Investing is crucial in creating long-term wealth. Saving alone is simply not enough to have a wealthy retirement. With inflation, your money is decreasing over time. This is really important to understand.
We are all busy people. We are all working hard. But once you’ve got that money coming in, it’s what you do with that money that really determines how wealthy you are at retirement. It’s the ability to work smart.
Saving isn’t wrong, but it just doesn’t get you to where you need to go. Working hard isn’t wrong either, but we can be smart in the financial markets by getting our money to work hard for us.
What you want is a lifestyle where you can get on with life and have your money growing on the background, even when you’re sleeping, enjoying a day out, or progressing your career. This is the beauty of investing and the beauty of the financial markets, which is what we specialize in here at Sublime Trading.
Invest To Beat Inflation
Now that we have a clear understanding of why investing is more important than just saving alone, let me introduce you to our Wealth Calculator. We have created a wealth calculator to help you to figure out the ROI (return on investment) you need to be achieving year-on-year on your savings to reach a particular wealth target by retirement.
Let me show you how it works. Let’s plug in some data into this wealth calculator.
Let’s say you start with 20,000 pounds and you have 30 years till you retire. You want to have 1 million pounds by retirement, and you’re also able to add 100 pounds a month.
The result? The calculator shows us that you would need a return of investment of 12.3% per year! As you can see, investing is crucial in order to reach that target. Savings alone will never get you there.
And we haven’t even factored inflation into the equation.
Inflation is the measure of how much the price of goods have changed over time. People tend to forget about this. With inflation, your money is decreasing in buying power over the time. You’re getting far less for your money.
So, again, this is why it’s essential to invest. You need to have your money growing so that you’re able to reach your wealth target.
A good example of that is, of course, petrol. Petrol seems to be going up by 2% every year. So, each time you go into a petrol station, you’re spending 2% more year on year. That really adds up over a period of time.
So, where exactly are you on your wealth creation journey? Complete the ‘Are You On Track To Retire Early?’ scorecard and get FREE lifetime access to the Launchpad Investor Starter Kit (priced £297 + VAT).
This Starter kit is loaded with the essentials and, yep, one of those is the wealth calculator that we mentioned above for you to work out the exact ROI that you need to be earning on your investments. You will also be invited to our free Facebook group as part of the Launchpad Kit, where you can get involved in the conversations and let us know your thoughts.
Different Forms Of Investing
Let’s look at the different forms of investing, which is actually key to building a long-term portfolio.
- Different financial markets: currencies (also called forex), stocks, commodities, and cryptocurrency. The cryptocurrency market is fairly new in comparison to the other markets.
- Properties: there are various seminars that cover investment in properties, but we don’t really delve into property here. You can look into property as long as it helps you reach your wealth target goals, but we mainly focus on financial market investing.
- Startup companies: if you have a family member or a friend who has a business, that may be an option to invest in as long as you do your due diligence. There are also many crowdfunding sites where you can invest in different startup projects along with other people in the society.
- Alternative investments: such as investments in wine, art, classic cars, watches, etc. This is actually where you can potentially see your money grow over time. Now, if the investment vehicle you choose cannot get you the ROI you want, then you may want to look elsewhere.
The Trap Of Get-Rich-Quick Schemes
There are endless investment vehicles that you can choose for the portfolio. The wealth of opportunity that we have in today’s day and age is a huge advantage. We live in no better time to take control of your own money. We can create a portfolio that performs well – and consistently well.
But where there are investment opportunities, there are also, of course, challenges.
The challenge is finding the right information and learning the processes correctly.
There’s a lot of misinformation out there. There’re a lot of gurus online sharing a lot of mysticism, and these “educators” making you believe that short-term wealth is possible.
This leads to people deviating from the principles of good investing to fall into the trap of get-rich-quick schemes.
And to add to that, from early 2020, life proves rather challenging because we were all forced into lockdown due to COVID-19, and that forced a lot of people to look online for additional ways of making money. There was an increase in the number of people using investment and trading apps.
The problem with trading apps is that they paint a very easy picture of how to make money very, very quickly. There’s a level of sophistication to good investing that is often overlooked. And that’s because of the power of marketing, “hey, put 50 pounds here, and by a month from now, you’ll have a whole manner of zeros at the end of it”, but that really isn’t the case.
The trouble with thinking short-term is that you’re trying to make a lot of money very quickly by risking large amounts of money. It can work, but then it can go wrong very quickly.
For every one person that makes it, there are millions out there who fail. What needs to happen is that people need to stop giving in to get rich quick schemes.
If you give your money away cheaply, then you will always be on the back foot. So, don’t be one of those people that is lured into these traps and then end up losing a lot of money. You have to protect your money at all costs.
Always stay true to the principles of thinking long term. There’s no rush. We want to look away from the short-term processes. A lot of people end up losing money because of these misinformation, and when that happens, a lot of negativity around this industry is generated.
The Beauty Of Compound Growth
People need to go back to the principles of good investing, which is thinking long term. You want to create a portfolio that performs well over the long-term so that you can embrace and benefit from compound growth.
By thinking long-term, you have an initial small risk, but then by holding your positions, that initial small risk grows over time.By compounding, you can exponentially grow your account. So, although it may be slow and steady – and not very attractive – in the beginning, the strength of compounding is completely mind-changing over time when you start getting towards your second, third or sixth year of investing.
Now, there is actually one very good example of compound growth, but people often experience it against them: credit cards.
Inside every human being, there’s an investor and there is a consumer. When you become a good investor, you will learn to embrace compound growth and have it working for you year-on-year. However, if you limit yourself to being a consumer – and particularly one that has a spending problem – compound growth can actually work against them.
Most people end up getting a credit card, and they just cannot keep up with the payments because of that compound growth working against them.
Yes, we all like to buy the finer things in life, and why not? You can buy Nike, Apple and Harley-Davidson products. There’s a consumer in all of us. But the beauty of being an investor is that you can also invest in the products that you like.
You can earn good money through owning shares and have that compound growth working for you. Warren Buffet, for instance, has amassed a vast sum of money over the last 50 years of investing. And that can only be achieved by having compound growth working for you.
The Three Approaches To The Financial Markets
When it comes to investing or trading, there are three approaches to the financial markets:
1 Day trading: by using technical analysis (a flashy name for using price charts) to make trading decisions. This is what traders do and they are in and out of the market in short periods of time, from seconds and minutes to hours, and maybe a few days at most. This is the proven way to lose money, even though it is sold as a sexy way to quick riches.
2 Buy and hold investing: when you hold an asset for years, or even decades. This is when you may also pay monthly into a fund or a selection of funds. The main problem with this is that the growth is slow, and the asset may not even move for many years. You may have to hold it during a bear market, keeping your capital tied up for years with no growth.
3 The Phoenix Investor: a term we have created ourselves. This is a person who take the best bits of being a day trader and the best bits of being an investor, and then combine the two. This is the perfect middle ground for us as busy people. It allows us to move between the natural cycles of the market, and make money in both directions. We have excellent investment vehicles that allow us to do this in today’s day and age.
There are, of course, spread betting accounts and CFD accounts. Now, these accounts tend to have a bad reputation because they are leveraged – and people tend to over-leverage and use greed as their primary driver. And what people soon find out is that leverage not only works for you, but it also works against you.
Most people end up having leverage working against them and losing vast sums of money extremely quickly. What you want to learn to do is how to use these investment vehicles safely and correctly over the long term by following good risk management principles (i.e., stop-loss and exit management).
Also, another reason why you want to learn how to use spread betting accounts correctly, particularly if you are in the UK, is that they are free of capital gains tax.
Building A Good Investment Portfolio
So, what makes the foundation of a good portfolio when it comes to the financial markets? Here at Sublime Trading, the foundation of our portfolio is always based on stocks. This is simply because of the maturity of the markets, how well the market moves or trends over the long term, and the vast opportunities available.
We also look at commodities and currencies, both offer very good opportunities but not as regularly as the stock market. This market is more popular with your day trading community because of its volatility. There is, of course, the crypto market. Yes, it is here to stay and it cannot be ignored, but you don’t want to get caught up in the hype.
Timing is everything with good investing. Putting all your eggs in one basket is an amateur approach. Having a balanced portfolio loaded with high probability assets at all times is the foundation of a portfolio that performs well.
Investing is something you can do at home and you can learn to adapt it around your lifestyle. There aren’t any other players involved. It’s just you and the markets.
Furthermore, the cost to entry is now far lower than what it was. Even just 10 years ago, when we first started, we paid thousands of pounds for software and scanners that we still use today.
In today’s market, you can find good trading packages and good software packages for a few hundred pounds a year. So, the barrier to entry has drastically come down over the last decade. You have a massive advantage of spending less and investing more. It is a privileged position for you guys to actually be in.
With all good endeavors, there is always a learning phase. And investing, ultimately, is far simpler than people realize. Good financial literacy is actually very simple: knowing where you are right now, knowing where you want to get to, and putting the necessary processes in place to achieve that wealth target. Everything else is just noise.
We recognize that money, investing and financial literacy can be daunting topics that are regularly avoided or shrouded in mystery. Money can be really daunting topics, but this is mostly because of the misinformation shared everywhere on the internet.
We at Sublime Trading want to switch this around. We want to demystify it, spread the simplicity of good financial literacy, make it fun and more accessible for the savvy everyday person.
If you want to keep up to date with our stocks at Sublime Trading, then don’t forget to sign up to our newsletter. And also, take a look at our scorecard, go through the questions and see whether you are on track to a wealthy retirement. On completion, you will also get access to our FREE Launchpad Starter Kit to help you reaching your financial goals.