Investing is an excellent way to grow your wealth and reach your financial goals. However, it can be complicated and confusing.
It’s important to understand why and how you should invest. The answer will depend on your personal situation, budget and financial goals. Saving offers security but lower potential returns, while investing can offer higher rewards, but also comes with more risk.
1. It’s a great way to grow your wealth
Building wealth requires consistent effort and time, which investing is a great way to help you achieve. You don’t need to invest a large amount of money to start, and the sooner you begin, the more compound interest will work in your favour.
Unlike savings accounts, investments provide the potential to earn a return that exceeds inflation. This can be beneficial because savings accounts tend to offer rates of return that don’t keep up with inflation, which means your money is losing its purchasing power over time.
By investing a set amount of money each month, you can grow your wealth over the long-term. However, you should ensure that you have a fully-funded emergency fund and no high-interest debt before investing any of your money.
2. It’s a great way to save for retirement
Saving in a savings account may seem safe and secure, but it will lose buying power over time due to inflation. On the other hand, investing can help your money grow faster and provide you with a larger income in retirement.
Choosing the right investments depends on your goals and risk tolerance, but there are many different options available. Stocks, stock-based ETFs and mutual funds are more appropriate for people who won’t need their money in the near future, while fixed-income investments like bonds and cash are more suitable for those with shorter-term goals.
Whether you invest in an employer-sponsored retirement plan such as a traditional 401(k) or a Roth IRA, a tax-deferred brokerage account or a self-employed business plan (SEP IRA or SIMPLE IRA), the earlier you start, the better. Early investment gives you access to more diversified portfolios with greater potential for growth.
3. It’s a great way to increase your income
Investing is a great way to increase your income because it can help you build wealth and make more money over time. It can also help you reach your financial goals, such as saving for retirement or paying off debt.
The most important thing to remember when investing is to balance potential gains with the risk involved. It’s also important to understand what you’re investing in and why you’re investing it.
If you’re new to investing, it’s important to start small and be consistent. You can invest even a small amount each month and see a return on your investment over time. Be sure to consider your savings goals, investment timeline and risk tolerance before making any decisions about how much to invest. And always pay off debt before beginning to invest.
4. It’s a great way to build your credit
While investing can indirectly help build your credit by increasing your overall revenue, it’s important to remember that the best way to boost your credit is through responsible spending habits. This includes paying off short-term debt, building an emergency savings fund and staying current on your credit card payments.
Generally, investments don’t directly affect your credit score, and you can often open investment accounts without a credit check. However, it’s important to consider how much you can afford to invest before committing to any significant amounts of money to your portfolio. Otherwise, you may be tempted to spend more than you can afford, which could negatively impact your credit. This can make it harder to qualify for loans in the future. This is why it’s so important to pay off high-interest debt first before investing.
5. It’s a great way to protect your money
If you’re saving for a long-term goal, investing in stocks is a great way to protect your money from inflation. In addition, the longer you stay invested, the greater your potential returns.
However, before you invest your money, it’s a good idea to get your immediate finances in order. Prioritize paying off debt and building an emergency fund. This will help you avoid high-interest rates on credit card debt, which could far exceed the potential returns of your investments.
Also, be sure to diversify your investments by investing in a variety of different markets and types of assets. This will help to reduce the risk of losing your hard-earned savings. If you’re a new investor, consider using a robo-advisor to help you build a diversified portfolio that matches your financial goals and risk tolerance.
