Top 5 Tips to Build Wealth and Success

Top 5 Tips to Build Wealth and Success

Warren Buffett is worth $45 billion. That wealth isn't only a factor of savvy investing and good business — the "Oracle of Omaha" is also known as a penny pincher. Buffett still lives in the same Omaha, Neb., home he bought in 1958 for $31,500.

Follow his frugal formula, and you too may wind up with a lot more money than you ever dreamed.
This week Financially Fit covers five tips to build wealth and success.

1. Live Below Your Means.

Being wealthy isn't just a product of your salary or investment prowess; it's learning how to save.
"We can make a lot of money, you can make a little bit of money, but the second you spend all the money is when people get into trouble. Saving is the key to preserving your wealth," says Ed Butowsky, managing partner of Chapwood Capital Investment Management, a firm that manages money for wealthy individuals.
As many Americans realized during the booming real estate market, just because you think you can afford something doesn't mean you should buy it. Keeping an eye on your bottom line will pay dividends over the long term.
2. Bounce Back From Defeat

With nearly 15 million workers unemployed right now in the U.S., it's easy to get discouraged. Don't! Most successful and wealthy people have overcome obstacles and failure along the way. Steve Jobs was ousted from Apple when he was 30. Today, he's a billionaire and a legend. Plus, after getting fired, he created another billion-dollar media company, Pixar.
"Bouncing back from defeat is something all great achievers have. They have this undying belief good things will happen and will continue to happen," says Butowsky.
Take Michael Jordan. "His airness" was cut from his high school basketball team. Motivated by the rejection, Jordan became a star the next season. The rest is history.

3. Self-Promote

Regardless of the profession, the rich and successful tend to have a strong sense of self-worth — key to skillfully navigating an upward career path. Mark Hurd, who was ousted as CEO of Hewlett-Packard in August, couldn't be kept down for long. Using his business skills and connections, in September, Hurd was named president of Oracle. (Hurd and Oracle founder Larry Ellison are known to be close friends.)

4. Have Street Smarts

Bernie Madoff lived the high life for decades, scamming unsuspecting clients, with a money-making formula that proved too good to be true. Only afterward did we learn that with a little due diligence, most clients could have easily uncovered the fraud.
But it's not only the swindlers and the con men you have to watch out for. Many times, friends and family take advantage of the rich. Whether it's a handout or an investment idea, Butowsky advises his high net worth clients that in most cases, it's wisest to just say "no." The best way to do that: have someone else do it for you.
"You need to really set up a wall between you and your family," he advises. "If you don't want to give them (family or friends) money ... saying no is probably a good idea."

5. Buy Cheap

The rich can afford to splurge, but that doesn't mean they do.
John Paulson, a billionaire hedge fund manager, bought his Hamptons "dream house at a bargain basement price," according to Greg Zuckerman, author of the Paulson-based book, "The Greatest Trade Ever." The story has it that Paulson eyed the home while it was in foreclosure. Finally, on a rain-soaked day, he purchased the home on the Southampton town hall steps. He was the only bidder.
On New York City's Upper East Side, Michael's— The Consignment Shop for Women— has been a bargain-hunting destination for more than 60 years. "We have a good percentage of women who can afford to shop on Madison Avenue but really like the idea of saving that money," says proprietor Tammy Gates.

From Chanel to Gucci and Louis Vuitton, the store specializes in high-end designer merchandise for a reasonable price. Speaking of her clientele, Gates says, "they're wealthy for a reason. They recognize that bargains keep people wealthy. Paying top dollar when you don't have to doesn't make sense."

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Financial Advisors and Asset

The latest trend in mutual fund fees has major financial firms, advisors and financial planners offering their services to individuals with no sales commissions and, in some instances, with no annual 12b-1 fees. Instead these firms impose an annual asset-based fee, which can range from 0.5-2.0% of assets, depending upon the si ze of the portfolio to be managed. These fees are known as asset-based fees, portfolio management fees, advisory fees, etc. Regardless of the name that these asset-based fees go by, investors should realize that this type of fee is a separate fee for mana ging one's portfolio -- one that is in addition to the normal operating expenses of the mutual funds within the portfolio.

Many investors often erroneously enter into an asset-based fee arrangement under the guise of no loads and no 12b-1 fees. In the vast majority of advertisements, the mention of no loads and no 12b-1 fees is prominently featured while the asset-based fee disclosure is buried in tiny footnotes. However, even in the disclosure, only the annual fee percentage is stated -- no hypothetical cost examples are given to illustrate how these annual management fees would affect portfolio performance.
Let's review a hypothetical example with the following parameters: a one-time $50,000 investment with a 12.0% annual return rate, after annual fund operating expenses of 1.0%, over ten-years. The following illustrations compare the difference in cumulative net return (i.e., after all expenses and fees) and cumulative net Return On Investment among the following four structures (cumulative asset-based fees are also listed):

• 100% No-Load
• Front-End Load of 5.75% plus annual 0.25% 12b-1 Fees
• Asset-Based Fee - 1.5% (no load, no 12b-1 fees)
• Asset-Based Fee - 1.0% (no load, no 12b-1 fees)

Cumulative Net Return Comparison

Structure	Start	Year 1	Year 3	Year 5	Year 7	Year 10
100% No-Load	$50,000	$56,000	$70,246	$88,117	$110,534	$155,292
5.75% Front-End Load with 0.25% 12b-1 Fee	$47,125	$52,648	$65,712	$82,017	$102,387	$142,745
1.5% Asset-Based Fee	$50,000	$55,160	$67,132	$81,704	$99,437	$133,509
Cumulative Fee		840	2,789	5,161	8,047	13,596
1.0% Asset-Based Fee	$50,000	$55,440	$68,160	$83,798	$103,025	$140,444
Cumulative Fee		560	1,869	3,478	5,458	9,310

Cumulative Return on Investment Comparison

Structure	Year 1	Year 3	Year 5	Year 7	Year 10
100% No-Load	12.0%	40.5%	76.2%	121.1%	210.6%
5.75% Front-End Load with 0.25% 12b-1 Fee	5.3%	31.4%	64.0%	104.8%	185.5%
1.5% Asset-Based Fee	10.3%	34.3%	63.4%	98.9%	167.0%
1.0% Asset-Based Fee	10.9%	36.3%	67.6%	106.1%	180.9%

In these illustrations which depict identical 12% annual returns for all four structures, the 100% no-load structure obviously provided the greatest cumulative return. However, the asset-based fee examples eventually under-performed the front-end load and annual 12b-1 fees structure, especially the 1.5% example. Over time, these asset-based fees are significantly greater than the 5.75% front-end load and 0.25% annual 12b-1 fees. The important thing to realize is that all fees curb future performance since these expenses are removed from actual "dollars at work".

Yet, there may be situations where asset-managed fees are preferred: individual stock portfolios that trade frequently; a timing system; sizable portfolios (over one million) where at least 33% of the holdings are individual stocks. Before entering into any asset-based fee arrangement, calculate the cost and determine if that cost justifies the management that one would receive. Specifically, one has to gauge the asset-based fee to (1) the quality of the investment strategies and recommendations and (2) the frequency of the recommendations.

The key issue for every investor is whether management of one's portfolio is actually needed. Generally, the size and complexity of a portfolio is the determining factor for individual portfolio management. If a buy & hold investor has the majority of assets in mutual funds, then there is little reason to pay the extra asset-based fees for individual portfolio management -- especially with the vast financial information available on the internet that allows investors to manage and track their own portfolios.
The vast majority of buy & hold investors just need a "game plan" -- an asset allocation strategy that reflects their investment objectives along with specific fund recommendations to fit that strategy. Occasionally, updates in the strategy and recommendations may be necessary, depending (1) if investment objectives have changed or (2) if significant investment additions will occur which may necessitate more diversification in one's portfolio. However, one does not need expensive asset-based fees to accomplish this -- a flat fee or hourly rate with no other applicable fees is the most cost-effective way method.

for More Information see at http://www.investorama.com/

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