Become wealthy by starting to invest early

Posted on June 13, 2007
Filed Under Money |

InvestmentYou may just be like most people who think that wealth is next to impossible to achieve unless you are a company’s CEO or a big investor on Wall Street. The truth is, that anyone can accumulate wealth and retire rich using a simple strategy.

You see, when it comes to investing, time is your best friend. Most people try to gain wealth by investing their money on high risk stocks that if successful can bring in lots of profit in a small amount of time. However, such a strategy is more likely to make you lose money than strike it rich overnight. Investing slowly over a long period of time with a diversified portfolio of high and low risk stock as well as a mix of U.S. and international stock can be the best strategy you can follow.

The problem with most people is that they overestimate their smarts. They think that they are so much smarter than other investors and that they will be able to beat the market average every year. The truth is that even seasoned investors cannot achieve such a result. Even if they manage to beat the market one year or maybe two years in a row, there is hardly any chance that they will be able to do this consistently year after year over the long term. This is why the market average is what it is historically at around 10% .

So, to make money without losing any sleep, you should start investing at an early age and for a 30-35 year period using as I said earlier a diversified portfolio of mutual funds. To understand why time is your friend, consider the following table that shows the amount of money that you have after a 35 year investment assuming that you start with $5,000 and invest $200 a month starting at age 25. The table shows the total amount of money you would have at age 60 for an average return of 6, 7 and 8 percent.


Interest rate 6% 7% 8%
Total return (35 years) $288,000 $360,000 $454,000
Total return (40 years) $400,000 $520,000 $680,000


The total amount of money that you invested was the initial $5,000 and an additional $2,400 a year for 35 years or in total $89,000. As you can see from the table, even with a conservative return of 6%, after 35 years you will have a grand total of over $280,000 or over 3 times the money you saved. If you managed to get the better return of 8%, then at retirement time you would have had over $450,000 or over 5 times your actual investment. Of course, if you are willing to wait until age 65, then as you can see from the table, the extra 5 years can grow your investment even more. Pretty sweet, eh!

There you have it. If you can invest a bit more than that every month, then you can do even better. If you think that coming up with $200 per month to invest is hard then you should take a closer look at your monthly budget. I am willing to bet, that you can easily trim that much money out of your budget every month. In later posts, I will propose a few ways that you can save a bundle of money for investing.

Accumulating wealth and retiring rich is easy if you realize that time is your friend and have patience.

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