Intro
Let me tell you a story about John, a 25-year-old who works as a software engineer.
John Life
John earns a good salary, but he also spends a lot on rent, food, entertainment, and other expenses.
He doesn’t have much savings left at the end of the month, and he doesn’t have any investments either. He thinks that investing is too complicated and risky and that he doesn’t have enough money to start.
John meets his friend Mike.
One day, John meets his friend Mike, who is also a software engineer but who has a very different approach to money.
Mike tells John that he has been investing in four types of compounding assets since he was 18: stocks, real estate, bonds, and retirement accounts. He explains that these assets not only grow in value over time but also pay him dividends, interest, rent, and tax benefits.
He shows John his portfolio and how much passive income he earns every month from his investments. He also shows John how much his net worth has increased over the years thanks to the power of compounding.
John is amazed by Mike’s results.
John is amazed by Mike’s results and asks him how he can start investing in these compounding assets too. Mike tells him that it’s not too late to start and that he can begin with a small amount of money and gradually increase it as he learns more and earns more.
He gives John some tips on how to choose the best stocks, real estate, bonds, and retirement accounts for his goals and risk tolerance.
He also advises John to reduce his expenses and save more money so that he can invest more. Now let me explain in more detail what these four compounding assets are and why they are so powerful.
First
Stocks are shares of ownership in a company. When you buy stock, you become a part-owner of that company, and you can benefit from its growth and profits. Stocks can increase in value over time as the company becomes more successful and valuable.
They can also pay you dividends, which are regular payments from the company’s earnings. You can reinvest these dividends in more stocks and compound your returns over time.
Second
Real estate is property such as land, buildings, or houses. When you buy real estate, you own a tangible asset that can be appreciated over time as the demand for it increases.
You can also rent out your property to tenants and earn rental income every month. You can use this income to pay off your mortgage or invest in more properties and compound your returns over time.
Fourth
Bonds are loans that you make to a government or a corporation. When you buy a bond, you lend your money to the issuer for a fixed period and receive interest payments in return.
Bonds can provide you with a steady income stream that is usually higher than what you can get from a bank account or a savings account. You can reinvest this interest in more bonds or other assets and compound your returns over time.
Fourth
Retirement accounts are special types of accounts that allow you to save money for your retirement in a tax-advantaged way. There are different types of retirement accounts, such as 401(k), IRA, Roth IRA, etc., depending on your situation and preferences.
When you contribute money to a retirement account, you can invest it in various assets, such as stocks, bonds, mutual funds, etc., and let them grow tax-free or tax-deferred until you withdraw them in retirement.
This means that you don’t have to pay taxes on your earnings until later or ever, which can significantly boost your returns over time.
Don’t forget
These are the four compounding assets that can help you achieve your financial goals faster and easier than you think.
All you need to do is start investing in them now and let them work for you over time. Remember that these investments go through difficult paths. I will end my post with the words of Robert Arnott: “In investing, what is comfortable is rarely profitable.”
