It can be scary to invest in things like stocks, bonds, and ETFs, among other things. This article aims to explain the four most important parts of any investment. These four pillars must always be there because if any of them goes away, your money, time, and investment will be in danger. Long-term investments, an interest that grows over time, investments based on academic research, and discipline are the four main parts of any investment.
Long Term
There is no such thing as an investment that pays off quickly. Let's say it again: there is nothing like a short-term investment. The only thing you can do in the short term is speculation, and many papers have been written about how bad this is for your money.
Any investment must be made with at least 10 years in mind. Any time less than that is very risky, and we need to add bonds to our portfolio to lower risk. In the long run, you'll find out who your best friend is: Interest that builds up.
Cumulative interest
Compound interest is just putting your profits back into your business. The Internet says that Albert Einstein said compound interest is the strongest force in the universe. Even though it's unclear where this saying came from, it's still true. Compounding interest over a long period is the best way to make money.
Check the following compounding calculator to see how a hypothetical investment would grow over time (I recommend assuming an annual return of 10%). Imagine what would happen if you put away $200, $300, or any other amount every month for 20, 30, or 40 years. Over time, you'll see that your money starts to grow at a very fast rate.
The sooner you start growing this snowball of interest, the better results you will get. Invest in something, keep that investment going, and keep putting money into it. Does it matter what I invest in if I have a long-term goal and take full advantage of interest compounding? No, sorry.
Research-based investments
It does matter what you buy stock in, your portfolio, and how you invest. You should ensure that all your investments, investment plans, and mortgage companies are based on a lot of academic research that backs up their long-term returns.
Many papers have discussed how different investments affect people's capital. To give you an idea, here are some of the ways you can invest:
● Normal savings.
● Trading on a day-to-day basis or in general.
● Putting money into gold.
● Bonds.
● Beat the competition.
● Stocks are chosen for a portfolio.
● Mutual funds.
● REITs.
● Index Funds.
● Investing in factors.
● Cryptocurrencies.
In future articles, I'll discuss each type of investment (with a great deal of academic evidence). We'll figure out if they're suggested and why, but for now, remember this: Your investments should be based on research that has been done seriously.
Discipline
Let's look at what we all already know. We understand that we should always think about the long term because, in the short term, there is no investment and only speculation. We also know that in the long run, we need to reinvest our profits to take advantage of interest that builds on itself.
Lastly, we know that our investments should be based on solid academic research, and we should avoid bad practices or types of investments. Now the hard part is that all of this is easier to say than to do. Even if you do all these things perfectly, you will eventually face bad economic times or results that can last for years.
All of these things will cause you a lot of stress and fear. You will ignore the numbers and think that your strategy is wrong, that you made the wrong choice, and that you will lose a lot of money if you don't get out of the market soon. I can promise you that everyone feels this way at some point.
You can do one of two things to fix this: stay rational or hire a financial advisor. If you select the first option, you will need to develop the self-discipline to stay calm in high-stress situations and avoid making choices based on how you feel.
It would help if you focused on getting to know your portfolio. It would help if you also looked at past crises to learn what happened and how to respond. You need to know all the numbers about financial turmoil and your portfolio before you can trust it. Even though it sounds hard, it is possible to do.
The other choice is to hire a good financial advisor who can help you stay calm and sensible when things go wrong. If I'm being totally honest, paying a modest price for a financial consultant to help you stay with your investment and avoid panic sales is worth it. The only thing that matters is ensuring this financial advisor is good.
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