50,000 are 0.75%, falling to 0.50% on the next $50,000 and to 0.35% on the balance over $100,000.
Click here to learn more from the Vanguard website.
(Note: The Motley Fool doesn't receive any payments or commissions from Vanguard. We just like their product!)
Step #4: Buy individual shares
If you're like us, you might not be entirely satisfied with investing in an index tracker alone.
Firstly, if you want to beat the returns of the index, and it is possible to do so, you'll need to look outside a tracker.
And secondly, we suspect you'll find it's challenging, fun and hopefully ultimately rewarding by investing in individual companies.
Imagine if you could find the next Flight Centre Limited(ASX: FLT), Woolworths (ASX: WOW), Commonwealth Bank of Australia (ASX: CBA) or even Maverick Drilling & Exploration (ASX: MAD), all of which have significantly out-performed the returns of the index over the years?
Through our free investing reports, our free newsletter, and ultimately Motley Fool Share Advisor, our subscription newsletter service, The Motley Fool aims to help you uncover some compelling long-term investment ideas.
So there you have it. A simple and hopefully very effective plan for you to generate wealth, over the long-term.
If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.
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Bruce Jackson has an interest in Commonwealth Bank and Woolworths. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
