Using the past to predict the future is never a wise thing to do. With that in mind let's look at some of the averages that certain investments have earned historically. During the last century ownership investments like real estate and stock have given returns of about 10% per year. This beats out their counterpart of lending investments like bonds which clock in at 5% and savings accounts coming in at 4%. Inflation itself has a maintained a 3% average.
Since more risk comes in the stock market you may be wondering why you should put up with all the extra stress for a few extra percentage points. This is because after a number of years a few percentage points adds up to make real difference in your bank account. Let's say you have $10,000 to invest. If you put it in your savings account at 4% interest you'll have about $26,000 after 25 years. If you put that same amount into the form of a bond earning 5% interest you'll have about $33,000. Not bad. But if you put that same amount in stocks or real estate and manage to average a 10% return you'd have over $100k. If you extend that out another fifteen years to 40 years the difference is more than threefold.
You'll want to ask yourself 3 questions when you start to invest:
What am I saving for? What you need the money for will play a big part in how you invest it. Establishing your goals from the start is the only way to have a successful outcome. If you go into your investments with no end game, you will just scatter your money around and not have any sort of plan for how or when to take your returns out. Plus, if you don't have a goal, you will find it hard to motivate yourself to keep investing with no purpose other than making more money.
When will I need the money? If you will need the money soon, you will want to forgo any investment that doesn't let you see a good return early on, or one that requires you to leave your money in for long periods of time without touching it. If you will be using the money to pay for your kids college and they are 12 years old, you don't want to take buy and hold stance because you don't have 20 years to wait for it to mature. If you child is a newborn, then you can be a bit riskier with the money because you can wait out all the bumps and dips in the market and your child will be able to attend any university they want.
What am I comfortable with? Establish your comfort zone early, and stick to it. Nothing takes the fun out of investing more than putting the milk money into an investment that is riskier than you can tolerate.
Since more risk comes in the stock market you may be wondering why you should put up with all the extra stress for a few extra percentage points. This is because after a number of years a few percentage points adds up to make real difference in your bank account. Let's say you have $10,000 to invest. If you put it in your savings account at 4% interest you'll have about $26,000 after 25 years. If you put that same amount into the form of a bond earning 5% interest you'll have about $33,000. Not bad. But if you put that same amount in stocks or real estate and manage to average a 10% return you'd have over $100k. If you extend that out another fifteen years to 40 years the difference is more than threefold.
You'll want to ask yourself 3 questions when you start to invest:
What am I saving for? What you need the money for will play a big part in how you invest it. Establishing your goals from the start is the only way to have a successful outcome. If you go into your investments with no end game, you will just scatter your money around and not have any sort of plan for how or when to take your returns out. Plus, if you don't have a goal, you will find it hard to motivate yourself to keep investing with no purpose other than making more money.
When will I need the money? If you will need the money soon, you will want to forgo any investment that doesn't let you see a good return early on, or one that requires you to leave your money in for long periods of time without touching it. If you will be using the money to pay for your kids college and they are 12 years old, you don't want to take buy and hold stance because you don't have 20 years to wait for it to mature. If you child is a newborn, then you can be a bit riskier with the money because you can wait out all the bumps and dips in the market and your child will be able to attend any university they want.
What am I comfortable with? Establish your comfort zone early, and stick to it. Nothing takes the fun out of investing more than putting the milk money into an investment that is riskier than you can tolerate.
Dominic invests daily - in himself! Take a gander at his latest website that features California King comforter sets with detailed info on California King sheet sets so you'll have a great looking bedroom ensemble.
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