Wealth-building is, of course, easier said than done. Truth is, even the best investors out there cannot always predict the market correctly. However, those who do manage to successfully emerge a cut above the rest are the ones who are skilled in spotting opportunities during a market correction, and working those to their advantage. Base knowledge on investing aside, here are 3 simple rules to help you make extra money and amass wealth in the long term.
1.Save to invest as a long-term commitment
Relying on monthly savings through your main income source is one way to accumulate wealth. But to significantly grow that money, you will need to look beyond. Instead of letting your cash sit idle in the bank with minimal interest returns, make your money work harder for you by saving to invest.
Accumulate as much cash as you can, and wait until a major market crash to invest in some top quality companies or major indexes. Then, be patient and hold your stocks as the market picks up - the profit gained is guaranteed to be much higher than your initial amount.
This approach is sure to make you a fortune, or at least bring a significant percentage of gains. But despite it sounding fairly simple, why is it seemingly so difficult for many to achieve?
Well, we humans are emotional creatures who may not make the most rational decisions when overwhelmed. When the market is up, we tend to become greedy and overconfident, and are tempted to buy more on impulse. Once the market is down, we become fearful and want to sell immediately, when we should be doing the opposite.
This brings us to the next point...
2. Stay calm and act only when opportunities are rife
Patience is key; Look at investing as a means to earning larger, long-term profits, rather than for making a quick but small buck here and there. The most successful investors are those who can control their emotions well. But how can you keep your cool and stay rational during times of market volatility and uncertainty?
The answer lies in picking your battles. Here’s a sports analogy: During a baseball match, the batter will be thrown multiple balls by a pitcher. The idea is that you will only strike the ball unless you have a great chance of hitting a straight run. Linking this back to investments - you do not need to act unless the opportunities are attractive.
To quote billionaire Warren Buffett, “You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”
3. Don’t just be a speculator
It is common to confuse option trading with investing. For the uninitiated, option trading is a contract which gives you the right to buy or sell an asset at a specific price at a specific date - what mainly happens for majority of people that I know is to use this facility for a more speculative type of trading, whereby one can buy or sell a stock using leverage to achieve a higher return with a small amount of capital.
Take caution, for this can be a highly volatile field where much is based on speculation and chance of losing is high. There are many types of option trade depending what you want to achieve ultimately. I have known people quitting their jobs to become a full-time trader is almost akin to becoming a full-time speculator. From a personal experience, I have attained a number option trading courses that promise you can make a significant return after less than 2 weeks training. Often this has led people to end up losing a lot of money.
For some experienced option professionals they can apply option strategy as a defense strategy to protect the downside and gain additional passive income while hedging risk in a volatile market. It is important to note your chance of success is directly correlate with your knowledge in the area. So option trading can be a useful tool but it takes time and efforts to learn the trade.