Tuesday, 15 January 2008

Ways to Get Rich - Part 3 (Investments)

Investments. This is one of biggest secrets to making money - using money to make money. Many people have become rich from their investments alone. Everyone knows that Warren Buffett, the 2nd richest man in the world, made billions of dollars almost entirely from his investments.

There are basically 2 main types of investment: the share market and the property/real estate market.

In the US, the return from shares/stocks have been over 10.5% a year on average since 1929. While the return from properties is a bit lower but still close to 10% a year.

In Australia, the share market has performed a little better – returning 12% a year on average; and 10% for properties. But during the last 5 years, shares and properties have both performed really well, returning between 20-30% a year.

Had you invested $100K in shares in 2003, it would be worth $305K today, that’s a profit of $205K in just 5 years. Not bad at all.

But with any sort of investing, there are always risks involved. It is not hard to lose all of your money from investing, if not done carefully. But there are many effective ways to minimise risks. All it takes is a bit of education, research and discipline.

I have already invested in a few managed funds in the past few years (or “mutual funds” in America), and they’ve been doing pretty well so far. I made an easy $6,000 profit from a capital of $23,000 in 2006-07 (26% return in 1 year).

While I haven’t dabbled into the world of property investment yet, there are plenty of opportunities to make good money in this market. I know countless friends, relatives, colleagues and even strangers that have told me how good property investment is and how they’re using negative gearing to buy 2, 3 or 4 properties with just ordinary income. Seems like a good idea to me, but it is something that requires more research before I jump on the bandwagon.

[Back to Part 2 | Go to Part 4]