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Warren Buffet would say, the best holding period is holding forever. Thats because he knows what many people dont understand; risk is reduced over time. Here, you will learn about risk and profit for stocks and interest accounts. You will find out what it takes to be a successful investor. You will also learn that theres more money to be made and less risk taken when you think in terms of 10, 20, and 40 years instead of 1 or 5 years.

What may be surprising is that anyone can be a successful investor. It doesnt take a genius or CPA to maneuver the market. It takes a disciplined and goal-oriented individual who is willing to learn. Great discipline keeps people within personal limits and focused on a specified goal. The goal can be anything like paying off student loans, buying a home, having enough for a great retirement, or becoming a billionaire like Warren Buffet. Whatever the reason, you must be willing to learn the basics and over time come to understand the advanced concepts and terminology.

Risk is the probability of permanent loss. How likely are you to permanently lose a $10,000 investment? The keyword is permanently. Stocks tend to be volatile over short periods, but have a history of steady growth over 10-20 year horizons even outperforming bonds. An investor who doesnt have discipline or the time to wait will be leaving behind 10s of thousands or even millions of dollars. All fluctuations matter less over time. What matters is how the investment performs over the long run. The best investment strategy is to conduct thorough research on a company of interest, then buy and hold if that company looks promising.

The same strategy applies to interest-bearing accounts. If someone were offered $1,000 today or $1,000 one year from now, most everyone would opt for the money today because it could be immediately spent or invested. This concept-that cash today is more valuable than cash tomorrow-is known as the time value of money. Once aware of its implications, it can drastically change the way you think about capital.

Every time you spend a dollar, you are also spending all of the investment income that it could have generated from now until the end of time. One of the keys to financial success is to know the true economic cost of every decision. Heres an example: Someone is invited to dinner and a movie. He or she expects the evening to cost about $50. The economic cost of the movie night depends upon two things: the number of years the money could be invested without being touched and the after-tax rate of return.

Someone who is only 30 years old could invest the money for 35 years until retirement at 65. He or she places the $50 in stocks and expects to earn an after-tax return of 12 percent. The formula for future value of a single amount is:

FV (Future Value) = PV (Present Value) (1+i) (Interest Rate)^n (Number of Years).

FV = $50 (1 + 0.12)^35. By choosing to spend $50 instead of investing it, $2,639.98 was lost in future wealth!

After reading this you should have a better understanding of how to get as rich as Warren Buffet, or at least be more successful than you have. Risk of permanent loss is reduced over long periods. The longer money is left in a stock or interest account, the greater chance of receiving a higher return. Remember, anyone can be a successful investor as long as they are disciplined, goal-oriented, and willing to learn.

Submitted by: Jamal Lewis

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