As investors, we know that building wealth through investment can feel like navigating a complicated maze. With a constant stream of media reports, market shifts, and an overwhelming number of investment options, it's easy to get lost.

In fact, many people often make decisions that lead to poor financial outcomes, like the fact that, over the past two decades, mutual fund investors on average underperformed the market by 1.7%—largely due to investor behavior.

However, we also know that successful investing doesn't have to be complicated. By following these five proven investment principles, we can build a solid and effective long-term investment portfolio that helps us achieve our financial goals.

1. Start Investing Early

One of the best ways to build wealth is by starting early. Many people believe that investing for a long period of time is more effective than waiting until they have more savings or cash on hand. The reason for this is the power of compound growth.

Compound growth in investing means that the returns you earn begin to generate even more returns over time—a snowball effect. Essentially, your investment grows not only from your initial money but also from the interest, dividends, and capital gains you accumulate along the way. The longer we stay invested, the more time our investments have to grow and compound. Historical data shows that a longer investment horizon allows investors to take advantage of market returns and see significant growth in their portfolios over time.

2. Invest Regularly

In addition to starting early, regular investing is equally important. Setting up a system where we invest consistently allows us to smooth out the impact of market fluctuations. This method is known as dollar-cost averaging, where we invest a fixed amount of money at regular intervals regardless of market conditions.

By investing this way, we buy more shares when prices are low and fewer shares when prices are high, potentially lowering our average investment cost over time. The regularity of this habit helps reduce the volatility of our investment returns and keeps our portfolio on track for long-term growth.

3. Invest Enough Money

In order to reach our long-term financial goals, we need to make sure we are saving enough money today. Saving for big goals like buying a home, paying for children's education, or retirement requires careful planning. But it's only half of the process. Equally important is understanding how much we need to save today so that our portfolio will grow enough to meet our future needs.

If two investors save the same amount, but one starts earlier and the other saves a larger sum over a shorter period, the first investor will likely have an easier time reaching their financial goal. By assessing our current income, we can better estimate how much we'll need to save for things like retirement, as the more we earn now, the more we'll need to save to maintain our desired lifestyle when we stop working.

4. Diversify Your Portfolio

One of the simplest ways to manage risk and improve our chances of success is by diversifying our investments across different asset classes. Financial markets do not move in the same direction at the same time. At different points in the market cycle, different asset types or sectors perform better than others.

This difference in performance arises from how each asset class reacts to environmental changes, like inflation, corporate profits, and interest rate shifts. By holding a diversified portfolio, we avoid the need to predict which investments will succeed or fail in a given year. A well-diversified portfolio spreads risk and increases our chances of seeing positive returns over time.

5. Have a Detailed Plan

It's crucial to avoid letting emotions drive our investment decisions. Market fluctuations can be unnerving, and even experienced investors sometimes focus too much on short-term movements. This might lead us to make hasty decisions, like buying after the market has risen or selling when it falls, hoping to time the market.

The key to staying on track is having a well-thought-out plan. By sticking to our long-term strategy and not letting temporary market conditions cloud our judgment, we can weather the ups and downs without making impulsive moves. Having a clear plan gives us the confidence to stay invested, knowing that daily market fluctuations won't significantly affect our long-term goals.

Applying the Principles

By putting these five successful investment principles into practice, we can build an investment portfolio that is designed to grow steadily and help us achieve our financial dreams. Whether we are just starting our investing journey or have years of experience, following these principles will help us stay on track and build wealth over the long run.

In summary, successful investing boils down to starting early, investing regularly, putting in enough capital, diversifying our investments, and sticking to a well-thought-out plan. By following these steps, we can take control of our financial future and ensure that our investment portfolios are positioned for growth.

What do you think, Lykkers? Are you ready to take these steps to secure your financial future? The road to success may not always be easy, but with the right approach, it can certainly be rewarding!

If I Started Investing In 2025, This Is What I Would Do

Video by Steve | Call to Leap