The Benefits of Investing: A Complete Guide
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The best time to start investing is right now. But that can seem like a risky process, especially if you don’t know much about investing. However, benefits of investing can mean the difference between relying on your pension to support your future and the ability to retire early.
Here are some benefits of investing.
Protect Your Purchasing Power
If you leave your money in your savings and checking accounts, inflation will likely eat away at its value. In turn, your money will decline in purchasing power. The inflation rates in the US have varied from 2.1% in 2016 and 2017 to a predicted rate of 1.4% to 1.8% in 2021. You can buy less with $50 than you were able to five years ago.
For your savings to maintain their value, the savings account interest rate must match the inflation rate. If it’s lower, then your saved $5,000 will be worth less than it was a year ago, and the year before that. Investing will protect you from such a situation.
Save for Retirement
Investing is not about becoming rich for most people. It is about securing a financial safety net. You’ll have to stop working at some point in your life and when that day comes, you’ll need a nest egg that can sustain your lifestyle. Investing allows you to increase your capital and build a portfolio that will support your retirement.
There are different ways to invest such as stocks, real estate, businesses, bonds, and mutual bonds that are suitable for retirement planning. Saving a major proportion of your income and investing it from a young age can allow you to retire early.
The more you invest, the more the compounded effect and the more your retirement pot will be. Invest with Shepherds Finance to secure your financial future today.
Benefits of investing to Save on Taxes
Another huge benefit of investing for beginners is the ability to save on taxes. Let’s say you put your money in a traditional IRA, SEP, 401K, or IRA. You only pay taxes on it when you withdraw during retirement. This reduces your tax liability the year you contributed.
With state governments reducing their responsibility towards funding citizens’ retirements, these types of accounts are valuable. They allow you to contribute and fund your own retirement.
Achieve Your Financial Goals
As you go through life, new financial requirements will come up. It usually starts with a house, then a family minivan, and perhaps family vacations.
Even if you fund some of these requirements with a loan, you’ll still need a substantial down payment. Investing through a variety of assets can help you build up the corpus required to achieve these goals.
Another major financial goal is setting up your children’s college funds. With the steep tuition fees, investing to reach your goal faster makes sense. Besides, retirement is always an omnipresent financial goal throughout your working life.
Grow Your Capital
Capital refers to the amount of wealth you possess. It includes funds you have access to such as bank account and assets that can be easily turned into cash like shares. It also includes capital assets like property, which have lower liquidity.
Investing offers you a chance to grow that capital. It adds to your liquid assets and increases their value. You increase your wealth if you decide to sell your investments for a profit. The same is true if you invest in assets that pay dividends.
Diversify Your Income
Investing allows you to benefit from multiple streams of income.
Aside from your day job, you can decide to sell handmade crafts or jewelry on eBay, freelance as a web developer, and/or invest in shares that pay regular dividends.
Having several streams of income provides a buffer if one of them dries up. Your investments can provide a financial bolster if you are ever between jobs.
There is no limit to how much passive income you can generate when you invest successfully. And when you make your money work for you, your investments will generate income for you, whether you’re watching cat videos on YouTube or vacationing in Hawaii.
The Benefits of Investing for Earn More Than from Your Savings Account
Many people assume that putting money in a savings account is an obvious way to safeguard the financial future. This couldn’t be further from the truth. The performance of your savings relies on how well the interest rate matches inflation.
Besides beating inflation, investments provide a greater percentage of return than you would get with a savings account. It is an opportunity to take control of your finances instead of relying on FOMC and the Federal Reserve.
Longer Recovery Time
One of the most common investing tips offered by financial advisors is to start investing at an early age. This is because investing early gives your assets time to recoup after a loss and allows them to grow in value.
Let’s say you invest $200 at an annual interest rate of 8% at the age of 20. The investment will grow to $900,000 by the time you are 65 years old. If you start investing the same amount at the same interest at 30 years old, it’ll only grow to $400,000 by the time you’re 65 years old. That’s a difference of half a million dollars.
Investing is for the long run and the earlier you start, the longer the recovery time and the more the returns.
Help Others Achieve Their Goals
Investing in brands and companies that appeal to you offers an opportunity to help others achieve their goals. You can expand your interest from a specific company to an industry like computing or farming.
You can also use the income from your investments to set up college funds for your kids, nephews, and nieces, or grandparents. Some people opt to leave a financial legacy for their families after death.
If you are interested in a cause like ending poverty or supplying clean water, you can invest in related companies that make a positive impact. Some shares come with voting rights, allowing you to play a part in shaping the direction of that company.
Reap the Benefits of Investing Today
Investing is about taking control of your financial future.
Yes, there will be difficulties along the way. But you can’t sit on the sidelines waiting for things to get convenient. You’ll miss out on the above benefits of investing. Start investing today and your future will thank you for it.
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