- Money Mentor
Can Investments Make You Rich?
Updated: May 18, 2022
Can investments make you rich ? is a question we are often asked here at money mentor, and of course, we are more than happy to provide our thoughts on the question.
Without doubt, investing in the stock market is one of the best and most cost effective ways to build significant wealth over a lifetime.
You only need to look at the likes of Warren Buffett to know that it is possible to generate billions upon billions of pounds and dollars from careful investment, although his story is of course exceptional and not necessarily the ordinary.
However, with careful and steady investing over a continuous and long period of time, coupled with the correct investment strategy, it is entirely possible, and even probable that investments in the stock markets of the world can indeed make you into a millionaire, or even a multi millionaire if your investments perform exceptionally well.
Yes, Investments Can Make you Rich
So in answer to the original question of can investments make you rich , the answer is an astounding yes - investments can make you rich.
Of course, it may be scary to begin with if you don't have any experience of investing or you don't have too much spare cash to risk but if you follow these four key guidelines this could easily help you and your investments grow over time by generating long term wealth and prosperity.
How can investments make you rich ?
1. Can investments make you rich - Consistency
When we talk about consistency in investing we mean creating an investment strategy whereby you are continuously investing and reinvesting money in order to give it the very best opportunity to really grow and compound.
In the early years of your investment journey, it is entirely reasonable that you only need to invest say £50 or £100 per month, but do try to be consistent with this contribution as this will help you buy into the markets during both down turns, meaning you will buy more assets for your money, and also higher markets when you will buy less assets for the same price.
As you become more experienced and get more confident with the investments and you also find you have more available cash as you are either earning more or generating more elsewhere, then you can begin to increase your monthly contributions up to more significant sums, but of course, again maintaining that consistency of investment contribution of each and every month to gain the maximum benefit of the pound cost averaging effect of the markets ups and downs which are inevitable.
2. Can investments make you rich – Investment class
In order for your investments to be able to grow significantly over the long term and also generate significant sums of income that can also be reinvested, you must ensure that you are investing in the right asset classes and not simply saving, which is a very common mistake for new investors.
It is of course correct and rightly so for everybody to have an emergency fund held in cash, probably to the tune of three to six months living expenses, but after that, if you wish to invest and gain the long-term effects and benefits of investing, then you need to choose the correct asset classes.
What we mean by the correct asset classes, is we must not invest in standard savings accounts which pay literally zero interest, we also can't invest in bonds or corporate bonds as they tend to pay a fairly low interest rate or coupon rate as they are called, of between just 2% and 5% at best
What we must invest in, is a range of stocks and shares from different markets and different types of stocks and shares and different geographical regions. This will give you the greatest spread and diversification whilst still exposing you to the growth power of stocks and shares.
For example the S&P 500 has grown in value by an average of around 10% per year over the very long term, and whilst of course some years are up and some years are down, the long term investor would benefit from these fantastic returns.
3. Can investments make you rich – Duration of investments
The duration of investments or time in the markets is a very important aspect of investing if you wish to become very rich from it. In short, the simple answer is to start investing from as early as you possibly can.
That's not to say that people in later life shouldn't invest, it's just to understand that for example people in their 40s fifties and 60s don't have the same time in the market as an 18 year old or 20 year old just starting out.
Those extra two or three decades can make the difference between a million pound pot and a multi million pound pot.
But either way investing is certainly worthwhile unless you are within the last five to 10 years of your expected lifetime, when it is probably worth a more steady saving method.
4. Can investments make you rich – Compounding
The magic of compound interest. Often quoted as being referred to as the eighth wonder of the world, which may or may not be true, but compound interest is indeed a magic formula that can generate huge amounts of growth and income over the years with your investments.
Put simply, compound interest is simply earning interest upon interest upon interest, which could go on for years and years. So, for example if you held a portfolio of dividend paying stocks and shares that paid on income on a monthly basis, then at the end of month one you would be paid a dividend share on all the stock you had previously held.
Then, the second payment would include the income from the original dividends held, plus a small sliver of income generated from the previously paid and reinvested dividend payments.
Then imagine this same process happening month after month year after year decade after decade and you can get a visual of just how big these compound interests can be. If you don't believe me, use an excel spreadsheet to calculate them or look up a compound interest calculator on Google and you will be amazed at what can be amassed in just a matter of a few years.
The bottom Line on investments
We certainly hope this can investments make you rich guide has given you an answer that inspires you to go on and invest for yourself.
We have certainly learned through our own experience and research on the subject matter of can investments make you rich , that many people and private investors worldwide have amassed very large fortunes through simply adopting a slow and steady investment strategy that has ticked over for years and years and decades and decades..
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