What you need to know about investing.
Investing, to many people, seems complicated and cumbersome. But understanding how investing works is important for individuals, families, and businesses to become financially independent and reach financial goals.
In our Knowledge Bank series, we are going to explore investing from the perspective of an individual investors, and discuss common challenges or opportunities that are available to them. Our goal is to help you feel more confident about investing by understanding its basic principles, and how you can apply them in your financial life.
The simple fact about investing is that it allows you to generate compound returns. Unlike your labor, which is reliant upon your available hours to work, investing scales infinitely. The rich don’t work harder than the poor, they just have more capital that works for them, generating compounded returns over decades. Working harder won’t necessarily lead you to more wealth, but having more capital invested will.
When you are in a position of low capital, you will need to exchange your hours for pay if you wish to gain capital. Simply put, when you don’t have much money, the fastest way for you to get more of it is by working.
Once you have a steady income, you can begin to build your wealth by making long-term decisions upfront. Buying a house today that you plan to rent out in ten years, contributing to your 401(k) or IRA, or investing in the stock markets are all ways to start building your wealth. Historically, a good rate of return averages around 6-9%. With that goal in mind, optimize your investment decisions by investing in assets that will get you closer to the high end.
To invest wisely, you need to identify your goals. Retirement, college planning, legacy, and wealth generation are all potential goals you may have -and you likely have more than just one! Having a clear goal will help you understand your risk appetite and return requirements much better, and will ultimately save you in hassle by improving your investment selection. At Wahdy Capital, we like to say that we help our clients align their money to their goals. Identifying and setting parameters around your goals is the first step towards successfully investing.