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A Tip That Will Help Your Investments Grow

Here’s a quick investment tip for you that will help your investments grow. When you set up preauthorized payments towards your investments, it is really important to make sure that you increase your contributions by at least 3% each year to keep up with inflation. Although you may think it’s not necessary, the impact on the growth of your investments is significant. All you need to do is contact the institution that holds your investments once a year and ask them to increase your contributions by a few dollars.

To illustrate my point, if you contribute $250 each month into an investment account for 30 years and you increase your contributions by 3% each year, in 30 years your investment could be worth as much as $341,179. However, if you contribute $250 each month for 30 years and do not increase your contributions to keep pace with inflation, your investment will be worth approximately $243,927, which is almost $100,000 less!

Although inflation is often hard to notice from one year to the next, it becomes very apparent over a timeframe of ten years or more. For example, what cost $100 in 1998 would cost $131.52 in 2008. Also, if you were to buy exactly the same products in 2008 and 1998 they would cost you $100 and $77.68 respectively.

You can find more examples and get a better understanding of the effects of inflation over time by checking out the Inflation Calculator at http://www.westegg.com/inflation/.

Don’t forget to give your financial institution a call in order to increase your contribution amounts. You won’t even miss the extra couple of dollars you contribute, and your investments will grow a lot more as a result.

October 30, 2009

Investing

Read The Free Chapter From Multiple Streams of Income

I’ve just started reading Multiple Streams of Income by Robert G. Allen. So far I am really enjoying it. The first chapter is all about the importance of consistently saving. He talks about how one dollar can be used to start growing a money tree and the author includes many charts indicating potential growth over the long term.

His main point is that anyone can become a millionaire if they are disciplined enough to save and invest wisely. Like I emphasized in my last post about investing when you’re young, you don’t have to have a lot of money to start investing. The best time is to start now.

Instead of me writing a lot about this chapter, I would recommend that you check out this link: http://multiplestreamsofincome.com/ and read the chapter for free online. To get to the free chapter, click on Keyword Search on the left hand side of the site. From the drop down menu, select Free Chapter and click the Go button. I bet you will never think of investing the same way again! The author emphasizes in a very practical and profound way just how important it is to save for tomorrow today.

October 18, 2009

Investing

Start Investing When You’re Young

This is written especially for those of you who have just finished high school or university. I highly recommend that you start to tuck some money away for your future. Whether you want to save up for your first home, a trip around the world, or for retirement, the time to start saving is now. I know it’s hard to be thinking about retirement when you’re so young, but believe me, time goes by really fast and before you know it, you will be thinking about your retirement plans.

If you’re like me, you ignored this advice and didn’t start saving until your mid 20s. Although it’s better than nothing, it’s ideal if you start paying yourself first when you’re young. I emphasize this because your investments’ growth potential increases dramatically the longer you keep your funds invested.

For example, if you invest $10,000.00 when you’re 18 years old and don’t touch it until you are 65, assuming an average rate of return of 7%, the value of your investment will be around $240,000. By contrast, if you invest the same amount at age 25, assuming the same rate of return, the value at age 65 will be approximately $150,000. So, by investing 7 years earlier, the end result is about $90,000 extra dollars in your pocket at retirement.

Although it may seem difficult or even impossible to start saving for retirement at such a young age, I can guarantee that it is worth it and you won’t regret it. Many financial institutions will allow you to start investing with a minimal amount of money and then you can continuously build up your accounts by setting up preauthorized payments that are within your budget.

You don’t have to have a lot of money to start investing. Don’t put it off until you are older. It’s time to start investing today as the more time you spend in the market, the more growth you will see and the more likely you will be able to achieve your goals.

October 16, 2009

Investing

What is The Rule of 70?

There are all kinds of interesting things you can learn about investing and economics. The Rule of 70 is one such fascinating tidbit that might be of interest to you.

If you want to be able to estimate approximately how long it will take for your money to double in an investment with a set interest rate or a fixed rate of return, you can get a fairly good idea by dividing the number 70 by your fixed interest rate.

For example, if you are currently earning 1% in your savings account, that means it would take 70 years for your money to double. If you are earning 2%, it would take 35 years to double your money, and if you are earning 3%, it would take 23 years.

Although the Rule of 70 isn’t perfect, it does provide a good indication of how long it will take for your money to double. Note that the interest rate must be fixed in order to do this calculation. So, if you have any investments with an annual compound interest rate, do this calculation to see how long it would take for your money to double.

September 30, 2009

Investing

An Easy Way To Learn Investment Terminology

If you are working on developing your investment knowledge and are attempting to read financial articles, you will likely need help in learning all the investment terminology. I find Investopedia.com’s dictionary extremely helpful in explaining investment jargon.

Not only does the site provide a definition, it also provides an explanation to further your understanding.

For example, when I looked up the word “bond”, this is what I found in the Investopedia.com dictionary:

“What Does Bond Mean?

A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.

Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents..

Investopedia explains Bond

The indebted entity (issuer) issues a bond that states the interest rate(coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply “Treasuries”.

Two features of a bond – credit quality and duration – are the principal determinants of a bond’s interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range.”

So, as you can see, this site can be extremely helpful for anyone who is unfamiliar with investment terminology. Check it out and before long you will be much more confident when you read about investments. It is always a good idea to understand how your money is being invested, even if you have a managed portfolio through your financial institution.

September 28, 2009

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