Why Should I Invest and Not Save?
(A guide designed to serve as an informational primer in the domain of investing – even if you are a complete novice)
For the sake of definition, investing is nothing but committing money in order to earn a financial return. In simple words, you invest money to make money and achieve your financial goals. However, bear in mind that investing is not a sprint to make you wealthy quickly; rather, It is a marathon that you have to run with discipline and patience.
Once you understand what investing is, let’s see how it works to build wealth.
How Investment Works?
When you invest, you give your money the chance to work for you and your future goals.
The goal in investment is to buy financial products and sell them at a higher price than what you initially paid. These financial products can include but not limited to stocks, bonds, mutual funds, and annuities.
Why Should You Invest and Not Save?
Although saving is less risky and guarantees some amount of extra money, you can achieve your financial goals with saving. It is the investment that can return you more money than you invested.
To give you a clear picture, let’ take the example of Joe. Joe is a common man and wants to secure his after retirement life. He has $20,000 and does not know where he should put it. He calls Bob, his old friend, and a financial advisor, to suggest to him what he should do. Bob comes with the following comparison table to clear things out for Joe.
This table clearly manifests investing to be the inevitable choice if you want to generate wealth. And that is the reason why most people invest their money, rather than saving.
Advantages of Investing
You might already be wondering about the plus points of investment and to give you a more convincing perspective. Here it is.
⦁ Investment has the potential of long-term returns
⦁ You can outperform inflation only with investment, and not with savings
⦁ Investing money can provide you a regular income even when you are retired
⦁ You can set and achieve different goals in life with the investment
⦁ It can also help you save on taxes with the accounts like 401k, SEP IRA, or Traditional IRA
⦁ The investment gives you the freedom to withdraw your money when you need it
⦁ Annual percentage yield (APY) is also low in savings and your money grows at a snail’s pace
These advantages might have helped make your mind on the investment. So, now is the time to move to our important section of how to invest money.
Simple Steps to Invest Your Money For Absolute Beginners
Here are some steps that you must take before investing your money.
Know what you are investing for
Your investment depends on what exactly you are investing for. It can be for your 14 years old with upcoming university tuition, for your dream home, or even for your retirement. This selection will decide where you should invest, considering the time and profit.
Understand the involved risks
Before investing, assess your personal risk tolerance. If you need money for your next month’s rent, then your risk tolerance is very low. If you have money to survive even after losing the money, your risk tolerance is through the roof.
Diversify your investments
Do the investments in different places so if one part of your investment does not do well, you have other options to rely on.
Invest for the long-term
Many studies have shown that investors who hold onto stocks for more than 10 years, will be rewarded higher returns. So, if you can, invest for the long term.
Make an investment plan
One major reason why most investors fail is that they do not have proper planning. Create a plan which you think will help you reach your goals over the next 5, 10, or even 30 years.
Okay, I know The Process But I Will Wait For The Right Time
If you wait even for a day, know that you will reach your financial goals 1 day later. So, do not wait for the time to be right. Many are investing in these hard times as well and receiving the paychecks you could only imagine.
Start investing now, so you can collect paychecks – without doing anything.