Want to know how the most successful investors do it? We show you the key principles for making your money grow.
Let’s say you have £1,000 that you want to put towards your future. You could be thinking about one day owning a house, a well-deserved holiday, or even just preparing for a rainy day. The easiest thing to do would be to let it sit there in a bank account. But like anything you leave in a static environment, it will slowly begin to gather dust and cobwebs, and won’t look as attractive in the future.
This is mainly because of your enemy: INFLATION. As the cost of goods increases each year, your £1,000 will stay the same and will buy less in the future than it does today!
Making sure that the £1,000 grows is key to it holding its real value, and hopefully exceeding it. You want to invest this money to help generate INTEREST, that is, to provide an extra return on your money. Now, you could do this by putting the money into a savings account with your bank, likely generating between 1% and 2% in interest. With inflation at around 2% or 3%, you may still end up losing money though.
However, if you invest in some stocks and funds (which could be any of your favourite companies or the ones you find most exciting) you may be able to make a return above this rate of inflation. If you truly believe that a company is a great business and will do well in the future, you could make a better return on your £1,000 investment.
Now here’s the beauty of it all, and also the key to investing success. With long-term investing, you get access to what has been referred to as “The Eight Wonder of the World”: compound interest.
If in your first year you make a decent but not spectacular return of 5% on your £1,000 investment, you will have £1,050 at the end of the year.
What this means is that for the next year, you start with £1,050 and, if you achieve the same return, you will make 5% on top of that figure. So at the end of the next year you will have £1,102.50. The longer this continues, the more money you will generate each year. As the old saying goes: money makes money.
We have grouped together investments into different themes so that you can pick and choose how exposed you are to different industries. On Wombat, you can start with as little as £10.