If you are not actively investing your funds on a regular basis, you may be missing out on great opportunities to dramatically improve your financial situation. There are many investment opportunities available for ordinary investors to consider. These include stocks, bonds, mutual funds, real estate and other investments. Once you learn about the many reasons why you should be investing today, you may decide to adjust your financial planning with a focus on investing.
The Need to Beat Inflation
If your money is not growing in value at a rate that equals or outpaces inflation, you are actually losing money over time. Inflation effectively decreases the buying power of your money meaning that if it takes $100 to buy an item today and $110 to buy it next year, $100 invested today has to grow to $110 by next year or you are losing purchasing power.
Unfortunately, a typical savings account usually falls far short of matching or beating the inflation rate. Investing money can give you a greater return so that the value of your nest egg has substantial buying power going forward.
The Potential for Tax Breaks
Some investments actually provide you with tax benefits, and these can help you to reduce your tax burden. By doing so, you may have even more money available to invest. One example of an investment that has tax benefits is an income-producing rental property. However, before you invest in real estate or other types of investments, consider seeking legal and financial advice. The typical investor just starting out may be able to simply invest in a general diversified mutual fund.
Once you have accumulated $10 – $20,000 you might consider hiring a financial planner.
You wouldn’t need someone as high-powered as a securities law attorney, unless you were involved in things like structuring, negotiating, documenting and closing transactions involving mergers, acquisitions, joint ventures, or restructurings. etc. But a financial planner can help you decide on everything from budgeting to building an emergency fund, to investing for retirement or saving for a child’s education.
The Ability to Grow Your Nest Egg
Investing the funds that you have is important, but you also should be contributing more money to your investments on a regular basis. Obviously, $100,000 invested will generate a much higher return than $1,000 invested at that same interest rate. In addition, some more lucrative investments are only available to you with a greater initial investment. For example, you need a minimum initial investment for real estate purchases, to buy some mutual funds and more.
The Impact of Compounding Interest and Dividends
Some investments enable you to reinvest growth for even more substantial grow thin the future. For example, stock dividends that are reinvested now will produce their own dividends in the future. This has a multiplicative effect that can have a tremendous impact on the value of your portfolio in the future.
While investing requires your regular time and attention as well as the availability of funds, you can see that investing is essential for financial security and for building wealth. Even if you can only afford to invest a small amount of money now, you can see amazing results from this effort going forward.
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