The holy grail of investing is to start early. It eliminates the risk of volatility and activates the wonder of compounding returns. The second most important thing to do is to choose the right asset class to invest in.
There are six main categories to choose from: shares, bonds, gold, cash, property and crypto. Crypto is a relatively new asset class and although it had a fantastic return for early investors, it has the drawback of having no way to value it using fundamental principles, causing it to be very volatile and unpredictable. Property is a very popular investment class and for those investors who do proper research, can generate a good return over time if they make a good initial investment. It is cyclical and one should be careful where to enter and exit. Bonds are linked to inflation and interest rates. Bonds do have the dual income streams of interest and capital growth, making it a good medium-term investment, especially when interest rates are coming down. Cash is the worst long-term performer of them all. It should only be used as a short-term store of value and over time the after-tax return will not outperform inflation, which makes it a destroyer of purchasing power. Gold is much loved and can provide you with a hedge against market volatility when things go wrong in the world. It is, however, very cyclical and because it doesn’t provide you with any return while you wait for the capital value to go up, can cause some anxiety.
The best risk-adjusted asset class to invest in, is shares. The main reason for shares to be the best risk-adjusted performer over longer-term periods, is the fundamental principles driving it. You can buy a piece of a company that provides humanity with an essential product or service, which increases its revenue and profits over time, giving you the benefits of capital appreciation and dividends. The price you pay for the share can be evaluated based on the future prospects of the company by using its financial statements. Unlike crypto and gold, the potential future value of a company can be predicted by looking at its potential. As with everything else in life, the future potential of all companies change over time, making it necessary to monitor and re-evaluate them regularly. It is, however, not something you have to, or should, do on a daily, weekly or monthly basis. If you do proper research and select good companies to invest in, you have to give them a good few years to unlock their true potential. You plant the seed and leave it, watering it every now and then without disturbing it.
