When it comes to building wealth, investing is one of the most effective tools available. Yet many people hesitate, thinking it’s only for the wealthy or for financial experts.
The truth? Anyone can start investing, and the sooner you begin, the more powerful your results. In this, the first of two columns, you can learn about how to begin building wealth with easy, actionable steps to take starting today.
Why invest?
Building wealth is important primarily because it provides financial security, freedom and the ability to achieve long-term goals for yourself and your family. Inflation slowly erodes the value of money sitting in a savings account. Investing helps your money grow faster than inflation and puts the power of compound growth to work.
Compounding means you earn money on your investment, and then you earn money on your earnings. This generates more growth over time. For example, investing $50 a month at a
6 percent annual return could grow to more than $10,000 in 10 years — without any big lump sum additions.
Fun fact: Building wealth isn’t reserved just for people with high incomes. In fact, as Thomas Stanley showed in his best-selling book The Millionaire Next Door, you can build significant wealth regardless of your income. Building wealth is simply about accumulating assets that grow over time through consistent saving and investing.
Types of investments
There are many different types of investments that can grow over time. The most common of these include:
Stocks: This is ownership in companies, offering potential for growth but with higher risk of loss, especially in the short term.
Bonds: These are investments that typically deliver a consistent income stream with lower risk, ideal for conservative investors, older investors and as a counter-balance to the risks inherent in a stock portfolio.
Mutual Funds and Exchange Traded Funds (ETFs): These funds bundle many investments together, making diversification easy. Diversification is an investment strategy that spreads your money across various types of investments to reduce the risk of holding a single investment so you’re not putting all your eggs in one basket. Mutual funds and ETFs are commonly seen in employer retirement plans such as 401(k) or 403(b) plans.
Real Estate: Whether it’s your own home or a commercial property, real estate is a tangible asset that can appreciate over time.
Look for more information on this important topic in the July issue.
