How can you benefit from investing? There is only one answer: to create wealth. Is there a reason why you would want to create wealth? To finance various financial goals such as an expensive car, a foreign holiday, retirement, etc.
Typically, we have a single source of income and have a variety of immediate, medium, and long-term needs. Our long-term goals would be virtually impossible to achieve if we moved from one goal to the next with our accumulated savings. The reason for this is that you shouldn’t just keep money in your savings account, but use it to invest in things that will help you build wealth over time.
In our modern world, there are two ways to make money. Working for someone else or for yourself is the first way to earn an income. You can also increase your fortune by investing your assets over time. Investments can be made in stocks, bonds, mutual funds, options, futures, precious metals, real estate, small businesses, or a combination of all of them. The investment value can rise, dividends can be earned, a business can be sold, or other liquidity events can occur.
8 Reasons you should start Investing Right now
1. You’ll Stay Ahead of Inflation
By not investing and growing your money, over time, you’ll actually lose money. This is all due to inflation.
As a result of inflation, your money will lose its purchasing power as prices rise and decrease. Inflation rates are variable, but historically have averaged around 3%.
If you invest your money and earn a return of 7% on average, then you will be able to stay ahead of inflation and increase your savings.
The cost of goods you buy (like food, gas, and housing) would rise, which would offset any extra money you make. If you do not invest – both your wage rate and your savings return rate would not be able to keep up.
2. More Recovery Time
When you invest early, and you incur a loss, you have more time to recover your investment loss. However, if you start investing later in life, you will have less time to recover your losses. When you invest early, your investment has more time to grow in value.
3. Save for Retirement
If you want to save money for retirement, keep it in a portfolio of investments like stocks, bonds, mutual funds, real estate, businesses, or precious metals. Upon retirement, you can live off the funds earned from these investments.
When it comes to investing, you may want to be riskier at a younger age based on your personal tolerance of risk. When you become older, it is wise to become more conservative with your investments, especially when you approach retirement. Greater risk increases your chances of earning more wealth.
4. Wealth Can Be Built Through Investing
The key to building wealth is investing, and it goes without saying.
Investing and growing your money can be done in a multitude of ways. If you’re serious about building wealth, you need to develop an investment plan that suits you.
There is a difference between the wealthy and the broke when it comes to investing.
Saving money in investments can be challenging when you don’t have much money to begin with, but you can start by saving 10% of your little income. Over time, it will increase.
5. You still have time on your side
In an ideal world, we would all start investing at birth. Even though we may have opportunities to invest prior to our 20s or 30s, many of us don’t think about it until we’re well into our 30s or 40s. If you wait too long, you’ll lose out on your greatest asset: time. By investing earlier in life rather than save more money later, you give your money a chance to work “smarter” rather than harder.
6. Investing Can help you Save on Taxes
You can also save a lot of money on taxes when you invest!
If you contribute to a 401k, SEP IRA, or Traditional IRA, you do not need to pay taxes on the earnings the year you earn them. Instead, you pay taxes on it when you withdraw it during retirement. As a result, you save a lot of money on taxes the year that you contributed.
Taxes can be paid now by using a Roth IRA. This option allows you to pay tax right now and not pay any tax when you withdraw the money.
The capital gains tax rate is much lower than the ordinary income tax rate for a regular 9-5 job, even if you have a taxable account.
These are just a few basic examples. The tax code has a lot of loopholes that benefit investors. Why do the rich pay so little tax? This is how they stay rich!
I highly recommend that you speak with your CPA or Financial Advisor if you need to lower your tax burden.
7. Compound Interest
Time is your best friend when it comes to investing, but you’ll also benefit from compound interest-a phenomenon Albert Einstein called ‘the eighth wonder of the world’.
The principle of compound interest is as follows: You make money. And then you make more money on the money you make.
If you invest $1,000 this year and earn a 10% return, then you will make $100 on your original $1,000 investment, which leads to $1,100 in your account.
In the event that you do not make any contributions next year, you still make money. But how? If you earn the same 10% return on your $1,100 account balance, you will earn $110 instead of $100 since you are earning that 10% on a larger balance. The result is $1,210, simply because you let compound interest work its magic.
If you start early, even if you never invest another penny, you’d still have an advantage over someone who begins investing later in life. That’s the beauty of compound interest. Investing early and often pays off in the long run. The longer your money can benefit from compound interest, the larger your gains will become.
8. Secured Future
In life, there will be times when you need urgent money to cover unavoidable expenses. During such times, investments made at an early age can prove very useful and will help you overcome the tough times all on your own. By investing early, you are less likely to need to borrow money from others.
