The goal of investing is to build wealth over time and/or to generate income from your investments to meet objectives. Investors purchase assets such as mutual funds, stocks, bonds, real estate and commodities with the expectation that the value of these assets will increase and that their financial goals will be realized.  Successful investing requires time, patience and a clear and realistic plan directed toward your goal.

There are three factors that can affect the likelihood that your financial goals are met: your time horizon, the rate of return on your investments, and the amount you invest.

Time Horizon

The more time you have to build wealth, the more potential there is to reach your goals. The cost of waiting to begin an investing program can be significant.

Start EarlyThe Power of Investing

Bill invested $46,000 more than Jane, but he ended up with 19,820 less at the same 7% annual rate of return. The advantage of starting early allowed Jane to invest less, but finish with more money. The clear benefit: start early and give your investment more time to grow.

Rate of Return

Earning a higher rate of return will build wealth faster, but to earn higher returns, you may need to invest in securities with more risk and volatility, or price change.  It is important to understand the relationship between risk and return.

• Investors can seek higher return potential over time for taking more risk. Lower risk investments typically return less over time.

• Risk is demonstrated by volatility. Riskier investments will have larger, faster moves in price than lower risk investments. Low risk investments have a higher probability of principal protection, or less price change.

The amount of risk you are willing to take is a personal preference. See Performance and Risk to learn more.

Amount Invested

“It takes money to make money” is an old adage, but how to put that principle to work may feel out of reach. A simple strategy is to start with a regular investment plan and increase your contributions a small amount each year. Doing so will have a positive impact on your ability to build wealth.

Invest MoreThe Power of Investing

Bill invested $46,000 more than Jane, but he ended up with 19,820 less, even though he invested for 20 years longer. The clear benefit: start early and give your investment more time to grow.

Automatic investing, often called dollar-cost averaging, is a simple, effective way to invest. Once you select an investment, you decide how much you will invest and how often. Then, you set up an automatic plan to invest a specific amount each month, by authorizing withdrawals from your bank account.

By investing regularly in up and down markets, you will buy more shares when prices are low and fewer when prices are high. This reduces your average cost per share and provides a simple way to invest a portion of your paycheck each month. It also removes the guesswork of trying to time the market.

A dollar-cost averaging strategy can reduce the risk of investing a lump sum in the market on a single day. By investing periodically, you spread your purchase price risk over multiple market periods.

Invest RegularlyAutomatic Investing

This chart compares automatic investments of $200 over 6 months. In March, more shares were purchased when the price fell; in May, fewer shares were purchased when the price rose. By investing regularly, you benefit from dollar cost averaging, usually lowering the average price per share.

Dollar-cost averaging does not ensure a profit, protect against a loss in declining markets or against a loss if you stop the program when the value of your account is less than its cost.

The Effect of Inflation

Because inflation affects your investment, you’ll need to consider the amount needed to meet your goal in terms of when you will use your investment, not in today’s dollars.

A million dollar IRA account provided a more lavish retirement in the 1980’s than it will today. The purchasing power of a $1,000,000 retirement account in 1980 had the equivalent buying power of about $2.6 million 30 years later in 2010, when corrected for inflation as measured by the Consumer Price Index. You will need to invest more now for more true value later. If your investment returns 7% over a year, but inflation is at 3%, the “buying power” of your investments grows by 4% (7% return minus 3% inflation).