Simple investment to turn $10 into $3 million

It’s the key to giving up work forever – but this way of making money is surrounded by myths that hold most people back.

Investing is the key to giving up work forever.

But if you’re like most people, the fear of making a mistake is holding you back from reaching your true investing potential.

I’ve found there are five common myths that hold people back from investing success – I want to debunk these myths to help get you investing more sooner to accelerate your results.

Myth #1: Risk is a bad thing

When you invest, risk is actually what makes you money. It’s also what can lose you money if you take the wrong risks, or if you don’t manage risk well. Most investing risks can be managed, but can’t be eliminated altogether. When you invest, you’re always left with some risk – that’s a good thing and exactly what you should be aiming for.

Myth #2: Choosing good investments is enough

People focus so much on choosing good investments, they lose sight of the other important elements that go into being a successful investor.

To be a successful investor, you need to do more than just choose good investments. You need to invest the right amount at the right time. You have to avoid selling investments at the wrong time. You need to be smart with your tax. You need to make sure your investments are working together as part of your broader money or wealth building plan. And you need to keep yourself motivated and on track.

Investing is about buying and selling at the right time.

Myth #3: You need to shoot the lights out

Starting at age 20, if you were to save and invest $10 per day, based on the long term average sharemarket return, your money would grow to be worth $2,972,483 by age 65. For the cost of just a couple of coffees a day, you can build investments of almost $3 million by getting ‘average’ returns – pretty good, right?

But everyone’s natural inclination when they invest is to want to get big returns quickly. You see the stories online of companies shooting the lights out and hear about the people that made a heap of money as a result, and end up hooked on the idea.

But what people don’t realise is that if you’re expecting above average returns when you invest, you’re running above average levels of risk. Given the results (as outlined above) you can get with average, I think there’s a strong argument that you really don’t need extra risk.

Myth #4: Tax only matters once you’re rich

Tax is the silent killer. It’s often hidden beneath the surface, and because the tax rules are complicated and confusing it’s hard to be clear on the tax impact of investing – until your investments grow to critical mass.

But if you wait until this point to think about tax, it can be difficult (and expensive) to change things around to get you a better result.

How much you earn through investing will impact your taxable income.

In Australia we work under the marginal tax rate system, where as your income increases so does your tax rate. You only get one tax rate, and when the ATO is figuring out how much tax you have to pay, they add up all of your income from all sources; your salary, any overtime or bonuses, interest income on bank accounts, investment income like dividends, and rental income on investment properties.

All of this income is added together to give your ‘assessable income’ which the ATO uses to calculate your marginal tax rate. As an investor, your goal is to build an income from investments, typically done by saving money from your employment income.

This means that in the early days, you’ll have a small amount of investment income relative to your salary. But over time your investment income will grow – and unfortunately your tax payable will grow along with it.

But you don’t have to personally own every investment, and often you can reduce tax by being strategic on who and where you own your investments. Whether you invest in your name, your partner’s name, through your super fund, a trust or company, or an investment bond, will all result in different amounts of tax payable on your investment income.

Often the difference between investing in the highest tax and lowest tax option will be in the tens of thousands of dollars each year, so it’s a decision worth taking the time to get right. Do this planning early, before it becomes too expensive to refine and optimise your approach.

Myth #5 You need to invest a lot to get rich

We all have a natural tendency to underestimate the power of small, regular investments over time. When this happens, it takes you longer to get started, you’re less consistent, and you invest less – all things that seriously take away from your long term results.

At the same time, it’s common for people to over-estimate how their investments will perform in the short term. When you over-estimate what your investments should deliver for you in the short term, you essentially set unrealistically high expectations. Then when your investments don’t deliver the returns you were hoping for, it’s easy to get frustrated and lose motivation.

You then get distracted and end up off track. Ultimately you aren’t consistent with your investing, so you don’t end up building the momentum you should.

Don’t lose motivation in investing – it’s not a get-rich-quick scheme.

Being crystal clear on how much momentum your investments can build over time leads to a huge boost in your motivation. This means it’s important you get clear on the long-term results you’re heading towards. This motivation will drive you to get started, and to follow the path to investing success.

The wrap

These myths hold so many people back from reaching their true investing potential, but it doesn’t have to be this way. Once you understand where things can go wrong, you can adjust your approach to get better results in less time, with more confidence along the way.

You need to understand that risk can be good, choosing investments is important but it’s not enough, and that you don’t need to (and probably shouldn’t want to) shoot the lights out when you invest. Being smart with your tax from the start is another big accelerator, and setting the right expectations will help you invest more and make faster progress.

There is a bit to be across here, but the juice is definitely worth the squeeze.

Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth. Ben is the creator of the Smart Money Accelerator program that helps people build a second income investing faster.

Ben is also the Author of the brand new book, ‘Replace your salary by Investing’ and the host of the Mo Money podcast, https://pivotwealth.com.au/podcast/, and runs regular free online money education events, you can check out all the details and book your place here

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.