Ever since the turn of the century, investors have been cautioned to be aware of the possibility of a decline in the stock market. Although market falls are inevitable, investors can reduce their risk exposure and improve their long-term performance by diversifying their holdings and prioritizing purchasing high-quality investments.
All investors experience both gains and losses. When things are going well, people tend to keep their mouths shut. When the market falls, investors worldwide share a common language: complaining.
The reality is that investing poses no real danger. Experts in the stock market, including analysts, fund managers, financial counsellors, and others, portray investing as high-risk and full of complex jargon.
After all, they can only offer you stock recommendations, mutual funds, and other poor financial goods if you believe investing is dangerous.
Investment with no risk?
The quantity of money held in traditional savings accounts has increased dramatically despite historically low-interest rates. This is due to several factors:
Regulated savings accounts provide safety, instant access to funds, a guaranteed rate of return, and tax benefits due to the low or non-existent taxation of interest;
Money from guaranteed savings accounts is frequently used as a “buffer account” before being invested elsewhere or to collect earnings from other types of investments (bonds, agreed maturity accounts, etc.).
Finally, recent volatility makes many people wary of investing in the stock market. They would rather keep it in a secure account.
However, the low-interest rates offered by savings accounts are the price you pay for these benefits. Worse, they frequently need to catch up with inflation. The amount indicated at the bottom of your statement will increase yearly due to interest, but you might not even notice this if you leave the money alone. When inflation is added to historically low-interest rates, purchasing power is lost, as inflation eats away at your savings faster than your interest payments.
It causes one to question whether or not a risk-free savings account is the best option. If you put it to good use, then the answer is yes. The primary purpose of a savings account is to provide a safety net in the event of an emergency, such as the need to replace a broken washing machine, radiator, or car. If your investment horizon is longer than this, consider riskier options.
As an Investor, Why Should I?
The importance of investing your money cannot be overstated. You want to save money for emergencies, job loss, or long-term aspirations. If you want your money to maintain its purchasing power over time, consider inflation and use compounding interest to your benefit. Moreover, if you want to quit working and retire at some point, investment is crucial to your success.
First, let’s take a look at why investment is so crucial.
Making Money
The concept of wealth is open to interpretation. Wealth can be measured in terms of actual monetary resources or aspirational targets established by the individual. Investing can help you reach your goals either way.
Investing can help you attain your financial objectives more quickly, whether paying off debt, sending a child to college, purchasing a home, starting a business, or preparing for retirement. Investing allows you to amass wealth, defined as a rise in the market value of your possessions.
Creating wealth is not merely a worthy aspiration that might get you through your life. Investing in the future can help you leave a monetary legacy for future generations. An inherited fortune can do more than give your kids a solid financial footing for the future; it can also help close the wealth gap that plagues many communities.
Compounding
Compound interest is a powerful tool for investors. “Compound interest” refers to adding each period’s interest earnings to the principal. Sometimes people will refer to this as “interest on interest.” With compound interest, your money can multiply rapidly. For illustration’s sake, let’s say you put away $50 per month for 15 years. That’s $9,000. With compound interest at work, that $9,000 would balloon to nearly $19,000 in that time frame.
Conquer Inflation
The term “inflation” describes the general trend of rising prices over time. If prices continue to increase, the purchasing power of your dollar will decrease over time. If inflation occurs during the next thirty or forty years, your money will be worth a lot less. Meanwhile, the cost of living will have increased dramatically. Investing can protect your savings from the effects of inflation. Your purchasing power will increase over time if your savings earn more than the inflation rate.
Retirement
If you want to retire from your job, you’ll need a sizable nest egg to support yourself once you stop earning an income. Investing can assist if you need to save more to keep yourself for the next twenty or thirty years.
Working backward from a target retirement savings amount will help you start investing for your golden years. How soon you want to retire and your anticipated retirement lifestyle and spending will help you arrive at that number. After doing so, you’ll be better positioned to formulate a retirement investing strategy considering your present and future financial needs.
One of Warren Buffett’s famous quotes goes, “Risk comes from not knowing what you’re doing.” Learn as much as you can about investing to make informed decisions. That will make your financial decisions much safer.
Therefore, stock market investing is safe if done correctly.
Taking advice from someone who has little experience in the field is perilous.
Not investing at all is the most significant danger of all.
