Principle #3: Compound investing
In recent times, the message to ‘invest in incoming producing assets’ has been perhaps most popularised by Robert Kiyosaki in his bestselling book, Rich Dad, Poor Dad. Originally marketed as an autobiography, it appears that it is really more of a business fable — but nonetheless, many owe their start on the path to financial freedom to the simple principle that Kiyosaki highlights in this book: compound investing.
It is easier to spend than it is to save. And it is easier to save than invest. But if you invest, and then reinvest your returns from investing, you get compound investing. To achieve this, you must invest in appreciating assets (like houses or stocks) that produce a positive return, rather than depreciating assets (like cars or expensive ‘toys’), that tie up capital and produce no return, or even worse, require further capital for maintenance (= a negative return).
The path to wealth is a disciplined one — it takes effort to prepare to invest, effort to identify the right investments, and effort to manage the growth of those investments. But if you consistently commit time to your investments, you should see consistent growth. As your investments grow, they will provide a greater return, and your capacity to invest in larger opportunities grows, leading to even greater returns — just like compound interest.