Why it’s a smart move to invest in the long term

economic projection infographic

Perhaps you’re planning to set aside some money for a new car, or want to provide a care-free future for your children. Or maybe you simply wish to retire on some tropical island (and let’s be honest, who doesn’t?).

However, after studying all your available options on the market, you probably came to the conclusion that you’re not likely to achieve anything worthwhile. At least not without a substantial initial investment on your part.

But is this really the case?

As we are about to show you in the paragraphs below, all it takes is some stubbornness, discipline, and a dash of luck to turn $1000 (or even $500) into a jaw-dropping, 7-digit sum. And at this point, you are probably already wondering what are some of the best investments you can make.

The unfortunate reality is that no such investment exists—it’s simply a matter of making the right calls and managing your funds well. With that said, here is some general advice that should help you steer your new venture on the right path.

Research your options on the market

 

Nobody wants to throw their money to the wind. With this in mind, the best thing you could do to squeeze maximum value out of your investment is to always follow the latest developments on the global stock markets.

Here are some further tips you can follow as a beginner in the realm of investing:

Focus on lower risk financial instruments regardless of the length of your investment period. This way, your initial investment will stand a higher chance of snowballing and multiplying tenfold as time goes by. For example, as you will shortly see below, a long-term investment in a popular index has all the prospects of “winning you the lottery”.

– You’re probably already tired of hearing the same old “Don’t put all your eggs in one basket” cliché. However, this sound advice is something you cannot afford to ignore if you hope to see big returns on your investment. And what this essentially means is that you should always strive to diversify your portfolio (buy several different instruments) in order to reduce your chances of losing all your funds. Just make sure to avoid over-diversification as this will likely bring you more harm than good.

The sooner you start investing, the better

 

As we saw so far, starting early is crucial to the success of long-term investments, but so is the right timing. When thinking of where to invest your money, beginning from a young age and staying consistent are not the only things you need to factor in. You also have to identify and take timely advantage of favourable market conditions.

By doing all of the above, you can turn even a modest investment into a cave filled with pirate treasure. Let’s illustrate this with an example, provided by analyst Paul Merriman and his team.

Imagine that the year is 1970 and that you decide to invest $1000 each year in a popular and fast-growing, but also stable financial instrument. Since you know that popularity alone is no recipe for success, you’ve also taken your time to thoroughly investigate the instrument you’re about to invest in.

Let’s also assume that the year-to-year inflation rate in the country is 3% and that the annual index fund rate is 0.1%. Under these conditions, your monthly installments for the year 1970 would amount to $83,33 per month. Taking into account the yearly inflation rate, you would gradually hike your monthly installments, which by 1975 would amount to $99,50.

10 years down the road your investment would reach $16,187, and after 20 years—$118,874. Provided you continuously adjusted your monthly payments for inflation, 48 years later you as an investor would have paid out a total of $104,408 and earned the staggering sum of $1.9 million.

To help you understand just how big of a leap $1.9 million is in the context of this experiment, here is a visual representation of what we talked about so far:

economic projection infographic

Of course, as mentioned above, high past yields do not guarantee high future yields, which is why it’s crucial that you thoroughly research each individual instrument before investing any real money.

Short on cash? Lower your day-to-day expenses!

 

To make smart investment decisions, you also need to make such in your daily routine. If you smoke three packs of cigarettes a day and frequently visit fast food chains, then you can’t reasonably expect to save the same amount of money each month without depriving yourself of something more valuable. And that’s not what investing is all about.

Saving $100 or $200 a month can become much more realistic if you can properly identify your biggest money sinks. For example, if you use public transportation often or regularly visit the gym, get a monthly travel card or a gym membership.

If you own a vehicle, try to avoid paid parking spaces. Instead of buying lunch at work, bring home-cooked meals, and so on. These tips may sound bog-standard and uninspired, but you’ll be sure to see positive results once you start implementing them on a daily basis.

Don’t raise the stakes if your victory is uncertain

You don’t have to be a prosperous investor with over 20 years of market experience under their belt to start investing in your future as early as today. It all boils down to a single golden rule in investing, which you need to follow under any circumstances.

This rule is simple: you should never, ever invest more money than you can afford to lose, especially if you’re just now getting your toes wet as an investor. Letting your emotions run wild will do you (and your wallet) no favour, and you will need to learn how to keep these in check when making important financial decisions.

All in all, the key to a successful long-term investment strategy is to play it safe, raise your stakes gradually (and only after thorough research), and remember that in the financial world, rash and impulsive decisions often spell defeat.

One good way to test the deep financial waters without risking any real funds is by opening a demo account with virtual (free) currency. Opening a DF Trader demo account, for example, would allow you to try out your investment strategies using real-time market data and a virtual wallet of €10,000.