Investing: The Best Way to Build Wealth Over Time

Many of us wish that we could build wealth. While wealth means different things to different people, the reality is that many of us want to know that our needs are taken care of, and that we will be able to afford our wants.

One of the best ways to build wealth over time is to invest. Investing is about putting your money to work for you, and taking advantage of compound interest over time so that you build up a solid nest egg. If you want financial freedom two decades down the road, you need to start investing now.

Why Aren’t You Investing?

Recently, our friends at COUNTRY Financial released a survey that showed that more than half of respondents aren’t investing at all. It’s worth noting that the survey didn’t control for people who had employer-sponsored retirement plans, like 401(k)s, so some of those folks might be investing, even though they don’t realize it. However, even with that information, the reality is that many people are reluctant to invest.

Some of the top reasons that people don’t invest include:

  • Don’t feel they have enough money.
  • Don’t know how to get started.
  • Don’t feel confident in the market, due to the recent financial crisis.

There are a lot of “don’ts” happening here, and these are holding people back from growing their wealth over time. The good news is that these are difficulties that you can overcome if you are willing to put aside some of your fear, learn the facts about investing, and start small.

Consider why you aren’t investing, and then find a way to overcome your fears. Because, honestly, if you are looking to build wealth over time, it’s not going to happen when you leave your money sitting in a “high-yield” savings account, unable to even overcome the risk of inflation.

You Have Enough Money

First of all, you have enough money to invest. We are at a time in history when investing has never been so accessible for so many people. If you have $25, you have enough money to invest. If you can spare $50 a month to invest using an automatic investment plan, you have enough money to invest.

Open an online brokerage account. There are brokerages that will allow you to open an account with a $0 minimum, and they won’t even charge you maintenance fees. Of course, you need to start investing at some point, but you can often do that with a small amount of money.

Most online discount brokerages offer automatic plans. You can invest as little as $50 or $100 a month, and enrolling in these plans usually means that you can buy fractional shares of an index fund or index ETF. What that means is this: If you invest $100 a month, and a share costs $75, you can buy 1.3333333 shares of the fund. These fractions of shares eventually add up.

Invest in a fund that pays dividends, and you can automatically reinvest those and get an even bigger boost to your portfolio. This is a great way to improve your fortunes over time, since it accelerates your ability to invest.

Of course, the reality is that investing $50 or $100 a month isn’t going to fund your entire retirement (unless you start while you’re a teenager and do this for 40 or 50 years). Compound interest is awesome, but it’s not magic. You want to get started investing now, with as much as you can put aside, but you also need to remember to increase your investments as your finances improve. Every time you get a raise, or if you start a side business for more income, be sure to increase the amount that you invest.

Getting Started: Avoid Stock Picking

One of the reasons that many people feel that they don’t know how to start is due to the worry that comes with stock picking. How do you even begin to figure out what you need to know about P/E ratios, balance sheets, and other factors that should inform a good investing decision? All that information can be paralyzing. And when you have a small amount of money, how are you going to buy a single share of a really good company, anyway?

The good news is that investing doesn’t have to be complex. When you start investing, the key is to avoid picking stocks. Rather than invest in individual equities, you should invest in index funds and index ETFs. These investments allow you access to a collection of individual equities, bonds, and other assets. However, you follow an index as a whole, instead of following a single item. Since the market, as a collective, has yet to lose in any 25-year period, just getting in means you are likely to come out ahead over time.

Mike Piper has a great book on the subject, Investing Made Simple: Index Fund Investing and ETF Investing Explained in 100 Pages or Less. It’s simple, easy, and inexpensive to get started when you go with indexing. And as long as you focus on the long-term, you don’t have to worry about short-term volatility in the market.

Focus on Long-Term Wealth Building

Thanks to what those in psychology call the “recency effect,” many people view the stock market as a completely unsafe place to put their money. The financial crisis is fresh in their minds, and people forget that, over time, the market still comes out ahead. If you step back and look at the trend line, things don’t look so bad. You just have to be willing to hang in there for two or three decades, and avoid the instinct to panic when everyone else is screaming about the end of the world. Because selling in the middle of a downturn is what will kill you.

The following chart from a post from Barry Ritholtz can help you see the overall consistency of the stock market — as a whole — over time. You never know what will happen with an individual equity, but over time the market as a whole tends to trend upward. (This could always change if we see a financial apocalypse, but if that happens we all have bigger problems.)


In the end, the best way to grow your long-term wealth is to invest. It just is. And you have no excuse not to get started. Even if all you do to start is have $100 of each paycheck deposited into your employer’s 401(k) plan, it’s something. You’ll have to do more later, but the important thing is to get started. You can be building wealth as you educate yourself further about investing, and you will be better prepared, in the long run, for solid wealth.

Are you investing? Where do you keep your money? And if you aren’t invest, what’s holding you back?

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