Everyone sometimes dreams of a small fortune, a nice reserve and financial security in old age. But savers and investors make avoidable rookie mistakes that can cost a lot of money. How to increase your wealth with 4 simple tips.
Four basic rules for capital formation
Many people hope to one day amass a small fortune: to fulfill a dream wish, as a pension provision or simply for more financial security. But if you really want to save successfully, you must observe the following 5 basic rules:
- Take advantage of compound interest;
- Always stay on the ball;
- Back and forth empties stock exchanges;
- Greed is a bad motivator;
- Paper money alone is financial suicide!
Take advantage of compound interest
Starting early makes compound interest a friend to every saver. Without compound interest, building wealth becomes a lot more difficult, if not impossible. An example: anyone who is now 35 years old and wants to have 100,000 in hand at the age of 65, must put aside 145 monthly for 30 years at an interest rate of four percent and without tax deduction. But if you only start saving 10 years later, you forego ten years of compound interest. The result: He already has to cough up 275 a month. And if you wait until your 55th birthday, you even have to save 680 per month. So anyone who starts saving early will really benefit from the “friendship” of compound interest.
Save regularly: always stay on the ball
To save successfully, you must save regularly. It is best to make a standing order for the monthly savings period. Otherwise, you will have to pull yourself together every month to replenish the savings balance. If the money is automatically credited, your assets will also automatically increase. Tip: In recent years, Internet Savings in particular has acquired a good reputation on the savings market. Since an internet savings account simply involves less handling, banks usually pay a higher interest on an internet savings account than on a traditional savings account. With listed shares, longevity is especially important: investment funds and the like are most successful if they are held for a long time. However, that does not mean that one should lose sight of them; In a loss phase, temporary sales can be a good solution.
Back and forth empties stock exchanges
No matter how you do it, you’ll never do it right. But as the Germans so aptly put it, “Hin und her Kracht Taschen leer” In other words: overly hectic investing rarely pays off. Although equity funds achieve an average return of five to eight percent per year, banks always recommend refreshing those funds from time to time, i.e. selling old fund shares and buying new ones. The argument: the old ones no longer offer enough returns, the new ones will develop better. But the banks mainly make money from this “back and forth”. Because the investor who makes eight percent annually and renews his fund once a year pays costs that can amount to six percent. On balance, then only a two percent return remains. This is a return comparable to that on a regular savings account.
Greed is a bad motivation
Okay, 10, 15 or 25% return on an annual basis, every year, that would be nice of course. And undoubtedly there are investments that can achieve such returns in the longer term. But those investments are also correspondingly risky. Therefore, you should never put more than 10 to 15 percent of your money on highly speculative investments, which in the worst case can lead to a total loss. In short, greed for higher returns is a bad advisor and blinds you to the most basic investment rules. Many of these “super offers” have an extremely high cost structure and often 10 to 20 percent of the investment ends up in the pockets of shameless intermediaries, brokers and sellers. And in most cases, greed even blinds you to risks that are simply open and exposed on the table. As soon as a double-digit annual return is in play, investors should always allow themselves more time and test the offer particularly critically or have it tested.
Inflation: Owning only paper money is financial suicide
In times of rising inflation, people naturally think first of buying gold. Even with a current gold price (May 2011) of approximately $1,500 per ounce, this is not a bad idea. The weak dollar also allows you to buy cheaply. And old investor wisdom states that at least 10% of one’s assets should be invested in gold, provided one has sufficient resources for this.