One way to ensure financial security for the future is to invest. Investment is a long-term process, the main goal of which is to “employ” part of the funds into return-generating assets and thus accelerate the accumulation of capital.
Based on the history of financial markets, depending on the type of asset classes, over the long-term you can expect to earn an average annual return of up to 10% on the invested capital.
Long-term historical data on return on investment in different asset classes (from 1928 to 2019) shows that investment has yielded returns in excess of inflation. In addition, a higher level of investment risk brings higher return on investment.
Sources: * www.stern.nyu.edu; ** minerals.usgs.gov; *** based on www.econ.yale.edu, **** based on www.measuringworth.com.
Periodic investment considerably reduces the risk of fluctuations, is attractive for those who don’t actively follow financial markets and doesn’t require a big starting capital, and yet helps to accumulate a significant amount of assets.
The graph below illustrates how, based on historical U.S. stock market returns, accumulated capital would have changed if $100 had been invested every month.