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.
Your choices when it comes to investing are staggering. For the conservative, there are government bonds. For the super aggressive, there are commodities. For most, mutual funds and stocks make a perfect solution.
After a while, it can be easy to wonder not only who is correct, but what you should do with your personal financial situation. Ultimately, the answer is you can make money in nearly every area of finance, but only if you follow some basic rules.
The single most basic rule you must understand has to do with time. No, I am not talking about timing the market. Instead, I am referring to the power of time. Nobody will talk about this on financial shows, but it is a critical concept.
So, what is the power or time? The fundamental concept involves the fact that money you make accumulates over time with your gains growing in addition to your primary investments. As long as you are showing gains, you will make a lot in the end.
Consider a practical example. The rule of seven in financial circles says an investment that returns a ten percent annual average will double in seven years. Why? Because the gains are reinvested and then grow as well.
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?
Enough with abstract examples! How about your IRA. Assume you get a 6.9 percent return. Assume you invest for 30 years and put in $2,000 each year. When it is retirement time, you will have over $185,000 in your account.
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.
In both of these scenarios, you contributed the same amount of money. With the same $60,000 contribution, you ended up with entirely different amounts. Why? The power of time. The longer investment period returned the better final numbers.
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.
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