We live in the information age, but this often is not a good thing. Why? There is way too much of it. When it comes to investing, it is difficult to know what to do. This is why sticking to the basics is vital if you want to be a success.
Bring up finances and people go motoring down all kinds of directions. Stocks are best! No, real estate is best! Ah, investing in government bonds is really the way to go if you want to make millions.
Once you make your choice, the problems have only begun. For instance, pick any stock and do research on it. One stock guru will think it is a piece of junk while another will think it is the next hot thing. So what do you do? Stick to the basics!
Time is on your side. Besides being a good lyric, this statement is true when it comes to investing. Time has a tremendous cumulative effect. Oddly, you never hear the financial gurus talk about it. This is probably because they cannot sell you time.
Why is time valuable? Basically, the more of it you have, the better you will do. As time passes, the results you obtain are going to have a bigger cumulative effect. If the trend is positive, the total return on your activities will be huge.
A good example of this is the rule of seven. It works like this. If you get a seven percent annual return, your investment will double in 10 years. This would appear to make no sense, but it does because your gains are being reinvested.
The rule of seven is an abstract guideline, but it shows us a simple example of the power of time. Simply put, the longer you have, the better your ultimate return. So, how do you apply this to your life?
Generalities are great and all, but what about real examples. Okay, assume you invest two grand each year in an individual retirement account for thirty years. With a 6.9 annual return, you end up with $185,000. Not bad, eh?
How about a contrasting situation? What if you start late and invest for only 15 years? You put in more money, four grand, each year and get the same rate of return. You will end up with rough $99,000. That is almost half the other total.
Now, what is the one difference between these scenarios? We invested the same total amount. The only difference was the time over which we did it. The longer time period gave our money time to grow and grow again, known as compounding.
You do not have to be a wizard to invest comfortably. The key is to start as early as possible. This is true even if you are just putting $100 a month towards it. As time passes, that money will grow and grow and so will your nest egg.
About the Author:
Succession planning is a critical step to making your business survive you. Barry Waxler with UFCAmerica.com provides succession plans that make sure that happens.
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