Dear readers,
Welcome back to our newsletter, in this newsletter we wanted to go back to the basics on why investing is a sensible strategy to build wealth in the long-term.
We see so many people around us who don't invest and put their trust in their pension fund as they move towards retirement age. But what if we told you that the younger you start investing, the more likely you are to become a millionaire when you approach retirement?
Warren Buffett, one of the greatest investors alive started investing at the age of 12. In his life-time he invested through all recessions, depressions and other economic turmoils. He is now a multi-billionaire thanks to year-over-year compounding. But why are there so few Warren Buffets in the world if he just invested in good companies and hold them long-term? Because he bought the stocks that were plunging in recessions and had the patience to wait for the market to turn around, resulting in huge gains.
Here are the advantages and disadvantages of investing yourself vs the traditional pension fund:
The advantages of an pension fund
Works in the background (no stress)
Relatively save
Builds up while you work
The disadvantages of an pension fund
No access or major adjustments
Pension firms basically invest with your money to get a higher return and keep a piece of it.
Advantages of investing yourself
Higher returns
Manually choose stocks or index funds you like
Earning dividend on certain assets
Disadvantages of investing yourself
Risk
Emotion tends to be a factor in investing, especially with bigger portfolio’s
Short-term market fluctuations can cloud a long-term investment horizon
What you should do if you want to start investing
Start with index funds or ETFs, those are among the safest investments out there.
Invest every month an amount you can miss in the stock market, preferably index funds.
Even Warren Buffett's support for index investing has remained resolute.
“In my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there's more money in it for them if they do.”
Time is your ally
If you don’t unnecessarily interrupt your long-term portfolio, it will compound over time. This is because every day when your investment is growing, you have more money to compound. ($100 * 2% = $2 but $110 * 2% = $2,2) This cycle repeats itself over and over again until your portfolio becomes so big that the chart starts to become exponential. Time is your ally in the long run.
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