How to Save a Million Dollars (maybe)
by: Paul Stolt
Have you ever heard someone say that you need to save for a rainy day? People save money for all kinds of reasons.
Some people save money so they can buy the things they want without borrowing money to purchase them. These people are smart savers. They have a purpose for saving.
Some people save money so that they will have more money at a later time. These people are investors. They look for ways to earn the best return on their investments.
Investors purchase investments - stocks, bonds, mutual funds, anuities and commodities - because they want their money to grow over time. Here's a video that explains why you should become an investor!
Investors put their money in a variety of places. Some investors purchase individual shares of stock or bonds. Some purchase bars of gold. But most investors purchase shares in mutual funds.
Mutual funds are like collections of trading cards. They own shares of a variety of different companies and are usually organized around a purpose. There are mutual funds made up of only the biggest companies in the United States or the smallest companies in the world. They might own stocks in only one industry like airlines or grocery stores. There are even mutual funds that own only gold company stocks. LIke a baseball card collection, these mutual own only baseball cards, but the cards are not all the same player.
Most mutual funds are not that specific. There like a card collection that has baseball, football and Pokemon cards all mixed together. These funds usually are tied to a stock market index. The Dow Jones, S & P 500, and Nasdaq are the three main indices in the United States.
As an investor you have to decided on how much risk you are willing to take. Investments in individual shares of stock are the most risky. Investments in indexed mutual funds are less risky. But all investments have some risk.
While some investors are looking to earn money on their investments quickly, most investors know that time is on their side. The long an investment is left alone, the higher the return. And if you continue to add to your investment, even just a little each month, the return is even greater. Compounding is the reason this happens.
Compounding happens when your investment grows and you don't take the profit out. For example, if you invested 25 dollars at 5% interest for I year, you would have 26.25 dollars at the end of the year. Now the next year 26.25 dollars would be earning interest at 5%.
Think of compounding like making a snowman in good sticky snow. You start with your original little ball and start to roll it around. While you're rolling it, the ball becomes larger and larger.
There are many simulators you can use to see how your investments might do. No investment is 100% safe and all have some risks involved. There will be ups and downs along the way. But if you are patient and continue to add to your investment, they usually even out and you have more money than when you started.
There are many online resources to help you learn about investing. We're going to learn about investing by creating a portfolio on http://www.wallstreetsurvivor.com/. This site also has video lessons to help us get started.
So you want to see what a month for 40 years at 4% interest turns into? You can use this website to calculate your future returns.
http://www.daveramsey.com/article/investing-calculator/lifeandmoney_investing/#/entry_form
Amazing isn't it? Good luck with your investments.