This is how you need to invest if you want to be rich

There is plenty of advice from financial experts on how to invest money if you want to preserve wealth. But if you want to earn money and become wealthy? Not many people know this but investing to preserve wealth is different than investing to get rich. For a decade, the risk-free interest rate has been less than the inflation rate. To attract more wealth you need something better than the risk-free interest rate which means you have to learn to deal with risks. There is always a choice of risks you can afford to take without losing everything. Generally speaking, risks are divided into two categories: (1) Market risks, and (2) Company risks.

Markets risks have the potential to affect all stocks. Two examples of these are monetary and fiscal policy. The market can deliver good results when monetary and fiscal policy is in the right direction. But if these go in the wrong direction the economy can also fall. Company risks are associated with one company only. Let’s say a company decides to launch a new product. Depending on the outcome, the company can gain double or lose half of its value overnight. Whatever the outcome is, the value of other stocks in the market would go unaffected.

Time span also plays an important role. Over the last 90 years, the market has shown an average of 10% a year. This doesn’t mean that you can expect it to remain like this. The market can also lose money at the same ratio. If you distribute your investment over the span of 20 years, the odds of gaining positive returns are greater than the odds of losing money. The alternate approach is to invest in individual companies. Even if the market is down, some companies will always show good results if not the best one. These companies will deliver value to their customers so that they can grow and deliver a good return for investors.

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