How to Build Wealth and Go on a Dream Holiday
By Dale Gillham |
People typically invest in the stock market for growth, income or both. However, it may surprise you to learn that the primary goal of 48 per cent of current investors and 48 per cent of those looking to invest is to go on a holiday according to the 2023 ASX investor survey.
It certainly surprised me given that I believe investing is about building wealth and planning for your future, while going on a holiday is about saving money separate from your investments. While I am all for going on a dream holiday, there is a way you can achieve this while still building wealth.
How to achieve the goal of building wealth and saving for a holiday
To begin with, you need to have a clear vision of the holiday you want to experience as well as your goals for building wealth. This provides you with the targets you need to achieve, as you work towards saving money and investing for the future. For example, if you want to spend $10,000 on a holiday in two years' time, you need to save $417 a month. If your goal is to also have $10,000 invested in two years, you would have the same amount going towards your investments.
Knowing this information, also helps you to develop a realistic budget, as you need to review your income and expenses to determine if you can achieve your goals in the required timeframe. Once you create a budget, you’ll be able to identify if you need to adjust your goals or your current spending habits.
One of the best ways that allows you to achieve your financial goals, and potentially go on a holiday much sooner is to invest in the stock market, as it is very liquid, has good capital growth, and you can receive income from dividends. The trick is not to invest in the short term hoping you’ll earn enough to go on a holiday only to find your stocks are worth less than what you paid for them. What is important is that your investment strategy aligns with your risk tolerance and time horizon because while there is the potential for higher returns in the stock market it also comes with higher risks.
To manage the risk, it’s important to diversify into a concentrated portfolio of 8 to 12 high quality stocks in the top 100 on the ASX. As your portfolio grows and you lock in profits, you can decide if you want to reinvest the money into other stocks or take a portion of the profits to contribute to saving for a holiday. Remember, investing is something you should do over the long term because if it is done well, you can achieve wealth and still be sipping cocktails on the beach.
What were the best and worst performing sectors last week?
The best performing sectors included Consumer Discretionary up 1.96 per cent followed by Communication services up 1.06 per cent and Energy up 0.76 per cent. The worst performing sectors included Information Technology down 1.62 per cent followed Consumer Staples down 0.82 per cent and Utilities down 0.59 per cent.
The best performing stocks in the ASX top 100 included AMP up 13.70 per cent followed by James Hardie Industries up 13.37 per cent and The Star Entertainment Group up 13.30 per cent. The worst performing stocks included Block down 12.82 per cent followed by Resmed down 10.52 per cent and Bluescope Steel down 5.71 per cent.
What's next for the Australian stock market?
The Australian stock market ended in positive territory for the week up 0.24 per cent and looked slightly bullish, although it is too early to tell if the current move up is sustainable. I say this because over the last 16 weeks the All Ordinaries Index has closed lower than it opened on 9 of those weeks, yet the current price of the market is almost the same. The positive news is that since mid-July the Australian market is up over 4 per cent and looking more bullish than bearish.
If the Australian stock market continues to rise this week, I believe it has a higher probability of rising over the coming month and will possibly challenge the all-time high set back in January 2022. That said, given the unpredictability of our market, I would not be surprised if the All Ordinaries Index fell away for a few weeks, so it will pay for you to be prepared.
There are many stocks in the Healthcare and Energy sectors that are presenting good opportunities, in fact I think these are the two sectors to watch moving forward, while stocks in the Financials and Materials sectors are also looking good.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.