Q: I have $100,000 and want to be a millionaire by the end of the decade. What do I invest in? I've heard many things about gold, silver and stocks, but I have no idea where to start. I don't even know what stocks are or how I would invest in them.
A: You sound like you are in a hurry, which can be a good thing if it motivates you to learn how to save more and invest effectively. Just be careful your hurry does not rush you into costly mistakes, because your goal of turning $100,000 into $1,000,000 by the end of the decade is probably overly ambitious.
Return on investment: Reality check
The end of the decade is less than five years away, so think about what it will take to turn $100,000 into $1,000,000 over that time period. Doing it solely by investment growth would require a 58.5 percent annual return on investment each year -- a return unlikely to happen in any one year, let alone for five years in a row.
Even if you ease the time frame and shoot for $100,000 to $1,000,000 over 10 years, you would need to earn about 25.9 percent a year. Although that may be possible, it is still a challenging return to achieve without risking a substantial amount of what you have already. To put this in perspective, U.S. stocks have averaged about a 10 percent yearly return over the long run, but have also experienced extended periods with significantly lower returns.
Formulating investment goals should be the first step in any investment process, which will help you reassess and focus on more realistic goals.
Stocks and commodities investment
You mention stocks and commodities like silver and gold, which are publicly traded assets, meaning buyers and sellers are all trying to determine whether the price will go up or down.
In such markets, prices are quickly going to adjust to changing expectations, making it difficult to pinpoint lucrative opportunities. To a large extent, returns depend on having market insight, or at least a differing perspective from the market as a whole.
How to invest money
To succeed, you have to know something about where you are putting your money before you rush out and start investing. This entails understanding how different markets and asset classes behave, as well as knowing details of the specific securities in which you invest.
Becoming knowledgeable in these things is a key part of learning how to invest money. You won't learn it all at once, but you should take some time to study before you start investing.
Savings accounts as investments
Finally, think back on how you accumulated $100,000 in the first place. While sound investing can augment your wealth, the surest way to build your fortune is to keep building your savings account and earning interest.
Find high interest jumbo savings accounts to continue to increase your wealth.
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