There are two things you can do with your money: save it or spend it.
Investment may not seem like a priority to many but if for nothing else we need to set aside a retirement fund now that our life expectancy is higher than before. Increasing one’s retirement fund is one of the most important reasons for investing.
Investments are the foundation of our future financial level. One reason why we should save is that people live longer than before and need more money to keep on enjoying their good lifestyle. Add to that the fact that medical, educational, and insurance expenditures are still very high. By investing wisely you may better your life standards and increase your future wealth. You don’t need to win the lottery to accumulate an important retirement fund. All that you need is time, money to deposit in regular periods of time and a return rate for your investments.
The key to a successful financial plan is to keep apart a larger amount of savings and invest it intelligently, by using a longer period of time. The turnover rate in investments should exceed the inflation rate and cover taxes as well as allow you to earn an amount that compensates the risks taken.
Savings accounts, money at low interest rates and market accounts do not contribute significantly to future rate accumulation. While the highest rates come from stocks, bonds, and other types of investments in assets such as real estate. Nevertheless, these investments are not totally safe from risks, so one should try to understand what kind of risks are related to them before taking action.
The lack of understanding as how stocks work makes the myopic point of view of investing in the stock market perpetuate. To understand the characteristics of each one of the different types of investment will help you determine which of them is the right one for your needs. To invest wisely you need to:
1. Identify your goal(s) and time horizon.
2. Set aside a portion of your income.
3. Put your money to work in the financial markets.
Investing is different from saving because it involves the risk that the value of your original investment could fluctuate, and no return is guaranteed. Yet, it’s hard to imagine that you can achieve your long-term goals without investing.
History shows that investing in the stock and bond markets provides greater returns than most investors can earn through guaranteed savings. And, the risks of investing diminish over time, while the hidden risk of saving increases over time, because of taxes and inflation.
When you are aiming for a long-term financial goal, taxes and inflation can be your two worst enemies. Taxes subtract between 5% and 35% of the financial earnings generated by a savings account or any other taxable investment in most countries.
The money you earn may also be subject to state taxes. Each year, inflation reduces the purchasing power of each dollar at an average annual rate of approximately 3.1%, according to Ibbotson Associates, an investment research firm.
When you think about these hurdles, it’s easier to see the need for a healthy return. If you’re really going to come out ahead of taxes and inflation, you need to think about investing in the stock and bond markets. Over the long term, and despite the ups and downs of both markets, they have outperformed “savings” by a wide margin.
You don’t have to be an expert to be a successful investor. But it’s easier to invest with confidence if you get the expert advice of a financial adviser.
Why are you investing? It's OK if you have many different answers for this question, but there is a big problem if you have no answer at all. Having clear reasons or purposes for investing is critical to investing successfully. Investing can become difficult, tedious and even dangerous if you are not working toward a goal and monitoring your progress.
