MENU

Why becoming wealthy with shares is very simple

A lot of people think shares are risky and dangerous. But shares have proven to be the best to reach long-term wealth, whilst also not being as dangerous to investors as other asset classes.

Holding lots of cash means you’re at risk of being hurt by inflation over time. Investing in property means you likely have to take on large amounts of debt and have cash going out of the door due to negative gearing. Plus, there’s a lot less hassle due to less paperwork and not having to deal with tenants.

The process with shares is very simple:

Step 1: Spend less than you earn

This is an obvious thought, but it’s very important to conquer the first part. If you earn $60,000 after tax and spend $48,000 then you have $12,000 a year that you can invest. The only way to improve this is by earning more, spending less or a combination of both.

If you’re able to get the best value for your money then you may find that you can make your earnings stretch further than an un-frugal person earning 50% more. That’s how you get ahead.

Step 2: Invest the difference

The next thing to do is invest the savings. I wouldn’t recommend investing the $12,000 in one big lump sum, instead you could invest a monthly $1,000 or a bi-monthly $2,000 into shares.

There are a lot of different shares you can invest in. So, for this article I’ll keep it simple by saying you could choose Vanguard MSCI Index International Shares ETF (ASX: VGS) which gives exposure to the biggest shares across the world. If this index achieves long-term returns of around 8% to 12% then it will compound wealth very nicely.

Step 3: Be patient

The worst thing that investors do in regards to patience is buying shares at high prices and then selling them at low prices when they get scared. Just buying and holding for the long-term through the ups and downs should lead to pleasing long-term wealth.

This can be particularly difficult in a market crash if shares have dropped by 20% or more, but selling at that point would be the biggest destruction of wealth you could do.

Foolish takeaway

Doing the above three steps for a lifetime could lead to a very impressive portfolio and wealth. Investing $12,000 a year for a decade, without any mention of compounding, ends up being $120,000.

Want some more ideas about where to invest your $12,000? You should read about these top shares.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!