Regardless of what you want to invest in, there are three key principles to keep in mind and that get you very far in becoming a successful investor:
1. Time:
If there was a get-rich-quick scheme, everybody would be doing it. Anything that promises crazy returns is often too good to be true or involves a high amount of risk. The reality is that investing is a great and proven way to build your wealth, but it takes time and patience. So manage your short-term expectations and aim for the long-term.
2. Diversification:
Every investment comes with risk, so do not put all your eggs in the same basket or all your money into one investment. Diversify your investments across different asset classes and even spread them within those asset classes.
3. Consistency:
Just as it takes time to build wealth with investing, it takes consistency. The earlier you start to invest and the more frequent you contribute on a regular basis, the higher your returns will be in the end.
To demonstrate these principles, let's look at few simple examples
- Let’s say you put aside 1.000 euro today and have the opportunity to invest it for 30 years with an average return of 8% per year. What would your investment be worth in 30 years? 10.063 euro !!!
So your money increased 10 times, showing the power of time. Now let’s add consistency to it:
- Let’s say you put aside 250 euro per month and have the opportunity to invest it for 30 years with an average return of 8% per year. What would your investment be worth in 30 years? 573.471 euro !!!
That is a nice sum to enjoy! Now lets double down on the importance of time
- Take the last example but imagine you started earlier and you did that for 40 years: 872.752 euro !!!
