Think Like Wall Street: Focus on Top-Line and Bottom-Line Growth

Last updated on February 15th, 2016 at 05:49 pm

Top Line

The focus of Data Points’ research is typically on how one’s behaviors and experiences lead to wealth building potential. Effective wealth accumulators exhibit high levels of competencies shown to predict net worth, including the competency of frugality. Less money spent equals more money saved—thus a greater “profit” or “bottom-line” result at the end of each month, year, etc. But our research supports the conclusion that high-wealth-potential individuals also focus intently on investing the money that they save–thereby generating additional income (i.e., “top line” growth) and capital appreciation. Wall Street recognizes that you can only cut costs so far, and that in order for a business to significantly grow its profitability and value over time, the top line must grow as well.  High-wealth-potential individuals apply the same concept to their personal finances: frugality is only half of the equation.

One of my favorite financial media commentators—The Money Guy Show podcaster and financial planner Brian Preston—recently recounted a personal anecdote that compared the saving and investing habits of his parents with those of his wife’s parents. (See The Money Guy Show podcast, “Is the Sky Falling? How to Handle Market Volatility”, released Oct. 22, 2014). By Mr. Preston’s account, his parents were compulsive savers—a quality that he learned and benefited from in his adult and professional life. But they were not investors; most of their life savings was stashed in ultra-conservative savings vehicles like certificates of deposit. His father-in-law on the other hand was not as accomplished in the frugality arena, but had either the good luck or good sense to invest what he did save in an investment vehicle named the Fidelity Magellan Fund. Notwithstanding their lifetime of disciplined saving, Mr. Preston’s parents fell behind his father-in-law in the wealth-accumulation endeavor as a result of their decisions regarding WHAT to do with the money they so diligently saved.

Analysis of the volumes of data accumulated by the Affluent Market Institute on millionaires and deca-millionaires as well as Data Points’ latest current research in the field reveals a clear pattern: high-wealth-potential individuals are driven by both top-line and bottom-line financial management.  They also have a strong sense of opportunity cost related to their assets—that is, they are driven to invest their resources in areas where they can “put their money to work” for their financial well-being. This approach creates the greatest probability of growth over time and—eventually—financial freedom.

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