For many people, ideas about the rich involve how many fancy cars they have and how big their houses are. What’s often missing is the source of their wealth…their investments. Owning investments are what makes rich people rich and if you want to one day become rich too; then you’ll need to learn how to invest your money.
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There are many pathways to become rich. You can own a successful business, develop and sell an App, own a real estate empire etc. For most people though, the tried and true path of successfully becoming rich has been taking a long term investing approach.
The average person can become wealthy simply by buying, holding on to, and adding to, a collection of financial assets over the long term. These financial assets can consist of stocks, bonds and mutual funds or exchange-traded funds (ETFs).
The key to investing is diversification, so that we don’t have too much of any one type of investment. For example, assets are grouped into 5 major classes:
- FIXED INCOME (ie. BONDS)
- EQUITIES (ie. STOCKS, MUTUAL FUNDS and ETFs)
- REAL ESTATE (ie. YOUR HOME or RENTAL PROPERTY)
- PRECIOUS METALS (ie. GOLD)
The fact is that nobody really knows which asset classes will do well over any given period of time so it’s prudent to own a bit of them all. While it may seem counter intuitive, ideally we would want to be buying the asset class that is the worst performer among the group. The reason being is that it will undoubtedly be the cheapest of the bunch and, when it comes to investing, would be a bargain. This is the “buy low, sell high” mentality that can drive long term investing success.
I think the most important factor involved in a person’s investing success is not so much what they buy or sell or even which asset classes or individual type investments like stocks that they own. The absolute key to long term investing success is setting up an automated system that guarantees that we’ll be investing on a regular basis. If we take the 5 or 10 minutes to set up a system of automated investing then we are guaranteed to be building our personal wealth over time.
Each week, I make regular purchases of low cost index mutual funds and ETFs. I do so in my Tangerine Account and my Questrade Account. Each month I make regular purchases of my favorite blue chip stocks through my dividend reinvestment plans (DRIPs). More and more financial institutions and discount brokers are making it easier and easier for anyone to start automatically investing their money. If you’re not already doing it, I encourage all of you to start today!
I can say from my own experience that automating my investing has made a huge difference in my financial position. In the beginning I had serious doubts about how saving just $25 a week would ever amount to anything significant. But year after year I kept increasing that amount and started throwing extra money into my investment accounts. Now its’ been a little over 10 years and I’ve accumulated over half a million in financial assets. This is why it literally pays to automate our savings and investing.