5 Reasons Why You Should Start Investing
Investing is critical, and everyone should do it no matter their age, but the earlier you start, the better the returns in the future and the more secure your future would be down the road.
How you invest your money is basically up to you; the same goes for the returns you expect from the investment will depend primarily upon your investment objectives, the amount you invest, and the timeline you are looking at.Ā
If you want to build wealth and financial stability, investing is what will get you there. Investing can be tricky and confusing, especially if you don't have the proper knowledge of investing in various investment instruments such as Stocks, Bonds, Mutual Funds, Exchange Traded Funds(ETFs), real estate, and annuities. Each instrument provides either income or growth or at most both. It should be noted that it's possible to lose money after investing, especially if due diligence wasn't carried out, so it's highly advisable to do some thorough background research on a particular instrument before investing your money in anything.
What is Investing
Investing broadly is the act of allocating funds into various financial assets to put your money to work for some time and earn from the resultant income generated. Ideally, this can act as a secondary, or in some cases, primary income stream and help you fulfil your financial goals.Ā
Understanding investing
Investing is to grow one's money over time. The core premise of investing is the expectation of a positive return in the form of income or price appreciation with statistical significance. The spectrum of assets in which one can invest and earn a return is a very wide one. But often, we view only the handful of drawbacks that exist when it comes to investing and ignore the benefits it brings. Let's not do that anymore. That said, let's now explore the opportunities the world of investing has in store for everyone who decides to support their money in different financial assets. But before then, let's, first of all, understand how someone can start investing.
How can I start investing?
You can choose the do-it-yourself route, selecting investments based on your investing style, or enlist the help of an investment professional, such as an advisor or broker. Before investing, it's important to determine your preferences andĀ risk tolerance. Remember, you don't need a lot of money to begin, and you can modify as your needs change.
Having understood how someone can start investing, let's now uncover the distinction between savings and investing.
Savings VS Investing
Many people often mix up both terms, but Investing and savings are two distinct terms in the world of finance. When you consciously set aside a portion of your income in such a way it is safe and easily accessible, that's saving. On the other hand, purchasing stocks, bonds, or any other financial asset to make money through capital appreciation, dividends, or regular payouts is called Investing. The difference between the two terms is that in investing, the money used is put to work, meaning that there is some implicit risk that the related projects may fail, resulting in a loss of money.
Still not convinced about why you should invest your money? Here are the five of the best reasons why you should start investing and make your money work harder for you.
Top 5 Reasons why you should start InvestingĀ
1. Grow your money When you invest your money, let's say by purchasing a stock/bond, you have the potential to get high returns on your investment through dividends or capital gains. The compounding interest rate gives you a higher yield on the money you invested upon maturity. This return allows your money to build, creating wealth over time.
2. Reach your Financial Goals Every person worldwide has their own financial goal that needs money. This could be maybe going on vacation at the end of the year, buying a new car, or building a house. You would be able to achieve all these with the returns you get from your investment, but only if you made proper investments that align with your objectives and risk profile.Ā Investing in long-term financial assets such as purchasing bonds will enable you to achieve long-term financial goals like retirement.
3. Plan for Rainy Days Nobody usually knows what will happen in the future, but we can prepare for whatever will come along our way by investing in long-term investment instruments. There will come along days in the future whereby there will be an irregular flow of income because maybe the business is not generating enough cash to sustain itself or emergencies occur; it is returning from the money invested that will help a lot someone in that particular situation.
4. To Beat Inflation Investing is vital in beating inflation. If you don't invest but rather leave your money in a savings bank account, you will find that in the next couple of years, the money has declined in purchasing power as inflation has eaten the value of your money. When it comes to investing, your money is protected from the effects of inflation, and you are guaranteed the full value of your investment upon maturity, regardless of the economic climate. To insure yourself against disappointments that might arise due to inflation, it might make sense to invest in a mix of assets such as stocks or real estate, which can beat inflation.
5. Plan for Retirement One thing for sure is you cannot work all your life, and while you are working, you should be saving for retirement to ensure a nest egg during your retirement years. Retirement is a time to enjoy the fruits of your hard work, not scrimping and saving, and its starts by saving now. One can put their retirement savings into a portfolio of investments such as stocks, bonds, Mutual funds, or real estate and allow their money to grow so that when you retire, you have a good pot of money with which to enjoy your later years.
Conclusion
You have looked at the benefits that can be acquired when you invest as well as highlighted some of the disadvantages of investing. My closing remarks would be, You work hard for your money, and your money should work hard for you, and the only way for that to happen is through investing.
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