Clever investments

In finance there are two principles that work in your favour, and the earlier in life you understand that, the easier it is to accumulate wealth:

• Time works in your favour, compound interest is a powerful multiplier!
• Consistency in adding funds to an investment let's it grow beyond imagination. (I'll explain this further down)

If you understand the full meaning of these two points, you're off to an excellent start.

One important point: This hub is for purely informational purpose only and is NOT investment advice. If you are unsure, please see a professional before depositing your money into any investment. You are solely responsible for your investments!

Before you start investing you need to answer yourself a few questions:

• Why do you want to invest money?
• What is your long term goal?

Once you have determined the answers to these two questions, you need to define the next set of parameters:

• Is this money you can not afford to lose?

• Is this 'play money' (means you want to invest this to make it grow, maybe grow real fast, but you could also afford to lose it all)?
• Is this money that should remain intact, but you want to let it earn more money without risking to lose, or at least with only a very slight risk?

• Can you afford not to touch the money for this period, or might you need some of this money during the course of the investment period?

You see, there are a few important points to define before you even start investing.

From the answers above we can roughly divide the investors into these categories (There are still finer differentiations the bankers make, but let's keep this as simple as possible):

• People who save money, and can not afford to lose it. They want an investment portfolio with low risk or no riks (maybe govenrnement guaranteed papers), this means also that the investment will yield a relatively low profit.
• People who are in the same position as the group above, but they also might be needing some of the money they want to invest before the full term of their investment cycle. They need to make sure that they can pull out some of that money without paying a penalty. Thus the investment must be liquid and should not have a risk of dropping below the initially invested amount. Means there is a smaller profit possible, and it can be difficult to find the right investment vehicles.
• People who have a certain amount that they can also afford to lose if everything fails. They don't need that money right now or anytime in future and can continue to live comfortably without it. They also can afford to let it ride for some time, should things not work out right. This is a great position to be in. They can split this amount into say 70% for an investment with some risk and 30% with an investment with a much higher risk and a corresponding higher profit potential

Before you start to plunk down your money, you need to educate yourself, so that you can verify what bankers, real estate brokers and other advisors will be telling you. In the investment business, it's like in any other business: People are in it to make money. They make that money from selling you an investment.

Now there are many honest people who will sell you an investment that is profitable for you and that lets them earn too. They think long-term and know that only satified customers will be profitable over a long period. But you might also come across some shenigans, who could not care less about your fortune, all they are looking for is a quick buck and off they are....

So I suggest you listen to this audio book:

Automatic Wealth for Grads - Michael Masterson - MP3 Audio Book

It’s like getting your master’s in financial independence—without the midterms and textbooks!

Self-made millionaire Michael Masterson becomes your personal mentor, drawing upon his own experiences and those of experts in the fields of investing, real estate, and business to offer you a complete program for achieving financial independence in record time. Organized around proven wealth-creating principles, he will show you how to quickly master the powerful money-making skills that will transform you into a dynamic, automatic wealth-builder, no matter what career path you choose. You will learn how to:

• Choose a great career, get your first job and rise to the top of your field
• Continuously increase your income on a fast-track basis, and get the biggest raises of your life
• Profit from the real estate market—even in today’s uncertain market
• Start or gain equity in a business that will provide an automatic future income stream
• Invest in the stock market, save money on taxes, make purchases that appreciate, reduce your credit costs, and achieve financial independence while you are still young enough to enjoy your money

Filled with real-life examples and practical advice, this single audio book will teach you the secrets to getting wealthy sooner than you ever imagined…for many, even before the age of 30! You don’t need a fortune—or anything in the bank to get started right now!

“Michael Masterson has personally helped more people achieve financial independence than anyone else I know. He has been a valuable mentor in my own life. Michael’s credentials go far beyond the fact that he is an extremely successful businessman. (There are thousands of those.) He has a unique gift for discerning—and explaining in easily accessible terms—what it really takes to succeed. Automatic Wealth for Grads will give any young person a tremendous headstart for achieving their financial and professional goals at a very young age.” - Justin Ford, author of Seeds of Wealth: An Incredible Wealth-BuildingPlan for Your Children and Editor of Main Street Millionaire

Michael Masterson has been making money for himself and others for almost four decades. At one time or another, he’s owned and run companies that were public / private, onshore / overseas, local / international, service / product-oriented, retail / wholesale / direct mail, and even profit / not-for-profit.

Compound Interest is a very powerful lever to make your money grow:

Say you have 1'000 Dollars that you can invest now and can leave alone for the next 10 years. If you can get an interest or profit of 5% on these 1'000 Dollars every year, how much do you think will these 1'000 Dollars be worth in 10 years from now? in 20 years from now if you actually can leave the money alone for 20 years?

Let's have a look how this develops, year by year:

1. year: 1'000 Dollars + 5% = 1'050 Dollars
2. year: 1'050 Dollars + 5% = 1'102,50 Dollars
3. year 1'102,50 Dollars + 5% = 1'157.63 Dollars
4. year 1'157.63 Dollars + 5% = 1'215.51 Dollars
5. year 1'215.51 Dollars + 5 % = 1'276.28 Dollars
6. year 1'276.28 Dollars + 5 % = 1'340.09 Dollars
7. year 1'340.09 Dollars + 5 % = 1'407.09 Dollars
8. year 1'407.09 Dollars + 5 % = 1'477.44 Dollars
9. year 1'477.44 Dollars + 5 % = 1'551.83 Dollars
10. year 1'551.83 Dollars + 5 % = 1'629.42 Dollars

So, you see after 10 years you don't have simply 500 Dollars more, but actually your 1'000 Dollars have grown by nearly 630 Dollars!

If you now calculate further and see what happens after an other ten years, this starts to look even better: after 20 years, these 1'000 Dollars will have grown into 2'653.30 Dollars - Means that your 1'000 Dollars have more than doubled in 20 years!!!

You can play with numbers with this online compound calculator: http://www.moneychimp.com/calculator/compound_interest_calculator.htm

(Copy this URL and open a new window to paste it into the address window, like this you don't lose this page and come back here once you've seen how powerful the compound interest is.)

Explanation of the entry fields in the calculator:

Current Principal = You initial investment, in our case 1'000 Dollars

Annual Addition = Leave empty for now, we'll look at this next

Years to grow = enter the number of years you want to calculat, in our case 10 years

Interest Rate: = :-) you know that one we used 5%

Leave the number at 1 for the field that defines the number of times the interest should be compounded per year.

You'll see that there is slight difference between the result we have here and the result the calculator spits out. That's due to the fact that I rounded the results slightly, and the calculator works with all numbers behind the coma. Doesn't matter for our theoretical musings, but would if it was real money!

Now that you see how powerful compound interest is, we come to the next point when investing: Adding regularly to the initial amount. Say you could add 500 Dollars to the initial 1000 Dollars every year. So that you would have 1000 Dollars to start with, and then add every year an other 500 Dollars, that would be 5000 Dollars more after 10 years for a total investment of 6'000 Dollars.

Le'ts see what happens here:

1. year: 1'000 Dollars + 5% = 1'050 Dollars + 500 Dollars

2. year: 1'550 Dollars + 5% = 1'627,50 Dollars + 500 Dollars

3. year 2'127,50 Dollars + 5% = 2'233.88 Dollars + 500 Dollars

4. year 2'733.88 Dollars + 5% = 2'870.57 Dollars + 500 Dollars

5. year 3'370.57 Dollars + 5 % = 3'539.10 Dollars + 500 Dollars

6. year 4'039.10 Dollars + 5 % = 4'241.05 Dollars + 500 Dollars

7. year 4'741.05 Dollars + 5 % = 4'978.10 Dollars + 500 Dollars

8. year 5'478.10 Dollars + 5 % = 5'752.00 Dollars + 500 Dollars

9. year 6'252.00 Dollars + 5 % = 6'564.60 Dollars + 500 Dollars

10. year 7'064.60 Dollars + 5 % = 7'417.83 Dollars + 500 Dollars = 7'917.83 Dollars

How's that for progress? By simply putting 1.37 Dollars per day away and saving, you added 500 Dollars every year, and from your 6'000 Dollars invested you now harvest nearly 8'000 Dollars!

I'm sure you now see why I put these two investment principles at the very beginning of the explanations on the top of the page.

You'll notice that the investment calculator will spit out a number of 8'232.30 Dollars, if you enter the numbers we used. I guess that's because their calculation adds the 500 Dollars already at the beginning of the year and then calculates interest for the year also. You can manually verify this, if you like :-).

Most important is, that you understand that by putting away even small amounts on a REGULAR basis, this adds up to some quite important amounts. Continue with your addition of 500 Dollars for an other 10 years to cover a period of 20 years and an invested amount of 11'000 Dollars that you paid in, and you will end up with:

20,012.92 Dollars !

That's nearly double the amount you put in!!!!

• Forbes' Greatest Investing Stories - Audio Book Download

  These great investing stories are a well-honed guide to the practicalities of dealing with the turbulent markets of the new century. Capitalizing on the techniques of the shrewd money spinners that this book profiles will help you profit.

• The Intelligent Investor - Audiobook Downloads

  The classic bestseller by Benjamin Graham, perhaps the greatest investment advisor of the Twentieth Century, The Intelligent Investor has taught and inspired hundreds of thousands of people worldwide.

If you are buying your first house, you are making your first real estate investment. So here also you need to be careful and make sure you buy the right property that will not lose money, but that will appreciate over time.

Not an easy task these days, but with the prices dropping due to the mortgage crisis, there will be opportunities to pick up properties below their true value.

The audio books listed below can give you valuable insights into the property market and will tell you in detail what to look for and how to get organized to make sure you sell at a higher price than what you bought your home for.