Taylor is a true believer in a certain brand of smart phones. In fact, she loves the smart phones so much, that she also bought the company’s computer, and tablet. Each year, she waits in line to get the latest technology upgrades. Because Taylor loves this company, and believes that it will continue to create top quality products for the foreseeable future, she will never buy another brand.
Does this sound familiar?
Recently, Taylor has become frustrated with how slowly her net worth has grown. Even though she makes a decent income, and is a good saver, she’s started noticing that her net worth is barely keeping up with inflation.
Fortunately, she has a friend who lets her in on a secret:
“You will never earn your way to wealth.”
Think of it this way: If Taylor keeps putting aside $2000 a year in a zero-interest checking account, by the end of 30 years, she’ll have $60,000.
This is called linear growth.
But if she puts aside $1000 a year into a conservative investment portfolio that gets her a 6% return, by the end of 30 years she will have $83,801.68.
This is called compound, or geometric, growth. Even though she’s only invested half of what she had in the first scenario, her net worth is growing at a far faster rate.
When Taylor puts the same amount of money aside each month, that’s linear growth. She’s trying to earn her way to wealth, but it’s not working.
Instead, Taylor needs to put money somewhere so that it can grow and compound on its own even while she’s asleep.
Photo by Austin Distel on Unsplash
So how can Taylor start to take advantage of this compound growth?
She needs to become an Owner of the economy, not just a Consumer. She can do this by putting part of her savings into investments.
Taylor balks at this. Investing is unknown to her, so it sounds frightening. Plus, she doesn’t know if she believes in any companies enough to give them her money.
Believe it or not, she’s already doing this: when she spends her money, she’s already putting her money into companies and products that she believes in. Remember that company she always buys from?
If she invests in these companies that she believes in, not only will she help those companies continue to create the products that she loves, but she’ll also get money as it continues to grow.
One way or another, we are all participants in the Economy. By choosing to become an Owner, not just a Consumer, we get a piece of the pie as the economy, as a whole, continues to grow over time.
This mindset is the true secret of long-term financial growth.
If you’re ready to become an Owner of the economy, a financial advisor will help you create an investment portfolio appropriate to the amount of risk you can tolerate.
Sign up for a Bronze Account and a Free Financial Assessment that will tell you your current Financial Life Stage and the recommended portfolio ratio for your life stage.