What is Investment & Why it’s Important?
Investing is buying an asset to enjoy the income from that asset, if the investment is a good one, then the income will grow, and the asset value will grow as well. Note that the asset grows in value because the income grows in value, the income can be reinvested when in the wealth building phase to increase the compound returns.
Long term investing in good quality growth assets is the best way to passively build wealth and then preserve that wealth. By long term investing we would generally mean 5 to 7 years plus .For most of us, we must be long term investors as our investment time frame is the rest of our life and long term investing in good quality growth assets is the best way to passively build wealth. Research on the Australian Share market since 1970 illustrates returns are in excess of nine percent and on average – 8 out of every 10 years during this period has been a positive growth year. For example if in 1970 you would have made an initial investment of $10,000 in a diversified mix of Australian Shares and reinvested all income from these investments, the value of your investment portfolio in November 2018 would have grown to $855,623.http://insights.vanguard.com.au
Diversification simply means not putting all your eggs in the one basket, this means holding a sufficient variety of investments across investment sectors, within investment sectors, across asset types, across countries and across investment managers. Diversification helps you achieve the returns you need to achieve your long term goals with the least risk possible. This helps you avoid stress and the risk of making bad decisions when markets fluctuate.
Finally, we believe that good investments are only part of the picture and to ensure long term wealth you need to have a plan for the future.