Wealth Pillar Three: Improve your investing returns

There are three vehicles a person can invest in to improve wealth:

  1. Career
  2. Property
  3. Businesses (Shares)
Ideally you would have investments in all three, but when just starting out this is not so easy. 

What you need to do when starting out or just gaining traction is to take the little you have and multiply it and continue to find ways of investing it that will multiply it faster.

A very basic example of this can be seen as follows:


Stephen (fictional character) has been working hard in his job and paying himself first. He has been budgeting his money in such a way that he is now saving $400 from each fortnightly pay he receives from his work (this equates to $10,400 in savings a year.).

These savings are currently sitting in a bank account earning 3% per
annum, a very low return (note: this low a return in reality likely provides a negative return after taxes and inflation are calculated into the equation.). Stephen has $2,500 saved thus far.

Stephen can begin to find a potential investment that will increase his ROI (Return on Investment) per
annum


A basic example could be moving his savings to a term-deposit that pays 7% per annum. This extra 4% would make a huge difference in compounding returns over the length of Stephen's working life.

An alternative could be for Stephen to invest into his career and to earn a promotion, resulting in increased income.

How much is too much?


Most personal finance books recommend aiming for a 12-15% return on investment for long-term compounding returns. 


The important thing is to do your own research (as I am not qualified to provide information about which products to purchase) and to make decisions that will benefit you over the length of your life, not just in the next one or two years.

Generally if you hear promises of returns higher than you feel comfortable with, chances are they will not be realistic. 


Ensure you undertake due diligence in all your financial decisions before risking losing the capital you have started to build for yourself.

Always remember:


Be on the look out for ways to improve your investing returns. Increase your returns slowly and develop confidence and education so you can more wisely make decisions about increasing your investment returns.

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