Get the basics right, and you'll get rich

Follow these 3 simple steps and you run the welcome risk of becoming a very wealthy individual.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wealth creation can seem like a daunting subject at first. There's certainly no shortage of books and websites related to the topic. But when it comes to building wealth over the long term, there's really only a couple of simple things you need to do.

And the best part is, if you get these things right, you can't help but become rich.

Step 1 – Start saving early.

As soon as you can manage it, start putting away some of your earnings to be invested. It doesn't have to be much at first, but get the process started, and aim to increase your savings rate steadily over time. Increasing incremental savings is the first basic pillar in building wealth.

Step 2 – Invest simply.

Now, the methods of what to invest in and what's a sensible investment can be debated. But the simplest and easiest way to start investing is by purchasing shares (or 'units') in a low-cost index fund ETF, such as Vanguard Australian Shares Index Fund (ASX: VAS).

By keeping your investment costs as low as possible, you're keeping more of the market's return for yourself. The more you pay in fees, the less you get to keep.

And with this one purchase, you're buying a piece of 300 Aussie companies, including CSL Limited (ASX: CSL), BHP Billiton Limited (ASX: BHP), Woolworths Group Ltd (ASX: WOW) and Transurban Group (ASX: TCL). This means you own a diversified group of businesses in different sectors.

Step 3 – Purchase regularly and let time work its magic.

By tucking away savings and purchasing shares regularly, you'll smooth out the market volatility. When the market is low, you'll be purchasing more shares because they're cheaper, and when the market is high, your money won't stretch as far and you'll be purchasing fewer shares.

Every time you make a purchase, you are increasing your ownership in the largest 300 businesses on the ASX. As time goes on, the list of companies will change around, some will fail, and many in the index will be replaced with new companies which are becoming more relevant over time. It won't matter to you, because you'll simply own the largest companies of the day which will likely be the most profitable too. It doesn't get much easier than that.

Foolish takeaway

Keep it simple and focus on these basic principles. This is really all it takes to become rich. Save regularly and increase your ownership stake in a broad group of productive businesses over time. Reinvest your earnings and watch the magic of compounding at work.

Motley Fool contributor Dave Gow has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Transurban shares. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Index investing

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Index investing

3 top ASX index funds to buy now

I think these index funds are well worth a look right now.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Index investing

If you own the Vanguard Australian Shares ETF (VAS), make sure you're doing this

This one mistake could cost ETF investors dearly.

Read more »

A young man wearing glasses writes down his stock picks in his living room.
Index investing

Should I buy the iShares S&P 500 ETF (IVV) at all-time highs or wait?

Does 'buy low, sell high' apply to index funds?

Read more »

ETF with different images around it on top of a tablet.
Index investing

Thinking about buying the Vanguard Australian Shares ETF (VAS)? Here's what you're really buying

An investment in this index fund could be VAS-tly more complicated than you'd think.

Read more »

A smiling woman with a satisfied look on her face lies on a rug in her home with her laptop open and a large cup on the floor nearby, gazing at the screen. researching new ETFs
Index investing

Should I buy the Vanguard Australian Shares Index ETF (VAS) now or wait for an ASX dip?

Here's my take on VAS' current price.

Read more »

Woman on a swing at a beach, symbolising passive income.
Index investing

If I'd put $2k in the ASX 200 at the start of 2023, here's how much I'd have now!

Did index fund investing pay off last year?

Read more »

A baby reaches into the bottom drawer of a chest of drawers.
Index investing

Is the Vanguard Australian Shares ETF (VAS) the best bottom-drawer investment?

How does this popular ETF measure up against other passive investments?

Read more »

ETF spelt out with a piggybank.
Index investing

Can the Vanguard Australian Shares Index ETF (VAS) reach $90 by Christmas?

Can this popular ETF give its investors a $90 Christmas present?

Read more »