Investing can be a rather intimidating concept for some people, especially when you aren’t sure how much you need, what’s the risk involved and how to go about doing it.
Instead, you might look at your savings as a form of “investment”. After all, savings is almost the safest thing you can do with your money right?
Saving your money in your savings account is literally going to wipe out your money’s value, given that the interest rates you get are so minimal and that inflation will eventually erase some value of your money.
This is why investing is essential for a more secure financial future. Here are 4 reasons why you need to invest:
1) Beat Inflation
You often see this common term in the financial news but this concept can feel quite vague in daily life.
To put things into perspective, let’s say you were able to get a cup of local coffee for 80 cents 5 years ago at the coffee shop. Now, it costs $1.50. That’s inflation. It costs 80 cents 5 years ago but now you can only get half a cup of coffee.
This means that your purchasing power declines with the same amount of money you have 5 years ago.Before you think that the future is all bleak and misery, here’s the good news.
Because companies increase the prices of the goods they sell over the years as well, an investor can profit from these companies’ stocks when they rake in higher profits. Make sense?
2) There’s A Limit To How Much You Can Earn
We often hear the phrase “time is money”, and that’s true, given that working is sort of an exchange of our time to produce something for money.
Now we also know that time is limited – all of us have 24 hours a day, which translates to the fact that there is a limit to how much you can earn as well.More than this, there will come a day where you’d eventually want to retire. What happens then? You will no longer earn an income on a monthly basis. This is where investing early can also help you build up your retirement nest egg.
3) Maximise The Power Of Your Money
Would you rather be a person who works hard or works smart?
Working hard probably requires you to work 8 hours to finish a project, whereas working smart may mean using some creative methods to shorten the time to complete it within 3 hours. The same goes for your money.
Say you have got $50,000 in your bank account and you earn a 0.05% interest. Having it there for 3 years will earn you $75.
Imagine allocating half that amount to investing in shares (average 3% p.a returns) and another half in bonds(average 2% p.a returns), you will earn $3,750 at the end of 3 years, or an annualised 2.5% each year. How’s that for a start?
4) Passive Income
One core aim of investing is to give yourself passive income.
Passive income is an income received on a regular basis with little effort required to maintain it.
You may think that investing requires you to monitor the market every single day or that it may require you to stare at the screen looking closely at numbers. If so, that’s trading or speculating, not investing.
Investing, when done right, do not require active monitoring and only needs you to take note of your returns or re-balance every half-a- year or annually.
With passive income, you get extra money while going about your day job. With passive income, it gives you unlimited opportunities to earn more than what you can exchange your time for, and helps you build wealth.
Look around and you’ll realise that the richest people are those who build their wealth through investments.
If you are new to investing, our investing segment contains lots of information suited to newbies which can definitely set you in the right direction; just remember to take action to move towards your investment goals!