Investment is a crucial detail for the financial success of an individual. We all know that a lifetime of labor will just not cut it.
Everyone wants to have a large pool of money, and most people believe that working hard in nine to five jobs will give us the financial security that we all want. Well, in some cases, it can sustain our needs, but it will not entirely cover everything that we want. With that in mind, here are investment rules that everyone should know to help keep us on track.
Early Investments, Bigger Returns
Starting our investments early means that we are getting more in return, so the sooner we start, the better. This is also true if we are dealing with compounded interests. If we are engaged in an investment with compound interests, we will be surprised at how our money grows over time.
The same is also true if we have a large sum of money working for us in our venture. Our asset, the capital we placed, will be working harder, thus earning more for us in the future. If we combine these two ideas into one equation, we are in for a good ride.
Let’s say that we start investing in our future at the age of 25. We roughly place around $380 monthly from our paychecks, and we consistently did this over the next 40 years. Let’s also say that our investment rate is about 7%. This means that we will be a millionaire once we hit 65!
In a more straightforward form, we placed around $182,400 worth of investment and we will end up becoming a millionaire. However, if we delay our investment for a decade but still want to achieve the same amount, we will need to invest $820 monthly. If we do the math, that’s around $295,200, which is $112,800 more than the first example. Now, do you see the point?
These two words are healthy signs that we are on the right track. However, they are also not the same, especially if we wanted to have a more stable financial future.
Savings means placing our money in a safe place where we can’t spend it inefficiently. On the other hand, investing is buying something that will provide a considerable return for our money.
Let’s say we save our money in our closets for a couple of years. That money loses a portion of its value over time because of the ongoing inflation. On the other hand, investments will have the potential to grow over time without losing its value. In fact, it gains more value thanks to the market movements.
There’s just one big line that sets the two apart and that is the “risk.” We have to take calculated risks when we deal with investments. Yes, there’s a chance that we can lose a couple of dollars in the process but the possibility of gaining more comes down to smart investment moves and dealing with calculated risks.
We have to be aware that low-risk reaps low rewards and the same is true when we deal with bigger risks. If we are conservative with our money and we don’t like significant risks, we can still place them in low-risk investment ventures. However, we should not expect big rewards coming from it. At least it is better than letting our money rot in our closets.
Be Smart With Your Investments
Without a doubt, investments are good for us. However, this doesn’t mean we need to put all of our money buying stocks and placing them in our portfolio.
We need to have liquid assets, and this means we must have accessible cash that we could get any time. We have to take note that most investments take time and liquid assets will cover us up while we are waiting for our returns.
To battle this up, most financial advisors suggest building up savings that can cover our essential needs for the next two years. Instead of investing this sum of money, we’ll have to keep this as part of our liquid assets.
Article based on
https://www.fool.com/investing/2018/04/01/5-investing-rules-you-should-know-by-heart.aspx
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