Updated: Jan 17, 2022
Today a bit of a different topic than trading: investing. Can investing make you rich? How does investing work? How to start with investing? These are some of the questions you will get answers to in this article. In my opinion trading and investing can and should be combined for optimal returns. Investing is different from trading, but with the right tools you can become a trader and an investor. So, let’s dive into today’s article.
Can investing make you rich?
Yes, investing can make you rich. However, it cannot make you rich quickly. That’s the mistake a lot of people make. They think that trading and investing can make them rich within a few years. This is not true at all. Investing is for the long run. Trading is for the long run. It can make you rich, but it will take a lot of years to make you rich. Also, everyone has a different definition of rich, which brings me to the first question: what does “rich” mean to you? Does it mean you can quit your job? Does it mean you have a huge mansion? Think about this for a while. Everyone has a different number. What’s your number?
Why is investing better than saving?
We all know that saving is a waste of money. It does not give you any returns and with inflation rising it actually makes your money worth less. You lose buying power every single year. This is not what you want. You work hard and you get money. Then, you have to pay taxes. Then, once you paid the taxes and you store your money in a savings account, it starts losing it's value. A great way to go broke if you ask me.
Investing is better than saving because it makes your money grow. It makes sure that the money you bring in from your job grows and becomes more money. That’s what you want. That’s how you build wealth, that’s how you can become financially independent.
Do you want to become financially independent? Then you have to start with investing. Most people that are financially independent have multiple income sources and most of those come from their business & from investing.
Where can I invest my money?
There are many instruments that you can invest your money in. You can start with investing in stocks or you can start with investing in gold. Or maybe, you want to start with investing in Bitcoin? Every asset class has its own characteristics. To sum the most important asset classes up:
These are the most well-known asset classes people invest in. Bonds are considered the safest, but the returns are also small. Generally speaking, the higher the risk, the higher the return. You want to find optimal balance in line with your goals.
My time horizon in terms of investing is long. I’m young and I don’t need the money that I invest. I can let it compound for 20+ years. That means I can pick riskier investments. If your time horizon is only 5 years, then you have to go for lower risk and also lower returns. That’s why it’s crucial to know why you invest and what your goals are.
Usually, the best way to invest is to invest in ETFs or index funds. These funds allow you to diversify in a very cost-efficient way. But then again, there are thousands of ETFs. How do you pick the right one that is cheap, effective and fits with your goals?
It’s hard and that’s why I help people with investing. After I have worked with my clients, they know what to invest in, how to invest and how to become financially independent. Interested? Click here.
Where to start with investing?
Investing is done via a broker or via a bank. It depends on what you want to invest in and how you want to invest. Investing for beginners is usually done via a broker and done via ETFs. You have probably heard of Vanguard or Blackrock. Investing with Vanguard gives you access to low-cost index funds that can grow your wealth.
Do you want to start investing? Consider the following points:
Your time horizon
Your risk appetite
Your goal should be clear and is essential to have in mind. Without a goal you can’t make a plan. When you are finished reading this article, start thinking about your goal. My goal is to have the potential to retire earlier. I love what I do, but I do want to have the option to quit whenever I don’t like it anymore, or whenever I want to go for a long trip. Investing in the right way allows you to do that.
Your time horizon
Your time horizon, like I said earlier, is something many people overlook but it’s very crucial if you want to start investing. Most people randomly invest in Bitcoin or other cryptocurrency and want to have doubled their money the next year. The truth is that investing in Bitcoin is highly risky, so you need to allocate less of your capital and you need to have a longer time horizon. There is nothing wrong with investing in cryptocurrency, but you have to know that it’s highly risky. Around 10% of my entire investment portfolio is in cryptocurrency. This is because I have a long time horizon. Read that again, only 10%. The rest is in safer investments with great diversification. Most people invest 100% of their capital into cryptocurrency. No wonder it goes wrong.
Your risk appetite is also very important. It’s something many people overlook as well. Everyone is different. Everyone can handle different types of risk better. Determine what type of person you are. Can you handle risk? Does it fit with your plan? Ask yourself these questions and answer them. This will help you to figure out what type of investor you are and what you need to invest in to reach your goals.
To summarize this article and to give you some steps that you can take right now, follow the following guidelines. This is the investing guide you need to follow:
Find out your goal
Find out your time horizon
Find out your risk tolerance
Find the best broker/bank in your country (low costs, reliable, safe, range of products etc.)
Make an investment plan
This is essentially the investing guide everyone should follow. Of course, there goes way more into it, but if you follow this investing guide you can start with wealth building in a better way than most people do.