Do you want to succeed? You need to do more than save money; you must also invest. Building money and ensuring one’s financial security requires investing.
Just How Crucial Investments Are
While having a savings account for emergencies and short-term objectives is essential, you might need more than that to get you through in the long run.
Why? Investing is the real key to success for 6 main reasons:
1. Investing is similar to gaining a new source of revenue.
When you invest, you put your money to work to generate further gains. Investing means putting money to use. You earn this money. Thus, you should put it to good use.
More growth from savings is needed to prevent the accumulation of substantial wealth or the achievement of long-term financial goals. The same holds for you: you need to put money into it.
2. Inflation will waste your savings if you don’t invest.
Inflation eats away at the purchasing power of currency over time. Consider this. Say you started saving $100 a year ago and have steadily added to it. About 35 dozen eggs could be purchased with that same $100 a year ago. Today, the same $100 would purchase only about 28 dozen.
By investing, you can protect your purchasing power and increase your potential return on investment.
3. Investing may produce better long-term results than a savings account.
The average rate of return for a savings account is 3-5%. In the long run, the S&P 500 index—widely considered a proxy for the U.S. stock market—has historically returned between 9 and 10 percent annually.
The stock market’s annual fluctuations may be dramatic, but investing over the long haul has always paid off.
Increased profits aid in the accumulation of wealth.
4. Compound interest is so powerful it seems like magic.
You can leverage the impact of compound interest by investing. Earning interest on both the principal and the accumulated interest from previous periods is known as “compound interest,” it causes investment to grow exponentially over time.
The compounding effect grows stronger the longer your money is invested. Because of the compounding impact, investing early and frequently might help you achieve your financial goals sooner.
Investing in compound interest is like a snowball going downhill, picking up more and more snow as it goes. Similarly, a larger investment base yields better returns, leading to even more significant growth due to compounding. The returns on your investment will grow exponentially over time because of the compounding effect.
5. Investing must be complicated.
Despite what you might have heard, you don’t have to be a financial genius. Investing in index funds is a straightforward strategy.
6. You may reach your objectives more quickly and easily through investment.
Investing can help you reach your financial objectives more quickly and easily, whether you’re trying to save for retirement, a down payment on a home, or tuition and living expenses for college.