It can be tempting to put your money in a savings account and let it sit there, collecting interest over time. However, investing may be a better option if you're looking for ways to grow your wealth.
Investing comes with risks, but it can also offer the potential for greater returns than you'd get from a savings account.
This short blog post will discuss the most common reasons why people invest and how helpful it can be.
What does investing mean?
Investing is putting your money into something with the hope of making more money – simple as that.
When you invest, risks are always involved, but if you choose wisely, investing can help you beat inflation and build wealth over the years.
Here are a few reasons why people invest:
1. Inflation is the gradual increase in prices for goods and services over time. It is easy to notice that our favorite goods are getting more expensive. By investing your money, you can potentially make more than if you just left it in a checking or savings account where it would only earn minimal interest and, unfortunately, lose its value because of inflation.
2. Investing can help you reach your long-term financial goals. Whether you're saving for retirement, a down payment on a house, or another goal, investing can be a great way to make your money work.
3. Investing allows you to take advantage of compound interest. Compound interest is when you earn on investment and also earns interest itself. Over time, this can result in significantly larger earnings than if the interest were simply added to the original investment amount.
For example, let's say you invested $1000 today and get an average annual return of 5%. In a year, that $1000 would earn $50. If you reinvest this gain, you will earn $52.5 in the second year, $55,125 in the third year, etc.
Can investing be a job?
Yes, it can. People over the world make a career out of it. Banks, insurance companies, or other financial institutions usually employ professional investors. They use their expertise to buy and sell investments on behalf of their clients. Many experienced investors also work as stockbrokers, providing advice and guidance to individual investors who want to buy or sell stocks.
When should you start investing?
The answer is - when you can afford it without compromising your basic needs. Before starting, ask yourself:
- Do I have reserve money to cover all my basic needs in case of failure?
- Am I ready to invest my funds and not touch them for a few years?
- Am I mentally prepared for the ups and downs of the market, which can not only increase my investments but also cause them to be lost?
- Do I understand the basics of investing and risk management?
Investing may be a good option if you answer all of these questions. However, be sure to do your research and understand the risks involved before investing any of your hard-earned money.
Investing, in general, is becoming a very popular trend. For example, according to a study (2021) by American analytics and advisory company "Gallup," about 56% of American adults are now invested in the stock market.
Reasons cited for investing include wanting to:
- "Save for retirement";
- "Make more money";
- "Diversify my investments";
- "Beat the inflation."
Many experts advise starting investing as early as possible. Even with small amounts, it disciplines, and secondly, it allows you to get more benefits.
In addition, interest in the stock market may be the reason for choosing a career as a financial analyst or a professional investor.
In any case, it is essential to understand all the risks associated with such activities. Our blog has many educational articles that can help you better understand the stock market. Stay tuned for more!