Why should you invest?
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Why should you invest?
Effectively building wealth necessitates investing rather than simply keeping your money in savings. Starting earlier offers a significant advantage. While savings accounts provide a safe haven for your funds, investing offers the potential for substantial growth over time, primarily through the power of compounding. Given that central banks often target an inflation rate of around 2%, the purchasing power of your cash erodes by approximately 2% each year. Therefore, to maintain the real value of your savings, you need to aim for returns that at least match this inflation rate. The crucial question then becomes: how can you achieve this?
The short answer is investing. While some savings accounts might offer returns close to the 2% inflation target, other investment avenues present opportunities for significantly higher growth. For instance, the average historical return of the stock market, as represented by the S&P 500 over the past 70 years, has been around 10% before adjusting for inflation. Similarly, investing in bonds, whether investment-grade or high-yield, can potentially generate returns well above the inflation rate
Numerous other strategies exist to safeguard and potentially increase your savings. By this point, it should be clear that investing is essential to prevent the depreciation of your savings over time and to strive for real financial growth.
Investing, whether in stocks, bonds, Exchange Traded Funds (ETFs), options, futures, precious metals, real estate, or small businesses, is a vital approach to generate future income, grow your overall wealth, and achieve your financial aspirations.
While the need to invest applies to everyone, Younger individuals often have a longer time horizon to recover from potential short-term market downturns, making higher-risk investments potentially suitable. In contrast, older individuals nearing or in retirement may prioritize more stable investments with predictable returns. Regardless of whether you’re just starting your career or enjoying retirement, we strongly advise considering investment as part of your financial strategy.
When it comes to managing your investments, you have options. One approach is to entrust your wealth management to professionals. However, this can come with significant fees and potentially lower returns. Alternatively, you can manage your investments yourself, potentially by following guidance from financial experts to navigate the complexities of the financial markets.
Today, numerous financial brokers make buying and selling various financial assets straightforward.
If you choose to manage your own investments, the most crucial step is to understand your personal risk tolerance and allocate appropriate amounts to different investments to build a well-diversified portfolio. To manage risk effectively, we recommend limiting any single non-leveraged trade to a maximum of 5% of your total investment capital.
