The Millionaire Mindset: Wealth-Building through Investments

Investing is the act of allocating resources, usually capital (money), with the expectation of generating an income, profit, or gains over time. Unless you are born into a wealthy family, you need to invest to become wealthy. Even if you win a lottery (and what are the chances of you winning?), you still need to invest to preserve the money. Meanwhile, as much as you need to save, you won’t be very wealthy from just saving. In fact, when you put money in most savings accounts, the money you save is losing value due to inflation. The only way to get ahead of inflation and build wealth is to invest. When you invest, you put your money to work, and it grows over time.

The returns you get from an investment depend on many factors such as the kind of investment, the duration, and the economy. As investments produce returns, there are associated risks as well. Investing involves balancing risks and returns. Generally, lower-risk investments have lower expected returns, while higher-risk investments offer the potential for greater gains. There are different types of investments out there. Do your research and due diligence before you choose any investment option. Make sure you are aware of the risks involved in your investment as well as the potential yield.

When it comes to investing, the most important thing is time. Investment time horizon, the length of time for which one holds an investment until they access the invested funds, matters a lot! This time frame is largely influenced by an individual’s investment goals and chosen strategies. The time horizon can fall into any of these three categories:

·         Short-term: This is usually less than five years, and an example can be investing to buy a car.

·         Medium-term: This is usually  between three and ten years and an example, investing for college tuition.

·          Long-term: This is usually ten years or more and a typical example is investing for retirement.

There are two approaches to investing. These are:

·         Aggressive approach: This involves taking on higher risk assets to maximize return. This approach is more suitable for long-term investments. An example is investment in stocks.

·         Conservative approach: This involves taking on lower risk investments which invariably means lower expected yield. It is more appropriate for short-term investments. An example is investment in bonds.

A very important concept to understand in investing is compounding. It basically means the ability of investment returns to generate additional returns, leading to exponential growth over time. Consider someone who invests in dividend stocks. The dividends obtained can be reinvested thereby increasing the investment and returns over time. Of the three investment time horizons, long-term investment tends to benefit the most from compounding.

Some common investment opportunities include:

·         Starting a business: Using money to launch a venture

·         Stocks: owning shares of publicly traded companies

·         Bonds: Lending to government or corporations in exchange for regular interest payments

·         Cryptocurrency: Trading cryptocurrencies like Bitcoin

·         Real estate: Purchasing properties for rental income or potential higher resale price

·         High yield savings account: Savings accounts that have higher yields than regular savings account

·         Certificate of Deposits or Share Certificates: A kind of savings account offered by banks or credit unions

·         Commodities: Investing in tangible or physical goods like oil

In summary, just like savings, a portion of your income should go towards investment. Irrespective of your investment time horizon, align your investment strategy with your specific goals and you will be on track to attain financial freedom!