THE 4 INVESTING PILLARS

Posted By: TimoStevens (Wealth Sage, 2009)

Windfalls do happen... yet, for every jackpot story, there are thousands of tales about investors who lost money speculating their way through high-risk, short-term gambles.

However, the only way to accumulate wealth is to begin investing early in life, having the courage and staying close to some fundamental guidelines such as;

a) Invest Automatically, Ringgit by Ringgit;

This involves dollar-based investing whereby you can buy fractional shares. Who said you can't own a share because its selling for RM500 and you only have about RM100 a month to invest.

RM100 could buy a tenth of a share of one company, a quarter of a share of another and a full share of yet another. What matters is that, you have the ability to invest regularly in companies you want.

Time and consistency, convert fractions into bigger whole numbers.

b) Diversifying to Diminish Risk;

Spread out your investments among different asset classes (i.e. stocks bonds, cash, etc). Diversification helps reduce risk in your portfolio and improve your returns over time.

As no one knows for sure which investments will be successful. As such, staying diversified increases your chances of owning investments that will progress in value.

c) Using Index Funds;

An index is a group of stocks or bonds that experts believe represents a larger group of investments, such as all "high tech stocks." Index funds (e.g.ETFs) are becoming famous.

They are managed passively and do take much of the guesswork out of investing. Simplicity and lower costs make index funds very attractive.

d) Buying into the Long-Term;

Long-term investing isn't rosy, but it has a solid success rate. When it comes to investing, time is your friend. And compound interest can be a beautiful thing - especially when measured through the span of decades.

For instance, if you invest RM1000 once a year in a tax deferred Retirement Account in an investment that averages a 7% annual return, it'll grow to more than RM1,000,000 after 20 - 30 years tax deffered.

Whatever stage you find yourself in life, you'll have an opportunity somehow, to start investing to accumulate wealth. Even if you begin with a small monthly amount, a commitment to consistent investing will add up in the long run.

Now, that's a decision that can determine the quality of your life in the years to come.

Source: Four Cornerstones of Investing, Dam Lampard - YoungMoney