Knowing how to invest money is not something you just automatically know how to do. It usually comes with practice, a lot of research, and probably a significant amount of loses along the way. That’s unfortunate because being a long term investor is really the best way to become wealthy, and often new investors quickly get discouraged by not being able to turn a quick profit.
New investors tend to go through the same routine. They get a bit overwhelmed by the number of investing products, options and methods, and then they search and search for the best way to make the most profits. They might spend a few nights tossing and turning as they think about how much money they can possibly make and potentially quit their job. After several attempts to make money and losing, they get discouraged and never invest again.
Smart investors, however, realize that building wealth takes time, patience and discipline. Probably from their own experience they learn that trying to “beat the Street” is much more difficult than it seems, and reside to being comfortable with average returns. But it is these average returns that turn small time investors into millionaires.
Warren Buffett, often acclaimed as the world’s greatest investor, lives by the notion that investing is not about how much money you can make, but how much you can avoid to lose. When you realize that 10% annual returns, about what the stock market averages over the long run, allows you to double your investment every 7 years, it becomes a much easier process.
Wealth investors make their millions not by chasing hot stocks or the next big bubble, but by being average. By doing this you effectively keep your risk low and your profits high. As a result, you take advantage of compound interest, the formula that Albert Einstein regarded as “one of the greatest wonders of the world.”
It’s really easy to be average too and will save you a lot of time and restless nights. By simply investing in an index fund that tracks the S&P 500, you do not need to know anything about investing, you do not need to analyze company stocks and quarterly reports, and you do not need to worry about whether or not you are going to make money. By simply investing in index funds on a regular basis, history proves that there is no easier, guaranteed way to become a millionaire with such minimal effort.