Check out these six financial principles to help you maximize profits and reduce losses.
Experienced financial professionals share their thoughts.
A successful investor seeks to maximize profit while minimizing risk. Though no investment strategy will guarantee success, and all investing carries risk, including the possibility of losing money, six basic concepts can help you support more successfully.
It’s known as the “snowball effect.” Said, compounding gives you interest in your reinvested profits. The numbers become more interesting the longer you leave your money to work for you. Consider the case of a $10,000 investment with an annual rate of return of 8%. Your $10,000 investment would have grown to $46,610 in 20 years, assuming no withdrawals. It would rise to $68,485, a 47 percent increase over the previous 20-year figure. Your account would be worth $100,627 after 30 years. (Of course, this is a hypothetical example that does not reflect any individual investment’s performance.)
This straightforward example also assumes that no taxes are paid along the way, implying that all funds remain invested. This would be the situation in a tax-deferred individual retirement account or qualified retirement plan. Experts recommend entire financing of all tax-advantaged retirement accounts and plan accessible to you because of the compounded earnings of deferred tax dollars.
While you should continually assess your portfolio, the idea is that money left alone in an investment can yield a considerable return over time. You don’t have to go for investment “home runs” if you have enough time on your hands.