The Future of Investing

I assume that you are reading this book and watching the accompanying training programs because you want to increase your wealth and you want to achieve financial independence through investing in the share market.

It is true that many investors have become wealthy by investing wisely in the share market, but I feel it is necessary for you understand some basic investment principals before we discuss investing in shares.

Please do not get fooled by the simplicity of the statement that there are three simple rules that if followed will lead you to financial independence, because if you follow these rules you will be well on the way to financial independence.

This maxim may seem obvious but many people have difficulty following it. If you’re spending more than you earn, you will never be able to become financially independent. You will be paying money to others for the rest of your life. The earlier you start living by this rule, the better, but it is never too late.

It may surprise you but the average Australian, earning between $30,000 and $50,000 a year for 40 years, will earn somewhere between $1,200,000 and $2,000,000 during their working life. Yet most of them will retire poor.

Saving just 10% of this along the way would provide a nest egg of $120,000 to $200,000 that could be used as the basis for an investment program. So the level of your income has no bearing on the level of wealth you achieve, what is critical is the amount you save.

Many studies have shown that a sensible and knowledgeable private investor can expect their investment portfolio to out perform those of many professional fund managers. This is because the individual investor has flexibility, agility and low overheads.

‘If you fail to plan…. you plan to fail’.

If you want to achieve your investment goals, whatever they are, it is critical to develop an investment plan. Then you must adhere to the plan and only change when there are significant changes in the basic factors. Ideally, leave your investment alone and let the magic of compounding do its work.

But start now!

On average, people need about 75 percent of their pre-retirement income to maintain their standard of living throughout their retirement. That translates into consistently saving about 10 percent of your income throughout your working years.

The longer you wait though, the harder it gets. Every decade you put off saving nearly doubles the amount you have to save to meet your retirement goals. For example, if you need to save 5 percent a year starting in your early 20s to attain retirement bliss, you'll need to scrimp and save 10 percent annually if you wait until your 30 to start saving. And if you wait until your 40, the amount jumps again to 20 percent.

4. Understand the Power Of Compounding

The principle of compounding suggests that even a small sum of money can grow into a huge investment over time. It has been said that when Albert Einstein was asked "What is the most powerful force in the universe?" he replied "the power of compounding!"

What this means to you is that if you invest, even a small amount, in an asset that grows in value over time, and you reinvest the income from your investment (the interest you receive, or the rent you receive from your property investment, or the dividend you receive from your shares), the magic of compounding will work miracles for you.

It also means that you can no longer use the argument " I can only save $5 a week, so it’s no use. It will never amount to much." Even small regular savings compound to large sums over the years.

Next: Why Invest in Shares