A wise man once said, “The most powerful force in the universe is compound interest.”
You might be tempted to think that these words came from someone who made billions by selling stocks, bonds and real estate. The truth is that it was Albert Einstein who made the observation.
For young couples who are at an early stage in their careers or who are thinking of a family, it is time to also think about saving for retirement and school fees.
“It is important to make investment a high priority, so that you can reap long-term benefits,” said Samantha Fraelich, certified financial partner.
“There are things everyone needs to know in order to succeed in their investments. But the most important thing to know is that, even in this economy today, you can still succeed. If you make the right investment decisions, it will be worth it in the long run. “
Here are five tips from a parent, for parents starting their investment journey.
1) Start investing when you are young
While this is a difficult time, it is important to remember that retirement (and tuition fees) will arrive sooner than you think.
Take advantage of the current market and see it as a buying opportunity. Continue to invest regularly and don’t worry about daily market fluctuations.
2) Keep the age of your wallet appropriate
Keep your portfolio diversified to protect yourself from market fluctuations. Investors who are 35 to 45 years old before retirement can afford to take more risks now as they have time to overcome the ups and downs of high growth investments.
For those who are 15-20 years from retirement or who have children who are about to go to college, they should consider reducing their investment risks by rebalancing their portfolio. They should place more emphasis on low to medium growth opportunities.
Those who have reached or near retirement age should rebalance their portfolio and adopt a more conservative investment strategy.
3) The power of compound interest
The golden rule for accumulating wealth is to start early. Time is the greatest ally of an investor.
Let’s say that at 24, you start to save 5,000 RM per year with an annual return of 10%. By the time you reach 55, you will have RM 1 million. If you wait until you are 34 to start saving, you will only earn RM357,000. And if you wait until the age of 44, you will only have RM 107,000.
4) Spreading of the cost in dollars
There are times when it seems scary to invest. An investment strategy used when the market is particularly volatile is called “average cost in dollars”. This strategy requires a person to invest a specific amount over defined periods.
An example would be to invest RM100 monthly for 10 months regardless of market conditions. In doing so, some stocks (if you buy stocks or mutual funds) will be bought when prices are low, and some stocks will be bought when prices are high.
Using the average dollar cost method, investors lower the total average cost per share, which gives the investor a lower overall cost for the shares purchased over time.
5) Don’t be afraid to ask for help
Look for a certified financial planner who can explain your options in more detail and provide you with information on an investment strategy with which you are comfortable. Although the economy is fragile, it is important to continue to invest and do it wisely.
This article was first published on TheAsianparent.
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