Investing means putting money in a bank, business, or property that helps to make a profit. Investment means committing money in order to earn a financial return. Also, it means to make use for future benefits or advantages. Investment works in this way: you put your money in an account or fund with the goal of making a profit. Investing comes with the potential of greater rewards over time.
There are many types of investing like: stocks, bonds, mutual funds, bank products, options, annuities, retirement, saving for education, alternative and complex products, insurance, and commodity futures. U.S markets are considered one of the largest in the world. Investing is something that can be done as there are so many benefits in it. If you want to create wealth and financial stability, you should invest.
Why invest?
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The first question that arises is why should you be investing instead of just saving money. Or, you can say why not just earn and earn, and use those savings? At some time in life, you would stop working. Most people term it as retirement. But it is important to note that retirement is an amount of money. It is not an age, if properly analyzed.
There is a movement called the FIRE movement- Financial Independent, Retire Early. These are those people who want to retire early, but they focus more on hitting their number. Investing works like this- you invest and put aside money from your working amount to different collections like stocks, bonds, real estate, etc. then when you stop working, those collections work for you. So, now you would think that why do we need to invest when we can simply earn more money or save. Why do we need to invest? The reason is that- the wage growth rate and savings account rates are too low. You won’t grow money over time enough.
So, now let’s take a look at the benefits of investing:
You stay ahead of time
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If you don’t invest and grow your money, you would, in a way, end up losing money over time. This is because of inflation. Inflation is the general increase in prices that leads to a decrease in purchasing power of money. The rate of inflation can vary widely but historically inflation has been as having an average of around 3%. If you invest your money and earn a rate of return of 7% on average, then you will stay ahead of inflation and you will be able to increase the value of your money.
But if you don’t invest, both your wage rate and savings rate won’t match. Basically, the cost of goods you buy (like housing, food, gas) would rise and any additional money that you make would be offset by these higher prices.
Investing will help build wealth
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By investing, you build wealth. There are many ways to invest and build wealth and grow your money. If you are serious about building wealth then you need to create an investment plan that is suitable to your goals. It can be hard to put money in investment when there is less money to begin with.
Investing will get you to retirement (or early retirement)
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In order to have enough money to retire, what you need to do is make your money work for you. Leaving your money just in savings will actually be against you. The more you invest, the more you will be able to take benefit of the power of compound interest. Compound interest is actually your interest that starts earning interest.
Investing can help you save on taxes
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Another advantage of investing is the ability to save on taxes. The money you put in 401(k), SEP, IRA, or traditional IRA is not taxed the year you earn it. Instead, you pay taxes on it when you take that money out during retirement.
If you would rather pay taxes now you can elect to use a retirement account like IRA. With this option, you pay tax now and don’t pay any tax when you take money out.
In a taxable account too, capital gains tax rates are lesser than ordinary income tax rates. If you want to lower your tax burden, you should consult a financial advisor to come up with a custom investing plan that will meet your specific needs.
Invest to meet other financial goals
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You can also get into investing to help grow your money to meet other financial goals. For example, investing in your children’s college fund. When you have a long- term goal of ten or more years, it can make be helpful to invest that money to help reach your goal faster.
Conclusion
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There are so many benefits of investing. If you want to create financial stability, grow your wealth, and do well after retirement, you need to come up with an investing plan that would be suitable for your needs. Building a portfolio of quality investments is a good way to get ahead financially. You can achieve your long-term goals. It is easy to think that saving is like investing. While these two things go hand in hand, there are differences in them Investing is more than building savings. The economists call it ‘forgone consumption’. In other words, rather than spending all your money, you collect some into a savings account future. Savings is a sensible starting point in investing because it provides the funds you need to purchase a range of assets. Investing goes on one step further, it helps you achieve personal goals. Investment is a potential for healthy long term returns. On one hand, savings means setting aside part of today’s money for tomorrow, on the other hand, investing means putting your money to work to potentially earn a good return in the long run. Investment helps to beat inflation. There are rewards associated with investing but one should be aware of the risk also.
By Bhawna
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