Five ways to make yourself richer today

By Kim Iskyan

Sometimes the obvious things aren't so easy… and the easy things aren't so obvious.

In January, I talked about self-improvement goals and other goals to make at the start of the year.

But calendars are arbitrary (why should resolutions only happen at the start of the year?). And there are easy ways to make yourself richer today. For example…

Resolution 1: Learn to love money

If you want to be richer, you need to like money. If you think having a lot of money makes you selfish or greedy, then you'll probably never become rich. The less you like money, the less money you will likely have.

An aversion to money - whether conscious or unconscious - will stop you from getting rich. The biggest hurdle to becoming wealthy is that voice in your head saying money is bad.

Ask yourself the following questions, to find out what you really think of money:

Is money the "root of all evil?"

Does making money take too much time and effort?

If I want money too badly, will other people think I'm shallow?

Is it bad to think money can buy happiness?

If you answer "yes" to any of these questions, your notions about money could be stopping you from getting rich. Wealthy people don't think twice about money. They like it. They wouldn't be rich if they didn't.

So stop and consider your feelings about money. Getting more of it will be a lot easier, if you believe that "money is good."

Resolution 2: Don't get in your own way

There are a lot of ways your brain prevents you from being a successful investor.

Your brain is at once your best friend… and your worst enemy (when it comes to money… and probably a lot else, too).

The litany of self-inflicted investment pitfalls include status quo bias (feeling that "this time it's different"), confirmation bias (only paying attention to information that supports your viewpoint) and the Dunning-Kruger Effect (overestimating your own knowledge). Bad and expensive investment decisions can stem from these cognitive biases.

Knowing how your brain can work against you is the best way to avoid these investment pitfalls. We've put together a report that covers the ten most common pitfalls and how to overcome them… You can get a copy here.

Resolution 3: Figure out if your financial advisor is worth it

It's a fact most people can take care of their own investments and do not need a financial advisor. That's actually one of the reasons that I co-founded Stansberry Churchouse Research.

That said, for many investors, financial advisors can play a role as well.

However, you should ask - if you don't already know - how they make money from you. Specifically, find out whether your financial advisor gets paid through commission, a flat annual fee, or charges an annual percentage based on the value of the assets she or he manages.

Then you need to weigh the fees you've paid in the past year against the services that you've received. Do you think your financial advisor's services are worth the amount of money charged? If not, it's time to re-evaluate the relationship.

If you stick with your financial advisor, find out if they're governed by suitability or fiduciary rules. These rules can affect the quality of advice that you get and the amount of fees you pay. (We've previously written about the difference between suitability and fiduciary rules here.)

Resolution 4: Take stock of your winners and losers

Despite a cloud of gloom and uncertainty hanging over global markets, many of the world's major stock markets have moved up over the past year. This means you might have some investments that have done well, too.

Now is a good time to evaluate your strongest performers. You might want to sell or trim your winners, if you see big returns or they've reached your target price. You should also ditch your winners if the fundamentals of the company have changed and the big gains are done. This will secure profits and give you cash to play with.

It's also a good time to sell losers. This will help you dodge the return-killing demon of the value trap and avoid losing money to opportunity cost. And selling these poor performing investments frees up some cash for more promising opportunities.

Resolution 5: Dump your dangerous ETFs

Leveraged and inverse ETFs are what the financial world likes to call "weapons of mass destruction". Purge your portfolio of these.

Leveraged ETFs attempt to track two or three times the performance of an index. For example, SSO (the New York Stock Exchange-traded Ultra S&P 500 ETF) says that it aims to return double the S&P 500 Index. So if the S&P 500 Index rises 1 percent in a day, SSO returns 2 percent. And if the S&P 500 falls 1 percent, SSO falls 2 percent.

Inverse ETFs move oppositely to indices. For example, if the S&P 500 falls 1 percent, SH (the Short S&P 500 ETF) rises 1 percent. And if the S&P 500 rises 1 percent, SH falls 1 percent.

Leveraged and inverse ETFs use derivatives to track the performance of indices. As the name implies, derivatives are securities that "derive" their value from an underlying asset. For example, a derivative's value can be based on how the price of gold or a stock index performs.

The downside of these ETFs is that they sometimes move in unexpected ways.

For example… let's say you buy a 2X leveraged ETF that tracks the return of ABC index. Let's also say that the underlying index is at 10,000, and you buy one share of the ETF for US$100.

If ABC goes up 10 percent to 11,000 the next day, then your 2X leveraged ETF would jump 20 percent to US$120. But perhaps the following day the index goes from 11,000 to 10,000. This means that the index has dropped 9.09 percent. But your 2X leveraged ETF has declined 18.18 percent, which is double the amount of the index's decline.

If your leveraged ETF worth US$120 drops 18.18 percent, its value would go down to US$98.18. Although over our hypothetical two-day period the underlying ABC index remained unchanged (it started at 10,000 and is back at 10,000), your 2X ETF dropped 1.82 percent!

Leveraged ETFs amplify the returns of an underlying index. This means you'll get great returns if the underlying index rises every single day for an extended period. But you'll also lose more money than expected on down days.

Leveraged ETFs' unexpected movements are one reason you should get rid of them. Even if the overall trend is positive, you could end up losing money anyway.

Following these resolutions will help you make better, more informed investment decisions. And possibly help you keep more of your money.

 

Kim Iskyan
Kim Iskyan is the publisher of Stansberry Churchouse Research, an independent investment research company based in Singapore and Hong Kong that delivers investment insight on Asia and around the world. Kim has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets. He's been quoted in the Economist, The New York Times, the Wall Street Journal, Barron's, and Bloomberg, and has appeared on Fox Business News, China Central Television, and Bloomberg TV, and has written commentary for the Wall Street Journal, Slate.com, Salon, TheStreet.com, breakingviews.com, and other publications. For more of his insights, Click here to sign up to receive the Asia Wealth Investment Daily in your inbox every day, for free.

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