The goal of investing is to build wealth over time. Investors purchase assets such as mutual funds, stocks, bonds, real estate and commodities with the expectation that the value of these assets will increase and that their financial goals will be realized. Successful investing requires time, patience and a clear and realistic plan directed toward your goal.
There are three factors that can affect the likelihood that your financial goals are met: your time horizon, the rate of return on your investments, and the amount you invest.
The more time you have to build wealth, the more potential there is to reach your goals. The cost of waiting to begin an investing program can be significant.
Start EarlyThe Power of Investing
Bill invested $46,000 more than Jane, but he ended up with 19,820 less at the same 7% annual rate of return. The advantage of starting early allowed Jane to invest less, but finish with more money. The clear benefit: start early and give your investment more time to grow.
Rate of Return
Earning a higher rate of return will build wealth faster, but to earn higher returns, you may need to invest in securities with more risk and volatility, or price change. It is important to understand the relationship between risk and return.
Investors can seek higher return potential over time for taking more risk. Lower risk investments typically return less over time.
Risk is demonstrated by volatility. Riskier investments will have larger, faster moves in price than lower risk investments. Low risk investments have a higher probability of principal protection, or less price change.
The amount of risk you are willing to take is a personal preference. See Understanding Risk to learn more.
“It takes money to make money” is an old adage, but how to put that principle to work may feel out of reach. A simple strategy is to start with a regular investment plan and increase your contributions a small amount each year. Doing so will have a positive impact on your ability to build wealth.
Invest MoreThe Power of Investing
Bill invested $46,000 more than Jane, but he ended up with 19,820 less, even though he invested for 20 years longer. The clear benefit: start early and give your investment more time to grow.