In its most simple terms, investing is the process of buying financial securities – with the hope that it will increase in value in the future. The concept sounds simple enough. After all, if you are likely to receive capital gains, why shouldn’t you think of investing your money.
Well, in reality, investing is much more complex than this. For one, you need to be aware of the risks involved. Secondly, you also need to have a firm grasp of the financial markets.
However, as the legendary investor Warren Buffet says, “Risk comes from not knowing what you’re doing.”
So in this article, we will tell you a few reasons why you should start educating yourself about investing to grow your wealth.
1. Higher Returns on your Money
When it comes to securing your money, the first thought that comes to mind is to save money. However, today, the maximum returns you get from a traditional savings account are limited to a range of 1-2%. If you factor in inflation, you are unlikely to get any returns at all.
On the contrary, if you invest in securities such as stocks, commodities, or ETFs, you stand a better chance to make more money on your capital. These offer a higher yield compared to the interest rates offered by banks.
2. Earn Compound Interest
Depending on the type of investment you make, you have two options to make money – from regular income and capital gains. For instance, if you invest in the stocks of a company such as Target Group or Universal Corp, you can also earn money in terms of dividend payments.
For those unaware, dividend payments are how companies distribute their profit among shareholders. This income is in addition to the increase in the value of the stocks themselves.
In other words, you also have the opportunity to reinvest the dividend payments, thus earning more money.
3. Retirement Plans
The concept of F.I.R.E., aka Financial Independence, Retire Early is one that thrives on a positive outlook to investment. For example, if you are saving your income, it is highly unlikely for the average adult to set aside enough money to retire early.
As opposed to popular misconception, you do not have to have hundreds of thousands of dollars to start investing. If you request to write a paper for me on WritePaper on investment, their financial experts will point out that you can start investing through online brokers with as little as $25 today.
This means that everyone can start investing a part of their income even from the start of their career. You can achieve your financial goals at a faster rate by investing – thus allowing you to consider retiring early.
4. Tax Efficiency
Reducing taxable income is another benefit of investing your capital. If you are to allocate your funds to the likes of T.F.S.A., 401k, or RRSP, you might be able to reduce your tax obligations. In fact, the government has created these types of accounts so that the citizens could contribute to their own retirements.
In the case that you generate a loss from your investments, you might also be able to apply that loss against any profits you make from other investments. This will help you to further lower the taxable income.
5. Achieve Financial Goals
Investing does not always have to be long-term. It is only a tool for you to improve your current financial situation. If you have a short-term financial goal to achieve – for instance, to save for the down payment of your house or go on a vacation – investing might be a solution.
You can use a combination of investment options with different timelines. Accordingly, you can diversify your assets as well. For instance, you merely want to lock away your money for safekeeping – you can always lock them on a bond. You will not only earn coupon payments, but many government-issued bonds also come with very low risk.
On the other hand, if you are seeking a short-term income, you can consider investing in high-yield stocks that can get you access to regular dividend payments. Alternatively, you can also consider trading which might get you higher rewards.
6. Support a Cause
Every time someone puts up money in support of a cause, they are investing in it. Consider this – when Bitcoin was launched in 2009, it was trading in a range of $0.0008. At the time, the concept of cryptocurrencies was only emerging. In fact, there were very few people who believed in the idea.
Fast forward to 2021, a single Bitcoin is worth more than $60 000. In other words, those who believed in the cause of cryptocurrencies and stuck with their investment throughout the years are now millionaires.
For many investors, putting money in such emerging securities is about investing in a new, unique idea. It allows them to be part of something that they believe has high growth potential in the future. The same is the case with Netflix, Amazon, or Tesla. All these were startups that represented something new and evolved to become leaders in their respective sectors.
As you can see, investing can be highly rewarding and challenging. That said, it is equally important to understand the risks involved before you take the plunge. Therefore, before you make any investments, be sure to do your own research and learn about the markets. By diversifying your capital, you might be able to mitigate your losses to an extent and make considerable profits.